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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

Form 10-KSB

|  |  |                                                                                   
|- |  | ----------------------------------------------------------------------------------
|x |  | ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934    
|  |  |                                                                                   
|  |  | For the fiscal year ended December 31, 2003                                       
|  |  |                                                                                   
|o |  | TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|  |  |                                                                                   
|  |  | For the transition period from _______________ to _______________                 
|  |  |                                                                                   
|  |  | Commission File Number: 0-24031                                                   

INTEGRATED BUSINESS SYSTEMS AND SERVICES, INC.(Name of Small Business Issuer in Its Charter)

|                                                               |  |                                      
|-------------------------------------------------------------- |  | -------------------------------------
|South Carolina                                                 |  | 57-0910139                           
|(State of Incorporation)                                       |  | (I.R.S. Employer Identification Co.) 
|                                                               |  |                                      
|1601 Shop Road, Suite E                                        |  |                                      
|Columbia, South Carolina                                       |  | 29201                                
|(Address of Principal Executive Offices)                       |  | (Zip Code)                           
|                                                               |  |                                      
|Issuers Telephone Number: (803) 736-5595                     
|                                                               |  |                                      
|Securities
registered under Section 12(b) of the Exchange Act: |  | Name of Exchange of Which Registered:
|None                                                           |  | None                                 

Securities registered under Section 12(g) of the Exchange Act:
Common Stock, no par value
(Title of Class)

Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past
90 days. Yes x   No o

Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of registrants knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form
10-KSB or any amendment to this Form 10-KSB. o

The issuers revenues for the year ended December 31, 2003, the issuers most
recent fiscal year, were $3,310,743.

The aggregate market value of voting and non-voting common stock held by
non-affiliates of the issuer on February 29, 2004 was approximately $1,192,000.
This value was calculated by excluding all shares held by officers, directors
and controlling stockholders of issuer without conceding that all such persons
are affiliates of the issuer for purposes of the federal securities laws.

The number of shares outstanding of the issuers common stock, no par value, on
February 29, 2004 was 26,949,328.

Transitional Small Business Disclosure
Format (Check one): Yes o
  No x

Documents Incorporated By Reference.Portions of the registrants Proxy
Statement for the Annual Meeting of Stockholders to be held on June 10, 2004
(the 2004 Proxy Statement) are incorporated herein by reference.





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TABLE OF CONTENTS

|                                       |  |                                                                                                                 |  |     
|-------------------------------------- |  | --------------------------------------------------------------------------------------------------------------- |  | ----
|                                       |  |                                                                                                                 |  | Page
|                                       |  |                                                                                                                 |  |     
|PART I                                 |  |                                                                                                                 |  |     
|                                       |  |                                                                                                                 |  |     
|Item 1.                                |  | Description of Business                                                                                         |  | 3   
|Item 2.                                |  | Description of Property                                                                                         |  | 9   
|Item 3.                                |  | Legal Proceedings                                                                                               |  | 10  
|Item 4.                                |  | Submission of Matters to a Vote of Security Holders                                                             |  | 10  
|                                       |  |                                                                                                                 |  |     
|PART II                                |  |                                                                                                                 |  |     
|                                       |  |                                                                                                                 |  |     
|Item 5.                                |  | Market for Common Equity, Related Stockholder Matters and Small Business Issuer Purchases of Equity Securities  |  | 10  
|Item 6.                                |  | Managements Discussion and Analysis or Plan of Operation                                                       |  | 13  
|Item 7.                                |  | Financial Statements                                                                                            |  | 20  
|Item 8.                                |  | Changes In and Disagreements With Accountants on Accounting and Financial Disclosure                            |  | 20  
|Item 8A                                |  | Controls and Procedures                                                                                         |  | 20  
|                                       |  |                                                                                                                 |  |     
|PART III                               |  |                                                                                                                 |  |     
|                                       |  |                                                                                                                 |  |     
|Item 9.                                |  | Directors, Executive Officers, Promoters and Control Persons;
Compliance With Section 16(a) of the Exchange Act |  | 21  
|Item 10.                               |  | Executive Compensation                                                                                          |  | 21  
|Item 11.                               |  | Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters                  |  | 22  
|Item 12.                               |  | Certain Relationships and Related Transactions                                                                  |  | 22  
|Item 13.                               |  | Exhibits and Reports on Form 8-K                                                                                |  | 22  
|Item 14.                               |  | Principal Accountant Fees and Services                                                                          |  | 22  
|                                       |  |                                                                                                                 |  |     
|Signatures                             |  | 23                                                                                                             
|Consolidated Financial Statement Index |  | F-1                                                                                                            
|Exhibit Index                          |  |                                                                                                                

Statements in this Annual Report on Form 10-KSB include forward-looking
statements within the meaning of Section 27A of the Securities Act of 1933, as
amended (the Securities Act) and Section 21E of the Securities Exchange Act
of 1934, as amended (the Exchange Act). Forward-looking statements include
statements concerning our plans, objectives, goals, strategies, future events,
future revenues or performance, capital expenditures, financing needs, plans or
intentions relating to acquisitions, our competitive strengths and weaknesses,
our business strategy and the trends we anticipate in the industry and
economies in which we operate and other information that is not historical
information. You can identify a forward-looking statement by our use of the
words anticipate, estimate, expect, intend, plan, may, will,
continue, believe, objective, projection, forecast, goal, and
similar expressions. No assurance can be given that actual results or events
will not differ materially from those projected, estimated, assumed or
anticipated in any such forward-looking statements.

There are a number of risks and uncertainties that could cause our actual
results to differ materially from the forward-looking statements contained in
this Annual Report. We do not undertake any obligation to revise these
forward-looking statements to reflect future events or circumstances. Presently
known Risk Factors, which are included in Exhibit 99.1 of this Annual Report
and which could impact our forward-looking statements, include, but are not
limited to, the following factors: (i) substantial leverage and indebtedness of
the Company; (ii) going concern issues raised by our auditors; (iii) most of
our sales are attributable to one or two principal customers; (iv) existence of
a large accumulated operating deficit; (v) significant unanticipated
fluctuations in our actual or anticipated quarterly revenues and operating
results; (vi) the possibility of slow or impaired performance of our software
products; and (vii) a wide variety of risks specific to the software industry.

We file our Annual Reports on Form 10-KSB, Quarterly Reports on Form
10-QSB, proxy statements, Current Reports on Form 8-K, and other reports filed
or furnished pursuant to Section 13(a) or 15(d) under the Securities Exchange
Act with the Securities and Exchange Commission (Commission or SEC). These
reports are available as soon as reasonably practicable after we electronically
file such materials with the Commission. The reports are also available in
print to any shareholder who requests them by contacting our corporate
secretary at the address above for the Companys principal executive offices.

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PART I

Item 1. Description of Business

General Overview

Founded in 1990 in Columbia, South Carolina, Integrated Business Systems
and Services, Inc. (IBSS or the Company) originated as a systems integrator
for automatic data collection systems used in manufacturing and for specialty
on line transaction processing in the credit card industry. Over the past ten
years, IBSS has enjoyed success in a number of different market segments and
opportunities. IBSS has used its proprietary core technology, Synapse, its
experience, along with its proven methodology to develop, market and sell
custom solutions for a variety of customer specific needs in a number of
vertical markets.

IBSS emphasis is on helping businesses mitigate risk as they introduce
new software products, extend their existing software applications and systems,
or improve the way they do business. The IBSS value proposition provides three
valuable assets to corporate clients:



| |  |  | proven expertise in integration, on-line transaction processing
and wireless communications-based solutions;                      
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | the Synapse methodology, which lets businesses quickly and
economically prototype, test drive, validate and deploy new ideas;
and
|
| |  |  | the proprietary Synapse technology, which gives customers a
powerful, secure enterprise framework.                               

Further, IBSS proprietary Synapse technology reduces customer
vulnerability to the types of hacker and virus threats to which more
ubiquitous, commodity technologies are prone. By owning and controlling its
own technology with which to create on-line applications, IBSS can offer its
customers a flexible business relationship that can entertain custom
extensions, unique licensing arrangements and certain exclusivities in the
customers vertical market.

The value-based proposition, described above, enables IBSS to carefully
tailor its services and software to respond to a customers unique set of needs
and to rapidly produce solutions specific to those needs. This is IBSSs main
competitive advantage, allowing it to succeed over the years where other
technology companies have failed. This advantage would not have been possible
if it were not for the Companys key asset  Synapse a platform and framework
for dynamic, distributed, real-time software applications.

With Synapse, IBSS creates customer specific solutions quickly and easily
without the need to rely on any other vendors technologies, thus dramatically
lowering the risks and costs of providing these solutions. In addition,
Synapse also eliminates dependence on third-party software technology
components or licensing to support development, integration and deployment of
these solutions.

The fact that IBSS does not have to rely on vendors like Microsoft,
Oracle, IBM, or others for the development architecture and framework, or pay
run-time license fees for deployment of its applications, gives IBSS an
advantage in the market place by virtue of increased business leverage and
control, added financial security and licensing and pricing flexibility.

IBSS principal asset continues to be Synapse and the Synapse
application development methodology created by IBSS. Over the years, Synapse
has matured and broadened, gaining refinements and extensions that make it a
comprehensive framework with broad application for the development and
deployment of integrated enterprise wireless computing and radio frequency
identification (RFID) solutions, as well as many other transaction-centric
applications.

Synapse provides a framework and methodology for creating, implementing
and managing a wide variety of dynamic distributed, networked and real-time
enterprise applications, quickly and efficiently, across multiple locations
(such as headquarters and field offices). This flexible, connectable, logical
IBSS software platform is especially valuable when automating transaction
oriented business processes. The Synapse framework combined with IBSS
methodology greatly simplifies the integration of disparate systems and the
incorporation of emerging technologies, like wireless and auto-ID, where a lack
of standards or protocols and the constant introduction of new devices are the
norm. Synapse delivers time and cost savings in the development, deployment
and on-going management of customized applications. IBSS continues to

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enhance the product, most recently introducing Synapse Composer, a
powerful, simplified management tool, and Synapse Thin Web, a powerful, high
performance thin client which can be configured from within Synapse.

For now, the Companys marketing of the Synapse suite of products is
primarily aimed at wireless mobile computing applications (which includes radio
frequency (RF) terminals, personal device assistants (PDAs), wearable
computers, laptops, Pocket personal computers (PCs) and tablet computers),
RFID, electronic tagging, bar-code data collection, and other on-line real time
machine-to-machine (M2M) applications in manufacturing, healthcare,
government, distribution and other vertical markets.

The move of businesses to RFID is being facilitated by widespread adoption
of electronic product codes (EPC) that permits tagged objects to be tracked
via the Internet. Synapse has the unique ability to track, analyze and share
information on the movement of e-tagged objects across multiple locations,
technologies, computer operating systems and networks, giving managers total
visibility and the knowledge to more efficiently reach their objectives.

IBSS objective is to become the nations vendor-of-choice among
businesses seeking the most advanced and cost-effective solutions for tracking,
automated data collection and integration. We currently apply our software to
bring real-time visibility to manufacturing processes as well as to both the
corporations front office and supply chain execution. Our applications offer
a high degree of flexibility, rapid granular implementation, and scalability
across virtually any operating system and hardware platform. In addition to
our software, we provide our customers with a variety of services, including
custom design, implementation assistance, project planning and training.



| |                        
| | -----------------------
| | The Synapse Technology

The Synapse platform and framework is designed to be the glue in
heterogeneous environments, easily interacting with and extending disparate and
best-of-breed applications and operating environments, database management
systems, and legacy applications. The Company believes that one of the
greatest challenges for information technology (IT) organizations is the fact
that todays technologies do not adequately address the complexity inherent in
aggregating applications from distributed systems, networks, and devices.
Software developers describe how their applications are distributed directly
within the Synapse model, and never have to resort to another language or
tool.

Synapse has been designed to provide a complete integrated development
and implementation platform that reacts in business process terms, not
procedural language-based programmer terms  an environment capable of defining
and maintaining the entire enterprises topology in business process terms.
Synapse has been designed to extend the functionality of legacy systems,
integrate rapidly, and extend business functionality, allowing the customer to
quickly embrace and deploy new standards as they emerge without starting over
or re-creating applications.



| |                    
| | -------------------
| | Synapse Advantages

Synapse-based applications provide the following advantages to
organizations in monitoring, maintaining and integrating their business
systems, applications and processes, both internally and with their external
electronic relationships:

     Incrementally Deployed. Synapses incremental deployment feature
allows for the solving of point specific solutions now, while providing for
easy expansion later, overtime. This lets the user quickly solve problems today
and facilitates additional enhancements in a rapidly changing environment.
Application deployment can be planned and executed in manageable increments.
This allows real cost savings and productivity enhancements to begin accruing
to the benefit of the customer much more quickly than is possible with the
traditional database model.

     Completely Self-Contained. By being fully self-contained, Synapse
enables organizations to describe any distributed application without the use
of other third party supporting software. In addition, no third party
programming tool is needed to modify or extend Synapse functionality in order
to deliver the desired application.

     Real-Time Distributed. By possessing a real-time and naturally
distributed architecture, Synapse has been designed to allow any business to
instantaneously update its entire system through any Synapse node on the
enterprise network, thereby eliminating a businesss reliance on a central
critical server, while maintaining efficient management of logic between
systems. It is also designed to take advantage of an organizations existing
investments in information technologies by working with and connecting to
multiple financial, human resource and enterprise resource planning systems. As
a result, application development is greatly simplified and Synapse enables
businesses to extend the life and functionality of their existing system
applications.

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Existing Synapse Licensed Offerings

As noted above, our objective is to become the nations vendor-of-choice
among businesses seeking the most advanced and cost-effective systems tracking
and integration solutions. We are currently focusing our marketing of our
Synapse-based offerings through the following three modules:

Synapse for Manufacturing

Synapse for Manufacturingbundles the integration capability of the
Synapse architecture with the application modules capable of fully automating
the manufacturing plant. Synapsefor Manufacturing, first released in
September 2000, is a powerful manufacturing execution management system (MES)
that enables the sharing of real-time information with the manufacturing plant,
the manufacturers customers, the supply chain and the manufacturers corporate
headquarters.

Synapse for Manufacturingprovides on-line process management for
manufacturing shop floor environments. This application utilizes our
proprietary on-line transaction processing configuration environment to provide
maximum configurability, maintainability and efficiency for our customers
systems. The system is designed so that a manufacturing or industrial analyst
can configure the unique processes and process requirements of a manufacturing
facility without the typical costs and development time associated with the
application programming required of competing MES applications.

Synapse for Manufacturingis based on a bill of operations concept and
can be configured to provide detailed shop floor management for any specific
manufacturing facility, in many cases without requiring the customer to modify
its manufacturing shop floor methodologies or procedures. As a result,
customers are able to achieve a return on their IT investment more quickly than
by using other MES systems. Other MES applications are based on current
application development tools to achieve configurable shop floor applications
specific to individual manufacturing industries such as electronics, food
processing or pharmaceuticals. Synapse for Manufacturingis designed to allow
a manufacturing industrial analyst to configure MES applications for any
manufacturing industry, effectively eliminating the need to also involve
traditional computer programmers for custom software development.

Synapse Integrated Development Environmentwith The Synapse Composer

The Synapse Integrated Development Environmentprovides a complete
framework for the efficient creation, execution, integration and management of
wireless on line transaction processing applications. It handles all of an
organizations wireless and automatic identification software needs within a
single productive framework.

Synapse Composeris a next generation software application development
tool. Synapse Composerenables the developer to see all of the functional
components of the customers software applications in a single view. Armed with
this unified view of the customers entire system, the customer can use Synapse
Composer in one unified and complete development environment to create,
troubleshoot and modify every dimension of its software applications, all in
real time, and all while the customers systems are up and running.

Synapse Composers functionality includes the ability to create, define
and control complete software applications  spanning browser, web server,
application server, database server, and integration with other systems -
within a single, stable and complete environment.

Synapse Enterprise Application Server

The Synapse Enterprise Application Serverprovides a complete runtime
framework for the efficient execution, integration and management of wireless
on line transaction processing applications. It is capable of performing all
of an organizations wireless and automatic identification software functions
within one productive framework.

The Synapse Enterprise Application Serveris a platform on which
customers deploy their particular Synapsebased solutions for their wireless,
mobile data, and automatic identification and tracking application needs.
Synapse Enterprise Application Server provides operating platform, database,
network, and device services all within a single integrated framework. This
allows customers the maximum capability to manage all of their enterprise
wireless and other on-line transaction processing (OLTP) needs from within a
single software framework, assuring maximum efficiency when creating
applications for dynamic, distributed, OLTP solutions.

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Customer Support

Customer support is provided for all of our maintenance customers. IBSS
customer support is staffed by experienced IBSS professionals focused on
resolving problems and assuring that our customers are satisfied. Our Customer
Support Center is available 24 hours a day, 7 days a week.

Consulting Services and the Synapse Methodology

IBSS offers a variety of consulting services to our customers and to
third-party integrators, including: implementation assistance, project
planning, process design, system configuration and implementation. IBSS
professionals can provide these services directly to provide the customer with
a full range of business process re-engineering, customization, implementation,
project management, and on-going support services.

Synapse Methodology Overview  Services and Deliverables

IBSS has developed an optimized methodology for applying the Synapse
technology. This methodology allows for rapid prototyping and validation
throughout the development and deployment of the new solution. At the heart of
the Synapse Methodology is the overall ability to describe any distributed
application with only IBSS and Synapse. When combined with open source tools
like Linux, Synapse and IBSS become an extremely cost effective development
situation. The Synapse methodology emphasizes rapid prototyping at every stage
of the project to validate assumptions and mitigate the risk of not meeting the
original desired results as reflected in function, cost, and time to market of
the proposed project. The key components of this methodology are as follows:

Project scope



| |  |  | Key functional Processes and efforts     
| | - |  | -----------------------------------------
| |  |  | Business Entities included in the Project
| |  |  | Services and Deliverables                

Business Requirements Analysis



| |  |  | Hardware Requirement                                 
| | - |  | -----------------------------------------------------
| |  |  | User Interface Requirements (New application)        
| |  |  | Third Party System Integration (Application)         
| |  |  | Data Preservation                                    
| |  |  | Support Requirements                                 
| |  |  | Server Types and Locations (across business entities)
| |  |  | Business Requirements Sign Off                       

Application Design



| |  |  | Network and Hardware    
| | - |  | ------------------------
| |  |  | Business Functional Flow
| |  |  | Design Sign Off         

Application Development and Configuration



| |  |  | Server Application                                         
| | - |  | -----------------------------------------------------------
| |  |  | Device Applications                                        
| |  |  | System Interfaces supporting Server and Device Applications
| |  |  | System Testing and Quality Assurance                       
| |  |  | Documentation                                              

Implementation



| |  |  | Production Installation                
| | - |  | ---------------------------------------
| |  |  | Hardware Preparation and Implementation
| |  |  | Go-Live Support                        

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| |  |  | On Site Training                   
| | - |  | -----------------------------------
| |  |  | Implementation and Project Sign-off

Project Management



| |  |  | Project Estimating Work Sheet
| | - |  | -----------------------------

Customer Education and Training

We offer comprehensive training courses for our customers and partners
with the goal of ensuring each customers success with our software
applications. Training is also available for third-party consultants.
Services include project team training classes, end-user training classes and
consulting services.

Sales and Marketing

IBSS is focused on marketing its proprietary Synapse software licenses to
a broad array of commercial and governmental entities, primarily through newly
enabled as well as established third-party resellers. Synapse cuts costs by
efficiently integrating data from myriad collection devices, processing systems
and branded software products, giving field personnel and headquarters managers
see-through vision to track products, people and information across divisions
and around the world.

The Company is seeking to build a cadre of indirect resellers made up of
businesses that dominate specific vertical market niches or specialize in
targeted vertical or horizontal end user markets. Indirect channel vertical
market targets include manufacturing/supply chain; healthcare and hospitals;
distribution; mobile field service and asset tracking.

The Company also offers a range of licensing packages, including server
licensing, concurrent user licensing, and licenses for vertical and advanced
option components and offers both OEM (Synapse Inside) and reseller
relationships

The Company markets and licenses its software products in North America
primarily through its direct sales and marketing and business development
organization. Our growth strategy focuses on working with businesses that will
not only use our technology and services in new and profitable ways, but will
also be deploying the resulting solution to their supply chain or for resale to
their vertical market.

Our Sales and Growth Strategies

Expand and Leverage Strategic Relationships.We intend to access new
markets and distribution channels by continuing to establish and leverage
business relationships customers who bring new vertical market expertise, where
IBSS can help them build and deploy a new product for their use and for resale
in their vertical market where they have expertise. As a result, we expect to
enhance our customer base, cultivate additional market expertise, and achieve
our growth objectives more quickly and cost-effectively.

Target Vertical Markets with Industry Focused Solutions.We believe that
we have a competitive edge in providing e-business solutions to organizations
requiring the rapid creation of new applications or more efficient handling of
the frequent changes or adjustments to their existing systems and applications,
as well as the integration of those systems and applications. Our belief is a
function of the demonstrated ability of Synapse to provide these dynamic
solutions more quickly and at a lower cost than our competition.

We have currently developed and have implemented these solutions for
organizations in such diverse marketplaces as textile and apparel
manufacturing, airport special services, furniture manufacturing, commercial
printing, and automotive. Accordingly, we have specifically focused our
business development efforts in these targeted industries where we believe our
Synapse products provide us with the greatest competitive advantages. We
expect to benefit significantly from the vertical market potential offered by
each of these targeted industries, and we intend to dedicate more sales and
marketing resources to establish more strategic alliances to penetrate these
industries.

Enhance the Synapse Product and Technology Leadership.We believe that
in Synapse and its related suite of products, we have developed the broadest,
most comprehensive and most cost-effective e-business solution to address the
needs of an organization in a dynamic business environment. We have filed a
patent application on our basic Synapse

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technology. We intend to continue investing in research and development
to enhance the capability of Synapse to provide solutions that will enable our
customers operations to be more efficient and extend their organizations more
rapidly and cost effectively. Currently, our development efforts are focused on
continuing to enhance the performance and configuration productivity
capabilities of Synapse.

Consistent with revenue growth, our objective is to expand upon our
experienced team of developers and engineers and further enhance our corporate
culture to foster innovation in the product development, application
configuration and design areas. Furthermore, we are constantly assessing
available opportunities to achieve synergies through the acquisition of
complementary technologies or businesses that we believe will further our
growth strategy.

Leverage Customer Base through Network Effect.We intend to provide the
best possible service to our installed base of customers in order to expand the
use of our Synapse products within our customers organizations. The
strategic importance of the Synapse products to our customers is expected to
provide what we believe will become the foundation for our preferred access to
additional projects within their organizations. This visibility to our
customers senior management, combined with our focused implementation and
service approach, is expected to facilitate the rapid adoption and deployment
of the Synapse products throughout the customers enterprise.

Furthermore, as our customers deploy the use of the Synapse products
throughout their extended organizations, including their supply chains and
electronic markets, their customers, suppliers and partners will be exposed to
the robust scope of the functionality provided by the Synapse products in the
context of the exchange of mission-critical business information. We believe
that this exposure, which will allow non-customer participants in the supply
chain to benefit from the Synapse solution first-hand, should enable us to
create a powerful network effect in the acceleration of industry recognition
and adoption of our Synapse products. Therefore, we are focused on this
positioning to leverage our opportunities across multiple target markets in
order to grow our revenue base.

Research and Development

Over the past two years, we have focused our research and development
efforts primarily on expanding the core capabilities of Synapse. We plan to
continue to devote design and research resources to continue to enhance the
base Synapse products, develop more industry-specific applications, and add
functionality to our existing applications.

Intellectual Property

We regard certain aspects of our internal operations, products and
documentation as proprietary. We rely primarily on a combination of patent,
copyright, trademark and trade secret laws, and other measures to protect our
proprietary rights. We also rely on contractual restrictions in our agreements
with customers, employees and others to protect our intellectual property
rights. However, there can be no assurances that these agreements will not be
breached, that we will have adequate remedies for any breach, or that our trade
secrets will not otherwise become known. Our ability to compete and succeed is
dependent, in part, upon our patent-pending technology; and we are in the
process of obtaining all related patent rights to our core technology, the
Synapse model, in the United States and internationally.

Competition and Markets

While there are many companies offering solutions to the myriad individual
problems that Synapse addresses, we believe that none offer a single solution
to address all of the development, implementation, integration, and management
issues at once. Further, there are additional technical and business barriers
to entry into the Companys market. To sustain these barriers, the Company is
concentrating on protecting its valuable intellectual property and
first-to-market advantage. The Company is building a patent portfolio covering
its technology, and is moving aggressively to establish Synapse as the
standard for integrating and managing wireless networking, mobile computing,
ADC and RFID within a single development and implementation framework.

During the last ten years, businesses have invested heavily in enterprise
applications to automate and improve the efficiency of their internal business
processes. In parallel, there has been a shift from in-house custom development
of mission-critical applications to the purchase of packaged applications and
related services from third-party vendors. These applications have spread
throughout the business world addressing many highly strategic business
functions, including resource planning, supply chain management, customer
relationship management, sales force automation, business decision support and
e-commerce. In this new corporate environment, a single business process can
require access to data and

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information from many distinct applications, none of which is designed to
communicate seamlessly and in real-time with the others.

In the last three years, global competition and difficult economic times
have intensified the competitive environment for all businesses dramatically.
This has caused businesses to seek new ways to generate sustainable competitive
advantages. As competition has increased and markets have become more dynamic,
companies have begun to recognize that they must coordinate more closely every
aspect of their business. In order to achieve a more efficient working process
while taking advantage of the enormous investment in the broad range of package
and custom software applications, it has become critical that these
applications be efficiently integrated. The complexity of this integration
challenge has historically required time-consuming, expensive, custom developed
solutions. In response, the market for third-party enterprise application
integration software providers has emerged to deliver this integration
capability as a packaged solution.

The market for our Synapse platform is extremely broad and could be
considered competitive with any provider of transaction processing or real time
data. However, we do not plan, nor do we have the resources, to market the
product as a software platform. Instead, we are focused on enabling new
vertical solutions to meet the needs of specific industry segments. These
segments to date include wireless on line transaction processing in
manufacturing, transportation and distribution. We will continue to develop
applications for solving problems where real time information and data
collection are needed, from automated procurement, inventory management and
distribution management to order processing, integrated customer support and
collaborative planning.

The markets in which we operate are highly competitive. Our competitors
are diverse and offer a variety of solutions targeting various segments of the
industry sectors for which we have developed or will develop our applications.
Some competitors compete with suites of applications designed to offer
out-of-the-box integration, while the majority offer point solutions designed
specifically to target particular functions or industries. IBSS competes with
these other companies with our breakthrough Synapse architecture and
industry-specific applications. Our value proposition consists of our
experience in wireless on line transaction processing, our efficient Synapse
methodology, and the power and flexibility of our Synapse platform and
framework.

In some cases, we compete with a subset of the functionality found in the
organizations other integrated business systems. These business systems may
include large monolithic software packages which are commonly referred to as
enterprise resource planning (ERP) software, supply chain management (SCM)
software packages, and large, supply chain and collaborative product management
software firms that provide MES software packages. Competitors who supply
these package business software products include large ERP software vendors,
such as Microsoft, Oracle, PeopleSoft, SAP and others that have added or are
attempting to add capabilities for supply chain planning or
business-to-business collaboration to their transaction system products;
companies such as I2, Adexa, Manugistics, Manhattan Associates and others that
compete principally in supply chain management applications; companies such as
Agile, Commerce One and others that compete principally with our supplier
relationship management applications; and companies such as Apriso, CamStar,
Datasweep, and others that compete in the collaborative production management
market place.

In summary, we believe that the primary competitive factors which affect
the market for our products and services include product function and features;
quality of service offered; performance and cost; ease of implementation; the
time-to-benefit factor (the time period from identification of technology
need or fix to delivery of the application solution); quality of customer
support services; customer training and documentation; a project and
implementation methodology which mitigates risk and product reputation. The
relative weight of each of these factors is customer-specific. Although we
believe that our products and services carry a unique value proposition, with
respect to each of these factors, we must continue to invest in our business to
maintain our position against current and future competition.

Employees

As of February 29, 2004, the Company had a total of 27 full-time employees and no part-time employees.

Item 2. Description of Property.

The Company does not own any real property. With regards to leased real
property, the Company is party to an office lease agreement for the lease of
its corporate headquarters. Under that certain lease agreement dated October
8, 2002 (Lease) with Pinebelt, LLC, a South Carolina limited liability
company (Landlord), the Company leases 7,400 useable square feet of office
space at the Ten Oaks Office Center, a 57,000 square foot office center located
in Columbia, South

9



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##### 



Carolina. The Company leases the office space for a period of 120
calendar months and the current term of the Lease will expire on January 31,
2013. Under the terms of the Lease, the Company is obligated to pay to the
Landlord base rental of $36,000 per calendar year, payable in equal monthly
installments of $3,000 each. The Lease provides for common area maintenance
(CAM) charges, for which the Company is obligated to pay its pro-rata share.
CAM charges are adjustable and are currently at least $1.00 per annual gross
square foot of the leased property (or $0.083 per monthly gross square
footage). The Lease also provided for a $50,000 security deposit, the first
$10,000 of which was payable on or before December 15, 2002, the second $10,000
of which was payable on or before January 15, 2003, and four installments of
$7,500 each were due every 30 calendar days after January 15, 2003. The
Company is obligated to indemnify the Landlord for usual and customary costs
and liabilities, including claims arising from the Companys use of the leased
property and breach or default in performances by the Company of any of its
obligations under the Lease.

Item 3. Legal Proceedings.

We are not currently involved in any pending legal proceedings.

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

No matters were submitted to a vote of our shareholders during the fourth
quarter of fiscal year 2003.

PART II

Item 5. Market for Common Equity, Related Stockholder Matters and Small
Business Issuer Purchases of Equity Securities.

Market Information

Shares of our common stock (Common Stock) are traded on the National
Association of Securities Dealers (NASD) Over-the-Counter Bulletin Board
System (the OTCBB) under the symbol IBSS.OB. The following table sets
forth the high and low bid prices per share of our Common Stock for the
indicated periods as reported by the OTCBB:

|               |  |      |      |     |  |   |      | 
|-------------- |  | ---- | ---- | --- |  | - | ---- | 
|2002           |  | High |      | Low
|               |  |      |      |    
|First Quarter  |  | $    | 1.44 |     |  | $ | 0.87 | 
|Second Quarter |  | $    | 0.91 |     |  | $ | 0.45 | 
|Third Quarter  |  | $    | 0.53 |     |  | $ | 0.30 | 
|Fourth Quarter |  | $    | 0.44 |     |  | $ | 0.17 | 

|               |  |   |      |  |  |   |      | 
|-------------- |  | - | ---- |  |  | - | ---- | 
|2003           |  |   |      |  |  |   |      | 
|               |  |   |      |  |  |   |      | 
|First Quarter  |  | $ | 0.23 |  |  | $ | 0.13 | 
|Second Quarter |  | $ | 0.21 |  |  | $ | 0.14 | 
|Third Quarter  |  | $ | 0.21 |  |  | $ | 0.11 | 
|Fourth Quarter |  | $ | 1.20 |  |  | $ | 0.13 | 

The foregoing quotations reflect inter-dealer prices without retail markup
or commissions and may not necessarily reflect actual transactions.

As of February 29, 2004, we had 106 holders of record of our Common Stock.
The number of record holders was determined from the records of our transfer
agent and does not include beneficial owners of Common Stock whose shares are
held in the names of various security brokers, dealers, and registered clearing
agencies. The transfer agent of our Common Stock is Pacific Corporate Trust
Company, which is located at 625 Howe Street, 10th Floor, Vancouver, British
Columbia V6C 3B8. Because many of our shares of Common Stock are held by
brokers and other institutions on behalf of shareholders, we are unable to
estimate the total number of shareholders represented by these record holders.

Dividends

We have never declared or paid any cash dividends. We do not expect to
pay any cash dividends on our Common Stock in the foreseeable future. We
currently intend to retain future earnings, if any, to finance operations and
the growth of our business. We may incur indebtedness in the future which may
prohibit or effectively restrict the payment of dividends,

10



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##### 



although we have no current plans to do so. Any future determination to
pay cash dividends will be at the discretion of our Board of Directors.

Equity Compensation Arrangements

The following table provides information with respect to all equity
securities of the Company sold during fiscal year 2003 pursuant to existing
equity compensation arrangements for officers, directors, and non-officer
employees.

2003 Equity Compensation Plan Information

|                                                           |  |                    |            |                    |  |                     |      |            |  |              |     |    
|---------------------------------------------------------- |  | ------------------ | ---------- | ------------------ |  | ------------------- | ---- | ---------- |  | ------------ | --- | ---
|                                                           |  | Number of          |            | Weightedaverage   |  | Number of          
|                                                           |  | securities to be   |            | exercise price of  |  | securities         
|                                                           |  | issued upon        |            | outstanding        |  | remaining available
|                                                           |  | exercise of        |            | options, warrants, |  | for future issuance
|                                                           |  | outstanding        |            | and rights         |  | under equity       
|                                                           |  | options, warrants, |            |                    |  | compensation plans 
|                                                           |  | and rights         |            |                    |  |                     |      | (excluding
|                                                           |  |                    |            |                    |  |                     |      | securities
|                                                           |  |                    |            |                    |  |                     |      |            |  | reflected in
|                                                           |  |                    |            |                    |  |                     |      |            |  | column (a)) 
|                                                           |  |                    |            |                    |  |                    
|                                                           |  | (a)                |            | (b)                |  | (c)                
|                                                           |  |                    |            |                    |  |                    
|Equity compensation
plans approved by
security holders     |  |                    | 650,000    |                    |  |                     | -0-  |            |  |              | -0- |    
|Equity compensation
plans not approved
by security holders |  |                    | 13,406,033 | (1)                |  | $                   | 0.14 |            |  |              | -0- | (1)
|                                                           |  |                    |            |                    |  |                     |      |            |  |              |     |    
|Total                                                      |  |                    | 14,056,033 | (1)                |  | $                   | 0.14 |            |  |              | -0- | (1)



---

|(1) |  | As of October 1, 2003, the Board of Directors approved an
increase from 1,200,000 to 16,200,000 in the number of shares authorized
for issuance under the Companys Stock Incentive Plan (the 2001 Plan)
and granted certain options, subject to shareholder approval. This
amendment will be presented to the Companys shareholders for approval at
the Annual Meeting of Shareholders on June 10, 2004. These amendments
reflect this increased amount and option grants.
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

All of the stock options referenced in the foregoing table were granted by
the Company to officers, non-officer employees, and directors pursuant to
informal equity and board service compensation plans adopted without
shareholder approval by the Board of Directors of the Company.

Of the total 14,056,033 stock options,



| | (a) |  | 524,560 options were granted to all non-officer employees of
the Company on February 20, 2003 as partial compensation for across
the board wage cuts declared by the Company and affecting all
officers and non-officer employees, and 106,273 options were granted
to the three executive officers of the Company as partial
compensation for the same wage cuts made in 2003 that affected all
non-officer employees;                                                                                    
| | --- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | (b) |  | 10,800,000 options were granted to the three executive
officers of the Company pursuant to separate new employment
agreements with the Company dated October 1, 2003, of which 4,300,000
vested on October 1, 2003 and the remaining 6,500,000 will vest on
October 1, 2005;                                                                                                                                                                                                                               
|
| | (c) |  | 650,000 options were granted to three members of the Companys
Board of Directors as compensation for their respective service on
the Board of Directors and the two committees of the Board of
Directors, including 250,000 stock options granted to Mr. Berger for
his service as both chair and co-chair of several committees of the
Board of Directors and 200,000 options were granted to Ms. Cole and
Mr. Pulford each for their respective service on various committees
of the Board of Directors;

11



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##### 





| | (d) |  | 1,975,000 options were granted to non-officer employees
pursuant to option agreements dated October 1, 2003 and will vest on
October 1, 2005; and
| | --- |  | -------------------------------------------------------------------------------------------------------------------------------------------------
|
| | (e) |  | the remaining 106,473 options were granted on several different
occasions to various employees of the Company.                                   

Sales of Unregistered Securities

The Company has, within the past three years, sold securities that were
exempt from registration under the Securities Act pursuant to Section 4(2) as
described below.

In 2001, the Company restructured substantially all of its short-term and
long-term debt into a series of convertible debentures and notes, several of
which have since been amended and restated. In connection with the debt
restructuring, the Company issued the following securities:



| |  |  | Promissory note dated August 14, 2001 in the face amount of
$125,000 and issued to Kirkman Finlay III, which permits conversion
of the outstanding principal amount into at least 138,889 shares of
Common Stock (at a conversion price equal to or less than
$0.90/share). On October 14, 2003, this note was converted by the
holder into 402,186 shares of Common Stock;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | Promissory note dated March 15, 2001 in the face amount of
$300,000 and issued to Rice Street Associates, Ltd., which permits
conversion of the outstanding principal amount into at least 333,333
shares of Common Stock (at a conversion price equal to or less than
$0.90/share); and                                                                                   
|
| |  |  | Promissory note dated March 15, 2001 in the face amount of
$350,000 and issued to Fitz-John Creighton McMaster, which permits
conversion of the outstanding principal amount into at least 388,888
shares of Common Stock (at a conversion price equal to or less than
$0.90/share).                                                                                       

On March 29, 2002, the Company issued a note to Steve Swanson in the
principal amount of $100,000, at an interest rate of 9% per annum, which was
convertible into shares of Common Stock.

On October 1, 2003, certain IBSS Class A Investors, LLC converted the
outstanding balance of principal and interest due on its Amended and Restated
Class A Secured Debenture ($1,031,677) into a non-interest bearing and
non-convertible note due on December 31, 2006. EEL Group, LLC, which was
formed from the remaining participants in IBSS Class A Investors, LLC who had
not previously elected to convert their proportionate shares of the note,
received warrants to acquire 15,214,170 shares of Common Stock at a purchase
price of $0.07275 per share, which warrants first become exercisable on October
1, 2004. Also on October 1, 2003, certain IBSS Class B Investors, LLC
converted the outstanding balance of principal and interest due on its Amended
and Restated Class B Secured Debenture ($1,735,399) into a non-interest bearing
and non-convertible note due on December 31, 2006. GEE Enterprises, LLC, which
was formed from the remaining participants in IBSS Class B Investors, LLC who
had not previously elected to convert their proportionate shares of the note,
received warrants to acquire 22,821,256 shares of Common Stock at a purchase
price of $0.07275 per share, which warrants first become exercisable on October
1, 2004. The Company issued the following securities pursuant to these
transactions:



| |  |  | Amended and Restated Class A Secured Debenture dated October 1,
2003 in the principal amount of $928, 241 and issued to the IBSS
Class A Investors, LLC;                                                     
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | Amended and Restated Common Stock Purchase Warrant (Class A
Investors) dated October 1, 2003 and issued to the IBSS Class A
Investors, LLC (convertible upon exercise into 464,120 shares of
Common Stock);  
|
| |  |  | Amended and Restated Class A Contingent Common Stock Purchase
Warrant dated October 1, 2003 and issued to the IBSS Class A
Investors, LLC (convertible upon exercise into 928,241 shares of
Common Stock);   
|
| |  |  | Common Stock Purchase Warrant dated October 1, 2003 and issued
to EEL Group, LLC (convertible upon exercise into 15,214,170 shares
of Common Stock);                                                         
|
| |  |  | Amended and Restated Class B Secured Debenture dated October 1,
2003 in the principal amount of $1,933,399 and issued to the IBSS
Class B Investors, LLC;                                                    
|
| |  |  | Amended and Restated Common Stock Purchase Warrant (Class B
Investors) dated October 1, 2003 and issued to the IBSS Class B
Investors, LLC (convertible upon exercise into 2,033,399 shares of
Common Stock);

12



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##### 





| |  |  | Amended and Restated Class B Contingent Common Stock Purchase
Warrant dated October 1, 2003 and issued to the IBSS Class B
Investors, LLC (convertible upon exercise into 2,033,399 shares of
Common Stock); and
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | Common Stock Purchase Warrant dated October 1, 2003 and issued
to GEE Enterprises, LLC (convertible upon exercise into 22,821,256
shares of Common Stock).                                                      

Effective October 2, 2003, the Company issued 1,000,000 shares of Common
Stock to The Scott Group pursuant to a consulting agreement under which The
Scott Group provides various services to the Company.

On December 13, 2003, Steve Swanson converted the outstanding principal
and interest ($113,586.29) on his note (as described above) into 391,677 shares
of Common Stock at a conversion price of $.29 per share, in accordance with the
terms of the note.

On December 31, 2003, the Company sold 1,250,000 shares of Common Stock
and 1,000,000 Common Stock warrants to Generation Capital Associates, Inc.
(GCA) pursuant to the terms of a purchase agreement with GCA dated December
24, 2003, a Common Stock purchase warrant with GCA dated December 30, 2003, and
two separate letter agreements with GCA dated December 24, 2003 and January 13,
2004. In addition to purchasing 1,250,000 shares of Common Stock, GCA was also
granted warrants to purchase up to 1,000,000 shares of Common Stock. In
exchange, GCA paid $250,000 to the Company that the Company is currently using
as short-term operating capital.

Item 6. Managements Discussion and Analysis or Plan of Operation.

Overview

IBSS emphasis is on helping businesses mitigate risk as they introduce
new software products, extend their existing software applications and systems,
or improve the way they do business. The IBSS value proposition provides three
valuable assets to corporate clients:



| |  |  | proven expertise in integration, on-line transaction processing
and wireless communications-based solutions;                         
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | a unique Synapse methodology that lets businesses quickly and
economically prototype, test drive, validate and deploy new ideas;
and
|
| |  |  | IBSS proprietary Synapse technology, which gives customers a
powerful, secure enterprise framework.                                

IBSS proprietary Synapse technology enables better security because it
is not susceptible to the same hacker activities related to viruses which
currently plague todays commodity technologies. In addition to a new level of
control and security, IBSS by owning and controlling its own technology with
which it creates on-line applications, can offer its customers a flexible
business relationship that can entertain custom extensions, unique licensing
arrangements and certain exclusivities in a customers vertical market.

The above described value proposition enables IBSS to respond to a
customers unique set of needs and allows IBSS working with the customer to
rapidly produce solutions specific to those needs. This is the Companys
primary advantage that has allowed it to succeed over the years where other
technology companies have failed. This advantage would not be possible if it
were not for the Companys key asset  Synapse, a platform and framework for
dynamic, distributed, real-time software applications.

With Synapse, IBSS creates customer specific solutions quickly and easily
without the need to rely on any other vendors technologies, thus dramatically
lowering the risks and costs of providing these solutions and eliminating
dependence on third-party software technology components or licensing to
support development, integration and deployment of these solutions.

The fact that IBSS does not have to rely on vendors like Microsoft,
Oracle, IBM, or others for the development architecture and framework, or pay
run-time license fees for deployment of its applications, gives IBSS a unique
competitive advantage in the market place by virtue of increased business
leverage and control, added financial security and licensing and pricing
flexibility.

13



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##### 



IBSS will continue to invest in research and development of its Synapse
technology and the associated Synapse project management methodology. The
objective of this continuous improvement is to create ever increasing
efficiency, effectiveness and ease of use for the benefit of internal IBSS
productivity, competitive advantage, and flexibility for our customers and
partners.

Since restructuring most of our short and long-term debt in December, 2001
and paying off or converting a significant portion of the same in 2002 and
2003, we have devoted substantial effort in 2002 and 2003 to developing our
business plan, enhancing our management team and Board of Directors, and
focusing our growth and marketing plan.

For the near-term, the Companys marketing of its Synapse products is
aimed primarily at wireless mobile computing applications (radio frequency
terminals, PDAs, wearable computers, laptops, Pocket PCs and tablet computers)
and automatic-radio frequency identification, electronic tagging, bar-code data
collection, and other on-line real time machine-to-machine (M2M) applications
in manufacturing, healthcare, government, distribution and other vertical
markets. The move of businesses to RFID is being facilitated by widespread
adoption of electronic product codes that permits tagged objects to be tracked
via the Internet. Synapse has the unique ability to track, analyze and share
information on the movement of e-tagged objects across multiple locations,
technologies, computer operating systems and networks, giving managers total
visibility and the knowledge to more efficiently reach their objectives.

Our objective is to become the nations vendor-of-choice among businesses
seeking the most advanced and cost-effective solutions for tracking, automated
data collection and integration. We currently apply our software to bring
real-time visibility to manufacturing processes and to both the corporations
front office and supply chain execution. Our applications offer a high degree
of flexibility, rapid granular implementation, and scalability across virtually
any operating system and hardware platform. In addition to our software, we
provide our customers with a variety of services, including custom design,
implementation assistance, project planning and training.

We will also consider opportunities for joint ventures, strategic
partnerships, and acquisitions to better leverage our existing market base and
expand and improve the capabilities of our current software architecture.

Selected financial operations information is as follows for the fiscal
years ended December 31, 2003, 2002, and 2001:

|                                     |                          |   |                          |           |      |   |            |           |  |   |            |           | 
|------------------------------------ | ------------------------ | - | ------------------------ | --------- | ---- | - | ---------- | --------- |  | - | ---------- | --------- | 
|                                     |                          |   | Years Ended December 31,
|                                     |                          |   |                         
|                                     |                          |   | 2003                     |           | 2002 |   | 2001      
|                                     |                          |   |                          |           |      |   |           
|Operating Revenues:                  |                          |   |                          |           |      |   |            |           |  |   |            |          
|Services                             |                          | $ | 3,133,796                |           |      | $ | 2,728,355  |           |  | $ | 1,994,653  |          
|Software Licensing                   |                          |   | 55,937                   |           |      |   | 506,590    |           |  |   | 153,750    |          
|Maintenance and Support              |                          |   | 82,040                   |           |      |   | 67,799     |           |  |   | 102,671    |          
|Hardware Sales (Third Party)         |                          |   | 38,970                   |           |      |   | 84,802     |           |  |   | 1,406,208  |          
|                                     | Total Revenues           |   |                          | 3,310,743 |      |   |            | 3,387,546 |  |   |            | 3,657,282 | 
|                                     |                          |   |                          |           |      |   |            |           |  |   |            |          
|Cost of Revenues                     |                          |   |                          |           |      |   |            |           |  |   |            |          
|Services                             |                          | $ | 912,175                  |           |      | $ | 1,023,634  |           |  |   | 1,239,215  |          
|Software Licensing                   |                          |   | 191,394                  |           |      |   | 190,023    |           |  |   | 225,103    |          
|Maintenance                          |                          |   | 110,714                  |           |      |   | 87,623     |           |  |   | 96,402     |          
|Hardware Sales                       |                          |   | 26,764                   |           |      |   | 66,280     |           |  |   | 1,091,531  |          
|                                     |                          |   |                          |           |      |   |            |           |  |   |            |          
|                                     | Total Cost of
Revenues   |   |                          | 1,241,047 |      |   |            | 1,367,560 |  |   |            | 2,652,251 | 
|                                     |                          |   |                          |           |      |   |            |           |  |   |            |          
|Operating Expenses                   |                          |   |                          |           |      |   |            |           |  |   |            |          
|General and
Administrative           |                          |   | 1,693,122                |           |      |   | 2,512,321  |           |  |   | 4,161,730  |          
|Sales and Marketing                  |                          |   | 311,010                  |           |      |   | 311,402    |           |  |   | 1,707,415  |          
|Research and Development
Costs       |                          |   | 193,574                  |           |      | $ | 376,660    |           |  | $ | 735,540    |          
|Restructuring and
Impairment Charges |                          |   |                         |           |      |   |           |           |  |   | 1,841,272  |          
|Bad Debt Expense                     |                          |   | 21,770                   |           |      |   | 51,126     |           |  |   | 232,292    |          
|                                     |                          |   |                          |           |      |   |            |           |  |   |            |          
|                                     | Total Operating
Expenses |   |                          | 2,219,476 |      |   |            | 3,251,509 |  |   |            | 8,678,249 | 
|                                     |                          |   |                          |           |      |   |            |           |  |   |            |          
|Loss from Operations                 |                          |   | (149,780                 | )         |      |   | (1,231,523 | )         |  |   | (7,673,218 | )        
|                                     |                          |   |                          |           |      |   |            |           |  |   |            |          
|Other Income and Expenses            |                          |   |                          |           |      |   |            |           |  |   |            |          
|Loss on Disposal of
Equipment        |                          |   | (15,500                  | )         |      |   | (11,999    | )         |  |   | (5,151     | )        
|Other Income                         |                          |   | 39,363                   |           |      |   | 128,050    |           |  |   | 83         |          
|Interest Income                      |                          |   | 5,250                    |           |      |   | 4,442      |           |  |   | 32,912     |          

14



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##### 



|                                          |          |  |          |          |   |  |            |            |   |  |            |             |  
|----------------------------------------- | -------- |  | -------- | -------- | - |  | ---------- | ---------- | - |  | ---------- | ----------- | -
|Interest
Expense                          |          |  | (726,654 | )        |   |  | (1,196,384 | )          |   |  | (3,800,341 | )          
|Loss on Equity Investment                 |          |  |         |          |   |  |           |            |   |  | (657,840   | )          
|Non-Controlling Interest
in Loss (Gain)   |          |  |         |          |   |  | (847,353   | )          |   |  | 847,353    |            
|                                          | Net Loss |  | $        | (847,321 | ) |  | $          | (3,154,767 | ) |  | $          | (11,256,202 | )
|                                          |          |  |          |          |   |  |            |            |   |  |            |            
|Basic Weighted Average
Shares Outstanding |          |  |          |          |   |  |            |            |   |  |            |            
|Basic Loss Per Share                      |          |  | ($0.04   | )        |   |  | ($0.17     | )          |   |  | ($0.71     | )          
|Diluted Loss Per Share                    |          |  | ($0.04   | )        |   |  | ($0.17     | )          |   |  | ($0.71     | )          

Results of Operations

Fiscal Year Ended December 31, 2003 Compared to Fiscal Year Ended December
31, 2002

Revenues

Our total revenues decreased by $76,803 (approximately 2%) from 2002.
This decrease was primarily attributable to the significant decrease of
$450,653 (approximately 89%) in software licensing revenues. Substantially all
of this decrease was due to our increased focus on expanding the functionality
of existing licenses and licensed users, rather than expanding the number of
licensed sites. In addition our revenues from the sales of third party
hardware decreased by $45,832 (approximately 54%) from 2002. This decrease in
hardware revenue was attributable primarily to the fact that hardware sales to
our largest customer were significantly lower than in the prior year.

The decrease in total revenues was offset significantly by an increase of
$405,441 (approximately 15%) in our service revenues from 2002. Substantially
all of this increase was attributable to our increased focus on expanding the
functionality of existing licenses. Also, revenues from software maintenance
fees increased by $14,241 (approximately 21%) from 2002. This increase was a
consequence of applying the licensed software across more functionality, more
sites and more users per the normal maintenance contract terms.

Cost of Revenues

Cost of revenues decreased by $126,513 (approximately 9%) from 2002. This
decrease was attributable primarily to a decrease of $111,459 (approximately
11%) in direct services labor costs from 2002. This decrease was also
attributable to our ongoing restructuring and cost control programs, but was
offset by additional human resource costs required for certain customer
projects. Our gross margin for services for 2003 increased to
approximately 71%, as
compared to 62% in 2002, due in part to our increased Synapsetool efficiency
and increased staff utilization efficiency.

Our cost from the sales of third party hardware also decreased by $39,516
(approximately 60%) from 2002. This decrease in hardware sales and subsequent
hardware costs was associated primarily with more software intensive, rather
than hardware intensive, projects. Our gross margin for hardware sales for
2003 was approximately 31%, as compared with 22% in 2002.

The decrease in cost of revenues was offset somewhat by immaterial
increases in the cost of licensing our Synapsee-based products and of
maintenance.

Gross Margin

Gross margin was $2,069,696 in 2003, representing an increase of $49,710
(approximately 2%) over gross margin in 2002. This increase was due to the
factors described above.

Operating Expenses

Total operating expenses decreased by $1,032,033 (approximately 32%) due
to substantial cost reductions in 2003 in employee salaries, rent, and
director and officer and employee health insurance premiums and in research
and development costs.

15



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General and administrative expenses decreased by $819,199 (approximately
33%) from 2002. Also, as a percentage of total revenues, general and
administrative expenses decreased to approximately 51% in 2003 from
approximately 74% in 2002. Substantially all of the decrease in general and
administrative expenses was attributable to our cost control program. Our cost
control program focused both on leasehold costs (reducing it to 20% of the
prior cost), administrative and executive salary costs, and miscellaneous
professional costs. Reductions in these areas accounted for approximately 70%
of the aggregate cost savings.

Research and development costs decreased by $183,086 (approximately 49%)
from 2002. This decrease was primarily associated with a staff reduction and
charging a larger portion of the research and development team with production
billable tasks. Research and development expenses represented approximately 6%
and 11% of total revenues for 2003 and 2002, respectively. We expect research
and development expenses to increase in absolute dollars in the foreseeable
future as we continue our product development activities, although we
anticipate that these expenses as a percentage of total revenues to remain
approximately the same in 2004.

Bad debt expense decreased $29,356 (approximately 57%) from 2002, while
sales and marketing expenses remained approximately unchanged.

Non-operating Items

Non-controlling interest in an affiliated company decreased to $0 in 2003
from $847,353 in 2002. This decrease was attributable to a one-time write off
in 2002 of the Companys accounts receivable due from this affiliate.

Interest expense decreased $469,730 (approximately 39%) from 2002. This
decrease was due to the note holders agreeing to discontinue the receipt of
interest on their notes beginning in the fourth quarter of 2003.

Other income decreased $88,687 (approximately 69%) from 2002. This
decrease was due to a one-time recovery in 2002 of a previously recorded
payroll expense for a former executive.

Fiscal Year Ended December 31, 2002 Compared to Fiscal Year Ended December
31, 2001

Revenues

Our total revenues decreased by $269,735 (approximately 7%) from 2001.
This decrease was primarily attributable to the significant decrease in 2002 in
our hardware sales to Fruit of the Loom, which accounted for approximately 3%
and 38%, of our total revenues for 2002 and 2001, respectively. This decrease
was offset partially by an increase in service revenue and an increase in
license sales.

Our service revenues increased by $773,702 (approximately 37%) from 2001.
Substantially all of this increase was attributable to the increase in the
service revenues associated with Fruit of the Loom.

Our revenues from the licensing of Synapse-based products increased by
$352,840 (approximately 229%) from 2001. Substantially all of this increase
was due to additional licenses that were sold to Fruit of the Loom.

Our revenues from software maintenance fees decreased by $34,872
(approximately 34%) from 2001. This decrease was a consequence of the
suspension of operations of WilCam Systems, LLC late in 2001.

Our revenues from the sales of third party hardware decreased by
$1,321,406 (approximately 94%) from 2001. As noted above, this decrease in
hardware revenue was attributable primarily to the fact that hardware sales to
our largest customer were significantly lower than in the prior year.

Cost of Revenue

Cost of revenues decreased by $1,284,691 (approximately 48%) from 2001.
This decrease was attributable to several factors, including the decrease in
the cost of hardware sales due to the reduction in 2002 of hardware sales to
third parties and a decrease in the human resource costs to support our
maintenance obligations associated with our license agreements. The reduction
of these human resource costs was primarily attributable to the increase in
efficiencies in our overall customer support operations.

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Our cost of services decreased by $215,581 (approximately 17%) from 2001.
This decrease was attributable to our ongoing restructuring and cost control
programs but was offset by additional human resource costs required for certain
customer projects. Our gross margin for services for 2002 was approximately
62%, representing a significant increase over our 38% gross margin for services
in 2001.

Our cost from the licensing of our Synapse-based products decreased by
$35,080 (approximately 16%) from 2001. Substantially all of this decrease was
attributable to reduced legal expenses associated with our license
negotiations. Our gross margin for software licenses for 2002 was 62%,
representing an increase from our negative 46% gross margin for software
licenses in 2001. This increase was attributable primarily to additional
license sales increasing while the yearly amortization cost of our capitalized
software remained constant.

Our cost of maintenance decreased by $8,779 (approximately 9%) from 2001.
Our gross margin for maintenance for 2002 was a negative 29%, representing a
decrease from our 6% gross margin for maintenance in 2001. This decrease was
attributable primarily to the lower maintenance revenues as noted above with
only slight reductions in costs.

Our cost from the sales of third party hardware decreased by $1,025,251
(approximately 94%) from 2001. This decrease was associated solely with the
concurrent decrease in the sales of hardware in connection with the
implementations of our contracts. Our gross margin for hardware sales for 2002
was approximately 22%, remaining constant with our 22% gross margin for
hardware sales in 2001.

Gross Margin

Gross margin increased $1,014,955 (approximately 101%) over gross profit
in 2001. This increase was associated with the successful execution of our
comprehensive cost control program, combined with the increase of service
revenues as a proportion of gross revenues and the decrease in hardware sales
where we experienced lower margins.

Operating Expenses

Research and development costs decreased by $358,880 (approximately 49%)
from 2001. This decrease was primarily associated with the decrease in
resources allocated in 2002 toward product development. Research and
development expenses represented approximately 11% and 20% of total revenues
for 2001 and 2002, respectively. We do expect research and development
expenses will increase in absolute dollars in the foreseeable future as we
continue our product development activities, although we anticipate that these
expenses as a percentage of total revenues will not decrease.

General and administrative expenses decreased by $1,649,409 (approximately
40%) from 2001. Also, as a percentage of total revenues, general and
administrative expenses decreased from approximately 114% in 2001 to
approximately 74% in 2002. Substantially all of the decrease in general and
administrative expenses was attributable to the cost control program that the
Company has implemented as detailed below.

Sales and marketing expenses decreased by $1,396,013 (approximately 82%)
from 2001. This decrease was primarily attributable to the reduction of our
direct sales team during the last quarter of 2001, as well as a decrease in the
cost of our third party public relations and investor relations resources.
Sales and marketing expense as a percentage of total revenues decreased from
approximately 47% in 2001 to approximately 9% in 2002. Although we expect that
our sales and marketing expenses will begin to increase in absolute dollars as
we implement our market share growth strategies, we anticipate that these
expenses will continue to decrease as a percentage of total revenues.

Impairment and restructuring charges decreased to zero in 2002 from
approximately $1.842 million in 2001. These 2001 impairment charges were
solely related to the December 13, 2001 spin-off by our affiliate, WilCam
Systems, LLC, of certain of its material assets associated with Synapse HR
into our majority-controlled subsidiary, Synamco, L.L.C. These assets
consisted entirely of software that had been capitalized by WilCam Systems,
LLC. At the time of the transfer of these assets to Synamco, L.L.C., we
elected to write down the assets to their fair value using the guidance of
Statement of Financial Accounting Standards No. 86, resulting in an aggregate
impairment and restructuring charge for 2001.

Bad debt expense decreased to $51,126 from $232,292 in 2001. During our
spinoff of WilCam Systems, LLC, as detailed above, we elected to increase the
reserve applied to the note receivable from WilCam Systems, LLC, resulting in a
charge to bad debt expense of $232,292 in 2001 and an additional $50,000 in
2002.

17



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Non-operating Items

Other income increased $127,967 from $83 in 2001 to $128,050 in 2002.
This increase was due to the forfeiture, by the former Chief Executive Officer
of the Company, of a severance package. This amount had been expensed in 2001
and was forfeited in 2002 and included in other income.

Interest expense decreased $2,603,957 (approximately 69%) from 2001.
Substantially all (approximately 68% and 95% in 2002 and 2001, respectively) of
this expense was related to the intrinsic value approach that was applied to
both the common stock purchase warrants and the conversion features of our
private placements of convertible debt in 2001 and 2002, all as required by the
application of Accounting Principles Board Opinion No. 14, Emerging Issues Task
Force (EITF) Issue No. 98-5 and EITF Issue No. 00-27. The directive of these
accounting policies is to attribute an appropriate value to the conversion
feature imbedded in convertible debt where the conversion price is either below
the market price of the common stock at the commitment date, or where such
price may adjust during the life of the debt to a price that is below the
market price of the common stock at the time of the adjustment. The entire
value of the imbedded conversion feature is charged to interest expense and
credited to additional paid in capital at the time of the commitment. These
accounting policies also require recognition of the fair value of any warrants
issued in connection with debt financing. The fair value is charged to a debt
discount that is amortized to interest expense over the life of the related
debt instrument, and an equal amount is credited to additional paid in capital.

Non-controlling interest in an affiliated company increased to $847,353 in
2002 from a gain in 2001 of $847,353. This gain was attributable to the write
off of IBSSs accounts receivable from this affiliate. This write-off created
a gain on the affiliated companys books and is reflected on our consolidated
statements. This line item represents the non-controlling interest gain.

Liquidity and Capital Resources

Prior to 1997, we financed our operations primarily through our revenues
from operations, including funded research and development revenues, and
occasional short-term loans from our principals, their families and other
individuals and entities. Since the middle of 1997, we have financed our
operations primarily through private and public offerings of common stock and
convertible debt, and to a lesser extent from operating revenues and through
borrowings from third parties. We raised net proceeds of approximately $1.22
million in our November 1997 initial public offering. During 2001, we raised
an aggregate of approximately $5.1 million in additional capital, consisting of
approximately $1.03 million from the exercise of common stock options and
warrants, approximately $409,000 from the private placement of common stock,
and approximately $3.66 million from the issuance of convertible debt. During
2002, we raised approximately $984,000 through the private placement of our
Common Stock, two-year convertible debentures, and Common Stock purchase
warrants.

During the first quarter of 2003, we signed a $130,000 note payable for
the leasehold improvements associated with our new office space described
above. This note is amortized over 10 years and carries an annual interest
rate of 10%. We currently do not have any commitments or budgeted needs during
2004 for any material capital expenditures, including purchases of furniture,
fixtures or equipment. In the absence of any substantial infusion of growth
capital or an unexpected increase in our expected gross margin for 2004, we do
not expect our capital expenditure plans for the next twelve months to change.

On December 31, 2001, the Company achieved substantial debt service relief
for 2002 and 2003 through the restructuring of substantially all of its
short-term and long-term debt into convertible debentures and notes. Under the
restructured debt instruments as originally in effect, approximately 80% of the
entire principal balance of the restructured debt was not payable until January
1, 2004. Substantially all of the remaining 20% was payable during January
2003. Effective January 1, 2003, the holders of substantially all of that
remaining 20% agreed to extend the January 2003 maturity date until January
2004.

On October 1, 2003, the Company restructured substantially all of its
short-term investor debt. Under the restructured debt instruments,
approximately 90% of the principal balance is not payable until the fourth
quarter of 2006.

During 2003, there continued to be some conversion and satisfaction of our
existing debt and the major portion (86%) of this debt was renegotiated on
October 1, 2003 and the notes representing this portion of the debt were
converted to non-interest bearing and non-convertible notes and extended to
December 31, 2006. Thirteen percent (13%) of the debt became short-term debt
on January 1, 2004. The holder of this short-term debt has elected to leave
these notes (which are

18



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currently $496,219 in outstanding principal) as callable notes until paid.
These notes are considered to currently be in default and accrue interest at
22% per annum.

On December 31, 2003, the Company sold 1,250,000 shares of Common Stock
and 1,000,000 Common Stock purchase warrants to GCA. In exchange, GCA paid
$250,000 to the Company, which we are currently using as short-term operating
capital.

In January 2004, the Company signed an investment agreement dated January
21, 2004, and a registration rights agreement dated January 21, 2004 with
Dutchess for an equity line of credit. Under the terms of the Equity Line, the
Company may obligate Dutchess to purchase up to $10,000,000 of the Companys
Common Stock over a 36 month calendar period subsequent to the date the
Commission declares the Companys registration statement on Form SB-2 (filed
with the Commission on February 5, 2004) to be effective. We expect the
registration statement to be declared effective during the second quarter of
2004.

With respect to our trade accounts payable, we have established long-term
payout arrangements with respect to substantially all of our unsecured
creditors. In addition, where permitted under securities laws, we have
satisfied and expect to continue to satisfy certain of our unsecured
obligations to third parties through restricted stock grants.

We may seek to raise additional funds from the private placement of
additional debt, equity or equity-linked securities. Because of several
factors, including the operating, market and industry risks associated with an
investment in our common stock; the inclusion of a going concern paragraph in
our annual and quarterly financial reports; the fact that our common stock is
traded on the OTCBB; the continued weakness in the capital markets in general
and the technology sectors in particular; and the other factors described in
Exhibit 99.1 of this Annual Report on Form 10-KSB, we may experience difficulty
in obtaining additional financing until our operating results or overall market
conditions reflect sustained improvement.

Critical Accounting Policies and Accounting Estimates

We have adopted various accounting policies that govern the application of
accounting principles generally accepted in the United States in the
preparation of our financial statements. Our significant accounting policies
are described in the footnotes to the consolidated financial statements at
December 31, 2003, as included in this Annual Report on Form 10-KSB. We
consider these accounting policies to be critical accounting policies. Certain
accounting policies involve significant judgments and assumptions by us, but do
not have a material impact on the carrying value of our assets and liabilities
and results of operations.

The judgments and assumptions we use are based on historical experience
and other factors that which we believe to be reasonable under the
circumstances. Because of the nature of the judgments and assumptions we make,
actual results could differ from these judgments and from estimates which could
have an impact on our carrying values of assets and liabilities and our results
of operations.

Certain accounting estimates are particularly sensitive because of their
significance to the financial statements and because of the possibility that
future events affecting them may differ significantly from those expected. The
critical accounting policies and the most sensitive accounting estimates
affecting the financial statements were: (i) bad debt reserves to record
accounts receivable at their net realizable value; (ii) valuation of next
deferred tax assets; (iii) valuation of stock options; and (iv) revenue
recognition policies. Each of these policies and estimates are discussed in
greater detail below.

Accounts receivable are customer obligations due under normal trade terms.
The Company performs continuing credit evaluations of its clients and
generally does not require collateral. Management reviews accounts receivable
on a regular basis to determine if any receivables will potentially be
uncollectible. Any accounts receivable balances that are determined to be
uncollectible are included in the allowance for doubtful accounts. After all
attempts to collect a receivable have failed, the receivable is written off
against the allowance. Based on the information available, management believes
all accounts receivable are fully collectable and, therefore, has not
established a bad debt reserve or allowance as of December 31, 2003. However,
actual write-offs may occur on the outstanding accounts receivable balances.

Deferred income tax assets and liabilities are computed for differences
between the financial statement and tax bases of assets and liabilities that
will result in taxable or deductible amounts in future periods based on enacted
tax laws and rates applicable to the periods in which the differences are
expected to affect taxable income. Valuation allowances are established

19



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when necessary to reduce deferred tax assets to the amount expected to be
realized. Income tax expense is the tax payable or refundable for the period
plus or minus the change during the period in deferred tax assets and
liabilities. Because of our significant continuing net operating losses and
our accumulated deficit, we have fully reserved the net deferred tax asset.

The Company applies Accounting Principles Board Opinion No. 25,
Accounting for Stock Issued to Employees (APB 25) and related
interpretations in accounting for its stock-based compensation plans and
applies the disclosure-only provisions of FASB Statement No. 123, Accounting
for Stock-Based Compensation (SFAS 123), as amended by FASB Statement No.
148, Accounting for Stock-Based Compensation-Transition and Disclosure (SFAS
148). We recognize stock-based compensation expense for stock options granted
to employees and non-employee directors if the quoted market price of the stock
at the date of the grant or award exceeds the price, if any, to be paid by an
employee for the exercise of the stock.

IBSS recognizes revenues in accordance with the guidance of Staff
Accounting Bulletin (SAB) No. 101, Revenue Recognition in Financial
Statements, SAB No. 104, Revenue Recognition, Statement of Position 97-2,
Software Revenue Recognition, and related interpretations. IBSS recognizes
revenue for products sold at the time delivery occurs, collection of the
resulting receivable is deemed probable, the price is fixed and determinable,
and evidence of an arrangement exists. Existing customers may purchase product
enhancements and upgrades after such enhancements or upgrades are developed by
IBSS based on a standard price list in effect at the time such product
enhancements and upgrades are purchased. IBSS generally has no significant
performance obligations to customers after the date that products, product
enhancements and upgrades are delivered.

IBSS allocates revenue on arrangements involving multiple elements to each
element based on the relative fair value of each element. IBSSs determination
of fair value of each element in multiple-element arrangements is based on
vendor-specific objective evidence (VSOE). IBSS limits its assessment of
VSOE for each element to the price charged when the same element is sold
separately. IBSS has analyzed all of the elements included in its
multiple-element arrangements and determined that it has sufficient VSOE to
allocate revenue to each of the multiple-elements.

IBSS recognizes service revenues from installation, enhancements, and
change order services based on the standard price list in effect when such
services are provided to customers. Installation is not essential to the
functionality of the products sold and is inconsequential or perfunctory to the
sale of the products. Revenues derived from contractual post-contract support
services are recognized ratably over the contract support period.

IBSSs revenue recognition policy is significant because its revenue is a
key component of IBSSs results of operations. In addition, the recognition of
revenue determines the timing of certain expenses, such as commissions and
royalties. Although IBSS follows specific and detailed guidelines in measuring
revenue, certain judgments affect the application of its revenue policy.
Revenue results are difficult to predict, and any shortfall in revenue or delay
in recognizing revenue could cause IBSSs operating results to vary
significantly from quarter to quarter and could result in future operating
losses.

Off-Balance Sheet Arrangements

The Company does not have any off-balance sheet arrangements.

Item 7. Financial Statements.

Reference is made to the Consolidated Financial Statements Index beginning
on Page F-1 below to this Annual Report on Form 10-KSB.

Item 8. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.

None.

Item 8A. Controls and Procedures.

Disclosure Controls and Internal Controls

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Disclosure controls are procedures that are designed with the objective of
ensuring (i) that the information required to be disclosed in our reports filed
under the Exchange Act, such as this report, is recorded, processed, summarized
and reported within the time periods specified in the rules and forms of the
Commission and (ii) that such information is accumulated and communicated to
our management, including our Chief Executive Officer (who also is acting as
our Chief Financial Officer) to allow timely decisions regarding required
disclosure (the Disclosure Controls). Internal controls are procedures that
are designed with the objective of providing reasonable assurance that (1) our
transactions are properly authorized; (2) our assets are safeguarded against
unauthorized or improper use; and (3) our transactions are properly recorded
and reported, all to permit the preparation of our financial statements in
conformity with generally accepted accounting principles (the Internal
Controls).

Annual Report and Evaluation of the Companys Disclosure Controls and
Internal Controls

Within the 90 days prior to the filing date of this Annual Report on Form
10-KSB, we evaluated the effectiveness of our Disclosure Controls and our
Internal Controls. This evaluation (the Controls Evaluation) was done under
the supervision and with the participation of management, including our Chief
Executive Officer (who also is acting as our Chief Financial Officer). Rules
adopted by the Commission require that in this section of this report we
present the conclusions of the Chief Executive Officer and Chief Financial
Officer about the effectiveness of our Disclosure Controls and Internal
Controls based on and as of the date of the Controls Evaluation.

Based on the Controls Evaluation, our Chief Executive Officer (who also is
acting as our Chief Financial Officer) has concluded that our disclosure
controls and procedures are effective to ensure that information required to be
disclosed by us in the reports filed or submitted by us under the Exchange Act
is recorded, processed, summarized and reported within the time periods
specified in the SECs rules and forms, and includes controls and procedures
designed to ensure that information required to be disclosed by us in such
reports is accumulated and communicated to the Companys management, including
the Chief Executive Officer (and acting Chief Financial Officer) to allow
timely decisions regarding required disclosure.

Officer Certifications

Appearing as Exhibits 31.1, 31.2, 32.1 and 32.2 to this Annual Report on
Form 10-KSB, are certain certifications by our Chief Executive Officer and
acting Chief Financial Officer. The form of certification on Exhibit 31.1 and
31.2 is required in accordance with Section 302 of the Sarbanes-Oxley Act of
2002 (the Section 302 Certifications). This section of the report is the
information concerning the Controls Evaluation referred to in the Section 302
Certifications, and this information should be read in conjunction with the
Section 302 Certifications for a more complete understanding of the topics
presented.

Our management, including the Chief Executive Officer and acting Chief
Financial Officer, does not expect that our disclosure controls and procedures
or internal controls will prevent or detect all errors or fraud should any
occur. Any control system and procedures, no matter how well designed and
operated, can provide only reasonable, but not absolute, assurance that the
objectives of the control systems and procedures are being met. Because of the
inherent limitations in all control systems, no evaluation can provide absolute
assurance that all control issues or instances of error or fraud, if any, are
detected.

PART III

Item 9. Directors, Executive Officers, and Control Persons; Compliance with
Section 16(a) of the Exchange Act.

The information required to be disclosed by Item 9 is incorporated herein
by reference to the section of the Companys 2004 Proxy Statement entitled
Directors, Executive Officers, and Control Persons; Compliance with Section
16(a) of the Exchange Act.

Item 10. Executive Compensation.

The information required to be disclosed by Item 10 is incorporated herein
by reference to the section of the Companys 2004 Proxy Statement entitled
Executive Compensation.

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Item 11. Security Ownership of Certain Beneficial Owners and Management and
Related Stockholder Matters.

The information required to be disclosed by Item 11 is incorporated herein
by reference to the section of the Companys 2004 Proxy Statement entitled
Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters.

Item 12. Certain Relationships and Related Transactions.

The information required to be disclosed by Item 12 is incorporated herein
by reference to the section of the Companys 2004 Proxy Statement entitled
Certain Relationships and Related Transactions.

Item 13. Exhibits and Reports on Form 8-K.

(a)  Exhibits.

The accompanying Exhibit Index beginning on Page 23 hereof sets forth the
Exhibits that are both filed and incorporated by reference as part of this
annual report on Form 10-KSB.

(b)  Reports on Form 8-K.

On November 11, 2003, the Company filed with the SEC a current report on
Form 8-K for purposes of issuing a press release covering the Companys third
quarter 2003 earnings results. Unaudited financial statements for such period
were filed as Exhibit 99.1 to such report on Form 8-K.

Item 14. Principal Accountant Fees and Services.

The information required to be disclosed by Item 14 is incorporated herein
by reference to the section of the Companys 2004 Proxy Statement entitled
Principal Accountant Fees and Services.

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SIGNATURES

In accordance with Section 13 or 15(d) of the Securities Exchange Act of
1934, as amended, the registrant caused this Annual Report on Form 10-KSB to be
signed on its behalf by the undersigned, thereunto duly authorized.

|                      |  |     |  |                                
|--------------------- |  | --- |  | -------------------------------
|Dated: March 26, 2004 |  | By: |  | /s/ George E. Mendenhall       
|                      |  |     |  |                                
|                      |  |     |  | Name: George E. Mendenhall     
|                      |  |     |  | Title: Chief Executive Officer,
|                      |  |     |  | Chief Financial Officer and    
|                      |  |     |  | Chairman of the Board          

In accordance with the Securities Exchange Act of 1934, as amended, this
Annual Report on Form 10-KSB has been signed by the following persons in the
capacities and on the dates indicated below:

|                                                   |  |                                                                                                                                               |  |               
|-------------------------------------------------- |  | --------------------------------------------------------------------------------------------------------------------------------------------- |  | --------------
|Signature                                          |  | Title                                                                                                                                         |  | Date          
|                                                   |  |                                                                                                                                               |  |               
|                                                   |  |                                                                                                                                               |  |               
|                                                  
|/s/ George E. MendenhallGeorge E. Mendenhall       |  | Chief Executive Officer and Chairman
of the Board (principal executive
officer, principal financial officer
and principal accounting officer) |  | March 26, 2004
|                                                  
|/s/ Stuart E. MasseyStuart E. Massey               |  | Executive Vice President and Director                                                                                                         |  | March 26, 2004
|                                                  
|/s/ Dollie A. ColeDollie A. Cole                   |  | Director                                                                                                                                      |  | March 26, 2004
|                                                  
|/s/ Richard D. PulfordRichard D. Pulford           |  | Director                                                                                                                                      |  | March 26, 2004
|                                                  
|/s/ Carl Joseph Berger, Jr.Carl Joseph Berger, Jr. |  | Director                                                                                                                                      |  | March 26, 2004

23



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Integrated Business Systems and Services, Inc.

Index to Consolidated Financial Statements

|                                   |                                                   |     |             |  | 
|---------------------------------- | ------------------------------------------------- | --- | ----------- |  | 
|                                   |                                                   |     | Pages      
|                                   |                                                   |     |            
|                                  
|Independent Auditors Report       |                                                   | F-1
|                                   |                                                   |     |             | 
|Consolidated Financial Statements: |                                                   |     |             | 
|                                   | Balance Sheets                                    |     | F-2        
|                                   | Statements of Operations                          |     | F-3        
|                                   | Statements of Changes in Shareholders Deficiency |     | F-4        
|                                   | Statements of Cash Flows                          |     | F-5        
|                                   | Notes to Financial Statements                     |     | F-6 to F-28





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Independent Auditors Report



---



To the Board of Directors
Integrated Business Systems and Services, Inc.
Columbia, South Carolina

We have audited the accompanying consolidated balance sheets of Integrated
Business Systems and Services, Inc. and its subsidiary (collectively the
Company) as of December 31, 2003 and 2002, and the related consolidated
statements of operations, changes in shareholders deficiency and cash flows
for each of the three years in the period ended December 31, 2003. These
financial statements are the responsibility of the Companys management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

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

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of the
Company as of December 31, 2003 and 2002, and the consolidated results of its
operations and its cash flows for each of the three years in the period ended
December 31, 2003, in conformity with accounting principles generally accepted
in the United States of America.

The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 1 to the
consolidated financial statements, the Company has a current year net loss, an
accumulated deficit, and a working capital deficiency. These and other factors
raise substantial doubt about the Companys ability to continue as a going
concern. Managements plans in regards to these matters are also described in
Note 1. The consolidated financial statements do not include any adjustments
that might result from the outcome of these uncertainties.

Scott McElveen, L.L.P.

/s/ Scott McElveen, L.L.P.

Columbia, South Carolina
February 27, 2004

F-1



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Integrated Business Systems and Services, Inc.
Balance Sheets
December 31,

|                                               |                                                                                                                                                              |                                            |                                   |             |         |         |            |             |         |         | 
|---------------------------------------------- | ------------------------------------------------------------------------------------------------------------------------------------------------------------ | ------------------------------------------ | --------------------------------- | ----------- | ------- | ------- | ---------- | ----------- | ------- | ------- | 
|                                               |                                                                                                                                                              |                                            |                                   |             | 2003    |         | 2002      
|                                               |                                                                                                                                                              |                                            |                                   |             |         |         |           
|Assets                                         |                                                                                                                                                              |                                            |                                   |             |         |         |            |            
|Current assets:                                |                                                                                                                                                              |                                            |                                   |             |         |         |            |            
|                                               | Cash and cash equivalents                                                                                                                                    |                                            | $                                 | 214,925     |         |         | $          | 55,874      |        
|                                               | Accounts receivable, trade                                                                                                                                   |                                            |                                   | 265,644     |         |         |            | 202,970     |        
|                                               | Interest receivable                                                                                                                                          |                                            |                                   | 31,789      |         |         |            | 26,539      |        
|                                               | Other prepaid expenses                                                                                                                                       |                                            |                                   | 726         |         |         |            | 63,809      |        
|                                               |                                                                                                                                                              |                                            |                                   |             |         |         |            |            
|Total current assets                           |                                                                                                                                                              |                                            | 513,084                           |             |         |         | 349,192    |            
|Capitalized software costs, net                |                                                                                                                                                              |                                            | 63,172                            |             |         |         | 241,294    |            
|Property and equipment, net                    |                                                                                                                                                              |                                            | 377,540                           |             |         |         | 399,849    |            
|Related party receivable                       |                                                                                                                                                              |                                            |                                 |             |         |         | 18,200     |            
|Other assets                                   |                                                                                                                                                              |                                            | 52,000                            |             |         |         | 11,479     |            
|                                               |                                                                                                                                                              |                                            |                                   |             |         |         |            |            
|Total assets                                   |                                                                                                                                                              | $                                          | 1,005,796                         |             |         | $       | 1,020,014  |            
|                                               |                                                                                                                                                              |                                            |                                   |             |         |         |            |            
|                                               |                                                                                                                                                              |                                            |                                   |             |         |         |            |            
|Liabilities and Shareholders Deficiency       |                                                                                                                                                              |                                            |                                   |             |         |         |            |            
|Current liabilities:                           |                                                                                                                                                              |                                            |                                   |             |         |         |            |            
|                                               |                                                                                                                                                              | Convertible notes payable, net of discount |                                   | $           | 496,219 |         |            | $           | 696,000 |        
|                                               |                                                                                                                                                              | Current portion of long-term debt          |                                   |             | 8,664   |         |            |             | 150,000 |        
|                                               |                                                                                                                                                              | Accounts payable                           |                                   |             | 104,505 |         |            |             | 190,423 |        
|                                               |                                                                                                                                                              | Accrued liabilities:                       |                                   |             |         |         |            |             |         |        
|                                               |                                                                                                                                                              |                                            | Accrued compensation and benefits |             |         | 334,978 |            |             |         | 519,576 | 
|                                               |                                                                                                                                                              |                                            | Accrued payroll taxes             |             |         | 54,022  |            |             |         | 241,726 | 
|                                               |                                                                                                                                                              |                                            | Accrued professional fees         |             |         | 79,073  |            |             |         | 170,920 | 
|                                               |                                                                                                                                                              |                                            | Accrued interest                  |             |         | 30,543  |            |             |         | 377,857 | 
|                                               |                                                                                                                                                              |                                            | Accrued rent                      |             |         | 67,604  |            |             |         | 100,223 | 
|                                               |                                                                                                                                                              |                                            | Other                             |             |         | 25,500  |            |             |         | 33,391  | 
|                                               |                                                                                                                                                              | Deferred revenue                           |                                   |             | 10,063  |         |            |             | 73,327  |        
|                                               |                                                                                                                                                              |                                            |                                   |             |         |         |            |            
|Total current liabilities                      |                                                                                                                                                              |                                            | 1,211,171                         |             |         |         | 2,553,443  |            
|Long-term debt, net of discount                |                                                                                                                                                              |                                            | 3,193,960                         |             |         |         | 2,051,488  |            
|                                               |                                                                                                                                                              |                                            |                                   |             |         |         |            |            
|Total liabilities                              |                                                                                                                                                              |                                            | 4,405,131                         |             |         |         | 4,604,931  |            
|                                               |                                                                                                                                                              |                                            |                                   |             |         |         |            |            
|Commitments and contingencies                  |                                                                                                                                                              |                                            |                                   |             |         |         |            |            
|                                               |                                                                                                                                                              |                                            |                                   |             |         |         |            |            
|Shareholders deficiency:                      |                                                                                                                                                              |                                            |                                   |             |         |         |            |            
|                                               | Preferred stock, undesignated par value, 10,000,000 shares
none authorized or issued                                                                         |                                            |                                   |            |         |         |            |            |        
|                                               | Common shares, voting, no par value, 100,000,000 shares
authorized, 26,880,404 and 22,230,258 shares outstanding
at December 31, 2003 and 2002, respectively |                                            |                                   | 20,868,000  |         |         |            | 19,877,678  |        
|                                               | Notes receivable officers/directors                                                                                                                          |                                            |                                   | (131,080    | )       |         |            | (131,080    | )      
|                                               | Unearned compensation                                                                                                                                        |                                            |                                   |            |         |         |            | (42,581     | )      
|                                               | Accumulated deficit                                                                                                                                          |                                            |                                   | (24,136,255 | )       |         |            | (23,288,934 | )      
|                                               |                                                                                                                                                              |                                            |                                   |             |         |         |            |            
|Total shareholders deficiency                 |                                                                                                                                                              |                                            | (3,399,335                        | )           |         |         | (3,584,917 | )          
|                                               |                                                                                                                                                              |                                            |                                   |             |         |         |            |            
|Total liabilities and shareholders deficiency |                                                                                                                                                              | $                                          | 1,005,796                         |             |         | $       | 1,020,014  |            
|                                               |                                                                                                                                                              |                                            |                                   |             |         |         |            |            

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

F-2





---



##### 



Integrated Business Systems and Services, Inc.
Statements of Operations
for the years ended December 31,

|                                    |                                      |                          |           |           |           |      |           |            |            |   |           |            |             |  
|----------------------------------- | ------------------------------------ | ------------------------ | --------- | --------- | --------- | ---- | --------- | ---------- | ---------- | - | --------- | ---------- | ----------- | -
|                                    |                                      |                          |           | 2003      |           | 2002 |           | 2001      
|                                    |                                      |                          |           |           |           |      |           |           
|Revenues                            |                                      |                          |           |           |           |      |           |            |            |   |           |           
|                                    | Services                             |                          | $         | 3,133,796 |           |      | $         | 2,728,355  |            |   | $         | 1,994,653  |            
|                                    | Software licensing                   |                          |           | 55,937    |           |      |           | 506,590    |            |   |           | 153,750    |            
|                                    | Maintenance                          |                          |           | 82,040    |           |      |           | 67,799     |            |   |           | 102,671    |            
|                                    | Hardware sales                       |                          |           | 38,970    |           |      |           | 84,802     |            |   |           | 1,406,208  |            
|                                    |                                      |                          |           |           |           |      |           |            |            |   |           |           
|                                    |                                      |                          |           |           |           |      |           |            |            |   |           |           
|Total revenues                      |                                      |                          | 3,310,743 |           |           |      | 3,387,546 |            |            |   | 3,657,282 |           
|                                    |                                      |                          |           |           |           |      |           |            |            |   |           |           
|Cost of revenues                    |                                      |                          |           |           |           |      |           |            |            |   |           |           
|                                    | Services                             |                          |           | 912,175   |           |      |           | 1,023,634  |            |   |           | 1,239,215  |            
|                                    | Software licensing                   |                          |           | 191,394   |           |      |           | 190,023    |            |   |           | 225,103    |            
|                                    | Maintenance                          |                          |           | 110,714   |           |      |           | 87,623     |            |   |           | 96,402     |            
|                                    | Hardware sales                       |                          |           | 26,764    |           |      |           | 66,280     |            |   |           | 1,091,531  |            
|                                    |                                      |                          |           |           |           |      |           |            |            |   |           |           
|                                    |                                      |                          | 1,241,047 |           |           |      | 1,367,560 |            |            |   | 2,652,251 |           
|                                    |                                      |                          |           |           |           |      |           |            |            |   |           |           
|                                    |                                      |                          |           |           |           |      |           |            |            |   |           |           
|Gross margin                        |                                      |                          | 2,069,696 |           |           |      | 2,019,986 |            |            |   | 1,005,031 |           
|                                    |                                      |                          |           |           |           |      |           |            |            |   |           |           
|Operating expenses                  |                                      |                          |           |           |           |      |           |            |            |   |           |           
|                                    | General and administrative           |                          |           | 1,693,122 |           |      |           | 2,512,321  |            |   |           | 4,161,730  |            
|                                    | Sales and marketing                  |                          |           | 311,010   |           |      |           | 311,402    |            |   |           | 1,707,415  |            
|                                    | Research and development costs       |                          |           | 193,574   |           |      |           | 376,660    |            |   |           | 735,540    |            
|                                    | Restructuring and impairment charges |                          |           |          |           |      |           |           |            |   |           | 1,841,272  |            
|                                    | Bad debt expense                     |                          |           | 21,770    |           |      |           | 51,126     |            |   |           | 232,292    |            
|                                    |                                      |                          |           |           |           |      |           |            |            |   |           |           
|                                    |                                      |                          |           |           |           |      |           |            |            |   |           |           
|                                    |                                      | Total operating expenses |           |           | 2,219,476 |      |           |            | 3,251,509  |   |           |            | 8,678,249   |  
|                                    |                                      |                          |           |           |           |      |           |            |            |   |           |           
|                                    |                                      |                          |           |           |           |      |           |            |            |   |           |           
|                                    |                                      | Loss from operations     |           |           | (149,780  | )    |           |            | (1,231,523 | ) |           |            | (7,673,218  | )
|                                   
|Other income (losses and expenses): |                                      |                          |           |           |           |      |           |            |            |   |           |           
|                                    | Loss on disposal of equipment        |                          |           | (15,500   | )         |      |           | (11,999    | )          |   |           | (5,151     | )          
|                                    | Other income                         |                          |           | 39,363    |           |      |           | 128,050    |            |   |           | 83         |            
|                                    | Interest income                      |                          |           | 5,250     |           |      |           | 4,442      |            |   |           | 32,912     |            
|                                    | Interest expense                     |                          |           | (726,654  | )         |      |           | (1,196,384 | )          |   |           | (3,800,341 | )          
|                                    | Loss on equity investment            |                          |           |          |           |      |           |           |            |   |           | (657,840   | )          
|                                    | Non-controlling interest             |                          |           |          |           |      |           | (847,353   | )          |   |           | 847,353    |            
|                                    |                                      |                          |           |           |           |      |           |            |            |   |           |           
|                                    |                                      | Net loss                 |           | $         | (847,321  | )    |           | $          | (3,154,767 | ) |           | $          | (11,256,202 | )
|                                    |                                      |                          |           |           |           |      |           |            |            |   |           |           
|Loss per share:                     |                                      |                          |           |           |           |      |           |            |            |   |           |           
|                                    |                                      | Net loss                 |           |           |           |      |           |            |            |   |           |            |             |  
|                                    |                                      | Basic and diluted        |           | $         | (0.04     | )    |           | $          | (0.17      | ) |           | $          | (0.71       | )
|                                    |                                      |                          |           |           |           |      |           |            |            |   |           |           

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

F-3





---



##### 



Integrated Business Systems and Services, Inc.
Statements of Changes in Shareholders Deficiency
for the three years ended December 31, 2003

|                                                          |  |             |            |          |  |            |            |              |  |          |          |               |  |       |         |   |  |   |             |   |  |   |             |  
|--------------------------------------------------------- |  | ----------- | ---------- | -------- |  | ---------- | ---------- | ------------ |  | -------- | -------- | ------------- |  | ----- | ------- | - |  | - | ----------- | - |  | - | ----------- | -
|                                                          |  | Number of   |            | Common   |  | Notes      |            |              |  |          |          | Accumulated   |  |       |         |  
|                                                          |  | Common      |            | Shares   |  | Receivable |            |              |  |          |          | Deficit and   |  | Total
|                                                          |  | Shares      |            | Carrying |  | Officers/  |            | Unearned     |  | Minority |          | Shareholders'
|                                                          |  | Outstanding |            | Value    |  | Directors  |            | Compensation |  | Interest |          | Deficiency   
|                                                          |  |             |            |          |  |            |            |              |  |          |          |              
|Balance, December 31,
2000                                |  |             | 14,244,869 |          |  | $          | 10,828,400 |              |  | $        | (190,800 | )             |  | $     |        |   |  | $ | (8,877,965  | ) |  | $ | 1,759,635   |  
|Sale of common shares                                     |  |             | 1,020,000  |          |  |            | 408,600    |              |  |          |         |               |  |       |        |   |  |   |            |   |  |   | 408,600     |  
|Subordinated debt
converted to common
shares              |  |             | 1,320,000  |          |  |            | 1,650,000  |              |  |          |         |               |  |       |        |   |  |   |            |   |  |   | 1,650,000   |  
|Payment of notes
receivable
officers/directors            |  |             |           |          |  |            |           |              |  |          | 59,720   |               |  |       |        |   |  |   |            |   |  |   | 59,720      |  
|Issuance of warrants                                      |  |             |           |          |  |            | 1,979,131  |              |  |          |         |               |  |       |        |   |  |   |            |   |  |   | 1,979,131   |  
|Long-term debt
beneficial conversion                      |  |             |           |          |  |            | 2,142,724  |              |  |          |         |               |  |       |        |   |  |   |            |   |  |   | 2,142,724   |  
|Exercise of options                                       |  |             | 21,700     |          |  |            | 22,908     |              |  |          |         |               |  |       |        |   |  |   |            |   |  |   | 22,908      |  
|Exercise of warrants                                      |  |             | 1,168,125  |          |  |            | 1,009,463  |              |  |          |         |               |  |       |        |   |  |   |            |   |  |   | 1,009,463   |  
|Net loss                                                  |  |             |           |          |  |            |           |              |  |          |         |               |  |       |        |   |  |   | (11,256,202 | ) |  |   | (11,256,202 | )
|Non-controlling interest
in net assets                    |  |             |           |          |  |            |           |              |  |          |         |               |  |       |        |   |  |   | (847,353    | ) |  |   | (847,353    | )
|                                                          |  |             |            |          |  |            |            |              |  |          |          |               |  |       |         |   |  |   |             |   |  |   |             |  
|Balance, December 31,
2001                                |  |             | 17,774,694 |          |  |            | 18,041,226 |              |  |          | (131,080 | )             |  |       |        |   |  |   | (20,981,520 | ) |  |   | (3,071,374  | )
|                                                          |  |             |            |          |  |            |            |              |  |          |          |               |  |       |         |   |  |   |             |   |  |   |             |  
|Sale of common shares                                     |  |             | 523,985    |          |  |            | 142,000    |              |  |          |         |               |  |       |        |   |  |   |            |   |  |   | 142,000     |  
|Subordinated debt
converted to common
shares              |  |             | 3,821,010  |          |  |            | 767,851    |              |  |          |         |               |  |       |        |   |  |   |            |   |  |   | 767,851     |  
|Accounts payable
converted to common
shares               |  |             | 38,117     |          |  |            | 62,845     |              |  |          |         |               |  |       |        |   |  |   |            |   |  |   | 62,845      |  
|Accounts payable
converted to warrants                    |  |             |           |          |  |            | 30,000     |              |  |          |         |               |  |       |        |   |  |   |            |   |  |   | 30,000      |  
|Issuance of warrants                                      |  |             |           |          |  |            | 472,112    |              |  |          |         |               |  |       |        |   |  |   |            |   |  |   | 472,112     |  
|Deferred stock
compensation                               |  |             |           |          |  |            | 122,869    |              |  |          |         |               |  |       | (42,581 | ) |  |   |            |   |  |   | 80,288      |  
|Long-term debt
beneficial conversion                      |  |             |           |          |  |            | 228,076    |              |  |          |         |               |  |       |        |   |  |   |            |   |  |   | 228,076     |  
|Exercise of options                                       |  |             | 72,452     |          |  |            | 10,699     |              |  |          |         |               |  |       |        |   |  |   |            |   |  |   | 10,699      |  
|Net loss                                                  |  |             |           |          |  |            |           |              |  |          |         |               |  |       |        |   |  |   | (3,154,767  | ) |  |   | (3,154,767  | )
|Non-controlling interest
in net assets                    |  |             |           |          |  |            |           |              |  |          |         |               |  |       |        |   |  |   | 847,353     |   |  |   | 847,353     |  
|                                                          |  |             |            |          |  |            |            |              |  |          |          |               |  |       |         |   |  |   |             |   |  |   |             |  
|Balance, December 31,
2002                                |  |             | 22,230,258 |          |  |            | 19,877,678 |              |  |          | (131,080 | )             |  |       | (42,581 | ) |  |   | (23,288,934 | ) |  |   | (3,584,917  | )
|                                                          |  |             |            |          |  |            |            |              |  |          |          |               |  |       |         |   |  |   |             |   |  |   |             |  
|Sale of common shares                                     |  |             | 2,150,000  |          |  |            | 430,000    |              |  |          |         |               |  |       |        |   |  |   |            |   |  |   | 430,000     |  
|Subordinated debt and
interest converted to
common shares |  |             | 2,080,163  |          |  |            | 337,074    |              |  |          |         |               |  |       |        |   |  |   |            |   |  |   | 337,074     |  
|Accounts payable
converted to common
shares               |  |             | 112,618    |          |  |            | 23,660     |              |  |          |         |               |  |       |        |   |  |   |            |   |  |   | 23,660      |  
|Issuance of warrants for
services                         |  |             |           |          |  |            | 19,000     |              |  |          |         |               |  |       |        |   |  |   |            |   |  |   | 19,000      |  
|Deferred stock
compensation                               |  |             |           |          |  |            | 162,477    |              |  |          |         |               |  |       | 42,581  |   |  |   |            |   |  |   | 205,058     |  
|Stock issued for services                                 |  |             | 125,000    |          |  |            | 16,250     |              |  |          |         |               |  |       |        |   |  |   |            |   |  |   | 16,250      |  
|Exercise of options                                       |  |             | 182,365    |          |  |            | 1,861      |              |  |          |         |               |  |       |        |   |  |   |            |   |  |   | 1,861       |  
|Net loss                                                  |  |             |           |          |  |            |           |              |  |          |         |               |  |       |        |   |  |   | (847,321    | ) |  |   | (847,321    | )
|                                                          |  |             |            |          |  |            |            |              |  |          |          |               |  |       |         |   |  |   |             |   |  |   |             |  
|Balance, December 31,
2003                                |  |             | 26,880,404 |          |  | $          | 20,868,000 |              |  | $        | (131,080 | )             |  | $     |        |   |  | $ | (24,136,255 | ) |  | $ | (3,399,335  | )
|                                                          |  |             |            |          |  |            |            |              |  |          |          |               |  |       |         |   |  |   |             |   |  |   |             |  

The accompanying notes are an integral part of these financial statements

F-4





---



##### 



Integrated Business Systems and Services, Inc.
Statements of Cash Flows
for the years ended December 31,

|                                                            |                                                                                       |   |          |         |      |   |            |          |   |   |             |            |  
|----------------------------------------------------------- | ------------------------------------------------------------------------------------- | - | -------- | ------- | ---- | - | ---------- | -------- | - | - | ----------- | ---------- | -
|                                                            |                                                                                       |   | 2003     |         | 2002 |   | 2001      
|                                                            |                                                                                       |   |          |         |      |   |           
|Operating activities                                        |                                                                                       |   |          |         |      |   |            |          |   |   |             |           
|Net loss                                                    |                                                                                       | $ | (847,321 | )       |      | $ | (3,154,767 | )        |   | $ | (11,256,202 | )         
|                                                            | Adjustments to reconcile net loss to cash
provided by (used in) operating activities: |   |          |         |      |   |            |          |   |   |             |            |  
|                                                            | Depreciation                                                                          |   |          | 146,369 |      |   |            | 148,879  |   |   |             | 154,312    |  
|                                                            | Provision for losses on notes and accounts
receivable                                 |   |          |        |      |   |            | 41,601   |   |   |             | 215,599    |  
|                                                            | Amortization of software costs                                                        |   |          | 178,122 |      |   |            | 179,217  |   |   |             | 179,219    |  
|                                                            | Loss on disposal of equipment                                                         |   |          | 15,500  |      |   |            | 11,999   |   |   |             | 5,151      |  
|                                                            | Loss on equity investments                                                            |   |          |        |      |   |            |         |   |   |             | 657,840    |  
|                                                            | Non-controlling interest in net loss                                                  |   |          |        |      |   |            | 847,353  |   |   |             | (847,353   | )
|                                                            | Non-cash interest expense                                                             |   |          | 306,301 |      |   |            | 815,263  |   |   |             | 3,525,606  |  
|                                                            | Non-cash restructuring and impairment charges                                         |   |          |        |      |   |            |         |   |   |             | 1,841,272  |  
|                                                            | Deferred compensation                                                                 |   |          | 205,058 |      |   |            | 80,288   |   |   |             |           |  
|                                                            | Issuance of warrants and stock for
professional services                              |   |          | 35,250  |      |   |            | 72,000   |   |   |             | 174,873    |  
|Changes in operating assets and liabilities:                |                                                                                       |   |          |         |      |   |            |          |   |   |             |           
|                                                            | Accounts receivable                                                                   |   |          | (62,674 | )    |   |            | 162,398  |   |   |             | (1,191,310 | )
|                                                            | Unbilled revenue                                                                      |   |          |        |      |   |            | 38,856   |   |   |             | (38,856    | )
|                                                            | Interest receivable                                                                   |   |          | (5,250  | )    |   |            | (1,904   | ) |   |             | 627        |  
|                                                            | Prepaid expenses and other assets                                                     |   |          | 22,562  |      |   |            | (35,193  | ) |   |             | 28,868     |  
|                                                            | Accounts payable                                                                      |   |          | (49,658 | )    |   |            | (151,877 | ) |   |             | 159,728    |  
|                                                            | Accrued expenses                                                                      |   |          | 179,244 |      |   |            | 182,878  |   |   |             | 1,128,271  |  
|                                                            | Deferred revenue                                                                      |   |          | (63,264 | )    |   |            | (20,050  | ) |   |             | 45,227     |  
|                                                            |                                                                                       |   |          |         |      |   |            |          |   |   |             |           
|Cash provided by (used in) operating activities             |                                                                                       |   | 60,239   |         |      |   | (783,059   | )        |   |   | (5,217,128  | )         
|                                                            |                                                                                       |   |          |         |      |   |            |          |   |   |             |           
|Investing activities                                        |                                                                                       |   |          |         |      |   |            |          |   |   |             |           
|Payment for purchases of equity interests in
affiliates     |                                                                                       |   |         |         |      |   |           |          |   |   | (540,000    | )         
|Sale (purchase) of investments                              |                                                                                       |   |         |         |      |   |           |          |   |   | 50,000      |           
|Purchases of property and equipment                         |                                                                                       |   | (139,560 | )       |      |   | (560       | )        |   |   | (155,883    | )         
|Proceeds from sale of property and equipment                |                                                                                       |   |         |         |      |   | 3,900      |          |   |   | 5,703       |           
|Related party receivables, net                              |                                                                                       |   | 5,600    |         |      |   | 9,794      |          |   |   | 58,905      |           
|                                                            |                                                                                       |   |          |         |      |   |            |          |   |   |             |           
|Cash (used in) provided by investing activities             |                                                                                       |   | (133,960 | )       |      |   | 13,134     |          |   |   | (581,275    | )         
|                                                            |                                                                                       |   |          |         |      |   |            |          |   |   |             |           
|Financing activities                                        |                                                                                       |   |          |         |      |   |            |          |   |   |             |           
|Payments on notes payable, net                              |                                                                                       |   | (322,500 | )       |      |   | (175,000   | )        |   |   |            |           
|Proceeds from issuance of convertible debt                  |                                                                                       |   |         |         |      |   | 839,000    |          |   |   | 2,836,640   |           
|Proceeds from issuance of long-term debt                    |                                                                                       |   | 130,000  |         |      |   |           |          |   |   |            |           
|Payments on long-term debt                                  |                                                                                       |   | (6,589   | )       |      |   |           |          |   |   |            |           
|Sale of common shares                                       |                                                                                       |   | 430,000  |         |      |   | 100,000    |          |   |   | 408,600     |           
|Proceeds from exercise of common stock options
and warrants |                                                                                       |   | 1,861    |         |      |   | 10,699     |          |   |   | 1,032,371   |           
|Proceeds from issuance of convertible
promissory notes      |                                                                                       |   |         |         |      |   | 45,000     |          |   |   | 826,000     |           
|                                                            |                                                                                       |   |          |         |      |   |            |          |   |   |             |           
|Cash provided by financing activities                       |                                                                                       |   | 232,772  |         |      |   | 819,699    |          |   |   | 5,103,611   |           
|                                                            |                                                                                       |   |          |         |      |   |            |          |   |   |             |           
|Net increase (decrease) in cash                             |                                                                                       |   | 159,051  |         |      |   | 49,774     |          |   |   | (694,792    | )         
|Cash and cash equivalents at beginning of period            |                                                                                       |   | 55,874   |         |      |   | 6,100      |          |   |   | 700,892     |           
|                                                            |                                                                                       |   |          |         |      |   |            |          |   |   |             |           
|Cash and cash equivalents at end of period                  |                                                                                       | $ | 214,925  |         |      | $ | 55,874     |          |   | $ | 6,100       |           
|                                                            |                                                                                       |   |          |         |      |   |            |          |   |   |             |           

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

F-5





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Integrated Business Systems and Services, Inc.
Notes to Consolidated Financial Statements

Note 1. Going Concern:

The accompanying financial statements have been prepared on a going concern
basis, which contemplates the realization of assets and the satisfaction of
liabilities in the normal course of business. As shown in the financial
statements, Integrated Business Systems and Services, Inc. (IBSS) has a
working capital deficiency and an accumulated deficit of approximately $699,000
and $24,100,000, respectively at December 31, 2003. Ultimately, IBSS
viability as a going concern is dependent upon its ability to generate positive
cash flows from operations, maintain adequate working capital and obtain
satisfactory long-term financing. However, there can be no assurances that
IBSS will be successful in the above endeavors.

The financial statements do not include any adjustments relating to the
recoverability and classification of liabilities that might be necessary should
IBSS be unable to continue as a going concern. IBSS plans include the
following, although it is not possible to predict the ultimate outcome of IBSS
efforts.

Cost and Expense Reductions.IBSS was able to reduce by approximately 80% the
costs associated with its operating facilities, including reductions in its
lease obligations and its expenditures for furniture, fixtures and equipment.
In the absence of any substantial infusion of growth capital during the year,
IBSS has no plans during 2004 for any significant capital expenditures.

Investor Debt and Other Payables.On October 1, 2003, IBSS restructured
substantially all of its short-term investor debt. Under the restructured debt
instruments, approximately 90% of the principal balance is not payable until
the fourth quarter of 2006.

In the months since the issuance of IBSS currently outstanding convertible
debt, holders of a portion of this debt have converted the principal and
accrued interest on all or a portion of their debt into common stock. Although
these conversions have reduced IBSS principal and interest obligations, in the
first quarter of 2004, IBSS will be faced with principal and interest
obligations on the remaining convertible debt that it will not be able to
satisfy from currently projected cash flows from operations.

Additional Capital. IBSS is seeking to raise additional capital during 2004
through the private placement of convertible debt or equity securities.
Because of several factors, including the operating, market and industry risks
associated with an investment in its common stock, the fact that IBSS common
stock is no longer traded on the Nasdaq Stock Market and is currently traded on
the Over-the-Counter Bulletin Board maintained by the NASD, and the continued
weakness in the capital markets in general and the technology sectors in
particular, IBSS may experience difficulty in raising additional financing
until its operating results or overall market conditions reflect sustained
improvement.

F-6





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Integrated Business Systems and Services, Inc.
Notes to Consolidated Financial Statements

Note 2. Summary of Significant Accounting Policies:

All financial information presented in these financial statements is expressed
in U.S. dollars, except as otherwise noted. The Canadian exchange rates to one
U.S. dollar at December 31, 2003 and 2002 were $ 1.2946 and $1.5769,
respectively.

IBSS was incorporated in 1990 and is located in Columbia, South Carolina. IBSS
is the provider of Synapse,a complete framework and methodology used to
create, implement and manage a wide variety of dynamic, distributed, networked,
and real-time enterprise applications. Synapseutilizes a single, flexible
framework to provide time and cost advantages in the development, deployment,
and on-going management of customized applications. IBSS provides solutions to
customers for mission-critical technologies in manufacturing, distribution,
healthcare, finance, insurance, retail, education and government using
Synapseto take advantage of technologies such as wireless networking, mobile
computing and radio frequency identification.

Basis of Consolidation In 2003, 2002 and 2001, the consolidated financial
statements include the accounts of IBSS and its majority-owned subsidiary
(Synamco, L.L.C.) (collectively IBSS).

Cash and Cash Equivalents IBSS considers all highly liquid investments with a
maturity of three months or less at date of acquisition to be cash equivalents.

Accounts Receivable Accounts receivable are customer obligations due under
normal trade terms. IBSS performs continuing credit evaluations of its clients
and generally does not require collateral. Management reviews accounts
receivable on a regular basis to determine if any receivables will potentially
be uncollectible. Any accounts receivable balances that are determined to be
uncollectible are included in the allowance for doubtful accounts. After all
attempts to collect a receivable have failed, the receivable is written off
against the allowance. Based on the information available, management believes
all accounts receivable are fully collectable and therefore has not established
an allowance as of December 31, 2003. However, actual write-offs may occur on
the outstanding accounts receivable balances.

Property and Equipment Property and equipment, including certain support
software acquired for internal use, are stated at cost less accumulated
depreciation and amortization. Property and equipment are depreciated on a
straight-line basis over their estimated useful lives, generally ranging from
five to seven years. Leasehold improvements are amortized over the lesser of
the term of the respective lease or estimated useful life of the improvement.
Expenditures for major renewals and betterments that extend the useful lives of
property and equipment are capitalized. Expenditures for maintenance and
repairs are charged to expense as incurred. Upon retirement or sale, the cost
of the disposed asset and the related accumulated depreciation are removed from
the accounts, and any resulting gain or loss is credited or charged to income.

Goodwill and Other Intangible Assets IBSS tests goodwill and other intangible
assets with indefinite lives for impairment on an annual basis (or on an
interim basis if an event occurs that might reduce the fair value of the
reporting unit below its carrying value.).

Investment in Affiliated Company The equity method of accounting is used for
companies and other investments in which IBSS has significant influence;
generally this represents common stock ownership or partnership equity of at
least 20% and not more than 50%. IBSS investments in affiliates are stated at
cost, adjusted for equity in undistributed earnings or losses, since
acquisition.

F-7





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##### 



Integrated Business Systems and Services, Inc.
Notes to Consolidated Financial Statements

Note 2. Summary of Significant Accounting Policies (continued):

Revenue Recognition IBSS revenues are generated primarily by licensing to
customers standardized manufacturing software systems and providing integration
services, automation and administrative support and information services to the
manufacturing industry. IBSS recognizes revenues related to software licenses
and software maintenance in accordance with the guidance of Staff Accounting
Bulletin (SAB) No. 101, Revenue Recognition in Financial Statements, SAB
No. 104, Revenue Recognition, and with the American Institute of Certified
Public Accountants Statement of Position No. 97-2, Software Revenue
Recognition, as amended.

IBSS generally recognizes revenue when all of the following criteria are met:
(1) persuasive evidence of an arrangement exists; (2) delivery has occurred;
(3) the fee is fixed or determinable; and (4) collectibility is probable. Each
of these four criteria above is defined as follows:

Persuasive evidence of an arrangement exists. It is IBSS customary practice
to have a written contract, which is signed by both the customer and IBSS or,
in situations where a contract is not required; a customer purchase order has
been received.

Delivery has occurred. IBSS software may be either physically or
electronically delivered to the customer. Delivery is deemed to have occurred
upon the delivery of the electronic code or the shipment of the physical
product based on standard contractual committed shipping terms, whereby risk of
loss passes to the customer when the shipment is picked up by the carrier. If
undelivered products or services exist in an arrangement that are essential to
the functionality of the delivered product, delivery is not considered to have
occurred until these products or services are delivered as described above.

The fee is fixed or determinable. IBSS customers generally pay a per-license
fee that is based on the number of servers on which the software is installed,
the size of the application that they will develop for the software, the
options provided for those servers, and the number of client workstations that
access the server. Additional license fees are due when the total number of
subscribers using IBSS products increases beyond the specified number for
which a license was purchased or when additional options are added. License
fees are generally due within 30-45 days from product delivery.

Collectibility is probable. Collectibility is assessed on a
customer-by-customer basis. IBSS typically sells to customers with high credit
ratings and solid payment practices. New customers are subjected to a credit
review process in which IBSS evaluates the customers financial position and
ultimately their ability to pay. If it is determined from the outset of an
arrangement that collectibility is not probable based upon the credit review
process, revenue is recognized as cash payments are received.

IBSS agreements with its customers and resellers do not contain product return
rights. Revenues from maintenance, which consist of fees for ongoing support
and product updates, are recognized ratably over the term of the contract,
typically one year. Cash payments received in advance of product or service
revenue are recorded as deferred revenue. Consulting revenues are primarily
related to implementation services performed on a time and materials basis
under separate service arrangements.

Research and Development Research and development costs consist of
expenditures incurred during the course of planned search and investigation
aimed at discovery of new knowledge which will be useful in developing new
products or processes, or significantly enhancing existing products or
production processes, and the implementation of such through design, testing of
product alternatives or construction of working models. Such costs are charged
to operations as incurred.

F-8





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##### 



Integrated Business Systems and Services, Inc.
Notes to Consolidated Financial Statements

Note 2. Summary of Significant Accounting Policies (continued):

Impairment of Long-Lived Assets On determining that assets have been impaired
or are to be disposed of, including discontinued operations, IBSS measures the
lower of the carrying value of fair value less costs to sell, whether reported
in continuing operations or discontinued operations. IBSS reviews its
long-lived assets for impairment whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be recoverable.
Recoverability of assets held and used other than goodwill is measured by a
comparison of the carrying amount of an asset to future net cash flows expected
to be generated by the asset. If such assets are considered to be impaired,
the impairment to be recognized is measured by the amount by which the carrying
amount of the assets exceeds the fair value of the assets. Assets to be
disposed of are reported at the lower of their carrying amount or fair value of
the assets. The recoverability of goodwill is assessed whenever the facts and
circumstances suggest that the asset may be impaired and that the write-down is
material. IBSS assesses the recoverability of goodwill by determining whether
the unamortized goodwill balance can be recovered through undiscounted future
cash flows.

Software Development Costs Under the provisions of SFAS No. 86, Accounting
for the Costs of Computer Software to be Sold, Leased or Otherwise Marketed,
issued by the Financial Accounting Standards Board (FASB), certain costs
incurred in the internal development of computer software, which is to be
licensed to customers, are capitalized. Amortization of capitalized software
costs is provided upon commercial release of the products at the greater of the
amount using (i) the ratio that current gross revenues for a product bear to
the total of current and anticipated future gross revenues of that product or
(ii) the straight-line method over the remaining estimated economic life of the
product including the period being reported on. IBSS generally amortizes
capitalized software costs on a straight-line basis over five years.

Costs that are capitalized as part of internally developed software primarily
include direct and indirect costs associated with payroll, computer time and
allocable depreciation and other direct allocable costs, among others. All
costs incurred prior to the establishment of technological feasibility, which
IBSS defines as the earlier to occur of (1) establishment of a detail program
design or (2) the development of a working model, have been expensed as
research and development costs during the periods in which they were incurred.
Once technological feasibility has been achieved, costs of producing the
product master are capitalized. Capitalization stops when the product is
available for general release. The amount, by which unamortized software costs
exceed the estimated net realizable value, if any, is charged to income in the
period it is determined. IBSS evaluates the net realizable value of
capitalized computer software costs and intangible assets on an ongoing basis
relying on a number of factors, including operating results, business plans,
budgets and economic projections.

Because IBSS believes its current process for developing software is
essentially completed concurrently with the establishment of a working model,
no costs have been capitalized during 2003 or 2002.

Stock-Based Compensation IBSS applies Accounting Principles Board Opinion No.
25, Accounting for Stock Issued to Employees (APB 25) and related
interpretations in accounting for its stock-based compensation plans and
applies the disclosure-only provisions of FASB Statement No. 123, Accounting
for Stock-Based Compensation (SFAS 123), as amended by FASB Statement No.
148, Accounting for Stock-Based Compensation-Transition and Disclosure (SFAS
148).

IBSS recognizes stock-based compensation expense for stock options granted to
employees and non-employee directors if the quoted market price of the stock at
the date of the grant or award exceeds the price, if any, to be paid by an
employee for the exercise of the stock.

F-9





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Integrated Business Systems and Services, Inc.
Notes to Consolidated Financial Statements

Note 2. Summary of Significant Accounting Policies (continued):

Stock-Based Compensation (continued) Had compensation cost for options
granted under IBSS stock-based compensation plans been determined based on the
fair value at the grant dates consistent with SFAS 123, IBSS net income and
earnings per share would have changed to the pro forma amounts listed below:

|                                                                                                     |              |                   |          |      |       |      |            |      |       |   |             |   |       |  
|---------------------------------------------------------------------------------------------------- | ------------ | ----------------- | -------- | ---- | ----- | ---- | ---------- | ---- | ----- | - | ----------- | - | ----- | -
|                                                                                                     |              |                   |          | 2003 |       | 2002 |            | 2001
|                                                                                                     |              |                   |          |      |       |      |            |     
|Net loss:                                                                                            |              |                   |          |      |       |      |            |      |       |   |             |  
|As reported                                                                                          |              | $                 | (847,321 | )    |       | $    | (3,154,767 | )    |       | $ | (11,256,202 | )
|Add: stock-based
compensation expense
included in reported net
loss                                  |              |                   | 205,058  |      |       |      | 80,288     |      |       |   |            |  
|Deduct: stock-based
compensation expense
determined under the fair
value based method for
all awards |              |                   | (305,465 | )    |       |      | (750,043   | )    |       |   | (749,615    | )
|                                                                                                     |              |                   |          |      |       |      |            |      |       |   |             |  
|Pro forma net loss                                                                                   |              | $                 | (947,728 | )    |       | $    | (3,824,522 | )    |       | $ | (12,005,817 | )
|                                                                                                     |              |                   |          |      |       |      |            |      |       |   |             |  
|Net loss per common share:                                                                           |              |                   |          |      |       |      |            |      |       |   |             |  
|                                                                                                     | As reported: |                   |          |      |       |      |            |      |       |   |             |   |      
|                                                                                                     |              | Basic and diluted |          | $    | (0.04 | )    |            | $    | (0.17 | ) |             | $ | (0.71 | )
|                                                                                                     |              |                   |          |      |       |      |            |      |       |   |             |  
|                                                                                                     | Pro forma:   |                   |          |      |       |      |            |      |       |   |             |   |      
|                                                                                                     |              | Basic and diluted |          | $    | (0.04 | )    |            | $    | (0.20 | ) |             | $ | (0.76 | )
|                                                                                                     |              |                   |          |      |       |      |            |      |       |   |             |  

See Note 11 for more information regarding IBSS stock compensation plans and
the assumptions used to prepare the pro forma information presented above.

Income Taxes Deferred income tax assets and liabilities are computed for
differences between the financial statement and tax bases of assets and
liabilities that will result in taxable or deductible amounts in future periods
based on enacted tax laws and rates applicable to the periods in which the
differences are expected to affect taxable income. Valuation allowances are
established when necessary to reduce deferred tax assets to the amount expected
to be realized. Income tax expense is the tax payable or refundable for the
period plus or minus the change during the period in deferred tax assets and
liabilities.

Equity Instruments IBSS issues various types of debt and equity instruments
in its efforts to meet the capital needs of the company.

IBSS follows APB 14, Accounting for Convertible Debt and Debt Issued with
Stock Purchase Warrants (APB 14) in its accounting for issuances of
convertible debt with detachable stock purchase warrants. In accordance with
APB 14, IBSS allocates the portion of proceeds of debt securities issued with
detachable stock purchase warrants, which is allocable to warrants as
paid-in-capital, included as a component of its no par value common stock.
IBSS determines the fair value of stock purchase warrants using Black-Scholes
valuation techniques.

F-10





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Integrated Business Systems and Services, Inc.
Notes to Consolidated Financial Statements

Note 2. Summary of Significant Accounting Policies (continued):

Equity Instruments (continued) From time to time, IBSS issues convertible
securities with beneficial conversion features, whereby the conversion feature
is in the money and therefore there is a presumption that the debt will be
converted prior to, or at, maturity. In accordance with FASB Emerging Issues
Task Force (EITF) 98-5, Accounting for Convertible Securities with
Beneficial Conversion Features or Contingently Adjustable Conversion Ratios,
IBSS allocates a portion of the proceeds equal to the intrinsic value of the
embedded beneficial conversion feature to additional paid-in-capital, included
as a component of its no par value common stock. IBSS recognizes the proceeds
allocated to the beneficial conversion feature as interest expense through the
date of earliest conversion. IBSS limits the discount assigned to the
beneficial conversion feature to the amount of proceeds allocated to the
convertible instrument. During the years ended December 31, 2002 and 2001,
interest expense attributable to the beneficial conversion feature was reduced
by approximately $615,000 and $600,000, respectively, due to the limits imposed
upon IBSS by EITF 98-5.

In accordance with EITF 00-27, Application of Issue 98-5 to Certain
Convertible Instruments IBSS allocates the proceeds received in a financing
transaction that includes a convertible instrument to the convertible
instrument and any other detachable instruments included in the exchange on a
relative fair value basis.

During the three years ended December 31, 2003, IBSS granted fully exercisable
warrants for services rendered. The fair market value of the warrants was
calculated on the measurement date using the Black-Scholes pricing model and is
generally amortized ratably over the term of the respective agreement or
service period, whichever is shorter.

Use of Estimates The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect certain reported amounts of assets and liabilities
and disclosures of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses during
the reporting period. Accordingly, actual results could materially differ from
those estimates.

Concentrations of Credit Risk Financial instruments, which potentially
subject IBSS to concentrations of credit risk, consist principally of trade
accounts receivable and cash in banks.

IBSS performs ongoing credit evaluations on certain of its customers financial
condition, but generally does not require collateral to support customer
receivables. IBSS places its cash and cash equivalents with high credit
quality entities and limits the amount of credit exposure with any one entity.
Deposits held with banks may exceed the amount of insurance provided on such
deposits. Generally, these deposits may be redeemed upon demand and therefore
bear minimal risk.

IBSS two largest customers accounted for the following percentage of net sales
in each respective period:

|     |  |                  |    |                      |  |  |    |  
|---- |  | ---------------- | -- | -------------------- |  |  | -- | -
|     |  | Largest Customer |    | 2nd Largest Customer
|     |  |                  |    |                     
|2003 |  |                  | 93 | %                    |  |  | 4  | %
|2002 |  |                  | 88 | %                    |  |  | 11 | %
|2001 |  |                  | 52 | %                    |  |  | 44 | %

F-11





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Integrated Business Systems and Services, Inc.
Notes to Consolidated Financial Statements

Note 2. Summary of Significant Accounting Policies (continued):

Concentrations of Credit Risk Accounts receivable due from these customers
were approximately $250,000 (94%) and $183,000 (90%) at December 31, 2003 and
2002, respectively. No other customers accounted for more than 5% of fiscal
2003, 2002 or 2001 net sales.

Foreign Currency Transactions Transaction gains and losses are included in
the results of operations in the period in which they occur. Assets and
liabilities are translated utilizing year-end exchange rates. IBSS did not
have any material transaction gains or losses for the three years ended
December 31, 2003.

Net Loss Per Share of Common Stock All net loss per share of common stock
amounts presented have been computed based on the weighted average number of
shares of common stock outstanding during the period. Stock warrants and stock
options are not included in the calculation of dilutive loss per common share
because IBSS has experienced operating losses in all periods presented and
their effect is antidilutive.

Financial Instruments The carrying values of cash and cash equivalents,
accounts receivable and accounts payable approximate fair value due to their
short maturities. The carrying value of IBSS notes payable and long-term debt
at December 31, 2003 and 2002 approximate fair value as they bear interest at
market rates.

Advertising Costs IBSS expenses all advertising costs as incurred.

Non-Controlling Interest in Net Assets IBSS records the minority interest
portion of its majority-owned operations, which are applicable to the minority
interest partners, as a component of equity and in its statements of
operations.

New Accounting Standards In January 2003, the Financial Accounting Standards
Board (FASB) issued FASB Interpretation No. 46 (FIN No. 46), Consolidation
of Variable Interest Entities. FIN No. 46 is an interpretation of Accounting
Research Bulletin No. 51, Consolidated Financial Statements, and addresses
consolidation by business enterprises of variable interest entities. FIN 46
applies immediately to variable interest entities created or obtained after
January 31, 2003 and it applies in the first fiscal year or interim period
ending after December 15, 2003, to variable interest entities in which an
enterprise holds a variable interest that is acquired before February 1, 2003.
Management believes that the adoption of this pronouncement will not have a
material effect on the IBSSs financial position or results of operations.

In May 2003, the FASB issued Statement of Financial Accounting Standard
(SFAS) No. 150, Accounting for Certain Financial Instruments with
Characteristics of both Liabilities and Equity. SFAS No. 150 changes the
classification in the statement of financial position of certain common
financial instruments from either equity or mezzanine presentation to
liabilities and requires an issuer of those financial statements to recognize
changes in fair value or redemption amount, as applicable, in earnings. SFAS
No. 150 is effective for financial instruments entered into or modified after
May 31, 2003, and otherwise is effective at the beginning of the first interim
period beginning after June 15, 2003. The adoption of SFAS No. 150 did not
have an impact on the IBSSs financial position or results of operations.

Reclassifications Certain reclassifications have been made to the 2002 and
2001 financial statements to conform to the 2003 presentation.

F-12





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Integrated Business Systems and Services, Inc.
Notes to Consolidated Financial Statements

Note 3. Acquisitions:

In June 2000, IBSS established the corporate charter of ASP*N, LLC (ASP*N),
as a 25% joint venture with a financial services company. ASP*Ns primary
purpose was to develop and implement technological strategies for application
service providers.

During 2000, IBSS invoiced ASP*N approximately $500,000 for professional and
technology services provided to Wilcam Systems, LLC (Wilcam) through ASP*N.
On December 29, 2000, IBSS exercised its option for an additional 25% interest
in ASP*Ns membership interests in exchange for the receivable balance of
approximately $500,000 due from ASP*N, which management believes was recorded
in accordance with EITF 00-8, Accounting by a Grantee for an Equity
Instrument to be Received in Conjunction with Providing Goods or Services.
After IBSS eliminations, the sale of services resulted in a net services
revenue recognition of approximately $284,000. Expenses associated with these
services were general and administrative expenses and are accordingly reflected
as such in these financial statements. At December 31, 2000, IBSS owned a
43.02% interest in ASP*N, after certain dilutive effects occurring as a result
of third party investments in ASP*N.

On November 10, 2000, ASP*N contributed professional and technology consulting
services to Wilcam for a 50% equity interest in Wilcams Class B membership
interests and purchased an additional 4% of Wilcams Class C non-voting
membership interests for $600,000. On December 29, 2000, ASP*N exercised its
option for 3.5% of Wilcams Class D membership interests. The November 10 and
December 29, 2000 purchases of Class C and Class D non-voting membership
interests diluted the Class B membership interests by 3.75%. At December 31,
2000, ASP*Ns resulting ownership percentages in Wilcam were 46.25% Class B,
4.0 % Class C and 3.5% Class D membership interests.

During 2000, IBSS loaned $305,000 to Wilcam for operational purposes. The note
bears interest at the prime rate plus 1% and is due on demand. In addition,
IBSS invoiced Wilcam approximately $165,000 for maintenance and consulting
services. On January 17, 2001, IBSS converted approximately $180,000 of the
Wilcam loan to a 1.2% equity interest in Wilcams Class D membership interests.

On March 22, 2001, IBSS purchased an additional 2.4% investment in Wilcams
Class D non-voting membership interests for $360,000.

On October 1, 2001, IBSS assigned 12.05% of its investment in ASP*N to a 3rd
party, resulting in a residual interest in ASP*N of 30.97%, and a cost basis of
$500,000. In December 2001, Synamco, L.L.C. was formed to continue development
of Synapse-HR, a web-based federal Family Medical Leave Act attendance and
benefits management software program. On December 13, 2001, IBSS exchanged its
residual interest in ASP*N of 30.97% for 50.38% and 3.6% voting and non-voting
membership interests, respectively, for Synamco, L.L.C. membership interests.
In accordance with EITF 98-7 Accounting for Exchanges of Similar Equity Method
Investments, IBSS recorded the exchange transaction at the fair value of the
net assets received by IBSS.

As of December 13, 2001, Synamco, LLC had software capitalized in accordance
with SFAS No. 86, Accounting for the Costs of Computer Software to be Sold,
Leased or Otherwise Marketed of approximately $860,000, goodwill of
approximately $982,000, and liabilities of approximately $1,842,000. The
capitalized software was comprised principally of a Synapse license purchased
from IBSS by Wilcam for approximately $500,000, and a portion of professional
services purchased from IBSS by Wilcam for approximately $1,787,000.

F-13





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##### 



Integrated Business Systems and Services, Inc.
Notes to Consolidated Financial Statements

Note 3. Acquisitions (continued):

At December 31, 2001, IBSS determined its investment in Synamco, L.L.C. and the
related goodwill to be impaired under the provisions of SFAS No. 121
Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets
to be Disposed of. Due to significant capital constraints, IBSS has not
budgeted for any sales from Synamco, L.L.C. and therefore, the present value of
estimated future cash flows is estimated by management to be minimal. As a
result of the impairment analysis performed by IBSS, approximately $1,842,000
has been charged against 2001 operations.

During the fourth quarter of 2002, due to inactivity in Synamco, L.L.C., and no
plans to expend significant efforts for the sales of Synapse-HR, IBSS forgave
the receivable owed it for Synamco, L.L.C. in the approximate amount of
$1,860,000, which had previously eliminated in consolidation. The effects of
the forgiveness of the obligation eliminated the minority interest position in
these financial statements.

No activity related to Wilcam or Synamco occurred in 2003.

Note 4. Capitalized Software Costs:

Capitalized software costs consist of the following at December 31:

|                                |  |      |          |      |  |   |          |  
|------------------------------- |  | ---- | -------- | ---- |  | - | -------- | -
|                                |  | 2003 |          | 2002
|                                |  |      |          |     
|                                |  |      |          |      |  |   |          |  
|Internally developed software   |  | $    | 998,105  |      |  | $ | 998,105  |  
|Less accumulated amortization   |  |      | (934,933 | )    |  |   | (756,811 | )
|                                |  |      |          |      |  |   |          |  
|                                |  |      |          |      |  |   |          |  
|Capitalized software costs, net |  | $    | 63,172   |      |  | $ | 241,294  |  
|                                |  |      |          |      |  |   |          |  

IBSS has determined that no write-down of capitalized software costs for
impairment is necessary for the reporting periods included in these financial
statements.

Note 5. Property and Equipment:

Property and equipment consists of the following at December 31:

|                              |  |      |          |      |  |   |          |  
|----------------------------- |  | ---- | -------- | ---- |  | - | -------- | -
|                              |  | 2003 |          | 2002
|                              |  |      |          |     
|Computer equipment            |  | $    | 270,962  |      |  | $ | 300,989  |  
|Furniture and fixtures        |  |      | 138,062  |      |  |   | 145,399  |  
|Marketing equipment           |  |      | 107,514  |      |  |   | 107,514  |  
|Office and other equipment    |  |      | 102,831  |      |  |   | 95,582   |  
|Computer software             |  |      | 76,271   |      |  |   | 76,800   |  
|Leasehold improvements        |  |      | 130,000  |      |  |   | 39,071   |  
|                              |  |      |          |      |  |   |          |  
|                              |  |      | 825,640  |      |  |   | 765,355  |  
|Less accumulated depreciation |  |      | (448,100 | )    |  |   | (365,506 | )
|                              |  |      |          |      |  |   |          |  
|                              |  |      |          |      |  |   |          |  
|Property and equipment, net   |  | $    | 377,540  |      |  | $ | 399,849  |  
|                              |  |      |          |      |  |   |          |  

F-14





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##### 



Integrated Business Systems and Services, Inc.
Notes to Consolidated Financial Statements

Note 6. Convertible Notes Payable:

|                                                                                                                                                                                                                                                                  |  |      |         |      |  |   |         | 
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ---- | ------- | ---- |  | - | ------- | 
|                                                                                                                                                                                                                                                                  |  | 2003 |         | 2002
|                                                                                                                                                                                                                                                                  |  |      |         |     
|Note payable to a third party bearing
interest at 10%, principal and interest
due on demand. Principal and interest
are convertible into common shares at
$1.00 per share                                                                                         |  | $    |        |      |  | $ | 75,000  | 
|Note payable to a third party bearing
interest at 10%, established minimum
monthly principal and interest payments,
original note balance of $350,000, note
matures January 1, 2004. Principal and
interest are convertible into common
shares at $0.50 per share |  |      | 431,289 |      |  |   | 350,000 | 
|Note payable to a third party bearing
interest at 10%, established minimum
monthly principal and interest payments,
original note balance of $271,000, note
matures January 1, 2004. Principal and
interest are convertible into common
shares at $0.50 per share |  |      | 64,930  |      |  |   | 271,000 | 
|                                                                                                                                                                                                                                                                  |  |      |         |      |  |   |         | 
|                                                                                                                                                                                                                                                                  |  | $    | 496,219 |      |  | $ | 696,000 | 
|                                                                                                                                                                                                                                                                  |  |      |         |      |  |   |         | 

Under the terms of the convertible notes payable, if the required minimum
monthly payments (as prescribed in the notes) are not made, the note is in
default status. In the event of default, the notes are due on demand and
interest escalates to 22%. All events of default occurring through August 15,
2003 were waived by the note holders. Subsequent to August 15, 2003, the notes
were considered to be in default and accrued interest at 22%. All payments
made under the notes are required by the holder to be applied first to interest
and then to principal and any interest which is not received by the due date be
added to the principal balance and bear interest in the same manner as any
unpaid note balances. The notes are collateralized by all of the assets of
IBSS.

As part of the financing, IBSS issued the debt holders 423,000 detachable
warrants with three-year terms, which entitle the holder to purchase one common
share for each warrant. The warrants are exercisable at prices ranging from
$1.00 to $3.30 per share.

Note 7. Long-Term Debt:

|                                                                                                                                                                                               |  |      |           |      |  |   |           |  
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ---- | --------- | ---- |  | - | --------- | -
|                                                                                                                                                                                               |  | 2003 |           | 2002
|                                                                                                                                                                                               |  |      |           |     
|Loan payable to an executive
officer bearing interest at prime
rate, principal and interest due on
demand on or after January 1, 2005                                                          |  | $    | 107,048   |      |  | $ |          |  
|Loan payable to an executive
officer bearing interest at prime
rate, principal and interest due on
demand on or after January 1, 2005                                                          |  |      | 98,042    |      |  |   |          |  
|Loan payable to an executive
officer bearing interest at prime
rate, principal and interest due on
demand on or after January 1, 2005                                                          |  |      | 107,048   |      |  |   |          |  
|Loan payable to a third party,
interest at 10%, interest payable
quarterly, principal due October
15, 2003. Convertible at the
option of the holder up to $75,000
at $1.00 per share           |  |      |          |      |  |   | 150,000   |  
|Loan payable to a third party,
interest at 9%, and interest
payable quarterly, principal due
January 1, 2004. Convertible at
the option of the holder at $1.00
or average 30 day trading price |  |      |          |      |  |   | 100,000   |  
|Loan payable to a third party,
interest at 10%, principal and
interest due monthly, maturing
January 1, 2013                                                                                   |  |      | 123,410   |      |  |   |          |  
|Loan payable to a third party
bearing zero interest, principal
and interest due December 31, 2006                                                                                              |  |      | 1,031,677 |      |  |   | 845,731   |  
|Loan payable to a third party
bearing zero interest, principal
and interest due December 31, 2006                                                                                              |  |      | 1,735,399 |      |  |   | 1,412,058 |  
|                                                                                                                                                                                               |  |      |           |      |  |   |           |  
|                                                                                                                                                                                               |  |      | 3,202,624 |      |  |   | 2,507,789 |  
|Less current maturities                                                                                                                                                                        |  |      | (8,664    | )    |  |   | (150,000  | )
|Less discount                                                                                                                                                                                  |  |      |          |      |  |   | (306,301  | )
|                                                                                                                                                                                               |  |      |           |      |  |   |           |  
|                                                                                                                                                                                               |  | $    | 3,193,960 |      |  | $ | 2,051,488 |  
|                                                                                                                                                                                               |  |      |           |      |  |   |           |  

F-15





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##### 



Integrated Business Systems and Services, Inc.
Notes to Consolidated Financial Statements

Note 7. Long-Term Debt (continued):

On December 31, 2001, IBSS issued $2,286,640 principal amount of convertible
notes, including a $1,013,000 refinance of the March 2, 2001 debt issue, due in
full on January 1, 2004 or at the point proceeds greater than $1 million are
received from investor funding. The December 31, 2001 debt issue refinanced
various cash advances received by IBSS during 2001, totaling $1,273,640.
Interest on the notes was payable in arrears on January 1, 2003 and January 1,
2004. Interest accrued at a graduating scale beginning at 9% for the first 90
days and increased by 1% each 90-day period thereafter. If all principal and
interest amounts due were paid by January 1, 2003, and there are no events of
default, interest was to remain at 9%. The notes were convertible in whole or
part at any time at the option of the holder at the lesser of $1.00 per share
or 50% of the average closing price for the 30 days prior to conversion. IBSS
issued 1,822,519 warrants at an original exercise price of $1.60 in
consideration for these convertible notes. During 2002, approximately $568,000
of the notes were converted into shares of common stock.

During 2002, IBSS issued $839,000 principal amount of convertible debt due in
full on January 1, 2004 or at the point proceeds greater than $1 million are
received from investor funding. The terms of the notes issued in 2002 are the
same as the December 31, 2001 debt issue. IBSS issued 839,000 warrants at an
original exercise price of $1.60. During 2002, $300,000 of the notes were
converted into shares of common stock.

In relation to the warrants issued with the December 31, 2001 and the 2002 debt
issues the warrant price was reduced to $0.60 due to the non-payment of the
outstanding amounts.

On October 1, 2003, the outstanding balances on the above debt issues were
refinanced. The terms of the new notes include combining the accrued interest
with the outstanding loan balance, ceasing interest accruals and voiding the
conversion rights. In consideration for voiding the conversion rights,
38,035,426 warrants were issued which correlated with the conversion price
prior to the refinancing. The warrants have a three year life, a fixed
exercise price of $0.0725 and are exercisable on or after October 1, 2004. The
note is due in full on December 31, 2006. The notes are collateralized by all
of the assets of IBSS.

In accordance with EITF 02-4; Determining Whether a Debtors Modification or
Exchange of Debt Instruments is within the Scope of FASB Statement No. 15,
IBSS determined that the creditor had granted a concession by reducing the
interest rate to zero, and therefore, FASB No. 15, Accounting by Debtors and
Creditors for Troubled Debt Restructurings, was applicable. After the
refinancing, the future cash payments were equal to the gross carrying balance,
and there was no gain or loss on the troubled debt restructuring.

Annual principal maturities on long-term debt are as follows:

|           |  |   |           | 
|---------- |  | - | --------- | 
|2004       |  | $ | 8,664     | 
|2005       |  |   | 321,708   | 
|2006       |  |   | 2,777,650 | 
|2007       |  |   | 11,681    | 
|2008       |  |   | 12,904    | 
|Thereafter |  |   | 70,017    | 
|           |  |   |           | 
|           |  | $ | 3,202,624 | 
|           |  |   |           | 

F-16





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##### 



Integrated Business Systems and Services, Inc.
Notes to Consolidated Financial Statements

Note 8. Shareholders Deficiency:

Performance Shares As a requirement of the British Columbia Securities
Commission, the total common shares of management (3,600,000) were held
pursuant to the terms of an escrow agreement, as performance shares (Escrowed
Shares).

Prior to 2001, the performance shares were to be released from escrow, on a
pro-rata basis, based upon the cumulative cash flow of IBSS, as evidenced by
annual audited financial statements. Cash flow was defined to mean net
income or loss before tax, adjusted for certain add-backs. For each $0.91
(Canadian) of cumulative cash flow generated by IBSS from its operations, one
performance share would be released from escrow.

During 2001, the Canadian laws were amended to allow release of the Escrowed
Shares based upon the passage of time. Management believes that release of the
Escrowed Shares to officers, directors, employees and consultants of IBSS will
not be deemed compensatory, as there is no longer a service requirement and the
owners are not required to remain with IBSS.

On September 19, 2001, March 19, 2002 and September 19, 2002, releases of a 25%
pro-rata share of the original escrow stock were made. The remaining Escrowed
Shares were released in 2003.

Preferred Stock IBSS authorized shares of preferred stock may be issued in
one or more series, and the Board of Directors is authorized, without further
action by the shareholders, to designate the rights, preferences, limitations
and restrictions of and upon shares of each series, including dividend, voting,
redemption and conversion rights. The Board of Directors also may designate
par value, preferences in liquidation and the numbers of shares constituting
any series. There are not any shares of preferred stock outstanding at
December 31, 2003 or 2002.

Common shares IBSS common shares have no conversion, preemptive or other
subscription rights, and there are no redemption provisions applicable to the
common shares.

Private Offerings In October 2003, IBSS closed three private offerings
totaling $180,000. Total shares issued were 2,150,000 at $0.20 per share. In
connection with the offerings, IBSS issued 450,000 stock purchase warrants with
a two year life exercisable at $0.40 per share.

In December 2003, IBSS closed a private equity offering with Generation Capital
Associates, Inc. (the GCA Financing). Under the terms of the stock purchase
agreement, dated December 24, 2003, with GCA, IBSS sold to GCA 1,250,000 shares
of Common Stock. Under the terms of the stock purchase warrant issued to GCA,
IBSS granted to GCA warrants to purchase up to 1,000,000 shares of Common Stock
pursuant to two common stock purchase warrants (the GCA Warrants), dated
December 30, 2003, one for 937,500 shares of Common Stock and another for
62,500 shares of Common Stock at $0.40 per share. In exchange for the GCA
Shares and GCA Warrants, GCA paid $250,000 to IBSS on December 31, 2003.

F-17





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##### 



Integrated Business Systems and Services, Inc.
Notes to Consolidated Financial Statements

Note 8. Shareholders Deficiency (continued):

Warrants The following table shows warrants outstanding for the purchase of
common shares at December 31, 2003. Warrants are exercisable at the option of
the holder.

|                           |  |                                                                                                                                                  |            |             |            | 
|-------------------------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------ | ---------- | ----------- | ---------- | 
|Issue Date                 |  | Exercise Price                                                                                                                                   |            | Outstanding
|                           |  |                                                                                                                                                  |            |            
|January 3, 2000            |  | $1.00 per share in years one through five                                                                                                        |            |             | 11,855     | 
|February 4, 2000           |  | $5.94 and $10.38 in years one through five                                                                                                       |            |             | 259,680    | 
|February 25, 2000          |  | $2.50 for Group A; and $3.50 for Group B                                                                                                         |            |             | 501,875    | 
|May 30, 2000               |  | $6.00 per share in years one through nine                                                                                                        |            |             | 50,002     | 
|November 7, 2000           |  | $7.69 per share in years one though five                                                                                                         |            |             | 30,000     | 
|January 1, 2001            |  | $3.91 per share in years one through five                                                                                                        |            |             | 100,000    | 
|December 31, 2001          |  | $0.60 per share in years one through two                                                                                                         |            |             | 1,123,000  | 
|December 31, 2001          |  | Lesser of $1.00 per share or 1/3 of average trading price
for the 10 days ended 2 days prior to exercise in years
one through three (as amended) |            |             | 600,000    | 
|May 8, 2001                |  | $3.00 per share in years one through three                                                                                                       |            |             | 40,000     | 
|May 30, 2001               |  | $3.00 per share in years one through three                                                                                                       |            |             | 20,000     | 
|May 31, 2001               |  | $3.00 per share in years one through three                                                                                                       |            |             | 10,000     | 
|August 7, 2001             |  | $3.30 per share in years one through three                                                                                                       |            |             | 87,500     | 
|August 14, 2001            |  | $1.00 per share in years one through three                                                                                                       |            |             | 125,000    | 
|August 17, 2001            |  | $3.00 per share in years one through three                                                                                                       |            |             | 10,000     | 
|September 11, 2001         |  | $2.85 per share in years one through ten                                                                                                         |            |             | 100,000    | 
|September 14, 2001         |  | $2.90 per share in years one through three                                                                                                       |            |             | 75,000     | 
|October 15, 2001           |  | $1.80 per share in years one through five                                                                                                        |            |             | 100,000    | 
|November 14, 2001          |  | $1.90 per share in years one through three                                                                                                       |            |             | 135,500    | 
|November 20, 2001          |  | $1.84 per share in years one through five                                                                                                        |            |             | 25,000     | 
|December 13, 2001          |  | $1.00 per share in years one through three                                                                                                       |            |             | 10,625     | 
|December 31, 2001          |  | $0.07275 per share in years one through four (as amended)                                                                                        |            |             | 2,497,519  | 
|January 1, 2002            |  | Lesser of $1.00 per share or 1/2 of average trading price
for the 10 days ended 2 days prior to exercise in years
one through three              |            |             | 100,000    | 
|February 19, 2002          |  | $0.65 per share in years one through three                                                                                                       |            |             | 200,000    | 
|March 21, 2002             |  | Lesser of $1.00 per share or 1/2 of average trading price
for the 10 days ended 2 days prior to exercise in years
one through three              |            |             | 100,000    | 
|April 1, 2002              |  | Lesser of $1.00 per share or 1/2 of average trading price
for the 10 days ended 2 days prior to exercise in years
one through three              |            |             | 100,000    | 
|October 1, 2003            |  | $0.07275 per share in years two through three                                                                                                    |            |             | 38,035,426 | 
|October 28, 2003           |  | $0.30, $0.35, $0.40 and $0.45 in years one through five                                                                                          |            |             | 200,000    | 
|December 4, 2003           |  | $0.40 per share in years one through two                                                                                                         |            |             | 250,000    | 
|December 17, 2003          |  | $0.40 per share in years one through two                                                                                                         |            |             | 200,000    | 
|December 30, 2003          |  | $0.40 per share in years one through five                                                                                                        |            |             | 1,000,000  | 
|                           |  |                                                                                                                                                  |            |             |            | 
|Total Outstanding
Warrants |  |                                                                                                                                                  | 46,097,982 |            
|                           |  |                                                                                                                                                  |            |             |            | 

Approximately 8,000,000 warrants outstanding are fully vested and exercisable
at December 31, 2003.

F-18





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##### 



Integrated Business Systems and Services, Inc.
Notes to Consolidated Financial Statements

Note 8. Shareholders Deficiency (continued):

|                                 |  |          |            |           |  |                  |      | 
|-------------------------------- |  | -------- | ---------- | --------- |  | ---------------- | ---- | 
|                                 |  |          |            |           |  | Weighted average
|                                 |  |          |            |           |  | exercise price  
|                                 |  | Warrants |            | per share
|                                 |  |          |            |          
|Outstanding at December 31, 2000 |  |          | 2,936,535  |           |  | $                | 3.35 | 
|Granted during the year          |  |          | 4,464,146  |           |  | $                | 1.63 | 
|Exercised during the year        |  |          | (1,168,125 | )         |  | $                | 0.86 | 
|                                 |  |          |            |           |  |                  |      | 
|Outstanding at December 31, 2001 |  |          | 6,232,556  |           |  | $                | 2.07 | 
|Granted during the year          |  |          | 500,000    |           |  | $                | 0.71 | 
|Exercised during the year        |  |          |           |           |  | $                |     | 
|Expired during the year          |  |          | (50,000    | )         |  | $                | 1.87 | 
|                                 |  |          |            |           |  |                  |      | 
|Outstanding at December 31, 2002 |  |          | 6,682,556  |           |  | $                | 1.60 | 
|Granted during the year          |  |          | 39,685,426 |           |  | $                | 0.09 | 
|Exercised during the year        |  |          |           |           |  | $                |     | 
|Expired during the year          |  |          | (270,000   | )         |  | $                | 5.85 | 
|                                 |  |          |            |           |  |                  |      | 
|Outstanding at December 31, 2003 |  |          | 46,097,982 |           |  | $                | 0.24 | 
|                                 |  |          |            |           |  |                  |      | 
|Exercisable at December 31, 2003 |  |          | 8,062,556  |           |  | $                | 1.05 | 
|                                 |  |          |            |           |  |                  |      | 

Note 9. Loss per share:

The following table shows a reconciliation of the numerators and denominators
used in calculating basic and diluted loss per share:

|                                 |                                                                |   |       |            |      |   |       |            |   |   |       |             |  
|-------------------------------- | -------------------------------------------------------------- | - | ----- | ---------- | ---- | - | ----- | ---------- | - | - | ----- | ----------- | -
|                                 |                                                                |   | 2003  |            | 2002 |   | 2001 
|                                 |                                                                |   |       |            |      |   |      
|Numerator:                       |                                                                |   |       |            |      |   |       |            |   |   |       |            
|                                 | Numerator for basic and diluted loss per share                 |   | $     | (847,321   | )    |   | $     | (3,154,767 | ) |   |       | (11,256,202 | )
|                                 |                                                                |   |       |            |      |   |       |            |   |   |       |            
|Denominator:                     |                                                                |   |       |            |      |   |       |            |   |   |       |            
|                                 | Weighted average common shares  basic and
diluted calculation |   |       | 22,922,301 |      |   |       | 18,941,043 |   |   |       | 15,872,128  |  
|                                 |                                                                |   |       |            |      |   |       |            |   |   |       |            
|                                 |                                                                |   |       |            |      |   |       |            |   |   |       |            
|Basic and diluted loss per share |                                                                | $ | (0.04 | )          |      | $ | (0.17 | )          |   | $ | (0.71 | )          
|                                 |                                                                |   |       |            |      |   |       |            |   |   |       |            

The warrants and options were not included in the computation of diluted loss
per share because the warrants and options would have an antidilutive effect
when included in the computation due to IBSSs net loss.

Note 10: Accrued Compensation and Benefits:

During 2001, the President and Chief Executive Officer (CEO) terminated his
employment with IBSS. As part of the CEOs termination package, IBSS agreed to
pay the CEO approximately $305,000 as salary continuance and health benefits of
approximately $12,000 through October 2003. Of the total amount charged to
expense for the year ended December 31, 2001, approximately $134,000 was paid
during 2001 and the remaining $183,000 is included in accrued compensation and
benefits. During 2002, the severance package was forfeited by the CEO and
reverted to the minimum package provided under the CEOs prior employment
agreement. Accordingly, approximately $165,000 was no longer payable to the
CEO. All amounts have been paid under all severance agreements as of December
31, 2002.

F-19





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##### 



Integrated Business Systems and Services, Inc.
Notes to Consolidated Financial Statements

Note 11. Employee Benefits:

Retirement Plan IBSS maintains a 401(k) retirement plan, which is managed by
an outside trustee. All employees are eligible to participate. IBSS has not
contributed to the 401(k) plan.

Stock Option Plans:

1997 Option Plan IBSS Board of Directors adopted a stock option plan (the
1997 Option Plan), effective April 29, 1997. Options normally extend for 5
years and under committee policy generally become exercisable in installments
of 50 percent per six months commencing six months from the date of grant. The
maximum number of common shares IBSS has reserved for issuance under the 1997
Option Plan, including options currently outstanding, is 1,860,000. The number
of common shares reserved for issuance to any one person cannot exceed 5% of
the number of issued and outstanding common shares, and no person is entitled
to receive in any one year grants regarding more than 50,000 shares.

Information with respect to options granted under the 1997 Option Plan is as
follows:

|                                         |  |               |          |           |  |                  |      | 
|---------------------------------------- |  | ------------- | -------- | --------- |  | ---------------- | ---- | 
|                                         |  |               |          |           |  | Weighted average
|                                         |  |               |          |           |  | exercise price  
|                                         |  | Stock Options |          | per share
|                                         |  |               |          |          
|Outstanding at December 31, 2000 (1)     |  |               | 321,000  |           |  | $                | 1.42 | 
|Outstanding at December 31, 2000         |  |               | 842,898  |           |  | $                | 5.64 | 
|Granted during the year                  |  |               | 68,000   |           |  | $                | 2.67 | 
|Exercised during the year (1)            |  |               | (21,700  | )         |  | $                | 1.56 | 
|Expired or cancelled during the year (1) |  |               | (34,500  | )         |  | $                | 3.40 | 
|Expired or cancelled during the year     |  |               | (320,000 | )         |  | $                | 4.87 | 
|                                         |  |               |          |           |  |                  |      | 
|Outstanding at December 31, 2001 (1)     |  |               | 264,800  |           |  | $                | 1.16 | 
|                                         |  |               |          |           |  |                  |      | 
|Outstanding at December 31, 2001         |  |               | 590,898  |           |  | $                | 5.71 | 
|                                         |  |               |          |           |  |                  |      | 
|Granted during the year                  |  |               | 418,000  |           |  | $                | 0.97 | 
|Exercised during the year (1)            |  |               | (30,452  | )         |  | $                | 1.05 | 
|Expired or cancelled during the year (1) |  |               | (99,848  | )         |  | $                | 0.99 | 
|Expired or cancelled during the year     |  |               | (197,400 | )         |  | $                | 3.75 | 
|                                         |  |               |          |           |  |                  |      | 
|Outstanding at December 31, 2002 (1)     |  |               | 134,500  |           |  | $                | 1.21 | 
|                                         |  |               |          |           |  |                  |      | 
|Outstanding at December 31, 2002         |  |               | 811,498  |           |  | $                | 4.86 | 
|                                         |  |               |          |           |  |                  |      | 
|Exercisable at December 31, 2002 (1)     |  |               | 134,500  |           |  | $                | 1.21 | 
|                                         |  |               |          |           |  |                  |      | 
|Exercisable at December 31, 2002         |  |               | 418,198  |           |  | $                | 4.92 | 
|                                         |  |               |          |           |  |                  |      | 
|Granted during the year                  |  |               |         |           |  | $                |     | 
|Exercised during the year (1)            |  |               |         |           |  | $                |     | 
|Expired or cancelled during the year (1) |  |               | (52,500  | )         |  | $                | 1.87 | 
|Expired or cancelled during the year     |  |               | (296,998 | )         |  | $                | 2.24 | 
|                                         |  |               |          |           |  |                  |      | 
|Outstanding at December 31, 2003 (1)     |  |               | 82,000   |           |  | $                | 0.95 | 
|                                         |  |               |          |           |  |                  |      | 
|Outstanding at December 31, 2003         |  |               | 514,500  |           |  | $                | 4.29 | 
|                                         |  |               |          |           |  |                  |      | 
|Exercisable at December 31, 2003(1)      |  |               | 82,000   |           |  | $                | 0.95 | 
|                                         |  |               |          |           |  |                  |      | 
|Exercisable at December 31, 2003         |  |               | 493,750  |           |  | $                | 4.24 | 
|                                         |  |               |          |           |  |                  |      | 

(1)
        
        Canadian Dollars


F-20





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##### 



Integrated Business Systems and Services, Inc.
Notes to Consolidated Financial Statements

Note 11. Employee Benefits (continued):

Stock Option Plans (continued):

2001 Option Plan On June 28, 2000, IBSS adopted the 2001 Stock Incentive Plan
(the 2001 Option Plan), effective January 1, 2001. The 2001 Option Plan
provides for option awards of up to 1,200,000 shares, stock appreciation rights
and restricted stock awards. The options have terms up to ten years.

Information with respect to options granted under the 2001 Option Plan is as
follows:

|                                     |  |               |          |           |  |                  |      | 
|------------------------------------ |  | ------------- | -------- | --------- |  | ---------------- | ---- | 
|                                     |  |               |          |           |  | Weighted average
|                                     |  |               |          |           |  | exercise price  
|                                     |  | Stock Options |          | per share
|                                     |  |               |          |          
|Outstanding at December 31, 2000     |  |               |         |           |  | $                |     | 
|Granted during the year              |  |               | 88,000   |           |  | $                | 3.41 | 
|Exercised during the year            |  |               |         |           |  | $                |     | 
|Expired or cancelled during the year |  |               | (10,000  | )         |  | $                | 3.41 | 
|                                     |  |               |          |           |  |                  |      | 
|Outstanding at December 31, 2001     |  |               | 78,000   |           |  | $                | 3.41 | 
|Granted during the year              |  |               | 565,625  |           |  | $                | 0.68 | 
|Expired or cancelled during the year |  |               | (28,813  | )         |  | $                | 1.78 | 
|                                     |  |               |          |           |  |                  |      | 
|Outstanding at December 31, 2002     |  |               | 614,812  |           |  | $                | 0.98 | 
|                                     |  |               |          |           |  |                  |      | 
|Exercisable at December 31, 2002     |  |               | 238,034  |           |  | $                | 1.63 | 
|                                     |  |               |          |           |  |                  |      | 
|Granted during the year              |  |               |         |           |  | $                |     | 
|Expired or cancelled during the year |  |               | (133,187 | )         |  | $                | 0.73 | 
|                                     |  |               |          |           |  |                  |      | 
|Outstanding at December 31, 2003     |  |               | 481,625  |           |  | $                | 1.04 | 
|                                     |  |               |          |           |  |                  |      | 
|Exercisable at December 31, 2003     |  |               | 406,892  |           |  | $                | 1.12 | 
|                                     |  |               |          |           |  |                  |      | 

2002 Option Plan During 2002, IBSS Board of Directors adopted a
non-qualified stock option plan (the 2002 Option Plan), effective August 1,
2002. The maximum number of common shares reserved for issuance under the 2002
Option Plan is 800,000 shares.

Information with respect to options granted under the 2002 Option Plan is as
follows:

|                                     |  |               |          |           |  |                  |      | 
|------------------------------------ |  | ------------- | -------- | --------- |  | ---------------- | ---- | 
|                                     |  |               |          |           |  | Weighted average
|                                     |  |               |          |           |  | exercise price  
|                                     |  | Stock Options |          | per share
|                                     |  |               |          |          
|Outstanding at December 31, 2001     |  |               |         |           |  | $                |     | 
|Granted during the year              |  |               | 308,723  |           |  | $                | 0.01 | 
|Exercised during the year            |  |               |         |           |  | $                |     | 
|Expired or cancelled during the year |  |               |         |           |  | $                |     | 
|                                     |  |               |          |           |  |                  |      | 
|Outstanding at December 31, 2002     |  |               | 308,723  |           |  | $                | 0.01 | 
|Granted during the year              |  |               | 631,033  |           |  | $                | 0.01 | 
|Exercised during the year            |  |               | (148,509 | )         |  | $                | 0.01 | 
|Expired or cancelled during the year |  |               |         |           |  | $                |     | 
|                                     |  |               |          |           |  |                  |      | 
|Outstanding at December 31, 2003     |  |               | 791,247  |           |  | $                | 0.01 | 
|                                     |  |               |          |           |  |                  |      | 

F-21





---



##### 



Integrated Business Systems and Services, Inc.
Notes to Consolidated Financial Statements

Note 11. Employee Benefits (continued):

Stock Option Plans (continued):

For the years ended December 31, 2003 and 2002, IBSS recognized expense related
to stock-based compensation of approximately $205,000 and $80,000,
respectively. IBSS did not recognize any expense related to stock-based
compensation during 2001.

The pro forma disclosures required by SFAS 123 regarding net loss and net loss
per share are stated as if IBSS had accounted for stock options using fair
values. Using the Black-Scholes option-pricing model the fair value at the
date of grant for these options was estimated using the following assumptions:

|                            |  |      |         |      |  |      |         |   |  |  |           |  
|--------------------------- |  | ---- | ------- | ---- |  | ---- | ------- | - |  |  | --------- | -
|                            |  | 2002 |         | 2001 |  | 2000
|                            |  |      |         |      |  |     
|Dividend yield              |  |      |        |      |  |      |        |   |  |  |          |  
|Expected volatility         |  |      | 137     | %    |  |      | 122     | % |  |  | 131       | %
|Risk-free rate of return    |  |      | 2.6-2.9 | %    |  |      | 2.9-3.3 | % |  |  | 4.5 - 5.0 | %
|Expected option life, years |  |      | 5       |      |  |      | 5       |   |  |  | 5         |  

In February 2003, IBSS issued approximately 631,000 options to employees an at
exercise price of $0.01. The weighted average fair value of these options was
$0.20 each.

Options granted outside of the above Plans:

In October 2003, IBSS issued 10,800,000 options to officers at an exercise
price of $0.14. The weighted average fair value of these options was $0.01
each. In addition on October 1, 2003, IBSS issued 1,975,000 stock options to
employees and 650,000 stock options to board members at an exercise price of
$0.14, with a two year vesting period. Management plans to amend the 2001
Option Plan to increase the number of shares that could be granted under the
2001 Option Plan to include these options.

The weighted average fair value for options granted under the Option Plans
during 2002 and 2001 was $.68, and $2.64, respectively.

The Black-Scholes and other option pricing models were developed for use in
estimating fair value of traded options, which have no vesting restrictions and
are fully transferable. In addition, option-pricing models require the input
of highly subjective assumptions. IBSS employee stock options have
characteristics significantly different than those of traded options, and
changes in the subjective assumptions can materially affect the fair value
estimate. Accordingly, in managements opinion, these existing models may not
necessarily provide a reliable single measure of the fair value of employee
stock options.

F-22





---



##### 



Integrated Business Systems and Services, Inc.
Notes to Consolidated Financial Statements

Note 12. Income Taxes:

Deferred income taxes reflect the net tax effect of temporary differences and
carryforwards between the carrying amounts of assets and liabilities for
financial reporting purposes and the amounts used for income tax purposes.
Significant components of IBSS deferred tax assets and liabilities consisted
of the following at December 31:

|                               |                              |   |         |            |      |   |          |            |   |   |          |            |  
|------------------------------ | ---------------------------- | - | ------- | ---------- | ---- | - | -------- | ---------- | - | - | -------- | ---------- | -
|                               |                              |   | 2003    |            | 2002 |   | 2001    
|                               |                              |   |         |            |      |   |         
|Deferred tax assets:           |                              |   |         |            |      |   |          |            |   |   |          |           
|                               | Operating loss carryforwards |   | $       | 7,296,194  |      |   | $        | 7,617,558  |   |   | $        | 6,221,020  |  
|                               | Deferred revenue             |   |         | 3,824      |      |   |          | 27,864     |   |   |          | 35,483     |  
|                               | Other, net                   |   |         | 52,336     |      |   |          | 46,063     |   |   |          | 136,633    |  
|                               | Valuation allowance          |   |         | (7,293,155 | )    |   |          | (7,533,164 | ) |   |          | (6,162,463 | )
|                               |                              |   |         |            |      |   |          |            |   |   |          |           
|                               |                              |   |         |            |      |   |          |            |   |   |          |           
|Total deferred tax assets      |                              |   | 59,199  |            |      |   | 158,321  |            |   |   | 230,673  |           
|                               |                              |   |         |            |      |   |          |            |   |   |          |           
|Deferred tax liabilities:      |                              |   |         |            |      |   |          |            |   |   |          |           
|                               | Capitalized software costs   |   |         | (24,005    | )    |   |          | (91,692    | ) |   |          | (159,795   | )
|                               | Depreciation                 |   |         | (35,194    | )    |   |          | (55,011    | ) |   |          | (61,517    | )
|                               | Other, net                   |   |         |           |      |   |          | (11,618    | ) |   |          | (9,361     | )
|                               |                              |   |         |            |      |   |          |            |   |   |          |           
|                               |                              |   |         |            |      |   |          |            |   |   |          |           
|Total deferred tax liabilities |                              |   | (59,199 | )          |      |   | (158,321 | )          |   |   | (230,673 | )         
|                               |                              |   |         |            |      |   |          |            |   |   |          |           
|                               |                              |   |         |            |      |   |          |            |   |   |          |           
|Total                          |                              | $ |        |            |      | $ |         |            |   | $ |         |           
|                               |                              |   |         |            |      |   |          |            |   |   |          |           

Temporary differences and carryforwards, which gave rise to significant
portions of deferred tax assets and liabilities at December 31, are as follows:

|                            |                           |   |          |   |      |   |            |   |  |   |            |   | 
|--------------------------- | ------------------------- | - | -------- | - | ---- | - | ---------- | - |  | - | ---------- | - | 
|                            |                           |   | 2003     |   | 2002 |   | 2001      
|                            |                           |   |          |   |      |   |           
|Operating loss carryforward |                           | $ | (321,364 | ) |      | $ | 1,396,538  |   |  | $ | 3,212,337  |  
|Deferred revenue            |                           |   | (24,040  | ) |      |   | (7,619     | ) |  |   | 17,186     |  
|Other, net                  |                           |   | 37,709   |   |      |   | (86,321    | ) |  |   | 46,226     |  
|Capitalized software costs  |                           |   | 67,687   |   |      |   | 68,103     |   |  |   | 68,103     |  
|Valuation allowance         |                           |   | 240,008  |   |      |   | (1,370,701 | ) |  |   | (3,343,852 | )
|                            |                           |   |          |   |      |   |            |   |  |   |            |  
|                            |                           |   |          |   |      |   |            |   |  |   |            |  
|                            | Net deferred income taxes |   | $        |  |      |   | $          |  |  |   | $          |  | 
|                            |                           |   |          |   |      |   |            |   |  |   |            |  

F-23





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##### 



Integrated Business Systems and Services, Inc.
Notes to Consolidated Financial Statements

Note 12. Income Taxes (continued):

The principal reasons for the differences between income tax expense and the
amount computed by applying the statutory federal rate to pre-tax loss were as
follows for the three years ended December 31:

|                              |                                                      |   |          |          |      |   |            |           |   |   |            |           |  
|----------------------------- | ---------------------------------------------------- | - | -------- | -------- | ---- | - | ---------- | --------- | - | - | ---------- | --------- | -
|                              |                                                      |   | 2003     |          | 2002 |   | 2001      
|                              |                                                      |   |          |          |      |   |           
|Tax at statutory federal rate |                                                      | $ | (288,089 | )        |      | $ | (1,057,321 | )         |   | $ | (3,827,109 | )        
|Effect on rate of:            |                                                      |   |          |          |      |   |            |           |   |   |            |          
|                              | Stock options, warrants and other                    |   |          | 168,540  |      |   |            | (191,386  | ) |   |            | 914,193   |  
|                              | Life insurance premiums                              |   |          | 4,309    |      |   |            | 2,428     |   |   |            | 3,820     |  
|                              | Penalties                                            |   |          | 6,063    |      |   |            | 27,688    |   |   |            | 12,593    |  
|                              | Non-deductible expenses                              |   |          | 884      |      |   |            | 1,676     |   |   |            | 2,899     |  
|                              | State income taxes, net of
federal income tax effect |   |          | 348,301  |      |   |            | (153,786  | ) |   |            | (450,248  | )
|                              | Change in valuation allowance                        |   |          | (240,008 | )    |   |            | 1,370,701 |   |   |            | 3,343,852 |  
|                              |                                                      |   |          |          |      |   |            |           |   |   |            |          
|                              |                                                      |   |          |          |      |   |            |           |   |   |            |          
|Total                         |                                                      | $ |         |          |      | $ |           |           |   | $ |           |          
|                              |                                                      |   |          |          |      |   |            |           |   |   |            |          

As of December 31, 2003, IBSS had federal and state net operating loss
carryforwards of approximately $19,200,000. The net operating loss
carryforwards will expire between 2012 and 2022, if not utilized.

Management of IBSS continually evaluates certain limitations which may occur as
prescribed under the Internal Revenue Code (IRC) Section 382, which would
potentially limit the availability of offsetting operating loss carryforwards
against future taxable income. In addition, management continually evaluates
the tax consequences of the issuance, and subsequent exercise of, warrants and
options to certain employees and vendors and the impact of the potential
compensation on operating loss carryforwards.

In determining that is was more likely than not that the recorded deferred tax
asset would not be realized, management of IBSS considered the following: (1)
recent operating results, (2) the budgets and forecasts that management and the
Board of Directors had adopted for the next fiscal year, (3) the ability to
utilize NOLs prior to their expiration, (4) the potential limitation of NOL
utilization in the event of a change of ownership and (5) the generation of
future taxable income in excess of income reported on the consolidated
financial statements.

A valuation allowance of approximately $7,293,000 and $7,533,000 at December
31, 2003 and 2002, respectively, remained necessary in the judgment of
management because the factors noted above (i.e. forecasts) did not support the
utilization of less than a full valuation allowance.

F-24





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##### 



Integrated Business Systems and Services, Inc.
Notes to Consolidated Financial Statements

Note 13. Related Party Transactions:

Sales representative and marketing agreement IBSS is party to a sales
representative and marketing agreement with one of its directors dated
September 16, 2003 (the Sales Agreement). Under the terms of the Sales
Agreement, the director is to act as an exclusive sales representative with
respect to certain of IBSS customers and a non-exclusive sales representative
with respect to others and must use his best efforts to market IBSS products
worldwide in order to generate sales revenues. The term of the Sales Agreement
is for 10 years from its date and may be renewed for successive additional
renewal periods of two years each, unless one party delivers a notice not to
renew within 90 days of expiration of the then existing term. Compensation
under the agreement is as follows: (1) stock options to purchase up to
1,000,000 shares at an exercise price of $0.14 per share (options vest at 1
share for each net dollar of revenue directly or indirectly added to IBSS
revenue under the agreement); (2) a non-refundable cash advance of $10,000 per
month not to exceed $175,000 (the Draw Payments) (contingent on net cash as
defined in the Sales Agreement); and (3) a delayed signing bonus to be paid on
the earlier of (i) the 5th anniversary of the Sales Agreement (September 16,
2008) or (ii) a change in control of IBSS (as defined in the Sales
Agreement), a lump sum in the amount of $175,000, less the amount of all Draw
Payments actually paid.

Related party receivables Related party receivables at December 31, 2002 are
advances to IBSS chief executive officer.

Accounts payable and accrued expenses At December 31, 2003 and 2002, IBSS had
approximately $296,000 and $61,000, respectively, owed to related parties
included in accounts payable and accrued expenses, exclusive of payroll
accruals.

Notes receivable At December 31, 2003, IBSS held four notes receivable with
balances totaling $131,080 due from IBSS chief executive officer and its
executive vice president. IBSS loaned these officers money to exercise Common
Stock purchase warrant agreements to purchase an aggregate of 300,000 shares of
IBSS common stock at the applicable exercise price of $0.60 to $0.68 per
share. These notes, which bear interest at the prime rate per annum, matured
in 2002 and are due on demand at December 31, 2003. The loans are collaterized
by 300,000 shares of common stock. The receivable is shown on the balance
sheets as a reduction in stockholders equity.

Note 14. Supplemental Cash Flow Information:

During the years presented below, interest paid amounted to:

|              |  |      |        |      |  |      |        |  |  |   |         | 
|------------- |  | ---- | ------ | ---- |  | ---- | ------ |  |  | - | ------- | 
|              |  | 2003 |        | 2002 |  | 2001
|              |  |      |        |      |  |     
|              |  |      |        |      |  |      |        |  |  |   |         | 
|Interest paid |  | $    | 68,133 |      |  | $    | 38,315 |  |  | $ | 270,935 | 
|              |  |      |        |      |  |      |        |  |  |   |         | 

F-25





---



##### 



Integrated Business Systems and Services, Inc.
Notes to Consolidated Financial Statements

Note 14. Supplemental Cash Flow Information (continued):

The following table summarizes non-cash investing and financing activities:

|                                                                                                                           |  |      |         |      |  |      |           |  |  |   |         | 
|-------------------------------------------------------------------------------------------------------------------------- |  | ---- | ------- | ---- |  | ---- | --------- |  |  | - | ------- | 
|                                                                                                                           |  | 2003 |         | 2002 |  | 2001
|                                                                                                                           |  |      |         |      |  |     
|Repayment of employee advances and notes for purchase of
common stock                                                      |  | $    |        |      |  | $    |          |  |  | $ | 104,970 | 
|                                                                                                                           |  |      |         |      |  |      |           |  |  |   |         | 
|                                                                                                                           |  |      |         |      |  |      |           |  |  |   |         | 
|Conversion of convertible notes into capital                                                                               |  | $    | 301,500 |      |  | $    | 1,650,000 |  |  | $ | 180,000 | 
|                                                                                                                           |  |      |         |      |  |      |           |  |  |   |         | 
|                                                                                                                           |  |      |         |      |  |      |           |  |  |   |         | 
|Repayment of notes payable issued for common stock purchase
and related party receivable in exchange for severance
package |  | $    |        |      |  | $    |          |  |  | $ | 104,970 | 
|                                                                                                                           |  |      |         |      |  |      |           |  |  |   |         | 
|                                                                                                                           |  |      |         |      |  |      |           |  |  |   |         | 
|Conversion of accrued interest into common stock                                                                           |  | $    | 35,574  |      |  | $    |          |  |  | $ |        | 
|                                                                                                                           |  |      |         |      |  |      |           |  |  |   |         | 
|                                                                                                                           |  |      |         |      |  |      |           |  |  |   |         | 
|Conversion of accrued salaries and related interest to
long-term debt                                                      |  | $    | 312,137 |      |  | $    |          |  |  | $ |        | 
|                                                                                                                           |  |      |         |      |  |      |           |  |  |   |         | 
|                                                                                                                           |  |      |         |      |  |      |           |  |  |   |         | 
|Conversion of accrued interest to long-term debt and notes
payable                                                         |  | $    | 683,506 |      |  | $    |          |  |  | $ |        | 
|                                                                                                                           |  |      |         |      |  |      |           |  |  |   |         | 
|                                                                                                                           |  |      |         |      |  |      |           |  |  |   |         | 
|Offset of related party receivable with related party payable                                                              |  | $    | 12,600  |      |  | $    |          |  |  | $ |        | 
|                                                                                                                           |  |      |         |      |  |      |           |  |  |   |         | 

Note 15. Commitments and Contingencies:

Litigation In the normal course of business, IBSS and its subsidiaries may,
from time to time, become parties to various legal claims, actions and
complaints. At December 31, 2003, management is not aware of any pending or
threatened litigation, or unasserted claims that could result in losses that
would be material to the financial statements.

Operating Lease Commitments IBSS leases its principal facilities under a
noncancellable operating lease expiring in January 2013. The lease consists of
a security deposit of $50,000 and base rental of $36,000 per year, payable in
monthly payments of $3,000. IBSS is also responsible for its share of common
area maintenance charges. Renewal option may be granted pursuant to the
provisions of the lease.

At December 31, 2003 minimum lease payments are as follows:

|           |  |   |         | 
|---------- |  | - | ------- | 
|2004       |  | $ | 36,000  | 
|2005       |  |   | 36,000  | 
|2006       |  |   | 36,000  | 
|2007       |  |   | 36,000  | 
|2008       |  |   | 36,000  | 
|Thereafter |  |   | 144,000 | 
|           |  |   |         | 
|Total      |  | $ | 324,000 | 
|           |  |   |         | 

F-26





---



##### 



Integrated Business Systems and Services, Inc.
Notes to Consolidated Financial Statements

Note 15. Commitments and Contingencies (continued):

Rent expense was approximately as follows for the years ended December 31:

|     |         |      |  |      |         |  |  |   |         | 
|---- | ------- | ---- |  | ---- | ------- |  |  | - | ------- | 
|2003 |         | 2002 |  | 2001
|     |         |      |  |     
|    
|$    | 103,000 |      |  | $    | 385,000 |  |  | $ | 411,000 | 
|     |         |      |  |      |         |  |  |   |         | 

Liens The Internal Revenue Service has placed a lien on all of IBSS assets
for delinquent tax obligations. A default under this obligation could result
in a foreclosure on IBSS assets. Amounts due to the Internal Revenue Service
at December 31, 2003 were approximately $52,000.

Note 16. Significant Risks and Uncertainties:

IBSS operating results and financial condition can be impacted by a number of
factors, including but not limited to the following, any of which could cause
actual results to vary materially from current and historical results or IBSS
anticipated future results.

Currently, IBSS business is focused principally within the manufacturing and
transaction processing industries. Significant changes in the regulatory or
market environment of this industry could impact demand for IBSS software
products and services. Additionally, there is increasing competition for IBSS
products and services, and there can be no assurance that IBSS current
products and services will remain competitive, or that IBSS development
efforts will produce products with the cost and performance characteristics
necessary to remain competitive. Furthermore, the market for IBSS products
and services is characterized by rapid changes in technology. IBSS success
will depend on the level of market acceptance of IBSS products, technologies
and enhancements, and its ability to introduce such products, technologies and
enhancements to the market on a timely and cost effective basis, and maintain a
labor force sufficiently skilled to compete in the current environment.

As discussed in Note 2, the preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect certain reported amounts of assets and
liabilities and disclosures of contingent assets and liabilities at the date of
the financial statements, as well as the reported amounts of revenues and
expenses during the reporting period. Amounts affected by these estimates
include, but are not limited to, the estimated useful lives, related
amortization expense and carrying values of IBSS capitalized software
development costs. Changes in the status of certain matters or facts or
circumstances underlying these estimates could result in material changes to
these estimates, and actual results could differ significantly from these
estimates.

IBSS primary efforts are now directed to the development of a market for its
Synapse for Manufacturing, Synapse Government e-Printing, Synapse Composerand
the Synapse Application Development Platformsoftware and integration services.
Like other companies at this stage of development, IBSS is subject to numerous
risks, including the uncertainty of its chosen market, its ability to develop
its markets and its ability to finance operations and other risks.

F-27





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##### 



Integrated Business Systems and Services, Inc.
Notes to Consolidated Financial Statements

Note 17. Segment Information:

Management has determined that IBSS operates in one dominant industry segment,
which involves the supply of computer technology products and services. These
products and services have similar economic characteristics, customers and
distribution methods. All of IBSSs operations, assets and employees are
located in the United States and its revenues are generated in the United
States.

Note 18. Subsequent Events

Dutchess Equity Line of Credit As part of its initial capital raising
activities in 2004, IBSS entered into an investment agreement dated January 21,
2004, for an equity line of credit (the Equity Line) with Dutchess Private
Equities, L.P., a Delaware limited partnership (Dutchess). Under the terms
of the Equity Line, IBSS may periodically sell shares of common stock, solely
at the IBSSs option, to Dutchess to raise capital to fund working capital
needs. The periodic sale of shares is known as a put (each, a Put). Under a
Put, IBSS may request an advance to draw down a portion of the Equity Line by
delivering a written Put notice (Put Notice) to Dutchess of draw down of a
portion of the Equity Line (the date on which such Put notice is delivered to
Dutchess is the Put Date). A closing will be held seven business days after
the Put Date, at which time IBSS will deliver shares of common stock and
Dutchess will pay the Purchase Price (as defined below).

Each Put will contain an amount of common stock proposed to be sold to Dutchess
(the Put Amount) equal to either (at the IBSSs discretion): (i) 200% of the
average daily volume (U.S. Market only) of the common stock for the 10 trading
days prior to the Put Date, multiplied by the average of the three daily
closing best bid prices of common stock immediately preceding the Put Date, or
(ii) $20,000. In no event will the Put Amount be more than $1,000,000 with
respect to any single Put.

The purchase price (Purchase Price) for each share of common stock subject to
a Put is 95% of the lowest best bid price of common stock during the period
beginning on a Put Date and ending on and including the date that is five
trading days after such Put Date (the Pricing Period). Following Dutchess
receipt of a Put Notice, Dutchess will be required to purchase from IBSS during
the related Pricing Period that number of shares of common stock having an
aggregate Purchase Price equal to the lesser of (i) the Put Amount set forth in
the Put Notice, and (ii) 20% of the aggregate trading volume of the common
stock during the applicable Pricing Period multiplied by 95% of the lowest best
bid prices of the common stock during the specified Pricing Period, provided
such shares bear no restrictive legend and are not subject to stop transfer
restrictions. The Equity Line also contains a floor provision, which permits
IBSS (in its discretion) to withdraw that portion of the Put Amount if the
closing bid price of common stock during the applicable Pricing Period with
respect a Put Notice is less than 75% of the lowest closing best bid prices of
the common stock for 15 trading days prior to each Put Notice Date or less than
$0.48, in any case.

IBSS may request advances under the Equity Line once the underlying shares are
registered and the registration statement is declared to be effective by the
Securities and Exchange Commission. Thereafter, IBSS may continue to request
advances until Dutchess has advanced $10 million.

Private Placements:During the first quarter of 2004, IBSS made two private
placements of common stock totaling $200,000. The terms included issued stock
at $0.20 per share and 50% coverage for stock purchase warrants exercisable at
$0.40 per warrant.

F-28





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##### 



INDEX TO EXHIBITS

|            |  |                                                                                                                                                                                                                                              
|----------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit No. |  |                                                                                                                                                                                                                                              
|            |  |                                                                                                                                                                                                                                              
|            |  |                                                                                                                                                                                                                                              
|3.1         |  | Amended and Restated Articles of Incorporation of Company
(incorporated by reference to Exhibit 2.1 to the Companys
Form 1-A filed July 9, 1997).                                                                                           
|            |  |                                                                                                                                                                                                                                              
|3.2         |  | Amended and Restated Bylaws of the Company (incorporated by
reference to Exhibit 2.2 to the Companys Form 1-A
filed July 9, 1997).                                                                                                          
|            |  |                                                                                                                                                                                                                                              
|4.1         |  | Securities Purchase Agreement dated December 24, 2003 between
the Company and GCA Financing, Inc. (incorporated by reference
to Exhibit 4.1 to the Companys Form SB-2 filed February 5,
2004)                                               
|            |  |                                                                                                                                                                                                                                              
|4.2         |  | Common Stock Purchase Warrant dated December 30, 2003 to GCA
Financing, Inc. (937,500 Shares) (incorporated by reference to
Exhibit 4.2 to the Companys Form SB-2 filed February 5, 2004)                                                   
|            |  |                                                                                                                                                                                                                                              
|4.3         |  | Common Stock Purchase Warrant dated December 30, 2003 to GCA
Financing, Inc. (62,500 Shares) (incorporated by reference to
Exhibit 4.3 to the Companys Form SB-2 filed February 5, 2004)                                                    
|            |  |                                                                                                                                                                                                                                              
|4.4         |  | Letter Agreement dated December 24, 2003 between the Company
and GCA Financing, Inc. (incorporated by reference to Exhibit
4.4 to the Companys Form SB-2 filed February 5, 2004)                                                            
|            |  |                                                                                                                                                                                                                                              
|4.5         |  | Letter Agreement dated January 13, 2004 between the Company
and GCA Financing, Inc. (incorporated by reference to Exhibit
4.5 to the Companys Form SB-2 filed February 5, 2004)                                                             
|            |  |                                                                                                                                                                                                                                              
|4.6         |  | Investment Agreement, dated January 21, 2004 with Dutchess
Private Equities, L.P. (incorporated by reference to Exhibit
4.6 to the Companys Form SB-2 filed February 5, 2004)                                                               
|            |  |                                                                                                                                                                                                                                              
|4.7         |  | Registration Rights Agreement, dated January 21, 2004 with
Dutchess Private Equities, L.P. (incorporated by reference to
Exhibit 4.7 to the Companys Form SB-2 filed February 5, 2004)                                                      
|            |  |                                                                                                                                                                                                                                              
|4.8         |  | Promissory Note dated March 15, 2002 between the Company and
Fitz-John Creighton McMaster (incorporated by reference to
Exhibit 10.13 in the Companys Form 10-QSB for the three-month
period ended September 30, 2002).                     
|            |  |                                                                                                                                                                                                                                              
|4.9         |  | Promissory Note dated March 15, 2002 between the Company and
Rice Street Associates, LLC (incorporated by reference to
Exhibit 10.14 in the Companys Form 10-QSB for the three-month
period ended September 30, 2002).                      
|            |  |                                                                                                                                                                                                                                              
|4.10        |  | Second Amendment and Restated Promissory Note dated August 14,
2002 between the Company and Kirkman Finlay III (incorporated
by reference to Exhibit 10.15 to the Companys Form 10-QSB for
the three-month period ended September 30, 2002).
|            |  |                                                                                                                                                                                                                                              
|4.11        |  | Class A Secured Convertible Debenture dated December 31, 2001
between the Company and IBSS Class A Investors (incorporated
by reference to Exhibit 10.21 in the Companys Form 10-QSB for
the three-month period ended March 31, 2002).      
|            |  |                                                                                                                                                                                                                                              
|4.12        |  | Class B Secured Convertible Debenture dated December 31, 2001
between the Company and IBSS Class B Investors (incorporated
by reference to Exhibit 10.22 in the Companys Form 10-QSB for
the three-month period ended March 31, 2002).      





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##### 



|     |  |                                                                                                                                                                                                                                                          
|---- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|4.13 |  | Common Stock Purchase Warrant dated December 31, 2001 between
the Company and IBSS Class A Investors (incorporated by
reference to Exhibit 10.23 in the Companys Form 10-QSB for
the three-month period ended March 31, 2002).                          
|     |  |                                                                                                                                                                                                                                                          
|4.14 |  | Common Stock Purchase Warrant dated December 31, 2001 between
the Company and IBSS Class B Investors (incorporated by
reference to Exhibit 10.24 in the Companys Form 10-QSB for
the three-month period ended March 31, 2002).                          
|     |  |                                                                                                                                                                                                                                                          
|4.15 |  | Omnibus Security Agreement dated December 31, 2001 by and
among the Company, IBSS Class A Investors and IBSS Class B
Investors (incorporated by reference to Exhibit 10.25 in the
Companys Form 10-QSB for the three-month period ended
March 31, 2002).
|     |  |                                                                                                                                                                                                                                                          
|4.16 |  | Inter-Creditor Agreement dated December 31, 2001 by and among
the Company, IBSS Class A Investors and IBSS Class B Investors
(incorporated by reference to Exhibit 10.26 in the Companys
Form 10-QSB for the three-month period ended March 31, 2002).  
|     |  |                                                                                                                                                                                                                                                          
|4.17 |  | Security Agreement dated June 12, 2001 by and between the
Company and Fitz-John Creighton McMaster (incorporated by
reference to Exhibit 10.27 in the Companys Form 10-QSB for
the three-month period ended September 30, 2002).                        
|     |  |                                                                                                                                                                                                                                                          
|4.18 |  | Security Agreement dated August 2, 2001 by and between the
Company and Rice Street Associates, LLC (incorporated by
reference to Exhibit 10.28 in the Companys Form 10-QSB for
the three-month period ended September 30, 2002).                        
|     |  |                                                                                                                                                                                                                                                          
|4.19 |  | Security Agreement dated August 14, 2001 by and between the
Company and Kirkman Finlay III (incorporated by reference to
Exhibit 10.29 in the Companys Form 10-QSB for the three-month
period ended September 30, 2002).                                
|     |  |                                                                                                                                                                                                                                                          
|4.20 |  | Common stock purchase warrant dated October 28, 2003 between
the Company and Elite Financial Communications Group, LLC
(200,000 shares of Common Stock) (incorporated by reference to
Exhibit 4.20 to the Companys Form SB-2 filed February 5,
2004).   
|     |  |                                                                                                                                                                                                                                                          
|4.21 |  | Common stock purchase warrant dated December 4, 2003 between
the Company and Liberty Union Life Assurance Corporation
(250,000 shares of Common Stock) (incorporated by reference to
Exhibit 4.21 to the Companys Form SB-2 filed February 5,
2004).    
|     |  |                                                                                                                                                                                                                                                          
|4.22 |  | Common stock purchase warrant dated December 17, 2003 between
the Company and C. Joseph Berger, Jr. (75,000 shares of Common
Stock) (incorporated by reference to Exhibit 4.22 to the
Companys Form SB-2 filed February 5, 2004).                       
|     |  |                                                                                                                                                                                                                                                          
|4.23 |  | Common stock purchase warrant dated December 17, 2003 between
the Company and Dollie Cole (125,000 shares of Common Stock)
(incorporated by reference to Exhibit 4.23 to the Companys
Form SB-2 filed February 5, 2004).                                
|     |  |                                                                                                                                                                                                                                                          
|4.24 |  | Common stock purchase warrant dated October 1, 2003 between
the Company and IBSS Class A Investors, LLC (for 15,214,170
shares) (incorporated by reference to Exhibit 4.24 to the
Companys Form SB-2 filed February 5, 2004).                           
|     |  |                                                                                                                                                                                                                                                          
|4.25 |  | Common stock purchase warrant dated October 1, 2003 between
the Company and IBSS Class B Investors, LLC (for 22,821,256
shares) (incorporated by reference to Exhibit 4.25 to the
Companys Form SB-2 filed February 5, 2004).                           





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##### 



|     |  |                                                                                                                                                                                                                                                  
|---- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|4.26 |  | Amended and Restated Class A Secured Debenture dated October
1, 2003 between the Company and Class A Investors, LLC
(incorporated by reference to Exhibit 4.26 to the Companys
Form SB-2 filed February 5, 2004).                               
|     |  |                                                                                                                                                                                                                                                  
|4.27 |  | Amended and Restated Class B Secured Debenture dated October
1, 2003 between the Company and Class B Investors, LLC
(incorporated by reference to Exhibit 4.27 to the Companys
Form SB-2 filed February 5, 2004).                               
|     |  |                                                                                                                                                                                                                                                  
|4.28 |  | Letter Agreement between the Company, Class A Investors, LLC,
and Class B Investors, LLC dated October 1, 2003 (incorporated
by reference to Exhibit 4.28 to the Companys Form SB-2 filed
February 5, 2004).                                    
|     |  |                                                                                                                                                                                                                                                  
|4.29 |  | Amended and Restated Class A Contingent Common Stock Purchase
Warrant dated October 1, 2003 to the IBSS Class A Investors,
LLC (928,241 shares) (incorporated by reference to Exhibit
4.29 to the Companys Form SB-2 filed February 5, 2004).   
|     |  |                                                                                                                                                                                                                                                  
|4.30 |  | Amended and Restated Class B Contingent Common Stock Purchase
Warrant dated October 1, 2003 to the IBSS Class B Investors,
LLC (2,033,399 shares) (incorporated by reference to Exhibit
4.30 to the Companys Form SB-2 filed February 5, 2004). 
|     |  |                                                                                                                                                                                                                                                  
|4.31 |  | Amended and Restated Common Stock Purchase Warrant (Class A
Investors) dated October 1, 2003 to the IBSS Class A
Investors, LLC (464,120 shares) (incorporated by reference to
Exhibit 4.31 to the Companys Form SB-2 filed February 5,
2004).  
|     |  |                                                                                                                                                                                                                                                  
|4.32 |  | Amended and Restated Common Stock Purchase Warrant (Class B
Investors) dated October 1, 2003 to the IBSS Class B
Investors, LLC (2,033,399 shares) (incorporated by reference
to Exhibit 4.32 to the Companys Form SB-2 filed February 5,
2004).
|     |  |                                                                                                                                                                                                                                                  
|10.1 |  | Employment Agreement dated October 1, 2003 between the Company
and George E. Mendenhall (incorporated by reference to Exhibit
10.1 to the Companys Form SB-2 filed February 5, 2004).                                                           
|     |  |                                                                                                                                                                                                                                                  
|10.2 |  | Deferred Compensation Agreement dated September 1, 2002
between the Company and George E. Mendenhall (incorporated by
reference to Exhibit 10.2 to the Companys Form SB-2 filed
February 5, 2004).                                              
|     |  |                                                                                                                                                                                                                                                  
|10.3 |  | Employment Agreement dated October 1, 2003 between the Company
and Stuart E. Massey (incorporated by reference to Exhibit
10.3 to the Companys Form SB-2 filed February 5, 2004).                                                               
|     |  |                                                                                                                                                                                                                                                  
|10.4 |  | Deferred Compensation Agreement dated September 1, 2002
between the Company and Stuart E. Massey (incorporated by
reference to Exhibit 10.4 to the Companys Form SB-2 filed
February 5, 2004)                                                   
|     |  |                                                                                                                                                                                                                                                  
|10.5 |  | Employment Agreement dated October 1, 2003 between the Company
and Donald R. Futch (incorporated by reference to Exhibit 10.5
to the Companys Form SB-2 filed February 5, 2004).                                                                
|     |  |                                                                                                                                                                                                                                                  
|10.6 |  | Deferred Compensation Agreement dated September 1, 2002
between the Company and Donald R. Futch (incorporated by
reference to Exhibit 10.6 to the Companys Form SB-2 filed
February 5, 2004)                                                    





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##### 



|      |  |                                                                                                                                                                                                                                                              
|----- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.7  |  | Lease Agreement between the Company and Pinebelt, LLC dated
October 8, 2002 with respect to property at 1601 Shop Road,
Ste E, Columbia, S.C. (incorporated by reference to Exhibit
10.50 in the Companys Form 10-QSB for fiscal year ended
March 31, 2003).
|      |  |                                                                                                                                                                                                                                                              
|10.8  |  | Sales Representative and Marketing Agreement dated September
16, 2003 between the Company and Richard D. Pulford
(incorporated by reference to Exhibit 10.8 to the Companys
Form SB-2 filed February 5, 2004)                                               
|      |  |                                                                                                                                                                                                                                                              
|10.9  |  | Integrated Business Systems and Services, Inc. 2002 Stock
Option Plan (incorporated by reference to Exhibit 10.30 in the
Companys Form 10-QSB for the three-month period ended
September 30, 2002).                                                         
|      |  |                                                                                                                                                                                                                                                              
|10.10 |  | Nonqualified Stock Option Agreement dated as of May 30, 2000
between the Company and William S. McMaster (incorporated by
reference to Exhibit 10.15 to the Companys 10-KSB for the
year ended December 31, 2000).                                          
|      |  |                                                                                                                                                                                                                                                              
|10.11 |  | Integrated Business Systems and Services, Inc. 2001 Stock
Incentive Plan (incorporated by reference to Exhibit 10.11 in
the Companys Form 10-QSB for the three-month period ended
March 31, 2002).                                                          
|      |  |                                                                                                                                                                                                                                                              
|10.12 |  | Letter of Understanding and Statement of Work dated October 2,
2003 between the Company and Scott Group for consulting
services (incorporated by reference to Exhibit 10.12 to the
Companys Form SB-2 filed February 5, 2004).                              
|      |  |                                                                                                                                                                                                                                                              
|10.13 |  | Service Agreement dated October 25, 2003 between the Company
and Elite Financial Communications Group, LLC (incorporated by
reference to Exhibit 10.13 to the Companys Form SB-2 filed
February 5, 2004).                                                   
|      |  |                                                                                                                                                                                                                                                              
|10.14 |  | Placement Agent Agreement dated January 30, 2004 between the
Company and US Euro Securities, Inc. (incorporated by
reference to Exhibit 10.14 to the Companys Form SB-2 filed
February 5, 2004).                                                            
|      |  |                                                                                                                                                                                                                                                              
|10.15 |  | Reseller/OEM Agreement dated November 10, 2003 between the
Company and Prospect Airport Services, Inc.                                                                                                                                                       
|      |  |                                                                                                                                                                                                                                                              
|21.1  |  | Subsidiaries of the Company (incorporated by reference to
Exhibit 21.1 in the Companys Form 10-KSB for fiscal year
ended December 31, 2001).                                                                                                                
|      |  |                                                                                                                                                                                                                                                              
|31.1  |  | Certification of Chief Executive Officer pursuant to Section
302 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                          
|      |  |                                                                                                                                                                                                                                                              
|31.2  |  | Certification of Chief Financial Officer (Acting) pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                 
|      |  |                                                                                                                                                                                                                                                              
|32.1  |  | Certification of Chief Executive Officer pursuant to Section
906 of the Sarbanes-Oxley Act of 2002                                                                                                                                                           
|      |  |                                                                                                                                                                                                                                                              
|32.2  |  | Certification of Chief Financial Officer (Acting) pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                 
|      |  |                                                                                                                                                                                                                                                              
|99.1  |  | Risk Factors for Integrated Business Systems and Services, Inc.