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                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                   FORM 10-KSB
(Mark One)

[X]  ANNUAL REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT
     OF 1934
     For the fiscal year ended December 31, 2000

[ ]  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 or Other Jurisdiction of             (IRS Employer Identification Number)
 Incorporation or Organization)

115 Atrium Way, Suite 228, Columbia, SC                    29223
----------------------------------------    ------------------------------------
(Address of Principal Executive Offices)                (Zip Code)

                                 (803) 736-5595
     ----------------------------------------------------------------------
                (Issuer's Telephone Number, Including Area Code)


Securities registered pursuant to Section 12(b) of the Exchange Act:

                                      None
--------------------------------------------------------------------------------


Securities registered pursuant to 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 twelve months (or for such
shorter period that the issuer was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days. Yes [X]  No [ ]

Check if no disclosure of delinquent filers in response to Item 405 of
Regulation S-B is contained in this form, and no disclosure will be contained,
to the best of the issuer'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. [ ]

The issuer's revenues for the year ended December 31, 2000, the issuer's most
recent fiscal year end, were $2,382,068.

The aggregate market value of voting stock held by non-affiliates of the issuer
on March 16, 2001 was approximately $28,952,701.*

The number of shares outstanding of the issuer's common stock, no par value, was
14,394,869 at March 16, 2001.


                       DOCUMENTS INCORPORATED BY REFERENCE

Portions of the issuer's Proxy Statement in connection with its 2001 Annual
Meeting of Shareholders (Part III).

Transitional Small Business Disclosure Format (check one):  Yes [ ]  No [X]

------------
* Calculated by excluding all shares held by officers, directors and controlling
shareholders of issuer without conceding that all such persons are "affiliates"
of issuer for purposes of the federal securities laws.



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                 INTEGRATED BUSINESS SYSTEMS AND SERVICES, INC.

                              INDEX TO FORM 10-KSB




         PART I                                                             PAGE

Item 1.  Description of Business..............................................3

Item 2.  Description of Property.............................................22

Item 3.  Legal Proceedings...................................................22

Item 4.  Submission of Matters to a Vote of Security Holders.................22



         PART II

Item 5.  Market for Common Equity and Related Stockholder Matters............22

Item 6.  Management's Discussion and Analysis of Financial Condition
         and Results of Operations...........................................24

Item 7.  Financial Statements................................................29

Item 8.  Changes in and Disagreements with Accountants on Accounting
         and Financial Disclosure............................................29



         PART III

Item 9.  Directors, Executive Officers, Promoters and Control Persons;
         Compliance with Section 16(a) of the Exchange Act...................29

Item 10. Executive Compensation..............................................29

Item 11. Security Ownership of Certain Beneficial Owners and Management......29

Item 12. Certain Relationships and Related Transactions......................29

Item 13. Exhibits and Reports on Form 8-K....................................29



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                                     PART I


Advisory Note Regarding Forward-Looking Statements

         Some of the statements contained in this report on Form 10-KSB
constitute forward-looking statements subject to the safe harbor created by the
Private Securities Litigation Reform Act of 1995. For this purpose, any
statements contained in this Form 10-KSB that are not statements of historical
fact may be deemed to be forward-looking statements. Without limiting the
preceding statements, our use of the words "believe(s)," "anticipate(s),"
"expect(s)," "plan(s)," "intend(s)," and similar expressions are intended to
identify forward-looking statements.

         We caution readers of this report that these forward-looking statements
involve a number of known and unknown risks and other factors that may cause our
actual results to be materially different from those contemplated by these
forward-looking statements. Factors which could cause actual results to differ
from expectations include, among other things, the factors set forth below under
the caption "Factors That May Affect Our Operating Results" and other factors
set forth elsewhere in this document and in our other periodic reports and
filings that we make with the Securities and Exchange Commission. Unless
required by law, we do not undertake any obligation to publicly revise or update
any forward-looking statements, whether as a result of new information, future
events or otherwise.


Item 1.  Description of  Business


General Overview

         Integrated Business Systems and Services, Inc. ("IBSS" or the
"Company") is a national provider of infrastructure software that applies a new,
more cost-effective approach in systems integration and application development
technologies for large manufacturing and service industries. Our software is
currently enabling businesses in multiple industries throughout the country to
monitor and integrate the real-time flow of their mission-critical operating
information more rapidly and cost-effectively than any other currently available
integration products.

         Synapse is our internally-developed, patent-pending software that is
the core of our ever expanding suite of Synapse-based products. We generate our
revenues primarily through the licensing, installation and servicing of these
products. Unlike the traditional object-oriented custom programming associated
with our competitors' products, Synapse utilizes a novel, highly flexible and
adaptable, rules-based architecture. We believe this architecture makes Synapse
especially well-suited for the growing number of businesses that have been
unable to effectively overcome the substantial time and cost hurdles they face
in attempting to streamline and monitor their flow of real-time transaction
information. Most large enterprises need this information flow to occur
seamlessly and instantaneously, both internally, through their already installed
and typically incompatible, multi- system operations, and externally, through
the systems of their vendors, customers and other trading partners. IBSS and our
specially-developed Synapse applications provide turn-key solutions to address
these needs.

         In addition to being more easy-to-implement, more flexible, and more
fully scalable than the systems currently offered by our competitors, we believe
that one of Synapse's most distinguishing advantages is its demonstrated ability
to allow businesses to avoid the significant time and expense of having to
change their existing business processes and legacy systems solely in order to
accommodate the installation of the applications offered by our competitors.

         Our growth strategy seeks to use Synapse to rapidly capitalize on the
absence in the current technology markets of a connectivity and tracking
solution that is as affordable, as easy-to-implement, and as fully-scalable as
our Synapse software engine. Our current line of Synapse-based products
includes:

         o        Synapse Manufacturing (TM) - providing manufacturing plant
                  automation, such as shop floor tracking and data collection,
                  for customers that have already installed or may be planning
                  to install enterprise resource planning (ERP) systems.


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         o        Synapse B2X (TM) - providing seamless integration between
                  disparate systems and applications, making it especially
                  suited for application service provider (ASP) enablement and
                  for integrating a customer's internal applications with its
                  external supply chain.

         o        Synapse for Printing (TM) - providing a fully integrated,
                  turn-key approach for the printing industry's publishing and
                  distribution processes, including web-based, front-end
                  ordering and interface capabilities with any high volume
                  printing equipment and legacy application software.

         o        Synapse EAI+ (TM) - providing enterprise modeling and
                  application integration suitable for multiple industries.

         During the past eighteen months, we have won contracts with
organizations in multiple industries, including the following:

         o        Furniture - Berkline Corporation, a subsidiary of Lifestyles
                  Furnishings International, Ltd.

         o        Automotive - Reeves Brothers and BRAIN North America, Inc.

         o        Textile and Apparel - Fruit of the Loom and Americal
                  Corporation

         o        Human Resources - WilCam Systems

         o        Printing - Oregon State Printing

         While we remain pleased by the strong acceptance of our Synapse
software by these organizations, we recognize that its capabilities extend far
beyond their respective industry groups.

         During the same eighteen-month period, we have also established or
strengthened our strategic relationships with a variety of national systems
integrators (The Thomas Group and The Silenas Group), application software
vendors (Eigner+Partner and BRAIN North America, Inc.), infrastructure
technology vendors (Symbol Technologies, Inc., AT&T and Sun Microsystems, Inc.),
and automotive engineering research institutions (Oakland University in
Detroit).

         Our common stock is listed on the Nasdaq National Market under the
symbol "IBSS". We were founded in South Carolina in 1990 to provide software
consulting and related services to the manufacturing industry. Since that time,
we have evolved from being a pure service provider to becoming a much more
product oriented enterprise. In this connection, we note that the Synapse
systems which comprise the fundamental core of our current product-driven
revenues were only released to the market in late 1999.

         Our principal executive offices are located at 115 Atrium Way, Suite
228, Columbia, South Carolina, 29223 where our telephone number is (803)
736-5595. We also maintain an office in Detroit, Michigan.


Inadequacy of Existing Approaches to Systems Connectivity Challenges

         The Problem

         As manufacturing and service industries have grown, they have been
forced by market demands to integrate "islands of computerization" into total
systems that access and deploy data from multiple vendors, customers,
geographically dispersed physical plants, distribution centers, and the
Internet. As most large enterprises have sought to integrate all of their
computer systems, databases and applications, they frequently have encountered
within their own organizations a confusing tangle of mainframes, client-servers,
customer relationship software, human resource applications and the like.

         From a cost and ease-of-use perspective, each of these enterprises
faces the daunting challenge of attempting to maintain their legacy systems,
while still wanting these systems seamlessly and instantaneously to talk with
and perform functions with one another. This challenge is heightened even more
by the rapid changes occurring in commercial markets. These changes include the
recent shift toward more industry consolidations, the emergence of more
electronic trading partners and trading exchanges, the increase in collaborative


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manufacturing and distribution arrangements, and the growing demands for more
collaborative product development and customer relationship management systems.
All of these changes are characterized by the parallel changes occurring in the
business process rules which must be applied to an open-ended number of
electronic systems.

         The Competition's Response

         For the most part, our competitors have responded to these changing
environments through their offerings of highly customized, traditional
object-oriented software "patches" and e-commerce bridges. Most of these
solutions are characterized by their reliance on older technological paradigms
that employ rigid, complicated standards for describing and tracking
transactions. The installation of our competitors' solutions has necessitated
disruptive and expensive system conversions which are typically characterized by
lengthy implementation delays, frequent computer crashes, and ongoing management
headaches. Moreover, these traditional approaches, with their reliance on custom
programming, have required high and costly levels of maintenance and significant
retooling with each software upgrade or newly integrated application.

         Consequently, the costly implications of traditional methods of systems
integration have presented a significant barrier to many businesses, and have
not effectively enabled aggregation of fragmented industries, which is where a
major source of efficiency in an industry is gained. These businesses are left
to deal with their existing paper-based or semi-automated processes. These
processes are costly, time consuming and complex, and often include the
re-keying of information, lengthy approval cycles and significant involvement of
financial and administrative personnel. Moreover, the lack of effective systems
integration often results in fulfillment delays to end-users, leading to
productivity losses.

         The Needed Response

         We believe that to achieve the most effective systems integration
solution, businesses need a user-friendly software engine whose architecture is
capable of defining and maintaining an entire business topology in "business
processing" terms rather than in traditional "programmer terms." The system must
be flexible enough to meet the unique business process requirements of a large
enterprise and must be highly scalable, reliable and rapidly deployable. It must
also 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. Finally, it must
substantially shorten the "time-to-benefit" for the customer, meaning the time
from the point of recognizing the problem to the time of receiving the benefits
of a vendor's fully-installed solution. We believe that we have successfully
developed this system through the new architecture of Synapse, a software that
offers comprehensive application and enterprise modeling and reacts in business
terms, not programmer terms.


The Synapse Solution

         Using our patent-pending software, Synapse, we are able to model the
enterprise and its business processes directly, allowing third party systems,
such as enterprise resource planning, supply chain and Web portals, to be more
loosely coupled. With Synapse, we have also substantially eliminated the need
for costly, difficult-to-maintain custom programming. Through its use of a
novel, broadly applicable rules-based approach (versus the traditionally
inflexible object-oriented programming approach), Synapse integrates both new
and legacy systems of all kinds for customers in virtually any industry where
real-time information in a constantly changing business environment has
strategic value. We are currently focusing our Synapse-based offerings through
the following four modules:

         o         Dynamic Manufacturing Solutions

         o         B2X Integration

         o         Web-Based Applications

         o         ASP Enablement

         Today's technology marketplace offers a myriad of software products
that attempt to deliver one or more of these capabilities. We believe that none
is as responsive or as cost effective as our Synapse-based products to
implement, maintain, extend and modify in a dynamic business environment.


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The Synapse Advantages

         Synapse is unique among competing applications infrastructure software
technologies. This is due in part to the fact that Synapse is completely
self-contained and fully-distributed. This means that it does not require the
use of other third party supporting software in order to deliver the desired
application, and by being fully distributed, any business using it is able to
instantaneously update its entire system through a single hosting site.

         Synapse provides the following advantages to organizations in
integrating their business systems, applications and processes, both internally
and with their external electronic relationships:

         Cost-Effectiveness

         Synapse is more cost-effective than other integration and e-business
solution products. This is evidenced by the recent contract wins we have
achieved to implement Synapse at Fruit of the Loom and at Oregon State Printing.
Although cost is one of the most important factors in the selection of a
technology vendor, the additional attributes of Synapse, as outlined in this
report, together with its cost-effectiveness, provide us with a significant
competitive advantage.

         Flexibility

         Synapse is highly flexible, enabling easy customization. This is of
great importance to businesses because they want solutions congruent to their
existing business needs, without requiring a change in their business processes
solely to conform to "plain vanilla" solutions that are provided by traditional
and competing integration products.

         Adaptability

         Synapse is highly-adaptable, extendable and re-configurable to the
changing business needs of organizations. This feature enables organizations to
evolve into new business models of choice. Whether focused solely on developing
and enabling the supply chain, integrating the back-end systems and
applications, or engaging in various marketplaces, organizations can benefit
from the ability of Synapse to address different integration requirements.

         Deployment Efficiency

         Synapse is deployable quickly, requiring substantially less
implementation time, and less time to maintain, extend and modify. This greatly
reduces the "time-to-benefit" factor (the time period from a business's
identification of a technology need or "fix," to the time of a fully-delivered
application. Because e-business models are evolving and changing so quickly,
organizations do not want to spend extended periods of time deploying a system
that is geared to meet disappearing and/or altering business opportunities.


The Synapse Methodology and Capabilities

         The foregoing attributes of Synapse stem primarily from its unique
architecture, its application development capabilities, and its enterprise
integration capabilities, as described below:

         Distributed Architecture

         o        The Synapse architecture is fully-distributed, making it a
                  complete model for distributed solutions. In contrast,
                  traditional and most competing integration products are an
                  assemblage of sets of rigid, object-oriented programming
                  standards combined with a library of static, pre-written
                  objects together with a message transport framework.

         o        The completely distributed Synapse architecture eliminates a
                  business's reliance on a central critical server, while
                  maintaining efficient management of logic between systems.
                  Furthermore, Synapse offers remote administration and
                  management capabilities for the customer's system.


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         Ease of Application Development

         o        Synapse does not require the use of custom programming in
                  order to extend or modify its functionality. In contrast, the
                  message transport framework of traditional and competing
                  integration products requires substantial amounts of custom
                  programming in languages external to the product (i.e., JAVA,
                  C++ and Visual Basic) in order to modify or extend their
                  functionality.

         o        The Synapse architecture separates elements that make up a
                  transaction. This feature is important to businesses because
                  it enables users to define or change any elements of a
                  transaction "independently," thus separating the transaction
                  from the underlying application. The meta-information of each
                  transaction element includes data definitions, system
                  topology, application presentation, user configuration, and
                  rule management.

         o        Synapse enables organizations to describe any distributed
                  application without the need to modify or extend Synapse
                  functionality through a third party programming tool. This
                  represents a significant difference from most competing
                  products.

         o        Synapse is operating system, data base software, and industry
                  vertical independent.

         Versatile Enterprise Integration

         o        Synapse provides for the development of new, custom
                  applications in "business" terms and not in "computer
                  languages." Moreover, Synapse naturally integrates into the
                  customer's existing legacy systems. As a result, application
                  development is greatly simplified, and Synapse enables
                  businesses to extend the life and functionality of their
                  existing system applications.

         o        Synapse enables organizations to integrate applications and
                  processes, and offers business-to-business (B2B) integration
                  development, deployment, and management capabilities.

         o        Synapse is unique in enabling organizations and their business
                  processes to be defined directly, including all of the systems
                  that interact to make these processes work. This capability
                  integrates third party or legacy systems, enterprise resource
                  planning systems, supply chain systems and e-commerce based
                  Web portals to be loosely coupled to the monolithic systems
                  within the enterprise.


Our Marketing Approach

         Through our underlying core technology, Synapse, we enable businesses
to integrate applications and processes, provide for the development of
applications, and offer business-to-business integration development, deployment
and management capabilities. Our objective is to become the nation's
vendor-of-choice among businesses seeking the most advanced and cost-effective
systems integration solutions. We are currently focusing our marketing of our
Synapse-based offerings through the following four modules:

         o        Dynamic Manufacturing Solutions

         o        B2X Integration

         o        Web-Based Applications

         o        ASP Enablement


         Dynamic Manufacturing Solutions

         Providing a shrink-wrapped Manufacturing Execution System (MES)
package, which fits all industries without huge modifications, has proved nearly
impossible for software vendors. Many companies develop MES applications using
the most advanced programming tools available. Traditionally, this has meant the
use of object-oriented and component-based development tools which require many
programmers and a significant amount of time because new application
functionality must still be encoded in software components. This


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object-oriented/component-based technology approach has forced many of our
competing software vendors to focus on only a few manufacturing industries,
effectively limiting their MES product from broad applicability across market
segments.

         Unlike our competition, our Synapse Manufacturing(TM), with its
embedded flexibility and cost-advantages, allows virtually any manufacturing
shop floor system to be configured rapidly and efficiently. As a result, Synapse
Manufacturing provides us with significant market opportunities by eliminating
the need for us to limit our focus to only a select group of manufacturing
applications. This means that customers across the full spectrum of
manufacturing businesses are able to achieve a return on their information
technology investment more quickly than through the use of competing MES
systems.

         Synapse provides what we believe is the most effective response to the
following critical demands in the current manufacturing environment:

         o        Customization Demands. Synapse provides flexible, networked,
                  thin-client solutions to businesses engaged in delivering
                  customized products (for example, make-to-order and contract
                  manufacturing) where flexible connectivity is critical to the
                  success of the business's operations.


         o        Rapidly Changing Environments. The unique rules-based
                  architecture of Synapse enables the systems and applications
                  of a business to become flexible and adapt quickly and
                  dynamically to changes in the operational and informational
                  requirements of the business.

         o        Flexibility Demands. The flexibility inherent in the Synapse
                  architecture enables an organization to develop new products,
                  new technologies and transitory collaborative relationships
                  cost-effectively. In contrast, the traditional
                  programming-based products often fail to deliver
                  cost-effective results when automating dynamic solutions.

         B2X Integration

         Synapse provides an organization with the ability to seamlessly
exchange information among incompatible systems and software applications (A2A)
used by the organization and by its customers (B2C), suppliers and partners
(B2B), and employees (B2E) over corporate networks and the Internet.

         o        B2X integration in today's constantly changing business
                  environment, utilizing current enterprise application
                  integration (EAI) software models, is costly and
                  time-consuming for businesses because these models are
                  tailored through the use of traditional custom programming.

         o        Synapse is designed specifically (a) to address the B2X
                  integration needs of a business experiencing constant change
                  in its operating environment; and (b) to accomplish that
                  integration in a cost-effective manner, without requiring
                  resources and time otherwise needed by the existing EAI
                  models. Furthermore, Synapse provides an organization with the
                  ability to quickly create, connect and maintain a multitude of
                  interfaces to web portals and legacy systems while adjusting
                  to changing business rules in real-time.

         o        The cost and time efficiencies of Synapse stem primarily from
                  its ability to model all systems within the enterprise in
                  business terms, and not in computer languages. Once the
                  business systems and applications of an organization are
                  Synapse-enabled, the dynamic changes in the business
                  environment of the organization can be implemented much more
                  efficiently.

         Web-Based Applications

         The existing Web-based software integration models for e-business
solutions are typically unable to meaningfully penetrate the middle-market. This
is primarily because the costs of their initial implementation and ongoing
maintenance makes them unaffordable to the middle-market organizations whose
business needs are almost constantly changing.


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         o        Synapse provides a middle-market business and other
                  organization with the ability to be e-business enabled at a
                  more affordable cost than traditional methodologies, thus
                  providing Synapse a significant competitive advantage over our
                  larger competitors.

         o        The unique and superior architecture of Synapse allows for
                  much quicker and easier responsiveness to almost any level of
                  system change. In this way, Synapse is able to deliver the
                  complete e-business solution to the middle-market much more
                  cost-effectively. As a result, the middle-market segment of an
                  industry, wherein online execution, tracking and delivery of
                  products and services are critical to the success of an
                  organization, offers significant opportunities for Synapse's
                  web-based applications. Once a middle-market organization in
                  an industry is Synapse-enabled, our competitive opportunities
                  to market Synapse-based products to that industry are greatly
                  enhanced.

         ASP Enablement

         Synapse enables an application service provider ("ASP") to offer
customized solutions congruent to the requirements of the ASP and its clients.
The ASP market segment provides a growing opportunity for Synapse applications
because Synapse has a distinct technological advantage in this market. The
potential ASP customers include specialized software application vendors whose
services can be delivered best through an ASP model.

         Synapse delivers advanced capabilities to an ASP because of its unique
architecture, whereas other software products lack the ability to accomplish
them efficiently. Synapse provides an ASP with the real-time ability to update
all web servers, end user configurations, application rules, and back-end
network interfaces. Included among the ASP capabilities of Synapse are the
following:

         o        Data control, security and speed are not compromised relative
                  to the performance achieved by utilizing a resident computer
                  infrastructure.

         o        The business, network interface and system configuration
                  changes of the organization are quickly executable by the ASP.

         o        The overall cost of the services necessary to keep the ASP
                  system current is significantly less than that of a resident
                  computer infrastructure.


Our Sales and Growth Strategies

         Direct Sales Force

         Our current direct sales force is currently comprised of seven sales
professionals operating in multiple locations throughout the country, as well as
our sales support team of two sales professionals operating primarily out of our
corporate headquarters. As discussed below, we have specifically focused this
team on customer development efforts in the targeted industries where we believe
our Synapse products provide us with the greatest competitive advantages. In our
sales efforts, we utilize sales teams consisting of both sales and technical
professionals who often work with our strategic partners to create
organization-specific proposals, presentations and demonstrations that address
the specific needs of each potential customer. We intend to continue the
expansion of our direct sales force.

         Expand and Leverage Strategic Relationships

         We intend to access new markets and distribution channels by continuing
to establish and leverage business relationships with more system integrators,
application software vendors and infrastructure software technology suppliers.
These strategic relationships are an important extension of our direct sales
force, and enable us to reach a broader range of customers in a variety of
industries than would be possible through our direct sales force alone. As a
result, we expect to enhance our customer base, cultivate additional market
expertise, and achieve our growth objectives more quickly and cost-effectively.


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         Target Vertical Markets with Industry Focused Solutions

         We believe that we have a competitive edge in providing e-business
solutions to organizations requiring frequent changes or adjustments to their
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 human resource services, printing,
apparel manufacturing, furniture manufacturing and the automotive industry.
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.

         We are pursuing this strategy in order to enable us to develop
industry-specific templates for e-business solutions at competitive cost levels.
This template approach is designed to allow us to be incrementally more
profitable by reducing both the cost and the implementation time otherwise
required for e-business solutions, and rapidly expanding the business
opportunities within an industry.

         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. W have filed a patent application on our basic Synapse 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 enhancing
the Web enablement and configuration productivity capabilities of Synapse.

         Our objective is to expand upon our experienced team of developers and
engineers and further enhance our corporate culture to foster product
innovation. We expect to supplement additional engineering resources 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. At this time, however, we are not in discussions or
negotiations with any third parties with respect to any acquisition, merger or
similar transactions.

         Develop a Major Presence in the ASP Market

         Under the typical ASP model, application software is hosted at an
Internet website, which is accessed by a customer through a browser, rather than
having the software resident on the customer's premises. Our ASP market strategy
includes our establishment of relationships with specialized software
application vendors to enable them to initiate the provision of their services
through the ASP channel. We also intend to establish relationships with existing
application service providers with the objective of making their services more
flexible and cost-effective to their customers.

         In 2000, we commenced our first ASP transition development project
through our establishment of an alliance with ASP*n, LLC, a provider of ASP
incubation, funding and related services. We currently hold a 43.02% equity
interest in ASP*n. During the latter half of 2000, through our alliance with
ASP*n, we provided various services to WilCam Systems, LLC in connection with
the transition to an ASP model of its former stand- alone business model. That
model involved the development and licensing of software for the administration
by employers of the Family Medical Leave Act ("FMLA"). Earlier in the year, we
had already established a customer relationship with WilCam Systems in our
license to them of Synapse B2X(TM) for FMLA administration. WilCam Systems is
currently working with us in completing its ASP transition and contemplates
expanding its product line beyond FMLA administration to provide employers with
a more comprehensive and complete absence management system delivered through
the ASP model.

         In November of 2000, our affiliate, ASP*n, LLC, acquired a 50% equity
interest in WilCam Systems. This acquisition was undertaken in connection with
our grant to WilCam Systems of the exclusive rights to use Synapse for third
party FMLA administration. Through our ownership in ASP*n, LLC we held at
December 31, 2000 an indirect equity interest in WilCam Systems of approximately
23%. During the first quarter of 2001,


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we acquired an additional 3.6% direct equity interest in WilCam Systems,
bringing our current aggregate direct and indirect equity interest in WilCam
Systems to approximately 27%. Our equity ownership in WilCam Systems provides us
with both a recurring revenue stream from WilCam System's operations as well as
the potential for capital appreciation.

         We intend to pursue the development of other similar equity
arrangements with other existing ASPs and ASP candidates. In addition to the
revenue and equity potential from such relationships, we believe that these ASP
relationships will generate broader revenue opportunities for us as the ASP's
own customers become familiar with the many advantages of Synapse and our other
Synapse-based products.

         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. We, therefore, are focused on this positioning
to leverage our opportunities across multiple target markets in order to grow
our revenue base.


Strategic Alliances and Reseller Programs

         In addition to our own direct sales force and our leveraging of our
existing and future customer base, we have formed alliances with various third
parties to enhance our marketing and sales efforts, including third party
systems integrators, application software vendors, and infrastructure technology
companies.

         Systems Integrators. Included among the systems integrators that have
agreed to market Synapse to their customers are The Thomas Group (specializing
in providing e-business consulting services to companies in the automotive and
other major industries) and The Silenas Group (specializing in assisting
customers select, customize, develop, test and implement mission critical
applications).

         Application Software Vendors. Included among the application software
vendors that have agreed to jointly market the Synapse system are
Eigner+Partner, one of the leading European providers of product data and
document management technology, which has certified our Synapse EAI+ product for
its "axalant" software (a suite of web-based e-engineering solutions) and has
agreed to jointly market the Synapse-enabled axalant system to manufacturing
industries.

         Infrastructure Technology Companies. Included among the infrastructure
companies that have established strategic relationships with us are Symbol
Technologies, Inc., one of the world's leading radio frequency and data
communication providers, which has agreed to market Synapse to manufacturing
companies to optimize their shop floor operations; AT&T, with whom we have
established a strategic alliance to support our ASP enablement initiatives; and
Sun Microsystems, Inc., which has included our company in its Sun Developer
Connection Program.


Customer Service, Training and Support

         We recognize that customer satisfaction is a critical requirement for
our continued growth and long-term success. Our technical support team provides
pre-sale, installation and post-sale technical support by toll-free telephone,
electronic mail, facsimile and through our Internet site. Customer support is
available on an around-the-clock basis. In addition, we offer our customers
continued training to provide the knowledge and skills to successfully deploy,
use and maintain our products and solutions. Our training focuses on the
technical


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<PAGE>   12

aspects of our products, as well as the real-world business and operational
issues and processes. Classes are held in our training facilities at our
headquarters in Columbia, South Carolina. We also provide on-site training at
our customers' locations.


Research and Development

         Our research and development efforts are focused primarily on expanding
and enhancing our suite of Synapse-based products. The current Synapse software
was introduced to the market in late 1999. Since then, we have continued to
devote our design and research resources to the continued enhancement of the
base Synapse product, as well as to the development and enhancement of new
industry-specific Synapse applications. Our most recent product development
efforts have been associated with our Synapse for Printing(TM) product.

         The Synapse environment is currently "Internet enabled," meaning that
it can be distributed to connect multiple customer locations through the
Internet. We expect the Synapse environment to be fully "Web enabled" by the end
of April of this year. This will allow multiple Web applications to be
configured to meet the specific requirements of the customer. We are also
working to develop a thin-client "Web-Enabled" configuration tool so that system
integrators and consultants will be able to access, support and configure the
Synapse applications remotely. We believe that these value-added additions will
increase both the need and demand for our Synapse-based products. We expect that
most of our enhancements to our existing and future products will be developed
internally or through acquisitions. Our research and development expenses were
$306,721, $429,436, and $50,992 for the fiscal years ended December 31, 2000,
1999 and 1998, respectively.


Competition and Markets

         Industry Background

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

         In recent years the competitive environment for businesses has
intensified 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 META
Group estimates that the average Fortune 100 company maintains 49 separate
applications and spends from 25% to 33% of its total information technology
budget on integration-related efforts.

         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. Driven by
the increasingly business-critical need for integration, the application and
data integration software market is projected by the Yankee Group to reach a
total size of $5 billion this year.

         Competitive Conditions

         The market for our products and services is intensely competitive and
characterized by rapidly changing technology and evolving standards. Our
competition is diverse and offers a variety of solutions which are directed at
different segments of e-business integration. We have experienced, and will
continue to experience, increased competition from current and future
competitors.

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<PAGE>   13

         In their marketing efforts, almost all of our known competitors have
adopted a "narrow-and-deep" strategy, resulting in their products being tailored
to specific market segments that are not easily adapted to other market segments
without substantial additional application development. In contrast to this
approach, we have developed our Synapse application to be configured
horizontally across many industries, while aligning ourselves with systems
integrators who we have identified as experts in specific markets.

         Many of our competitors promote their products as being configurable
using traditional object-oriented or component-based programming techniques, in
most cases using Microsoft's standards. While these methods may be more
efficient than traditional computer software development, these methods still
require substantial programmer resources. This adherence to Microsoft standards
also limits the ability of a customer to connect to the non-Microsoft
applications and engineering control systems which are still in abundance.
Unlike many of our competitor's products, the Synapse transaction configuration
platform, upon which the Synapse Manufacturing(TM) product is built, provides
for the benefits of Microsoft compatibility in addition to compatibility with
the existing systems and engineering control systems currently deployed within
manufacturing facilities.

         Our company and our products are not well known in the marketplace, and
we face intense competition from a variety of competitors with greater market
visibility. Our current competitors include vendors offering enterprise
application integration, or EAI, business-to-business integration, or B2B,
business-to-customer integration, or B2C, and traditional manufacturing
enterprise systems, or MES, software products. A number of other
well-established companies are offering products that address different aspects
of our Dynamic Manufacturing Solution, including: CamStar Systems, Inc., Apriso
Corporation (formerly CIM Vision International), DataSweep, Inc., and SynQuest,
Inc. Our B2X products compete against BEA Systems, Inc., NEON Systems, Inc. (to
be acquired by Sybase, Inc.), SeeBeyond Technology Corporation, TIBCO Software
Inc., and Vitria Technology, Inc. Additional competition is expected from other
established and emerging companies. Also, we may face pricing issues posed by
our current competitors and new entrants in the future.

         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; and product reputation. The
relative weight of each of these factors is customer-specific. Although we
believe that our products and services carry the most competitive advantage with
respect to each of these factors, we may not be able to maintain our position
against current and future competition.


Employees

         As of March 31, 2001, we had a total of 54 full-time employees,
including 9 in sales and marketing, 8 in design and development, 25 in
programming and systems support, 2 in project management, and 10 in
administration. We currently have no part-time employees.


                                       13

<PAGE>   14


                  FACTORS THAT MAY AFFECT OUR OPERATING RESULTS

         In addition to other information contained in this Annual Report on
Form 10-KSB, the following risk factors should be carefully considered in
evaluating our company and its business. These factors may have a significant
impact on our business, operating results and financial condition. As a
consequence of these risk factors, other information contained in this report
and the risks discussed in our other periodic filings with the Securities and
Exchange Commission, our actual results could differ materially from those
contemplated by any forward-looking statements contained in this report.

Risks Related to Our Company

We have a large accumulated deficit, we expect future losses, and we may never
achieve or maintain profitability.

         We have experienced operating losses in each of our fiscal years since
January 1, 1995. As of December 31, 2000, we had an accumulated deficit of
approximately $ 8,877,965. In addition, since 1997, we have continued to
allocate an increasing proportion of our internal resources to research and
development activities associated with the development of our current suite of
new software products. During the same period, we also undertook a complete
restructuring of our sales and marketing organization and commenced several new
customer acquisition strategies. The execution of these marketing initiatives
required additional staffing resources and other related expenditures. This
strategy of increased emphasis on new product development and the suspension of
much of our traditional sales activities while we began implementing our sales
team reorganization resulted in a substantial reduction in our traditional
service revenues during the affected periods. Despite our history of losses, we
believe it is vital to our future success that we continue to invest heavily in
sales and marketing, although at a lower percentage of revenue than our
investment in this area during our most recent fiscal years. Nevertheless, if
expenditures related to our sales and marketing and the expansion of our
operations are not accompanied or shortly followed by significantly increased
revenue, our losses could be even greater than expected until we are able to
delay or reduce these expenditures. While we believe profitability is achievable
in 2001, many factors, including the factors described in this report, may
result in our incurring losses in 2001. We will need to significantly increase
our quarterly revenues to achieve profitability.

Significant unanticipated fluctuations in our actual or anticipated quarterly
revenues and operating results may cause us not to meet securities analysts' or
investors' expectations and may result in a decline in our stock price.

         Our quarterly operating results have fluctuated significantly in the
past and may vary significantly in the future. Moreover, as a result of our
limited operating history with our new suite of Synapse-based software products
and the evolving nature of the markets in which we compete, we may have
difficulty accurately forecasting our revenue in any given period. If our
revenues, operating results, earnings or future projections are below the levels
expected by investors or securities analysts, our stock price is likely to
decline. As a result of the factors discussed below, we believe that quarterly
revenues and operating results are difficult to forecast, and period-to-period
comparisons of our historical results of operations are not necessarily
meaningful and should not be relied upon as indications of trends or of future
performance.

         Our stock price is subject to the volatility generally associated with
Internet, software and technology stocks in general, and may also be affected by
broader market trends unrelated to our performance. We also expect to experience
significant fluctuations in our future quarterly revenues and operating results
as a result of many factors specific to our operations, including:

         o        the difficulty in predicting the size and timing of our
                  customer orders

         o        the mix of our products and services sold and the mix of our
                  distribution channels

         o        the lengthy sales cycle for some of our products

         o        the market acceptance of our products

         o        the terms and timing of our financing activities


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<PAGE>   15

         o        whether we are able to successfully expand our sales and
                  marketing programs

         o        the possible loss of our key personnel

         o        the difficulty in predicting the amount and timing of employee
                  stock option exercises

         Our revenues and operating results depend upon the volume and timing of
customer orders and payments, and the date of product delivery. New software
licensing, service and maintenance contracts may not result in revenues in the
quarter in which the contracts are signed, and we may not be able to predict
accurately when revenues from these contracts will be recognized. Historically a
substantial portion of our revenues has been derived from large licensing and
software implementation orders. We expect this trend to continue for the
foreseeable future. We also expect that increases in the dollar size of
individual license transactions will increase the risk of fluctuation in future
quarterly results. We realize substantially higher gross margins on our license
revenues compared to our services and maintenance revenues. Consequently, our
margins for any particular quarter will be highly dependent on the mix of
license, service and maintenance revenues in that quarter. If we cannot generate
large customer orders, or our customers delay or cancel their orders in a
particular quarter, it will have a material adverse effect on our revenues and,
more significantly on a percentage basis, on our net income or loss in that
quarter.

         In addition, we are subject to employer payroll taxes when our
employees exercise their stock options. The employer payroll taxes are assessed
on each employee's gain, which is the difference between the price of our common
stock on the date of exercise and the exercise price. During a particular
period, these payroll taxes could be material. These employer payroll taxes
would be recorded as an expense and are assessed at tax rates that vary
depending upon the employee's taxing jurisdiction in the period such options are
exercised based on actual gains realized by the employees. However, because we
are unable to predict how many stock options will be exercised and at what price
during any particular period, we cannot predict the amount, if any, of employer
payroll expense that may be recorded in a future period or the impact on our
future financial results.

Variations in the time it takes us to sell our products may cause fluctuations
in our operating results.

         Our customers generally consider a wide range of issues before
committing to purchase our products, including product benefits, the ability to
operate with existing and future computer systems, the ability to accommodate
increased transaction volumes and product reliability. Some of our customers are
addressing these issues for the first time when they consider whether to buy our
products and services. As a result, we or other parties must educate potential
customers on the use and benefits of our products and services. In addition, the
purchase of our products generally involves a significant commitment of capital
and other resources by a customer. This commitment often requires significant
technical review, assessment of competitive products, and approval at a number
of management levels within a customer's organization. The length of our sales
cycles may vary based on the industry in which the potential customer operates
and is difficult to predict for any particular license transaction. Because of
the number of factors influencing the sales process, the period between our
initial contact with a new customer and the time when we recognize revenue from
that customer varies widely in length. Our sales cycles typically range from two
to six months. For larger opportunities with new customers, however, these
cycles can be longer. The length and variability of our sales cycles makes it
difficult to predict whether particular sales will be concluded in any given
quarter. If one or more of our license transactions are not consummated in a
given quarter, our results of operations for that quarter may be below our
expectations and the expectations of analysts and investors.

We have historically derived substantially all of our revenue from a small
number of customers in the manufacturing industry, and our revenue could decline
if we lose a major customer or significant downturns occur in any of our
customers' industries.

         We have generated a substantial portion of our revenue from a limited
number of customers, substantially all of which are in the manufacturing
industry. We have recently begun directing a significant amount of our sales and
marketing efforts toward companies in other industries and other vertical
markets, particularly for business-to-business integration and enablement of
application service providers. Nevertheless, we expect that a small number of
customers in the manufacturing industry will continue to account for a
substantial portion of our revenue for the foreseeable future. Any significant
decline in the demand for, and market acceptance of, our software in the
manufacturing industry of any of our customers would hurt what we


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<PAGE>   16

anticipate for our 2001 results of operations. We believe that many of our
current customers will continue to provide a substantial portion of our revenue
through additional license, implementation services and maintenance fees. In
2000, our largest customer accounted for more than 46% of our revenue and our
second largest customer accounted for more than 36% of our revenue.
Consequently, the loss of even one customer could have a material adverse effect
on our revenue. Moreover, as we continue to market our products in new vertical
markets, we expect that customers in some of those new vertical markets are
likely to have different requirements and may require us to change our product
design or features, sales methods, support capabilities or pricing policies. If
we fail to successfully address these new vertical markets, we may experience
decreased sales in future periods.

If we do not effectively compete with new and existing competitors, our revenues
and operating margins will decline.

         The market for our products is intensely competitive, evolving and
subject to rapid technological change. We expect the intensity of competition to
increase in the future. As a result of increased competition, we may have to
reduce the price of our products and services, and we may experience reduced
gross margins and loss of market share, any one of which could significantly
reduce our future revenues and operating results. Many of our current and
potential competitors have longer operating histories, significantly greater
financial, technical, product development and marketing resources as well as
better name recognition and larger customer bases than we do. These competitors
may be able to develop products comparable or superior to those offered by us,
or adapt more quickly to new technologies, evolving industry trends or customer
requirements than we can. They are also positioned to devote greater resources
to the development, promotion and sale of their products than we can.
Accordingly, we may not be able to compete effectively in our markets, and
competition may intensify and harm our business and its operating results. If we
are not successful in developing enhancements to existing products and new
products in a timely manner, garnering customer acceptance or generating average
licensing prices, our gross margins may decline, and our business and operating
results may suffer. For additional information on our competitive posture in our
industry, see the description set forth in this report under "Item 1 -
Description of Business - Competition and Markets."

We must expand our sales force and our network of distribution partners in order
to successfully sell our products.

         We have recently implemented a sales model under which we sell our
products both through our direct sales force and through indirect sales channels
such as resellers, system integrators, application software vendors and
infrastructure technology companies. See "Item 1 - Description of Business -
Strategic Alliances and Reseller Programs." We are currently investing, and plan
to continue investing, significant resources to expand our direct sales force
and our relationships these third parties. We may not be successful in expanding
our direct sales force or other distribution channels, and even if we are, such
expansion might not result in an increase in our revenues. If we fail to
maintain our existing relationships with indirect sales channel arrangements or
fail to establish new ones, or if our revenue does not increase correspondingly
with the expenses we incur in pursuing such relationships, our business will
suffer.

If we do not retain our key management personnel and attract and retain other
highly skilled employees, our business will suffer.

         Our future success depends on the skills, experience and performance of
our senior management team, other key personnel, and their ability to operate
effectively, both individually and as a group. Each of these persons is bound by
an employment agreement with the company, and we maintain "key man" insurance in
the amount of $1 million on the lives of each of Harry P. Langley, President and
Chief Executive Officer, George E. Mendenhall, Executive Vice President, and
Stuart E. Massey, Vice President of Engineering. Nevertheless, recovery under
such insurance may not be adequate to compensate us for the full impact
resulting from the death of any one or more these officers. If any of our senior
management or other key research, engineering and development or sales and
marketing personnel were to leave the company, it would be difficult to replace
them, and our business would be harmed. Our success also depends on our ability
to recruit, retain and motivate highly skilled sales, marketing and engineering
personnel. We face significant competition for individuals with


                                       16

<PAGE>   17

the skills required to develop, market and support our products and services. We
believe that attracting and retaining these personnel is particularly difficult
for us because:

         o        the market for connectivity infrastructure software is still
                  emerging

         o        our company and our products are not yet widely known in the
                  marketplace

         o        the relative scarcity of qualified technical personnel in the
                  Columbia, South Carolina metropolitan area makes it difficult
                  to attract and retain technical personnel

         We cannot provide assurance that we will be able to recruit and retain
sufficient numbers of these highly skilled employees. If we fail to do so, our
ability to compete will be significantly harmed.

The rapid growth of our operations could strain our resources and cause our
business to suffer.

         Our ability to successfully offer products and services and implement
our business plan in our rapidly evolving markets requires an effective planning
and management process. We are increasing the scope of our operations and the
size of our direct sales force, and we have recently increased our headcount
substantially. Between September 30, 1999 and March 31, 2001, our total number
of employees more than doubled, increasing from 25 to 54 people. The growth
necessitated by our need to properly staff and direct appropriate resources
toward our business growth strategy has placed and will continue to place a
significant strain on our management systems, infrastructure and resources. We
expect that we will need to continue to improve our financial and managerial
controls, reporting systems and procedures. We will also need to expand, train
and manage our workforce. Furthermore, we expect that we will be required to
manage an increasing number of relationships with various customers, strategic
alliance partners and other third parties. Failure to expand any of the
foregoing areas efficiently and effectively could interfere with the growth of
our business as a whole.

Defects in or slow performance of our software products could diminish demand
for our products and cause costly liability, which would adversely affect our
operating results.

         The Synapse software products we offer are internally complex. Complex
software may contain errors or defects, particularly when first introduced or
when new versions or enhancements are released. Although we conduct extensive
testing, we may not discover software defects that affect our current or new
products or enhancements until after they are sold. Although we have not
experienced any material software defects to date, any errors, defects or slow
performance that is discovered could result in:

         o        loss of revenue

         o        product returns or order cancellations

         o        delay in market acceptance of our products

         o        diversion of our development resources

         o        distraction of our management

         o        damage to our customer relationships and our reputation

         o        increased service and warranty costs

         o        costly litigation defense

         Our license and service agreements with our customers typically contain
provisions designed to limit our exposure to potential product liability claims.
It is possible, however, that the limitation of liability provisions contained
in our license and service agreements may not be effective as a result of
existing or future federal, state or local laws or ordinances or unfavorable
judicial decisions. Although we have not experienced any product liability
claims to date, sale and support of our products entails the risk of such
claims, which could be substantial in light of customers' use of many of our
products in mission-critical applications. We do not maintain product liability
insurance. If a claimant brings a product liability claim against us, it could
have a material adverse effect on our business, results of operations and
financial condition.


                                       17

<PAGE>   18

Risks Related to Our Industry

If we fail to adapt to the rapid technological change which characterizes our
markets, we could lose market share or our products could become obsolete.

         The market for our current suite of software products is characterized
by:

         o        rapid technological change

         o        frequent new product introductions and enhancements

         o        uncertain product life cycles

         o        changing customer requirements

         o        evolving industry standards

         The introduction of products embodying new technologies, the emergence
of new industry standards or changes in customer requirements could render some
or all of our existing products obsolete and unmarketable. Moreover, decreases
in the cost of existing products or services could enable our current or
potential customers to fulfill their own needs for transaction processing and
integration systems and services in a more cost-efficient manner than through
the purchase of our products and services. As a result, our success depends upon
our ability to respond to changing customer requirements and enhance existing
products and services to keep pace with technological developments and emerging
industry standards. We have invested significantly in technology and anticipate
that it will be necessary for us to continue to do so. Failure to develop and
introduce enhancements to our existing products and services in a timely manner
in response to changing market conditions or customer requirements will
materially and adversely affect our business, results of operations and
financial condition.

Because our products could interfere with our customers' other software
applications and hardware, we may be subject to claims by these customers, which
may be costly and may not be adequately covered by insurance.

         Our products interoperate with many parts of complicated computer
systems, such as mainframes, servers, personal computers, application software,
databases, operating systems and data transformation software. Failure of any
one of these parts could cause all or large parts of computer systems to fail.
In such circumstances, it may be difficult to determine which part failed, and
it is likely that customers will bring lawsuits against several suppliers. Even
if our software is not at fault, we could suffer material expenses and material
diversion of management time in defending any such lawsuits.

If we fail to adequately protect our proprietary rights, we may lose these
rights and our business may be seriously harmed.

         Our success depends upon our proprietary technology. To establish and
protect our proprietary rights, we rely primarily on a combination of:

         o        patent law

         o        copyright law

         o        trademark and trade secret laws

         o        confidentiality procedures and agreements

         o        licensing arrangements

         o        the complex nature of our technologies

         As part of our confidentiality procedures, we generally enter into
non-disclosure agreements with our employees, customers, and strategic partners
when we enter into license, service and maintenance agreements with respect to
our software, documentation and other proprietary information. Despite these
precautions, third parties could copy or otherwise obtain and use our products
or technologies without authorization, or develop similar technologies
independently. It is difficult for us to police unauthorized use of our
products. Because of this difficulty in determining the extent to which piracy
of our software products may exist, software piracy remains a persistent
problem. Expensive litigation may be necessary in the future to enforce our
intellectual


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<PAGE>   19

property rights. Moreover, effective protection of intellectual property rights
is unavailable or limited in certain foreign countries. While we believe that
our products and technologies are adequately protected against infringement,
existing laws afford only limited protection. Consequently, the protection of
our proprietary rights may not be adequate, and our competitors could
independently develop similar technologies, duplicate our products, reverse
engineer or design around the intellectual property rights we hold.

Our products may infringe the intellectual property rights of others, which may
cause us to incur unexpected costs or prevent us from selling our products.

         The commercial success of our business depends upon our products not
infringing any intellectual property rights of others and upon no claims for
infringement being made against us. We have conducted periodic patent searches
to determine whether or not we may be infringing the patent or trademark rights
of any third parties and have recently applied for patent protection of our
proprietary Synapse software. Because patent applications in the United States
are not publicly disclosed until the patent is issued, applications of which we
are not aware may have been filed which relate to our software products. We may
be subject to legal proceedings and claims from time to time in the ordinary
course of our business, including claims of alleged infringement of the patents,
trademarks and other intellectual property rights of third parties by us or our
licensees in connection with their use of our products. Intellectual property
litigation is expensive and time-consuming, and could divert our management's
attention away from running our business. If we were to discover that our
products violated the intellectual property rights of others, we would have to
obtain licenses from these parties in order to continue marketing our products
without substantial re-engineering. We might not be able to obtain the necessary
licenses on acceptable terms or at all. If we could not obtain such licenses, we
might not be able to re-engineer our products successfully or in a timely
manner. We believe that we are not infringing any intellectual property rights
of third parties, but there can be no assurance that such infringement will not
occur. If we fail to address any infringement issues successfully, we will be
forced to incur significant costs and could be prevented from selling our
products.


Other Risks

The price of our common stock may fluctuate significantly.

         The market price for our common stock may be affected by a number of
factors, including developments in the middleware, software or technology
industry, general market conditions and other factors, including factors
unrelated to our operating performance or our competitors' operating
performances. In addition, our stock price and the stock prices of many other
companies in the technology and emerging growth sectors have experienced wide
fluctuations, including recent rapid rises and declines in their stock prices,
that have often been unrelated to the operating performance of such companies.
These factors and fluctuations, as well as general economic, political and
market conditions, such as recessions, may materially adversely affect the
market price of our common stock.

The number of our shares of common stock that are or may become eligible for
sale in the near future may cause the market price for our common stock to
decline significantly, even if our business is doing well.

         Trading in our common stock has historically been very limited which
has made the market price of our common stock vulnerable to significant
fluctuations. As of March 16, 2001, we had 14,394,869 outstanding shares of
common stock. In late 2000, we filed a registration statement on Form S-3 with
the Securities and Exchange Commission covering the public offer and sale of
4,540,680 or approximately 32% of our 14,243,369 then-outstanding shares, and
the public offer and sale of 3,362,535 shares of common stock issuable upon
exercise of currently exercisable common stock purchase warrants and upon the
conversion of a convertible debenture. That registration statement went
effective on December 1, 2000, upon which date the aggregate of 7,903,215 shares
covered by that registration statement became eligible for sale in the public
market. Prior to that date, those shares had been restricted from public sale
because of limitations under federal and state securities laws and commitments
made to us in the purchase documents executed in connection with the private


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<PAGE>   20

purchases of those securities by the various shareholders who beneficially owned
those shares. Prior to that date, the only means by which those shareholders
could have offered and sold those securities was under an effective registration
statement or under an exemption from applicable state and federal registration
requirements.

         To our knowledge, a substantial number of the shares covered by our
recent Form S-3 filing have now been sold into the public market during the
period since December 1, 2000. However, we can not verify definitively the
actual number of such shares that have been sold. Consequently, a substantial
number of such shares may still be held by certain of those shareholders. If
those shareholders sell substantial amounts of those shares into the public
market during a short period of time, or if those shareholders are perceived by
the market as intending to sell them, our stock price may decline significantly.
These sales also might make it more difficult for us to sell equity or
equity-related securities in the future at a time and at a price that we deem
appropriate and could threaten the listing of our common stock on the Nasdaq
Stock Market.

         Even if we had not registered the sale of the shares covered by our
recent Form S-3 filing, the holders of those shares would nevertheless have
become eligible to make sales of those shares in the public market in accordance
with the Securities and Exchange Commission's Rule 144 one year following the
respective dates of payment to us for the shares, with certain volume and manner
of sale limitations continuing only for one year thereafter, except as to shares
held by persons deemed to be our affiliates.

         In addition to the registration statement on Form S-3 referenced above,
in 1998 we filed a registration statement on Form S-8 with the Securities and
Exchange Commission covering 960,000 shares reserved for issuance under our
stock option plan. We intend to file another registration statement on Form S-8
covering 900,000 additional shares reserved for issuance under this same plan
and more shares under a similar stock incentive plan to be presented for
shareholder approval at our forth-coming annual shareholders meeting in May of
2001. Issuance of additional shares upon exercise of options and warrants could
result in dilution to our shareholders and a decline in the market price of our
common stock.

The Nasdaq Stock Market has notified us that we have recently failed to meet one
of our current listing requirements which could result in our common stock being
moved from being listed on the Nasdaq National Market to being listed on the
Nasdaq SmallCap Market.

         Since August 2000, our common stock has been listed for trading on the
Nasdaq National Market. The trading of a company's common stock on the Nasdaq
National Market is conditioned upon a company continuing to satisfy certain
quantitative and qualitative requirements regarding assets, capital, earnings
surplus, share price and corporate governance features. We were recently
notified by The Nasdaq Stock Market that our common stock currently fails to
satisfy the Nasdaq National Market minimum $5.00 per share bid price
requirement. As of April 12, 2001, our common stock was trading at $2.88 per
share. The Nasdaq National Market provides a designated time period within which
a company can achieve its required listing maintenance posture and avoid a
transfer of its listing. Should our share price fail to meet the bid price
requirement prior to the end of that period, we intend to file an application to
transfer our Nasdaq listing to the Nasdaq SmallCap Market, and file an appeal
and plan of compliance with Nasdaq with a view toward preserving our current
National Market listing. Although we do not expect the trading in our common
stock to be materially effected by any movement of our listing from the National
Market to the SmallCap Market, some investors may view such movement as an
adverse condition, which could adversely affect the share price of our common
stock through increased sales in the market.

Failure to raise additional capital or generate the significant capital
necessary to expand our operations and invest in new products could reduce our
ability to compete and result in lower revenues.

         We expect that our currently held cash, cash from expected customer
revenues, and cash from one or more private placements of securities expected to
close during the first half of 2001 should be sufficient to meet our working
capital and capital expenditure needs for at least the next 12 months. Even if
we are successful in realizing our expected 2001 sales revenues and in
completing the private sale of additional securities, we expect that we may
still require additional financing in the future to implement our growth
strategies and achieve our long term objectives. We cannot be certain that we
will be able to obtain additional debt or equity financing on


                                       20

<PAGE>   21

favorable terms, or at all. If we raise additional equity financing, our
shareholders may experience significant dilution of their ownership interests
and the per share value of our common stock could decline. If we engage in debt
financing, we may be required to accept terms that restrict our ability to incur
additional indebtedness and that force us to maintain specified liquidity or
other ratios, any of which could harm our business. If we need additional
capital and cannot raise it on acceptable terms, we may not be able to, among
other things:

         o        develop or enhance our products and services

         o        continue to expand our sales and marketing organizations

         o        acquire complementary technologies, products or businesses

         o        expand operations, in the United States or internationally

         o        hire, train and retain employees

         o        respond to competitive pressures or unanticipated working
                  capital requirements

Our failure to do any of these things could result in lower revenues and could
seriously harm our business.

Anti-takeover provisions in our articles of incorporation and state corporate
laws could discourage or prevent a takeover, even if an acquisition would be
beneficial to our shareholders.

         In many cases, shareholders receive a premium for their shares when a
company is purchased by another enterprise. Various provisions in our articles
of incorporation and bylaws and South Carolina corporate laws could deter and
make it more difficult for a third party to bring about a merger, sale of
control, or similar transaction without approval of our board of directors, even
if the transaction would be beneficial to our shareholders. These provisions
tend to perpetuate existing management. As a result, our shareholders may be
deprived of opportunities to sell some or all of their shares at prices that
represent a premium over market prices. These provisions, which could make it
less likely that a change in control will occur, include:

         o        provisions in our articles of incorporation establishing three
                  classes of directors with staggered terms, which means that
                  only one-third of the members of the board of directors is
                  elected each year, and each director serves for a term of
                  three years.

         o        provisions in our articles of incorporation authorizing the
                  board of directors to issue a series of preferred stock
                  without shareholder action, which issuance could discourage a
                  third party from attempting to acquire, or make it more
                  difficult for a third party to acquire, a controlling interest
                  in us.

         o        provisions in our articles of incorporation prohibiting
                  cumulative voting in the election of directors, which would
                  otherwise allow less than a majority of shareholders to elect
                  director candidates.

         o        provisions in our bylaws relating to meetings of shareholders
                  which limit who may call a meeting and what matters will be
                  voted upon.

         o        provisions in our bylaws establishing advance notice
                  requirements for nominations for election to the board of
                  directors and for proposing matters that can be acted upon by
                  shareholders at shareholder meetings.

         o        state law provisions that require two-thirds of the
                  shareholders to approve mergers and similar transactions, and
                  amendments to the articles of incorporation.

         In addition, the South Carolina Business Combination Act, the South
Carolina Control Share Acquisition Act and the vesting terms of our stock option
plans may discourage, delay or prevent a change in control of our company.


                                       21

<PAGE>   22

Item 2.  Description of Property

         We do not own any real estate. We operate principally from our
headquarters at 115 Atrium Way in Columbia, South Carolina where we currently
lease approximately 19,500 square feet of office space. Our lease expires in
October 2004, which may be renewed for a five-year term at market rates. We also
maintain a branch office in the Detroit area where we lease approximately 1700
square feet of office space in Bloomfield Hills, Michigan. This lease expires in
November 2003.


Item 3.  Legal Proceedings

         We are not currently involved in any material 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 2000.


                                     PART II

Item 5.  Market for Common Equity and Related Stockholder Matters

         Since August 15, 2000, our common stock has been publicly traded on the
Nasdaq National Market under the symbol "IBSS." We became a publicly traded
company in October 1997 through our initial public offering of common stock on
the Vancouver Stock Exchange ("VSE") under the symbol "IBS." We voluntarily
de-listed our common stock from the VSE on June 29, 1999. Prior to that date, on
July 2, 1998, our common stock commenced trading in the United States on the
over-the-counter bulletin board ("OTCBB") established by the National
Association of Securities Dealers, Inc. Our shares continued to trade on the
OTCBB until August of last year when our shares became listed on the Nasdaq
National Market.

         The share prices set forth below indicate the high and low sale prices
as reported on the VSE and on the Nasdaq National Market, and the high and low
bid prices as reported on the OTCBB for the indicated periods. All amounts in
the table below are expressed in United States dollars, and all conversions of
Canadian dollars, as historically reported on the VSE, have been converted to
United States dollars at the December 31, 2000 exchange rate of approximately
US$1.00 = $1.50Cdn.
                                             Sales Price         Bid Price
                                               (VSE)              (OTCBB)

Fiscal Year ended December 31, 1999         High     Low       High      Low

1st quarter (1/1/99 - 3/31/99)........... $ 1.13    $0.50     $1.125   $0.562
2nd quarter (4/1/99 - 6/30/99)...........   0.90     0.41      0.812    0.375
3rd quarter (7/1/99 - 9/30/99)...........                      1.687    0.656
4th quarter (10/1/99 - 12/31/99).........                      2.375    0.593

Fiscal Year ended December 31, 2000           (Nasdaq)

1st quarter (1/1/00 - 3/31/00)...........                     $18.38   $ 1.75
2nd quarter (4/1/00 - 6/30/00)...........                      10.31     6.00
3rd quarter (7/1/00 - 9/30/00)........... $ 9.63    $6.13
4th quarter (10/1/00 - 12/31/00).........   7.75     2.56

         The foregoing quotations from the OTCBB reflect inter-dealer prices
without retail markup, markdown or commission and may not necessarily reflect
actual transactions.


                                       22

<PAGE>   23

         Shareholders of Record

         As of March 30, 2001, there were 47 shareholders of record of our
common stock. The number of shareholders of record of our common stock is not
representative of the total number of beneficial owners of our common stock
because some of these shareholders of record hold their shares in nominee name
for other beneficial owners.

         Dividends

         We have never paid any cash dividends on our common stock and our
management has no plans to declare cash dividends in the foreseeable future.

         Recent Sales of Unregistered Securities

         During the three months ended December 31, 2000, we received
approximately $1,250 in gross proceeds from the exercise by a holder of warrants
for the purchase of 1,000 shares of our common stock. These securities were
issued without registration under the Securities Act of 1933, as amended (the
"1933 Act"), in reliance upon the exemption from registration contained in
Section 4(2) and Rule 506 of Regulation D of the 1933 Act, as a transaction, not
involving a general solicitation, in which the purchaser was purchasing for
investment. We believe that the purchaser was given or had access to detailed
financial and other information with respect to our company and possessed
requisite financial sophistication.


                                       23

<PAGE>   24

Item 6.  Management's Discussion and Analysis of Financial Condition and Results
         of Operations

         The following discussion and analysis provides information which we
believe is relevant to an assessment and understanding of our results of
operations and financial condition. This discussion should be read in
conjunction with the financial statements and notes thereto included elsewhere
in this Form 10-KSB.


Overview

         We were founded in 1990. During our early years, we operated primarily
as a provider of customized computer configuration and related consulting
services for a large variety of industries. Eventually, our focus began to shift
toward providing systems integration services to enhance the flow and on-line
tracking of the shop floor transactions of large manufacturing businesses. The
software industry's standard approach in providing these services had been, and
in large part remains, characterized by the necessity for costly and perpetual
customized, object-oriented programming to keep the customer's systems current
and adaptable in the dynamic operating environments of most businesses. Although
many of our early software solutions remained largely customized to the
particular customer's needs, we continued to build upon a core technological
engine whose novel, rules-based architecture represented a completely new
approach in the delivery of on-line transaction tracking and management systems.

         In our efforts to improve the efficiency and speed in our delivery of
our services, we began to develop the early components of what would eventually
become our core Synapse technology. In doing so, we began to recognize the
tremendous power of our developing software's ability to eliminate much of the
need for significant amounts of customized programming with each new
installation. Furthermore, our solution rarely required the customer to modify
its manufacturing shop floor methodologies or procedures. As a result, the
customer was able to achieve a return on its computer technology investment more
quickly than by using competing applications. In recognition of the potential
value of our software components, we began directing substantially more of our
resources toward the development of our core software products in 1997. These
efforts became the foundation of the continuing shift of our earnings model
toward the generation of an ever increasing percentage of higher-margins,
product-based revenue through the licensing of our internally developed software
solutions.

         By 1998, we had embarked upon a strategy of focusing substantially all
of our resources toward the completion and marketing of our core Synapse-based
products, while recognizing that this strategy would inevitably result in a
substantial reduction in our traditional service-based revenues. Synapse, in its
current form, was formally introduced to the market in late 1999. By the middle
of 2000, as a result of our marketing and sales efforts, we began to experience
a substantial increase in the interest of national accounts in the procurement
of our Synapse-based products.

         Our first license of Synapse B2X(TM) occurred in late June 2000, in
connection with our establishment of an application service provider transition
project with WilCam Systems, LLC, a national provider of software to enable
employers to comply with the requirements of the Family Medical Leave Act.
Several weeks later, Fruit of the Loom, one of the nation's largest apparel
manufacturers, selected Synapse Manufacturing as its shop floor tracking system
from a field of over sixty of the nations leading competing companies and
technologies. During the latter part of 2000, Berkline Corporation, a subsidiary
of the national furniture conglomerate, Lifestyles Furnishings International
Ltd., became our first installed application of Synapse Manufacturing(TM) for
the furniture industry.


Revenue Recognition

         Our revenues are generated primarily by licensing to customers
standardized Synapse-based software systems and providing configuration
services, automation and administrative support and information services to our
customer base. This customer base has historically comprised almost entirely of
manufacturers. We recognize revenues related to software licenses and software
maintenance in compliance with the American Institute of Certified Public
Accountants Statement of Position No. 97-2, "Software Revenue Recognition."


                                       24

<PAGE>   25

         We license software under non-cancelable license agreements and provide
various related services, including consulting and maintenance, and product
configuration and support services. We recognize our license revenues when a
non-calculable license agreement has been signed, the software product has been
shipped, we see no uncertainties surrounding product acceptance, our fees are
fixed or otherwise determinable, we believe collectibility is probable, and
vendor-specific objective evidence exists to allocate the total fee to elements
of the arrangement.

         Our agreements with our 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. Consulting revenues are primarily related to
services performed on a time-and material basis under separate service
arrangements and are recognized in the periods during which the services are
performed.


Financial Operations Summary

         The following table summarizes our audited financial statements for
each of the five years ended December 31, 2000, 1999, 1998, 1997, and 1996.
<TABLE>
<CAPTION>
                                                                               Year Ended December 31,
                                                2000                  1999              1998               1997             1996
                                                ----                  ----              ----               ----             ----
<S>                                         <C>                  <C>                <C>                 <C>             <C>
Statement of Operations Data
Sales                                       $ 2,382,068          $   779,217        $ 1,021,023         $1,821,816      $2,357,939
Cost of Sales                                 1,499,152              543,845            527,147            893,397       1,045,500
      Gross Profit                              882,916              235,372            493,876            928,419       1,312,439
Research and Development Expenses               306,721              429,436             50,992            332,139         362,983
Sales and Marketing Expenses                  1,465,410              528,144            342,609            331,328         207,460
General and Administrative Expenses           3,331,125            1,197,650          1,229,036          1,010,653         995,261
  (including interest income/expense)
      Total Expenses                          6,602,408            2,155,230          1,622,637          1,647,120       1,565,704
Operating Income (Loss)                      (4,220,340)          (1,919,858)        (1,128,761)          (745,701)       (253,265)
Income (Loss) Before Income Taxes            (4,220,340)          (1,919,858)        (1,128,761)          (745,701)       (253,265)
      Income Taxes                                  -0-                  -0-                -0-                -0-             -0-
Net Income (Loss)                            (4,220,340)          (1,919,858)        (1,128,761)          (745,701)       (253,265)
Basis and Diluted Earnings (Loss) Per Share       (0.31)               (0.20)             (0.14)             (0.16)          (0.07)
</TABLE>







                                       25

<PAGE>   26

<TABLE>
<CAPTION>
                                                                                  As at December 31,
                                                2000                  1999               1998               1997             1996
                                                ----                  ----               ----               ----             ----
<S>                                         <C>                  <C>                <C>                 <C>             <C>
Balance Sheet Data
Working Capital                             $ 1,630,238          $  (285,719)       $(1,184,459)        $ (156,566)     $ (956,920)
Property, Plant and Equipment                   573,350              155,654            140,756            115,559         156,447
Capitalized Software Costs                      599,730              768,001            852,996            207,642          50,950
Other Assets                                      4,128                2,793              2,743              3,328           3,218
Total Assets                                  3,540,716            1,447,017          1,203,116            707,483         528,928
Long Term Liabilities                         1,250,000            1,430,000            542,000             78,000         114,000
Shareholders Equity (Deficiency)
       Dollar Amount                          1,759,635             (706,327)          (729,964)            91,953        (860,305)
       Outstanding Shares (1)                14,244,869           10,537,635          8,438,663          7,987,763       3,600,000
</TABLE>

(1)      All share numbers in the table retroactively reflect the Company's
         stock split on March 5, 1997.



Results of Operations

Year Ended December 31, 2000 Compared to Year Ended December 31, 1999

Revenues

         Our operating revenues increased by $1,602,851 (approximately 205%)
from $779,217 in 1999 to $2,382,068 in 2000. This increase was primarily
attributable to the significant increase during middle and late 2000 in the
licensing of our Synapse-based products. As noted above, this decrease in our
traditional revenue base was an expected consequence of our strategy, begun in
1997, to focus substantially all of our resources toward the completion and
marketing of our core of Synapse-based products. During 2000, two of our
customers, Fruit of the Loom and WilCam Systems, LLC, accounted for
approximately 47% and 39%, respectively, of our total revenues.

         Services. Our service revenues increased by $193,880 (approximately
35%) from $558,293 in 1999 to $752,173 in 2000.

         Hardware. Our revenues from the sales of third party hardware increased
by $631,540 (over 400-fold) from $1,576 in 1999 to $633,116 in 2000. This
increase was primarily associated with the fourth quarter 2000 sales of hardware
in connection with the implementation of the first phase of an MES contract.

         Software Licenses. Our revenues from the licensing of Synapse-based
products increased by $775,517 (approximately 1,141%) from $74,483 in 1999 to
$850,000 in 2000. This increase was comprised of $500,000 from the licensing of
Synapse B2X(TM) and $350,000 from the licensing of Synapse Manufacturing(TM).

         Maintenance. Our revenues from software maintenance fees remained
relatively stable in 2000, increasing by only $1,914 (approximately 1.3%) from
$144,865 in 1999 to $146,779 in 2000.

                                       26

<PAGE>   27

Cost of Revenues

         Cost of revenues increased by $955,307 (approximately 175%) from
$543,845 in 1999 to $1,499,152 in 2000. This increase was attributable to
several factors, including the increase in the resources necessary to support
the obligations associated with our increased license and service revenues
generated in 2000, as well as the focusing of our service professionals on
assisting our sales professionals in the sales cycle by performing non-billable
services to potential customers in the form of proof of concepts and software
pilots. The cost of revenues as a percentage of total revenues was approximately
63% in 2000 as compared to approximately 70% in 1999.

         Services. Our cost of services increased by $329,360 (approximately
101%) from $325,142 in 1999 to $654,502 in 2000. Most of this increase was
attributable to the increase in human resources associated with the activities
required in the implementation and configuration of the new Synapse licenses
sold in 2000, the expansion in 2000 of our direct sales force, and the focusing
of our service professionals on assisting our sales professionals in the sales
cycle by performing non-billable services to potential customers in the form of
proof of concepts and software pilots.

         Hardware. Our cost from the sales of third party hardware sold
increased by $526,556 (approximately 454%) from $1,161 in 1999 to $527,717 in
2000. This increase was primarily associated with the fourth quarter 2000 sales
of hardware in connection with the implementation of the first phase of an MES
contract.

         Software Licenses. Our cost from the licensing of our Synapse-based
products increased by $35,798 (approximately 26%) from $137,138 in 1999 to
$172,936 in 2000. This increase was directly related to the increase in software
license revenues for the year.

         Maintenance. Our cost of maintenance increased by $63,593
(approximately 79%) from $80,404 in 1999 to $143,997 in 2000. this increase was
primarily attributable to the increase in human resources assigned to support
our ongoing maintenance obligations on our newly installed Synapse software.

Gross Profit

         Gross profits increased by $647,544 (approximately 275%) from $235,372
in 1999 to $882,916 in 2000. Our overall gross margin percentage increased
slightly at approximately 35% in 2000, up from approximately 30% in 1999.

Operating Expenses

         Research and Development. Research and development expenses decreased
by $122,715 (approximately 29%) from $429,436 in 1999 to $306,721 in 2000. This
decrease was largely due to the completion in 1999 of a substantial portion of
our Synapse software development. This decrease was offset in part by an
increase in 2000 in the number of software developers and quality assurance
personnel needed to support our product development and documentation and
testing activities related to the development and release of the current
versions of our products. Research and development expenses represented
approximately 55 % and 13 % of total revenues for 1999 and 2000, respectively.
While we expect that research and development expenses will continue to increase
in absolute dollars for the foreseeable future as we continue to add to our
technical staff, we anticipate that these expenses as a percentage of total
revenues will decrease.

         General and Administrative. General and administrative expenses,
including interest expense, increased by $2,133,475 (approximately 178%) from
$1,197,650 in 1999 to $3,331,125 in 2000. This increase was primarily due to the
hiring of additional finance, executive and administrative personnel to support
the growth of the Company during 2000 and 2001 and the additional overhead cost
associated with this expansion in personnel. For example, the cost of Employee
benefits, placement service fees and professional support resources increased in
connection with the additional personnel that were added, and as a consequence
of increases in the fees charged by third party providers of these services.
Also, rent expense increased by $298,666 (449%) due to an expansion of leased
facilities during 2000 (see below). General and administrative expenses,
including interest expense, represented approximately 154 % and 140 % of total
revenues for 1999 and 2000, respectively. While we expect


                                       27

<PAGE>   28

that general and administrative expenses will continue to increase in absolute
dollars for the foreseeable future as we continue to expand our operations, we
anticipate that these expenses as a percentage of total revenues will decrease.

         Sales and Marketing. Sales and marketing expenses increased by $937,266
(approximately 177 %) from $528,144 in 1999 to $1,465,410 in 2000. This increase
was primarily attributable to the expansion of our direct sales team during the
first quarter, as well as the increase in the cost of our third party public
relations and investor relations resources. Sales and marketing expense
represented approximately 68 % and 62 % of total revenues for 1999 and 2000,
respectively. We expect that our sales and marketing expenses will continue to
increase in both absolute dollars and as a percentage of total revenues as we
implement our market share growth strategies.


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 and acquaintances. 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
through borrowings from third-party lenders and from revenues from operations.
We raised net proceeds of approximately $1,220,000 in our November 1997 initial
public offering on the Vancouver Stock Exchange. Since that time, we have raised
additional equity of approximately $9.2 million through several private
placements of common stock and stock purchase warrants. In 1999, we raised
$1,250,000 from the sale of a convertible debenture that matures in January
2002. We expect to raise additional funds in the second quarter of 2001 from the
private sale of additional equity, or equity-linked securities.

         We expect that the proceeds from our capital raising activities, along
with revenues generated from operations, will be adequate to meet our projected
working capital and other cash requirements for at least the next twelve months.
Management intends to closely follow the company's progress and to reduce
expenses if the company's strategies do not result in sufficient revenues within
a reasonable period. Any such reduction will involve scaling back, delaying or
postponing those development activities that are not essential to the company
achieving its stated objectives. In any event, our working capital deficit will
continue to grow unless and until revenues increase sufficiently to meet
expenditure levels.

         We entered into a lease agreement, with the Atrium Northeast Limited
Partnership effective November 1,2000, for a five-year period with an option to
renew for one five-year period at market rates. The lease is for approximately
19,500 square feet of office space at a base rate of $276,391 for the first
year. The second year base rent increase to $280,922. The third through fifth
year base rent increases to $285,453.

         Net cash used in operating activities was approximately $5,167,085
during the twelve months ended December 31, 2000, as compared to approximately
$2,080,000 during the twelve months ended December 31, 1999. The increase in
cash used in operating activities in 2000 was mainly due to an increase in the
net loss and increases in the accounts receivable. These increases were
partially offset by decreases in accrued expenses.

         Net cash used in investing activities was approximately $6,477,326
during the twelve months ended December 31, 2000, as compared to approximately
$212,000 during the twelve months ended December 1999. The net cash used in
investing activities in 2000 was primarily for purchase of property and
equipment and investments.

         Net cash provided by financing activities was approximately $6,477,326
during the twelve months ended December 31, 2000, as compared to approximately
$2,350,000 during the twelve months ended December 31, 1999. The net cash
provided by financial activities in 2000 resulted primarily from the completion
of a private placement in the amount of $2,000,000, a private placement in the
amount of $3,000,000 and $1,634,233 from the exercising of stock options and
warrants throughout the year.

                                       28

<PAGE>   29

Item 7.  Financial Statements

         Reference is made to the Index to Financial Statements on Page F-1.



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

         Not applicable.



                                    PART III

         Information called for by Part III (Items 9, 10, 11 and 12) of this
Annual Report on Form 10-KSB has been omitted as we intend to file with the
Securities and Exchange Commission not later than 120 days after the close of
our fiscal year ended December 31, 2000 a definitive proxy statement pursuant to
Regulation 14A promulgated under the Securities Exchange Act of 1934. Such
information will be set forth in such proxy statement.


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

         (See introductory paragraph above.)


Item 10. Executive Compensation

         (See introductory paragraph above.)


Item 11. Security Ownership of Certain Beneficial Owners and Management

         (See introductory paragraph above.)


Item 12. Certain Relationships and Related Transactions

         (See introductory paragraph above.)


Item 13. Exhibits and Reports on Form 8-K


(a)      Exhibits:

         The accompanying Exhibit Index on page E-1 sets forth the exhibits that
         are filed as part of this Annual Report on Form 10-KSB.

(b)      Reports on Form 8-K:

         During the fourth quarter of 2000, we filed the following Forms 8-K:

         (i)      On October 18, 2000, a Form 8-K was filed to report press
                  releases by the company announcing the following events:

                  (A)      July 25, 2000 - The company announced its vertical
                           integrator partner agreement with Symbol
                           Technologies.

                  (B)      August 21, 2000 - The company announced the
                           appointment of William S. McMaster as its new Chief
                           Financial Officer and General Counsel.

                  (C)      August 28, 2000 - The company announced the
                           certification of its enterprise application software,
                           Synapse EAI+(TM) for Eigner+Partner software.

                  (D)      September 6, 2000 - The company announced the filing
                           of a patent for its Synapse technology.

                  (E)      October 10, 2000 - The company announced a strategic
                           Original Equipment Manufacturer alliance with BRAIN
                           North America, Inc.


                                       29

<PAGE>   30



         (ii)     On October 30, 2000, a Form 8-K was filed to report the
                  company's announcement that it had joined the Sun Developer
                  Connection (SM) program.

         (iii)    On December 18, 2000, a Form 8-K was filed to announce that
                  Fruit of the Loom had selected the company's Synapse software
                  for its manufacturing locations.

         (iv)     On December 20, 2000, a Form 8-K was filed to report press
                  releases by the company announcing the following events:

                  (A)      November 20, 2000 - The company announced that it had
                           retained Coffin Communications Group to manage its
                           investor relations program.

                  (B)      November 27, 2000 - The company announce its
                           formation of a strategic partnership with WilCam
                           Systems, LLC to provide Application Service Provider
                           enablement opportunities.



                                       30

<PAGE>   31



                                   SIGNATURES

         Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant, Integrated Business Systems and Services,
Inc., has duly caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.


                                  INTEGRATED BUSINESS SYSTEMS AND SERVICES, INC.

Dated:  April 13, 2001            By:  /s/ HARRY P. LANGLEY
                                      ------------------------------------------
                                           Harry P. Langley
                                           President and Chief Executive Officer



         Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.


         Signature                       Title                        Date

/s/ HARRY P. LANGLEY         President and Chief Executive        April 13, 2001
---------------------------  Officer (Principal Executive
Harry P. Langley             Officer) and Chairman of the Board


/s/ GEORGE E. MENDENHALL     Executive Vice President             April 13, 2001
---------------------------  and Director
George E. Mendenhall


/s/ STUART E. MASSEY         Vice President of Engineering        April 13, 2001
---------------------------  and Director
Stuart E. Massey


/s/ JOSEPH R. DUNKLEY        Chief Operating Officer              April 13, 2001
---------------------------
Joseph R. Dunkley


/s/ WILLIAM S. McMASTER      Chief Financial Officer and          April 13, 2001
---------------------------  General Counsel (Principal
William S. McMaster          Financial and Accounting Officer)


/s/ C. JOSEPH BERGER, JR.    Director                             April 13, 2001
---------------------------
C. Joseph Berger, Jr.


/s/ RAYMOND M. BURDIAK       Director                             April 13, 2001
---------------------------
Raymond M. Burdiak


/s/ R. MICHAEL CAMPBELL      Director                             April 13, 2001
---------------------------
R. Michael Campbell


/s/ RUSSELL C. KING, JR.     Director                             April 13, 2001
---------------------------
Russell C. King, Jr.



                                       31

<PAGE>   32

                 INTEGRATED BUSINESS SYSTEMS AND SERVICES, INC.

                                   FORM 10-KSB

                                  EXHIBIT INDEX

Exhibit
Number
-------

3.1      Amended and Restated Articles of Incorporation of the 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)

10.1     Employment Agreement dated as of December 31, 1996 between the Company
         and Harry P. Langley (incorporated by reference to Exhibit 6.2 to the
         Company's Form 1-A filed July 9, 1997)

10.2     Amendment No. 1 dated as of September 1, 1997, to Employment Agreement
         dated as of December 31, 1996, between the Company and Harry P. Langley
         (incorporated by reference to Exhibit 6.21 to the Company's Amendment
         No. 1 to Form 1-A filed September 15, 1997)

10.3     Employment Agreement dated as of January 1, 1997, as amended January 1,
         1999, between the Company and George E. Mendenhall (incorporated by
         reference to Exhibit 6.3 to the Company's Form 1-A filed July 9, 1997)

10.4     Amendment No. 1 dated as of September 1, 1997, to Employment Agreement
         dated as of January 1, 1997, between the Company and George E.
         Mendenhall (incorporated by reference to Exhibit 6.22 to the Company's
         Amendment No. 1 to Form 1-A filed September 15, 1997)

10.5     Amendment No. 2 dated as of January 1, 1999 to Employment Agreement
         dated January 1, 1997, between the Company and George E. Mendenhall
         (incorporated by reference to Exhibit 6.17(b) to the Company's
         Amendment No. 1 to Form SB-1 filed April 6, 1999 (Registration No.
         333-43437))

10.6     Employment Agreement dated as of December 31, 1996 between the Company
         and Stuart E. Massey (incorporated by reference to Exhibit 6.4 to the
         Company's Form 1-A filed July 9, 1997)

10.7     Amendment No. 1 dated as of September 1, 1997, to Employment Agreement
         dated as of December 31, 1996, between the Company and Stuart E. Massey
         (incorporated by reference to Exhibit 6.23 to the Company's Amendment
         No. 1 to Form 1-A filed September 15, 1997)

10.8     Employment Agreement dated as of July 3, 1995, between the Company and
         Donald J. Crossley (incorporated by reference to Exhibit 6.20 to the
         Company's Form 1-A filed July 9, 1997)

10.9     Employment Agreement effective as of January 1, 1999 between the
         Company and Donald R. Futch (incorporated by reference to Exhibit 6.20
         to the Company's Amendment No. 1 to Form SB-1 filed April 6, 1999
         (Registration No. 333-43437))

10.10    Employment Agreement effective as of May 30, 2000 between the Company
         and William S. McMaster.

10.11    Integrated Business Systems and Services, Inc. Stock Option Plan
         (incorporated by reference to Exhibit 6.18 to the Company's Form 1-A
         filed July 9, 1997)

10.12    Integrated Business Systems and Services, Inc. 2001 Stock Incentive
         Plan

10.13    Lease Agreement dated October 1, 2000 between the Company and Atrium
         Northeast Limited Partnership (incorporated by reference as Exhibit
         10.16 of the Company's Form 10-QSB for the quarter ended September 30,
         2000)

10.14    Escrow Agreement among Pacific Corporate Trust Company, the Company,
         Harry P. Langley, George E. Mendenhall and Stuart E. Massey
         (incorporated by reference to Exhibit 6.24 to the Company's Amendment
         No. 2 to Form 1-A filed October 8, 1997)

10.15    Nonqualified Stock Option Agreement dated as of May 30, 2000 between
         the Company and William S. McMaster

27       Financial Data Schedule


                                      E-1
<PAGE>   33


                 Integrated Business Systems and Services, Inc.

                         Index to Financial Statements


<TABLE>
<CAPTION>
                                                                                                       Pages

<S>                                                                                                    <C>
Report of Independent Accountants.................................................................             F-2

Financial Statements:
    Balance Sheets................................................................................             F-3
    Statements of Operations......................................................................             F-4
    Statements of Changes in Shareholders' (Deficiency) Equity ...................................             F-5
    Statements of Cash Flows......................................................................             F-6
    Notes to Financial Statements.................................................................     F-7 to F-21
</TABLE>

                                      F-1
<PAGE>   34

                      [LETTERHEAD OF SCOTT MCELVEEN, LLP]


                       REPORT OF INDEPENDENT ACCOUNTANTS


                                   ---------


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

We have audited the accompanying balance sheets of Integrated Business Systems
and Services, Inc. as of December 31, 2000 and 1999, and the related statements
of operations, changes in shareholders' (deficiency) equity and cash flows for
each of the three years in the period ended December 31, 2000. These financial
statements are the responsibility of Integrated Business Systems and Services,
Inc.'s management. Our responsibility is to express an opinion on these
financial statements based on our audits.

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

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Integrated Business Systems
and Services, Inc. as of December 31, 2000 and 1999, and the results of its
operations and its cash flows for each of the three years in the period ended
December 31, 2000, in conformity with generally accepted accounting principles.

/s/ SCOTT MCELVEEN, LLP

Columbia, South Carolina
April 13, 2001


                                      F-2

<PAGE>   35


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


<TABLE>
<CAPTION>
                                                                                        2000                   1999
                                                                                     ------------           -----------
<S>                                                                                  <C>                    <C>
ASSETS
Current assets:
   Cash and cash equivalents                                                         $    700,892           $    82,996
   Accounts receivable, trade                                                           1,015,330                89,270
   Accounts receivable, other                                                                  --                 2,368
   Short term investments                                                                  50,000                    --
   Related party notes receivable                                                         305,000               183,680
   Interest receivable                                                                     25,262                    --
   Unbilled revenue                                                                            --                28,885
   Other prepaid expenses                                                                  64,835                50,426
                                                                                     ------------           -----------

Total current assets                                                                    2,161,319               437,625
Capitalized software costs, net                                                           599,730               768,001
Property and equipment, net                                                               573,350               155,654
Investment in affiliated company, at equity                                               117,840                    --
Related party receivable                                                                   84,349                82,944
Other assets                                                                                4,128                 2,793
                                                                                     ------------           -----------

Total assets                                                                         $  3,540,716           $ 1,447,017
                                                                                     ============           ===========

LIABILITIES AND SHAREHOLDERS' DEFICIENCY
Current liabilities:
    Notes payable                                                                    $         --           $    28,976
    Accounts payable                                                                      245,417               129,223
    Accrued liabilities:
      Accrued compensation and benefits                                                   141,261                63,767
      Accrued payroll taxes                                                                 7,248               305,402
      Accrued professional fees                                                            51,385                25,958
      Accrued interest                                                                     31,250                43,407
      Other                                                                                 6,370                38,338
    Deferred revenue                                                                       48,150                88,273
                                                                                     ------------           -----------

Total current liabilities                                                                 531,081               723,344
Long-term debt, net of current portion                                                  1,250,000             1,250,000
Subordinated debt                                                                              --               180,000
                                                                                     ------------           -----------
Total liabilities                                                                       1,781,081             2,153,344
                                                                                     ------------           -----------

Commitments and contingencies

Shareholders' equity (deficiency):
   Preferred stock, undesignated par value, authorized 10,000,000 shares,
      issued none                                                                              --                    --
   Common shares, voting, no par value, 100,000,000 shares authorized,
      14,244,869 and 10,537,635 shares outstanding at December 31, 2000 and
      1999, respectively                                                               10,828,400             4,142,098
   Notes receivable officers/directors                                                   (190,800)             (190,800)
   Accumulated deficit                                                                 (8,877,965)           (4,657,625)
                                                                                     ------------           -----------
Total shareholders' equity (deficiency)                                                 1,759,635              (706,327)
                                                                                     ------------           -----------

Total liabilities and shareholders' equity (deficiency)                              $  3,540,716           $ 1,447,017
                                                                                     ============           ===========
</TABLE>

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


                                      F-3
<PAGE>   36


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


<TABLE>
<CAPTION>
                                                 2000                    1999                   1998
                                             -----------             -----------             -----------

<S>                                          <C>                     <C>                     <C>
REVENUES
Services                                     $   752,173             $   558,293             $   676,013
Hardware sales                                   633,116                   1,576                  87,123
Software licensing                               850,000                  74,483                      --
Maintenance                                      146,779                 144,865                 257,887
                                             -----------             -----------             -----------

Total revenues                                 2,382,068                 779,217               1,021,023
                                             -----------             -----------             -----------

COST OF REVENUES
Services                                         654,502                 325,142                 348,431
Hardware sales                                   527,717                   1,161                  49,318
Software licensing                               172,936                 137,138                  21,500
Maintenance                                      143,997                  80,404                 107,898
                                             -----------             -----------             -----------
                                               1,499,152                 543,845                 527,147
                                             -----------             -----------             -----------

GROSS MARGIN                                     882,916                 235,372                 493,876
                                             -----------             -----------             -----------

OPERATING EXPENSES
Research and development costs                   306,721                 429,436                  50,992
General and administrative                     3,310,762               1,099,635               1,157,585
Sales and marketing                            1,465,410                 528,144                 342,609
                                             -----------             -----------             -----------

         Total operating expenses              5,082,893               2,057,215               1,551,186
                                             -----------             -----------             -----------

         Loss from operations                 (4,199,977)             (1,821,843)             (1,057,310)

Loss on disposal of equipment                     (8,582)                 (3,077)                     --
Interest income                                  271,591                      --                      --
Interest expense                                (117,452)                (94,938)                (71,451)
Loss on equity investment                       (165,920)                     --                      --
                                             -----------             -----------             -----------
         Net loss                            $(4,220,340)            $(1,919,858)            $(1,128,761)
                                             ===========             ===========             ===========

Loss per share:
         Net loss
           Basic and diluted                 $     (0.31)            $     (0.20)            $     (0.14)
                                             ===========             ===========             ===========
</TABLE>

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


                                      F-4
<PAGE>   37


                 Integrated Business Systems and Services, Inc.
           Statements of Changes in Shareholders' (Deficiency) Equity
                  for the three years ended December 31, 2000


<TABLE>
<CAPTION>
                                           Number of         Common           Notes                             Total
                                            Common           Shares         Receivable                       Shareholders'
                                            Shares          Carrying        Officers/       Accumulated      (Deficiency)
                                          Outstanding         Value         Directors         Deficit           Equity
                                          -----------      -----------      ----------      -----------      -------------

<S>                                       <C>              <C>              <C>             <C>              <C>
Balance, December 31, 1997                  7,987,763      $ 1,700,959      $      --       $(1,609,006)      $    91,953
Sale of common shares                         450,900          306,844             --                --           306,844
Net loss                                           --               --             --        (1,128,761)       (1,128,761)
                                           ----------      -----------      ---------       -----------       -----------

Balance, December 31, 1998                  8,438,663        2,007,803             --        (2,737,767)         (729,964)
Sale of common shares                         861,800          839,695             --                --           839,695
Subordinated debt converted
   to common shares                           346,692          320,000             --                --           320,000
Exercise of options                            76,374          240,038             --                --           240,038
Exercise of warrants                          515,680          519,066             --                --           519,066
Issuance of warrants                               --          215,496             --                --           215,496
Notes receivable officers/directors           298,426               --       (190,800)               --          (190,800)
Net loss                                           --               --             --        (1,919,858)       (1,919,858)
                                           ----------      -----------      ---------       -----------       -----------

Balance, December 31, 1999                 10,537,635        4,142,098       (190,800)       (4,657,625)         (706,327)
Sale of common shares                       1,700,000        4,899,190             --                --         4,899,190
Subordinated debt converted to
    common shares                             163,934          180,000             --                --           180,000
Exercise of options                           256,300          168,574             --                --           168,574
Exercise of warrants                        1,587,000        1,438,538             --                --         1,438,538
Net loss                                           --               --             --        (4,220,340)       (4,220,340)
                                           ----------      -----------      ---------       -----------       -----------

Balance, December 31, 2000                 14,244,869      $10,828,400      $(190,800)      $(8,877,965)      $ 1,759,635
                                           ==========      ===========      =========       ===========       ===========
</TABLE>

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


                                      F-5
<PAGE>   38


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


<TABLE>
<CAPTION>
                                                             2000                1999                1998
                                                          -----------         -----------         -----------

<S>                                                       <C>                 <C>                 <C>
OPERATING ACTIVITIES
Net loss                                                  $(4,220,340)        $(1,919,858)        $(1,128,761)
Adjustments to reconcile net loss to cash
  used in operating activities:
     Depreciation                                              93,342              58,688              59,508
     Amortization of software costs                           168,271             137,138              21,500
     Loss on disposal of equipment                              8,582               3,077                  --
     Write off of prepaid commissions                              --                  --              70,751
     Exercise of options in exchange of accounts
        receivable                                           (283,760)                 --                  --
     Loss on equity investments                               165,920                  --                  --
Changes in operating assets and liabilities:
     Accounts receivable                                     (923,692)             40,067             108,818
     Unbilled revenue                                          28,885              (1,468)            (27,417)
     Interest receivable                                      (25,262)                 --                  --
     Prepaid commissions                                           --             (70,000)            (50,694)
     Prepaid expenses and other assets                        (15,744)             50,430               1,442
     Accounts payable                                         116,194             (17,917)            (27,527)
     Accrued expenses                                        (239,358)           (325,781)            832,864
     Deferred revenue                                         (40,123)            (31,910)             12,380
                                                          -----------         -----------         -----------
Cash used in operating activities                          (5,167,085)         (2,077,534)           (127,136)
                                                          -----------         -----------         -----------

INVESTING ACTIVITIES
Purchase of investments                                       (50,000)                 --                  --
Purchases of property and equipment                          (519,620)            (76,663)            (80,743)
Capitalized internal software development costs                    --             (52,143)           (666,854)
Related party receivable, net                                (122,725)            (82,944)                 --
                                                          -----------         -----------         -----------
Cash used in investing activities                            (692,345)           (211,750)           (747,597)
                                                          -----------         -----------         -----------

FINANCING ACTIVITIES
Payments on notes payable, net                                (28,976)           (217,828)             (2,467)
Proceeds from issuance of subordinated debt                        --                  --             500,000
Payments on long-term debt                                         --             (81,000)            (33,000)
Sale of common shares                                       4,872,069             839,695             306,844
Proceeds from exercise of common stock options and
    warrants                                                1,634,233             384,624                  --
Proceeds from issuance of warrants                                 --             215,496                  --
Proceeds from issuance of convertible promissory
    notes                                                          --           1,250,000                  --
(Borrowings from) repayment to related party, net                  --             (35,300)             35,300
                                                          -----------         -----------         -----------
Cash provided by financing activities                       6,477,326           2,355,687             806,677
                                                          -----------         -----------         -----------

Net increase (decrease) in cash                               617,896              66,403             (68,056)
Cash and cash equivalents at beginning of period               82,996              16,593              84,649
                                                          -----------         -----------         -----------
Cash and cash equivalents at end of period                $   700,892         $    82,996         $    16,593
                                                          ===========         ===========         ===========
</TABLE>

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


                                      F-6
<PAGE>   39


                 Integrated Business Systems and Services, Inc.
                         Notes To Financial Statements


NOTE 1.  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, 2000 and 1999, were $1.4988 and $1.4529,
respectively.

Integrated Business Systems and Services, Inc. ("IBSS") is in the business of
providing computer technology products and services to industrial manufacturers
and on-line transaction processing businesses primarily in the United States.
IBSS' principal business areas are: (1) installing, licensing and servicing
systems developed by IBSS that help manage the shop floor transactions of
manufacturing facilities (the "Synapse Manufacturing 2.0 System") using IBSS'
software Synapse, which manages on-line computer transactions; (2) providing
systems integration services to manufacturing companies; and (3) developing and
marketing Synapse EAI+ to on-line transaction processing businesses.

IBSS' primary efforts are now directed to the development of a market for its
Synapse Manufacturing 2.0 (previously known as FIS 2.0) and Synapse EAI+
software and integration services.

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.

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 compliance with the American Institute of Certified
Public Accountants Statement of Position No. 97-2, "Software Revenue
Recognition," as amended.

IBSS licenses software under non-cancelable license agreements and provides
services including consulting and maintenance, consisting of product support
services and unspecified product updates.

License revenues are recognized when a non-cancelable license agreement has
been signed, the software product has been shipped, there are no uncertainties
surrounding product acceptance, the fees are fixed or determinable and
collectibility is probable.

IBSS's 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. Consulting revenues are primarily related to
implementation services performed on a time and materials basis under separate
service arrangements.


                                      F-7
<PAGE>   40


                 Integrated Business Systems and Services, Inc.
                         Notes To Financial Statements


NOTE 1.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):

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.

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, ranging from five to
seven years. 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.

SOFTWARE DEVELOPMENT COSTS - Under the provisions of Statement of Financial
Accounting Standards ("SFAS") No. 86, "Accounting for the Costs of Computer
Software to be Sold, Leased or Otherwise Marketed," issued by the Financial
Accounting Standards Board, 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 establishment of a detail design, 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.


                                      F-8
<PAGE>   41


                 Integrated Business Systems and Services, Inc.
                         Notes To Financial Statements


NOTE 1.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):

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.

STOCK-BASED COMPENSATION - SFAS No. 123, "Accounting for Stock-Based
Compensation," encourages, but does not require, companies to record
compensation cost for stock-based employee compensation plans at fair value.
IBSS has chosen to continue to account for stock-based compensation using the
intrinsic value method prescribed in Accounting Principles Board Opinion No.
25, "Accounting for Stock Issued to Employees," and related interpretations.
Accordingly, compensation cost for stock options is measured as the excess, if
any, of the quoted market prices of IBSS's stock at the date of the grant over
the amount an employee must pay to acquire the stock.

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.

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 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. At
December 31, 2000, the carrying amount and bank balance of IBSS' cash were
approximately $751,000 and $836,000, respectively. Approximately $654,000 of
the cash on deposit with banks was not covered by federal depository insurance.


                                      F-9
<PAGE>   42


                 Integrated Business Systems and Services, Inc.
                         Notes To Financial Statements


NOTE 1.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):

MAJOR CUSTOMERS - IBSS derives a substantial portion of its gross revenues from
sales to three major customers. For the years ended December 31, 2000, 1999 and
1998 sales to these three customers totaled approximately $2,006,000, $608,000
and $684,000, respectively. Accounts receivable due from these customers were
approximately $780,000 and $78,000 at December 31, 2000 and 1999, respectively.

FOREIGN CURRENCY TRANSACTIONS - Transaction gains and losses are included in
the results of operations of the period in which they occur. Assets and
liabilities are translated utilizing year-end exchange rates. Transaction
losses for the three years ended December 31, 2000 were not material.

NEW ACCOUNTING STANDARDS - In 1998, the Financial Accounting Standards Board
issued Statement No. 133, "Accounting for Derivative Instruments and Hedging
Activities" ("SFAS 133") which is effective for fiscal years beginning after
June 15, 2000. SFAS 133 establishes accounting and reporting standards for
derivative instruments, including certain derivative instruments embedded in
other contracts, and for hedging activities. It requires that an entity
recognize all derivatives as either assets or liabilities in the statement of
financial position and measure those instruments of fair value. SFAS 133
contains disclosure requirements based on the type of hedge and the type of
market risk that is being hedged. IBSS has elected to defer adoption of SFAS
133 until 2001. IBSS does not believe adoption will have a material impact on
IBSS' financial position or results of operations.

NOTE 2.  ACQUISITION:

In June 2000, IBSS established the corporate charter of ASP*N, L.L.C ("ASP*N"),
as a 25% joint venture with a financial services company. ASP*N's primary
purpose is to develop and implement technological strategies for application
service providers.

On November 10, 2000, ASP*N contributed professional and technology consulting
services to Wilcam Systems, L.L.C. ("Wilcam") for a 50% interest in Wilcam's
Class B common stock and purchased an additional 4% of Wilcam's Class D
non-voting common stock for $600,000. On December 31, 2000, ASP*N exercised its
option for 3.5% of Wilcam's Class D common stock. The November 10 and December
31, 2000 purchases of Class D common stock diluted the Class B common stock by
3.75%. ASP*N's resulting ownership percentages in Wilcam were 46.25% Class B
and 7.5% Class D common stock.

IBSS invoiced ASP*N approximately $500,000 for professional and technology
services provided to Wilcam through ASP*N. On December 31, 2000, IBSS exercised
its option for an additional 25% interest in ASP*N's common stock in exchange
for the receivable balance of approximately $500,000 due from ASP*N, 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 equity
method eliminations, the sale of services resulted in a net services


                                     F-10
<PAGE>   43


                 Integrated Business Systems and Services, Inc.
                         Notes To Financial Statements


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.


                                     F-11
<PAGE>   44


                 Integrated Business Systems and Services, Inc.
                         Notes To Financial Statements


NOTE 2.  ACQUISITION (CONTINUED):

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. As of December 31, 2000, IBSS committed to convert approximately
$180,000 of the Wilcam loan to a 1.2% equity interest in Wilcam's Class D
common stock.

Summarized financial information for the equity affiliate at December 31, 2000
is as follows:


<TABLE>
<S>                                                       <C>
Accounts receivable                                       $  51,548
Note receivable                                              85,000
Investment in affiliate, at equity                          506,770
                                                          ---------
Total assets                                                643,318
                                                          =========

Current liabilities                                          51,448
Note payable                                                 93,691
Total capital                                               498,179
                                                          ---------
Total liabilities and capital                             $ 643,318
                                                          =========

Net sales                                                 $      --
                                                          =========
Net loss                                                  $(599,921)
                                                          =========
</TABLE>


NOTE 3.  CAPITALIZED SOFTWARE COSTS:

Capitalized software costs consists of the following at December 31:


<TABLE>
<CAPTION>
                                                   2000              1999
                                                 ---------         ---------

<S>                                              <C>               <C>
Internally developed software                    $ 998,105         $ 998,105
Less accumulated amortization                     (398,375)         (230,104)
                                                 ---------         ---------

Capitalized software costs, net                  $ 599,730         $ 768,001
                                                 =========         =========
</TABLE>

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


                                     F-12
<PAGE>   45


                 Integrated Business Systems and Services, Inc.
                         Notes To Financial Statements


NOTE 4.  PROPERTY AND EQUIPMENT:

Property and equipment consists of the following at December 31:


<TABLE>
<CAPTION>
                                       2000              1999
                                     ---------         ---------

<S>                                  <C>               <C>
Computer equipment                   $ 281,869         $ 278,550
Furniture and fixtures                 180,806            79,209
Marketing equipment                    102,019                --
Office and other equipment              90,083            43,388
Computer software                       33,543            13,115
Leasehold improvements                  40,039               372
                                     ---------         ---------
                                       728,359           414,634
Less accumulated depreciation         (155,009)         (258,980)
                                     ---------         ---------

Property and equipment, net          $ 573,350         $ 155,654
                                     =========         =========
</TABLE>

NOTE 5.  NOTES PAYABLE:

Short-term Note - A $70,000 non-interest bearing note payable matured in
February 1999. In order to induce the creditors to advance the funds to IBSS,
three principal shareholders of IBSS executed options that allow the creditors
to purchase up to 900,000 shares of common stock, which are held in escrow as
private performance shares at a purchase price of $0.01 per share upon earn-out
of the stock from escrow.

During 1999, IBSS established an agreement with a vendor to restructure payment
of outstanding invoices. IBSS transferred approximately $157,000 from accrued
expenses to notes payable. Payments of $20,000 plus interest at prime plus 2%
are due monthly. The note was fully paid at December 31, 2000.

NOTE 6.  LONG-TERM DEBT:

During 1999, IBSS issued $1,250,000 principal amount of convertible notes (the
"Convertible Notes") due in full on January 1, 2002. Interest on the
Convertible Notes is payable quarterly commencing in October 1999 at rates
ranging from 7% to 10%. The Convertible Notes are convertible into common
shares at $2.50 per share, at the option of the holder. The Convertible Notes
are redeemable at the holders' option in whole prior to the maturity date or in
whole or in part, at the maturity date.


                                     F-13
<PAGE>   46


                 Integrated Business Systems and Services, Inc.
                         Notes To Financial Statements


NOTE 7.  SUBORDINATED DEBT:

During 1998, IBSS issued $500,000 principal amount of 12% convertible
subordinated notes (the "Subordinated Notes") due June 5, 2003. Interest on the
Subordinated Notes is payable monthly, commencing in June 1999. The
Subordinated Notes are convertible into common shares at $0.923, $1.098,
$1.273, $1.448 and $1.623 per share in years one through five, respectively, at
the option of the holder. The Subordinated Notes are redeemable at IBSS'
option, in whole or in part, at any time after June 5, 2002. The Subordinated
Notes are subordinate to all other indebtedness of IBSS. On June 4, 1999, notes
in the principal amount of $320,000 were converted to 346,692 shares of stock
at the first year conversion rate of $0.923. On February 16, 2000, the
remaining notes in the principal amount of $180,000 were converted to 163,934
shares of stock at the second year conversion rate of $1.098.

As part of the Subordinated Note financing, IBSS issued the debt holders
541,000, non-transferable, detachable warrants with a two-year term, which
entitle the holder to purchase one common share for each warrant. The warrants
were exercisable at a price of $0.923 in year one and are exercisable at a
price of $1.061 in year two. On November 2, 1999, 259,680 of the warrants were
exercised at a price of $1.061. During 2000, the remaining 281,320 warrants
were exercised at a price of $1.061.

NOTE 8.  SHAREHOLDERS' (DEFICIENCY) EQUITY:

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").

The performance shares may 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" is 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 may be
released from escrow.

IBSS expects that the release of the Escrowed Shares to officers, directors,
employees and consultants of IBSS will be deemed compensatory and, accordingly,
will result in a substantial non-cash charge to reportable earnings, which
would equal the fair market value of such shares on the date of release. Such
charge could substantially increase IBSS' loss or reduce or eliminate IBSS' net
income, if any, for financial reporting purposes for the period(s) during which
such shares are, or become probable of being, released from escrow. Such charge
may have a depressive effect on the market price of IBSS securities.

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


                                     F-14
<PAGE>   47


                 Integrated Business Systems and Services, Inc.
                         Notes To Financial Statements


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.


                                     F-15
<PAGE>   48


                 Integrated Business Systems and Services, Inc.
                         Notes To Financial Statements


NOTE 8.  SHAREHOLDERS' (DEFICIENCY) EQUITY (CONTINUED):

Warrants - The following table shows warrants outstanding for the purchase of
common shares at December 31, 2000. Warrants are exercisable at the option of
the holder.


<TABLE>
<CAPTION>
                                                                                                   Warrants
       Issue Date                                   Exercise Price                                Outstanding
--------------------------      -----------------------------------------------------             -----------

<S>                             <C>                                                               <C>
July 23, 1999                   $2.40 per share in years one through three.                         900,000

July 23, 1999                   $3.40 per share in years one through three.                         370,000

July 23, 1999                   $1.40 per share in years one through three.                         150,000

July 23, 1999                   $1.40, $2.40 and $3.40 per share in years one through
                                    three, respectively.                                            320,000

August 2, 1999                  $1.00 per share in years one through two.                            25,000

January 3, 2000                 $1.87 per share in years one through two.                            50,000

January 3, 2000                 $1.87 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 and $3.50 for Group A options and
                                    Group B options, respectively.                                  600,000

February 25, 2000               $5.50, $6.00, and $6.50 per share in years one
                                    through three, respectively.                                    250,000
                                                                                                  ---------

Total Outstanding Warrants                                                                        2,615,000
                                                                                                  =========
</TABLE>


<TABLE>
<CAPTION>
                                                                Weighted average
                                                                   exercise
                                                Warrants         price per share
                                               ----------       ----------------
<S>                                            <C>              <C>
Outstanding at December 31, 1998(1)                56,000             $1.15
Outstanding at December 31, 1998                  541,000             $ .99
Granted during the year                         3,270,680             $1.85
Exercised during the year(1)                      (56,000)            $1.15
Exercised during the year                        (459,680)            $1.03
                                               ----------             -----
Outstanding at December 31, 1999                3,352,000             $1.84
Granted during the year                           850,000             $3.88
Exercised during the year                      (1,587,000)            $0.91
                                               ----------             -----
Outstanding at December 31, 2000                2,615,000             $2.91
                                               ==========             =====
</TABLE>

(1)      Canadian Dollars


                                     F-16
<PAGE>   49


                 Integrated Business Systems and Services, Inc.
                         Notes To Financial Statements


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:


<TABLE>
<CAPTION>
                                                                    2000                     1999                    1998
                                                                 ------------             -----------             -----------

<S>                                                              <C>                      <C>                     <C>
NUMERATOR:
     Numerator for basic and diluted loss per share              $ (4,220,340)            $(1,919,858)            $(1,128,761)
                                                                 ------------             -----------             -----------

DENOMINATOR:
   Weighted average common shares - basic and diluted
     calculation                                                   13,483,211               9,478,146               8,210,542
                                                                 ------------             -----------             -----------

BASIC AND DILUTED LOSS PER SHARE                                 $      (0.31)            $     (0.20)            $     (0.14)
                                                                 ============             ===========             ===========
</TABLE>

The warrants and options were not included in the computation of diluted loss
per share because the warrants and options are antidilutive when included in
the computation due to IBSS's net loss.

NOTE 10.  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 Plan - IBSS' Board of Directors has adopted a stock option plan
(the "Option Plan"). The effective date of the Option Plan was 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 of IBSS reserved
for issuance under the Option Plan, including options currently outstanding,
will not exceed 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. The plan closed on December 31, 2000. On June 28,
2000, IBSS adopted the 2001 Stock Incentive Plan, effective January 1, 2001.
The plan provides for option awards of up to 600,000 shares, stock appreciation
rights and restricted stock awards. The options have a term up to ten years.


                                     F-17
<PAGE>   50


                 Integrated Business Systems and Services, Inc.
                         Notes To Financial Statements


NOTE 10.  EMPLOYEE BENEFITS (CONTINUED):

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


<TABLE>
<CAPTION>
                                                                     Weighted average
                                                                        exercise
                                                 Stock Options       price per share
                                                 -------------       ----------------
<S>                                              <C>                 <C>
Outstanding at December 31, 1998(1)                 776,360             $ 1.19
Granted during the year(1)                          222,500             $ 1.03
Granted during the year                             401,300             $ 1.33
Exercised during the year(1)                       (374,800)            $ 0.91
Expired or cancelled during the year(1)            (142,660)            $ 1.44
Expired or cancelled during the year                (12,500)            $ 0.63
                                                   --------             ------
Outstanding at December 31, 1999(1)                 481,400             $ 1.25
Outstanding at December 31, 1999                    308,800             $ 1.30
Granted during the year                             552,998             $ 7.82
Exercised during the year(1)                       (160,400)            $ 0.95
Exercised during the year                           (95,900)            $ 0.67
Expired or cancelled during the year                 (3,000)            $15.00
                                                   --------             ------
Outstanding at December 31, 2000(1)                 321,000             $ 1.42
                                                   ========             ======
Outstanding at December 31, 2000                    842,898             $ 5.64
                                                   ========             ======

Exercisable at December 31, 2000(1)                 321,000             $ 1.42
                                                   ========             ======
Exercisable at December 31, 2000                    642,066             $ 5.19
                                                   ========             ======
</TABLE>

(1)      Canadian Dollars

Had compensation expense for IBSS' Option Plan been determined based upon fair
values at the grant dates for awards under the Option Plan in accordance with
SFAS No. 123 "Accounting for Stock-Based Compensation," IBSS' net loss and net
loss per share would have increased to the pro forma amounts indicated below.
Additional stock option awards are anticipated in future years.


<TABLE>
<CAPTION>
                                 2000                  1999                 1998
                              -----------          -----------          -----------
<S>                           <C>                  <C>                  <C>
Net Loss
    As reported               $(4,220,340)         $(1,919,858)         $(1,128,761)
    Pro forma                 $(6,937,905)         $(2,446,134)         $(1,386,387)
Net loss per share
    As reported               $     (0.31)         $     (0.20)         $     (0.14)
    Pro forma                 $     (0.51)         $     (0.26)         $     (0.17)
</TABLE>


                                     F-18
<PAGE>   51


                 Integrated Business Systems and Services, Inc.
                         Notes To Financial Statements


NOTE 10.  EMPLOYEE BENEFITS (CONTINUED):

The pro forma disclosures required by SFAS 123 regarding net loss and net loss
per share is stated as if IBSS has 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:
risk-free interest rates ranging from 4.42% to 6.44%, volatility factor of the
expected market price of IBSS' common stock of 4.323 and 4.087 for options
issued during 2000 and 1999, respectively; and an expected option life ranging
from six months to four years. The weighted average fair value for options
granted under the Option Plan during 2000 and 1999 was $7.85 and $0.77,
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.

NOTE 11.  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:


<TABLE>
<CAPTION>
                                                2000                    1999
                                            -----------             -----------

<S>                                         <C>                     <C>
Deferred tax assets:
    Operating loss carryforwards            $ 3,008,683             $ 1,552,876
    Deferred revenue                             18,297                  33,544
    Other, net                                   40,900                   6,437
    Valuation allowance                      (2,818,611)             (1,297,236)
                                            -----------             -----------

Total deferred tax assets                       249,269                 295,621
                                            -----------             -----------

Deferred tax liabilities:
    Capitalized software costs                 (227,898)               (291,841)
    Depreciation                                (21,371)                 (3,780)
                                            -----------             -----------

Total deferred tax liabilities                 (249,269)               (295,621)
                                            -----------             -----------

Total                                       $        --             $        --
                                            ===========             ===========
</TABLE>


                                     F-19
<PAGE>   52


                 Integrated Business Systems and Services, Inc.
                         Notes To Financial Statements


NOTE 11.  INCOME TAXES (CONTINUED):

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


<TABLE>
<CAPTION>
                                                  2000                   1999                   1998
                                               -----------             ---------             ---------

 <S>                                           <C>                     <C>                   <C>
 Operating loss carryforward                   $ 1,424,973             $ 685,496             $ 661,531
 Deferred revenue                                  (15,247)              (12,126)                4,705
 Other, net                                         47,706                    27                 4,999
 Capitalized software costs                         63,943                32,297              (245,234)
 Valuation allowance                            (1,521,375)             (705,694)             (426,001)
                                               -----------             ---------             ---------

          Net deferred income taxes            $        --             $      --             $      --
                                               ===========             =========             =========
</TABLE>

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:


<TABLE>
<CAPTION>
                                                            2000                   1999                   1998
                                                         -----------             ---------             ---------

<S>                                                      <C>                     <C>                   <C>
Tax at statutory federal rate                            $(1,384,714)            $(652,752)            $(383,779)
Effect on rate of:
   Life insurance premiums                                    (4,030)               (4,720)               (7,368)
   Penalties                                                 (18,453)              (10,968)              (27,519)
   Non-deductible expenses                                   (23,615)               (4,098)               (2,863)
   State income taxes,  net of federal income
     tax effect                                              (90,563)              (33,156)               (4,472)
   Change in valuation allowance                           1,521,375               705,694               426,001
                                                         -----------             ---------             ---------

Total                                                    $        --             $      --             $      --
                                                         ===========             =========             =========
</TABLE>

As of December 31, 2000, IBSS had federal and state net operating loss
carryforwards of approximately $8,000,000. The net operating loss carryforwards
will expire between 2017 and 2020, if not utilized.

NOTE 12.  RELATED PARTY TRANSACTIONS:

For the year ended December 31, 2000, approximately $949,000 of total revenues
was from licensing and services provided to related parties. Trade accounts
receivable due from the related parties at December 31, 2000 were approximately
$165,000.

Related party receivables at December 31, 2000 are advances primarily to
Company directors. Substantially all of these advances are provided to three
officers/directors of IBSS. Upon


                                     F-20
<PAGE>   53


                 Integrated Business Systems and Services, Inc.
                         Notes To Financial Statements


employee termination, IBSS may not have the
ability to collect the advances from the terminated employees. To date, no
employee advances have been written off.

NOTE 12.  RELATED PARTY TRANSACTIONS (CONTINUED):

At December 31, 2000, IBSS held six notes receivable with balances totaling
$190,800 from officers/directors of IBSS. IBSS loaned the officers/directors
money to exercise Common Stock purchase warrant agreements to purchase an
aggregate of 300,000 shares of IBSS's 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, mature on April 29, 2002 with the principal balance and
interest due at maturity. 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.

In 1999, IBSS loaned money to related parties for the purchase of 173,120
shares of IBSS's common stock at an exercise price of $1.061 per share. These
notes, which are non-interest bearing, are due on demand. In the first quarter
of 2000, IBSS received full payment of the related party notes receivable.

NOTE 13.  SUPPLEMENTAL CASH FLOW INFORMATION:

During the years presented below, interest paid amounted to:


<TABLE>
<CAPTION>
                           2000                1999                1998
                         --------            --------            -------

<S>                      <C>                 <C>                 <C>
Interest paid            $129,608            $104,287            $19,787
                         ========            ========            =======
</TABLE>

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


<TABLE>
<CAPTION>
                                                                2000                      1999                  1998
                                                           --------------            --------------            ------

<S>                                                        <C>                       <C>                       <C>
Transfer of inventory to property and equipment            $           --            $           --            $3,962
                                                           ==============            ==============            ======

Conversion of convertible notes into capital               $      180,000            $      320,000            $   --
                                                           ==============            ==============            ======

Transfer of accrued expenses to notes payable              $           --            $      156,976            $   --
                                                           ==============            ==============            ======

Issuance of notes for purchase of common stock             $           --            $      374,480            $   --
                                                           ==============            ==============            ======
</TABLE>

NOTE 14.  COMMITMENTS AND CONTINGENCIES:

Operating Lease Commitments - IBSS leases its principal facilities under a
noncancellable operating lease expiring in October 2004 with an option to renew
for one five year period at market rates. IBSS also leases a Detroit office
under a noncancellable operating lease expiring in November, 2003. The leases
are subject to annual adjustments for facility operating costs in excess of an
established base year.


                                     F-21
<PAGE>   54


                 Integrated Business Systems and Services, Inc.
                         Notes To Financial Statements


NOTE 14.  COMMITMENTS AND CONTINGENCIES (CONTINUED):

At December 31, 2000 minimum lease payments are as follows:


<TABLE>
          <S>                     <C>
          2001                    $  332,647
          2002                       336,704
          2003                       334,205
          2004                       255,596
                                  ----------

                                  $1,259,152
                                  ==========
</TABLE>

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


<TABLE>
<CAPTION>
               2000         1999       1998
             --------     -------    --------

             <S>          <C>        <C>
             $394,000     $88,000    $145,000
             ========     =======    ========
</TABLE>

Employment Contracts - IBSS has employment agreements with its executive
officers and many of its employees. These agreements, which have been revised
from time to time, provide for minimum salary levels, adjusted annually for
cost-of-living changes, as well as for incentive bonuses which are payable if
specified management goals are attained. The aggregate commitment for future
salaries at December 31, 2000, excluding bonuses, is approximately $1,737,000.

Letter of Credit - IBSS issued a letter of credit, in favor of a vendor, in the
aggregate amount of $50,000. The letter of credit is unused as of December 31,
2000 and expires in April 2001.

NOTE 15.  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.


                                     F-22
<PAGE>   55


                 Integrated Business Systems and Services, Inc.
                         Notes To Financial Statements


NOTE 15.  SIGNIFICANT RISKS AND UNCERTAINTIES (CONTINUED):

As discussed in Note 1, 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 a market for its Synapse
Manufacturing 2.0 and Synapse EAI+ software 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.

NOTE 16.  SEGMENTED 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 17.  SUBSEQUENT EVENTS

On January 5, 2001, IBSS converted a related party note receivable in the
approximate amount of $180,000 for a 1.2% investment in Wilcam's Class D
non-voting common stock. On March 22, 2001, IBSS purchased an additional 2.4%
investment in Wilcam's Class D non-voting common stock for $360,000.


                                     F-23