<PAGE>

                       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, 2001

[_] 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                                    57-091013
-------------------------------             ------------------------------------
(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, 2001, the issuer's most
recent fiscal year end, were $3,657,282.

The aggregate market value of voting stock held by non-affiliates of the issuer
on December 31, 2001 was approximately $22,311,350.*

The number of shares outstanding of the issuer's common stock, no par value, was
17,774,694 at December 31, 2001.

                       DOCUMENTS INCORPORATED BY REFERENCE

Portions of the issuer's Proxy Statement in connection with its 2002 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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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

<TABLE>
<CAPTION>
         PART I                                                                                         PAGE
<S>                                                                                                     <C>
Item 1.  Description of Business .....................................................................     3

Item 2.  Description of Property .....................................................................    17

Item 3.  Legal Proceedings ...........................................................................    18

Item 4.  Submission of Matters to a Vote of Security Holders .........................................    18

         PART II

Item 5.  Market for Common Equity and Related Stockholder Matters ....................................    18

Item 6.  Management's Discussion and Analysis of Financial Condition and Results of Operations .......    19

Item 7.  Financial Statements ........................................................................    27

Item 8.  Changes in and Disagreements with Accountants on Accounting and Financial Disclosure ........    27

         PART III

Item 9.  Directors, Executive Officers, Promoters and Control Persons; Compliance with Section 16(a)
         of the Exchange Act .........................................................................    28

Item 10. Executive Compensation ......................................................................    28

Item 11. Security Ownership of Certain Beneficial Owners and Management ..............................    28

Item 12. Certain Relationships and Related Transactions ..............................................    28

Item 13. Exhibits and Reports on Form 8-K ............................................................    28
</TABLE>

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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 that involve risks and uncertainties. We caution
readers of this report that these statements involve a number of known and
unknown risks that may cause our actual results to be materially different from
those contemplated by these statements. Factors that might cause such a
difference include, but are not limited to, those discussed in this report under
the captions "Factors That May Affect Our Operating Results" and "Management's
Discussion and Analysis of Financial Condition and Results of Operations," as
well as those set forth in other periodic reports and filings that we make with
the Securities and Exchange Commission.

Item  1.   Description of Business

General Overview

       Integrated Business Systems and Services, Inc. ("IBSS" or the "Company")
designs, develops, markets and supports a family of application software
products for use throughout large and medium-sized organizations. We currently
provide application software for manufacturing processes, printing and human
resources management. Our applications offer a high degree of flexibility, rapid
implementation and scalability across virtually any operating system and
hardware platform. In addition to our software, we provide our customers with a
variety of services, including custom design, implementation assistance, project
planning and training.

       Founded in 1990 in Columbia, South Carolina, IBSS originally was a
systems integrator to manufacturing and credit card processing companies. As the
founders of the Company performed various systems integration projects based on
their prior backgrounds, it became clear to them that the marketplace needed a
new way to provide on-line, real time critical data in a distributed
environment, while also providing similar information at multiple locations and
the head office simultaneously. Traditional database models worked adequately in
a static environment. However, in dynamic and rapidly changing production
environments, we believed something different had to be developed. We saw the
need for a flexible, connectable, logical system that was rules-based,
easy-to-implement, allowed users to make changes at any point in the system
without having to rewrite code elsewhere, and was able to run in multiple
operating environments. Out of these observations, Synapse(SM), was born.

       Our current line of Synapse-based products includes:

       .    Synapse for Manufacturing(SM) - 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.

       .    Synapse for Printing(SM) - 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.

       .    Synapse HR(SM) - providing a [packaged; web-enabled ASP or stand-
            alone solution] solution to the tracking of employee FMLA leave as
            well as providing a total employee absence management tool.

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       Our common stock is listed on the Over-the-Counter Bulletin Board under
the symbol "IBSS.OB" 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.

Software Product Architecture

       Synapse(SM) is an architecture for developing dynamic, distributed,
real-time software applications. Synapse(TM) has been designed to be highly
connectable, flexible, scalable and complete. Using Synapse, an enterprise is
able to model its business processes directly, allowing third party systems,
such as enterprise resource planning, supply chain and Web portals, to be more
loosely coupled. Moreover, Synapse reacts in business terms, not programmer
terms and is hardware and operating system independent. It is an environment in
which a large library of rule sets has been assembled. Rules sets are combined
to provide discrete functions. This functionality is then assembled into
applications.

       Our applications are designed for use in dynamic environments requiring
real time transmission of mission-critical data to be used in making critical
event driven decisions. Synapse has been designed to enable rapid and easy
integration into other enterprise applications and legacy systems that may exist
in an organization's information technology environment. Synapse can be
configured either to perform all transactions that need to be processed, or to
route selected transactions among multiple systems. All Synapse applications are
scaleable, permitting changes in network size, server platforms and other
architectural components with minimal disruption. Furthermore, Synapse is
capable of running in conjunction with any relational database.

       Additional software applications are able to be built by Synapse
designers and consultants without the need to develop any new code. Through the
use of the Synapse Composer(SM), new applications are developed using existing
functions, commands and tools that are assembled in the correct sequence to
produce the desired results. To date, we have built applications for multiple
industries, including the following:

       .    Textile and Apparel Manufacturing

       .    Commercial Printing

       .    Furniture Manufacturing

       .    Automotive Manufacturing

       .    Human Resources Absence Management (including the Family Medical
            Leave Act)

Synapse Advantages

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

       Incrementally Deployed

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

       Completely Self-Contained

       By being fully self-contained, Synapse enables organizations to describe
any distributed application.

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without the use of other third party supporting software. In addition, no third
party programming tool is needed to modify or extend Synapse functionality in
order to deliver the desired application.

       Real-Time Distributed

       By possessing real-time distributed connectibility, Synapse allows any
business to instantaneously update its entire system through a single hosting
site, thereby eliminating a business's reliance on a central critical server,
while maintaining efficient management of logic between systems. It also takes
advantage of an organization's existing investments in information technologies
by working with and connecting to multiple financial, human resource and
enterprise resource planning systems. As a result, application development is
greatly simplified, and Synapse enables businesses to extend the life and
functionality of their existing system applications.

Existing Synapse Modules

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

       Synapse For Manufacturing(SM)

       Synapse for Manufacturing(SM) bundles the integration capability of the
Synapse architecture with the application modules capable of fully automating
the manufacturing plant. Synapse for Manufacturing, first released in September
2000, is a powerful Manufacturing Execution Management System (MES) that enables
the sharing of real-time information with the manufacturing plant, the
manufacturer's customers, the supply chain and the manufacturer's corporate
headquarters.

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

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

       Synapse For Printing(SM)

       Synapse for Printing(SM) is a fully integrated software system designed
specifically for the printing industry. It includes robust and flexible
capabilities in the automation of shop floor processes. It offers a full
turn-key approach for the publishing and distribution processes, including
interface capabilities with any high volume printing equipment, legacy
application software or other equipment and software systems. The system also
can be easily expanded over time with any hardware and software changes. Synapse
for Printing is built on the Company's proprietary, robust online transaction
processing technology. It provides extensive job-tracking capabilities, as well
as comprehensive shop floor execution, providing the printing customer with
information on

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scheduling, tracking, delivery and billing of every print job. Once an order is
received, either online or by telephone, Synapse for Printing's shop floor
execution capabilities can track every step of the order's processing, from
pre-press production to on-press production and to out-the-door delivery
confirmation. With Synapse for Printing, customers can also check on their
orders in real-time via the Internet.

       Synapse HR(SM)

       Synapse HR(SM) allows an employer to achieve compliance in the
administration of government mandated employee leave laws associated with the
Family Medical Leave Act (FMLA). In addition to assisting employers in reducing
their exposure to employee litigation and potential loss of federal contracts,
Synapse HR greatly increases efficiencies in staffing and overall human resource
management. Synapse HR has three additional releases planned for the future.
These planned releases will extend Synapse HR features by adding the ability to
automatically administer the employee leave laws of individual states,
automatically administer an individual company's no-fault attendance point
systems, and provide statistical analysis of total absences in conjunction with
the delivery of a total absence management system for the employer.

Customer Support

       Customer support is provided for all of our maintenance customers. These
services are provided by professionals focused on resolving any customer issues.
Our Customer Support Center is available 24 hours a day, seven days a week.

Consulting Services

       We offer a variety of consulting services to our customers and to
third-party consulting firms, including implementation assistance, project
planning, process design and system configuration. We can provide these services
directly to customers or indirectly by working closely with third-party
consulting and systems integrators, such as EDS and Silenus, to provide the
customer with a full range of re-engineering, customization and project
management services.

Customer Education and Training

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

Sales and Marketing

       We generate our revenues primarily through the licensing, installation
and servicing of our suite of Synapse-based products. 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.

       We market and license our software products in North America primarily
through a small sales, marketing and business development organization. Our
marketing strategy is to focus on third party consultants and system integrators
who are positioned in the particular industry verticals for which our
applications have been designed. Within the last twelve months, we have signed
EDS and Silenus as partners. These partners are looking for applications with
which they can expand their service revenue with their existing customer base,
and build greater market share with a strategic advantage over their
competition. Because Synapse and its related applications are new to the market,
we recognize that we cannot rely solely on third parties to sell our products.
Accordingly, we continue to market and sell on a targeted, direct basis. As
these assignments grow, we anticipate sharing the workload with our consulting
and system integrator partners.

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Our Sales and Growth Strategies

       Expand and Leverage Strategic Relationships

       We intend to access new markets and distribution channels by continuing
to establish and leverage business relationships with more system integrators,
application software vendors and infrastructure software technology suppliers.
These strategic relationships enable us to reach a broader range of customers in
a wider variety of industries than would be possible through a 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.

       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 textile and apparel manufacturing,
furniture manufacturing, commercial printing, human resource services 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. We 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.

       Consistent with revenue growth, our objective is to expand upon our
experienced team of developers and engineers and further enhance our corporate
culture to foster innovation in the product development, application
configuration and design areas. Furthermore, we are constantly assessing
available opportunities to achieve synergies through the acquisition of
complementary technologies or businesses that we believe will further our growth
strategy. At this time, however, we are not in discussions or negotiations with
any third parties with respect to any acquisition, merger or similar
transactions.

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     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.

     Develop a Significant 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.

Research and Development

     We have focused our research and development efforts primarily on expanding
the core capabilities of Synapse. We plan to continue to devote design and
research resources to continue to enhance the base Synapse products, develop
more industry-specific applications, and add functionality to our existing
applications. Our research and development expenses were $735,540, $306,721 and
$429,436 for the fiscal years ended December 31, 2001, 2000 and 1999,
respectively.

Intellectual Property

     We regard certain aspects of our internal operations, products and
documentation as proprietary. We rely primarily on a combination of patent,
copyright, trademark and trade secret laws, and other measures to protect our
proprietary rights. We also rely on contractual restrictions in our agreements
with customers, employees and others to protect our intellectual property
rights. However, there can be no assurances that these agreements will not be
breached, that we will have adequate remedies for any breach, or that our trade
secrets will not otherwise become known.

     Our ability to compete and succeed is dependent, in part, upon our
patent-pending technology. We have developed a breakthrough and proven software
solution, and we are in the process of obtaining all related patent rights to
our core technology in the United States and internationally.

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Competition and Markets

     Industry Background

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

     Competitive Conditions

     The market for our Synapse platform is extremely broad and could be
considered competitive with any provider of transaction processing or real time
data. However, we do not plan, nor do we have the resources, to market the
product as a software platform. Instead, we are focused on creating vertical
solutions to meet the needs of specific industry segments. These segments to
date include manufacturing, printing and human resources. We will continue to
develop applications that are a quantum leap forward in solving problems that
run the gamut, from automated procurement, inventory management and distribution
management to order processing, integrated customer support and collaborative
planning.

     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 for Manufacturing 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.

     The markets in which we operate are highly competitive. Our competitors are
diverse and offer a variety of solutions targeting various segments of the
industry sectors which we have developed our applications. Some competitors
compete with suites of applications designed to offer out-of-the-box
integration, while most offer point solutions designed specifically to target
particular functions or industries. We have attempted to solve these business
problems with our breakthrough Synapse architecture and industry-specific
applications. In some cases,

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we compete with large ERP, supply chain and collaborative product management
software firms. These could include large ERP software vendors, such as Oracle,
PeopleSoft, SAP and others that have added or are attempting to add capabilities
for supply chain planning or business-to-business collaboration to their
transaction system products; companies such as I2, Adexa, Manugistics and others
that compete principally in supply chain management applications; companies such
as Agile, Commerce One and others that compete principally with our supplier
relationship management applications; and companies such as Apriso, CamStar,
Datasweep, Real World Technologies and others that compete in the Collaborative
Product Management market place.

     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, 2002, we had a total of 40 full-time employees and no
part-time employees.

                  FACTORS THAT MAY AFFECT OUR OPERATING RESULTS

     In addition to other information contained in this 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, the 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, 2001, we had an accumulated deficit of
approximately $20.1 million. 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 last three years, we have also undertaken a
complete restructuring of our sales and marketing organization and have
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 2002, many factors, including the factors
described in this report, may result in our incurring losses in 2002. We will
need to significantly increase our quarterly revenues from their historical
levels in order to achieve profitability.

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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, it is difficult to
accurately forecast our revenue in any given period. Accordingly, we believe
that 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. 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.

     Our stock price is also 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. In addition, 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:

     .    the difficulty in predicting the size and timing of our customer
          orders
     .    the mix of our products and services sold and the mix of our
          distribution channels
     .    the lengthy sales cycle for some of our products
     .    the market acceptance of our products
     .    the terms and timing of our financing activities
     .    whether we are able to successfully expand our sales and marketing
          programs
     .    the possible loss of our key personnel
     .    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. A substantial
portion of our revenues have been and continue to be 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.

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

                                       11

<PAGE>

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. In 2000, we began expanding 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 anticipate for our 2002 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 2001, our largest customer accounted for more
than 51% of our revenue and our second largest customer accounted for more than
44% 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 network of distribution partners in order to successfully
sell our products.

     We have recently implemented a sales model under which we are focusing
substantial efforts toward the sale of our products through indirect sales
channels such as resellers, system integrators, application software vendors and
infrastructure technology companies. We plan to continue to invest resources to
expand our direct sales force and our relationships with these third parties. We
may not be successful in this expansion, 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.

                                       12

<PAGE>

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 George E. Mendenhall, Chairman
and Chief Executive Officer, and Stuart E. Massey, Executive Vice President.
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 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:

       .   the market for connectivity infrastructure software is still emerging
       .   our company and our products are not yet widely known in the
           marketplace
       .   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 recent restructuring of our operations could strain our existing 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 have recently restructured our entire executive,
administrative and operating teams in order to achieve greater efficiencies in
execution, better allocation of skills across departments and better project
tracking. In connection with that restructuring, we have reduced by
approximately 26% the number of our employees over the past twelve months, from
a high of approximately 60 during 2001 to 40 on March 31, 2002. The anticipated
growth in our customer base during 2002 and 2003 will lead to our need late this
year to increase staff in certain areas. In the meantime, the staffing
requirements necessary to support our existing business growth strategy may
place a significant strain on our currently reduced management systems,
infrastructure and resources. As our customer base grows, concurrent with the
need to expand, train and manage our workforce, we expect that we will also be
required to manage an increasing number of relationships with these new
customers, various 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:

       .   loss of revenue
       .   product returns or order cancellations
       .   delay in market acceptance of our products
       .   diversion of our development resources
       .   distraction of our management
       .   damage to our customer relationships and our reputation
       .   increased service and warranty costs

                                       13

<PAGE>

       X   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.

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:

       X   rapid technological change
       X   frequent new product introductions and enhancements
       X   uncertain product life cycles
       X   changing customer requirements
       X   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 inter-operate 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:

                                       15

<PAGE>

       X   patent law
       X   copyright law
       X   trademark and trade secret laws
       X   confidentiality procedures and agreements
       X   licensing arrangements
       X   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 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.

                                       16

<PAGE>

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 has made
the market price of our common stock vulnerable to significant fluctuations. At
December 31, 2001, we had 17,774,694 outstanding shares of common stock, with an
additional 6,384,709 shares of common stock issuable upon the exercise of
employee stock options and common stock purchase warrants and an additional
2,995,640 shares issuable upon conversion of debt, for a total fully diluted
outstanding share amount of 27,155,043 at December 31, 2001.

        Of the 17,774,694 outstanding shares on December 31, 2001, 12,219,594
(or 69%) were freely tradable in the public market. Of the balance of
approximately 5,555,100 shares (or 31 %), (a) 3,830,100 shares were held by
members of management and may be publicly sold only pursuant to the volume and
manner of sale restrictions of Rule 144 under the Securities Act of 1933, and
(b) approximately 1,725,000 shares were issued in private placements that were
exempt from registration under the Securities Act of 1933. As such, these
1,725,000 shares are considered "restricted shares" that are not eligible for
public resale by their holders until the first anniversary following their
issuance, their public resale remains subject to the volume and manner of sale
restrictions of Rule 144 until the second anniversary following their issuance.
Under the operation of Rule 144, approximately 865,000 of these restricted
shares will become eligible for resale under Rule 144 on or before December 31,
2002. The balance of 860,000 shares will become eligible for resale under Rule
144 on March 20, 2003.

        Of the 9,380,349 shares issuable at December 31, 2001 upon the exercise
of stock options, and warrants and upon the conversion of debt, 3,141,469 (or
34%) shares will be freely tradable upon exercise or conversion of the
underlying instrument. Of the balance of 6,238,880 shares (or 66%), (a) 523,600
shares were issuable to members of management and are subject to the same resale
restrictions under Rule 144 as are described in the prior paragraph, and (b)
5,715,280 shares were issuable upon exercise or conversion of instruments issued
by us in private placements that were exempt from registration under the
Securities Act of 1933. As such, these 5,715,280 restricted shares are subject
to the same Rule 144 one year and two-year restrictions as are described in the
prior paragraph for restricted shares. We have granted registration rights to
the holders of substantially all of the instruments under which these restricted
shares are issuable. The registration rights generally require us to register
these shares for resale within six months of the date of their issuance upon
excercise or conversion, as applicable, of the underlying instruments.

        Once these restricted shares become eligible for resale under Rule 144
or their resale otherwise registered by us with the Securities and Exchange
Commission, if the holders of these restricted shares sell substantial amounts
of their 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. The issuance of these shares will also
result in dilution to our shareholders, and may 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.

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 2002 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 2002 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 favorable terms,
or at all. If we obtain 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:

                                       17

<PAGE>

       X   develop or enhance our products and services
       X   continue to expand our sales and marketing organizations
       X   acquire complementary technologies, products or businesses
       X   expand operations, in the United States or internationally
       X   hire, train and retain employees
       X   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:

       X    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.

       X    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.

       X    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.

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

       X    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.

       X    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.

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.

                                       18

<PAGE>

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 2001.

                                     PART II

Item 5.    Market for Common Equity and Related Stockholder Matters

       Since January 18, 2002, our common stock has been publicly traded on the
over-the-counter bulletin board ("OTCBB") established by the National
Association of Securities Dealers, Inc. under the trading symbol "IBSS.OB."
During the seventeen-month period prior to that date, our common stock was
traded on the Nasdaq National Market. We became a publicly traded company in
October 1997 through our initial public offering of common stock on the
Vancouver Stock Exchange ("VSE"). 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 OTCBB until our shares became
listed on the Nasdaq National Market August on August 15, 2000.

       The share prices set forth below indicate the high and low bid prices as
reported on the OTCBB and the high and low sale prices as reported on the Nasdaq
National Market for the indicated periods.

<TABLE>
<CAPTION>
                                                       Sales Price    Bid Price
                                                        (Nasdaq)       (OTCBB)
<S>                                                    <C>            <C>
Fiscal Year ended December 31, 2000

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

Fiscal Year ended December 31, 2001

1/st/ quarter (1/1/01 - 3/31/01)....................      $ 4.50        2.13
2/nd/ quarter (4/1/01 - 6/30/01)....................        4.60        2.13
3/rd/ quarter (7/1/01 - 9/30/01)....................        4.32        1.76
4/th/ quarter (10/1/01 - 12/31/01)..................        2.50        1.25
</TABLE>

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

       Shareholders of Record

       As of March ____ , 2002, there were ____ 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.

                                       19

<PAGE>

       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, 2001 we issued the following
securities in transactions that were not registered under the Securities Act of
1933:

       (a) On October 15, 2001, we received approximately $150,000 in gross
proceeds from the issuance of a two-year convertible debenture. The debenture
carries an annual interest rate of 10% and all principal is payable upon
maturity on October 15, 2003. Up to $75,000 of the outstanding principal under
the debenture is convertible into common stock at a conversion price per share
of $ 1.00.

       (b) On December 31, 2001, we restructured approximately $ 2,286,640 of
our short-term and long-term debt into two-year convertible debentures with
detachable three-year common stock purchase warrants for the purchase of an
aggregate of 1,822,519 shares of our common stock. The debentures carry an
annual interest rate of 9%, which increases one percentage point each calendar
quarter unless the debentures are repaid on or before December 31, 2002,
whereupon the interest rate reverts to 9%. All principal under the debentures is
due upon maturity on January 1, 2004 and interest is payable in two annual
installments on January 1, 2003 and at maturity. Under the debentures, we are
obligated to apply toward the repayment of principle and interest on escalating
percentage of funds over $1 million received by us in future capital raising
activities. The conversion price per share under the debentures is the lower of
$1.00 and 50% of the average closing price of the common stock for the 30
calendar days prior to conversion. The exercise price per share under the
warrants is $1.60.

       These securities were issued without registration under the Securities
Act of 1933 in reliance upon the exemption from registration contained in
Section 4(2) and Rule 506 of Regulation D of the Securities Act of 1933, as a
transaction, not involving a general solicitation, in which the purchasers were
purchasing for investment. We believe that the purchasers were given or had
access to detailed financial and other information with respect to our company
and possessed requisite financial sophistication.

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

                                       19

<PAGE>

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-margin, 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, 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 what is now our Synapse HR Software occurred in late
June 2000, in connection with our establishment of an application service
provider (ASP) 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 for Manufacturing as its shop
floor tracking system from a field of over sixty of the nation's 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 for Manufacturing(TM) for the furniture industry.

Revenue Recognition

       Our revenues are generated primarily by licensing to customers
standardized Synapse-based software systems providing configuration services,
automation and administrative support and information services to our customer
base; and reselling computer and related third party hardware associated with
our software installations. Historically, our customer base has been 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."

       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, which is typically one year. Consulting revenues are primarily related
to services performed on a time-and materials basis under separate service
arrangements and are recognized in the periods during which the services are
performed. We recognize revenues from the sale of third party hardware when the
associated hardware has been shipped to the customer and the risk of loss has
transferred to the customer.


                                                    Financial Operations Summary

                                       20

<PAGE>

<TABLE>
<CAPTION>
Financial Operations                                                 Year Ended December 31,

                                                               2001            2000             1999
                                                               ----            ----             ----
        Revenues
<S>                                                         <C>            <C>               <C>
   Services                                                 1,994,653         752,173          558,293
   Hardware sales                                           1,406,208         633,116            1,576
   Software licensing                                         153,750         850,000           74,483
   Maintenance                                                102,671         146,779          144,865
   Total revenues                                           3,657,282       2,382,068          779,217
        Cost of revenues

   Services                                                 1,100,402         654,502          325,142
   Hardware sales                                           1,091,531         527,717            1,161
   Software licensing                                         225,103         172,936          137,138
   Maintenance                                                235,215         143,997           80,404
   Total Cost of revenues                                   2,652,251       1,499,152          543,845
        Gross margin                                        1,005,031         882,916          235,372
        Operating expenses
   Restructuring and impairment charges                     1,841,272               -                -
   Bad debt expense                                           232,292               -                -
   Research and development costs                             735,540         306,721          429,436
   General and administrative                               4,161,730       3,310,762        1,099,635
   Sales and marketing                                      1,707,415       1,465,410          528,144
   Total operating expenses                                 8,678,249       5,082,893        2,057,215
        Loss from operations                               (7,673,218)     (4,199,977)      (1,821,843)
   Loss on disposal of equipment                               (5,151)         (8,582)          (3,077)
   Other income                                                    83         101,384                -
   Interest income                                             32,912         170,207                -
   Interest expense                                        (3,800,341)       (117,452)         (94,938)
   Loss on equity investment                                 (657,840)       (165,920)               -
   Non-controlling interest in loss                           847,353               -                -
        Net loss                                          (11,256,202)     (4,220,340)      (1,919,858)
   Loss per share:
   Net loss
   Basic and diluted                                            (0.71)          (0.31)           (0.20)
</TABLE>

<TABLE>
<CAPTION>
Balance Sheet Data                                                      As at December 31,
                                                               2001             2000            1999
                                                               ----             ----            ----
<S>                                                        <C>              <C>               <C>
   Working Capital                                         (1,859,844)      1,630,238         (285,719)
   Property, Plant and Equipment                              564,067         573,350          155,654
   Capitalized Software Costs                                 420,511         599,730          768,001
   Other Assets                                                 4,154           4,128            2,793
   Total Assets                                             1,529,227       3,540,716        1,447,017
   Long Term Liabilities                                    2,228,256       1,250,000        1,430,000
   Shareholders Equity (Deficiency)
          Dollar Amount                                    (3,071,374)      1,759,635         (706,327)
          Outstanding Shares (1)                           17,774,694      14,244,869       10,537,635
</TABLE>

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

                                       21

<PAGE>

Results of Operations

Year Ended December 31, 2001 Compared to Year Ended December 31, 2000

Revenues

       Our operating revenues increased by $1,275,214 (approximately 54%) from
$2,382,068 in 2000 to $ 3,657,282 in 2001. This increase was primarily
attributable to the significant increase in 2001 in the services and hardware
sales to Fruit of the Loom and WilCam Systems, LLC, which accounted for
approximately 51% and 44%, respectively, of our total revenues for 2001.

       Services. Our service revenues increased by $1,242,480 (approximately
165%) from $752,173 in 2000 to $1,994,653 in 2001. This increase was
attributable primarily to the fact that we recognized service revenues
associated with Fruit of the Loom and WilCam Systems, LLC for a full
twelve-month period in 2001. We did not commence services associated with these
two customers until late in the second half of 2000.

       Hardware. Our revenues from the sales of third party hardware increased
by $733,092 (approximately 122%) from $633,116 in 2000 to $1,406,208 in
2001. Consistent with the increase in our services revenues as noted above, this
increase in hardware revenue was attributable primarily to the fact that
hardware sales to our two largest customers in 2001 did not begin until late in
the second half of 2000.

       Software Licenses. Our revenues from the licensing of Synapse-based
products decreased by $696,250 (approximately 82%) from $850,000 in 2000 to
$153,750 in 2001. Although we commenced three new software installations during
2001, under our software recognition policies discussed above, we recognized
revenue in 2001 with respect to only one of these installations.

       Maintenance. Our revenues from software maintenance fees decreased by
$44,108 (approximately 30%) from $146,779 in 2000 to $102,671 in 2001. This
decrease was attributable primarily to the election by one of our former
customers not to renew its maintenance contract for 2001. We also note that
under our maintenance revenue recognition policies (under which maintenance
revenue is recognized ratably over the life of the maintenance contract), we
will not commence until 2002 to recognize maintenance revenue associated with
any of our maintenance contracts that became effective during 2001.

Cost of Revenues

       Cost of revenues increased by $1,153,099 (approximately 77%) from
$1,499,152 in 2000 to $2,652,251 in 2001. This increase was attributable to
several factors, including the increase in the human resources necessary to
support the obligations associated with our increased 2001 service revenues, as
well as the cost of the hardware associated with our increased third party
hardware sales.

       Services. Our cost of services increased by $445,900 (approximately 68%)
from $654,502 in 2000 to $1,100,402 in 2001. As noted above, most of this
increase was attributable to the fact that we incurred configuration and
implementation costs associated with our two largest customers for a full
twelve-month period in 2001, but only commenced incurring such costs associated
with these two customers until late in the second half of 2000. Our gross margin
for services for 2001 was approximately 45%, representing an increase over our
13% gross margin for services in 2000. This increase was attributable primarily
to the fact that the service margins associated with our two largest customers
in 2001 were substantially higher than the service margins realized on customer
projects during most of 2000. Services associated with our two largest customers
in 2001 did not ramp up to their existing levels until the last quarter of 2000.
In addition, revenues associated with a portion of our service costs incurred in
the last month of 2000 were not recognized until early in 2001.

       Hardware. Our cost from the sales of third party hardware increased by
$563,814 (approximately 107%) from $527,717 in 2000 to $1,091,531 in 2001. This
increase was associated solely with the concurrent increase in the sales of
hardware in connection with the implementations of our contracts. Our gross
margin for hardware sales for 2001 was approximately 22%, representing an
increase over our 17% gross margin for hardware sales in 2000. This increase was
attributable primarily to fact that the proportion of equipment on which we
realize higher hardware resale margins was greater in 2001 than in 2000.

       Software Licenses. Our cost from the licensing of our Synapse-based
products increased by $52,167 (approximately 30%) from $172,936 in 2000 to
$225,103 in 2001. Substantially all of this increase was attributable to the
increased human resources costs allocated to our licensing activities during
2001 and to the increase in 2001 of software amortization costs. Our gross
margin for software licenses for 2001 was a negative 46%, representing a
decrease from our 80% gross margin for software licenses in 2000. This decrease
was attributable primarily to the combination of lower aggregate license
revenues in 2001with the fact that these lower revenues were also at
substantially lower margins than the average per license margin realized on
license revenues in 2000.

       Maintenance. Our cost of maintenance increased by $91,218 (approximately
63%) from $143,997 in 2000 to $235,215 in 2001. This increase was primarily
attributable to the increase in human resources that were necessary to be
assigned in 2001 to support our ongoing maintenance obligations for 2002 and
beyond on our Synapse software installed in 2001. As noted above under the
caption "Revenues - Maintenance," we will not commence until 2002 to recognize
the maintenance revenue associated with the maintenance obligations for software
installed during 2001. Our gross margin for maintenance for 2001 was negative
129%, representing a decrease from our 2% gross margin for services in 2000.
This decrease was attributable primarily to the combination of lower aggregate
maintenance revenues in 2001with the fact that these lower revenues were also at
substantially lower margins than those for maintenance revenues in 2000.

Gross Profit and Margins

       Gross profit was $1,005,031 in 2001, representing an increase of $122,115
(approximately 14%) over gross profit in 2000 of $882,916. Although our overall
gross margin decreased to approximately 28% in 2001, down from approximately 37%
in 2000, substantially all of this decrease was associated with the substantial
decreases experienced in 2001 in our margins on software license revenues and
software maintenance revenues, as described above. Margins in 2001 associated
with our two largest revenue categories, services and third party hardware
sales, were both substantially higher than the margins for those respective
revenue categories in 2000, as described above.

                                       23

<PAGE>

Operating Expenses

       Research and Development. Research and development expenses increased by
$428,819 (approximately 140%) from $306,721 in 2000 to $735,540 in 2001. This
increase is primarily associated with the increase in resources allocated in
2001 toward product development. Research and development expenses represented
approximately 13% and 20% of total revenues for 2000 and 2001, respectively.
While we expect that research and development expenses will continue to increase
in absolute dollars for the foreseeable future as we continue our product
development activities, we anticipate that these expenses as a percentage of
total revenues will not continue to increase.

       General and Administrative. General and administrative expenses increased
by $856,119 (approximately 26%) from $3,310,762 in 2000 to $4,161,730 in 2001.
However, as a percentage of total revenues, general and administrative expenses
decreased from approximately 140% in 2000 to approximately 114% in 2001.
Substantially all (approximately 82%) of the dollar increase in general and
administrative expenses is attributable to the increase in systems engineering
personnel costs of approximately $700,000 in 2001 resulting from engineering
staff additions in late 2000 and early 2001. Approximately 14% of the dollar
increase was associated with increases in employee benefit costs in 2001. While
we recognized approximately $290,000 in non-cash executive severance expenses,
these non-recurring expenses were almost wholly offset by decreases in 2001 in
personnel recruitment charges and third party professional and consulting
expenses. Although smaller, increases were also recognized in 2001 in
depreciation expenses and insurance premiums. While we expect 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 continue to decrease.

       Sales and Marketing. Sales and marketing expenses increased by $242,005
(approximately 17%) from $1,465,410 in 2000 to $1,707,415 in 2001. This increase
was primarily attributable to the expansion of our direct sales team during the
first quarter of 2001, as well as the increase in the cost of our third party
public relations and investor relations resources. Sales and marketing expense
as a percentage of total revenues decreased from approximately 62% in 2000 to
approximately 47% in 2001. While we expect that our sales and marketing expenses
will continue to increase in absolute dollars as we implement our market share
growth strategies, we anticipate that these expenses will continue to decrease
as a percentage of total revenues.

       Non-recurring and Non-cash Items. During 2001, we recognized an aggregate
of approximately $5.5 million in extraordinary, non-recurring and non-cash
charges associated with (a) interest expense associated with bridge notes,
related warrants and debt restructuring and (b) subsidiary asset impairment and
related charges.

       Interest Expense. Interest expense increased $3,682,889 (approximately
3136%) from $117,452 in 2000 to $3,800,341in 2001. Substantially all
(approximately 95%) of this increase was related solely to the intrinsic value
approach that was applied to both the common stock purchase warrants and the
conversion features of our private placements of convertible debt in 2001, all
as required by the application of Accounting Principles Board Opinion No. 14,
Emerging Issues Task Force (EITF) Issue No. 98-5 and EITF Issue No. 00-27. The
directive of these accounting policies is to attribute an appropriate value to
the conversion feature imbedded in convertible debt where the conversion price
is either below the market price of the common stock at the commitment date, or
where such price may adjust during the life of the debt to a price that is below
the market price of the common stock at the time of the adjustment. The entire
value of the imbedded conversion feature is charged to interest expense and
credited to additional paid in capital at the time of the commitment. These
accounting policies also require recognition of the fair value of any warrants
issued in connection with debt financing. The fair value is charged to a debt
discount that is amortized to interest expense over the life of the related debt
instrument, and an equal amount is credited to additional paid in capital.

       In connection with bridge financing we obtained during 2001 that was
restructured at December 31, 2001, we issued convertible notes and debentures
that had conversion prices that were below the market value of our common stock
on the respective dates of the debentures. The total conversion value imbedded
in these debentures and charged to interest expense in 2001 was $2,142,724. We
also issued detachable common stock purchase warrants during 2001 in connection
with the bridge financing described in the preceding sentence. The aggregate
fair value of such warrants issued in 2001 was $1,382,882, all of which was
charged to interest during 2001 because all of the related debt matured during
2001 and was restructured and exchanged for two-year convertible debentures on
December 31, 2001. These interest expense amounts did not have any impact on our
cash flow during 2001 and will not have any impact on cash flow for future
periods.

       Subsidiary Impairment and Restructuring Charges. Impairment and
restructuring charges increased from zero in 2000 to approximately $1.842
million in 2001. These 2001 impairment charges were solely related to the
December 13, 2001 spin-off by our affiliate, WilCam Systems, LLC, of certain of
its material assets associated with Synapse HR into our majority-controlled
subsidiary, Synamco, LLC. These assets consisted entirely of software that had
been capitalized by WilCam Systems, LLC. At the time of the transfer of these
assets to Synamco, we elected to write down the asset to its fair value using
the guidance of Statement of Financial Accounting Standards No. 86, resulting in
an aggregate impairment and restructuring charges for 2001. In this connection,
we also elected to increase the reserve applied to the note receivable from
WilCam Systems, LLC, resulting in a charge to bad debt expense of $232,292. We
did not recognize any charge to bad debt in the prior year.

Liquidity and Capital Resources

       Sources of Operating Capital. 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 operating revenues. 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 $12.3 million
through several private placements of common stock and stock purchase warrants
and the conversion of approximately $1.7 million of convertible debt into
equity. During 2001, we raised an aggregate of approximately $5.1 million in
additional capital, consisting of approximately $1,032,371 from the exercise of
common stock options and warrants, approximately $409,000 from the private
placement of common stock, and approximately $3.66 million from the sale of
convertible debt. During the first quarter of 2002, we raised approximately
$830,000 through the issuance of two-year convertible debentures. We expect to
raise additional funds in 2002 from the private placement of additional debt,
equity or equity-linked securities.

       Cost and Expense Reduction Program. During the last month of the third
quarter of 2001, in connection with executive managements' internal
restructuring of our internal operations and in response to the need to reduce
costs in connection with lower than expected year-to-date revenues, we commenced
a comprehensive cost reduction program. The implementation of that program is
now substantially complete and has resulted in a reduction of almost 50% in our
monthly gross cash burn rate.

       Included in our cost reduction program were measures that resulted in
substantial reductions in our largest expense categories of human resource and
payroll-related expenses. These measures included reductions in non-essential
staff which reduced our number of full time employees by approximately 33%;
deferrals of up to 50% in the compensation of our seven most highly compensated
executive officers; reductions of approximately 12% in the compensation rates
for almost half of the remaining non-executive personnel; scale-backs in certain
employee benefit programs; reductions of approximately 13% in the rates paid for
health insurance; and substantial reductions in employee travel, accommodation
and hiring costs. In addition, we have achieved significant cash flow relief
through the discontinuance of non-essential third party consulting and service
arrangements and the renegotiation of other third party contracts, including
those in the areas of public relations, investor relations, financial advisory
services, financial printing and industry research.

                                       24

<PAGE>

       During the remainder of 2002, in addition to the reductions outlined
above, we expect to substantially reduce the costs associated with our operating
facilities, including reductions in our lease obligations. We currently lease
approximately 19,500 square feet of office space for our principal executive
offices at a current annual gross rent of approximately $338,000. The annual
rent under this lease, which expires in November 2005, will increase to
approximately $345,000 in 2003 through 2005. Management is in discussions with
the lessor of this office space in contemplation of substantial reductions in
the amount of space leased. We have already vacated approximately 10% of our
existing leased space for sublease or release back to our landlord. We expect to
vacate a substantial additional amount of our existing leased space during 2002
without negatively impacting our operations, and we intend to pursue the
renegotiation of our existing lease rates, or consider a buy-out of the lease in
the event we are able to secure a lease of suitable facilities at market rates,
which are currently approximately 35% lower than our current lease rate.

       We currently do not have any commitments or budgeted needs for any
material capital expenditures, including purchases of furniture, fixtures and
equipment during the remainder of 2002. In the absence of any substantial
infusion of growth capital during 2002, we do not expect our capital expenditure
plans for 2002 to change.

       Investor Debt and Other Payables. On December 31, 2001, we achieved
almost complete debt service relief for 2002 and 2003 through the restructuring
of substantially all of our short-term and long-term investor debt. Under the
restructured debt instruments, the entire principal balance is not payable for
up to two years (January 1, 2004). The first interest payment on our
restructured debt is not due until January 2003, and the second interest payment
is not due until maturity in 2004. We have also established long-term payout
arrangements with respect to substantially all of our unsecured trade accounts
payable. In addition, where permitted under securities laws, we have satisfied
certain of our third party obligations through restricted stock grants.

       Additional Capital. As noted above, since December 31, 2001, we have
raised approximately $830,000 through the issuance of two-year convertible
debentures. We expect to raise additional funds in 2002 from the private
placement of additional debt, equity or equity-linked securities. Because of the
operating, market and industry risks associated with an investment in our common
stock, and because our common stock is currently traded on the Over-the Counter
Bulletin Board maintained by the NASD, we may experience difficulty in raising
additional financing.

       Our current gross monthly cash burn rate is approximately $340,000. In
the absence of any substantial infusion of growth capital during 2002, we have
not budgeted for any material increase in this gross monthly burn rate. We
expect that the proceeds from revenues generated from our operations and, to a
lesser extent, the proceeds from our 2002 capital raising activities, 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 further reduce our expenses if our marketing and sales
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.

2001 Cash Flow Analysis

       Net cash used in operating activities increased by approximately $50,000
(less than one percent) from approximately $5,167,000 during the twelve months
ended December 31, 2000 to approximately $5,217,000 during the twelve months
ended December 31, 2001. Although the dollar amount of the increase was
insignificant, the relative allocation of cash used among our various operating
expense categories in 2001 differed from that allocation in 2000 primarily along
the same profile as the relative year-to-year comparisons in our 2001 revenues
and expenses to those in 2000, all as described in greater detail above under
the caption "Results of Operations - Year Ended December 31, 2001 Compared to
Year Ended December 31, 2000."

       Net cash used in investing activities decreased by approximately $112,000
(approximately 16%) from approximately $692,000 during the twelve months ended
December 31, 2000 to approximately $580,000 during the twelve months ended
December 31, 2001. This was comprised of decreases from 2000 to 2001 of
approximately $365,000 in purchases of property and equipment, and approximately
$180,000 in the amount of related party receivables that were funded, almost all
of which decreases were offset by an increase of $540,000 in cash used in
purchases of affiliate equity.

       Net cash provided by financing activities was approximately $5.1 million
during the twelve months ended December 31, 2001, as compared to approximately
$6.5 million during the twelve months ended December 31, 2000. The net cash
provided by financing activities in 2001 resulted primarily from the completion
of private placements of approximately $3.66 in convertible debentures,
approximately $409,000 from the completion of private placements of common
stock, and approximately $1.03 million from the exercise of common stock options
and warrants.

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, 2001 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.)

                                       25

<PAGE>

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:

     None.

                                       26

<PAGE>

                                   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 15, 2002            By: /s/ GEORGE E. MENDENHALL
                                     -------------------------------
                                          George E. Mendenhall
                                          Chairman 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.

<TABLE>
<CAPTION>
         Signature                                   Title                      Date
<S>                                    <C>                                   <C>
/s/ GEORGE E. MENDENHALL               Chairman, Chief Executive Officer     April 15, 2002
------------------------------
George E. Mendenhall                   and Director

/s/ STUART E. MASSEY                   Executive Vice President              April 15, 2002
------------------------------
Stuart E. Massey                       and Director

/s/ WILLIAM  S. McMASTER               Chief Financial Officer and           April 15, 2002
------------------------------
William S.  McMaster                   General Counsel (Principal
                                       Financial and Accounting Officer)

/s/  C. JOSEPH BERGER, JR.             Director                              April 15, 2002
------------------------------
C. Joseph Berger, Jr.

/s/ ROGER A. KAZANOWSKI                Director                              April 15, 2002
------------------------------
Roger A. Kazanowski
</TABLE>

                                      E-1

<PAGE>

                 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. (incorporated by reference to Exhibit 10.10
          to the Company's 10-KSB for the year ended December 31, 2000.)

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) (incorporated by reference to Exhibit 10.12 to the
          Company's 10-KSB for the year ended December 31, 2000.)

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 (incorporated by reference to
          Exhibit 10.15 to the Company's 10-KSB for the year ended December 31,
          2000.)

10.21     Class A Secured Convertible Debenture dated December 31, 2001 between
          the Company and IBSS Class A Investors.

10.22     Class B Secured Convertible Debenture dated December 31, 2001 between
          the Company and IBSS Class B Investors.

10.23     Common Stock Purchase Warrant dated December 31, 2001 between the
          Company and IBSS Class A Investors.

10.24     Common Stock Purchase Warrant dated December 31, 2001 between the
          Company and IBSS Class B Investors.

21        Subsidiaries of the Company

                                       E-I

<PAGE>

                 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-26
</TABLE>

                                      F-1

<PAGE>

                        REPORT OF INDEPENDENT ACCOUNTANTS

                                    --------


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

We have audited the accompanying consolidated balance sheets of Integrated
Business Systems and Services, Inc. and its subsidiary (the "Company") as of
December 31, 2001 and 2000, and the related consolidated statements of
operations, changes in shareholders' (deficiency) equity and cash flows for each
of the three years in the period ended December 31, 2001. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

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

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of the
Company as of December 31, 2001 and 2000, and the consolidated results of its
operations and its cash flows for each of the three years in the period ended
December 31, 2001, in conformity with accounting principles generally accepted
in the United States of America.

The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 1 to the
consolidated financial statements, the Company has a current year net loss, an
accumulated deficit, and a working capital deficiency. Additionally, the Company
recently received notification from Nasdaq Stock Market, Inc. ("Nasdaq") that it
was not in compliance with Nasdaq requirements and therefore was delisted from
the Nasdaq National Market, which may limit the Company ability to raise
additional capital. These and other factors raise substantial doubt about IBSS's
ability to continue as a going concern. Management's plans in regards to these
matters are also described in Note 1. The consolidated financial statements do
not include any adjustments that might result from the outcome of these
uncertainties.

/s/ Scott McElveen, LLP.
Columbia, South Carolina
April 10, 2002

                                      F-2

<PAGE>

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

<TABLE>
<CAPTION>
                                                                                  2001                 2000
                                                                             -------------    --------------
<S>                                                                          <C>              <C>
Assets
Current assets:
   Cash and cash equivalents                                                 $      6,100     $     700,892
   Accounts receivable, trade, net of allowance of $8,399 in 2001                 347,969         1,015,330
   Accounts receivable, other                                                       9,000                --
   Short term investments                                                              --            50,000
   Related party notes receivable, net of allowance for loan losses of
     $207,200 in 2001                                                              50,000           305,000
   Interest receivable                                                             24,635            25,262
   Unbilled revenue                                                                38,856                --
   Other prepaid expenses                                                          35,941            64,835
                                                                             -------------    --------------

Total current assets                                                              512,501         2,161,319
Capitalized software costs, net                                                   420,511           599,730
Property and equipment, net                                                       564,067           573,350
Investment in affiliated company, at equity                                            --           117,840
Related party receivable                                                           27,994            84,349
Other assets                                                                        4,154             4,128
                                                                             -------------    --------------

Total assets                                                                 $  1,529,227     $   3,540,716
                                                                             =============    ==============

Liabilities and Shareholders' Deficiency
Current liabilities:
    Notes payable, net of discount                                           $    696,227     $          --
    Accounts payable                                                              405,145           245,417
    Accrued liabilities:
      Accrued compensation and benefits                                           521,305           141,261
      Accrued payroll taxes                                                       322,772             7,248
      Accrued professional fees                                                   254,420            51,385
      Accrued interest                                                             35,050            31,250
      Other                                                                        44,049             6,370
    Deferred revenue                                                               93,377            48,150
                                                                             -------------    --------------

Total current liabilities                                                       2,372,345           531,081
Long-term debt, net of discount                                                 2,145,037         1,250,000
Long-term accrued compensation                                                     83,219                --
                                                                             -------------    --------------
Total liabilities                                                               4,600,601         1,781,081
                                                                             -------------    --------------

Commitments and contingencies

Shareholders' (deficiency) equity:
   Preferred stock, undesignated par value, authorized 10,000,000 shares,
      issued none                                                                      --                --
   Common shares, voting, no par value, 100,000,000 shares authorized,
      17,774,694 and 14,244,869 shares outstanding at December 31, 2001 and
      2000, respectively                                                       18,041,226        10,828,400
   Notes receivable officers/directors                                           (131,080)         (190,800)
   Accumulated deficit                                                        (20,134,167)       (8,877,965)
   Non-controlling interest in net assets                                        (847,353)               --
                                                                             -------------    --------------
Total shareholders' (deficiency) equity                                        (3,071,374)        1,759,635
                                                                             -------------    --------------

Total liabilities and shareholders' (deficiency) equity                      $  1,529,227     $   3,540,716
                                                                             =============    ==============
</TABLE>

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

                                      F-3

<PAGE>


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

<TABLE>
<CAPTION>
                                                           2001                2000                 1999
                                                     ----------------    ----------------     ----------------
<S>                                                  <C>                 <C>                  <C>
Revenues
Services                                             $     1,994,653     $       752,173      $       558,293
Hardware sales                                             1,406,208             633,116                1,576
Software licensing                                           153,750             850,000               74,483
Maintenance                                                  102,671             146,779              144,865
                                                     ----------------    ----------------     ---------------

Total revenues                                             3,657,282           2,382,068              779,217
                                                     ----------------    ----------------     ---------------

Cost of revenues
Services                                                   1,100,402             654,502              325,142
Hardware sales                                             1,091,531             527,717                1,161
Software licensing                                           225,103             172,936              137,138
Maintenance                                                  235,215             143,997               80,404
                                                     ----------------    ----------------     ---------------
                                                           2,652,251           1,499,152              543,845
                                                     ----------------    ----------------     ---------------

Gross margin                                               1,005,031             882,916              235,372
                                                     ----------------    ----------------     ---------------

Operating expenses
General and administrative                                 4,161,730           3,310,762            1,099,635
Sales and marketing                                        1,707,415           1,465,410              528,144
Research and development costs                               735,540             306,721              429,436
Restructuring and impairment charges                       1,841,272                  --                   --
Bad debt expense                                             232,292                  --                   --
                                                     ----------------    ----------------     ---------------

         Total operating expenses                          8,678,249           5,082,893            2,057,215
                                                     ----------------    ----------------     ---------------

         Loss from operations                             (7,673,218)         (4,199,977)          (1,821,843)

Loss on disposal of equipment                                 (5,151)             (8,582)              (3,077)
Other income                                                      83             101,384                   --
Interest income                                               32,912             170,207                   --
Interest expense                                          (3,800,341)           (117,452)             (94,938)
Loss on equity investment                                   (657,840)           (165,920)                  --
Non-controlling interest in loss                             847,353                  --                   --
                                                     ----------------    ----------------     ---------------
         Net loss                                    $   (11,256,202)    $    (4,220,340)     $    (1,919,858)
                                                     ================    ================     ===============

Loss per share:
         Net loss
           Basic and diluted                         $         (0.71)   $          (0.31)    $          (0.20)
                                                     ================    ================     ================
</TABLE>

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

                                      F-4

<PAGE>

                 Integrated Business Systems and Services, Inc.
           Statements of Changes in Shareholders' (Deficiency) Equity
                   for the three years ended December 31, 2001

<TABLE>
<CAPTION>
                                           Number of        Common          Notes         Accumulated         Total
                                            Common          Shares        Receivable        Deficit       Shareholders'
                                            Shares         Carrying       Officers/       and Minority    (Deficiency)
                                          Outstanding       Value         Directors         Interest         Equity
                                         -------------  --------------  --------------   --------------  ---------------
<S>                                      <C>            <C>             <C>              <C>             <C>
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
Sale of common shares                       1,020,000         408,600              --               --          408,600
Subordinated debt converted to
    common shares                           1,320,000       1,650,000              --               --        1,650,000
Payment of notes receivable
    officers/directors                             --              --          59,720               --           59,720
Issuance of warrants                               --       1,979,131              --               --        1,979,131
Long-term debt beneficial conversion               --       2,142,724              --               --        2,142,724
Exercise of options                            21,700          22,908              --            -- --           22,908
Exercise of warrants                        1,168,125       1,009,463              --               --        1,009,463
Net loss                                           --              --              --      (11,256,202)     (11,256,202)
Non-controlling interest in net assets             --              --              --         (847,353)        (847,353)
                                         -------------  --------------  --------------   --------------  ---------------

Balance, December 31, 2001                 17,774,694   $  18,041,226   $    (131,080)   $ (20,981,520)  $   (3,071,374)
                                         =============  ==============  ==============   ==============  ===============
</TABLE>

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

                                      F-5

<PAGE>

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

<TABLE>
<CAPTION>
                                                            2001              2000             1999
                                                       --------------    --------------    -------------
<S>                                                    <C>               <C>               <C>
Operating activities
Net loss                                               $(11,256,202)     $ (4,220,340)     $ (1,919,858)
Adjustments to reconcile net loss to cash
   used in operating activities:
     Depreciation                                           154,312            93,342            58,688
     Provision for losses on notes and accounts
        receivable                                          215,599                --                --
     Amortization of software costs                         179,219           168,271           137,138
     Loss on disposal of equipment                            5,151             8,582             3,077
     Exercise of options in exchange of accounts
        receivable                                               --          (283,760)               --
     Loss on equity investments                            (657,840)          165,920                --
     Non-controlling interest in net loss                  (847,353)               --                --
     Non-cash interest expense                            3,525,606                --                --
     Non-cash restructuring and impairment charges        1,841,272                --                --
     Issuance of Warrants for professional series           174,813                --                --
     Write off of accounts payable                               --           (90,285)               --
Changes in operating assets and liabilities:
     Accounts receivable                                 (1,191,310)         (923,692)           40,067
     Unbilled revenue                                       (38,856)           28,885            (1,468)
     Interest receivable                                        627           (25,262)               --
     Prepaid commissions                                         --                --           (70,000)
     Prepaid expenses and other assets                       28,868           (15,744)           50,430
     Accounts payable                                       159,728           206,479           (17,917)
     Accrued expenses                                     1,128,271          (239,358)         (325,781)
     Deferred revenue                                        45,227           (40,123)          (31,910)
                                                       --------------    --------------    -------------
Cash used in operating activities                        (5,217,128)       (5,167,085)       (2,077,534)
                                                       --------------    --------------    -------------

Investing activities
Payment for purchases of equity interests in
   affiliates                                              (540,000)               --                --
Sale (purchase) of investments                               50,000           (50,000)               --
Purchases of property and equipment                        (155,883)         (519,620)          (76,663)
Proceeds from sale of property and equipment                  5,703                --                --
Capitalized internal software development costs                  --                --           (52,143)
Related party receivables, net                               58,905          (122,725)          (82,944)
                                                       --------------    --------------    -------------
Cash used in investing activities                          (581,275)         (692,345)         (211,750)
                                                       --------------    --------------    -------------

Financing activities
Proceeds from (payments on) notes payable, net                   --           (28,976)         (217,828)
Proceeds from issuance of convertible debt                2,836,640                --                --
Payments on long-term debt                                       --                --           (81,000)
Sale of common shares                                       408,600         4,872,069           839,695
Proceeds from exercise of common stock options and
    warrants                                              1,032,371         1,634,233           384,624
Proceeds from issuance of warrants                               --                --           215,496
Proceeds from issuance of convertible promissory
    notes                                                   826,000                --         1,250,000
(Repayment to) borrowings from related party, net                --                --           (35,300)
                                                       --------------    --------------    -------------
Cash provided by financing activities                     5,103,611         6,477,326         2,355,687
                                                       --------------    --------------    -------------
</TABLE>

                                      F-6

<PAGE>

<TABLE>
<S>                                                    <C>                  <C>                  <C>
Net (decrease) increase in cash                               (694,792)             617,896               66,403
Cash and cash equivalents at beginning of period               700,892               82,996               16,593
                                                       -----------------    -----------------    ----------------
Cash and cash equivalents at end of period             $         6,100      $       700,892      $        82,996
                                                       =================    =================    ================
</TABLE>

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

                                      F-7

<PAGE>

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

Note 1.  Going Concern:

The accompanying financial statements have been prepared on a going concern
basis, which contemplates the realization of assets and the satisfaction of
liabilities in the normal course of business. As shown in the financial
statements, Integrated Business Systems and Services, Inc, ("IBSS") has a
working capital deficiency and an accumulated deficit of approximately
$1,860,000 and $20,982,000, respectively at December 31, 2001. Ultimately, IBSS
viability as a going concern is dependent upon its ability to generate positive
cash flows from operations, maintain adequate working capital and obtain
satisfactory long-term financing. However, there can be no assurances that IBSS
will be successful in the above endeavors.

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

Cost and Expense Reductions. During the third quarter of 2001, IBSS commenced a
comprehensive internal restructuring and cost reduction program. The
implementation of that program is now substantially complete and has resulted in
a reduction of almost 50% in IBSS' monthly gross cash burn rate. Included in the
program were measures that resulted in substantial reductions in IBSS' largest
expenses categories of human resource and payroll-related expenses. These
measures included reductions in non-essential staff, deferrals of up to 50% of
executive compensation, reductions in overall staff compensation rates,
scale-backs in certain employee benefit programs, reductions in rates paid for
health insurance and reductions in employee travel, accommodation and hiring
costs. In addition, IBSS has achieved significant cash flow relief through the
discontinuance of non-essential third party consulting and service arrangements
and the renegotiation of other third party contracts, including those in the
areas of public relations, investor relations, financial advisory services,
financial printing and industry research. During the remainder of 2002, in
addition to the reductions outlined above, IBSS expects to substantially reduce
the costs associated with its operating facilities, including reductions in its
lease obligations and its expenditures for furniture, fixtures and equipment. In
the absence of any substantial infusion of growth capital during the year, IBSS
has no plans during 2002 for any significant capital expenditures or any
material increases in its monthly cash burn rate.

Investor Debt and Other Payables. On December 31, 2001, IBSS achieved almost
complete debt service relief for 2002 and 2003 through the restructuring of
substantially all of its short-term and long-term investor debt. Under the
restructured debt instruments, the entire principal balance is not payable for
up to two years following January 1, 2002. The first interest payment is not due
until January 2003, and the second interest payment is not due until maturity in
2004. IBSS has also established long-term payout arrangements with respect to
substantially all of its unsecured trade accounts payable. In addition, where
permitted under securities laws, IBSS has satisfied certain third party
obligations through restricted stock grants.

Additional Capital. Since December 31, 2001, IBSS has raised approximately
$830,000 in additional investor funding through the issuance of two-year
convertible debentures and common stock purchase warrants. IBSS expects to raise
additional capital during 2002 through the issuance of convertible debt or
equity securities. Because of the operating, market and industry risks
associated with an investment in IBSS, and because its common stock is currently
traded on the Over-the Counter Bulletin Board maintained by the NASD, IBSS may
experience difficulty in raising additional financing.

Note 2.  Summary of Significant Accounting Policies:

All financial information presented in these financial statements is expressed
in U.S. dollars, except as otherwise noted. The Canadian exchange rates to one
U.S. dollar at December 31, 2001 and 2000 were $1.5911 and $1.4988,
respectively.

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

                                      F-8

<PAGE>

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

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 and Synapse EAI+ software and integration services.

Basis of Consolidation - In 2001, the consolidated financial statements include
the accounts of IBSS and its majority-owned subsidiary company (collectively
"IBSS"). At December 31, 2000, IBSS did not have any consolidated affiliates.

                                      F-9

<PAGE>

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

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

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.

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

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.

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.

IBSS generally recognizes revenue when all of the following criteria are met as
set forth in paragraph 8 of SOP 97-2: (1) persuasive evidence of an arrangement
exists; (2) delivery has occurred; (3) the fee is fixed or determinable; and (4)
collectibility is probable. Each of these four criteria above is defined as
follows:

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

Delivery has occurred. IBSS' software may be either physically or electronically
delivered to the customer. Delivery is deemed to have occurred upon the delivery
of the electronic code or the shipment of the physical product based on standard
contractual committed shipping terms, whereby risk of loss passes to the
customer when the shipment is picked up by the carrier. If

                                      F-10

<PAGE>

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

undelivered products or services exist in an arrangement that are essential to
the functionality of the delivered product, delivery is not considered to have
occurred until these products or services are delivered as described above.

                                      F-11

<PAGE>

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

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

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

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

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

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

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

                                      F-12

<PAGE>

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

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

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 ("FASB"), certain costs incurred in the internal
development of computer software, which is to be licensed to customers, are
capitalized. Amortization of capitalized software costs is provided upon
commercial release of the products at the greater of the amount using (i) the
ratio that current gross revenues for a product bear to the total of current and
anticipated future gross revenues of that product or (ii) the straight-line
method over the remaining estimated economic life of the product including the
period being reported on. IBSS generally amortizes capitalized software costs on
a straight-line basis over five years.

Costs that are capitalized as part of internally developed software primarily
include direct and indirect costs associated with payroll, computer time and
allocable depreciation and other direct allocable costs, among others. All costs
incurred prior to the establishment of technological feasibility, which IBSS
defines as 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.

Because IBSS believes its current process for developing software is essentially
completed concurrently with the establishment of technological feasibility, no
costs have been capitalized during 2001 or 2000.

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 ("APB")
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.

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

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

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

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

                                      F-13

<PAGE>

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

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

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.

Major Customers - IBSS derives a substantial portion of its gross revenues from
sales to two major customers in 2001 and sales to three major customers in 2000
and 1999. For the years ended December 31, 2001, 2000 and 1999 sales to these
customers totaled approximately $3,526,000, $2,006,000 and $608,000,
respectively. Accounts receivable due from these customers were approximately
$346,000 and $780,000 at December 31, 2001 and 2000, 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. IBSS did not have any
transaction losses for the three years ended December 31, 2001.

Net Loss Per Share of Common Stock - All net loss per share of Common Stock
amounts presented have been computed based on the weighted average number of
shares of Common Stock outstanding in accordance with SFAS No. 128. Stock
warrants and stock options are not included in the calculation of dilutive loss
per common share because IBSS has experienced operating losses in all periods
presented and, therefore, the effect would be antidilutive.

Financial Instruments - The carrying values of cash equivalents, accounts
receivable and accounts payable approximate fair value due to their short
maturities. The carrying value of the Company's notes payable and long-term debt
at December 31, 2001 and 2000 approximate fair value as they bear interest at
market rates.

                                      F-14

<PAGE>

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

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

New Accounting Standards - In July 2001, the FASB issued SFAS No. 142 "Goodwill
and Other Intangible Assets" ("SFAS No. 142"). SFAS No. 142 supercedes
Accounting Principles Bulletin No. 17 "Intangible Assets." SFAS No. 142
primarily addresses the accounting for goodwill and intangible assets subsequent
to their acquisition. The most significant changes made by SFAS No. 142 are: (a)
goodwill and indefinite lived intangible assets will no longer be amortized, (b)
goodwill will be tested for impairment at least annually, (c) intangible assets
deemed to have indefinite lives will be tested for impairment at least annually
and (d) the amortization period of intangible assets with finite lives will no
longer be limited to forty years. The provisions of SFAS No. 142 will be
effective for fiscal years beginning after December 15, 2001. IBSS does not
expect the adoption of SFAS No. 142 to have a material effect on its financial
statements.

In October 2001, the FASB issued Statement No. 144, "Accounting for the
Impairment of Disposal of Long-Lived Assets" ("SFAS No. 144"). SFAS No. 144
provides accounting guidance for financial accounting and reporting for the
impairment or disposal of long-lived assets. The statement superseded SFAS No.
121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed Of." IBSS does not expect the adoption of SFAS No. 144 to
have a material effect on its financial statements.

Note 3.  Acquisitions:

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

During 2000, IBSS invoiced ASP*N approximately $500,000 for professional and
technology services provided to Wilcam through ASP*N. On December 29, 2000, IBSS
exercised its option for an additional 25% interest in ASP*N's membership
interests in exchange for the receivable balance of approximately $500,000 due
from ASP*N, which management believes is recorded in accordance with EITF 00-8:
"Accounting by a Grantee for an Equity Instrument to be Received in Conjunction
with Providing Goods or Services." After IBSS equity method eliminations, the
sale of services resulted in a net services revenue recognition of approximately
$284,000. Expenses associated with these services were general and
administrative expenses and are accordingly reflected as such in these financial
statements. At December 31, 2000, IBSS owned a 43.02% interest in ASP*N, after
certain dilution effects occurring as a result of 3rd party investments in
ASP*N.

On November 10, 2000, ASP*N contributed professional and technology consulting
services to Wilcam Systems, LLC ("Wilcam") for a 50% equity interest in Wilcam's
Class B membership interests and purchased an additional 4% of Wilcam's Class C
non-voting membership interests for $600,000. On December 29, 2000, ASP*N
exercised its option for 3.5% of Wilcam's Class D membership interests. The
November 10 and December 29, 2000 purchases of Class C and

                                      F-15

<PAGE>

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

Class D non-voting membership interests diluted the Class B membership interests
by 3.75%. At December 31, 2000, ASP*N's resulting ownership percentages in
Wilcam were 46.25% Class B, 4.0 % Class C and 3.5% Class D membership interests.

                                      F-16

<PAGE>

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

Note 3.  Acquisitions (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.
On January 17, 2001 IBSS converted approximately $180,000 of the Wilcam loan to
a 1.2% equity interest in Wilcam's Class D membership interests.

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

On October 1, 2001, IBSS assigned 12.05% of its investment in ASP*N to a 3/rd/
party, resulting in a residual interest in ASP*N of 30.97%, and a cost basis of
$500,000. In December 2001, Synamco, LLC was formed to continue development of
Synapse-HR, a web-based federal Family Medical Leave Act, attendance and
benefits management software. On December 13, 2001, IBSS exchanged its residual
interest in ASP*N of 30.97% for 50.38% and 3.6% voting and non-voting stock,
respectively of Synamco, LLC common stock. In accordance with FASB's Emerging
Issue Task Force 98-7 "Accounting for Exchanges of Similar Equity Method
Investments," IBSS has recorded the exchange transaction at the fair value of
the net assets received by IBSS.

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

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

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

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
                                                              ===========

                                      F-17

<PAGE>

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


                                                        ===============
Net sales                                               $           --
                                                        ===============
Net loss                                                $     (599,921)
                                                        ===============

Note 4.  Capitalized Software Costs:

Capitalized software costs consist of the following at December 31:

                                                      2001             2000
                                                 -------------    -------------

Internally developed software                    $    998,105     $    998,105
Less accumulated amortization                        (577,594)        (398,375)
                                                 -------------    -------------

Capitalized software costs, net                  $    420,511     $    599,730
                                                 =============    =============

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

Note 5.  Property and Equipment:

Property and equipment consists of the following at December 31:

                                                     2001             2000
                                                -------------    -------------

Computer equipment                              $    353,733     $    281,869
Furniture and fixtures                               178,086          180,806
Marketing equipment                                  107,514          102,019
Office and other equipment                            95,878           90,083
Computer software                                     78,986           33,543
Leasehold improvements                                52,516           40,039
                                                -------------    -------------
                                                     866,713          728,359
Less accumulated depreciation                       (302,646)        (155,009)
                                                -------------    -------------

Property and equipment, net                     $    564,067     $    573,350
                                                =============    =============

Note 6.  Notes Payable:

                                                     2001             2000
                                                -------------    -------------

Notes payable to a third party bearing
 interest at 10%, principal and interest due
 March 15, 2002. Principal and interest are
 convertible into common shares at $1.50 per
 share                                          $    576,000     $         --
Notes payable to a third party bearing
 interest at 10%, principal and interest due
 March 15, 2002. Principal and interest are
 convertible into common shares at $1.00 per
 share.                                              250,000               --
                                                -------------    -------------
                                                     826,000
Less discount                                       (129,773)
                                                -------------    -------------
                                                $    696,227     $         --
                                                =============    =============

As part of the notes payable financing, IBSS issued the debt holders 423,000
detachable warrants with 3-year terms, which entitle the holder to purchase one
common share for each warrant. The warrants are exercisable at prices ranging
from $1.00 to $3.00 per share.

                                      F-18

<PAGE>

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

Note 7.  Long-Term Debt:

During 1999, IBSS issued $1,250,000 principal amount of convertible notes (the
"Convertible Notes") that were due in full on January 1, 2002. Interest on the
Convertible Notes was payable quarterly commencing in October 1999 at rates
ranging from 7% to 10%. The Convertible Notes were convertible into common
shares at $2.50 per share, at the option of the holder. The Convertible Notes
were amended and restated on March 2, 2001 and June 29, 2001. The resulting
conversion rate was $1.25 per share. On June 29, 2001, the Convertible Notes
were redeemed in full and 1,000,000 shares were issued.

On March 2, 2001, IBSS issued $1,413,000 principal amount of notes payable.
These notes were due in full on November 1, 2001 with an interest rate of 10%.
On June 29, 2001, in conjunction with an amendment of the agreement, $400,000
was converted into common shares and 320,000 shares were issued. In December
2001, $1,013,000 of the notes payable was refinanced. IBSS amended certain
outstanding warrants to lower the per share price for consideration of this note
payable.

On October 15, 2001, IBSS issued $150,000 principal amount of notes payable, due
in full on October 15, 2003 with an interest rate of 10%. Interest is payable
quarterly in arrears beginning October 15, 2002 and quarterly thereafter. The
note is partially convertible at the option of the holder up to $75,000 of
principal, at any time at $1.00 per share.

On December 31, 2001, IBSS issued $2,286,640 principal amount of convertible
notes, including $1,013,000 refinance of the March 2, 2001 debt issue, due in
full on January 1, 2004 or at the point proceeds greater than $1 million are
received from investor funding. The December 31, 2001 debt issue refinanced
various cash advances received by IBSS during 2001, totaling $1,273,640.
Interest on the notes is payable in arrears on January 1, 2003 and January 1,
2004. Interest accrues at a graduating scale beginning at 9% for the first 90
days and increases by 1% each 90-day period thereafter. If all principal and
interest amounts due are paid January 1, 2003 and there are no events of
default, interest remains at 9%. The notes are convertible in whole or part at
any time at the option of the holder at $1.00 per share. IBSS issued 1,822,519
warrants at an exercise price of $1.60 in consideration for these convertible
notes.

Note 8.  Subordinated Debt:

As part of the 1998 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

                                      F-19

<PAGE>

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

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 9.  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").

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

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

On September 19, 2001, a 25% pro-rata release of the original escrow stock was
made.

Preferred Stock - IBSS' authorized shares of preferred stock may be issued in
one or more series, and the Board of Directors is authorized, without further
action by the shareholders, to designate the rights, preferences, limitations
and restrictions of and upon shares of each series, including dividend, voting,
redemption and conversion rights. The Board of Directors also may designate par
value, preferences in liquidation and the numbers of shares constituting any
series. There are not any shares of preferred stock outstanding at December 31,
2001 or 2000.

                                      F-20

<PAGE>

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

Note 9.  Shareholders' (Deficiency) Equity (continued):

Warrants - The following table shows warrants outstanding for the purchase of
common shares at December 31, 2001. Warrants are exercisable at the option of
the holder.

<TABLE>
<CAPTION>
    Issue Date                                      Exercise Price                                       Outstanding
----------------------       -------------------------------------------------------------------         -----------
<S>                          <C>                                                                         <C>
July 23, 1999                $2.40 per share in years one through three.  Repriced in 2001 to
                               $0.60 per share in years one through two.                                    550,000
                             $3.40 per share in years one through three.  Repriced in 2001 to
                               $0.60 per share in years one through two.                                    100,000
                             $1.40 per share in years one through three.  Repriced in 2001 to
                               $0.60 per share in years one through two.                                     60,000

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 15, 2000            $5.50, $6.00, and $6.50 per share in years one through three,
                                 respectively.                                                              250,000

February 25, 2000            $2.50 for Group A; and $3.50 for Group B                                       501,875

May 30, 2000                 $6.00 per share in years one through nine.                                      50,002

November 7, 2000             $7.69 per share in years one though five.                                       30,000

December 15, 2000            $3.94 per share in years one through three.                                     20,000

January 1, 2001              $3.91 per share in years one through five.                                     100,000

March 2, 2001                $0.60 per share in years one through two.                                      413,000

May 8, 2001                  $3.00 per share in years one through three.                                     40,000

May 30, 2001                 $3.00 per share in years one through three.                                     20,000

May 31, 2001                 $3.00 per share in years one through three.                                     10,000

August 7, 2001               $3.30 per share in years one through three.                                     87,500

August 14, 2001              $1.00 per share in years one through three.                                    125,000

August 17, 2001              $3.00 per share in years one through three.                                     10,000

September 11, 2001           $2.85 per share in years one through ten.                                      100,000

September 14, 2001           $2.90 per share in years one through three.                                     75,000

October 15, 2001             $1.80 per share in years one through five.                                     100,000

November 14, 2001            $1.90 per share in years one through three.                                    135,500

November 20, 2001            $1.84 per share in years one through five.                                      25,000

December 13, 2001            $1.00 per share in years one through three.                                     10,625

December 31, 2001            $1.60 per share in years one through three                                   2,497,519
                                                                                                    ---------------
Total Outstanding Warrants                                                                                5,632,556
                                                                                                    ===============
</TABLE>

                                      F-21

<PAGE>

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

Note 9.  Shareholders' (Deficiency) Equity (continued):

                                                          Weighted average
                                                              exercise
                                          Warrants        price per share
                                         -----------     -----------------
Outstanding at December 31, 1999          3,352,000         $      1.84
Granted during the year                   1,171,535         $      4.72
Exercised during the year                (1,587,000)        $      0.91
                                         -----------        -----------
Outstanding at December 31, 2000          2,936,535         $      3.35
Granted during the year                   3,864,146         $      1.78
Exercised during the year                (1,168,125)        $      0.86
                                         -----------        -----------
Outstanding at December 31, 2001          5,632,556         $      2.12
                                         ===========        ===========

Note 10.  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>
                                                               2001            2000             1999
                                                          ---------------  --------------   --------------
<S>                                                       <C>              <C>              <C>
Numerator:
     Numerator for basic and diluted loss per share       $ (11,256,202)   $  (4,220,340)   $  (1,919,858)
                                                          --------------   --------------   --------------

Denominator:
   Weighted average common shares - basic and diluted
     calculation                                             15,872,128       13,483,211        9,478,146
                                                          --------------   --------------   --------------

Basic and diluted loss per share                          $       (0.71)   $      (0.31)    $      (0.20)
                                                          ==============   ==============   ==============
</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 11:  Severance Charges:

During the year 2001, IBSS implemented a plan to reduce its cost structure by
reducing its workforce. IBSS recorded a one-time charge of approximately
$317,000, consisting of employee severance costs. Severance costs were
determined based on employee years of service as well as their level within the
organization. Of the total amount charged to expense for the year ended December
31, 2001, approximately $134,000 was paid during 2001 and the remaining $183,000
is included in accrued compensation and benefits.

Note 12.  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.

                                      F-22

<PAGE>

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

Note 12.  Employee Benefits (continued):

Stock Option Plan - IBSS' Board of Directors adopted a stock option plan (the
"1997 Option Plan"), effective April 29, 1997. Options normally extend for 5
years and under committee policy generally become exercisable in installments of
50 percent per six months commencing six months from the date of grant. The
maximum number of common shares of IBSS reserved for issuance under the Option
Plan, including options currently outstanding, is 1,860,000. The number of
common shares reserved for issuance to any one person cannot exceed 5% of the
number of issued and outstanding common shares, and no person is entitled to
receive in any one year grants regarding more than 50,000 shares. The plan
closed on December 31, 2000. On June 28, 2000, IBSS adopted the 2001 Stock
Incentive Plan (the "2001 Option Plan"), effective January 1, 2001. The 2001
Option Plan provides for option awards of up to 600,000 shares, stock
appreciation rights and restricted stock awards. The options have terms up to
ten years.

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

                                                                Weighted average
                                                                    exercise
                                              Stock Options      price per share
                                             ---------------    ----------------
Outstanding at December 31, 1999 (1)              481,400         $       1.25
Outstanding at December 31, 1999                  388,800         $       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
                                             ===============      ==============
Granted during the year                            68,000         $       2.67
Exercised during the year (1)                     (21,700)        $       1.56
Exercised during the year                              --         $         --
Expired or cancelled during the year (1)          (32,500)        $       3.40
Expired or cancelled during the year             (320,000)        $       4.87
                                             ---------------      --------------
Outstanding at December 31, 2001 (1)              266,800         $       1.16
                                             ===============      ==============
Outstanding at December 31, 2001                  590,898         $       5.71
                                             ===============      ==============
(1)      Canadian Dollars

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

                                                               Weighted average
                                                                   exercise
                                             Stock Options     price per share
                                            ---------------   ------------------
Outstanding at December 31, 2000                    --          $        --
Granted during the year                         78,000          $      3.41
Exercised during the year                           --          $        --

                                      F-23

<PAGE>

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

Expired or cancelled during the year                       --      $       --
                                                    ---------      ----------
Outstanding at December 31, 2001                       78,000      $     3.41
                                                    =========      ==========

                                      F-24

<PAGE>

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

Note 12.  Employee Benefits (continued):

Had compensation expense for IBSS' Option Plans 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>
                                             2001                  2000               1999
                                       -----------------    ------------------  ------------------
<S>                                    <C>                  <C>                 <C>
Net Loss
  As reported                          $    (11,256,202)    $     (4,220,340)   $     (1,919,858)
  Pro forma                            $    (12,175,220)    $     (6,937,905)   $     (2,446,134)
Net loss per share
  As reported                          $          (0.71)    $          (0.31)   $          (0.20)
  Pro forma                            $          (0.77)    $          (0.51)   $          (0.26)
</TABLE>

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

<TABLE>
<CAPTION>
                                               2001                   2000                    1999
                                       -------------------    --------------------    --------------------
<S>                                    <C>                    <C>                     <C>
Dividend yield                                    --                     --                      --
Expected volatility                              4.6%                   4.3%                    4.1%
Risk-free rate of return                   3.7 - 4.4%             5.2 - 6.4%              4.4 - 5.7%
Expected option life                               5                      5                       5
</TABLE>

The weighted average fair value for options granted under the Option Plans
during 2001, 2000, and 1999 was $1.25, $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.

                                      F-25

<PAGE>

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

Note 13.  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>
                                                    2001                  2000
                                            -------------------   -------------------
<S>                                         <C>                   <C>
Deferred tax assets:
  Operating loss carryforwards              $         6,221,020   $        3,008,683
  Deferred revenue                                       35,483               18,297
  Other, net                                            136,637               40,900
  Valuation allowance                                (6,162,463)          (2,818,611)
                                            -------------------   ------------------

Total deferred tax assets                               230,673              249,269
                                            -------------------   ------------------

Deferred tax liabilities:
  Capitalized software costs                           (159,795)            (227,898)
  Depreciation                                          (61,517)             (21,371)
  Other, net                                             (9,361)                  --
                                            -------------------   ------------------

Total deferred tax liabilities                         (230,673)            (249,269)
                                            -------------------   ------------------

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

                                      F-26

<PAGE>

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

Note 13.  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>
                                                   2001          2000             1999
                                              -------------  -------------   --------------
 <S>                                          <C>            <C>             <C>
 Operating loss carryforward                  $   3,116,043  $   1,424,973   $     685,496
 Deferred revenue                                    17,186        (15,247)        (12,126)
 Other, net                                          46,225         47,706              27
 Capitalized software costs                          68,103         63,943          32,297
 Valuation allowance                             (3,247,557)    (1,521,375)       (705,694)
                                              -------------  -------------   --------------

          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>
                                                   2001            2000             1999
                                              -------------  ---------------    -----------
<S>                                           <C>             <C>               <C>
Tax at statutory federal rate                 $  (3,827,109) $   (1,384,714)    $ (652,752)
Effect on rate of:
   Restructuring/Impairment, Warrants,
     options, convertible debt                    1,256,267              --             --
   Life insurance premiums                            3,820          (4,030)        (4,720)
   Penalties                                         12,593         (18,453)       (10,968)
   Non-deductible expenses                            2,899         (23,615)        (4,098)
   State income taxes, net of federal income
     tax effect                                    (864,168)        (90,563)       (33,156)
   Change in valuation allowance                  3,247,557       1,521,375        705,694
                                              -------------  --------------     ----------

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

As of December 31, 2001, IBSS had federal and state net operating loss
carryforwards of approximately $__________. The net operating loss carryforwards
will expire between 2017 and 2020, if not utilized.

Note 14.  Related Party Transactions:

For the year ended December 31, 2001, approximately $1,622,000 of total revenues
was from licensing and services provided to related parties. There were no trade
accounts receivable due from the related parties at December 31, 2001.

Related party receivables at December 31, 2001 are advances primarily to Company
directors. Substantially all of these advances are provided to three
officers/directors of IBSS. Upon 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.

                                      F-27

<PAGE>

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

Note 14.  Related Party Transactions (continued):

At December 31, 2001, IBSS had approximately $39,000 due to related parties
included in accounts payable.

At December 31, 2001, IBSS held six notes receivable with balances totaling
$131,080 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, were due on demand. In the first quarter of
2000, IBSS received full payment of the related party notes receivable.

Note 15.  Supplemental Cash Flow Information:

During the years presented below, interest paid amounted to:

<TABLE>
<CAPTION>
                                                                         2001          2000          1999
                                                                    -------------  -----------  --------------
<S>                                                                 <C>            <C>           <C>
Interest paid                                                       $    270,935   $   129,608   $    104,287
                                                                    =============  ============  =============

The following table summarizes non-cash investing and financing
  activities:
                                                                         2001          2000          1999
                                                                    -------------  ------------  -------------

Repayment of employee advances and notes for purchase of common
   stock                                                            $    104,970   $        --   $         --
                                                                    =============  ============  =============

Conversion of convertible notes into capital                        $  1,650,000   $   180,000   $    320,000
                                                                    =============  ============  =============

Repayment of notes payable issued for common stock purchase and
   related party receivable in exchange for severance package       $    104,970   $        --   $         --
                                                                    =============  ============  =============


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

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

Note 16.  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-28

<PAGE>

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

Note 16. Commitments and Contingencies (continued):

At December 31, 2001 minimum lease payments are as follows:

                        2002                  $ 336,704
                        2003                    334,205
                        2004                    255,596
                                              ---------

                                              $ 926,505
                                              =========

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

                                                 2001        2000        1999
                                              ----------  ----------  ----------

                                              $  411,000  $  394,000  $   88,000
                                              ==========  ==========  ==========

Note 17.  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-29

<PAGE>

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

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 18. Segment Information:

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

                                      F-30