Edgar Filing: WEBB INTERACTIVE SERVICES INC

Post-Effective Amendment #3 to Form SB-2

As filed with the Securities and Exchange Commission on May 13, 2005

Registration No. 333-89600

SECURITIES AND EXCHANGE COMMISSION

POST-EFFECTIVE

AMENDMENT NO. 3

FORM SB-2

REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933

WEBB INTERACTIVE SERVICES, INC.

(Exact name of registrant as specified in its charter)

Colorado

(State or other jurisdiction of incorporation or organization)

84-1293864

(I.R.S. Employer Identification No.)

1899 Wynkoop, Suite 600

Denver, Colorado 80202

(303) 308-3180

(Address, including zip code, and telephone number,
including area code, of registrant’s

principal executive offices)

Lindley S. Branson

Webb Interactive Services, Inc.

1899 Wynkoop, Suite 600

Denver, Colorado 80202

(303) 308-3224

(Name, address, including zip code, and telephone number,
including area code, of agent for service)

Copies to:

Lindley S. Branson, Esq.

Gray, Plant, Mooty, Mooty & Bennett, P.A.

500 IDS Center

80 South Eighth Street

Minneapolis, Minnesota 55402

(612) 632-3024

Approximate date of commencement of proposed sale to the public: As soon as practicable after the effective date of this registration statement.

If the only securities being registered on this Form are being offered pursuant to dividend or interest reinvestment plans, please check the following box. ¨

If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, other than securities offered only in connection with dividend or interest reinvestment plans, check the following box. x

If this Form is filed to register additional securities for an offering pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of earlier effective registration statement for same offering. ¨

If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for same offering. ¨

If delivery of the prospectus is expected to be made pursuant to Rule 434 under the Securities Act, please check the following box. ¨

CALCULATION OF REGISTRATION FEE



Title of each class of securities to be registered	Amount to be registered		Proposed maximum offering price per unit(1)			Proposed maximum aggregate offering price(1)			Amount of registration fee
Common stock, no par value	9,029,000 shares	(2)	$	0.58	*	$	11,103,198	*	$	1,088.12	*

*	Previously paid by registrant, based on 19,143,445 shares originally registered. Warrants covering 10,060,000 shares have bee cancelled and 54,445 shares have been sold since the shares were originally registered.

(1)	Estimated solely for the purpose of calculating the registration fee pursuant to Rule 457(c) of Regulation C as of the close of the market on May 28, 2002.

(2)	Includes: (i) 8,354,000 shares of common stock and (ii) 675,000 shares issuable upon the exercise of common stock purchase warrants. The shares include any additional shares issued to prevent dilution resulting from stock splits, stock dividends or similar transactions.

The registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the registration statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine.

The information in this prospectus is not complete and may be changed. The selling shareholders may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any state where the offer of sale is not permitted.

SUBJECT TO COMPLETION, DATED MAY 13, 2005

PROSPECTUS

WEBB INTERACTIVE SERVICES, INC.

This is a public offering of a maximum of 9,029,000 shares of common stock of Webb Interactive Services, Inc., including 675,000 shares which are reserved for issuance upon the exercise of common stock purchase warrants. All of the shares are being offered for sale by selling shareholders. We will not receive any of the proceeds from the offer and sale of the common stock.

The OTC Bulletin Board lists our common stock under the symbol WEBB.

Investing in our common stock involves risks. You should not purchase our common stock unless you can afford to lose your entire investment. See “ Risk Factors” beginning on page 3 of this prospectus.

Because the selling shareholders will offer and sell the shares at various times, we have not included in this prospectus information about the price to the public of the shares or the proceeds to the selling shareholders.

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of the securities or passed on the adequacy of the disclosures in this prospectus. Any representation to the contrary is a criminal offense.

The date of this prospectus is , 2005

PROSPECTUS SUMMARY

Because this is a summary, this section does not contain all the information that may be important to you. You should read the entire prospectus before deciding to invest. Investment in our securities involves a high degree of risk. You should carefully review the information under the heading “Risk Factors.”

About Webb Interactive Services, Inc.

Our sole business is the ownership of securities of Jabber, Inc. (Jabber), a company we formed in February 2000. Jabber is a commercial developer of extensible instant messaging software for enterprises, government agencies, carriers and service providers and distribution partners that require real-time communication and collaboration solutions. Jabber’s products are based on the standardized extensible message and presence protocol, XMPP, developed by the Jabber.org open-source movement. Jabber instant messaging solutions differ from packaged and consumer instant messaging solutions in the ability of Jabber instant messaging to support and to be integrated with other applications and services.

We were incorporated under the laws of Colorado on March 22, 1994. Our executive offices are located at 1899 Wynkoop, Suite 600, Denver, Colorado 80202, telephone number (303) 308-3180. Our Internet address is www.webb.net.

The Offering


Securities offered		9,029,000 shares of common stock. (1)

Common stock outstanding:
Before the offering (2)		25,433,552 shares.

After the offering (3)		26,108,552 shares.

Use of proceeds		We will not receive any of the proceeds from the offer and sale of the shares of common stock, but will receive gross proceeds of $675,000 if warrants covering 675,000 shares of common stock in this offering are exercised.

OTC symbol		WEBB.

⁽¹⁾	Includes 675,000 shares issuable upon exercise of common stock purchase warrants.

⁽²⁾	Does not include: (i) 4,000,000 shares issuable upon exercise of outstanding options or warrants or (ii) 734,000 shares issuable upon conversion of outstanding shares of series D junior convertible preferred stock.

⁽³⁾	Does not include: (i) 3,325,000 shares issuable upon exercise of outstanding options or warrants or (ii) 734,000 shares issuable upon conversion of outstanding shares of series D junior convertible preferred stock.

Summary Financial Information

The following table sets forth selected financial data concerning us and should be read in conjunction with the section entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the accompanying consolidated financial statements and the notes included elsewhere in this prospectus.


	Year Ended December 31,
	2003⁽¹⁾			2004
Statements of Operations Data: ⁽¹⁾
Net revenues	$	646,613			—
Net loss	$	(2,187,634	)	$	(1,916,713	)
Net loss per share, basic and diluted	$	(0.10	)	$	(0.08	)
Weighted average shares outstanding, basic and diluted		23,013,372			25,418,104



	December 31, 2004
Balance Sheet Data:
Working capital	$	259,749
Total assets	$	729,367
Total liabilities	$	47,279
Shareholders’ equity	$	682,088

⁽¹⁾

As a result of a March 19, 2003, Jabber, Inc. financing transaction, on March 20, 2003, Webb ceased consolidating the financial results of Jabber with its financial statements and began to report its investment in Jabber under the equity method of accounting. As such, prior to March 20, 2003, the results of operations for Jabber were consolidated with Webb’s results of operations.

RISK FACTORS

Webb, as a holding company, has no independent source of revenue or business other than the ownership of securities of Jabber, Inc., a company formed by Webb in February 2000. Webb currently owns approximately 38% of Jabber’s outstanding common stock on an as-if converted basis. Factors that may affect our and Jabber’s future results include, but are not limited to, the following items as well as the information in Item 6 – Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Factors Relating to Webb

Our independent auditors have raised doubts about our ability to continue as a going concern. Based upon funds available to us at December 31, 2004, our independent auditors expressed doubt about our ability to continue as a going concern if we are unable to raise additional funds. In this regard, see the explanatory paragraph in our auditor’s report on page F-2 of this prospectus.

Additional funding for Jabber could reduce further our ownership interest in Jabber. Jabber raised $1.5 million of operating capital through a sale of its series E preferred stock on April 8, 2005 in a transaction that included an option to purchase on the same terms up to $2 million worth of additional shares of series E preferred stock. In the event that Jabber obtains additional equity investments by the sale of the additional shares of series E preferred stock or otherwise, Webb’s percentage ownership of Jabber would be further reduced.

We expect to continue to incur net losses. We have incurred net losses since we began our business totaling approximately $120.2 million through December 31, 2004, including approximately $67 million of non-cash expenses. We expect to incur additional net losses during fiscal 2005 and thereafter for so long as Webb remains a holding company.

We will need to raise additional working capital to sustain our operations and to remain a reporting company. Webb estimates that it has adequate cash and commitments to sustain its operations to December 2005; provided that we will be required to raise approximately $110,000 by mid-2005 if we are to remain a reporting company under the Securities Exchange Act of 1934. In addition to the $110,000 required to maintain our status as a reporting company to December 31, 2005, we estimate we need to raise approximately $400,000 for each year thereafter to remain a reporting company. We estimate our annual expenses would be approximately $140,000 per year if we cease to be a reporting company. There is no assurance that we will be able to raise additional operating capital.

Trading in our common stock may diminish if we cease to be a reporting company. If we are not able to raise additional operating capital, we will not be able to maintain our status as a reporting company under the Securities Exchange Act of 1934. In this event, many brokers may be unwilling to engage in transactions in our common stock because there is likely to be substantially less information regarding our operations available to our shareholders and to potential investors, thereby making it more difficult for our shareholders and purchases of our common stock to dispose of their shares.

An investment in our common stock is risky because the price of our stock is highly volatile. Our common stock closed as high as $1.42 per share and as low as $0.31 per share between January 1, 2004 and March 31, 2005. Historically, the over-the-counter markets for securities such as our common stock have experienced extreme price and volume fluctuations. Some of the factors leading to this volatility include:

•

Price and volume fluctuations in the stock market at large that do not relate to our or Jabber’s operating performance;

•

Fluctuations in Jabber’s quarterly revenue and operating results; and

•

Increases in outstanding shares of common stock upon exercise or conversion of derivative securities.

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

We have issued options, warrants, and convertible securities to acquire our common stock that could have a dilutive effect on our shareholders. As of March 31, 2005, we had outstanding warrants and options to acquire approximately 1.5 million and 2.5 million shares, respectively, of our common stock, exercisable at prices of $1.00 per share and from $0.55 to $19.06 per share, respectively, with a weighted average exercise price of approximately $1.00 and $1.96 per share, respectively. We had also reserved 734,000 shares of common stock for issuance upon conversion of our series D junior convertible preferred stock. During the terms of these derivative securities, the holders may have the opportunity to profit from an increase in the market price of our common stock with resulting potential dilution to the holders of shares who purchased shares for a price higher than the applicable exercise or conversion price. The increase in the outstanding shares of our common stock because of the exercise or conversion of these derivative securities could result in a significant decrease in the percentage ownership of our common stock by current and future holders of our common stock.

Ruture sales of our common stock in the public market could depress the price of our common stock. Actual or potential future sales of substantial amounts of common stock in the public market could depress the market price for shares of our common stock and could impair the ability of purchasers of our common stock to recoup their investment or make a profit. At March 31, 2005 these shares consisted of:

•

Up to 734,000 shares issuable upon conversion of our series D junior convertible preferred stock; and

•

Approximately 1.5 million and 2.5 million shares issuable to warrant and option holders, respectively.

Factors Relating to Jabber

Jabber’s limited operating history makes it difficult to evaluate its business. Jabber was founded in February 2000 and began shipping software in 2001. Jabber has a limited operating history for its business model upon which you may evaluate Jabber. Jabber’s business is subject to the risks, exposures and difficulties frequently encountered by early-stage companies with a limited operating history, including:

•

Limited ability to respond to competitive developments;

•

Exaggerated effect of unfavorable changes in general economic and market conditions; and

•

Limited ability to adjust Jabber’s business plan to address marketplace and technological changes.

Jabber may need to raise additional working capital. Jabber’s present cash and working capital are, based on current estimates, adequate to sustain its operations until it is able to generate positive cash flow from operations. In the event that Jabber’s revenues are less than projected or Jabber desires to increase marketing and business development expenses over projected levels, Jabber likely will need to obtain additional capital to fund its business. In addition, the holder of Jabber’s series E preferred stock has an option to purchase up to an additional $2 million worth of the series E preferred stock during the balance of 2005, on the same terms as the shares it purchased on April 8, 2005. In the event the investor purchases the additional shares of series E preferred stock or Jabber is required to raise additional operating capital, Webb’s ownership interest in Jabber, currently approximately 38%, may decrease significantly. There can be no assurance that if Jabber is required to raise additional funds, it will be able to raise the funds or if available, that the funds will be available on terms and conditions acceptable to Jabber’s shareholders.

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

•

The extent to which consumers and businesses use Jabber’s products and services; and

•

The success of Jabber or its distribution partners in marketing Jabber’s products and services.

Because of the new and evolving nature of instant messaging and web services, the early stage of Jabber’s products and its limited operating history, we cannot predict whether Jabber’s revenue model will prove to be viable, whether demand for Jabber’s products and services will materialize at the prices Jabber expects to charge, or whether Jabber’s current or future pricing levels will be sustainable.

A limited number of Jabber’s customers generate a significant portion of its revenues. A few customers have accounted for a significant portion of Jabber’s revenues. We expect that Jabber’s 2004 customers will account for a significant percentage of its revenues during 2005. There is no assurance that Jabber will be able to retain major customers or attract additional major customers. The loss of or reduction in demand for Jabber’s products or services from major customers could have a material adverse effect on Jabber’s operating results and cash flow from operations.

Jabber must continually develop new products that appeal to its customers. Jabber’s products are subject to rapid obsolescence and Jabber’s future success will depend upon Jabber’s ability to develop new products and services that meet changing customer and marketplace requirements. There is no assurance that Jabber will be able to successfully:

•

Identify new product and service opportunities; or

•

Develop and introduce new products and services to market in a timely manner.

Even if Jabber is able to identify new opportunities, its working capital constraints may limit its ability to pursue them. If Jabber is unable to identify and develop and introduce new products and services on a timely basis, demand for Jabber’s products and services may decline.

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

•

The failure of Jabber’s business plan to accurately predict the types of products and services the marketplace will demand;

•

Jabber’s limited working capital may not allow it to commit the resources required to adequately support the introduction of new products and services;

•

The failure of Jabber’s business plan to accurately predict the estimated sales cycle, price and acceptance of its products and services; or

•

The development by others of products and services that makes Jabber’s products and services noncompetitive or obsolete.

There is a lot of competition that could hurt Jabber’s revenues or cause its expenses to increase. Jabber’s current and prospective competitors include many companies, including Microsoft Corporation and IBM, whose financial, technical, marketing and other resources are substantially greater than Jabber’s. Jabber may not have the financial resources, technical expertise or marketing, sales and support capabilities to compete successfully. The presence of these competitors could hurt Jabber’s business by causing Jabber to:

•

Reduce the selling prices for its products and services; or

•

Increase its spending on marketing, sales and product development.

Jabber may not be able to offset the effects of price reductions or increases in spending. Further, Jabber’s financial condition may put it at a competitive disadvantage relative to its competitors.

It usually takes a long time for Jabber to make a sale of its products and services. While Jabber’s sales cycle varies from customer to customer, it is long, typically ranging from two to nine months or more. Jabber’s sales cycle may also be affected by a prospective customer’s budgetary constraints and internal acceptance reviews, over which Jabber has little or no control.

Jabber may be unable to reduce expenses if sales do not occur as expected. Because of Jabber’s limited operating history, it does not have significant historical financial data upon which to base its planned operating expenses or to forecast revenues and there can be no assurance that Jabber will be able to meet its revenue or

expense projections. Jabber’s expense levels are based in part on its expectations of future sales and to a large extent are fixed. Jabber typically operates with little backlog and the sales cycles for its products and services may vary significantly. Jabber may be unable to adjust spending in a timely manner to compensate for any unexpected sales shortfalls. If Jabber were unable to so adjust, any significant shortfall of demand for its products and services in relation to its expectations would result in operating losses or reduced profitability.

DIVIDENDS

We have never paid any dividends on our common stock and we do anticipate paying dividends in the foreseeable future. Instead, we intend to apply any earnings to the development and expansion of our business. Future payments of dividends will depend upon our financial condition, results of operations and capital commitments as well as other factors deemed relevant by our board of directors.

SPECIAL NOTE ABOUT FORWARD-LOOKING STATEMENTS

Some of the statements made in this prospectus and the documents incorporated by reference in this prospectus under “Risk Factors” and elsewhere constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements are subject to the safe harbor provisions of the act. Forward-looking statements may be identified by the use of terminology such as may, will, expect, anticipate, intend, believe, estimate, should, or continue or other variations on these words or comparable terminology. Where this prospectus contains forward-looking statements, you should be aware that our actual financial condition, operating results and business performance may differ materially from that projected or estimated by us in the forward-looking statements. We have attempted to identify, in context, some of the factors that we believe may cause actual future experience and results to differ from their current expectations.

USE OF PROCEEDS

The selling shareholders are offering all of the shares to be sold. We will not receive any of the proceeds from the offer and sale of the shares of common stock. However, 675,000 of the shares offered are issuable upon the exercise of outstanding stock purchase warrants at an exercise price of $1.00 per share. If these warrants are exercised in full, we will receive gross proceeds of $675,000.

MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

Price Range of Common Stock

The number of record holders of our common stock on March 31, 2005 was 222. The table below sets forth the high and low bid prices for the common stock during the two years ended December 31, 2004 and for the quarter ended March 31, 2005. The information shown is based on information provided by Yahoo! Inc. These quotations represent prices between dealers, and do not include retail markups, markdowns or commissions, and may not represent actual transactions. Our common stock is currently quoted on the over-the-counter electronic bulletin board under the symbol “WEBB.” We have never paid cash dividends on our common stock and have no present intention to do so.


	Common Stock
Quarter Ended	High Bid		Low Bid
2003
March 31	$	0.84	$	0.25
June 30	$	1.16	$	0.45
September 30	$	0.97	$	0.65
December 31	$	1.25	$	0.67


2004
March 31	$	1.49	$	0.82
June 30	$	0.97	$	0.51
September 30	$	0.70	$	0.40
December 31	$	0.62	$	0.30

2005
March 31	$	0.48	$	0.30

Securities Authorized for Issuance Under Equity Compensation Plans

The following table sets forth the securities authorized for issuance under Webb’s compensation plans as of March 31, 2005.


	Number of securities to be issued upon exercise of outstanding options, warrants and rights	Weighted average exercise price of outstanding options, warrants and rights		Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a))
	(a)		(b)	(c)
Equity compensation plans approved by security holders	2,541,711	$	1.96	2,478,817
Equity compensation plans not approved by securities holders	—		—	—

Total	2,541,711	$	1.96	2,478,817

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

GENERAL

Our sole business is the ownership of securities of Jabber, a company we formed in February 2000. Jabber is a commercial developer of extensible instant messaging software for enterprises, government agencies, carriers and service providers and independent distributors of software that require real-time communication and collaboration solutions. Jabber’s products are based on the standardized extensible message and presence protocol, XMPP, developed by the Jabber.org open-source movement. Jabber instant messaging solutions differ from packaged and consumer instant messaging solutions in the ability of Jabber instant messaging to support and to be integrated with other applications and services.

With the purchase of Jabber’s series D convertible preferred stock on March 19, 2003, by Webb, FTTI and Intel, Webb’s ownership in Jabber was reduced to less than 50% of Jabber’s outstanding capital stock. Due to this change in ownership interest, on March 20, 2003, we ceased consolidating the financial results of Jabber with those of Webb and began to account for our investment in Jabber under the equity method.

On April 8, 2005, Jabber sold $1.5 million worth of Jabber’s series E preferred stock. As a result of this transaction, Webb’s percentage ownership of Jabber was reduced from approximately 43% to 38% of Jabber’s outstanding common stock on an as-if converted basis. The April 8, 2005 financing included an option which expires on December 28, 2005, to purchase up to an additional $2 million worth of series E preferred stock on the same terms as the April 8, 2005 transaction. In the event that the investor purchases all of the additional series E

preferred stock, Webb’s ownership interest in Jabber would be reduced to approximately 33% of Jabber’s then outstanding common stock on as-if converted basis.

Webb, as a holding company, has no independent source of revenue and will, therefore, continue to incur losses from its operations. Webb’s value is dependent upon the success of Jabber. Jabber’s ability to become profitable depends on its ability to market its products and services and generate revenues sufficient to exceed its expenses. Because of the new and evolving nature of instant messaging technologies and Jabber’s early stage of development, we cannot be sure that Jabber’s revenue model will prove to be viable, whether demand for its products and services will materialize at the prices it expects to charge, or whether its current or future pricing levels will be sustainable.

LIQUIDITY AND CAPITAL RESOURCES

Based upon funds available to us at December 31, 2004, our independent auditors expressed doubt about our ability to continue as a going concern if we are unable to raise additional funds. In this regard, see the explanatory paragraph in our auditor’s report on page F-2 of this prospectus.

Amounts included in this liquidity and capital resources discussion for the year ended December 31, 2003, include the accounts of Webb only and do not reflect the consolidation of Jabber as reported in the financial statements included herein and in our annual report on Form 10-KSB as previously filed so as to present the 2003 numbers on a comparable basis with 2004. Included in the reported financial statements and not reflected below are the consolidated results of Jabber through March 19, 2003, for the year ended December 31, 2003. See Item 7 – Financial Statements – Unaudited Supplemental Financial Information for a reconciliation of Webb’s stand-alone financial statements presented below to its consolidated financial statements as reported for the year ended December 31, 2003.


	December 31,
	2004			2003
Working capital	$	259,740	¹	$	747,982	²
Cash and cash equivalents	$	42,688		$	559,590

	Years ended December 31,
	2004			2003
Cash used in operating activities	$	(615,258	)	$	(726,781	)
Cash provided by (used in) investing activities	$	98,356		$	(104,346	)

¹	Includes a $249,249 note receivable from Jabber.

²	Includes a $136,479 note receivable from Jabber.

Working capital: Working capital is calculated by deducting current liabilities from current assets. Working capital decreased during the year ended December 31, 2004, as compared with December 31, 2003, primarily due to funding our operating activities with cash on-hand at December 31, 2003, and the write-off of the notes receivable from a Company officer totaling $124,676, both of which were partially off-set by the $200,000 receivable we recorded from the sale of our remaining property and equipment to Jabber.

Cash flows used in operating activities: Cash used in operating activities decreased during the year ended December 31, 2004, as compared with the year ended December 31, 2003, primarily due to a decrease in operating expenses totaling $203,000.

Cash flows provided by (used in) investing activities: During 2004, we collected $88,902 and $9,454 on our notes receivable from Jabber and an officer, respectively. The increase in cash provided by investing activities is primarily from not investing any money in Jabber in 2004, compared to $195,000 in the year ended December 31, 2003.

In connection with the Jabber financing in March 2003, Webb and Jabber formalized a two-year cost sharing arrangement, as amended, which ended on April 1, 2005, whereby Jabber agreed to pay (i) 80% of the cost of two shared employees who provided accounting services for both companies; (ii) 60% of the cost of the Secretary and General Counsel for Webb who performed similar services for Jabber; and (iii) $100,000 annually for salary and 44% of the expenses of Webb’s former CEO for serving on Jabber’s executive committee. In addition, commencing April 1, 2003, we began receiving from Jabber $12,000 per month for 21 months for the purchase of third-party business software we owned, of which $49,249 remained outstanding at December 31, 2004, and at December 31, 2004, we were to receive an additional $200,000 from Jabber for the purchase of computer equipment, office furnishings and fixtures and other office equipment. We collected the $249,249 in the first four months of 2005. Webb expects to continue to contract with Jabber for Webb’s accounting services after April 1, 2005.

At December 31, 2004, we had $42,688 in cash and $259,740 in working capital. We have no current source of cash other than the amounts collected from Jabber during the first four months of 2005 for amounts owed to us by Jabber at December 31, 2004, totaling $249,249 and $24,000 from the cost sharing agreement we have with Jabber that expired on April 1, 2005.

We believe for Webb to remain a reporting company under the Securities Exchange Act of 1934, we require approximately $110,000 of additional operating capital for the balance of fiscal 2005 and approximately $400,000 per year thereafter, assuming Webb remains only a holding company. If Webb ceases to be a reporting company at the end of the second quarter of fiscal 2005, we estimate that current operating capital is sufficient to fund operations through December 2005. Thereafter, we estimate our annual operating expenses as a non-reporting company would be approximately $140,000, so long as we remain only a holding company. We have initiated discussions with potential sources of additional operating capital, but there can be no assurance that we will be able to raise additional capital as required to either sustain our operations or to remain a reporting company. If we are unsuccessful in obtaining additional operating capital, we will consider the sale of all, or a portion, of our interest in Jabber to fund our operations.

Jabber’s financial plan for 2005 projects total revenues of approximately $8 million based on total sales of approximately $10.3 million for software sales, professional services and maintenance and support services, total expenses of approximately $11.7 million and cash and cash equivalents at the end of 2005 of approximately $3.8 million, assuming the sale of an additional $2 million of Jabber’s series E preferred stock. Jabber’s total revenues, sales and net loss for the first quarter of fiscal 2005 are estimated to be approximately $930,000, $1,550,000 and ($1,250,000), respectively. Based on Jabber’s 2005 financial plan, Jabber will not achieve positive cash flow from operations on a quarter-to-quarter basis until fiscal 2006. Sales represent amounts invoiced to customers during the stated period. See Note 2 of Notes to Consolidated Financial Statements regarding our and Jabber’s revenue recognition policies.

RESULTS OF OPERATIONS

Amounts in Webb’s results of operations discussion for the year ended December 31, 2003, include the accounts of Webb only and do not reflect the consolidation of Jabber as previously reported in the financial statements included herein and in our annual report on Form 10-KSB for fiscal 2003 in order to present the 2003 numbers on a comparable basis with 2004. Included in the reported financial statements and not reflected below are the consolidated results of Jabber for the period January 1, 2003 through March 19, 2003, for the year ended December 31, 2003. See Item 7 – Financial Statements – Unaudited Supplemental Financial Information for a reconciliation of Webb’s stand-alone financial statements presented below to its consolidated financial statements as reported for the years ended December 31, 2003.

Critical Accounting Policies

Webb’s financial statements are prepared in accordance with accounting principles generally accepted in the United States (GAAP). These accounting principles require us to make certain estimates, judgments and assumptions. We believe that the estimates, judgments and assumptions upon which we rely are reasonable based upon information available to us at the time that these estimates, judgments and assumptions are made. These estimates, judgments and assumptions can affect the reported amounts of assets and liabilities as of the date of the financial statements, as well as the reported amounts of revenues and expenses during the years presented. To the

extent there are material differences between these estimates, judgments or assumptions and actual results, Webb’s financial statements will be affected. The significant accounting policies that we believe are the most critical to aid in fully understanding and evaluating Webb’s reported financial results include accounting for our investment in Jabber and impairment of long-lived assets.

In many cases, the accounting treatment of a particular transaction is specifically dictated by GAAP and does not require management’s judgment in its application. There are also areas in which management’s judgment in selecting among available alternatives would not produce a materially different result. Management has reviewed these critical accounting policies and related disclosures with our Audit Committee. See Item 7 – Financial Statements – Note 2 to Notes to Consolidated Financial Statements, which contains additional information regarding Webb’s accounting policies and other disclosures required by GAAP.

Accounting for Investment in Jabber

We report our investment in Jabber using the equity method of accounting whereby we record our percentage of Jabber’s net income or losses as an increase or a reduction to the carrying value of our investment account on our balance sheet and as income or losses in our results of operations. To the extent that we record losses from Jabber, our investment account will not be reduced below zero, unless at some future date we become obligated to fund future Jabber losses, if any. The balance of our investment in Jabber as of December 31, 2004, was $422,000 compared to $1.6 million in 2003. The use of the equity method of accounting represents a change in how we reported our investment in Jabber prior to March 19, 2003, the date on which Jabber sold shares of its series D convertible preferred stock to FTTI, Intel and Webb. Prior to this date, we consolidated the operations of Jabber with our own.

Twelve Months Ended December 31, 2004 and 2003

Operating Expenses:

Our sole business is the ownership of securities of Jabber, a company we formed in February 2000. We also conduct corporate activities such as accounting, administration, public reporting and financing activities for both Webb and Jabber. We reduce our expenses by amounts reimbursed to us by Jabber for its share of these costs. Webb’s stand-alone unaudited statements of operations for the year ended December 31, 2004 and 2003, are presented below. See Item 7 – Financial Statements – Unaudited Supplemental Financial Information for a reconciliation of Webb’s stand-alone financial statements presented below to its consolidated financial statements as reported for the year ended December 31, 2003.


	Years Ended December 31,
	2004			2003
Operating expenses:
General and administrative	$	697,334		$	813,735
Depreciation and amortization		72,408			158,874

Loss from operations		(769,742	)		(972,609	)
Interest income		9,092			1,629,062
Other income, net		13,574			7,668
Loss from investment in Jabber		(1,169,637	)		(2,851,755	)

Net loss	$	(1,916,713	)	$	(2,187,634	)

travel and entertainment of $21,000; (iii) a decrease of $61,000 in investor relation expenses; and (iv) $66,000 of non-cash expense we recorded in 2004 for warrants and stock options we issued to investor relation firms. These reductions were partially offset by the $125,000 non-cash expense we recorded resulting from the write-off of the notes receivable from a former officer. We are estimating Webb’s general and administrative expenses for 2005 to range from approximately $300,000 to approximately $400,000, depending on whether or not Webb remains a reporting company under the Securities Exchange Act of 1934 for the full year.

Depreciation expense was $72,408 for the year ended December 31, 2004, compared to $158,874 for the year ended December 31, 2003. The decrease is primarily from no depreciation being recorded in 2004 on assets that became fully depreciated in earlier periods. In addition, business software which had a net book value of $220,059, was sold to Jabber in April 2003. As a result of selling our remaining property and equipment to Jabber on December 31, 2004, we do not expect to record depreciation expense in future periods.

Interest Income

Interest income was $9,092 for the year ended December 31, 2004, compared to $1,629,062 for the year ended December 31, 2003. We recorded interest income from Jabber of $8,770 and $1,610,547 in 2004 and 2003, respectively. Included in the interest income from Jabber for 2003 is $1,571,900 of non-cash interest income we recorded from additional shares of Jabber’s series D convertible preferred stock issued to us pursuant to anti-dilution provisions under the terms of our convertible notes receivable. The non-cash interest income was eliminated in our consolidated financial statements for the period ended March 19, 2003.

Loss on Investment in Jabber

At December 31, 2004, we owned 43.4% of Jabber’s outstanding stock, on an as-if converted basis. Prior to March 19, 2003, we owned 74.8% of Jabber stock. As of March 19, 2003, in conjunction with the Jabber financing transaction, we ceased consolidating Jabber’s results of operations and financial position with our own and began reporting our investment in Jabber under the equity method of accounting. During the year ended December 31, 2004, we recorded $1,169,637 in losses from Jabber, compared with $2,851,755 for the year ended December 31, 2003. The decrease in losses in 2004 was primarily from the combination of $570,000 less in losses incurred by Jabber in 2004 and the reduction in the percentage of Jabber’s losses we recorded commencing on March 19, 2003, which was reduced from 99.9% to 43.3%. Unless we make additional investments in Jabber, the amount of losses we record from our investment in Jabber in future periods will not exceed approximately $422,000, which represents the book value of our Jabber investment at December 31, 2004.

In addition, Jabber’s net loss was $2.70 million for the year ended December 31, 2004, which was $570,000 less when compared to a net loss of $3.27 million for the year ended December 31, 2003. Jabber’s net revenues were $5.37 million for 2004, compared with $7.42 million for 2003. The revenue mix between license fees and services was 57% and 43%, respectively, for 2004, compared with 68% and 32%, respectively, for 2003. France Telecom, a related party, represented 32% of Jabber’s net revenues for 2004, compared with 30% for 2003. The decrease in net loss in 2004 was primarily from a $1,009,000 decrease in operating expenses. Jabber’s operating expenses were $8.06 million for 2004, compared with $9.07 million for 2003. The decrease in operating expenses was primarily due to decreases in product development expenses, sales and marketing expenses and general and administrative expenses of $208,000, $262,000 and $671,000, respectively.

At December 31, 2004, Jabber’s cash and cash equivalents were $1.39 million, which represented a decrease of $3.99 million over $5.38 million in cash and cash equivalents at December 31, 2003. The decrease was primarily from the $3.87 million of cash used to fund its operating activities in 2004.

Net Loss

Net loss was $1,916,713 for the year ended December 31, 2004, compared to $2,187,634 for the year ended December 31, 2003. The decrease in losses for 2004 was primarily from (i) a reduction of $1.68 million in losses we recorded in connection with our investment in Jabber; and (ii) a reduction in operating expenses of $203,000. These reductions were partially offset by $1,620,000 of non-cash interest income in the first quarter of 2003 related to the conversion of notes and issuance of Jabber securities to us. Before recording losses from Jabber, we expect Webb’s

losses to range from approximately $300,000 to $400,000 for 2005, depending on whether or not Webb remains a reporting company under the Securities Exchange Act of 1934 for the full year.

Twelve Months Ended December 31, 2003 and 2002

Operating Expenses:

Webb’s stand-alone unaudited statements of operations for the year ended December 31, 2003 and 2002, are presented below. See the 2003 Form 10-KSB Item 7 – Financial Statements – Unaudited Supplemental Financial Information for a reconciliation of Webb’s stand-alone financial statements presented below to its consolidated financial statements as reported the years ended December 31, 2003 and 2002.


	Years Ended December 31,
	2003			2002
Operating expenses:
General and administrative	$	813,735		$	1,508,611
Depreciation and amortization		158,874			334,938

Loss from operations		(972,609	)		(1,843,549	)
Interest income		1,629,062			110,006
Dividend income on Jabber securities		—			199,484
Other income, net		7,668			256,686
Loss from investment in Jabber		(2,851,755	)		(4,834,814	)
Loss on extinguishment of 10% convertible note payable		—			(1,162,934	)
Interest expense		—			(618,961	)

Net loss		(2,187,634	)		(7,894,082	)
Accretion of preferred stock to stated value and other deemed dividends		—			(648,710	)

Net loss applicable to common stockholders	$	(2,187,634	)	$	(8,542,792	)

General and administrative expenses consist primarily of employee compensation, and other costs associated with being a public company, including investor relations, shareholder communications and legal and accounting fees. General and administrative expenses were $813,735 for the year ended December 31, 2003, compared with $1,508,611 for the year ended December 31, 2002. General and administrative expenses were reduced in 2003 primarily as a result of (i) a decrease in compensation and related expenses of $245,000; (ii) an increase in shared costs paid by Jabber of $164,000; (iii) a decrease of $151,000 in costs associated with public reporting activities such as legal and accounting fees and shareholder meeting costs; and (iv) a decrease in office rent and other facility expenses of $159,000 due to the assignment of the lease for our corporate offices to Jabber. These reductions were partially offset by an increase in investor relation expenses of $93,000, which includes $58,000 in non-cash compensation expense we recorded for the issuance of warrants and options to investor relation consultants.

Depreciation expense was $158,874 for the year ended December 31, 2003, compared to $334,938 for the year ended December 31, 2002. The decrease is primarily from no depreciation being recorded in 2003 on assets that became fully depreciated in periods since the first and second quarters of 2002 and no depreciation recorded in the third and fourth quarter of 2003 for the business software assets we sold to Jabber in April 2003, which had a net book value of $220,059.

Interest Income

Interest income was $1,629,062 for the year ended December 31, 2003, compared to $110,006 for the year ended December 31, 2002. We recorded interest income from Jabber of $1,610,547 and $77,279 in 2003 and 2002, respectively. Included in the interest income from Jabber for 2003 is $1,571,900 of non-cash interest income we

recorded from additional shares of Jabber’s series D convertible preferred stock issued to us pursuant to anti-dilution provisions under the terms of our convertible notes receivable. The non-cash interest income was eliminated in our consolidated financial statements for the period ended March 19, 2003.

Loss on investment in Jabber

At December 31, 2003, we owned 43.4% of Jabber’s outstanding stock, on an as-if converted basis. Prior to March 19, 2003, we owned 74.8% of Jabber stock. As of March 19, 2003, in conjunction with the Jabber financing transaction, we ceased consolidating Jabber’s results of operations and financial position with our own and began reporting our investment in Jabber under the equity method of accounting. During the year ended December 31, 2003, we recorded $2,851,755 in losses from Jabber, compared with $4,834,814 for the year ended December 31, 2002. The decreases in losses in 2003 was primarily from the reduction in our percentage of Jabber’s losses between years, which ranged from 78% to 93% in 2002 and from 78% to 43.3% to 43.4% in 2003.

In addition, Jabber’s net loss applicable to common stockholders was $3.27 million for the year ended December 31, 2003, which represented a $2.01 million decrease when compared to a net loss applicable to common stockholders of $5.28 million for the year ended December 31, 2002. Jabber’s net revenues were $7.42 million for 2003, compared with $3.39 million for 2002. The revenue mix between license fees and services was 68% and 32%, respectively, for 2003, compared with 60% and 40%, respectively, for 2002. France Telecom, a related party, represented 30% of Jabber’s net revenues for 2003, compared with 25% for 2002. The decrease in net loss applicable to common stockholders in 2003 was primarily from a $4.03 million increase in revenue, which was partially offset by an increase in operating expenses of $814,000. Jabber’s operating expenses were $9.07 million for 2003, compared with $8.26 million for 2002. The increase in operating expenses was primarily due to increases in product development expenses and sales and marketing expenses of $727,000 and $1.05 million, respectively. These increases were partially offset by a $664,000 decrease in amortization expense related to intangible assets that were fully amortized at June 2002 and a $441,000 decrease in cost of revenues for 2003.

At December 31, 2003, Jabber’s cash and cash equivalents were $5.38 million, which represented an increase of $5.05 million over $331,000 in cash and cash equivalents at December 31, 2002. The increase was primarily from $5 million in gross proceeds Jabber received from the sale of its series D convertible preferred stock in March 2003 and $255,000 of cash provided by operations for 2003, which was a $3.77 improvement when compared to $3.52 million in cash used to fund Jabber’s operations for 2002.

Net Loss Applicable to Common Stockholders

Net loss applicable to common stockholders was $2,187,634 for the year ended December 31, 2003, compared to $8,542,792 for the year ended December 31, 2002. The decrease in losses for 2003 was primarily from (i) a reduction of $1,983,000 in losses we recorded in connection with our investment in Jabber; (ii) a reduction in operating expenses of $871,000; (iii) recording non-cash expenses in the first quarter of 2002 related to our 10% convertible note payable for loss on debt extinguishment of $1,163,000 and interest expense of $514,000; (iv) recording $649,000 of non-cash accretion expense in 2002 on our preferred stock securities; and (v) recording $1,572,000 of non-cash interest income in the first quarter of 2003 related to the conversion of notes and issuance of Jabber securities to us. These reductions were partially offset by preferred stock dividends we earned from Jabber and income we recorded in 2002 of $257,000 from creditor concessions.

BUSINESS

General

Gur sole business is the ownership of securities of Jabber, Inc. (Jabber), a company we formed in February 2000. Jabber is a commercial developer of extensible instant messaging software for enterprises, government agencies, carriers and service providers and distribution partners that require real-time communication and collaboration solutions. Jabber’s products are based on the standardized extensible message and presence protocol, XMPP, developed by the Jabber.org open-source movement. Jabber instant messaging solutions differ from packaged and consumer instant messaging solutions in their ability to support and to be integrated with other applications and services.

We were incorporated under the laws of the State of Colorado on March 22, 1994. Our executive offices are located at 1899 Wynkoop, Suite 600, Denver, Colorado 80202, telephone number (303) 308-3180.

Our annual report on Form 10-KSB, quarterly reports on Form 10-QSB, current reports on Form 8-K, and all amendments to such reports filed pursuant to Section 13(a) or 15(d) of the Exchange Act are available, free of charge, on or through our Internet website located at www.webb.net, as soon as reasonably practicable after they are filed with or furnished to the Securities and Exchange Commission.

Jabber Financing

On April 8, 2005, Jabber sold 8,571,428 shares of its series E convertible preferred stock (“series E preferred stock”) for $1.5 million to Jona, Inc., our largest shareholder. As a result of the transaction, Webb’s ownership interest in Jabber was reduced from approximately 43% to approximately 38% of Jabber’s outstanding common stock on an as-if converted basis. The investor also acquired an option which expires on December 28, 2005 to purchase up to an additional 11,428,572 shares of the series E preferred stock for $2 million. In the event all of the additional shares are purchased, Webb’s ownership interest in Jabber would be reduced to approximately 33% of Jabber’s then outstanding common stock on an as-if converted basis.

On March 19, 2003, France Telecom Technologies Investissements (FTTI), a wholly-owned subsidiary of France Telecom, Intel Capital Corporation (Intel), a wholly-owned subsidiary of Intel Corporation, and Webb purchased an aggregate of 25,218,914 shares of Jabber series D convertible preferred stock (“series D preferred stock”) for $7.2 million. At April 15, 2005, Webb owned 18,550,232 shares of Jabber common stock and 7,705,779 shares of Jabber series D preferred stock.

The series E and D preferred stock are convertible into shares of Jabber’s common stock on a one-for-one basis. The sale of the series E preferred stock required the approval of two holders of the series D preferred stock. The sale of the series E preferred stock was approved by FTTI and Intel, but not by Webb. In connection with the purchase of the series E preferred stock, Jona, Inc. also purchased from Intel a portion of its series D preferred stock.

The series E and D preferred stock include liquidation preferences which entitle the holders of the preferred stock on the liquidation of Jabber, including a sale of Jabber, to first be paid their original purchase price for their preferred stock and then to participate with holders of common stock on an as-converted basis in the distribution of the remaining proceeds. The conversion price of the preferred stock would be adjusted on a weighted average basis in the event that Jabber sells shares of its common stock or securities convertible into or exercisable for its common stock at a price less than the original purchase prices for the preferred stock.

Without the prior approval of the holder of the series E preferred stock and holders of 66 2/3% of the outstanding shares of series D preferred stock, Jabber may not engage in any transaction or arrangement for the distribution of Jabber’s securities to the public; permit any transaction which would result in any of the holders of the preferred stock owning more than 49% of Jabber’s outstanding shares of capital stock; or take any other action that would result in Jabber becoming a reporting company under the Securities Exchange Act of 1934. If an event has not occurred by January 1, 2005, that would permit Webb to distribute its Jabber securities to Webb shareholders, Webb may require FTTI, on an annual basis until such an event has occurred, to sell Webb 1,000,000 shares of the Jabber common stock held by FTTI, at a purchase price equal to the conversion price for the series D preferred stock plus interest compounded at 15% per annum.

Jabber, Inc.

The Market. Instant messaging (IM) combines communication, presence awareness and convenience to provide users with the opportunity for personal real-time interaction. IM adds to e-mail and telephone communications technologies presence management, buddy lists and collaboration on a small or large scale. IM enables users to know when someone is available for a conversation; buddy list management allows individuals to vary their availability for interaction depending on who is seeking to communicate with them; and presence management can extend beyond the desktop to mobile devices, allowing for “find me, follow me” services. Jabber is targeting the following markets:

•

Financial Services - Financial services firms, including investment banks, brokerages, commodity traders, and hedge funds depend on timely information to speed the throughput and volume of financial transactions and to gain a competitive edge. Jabber’s solutions are used to build real-time transactional trading systems and delivering up-to-the-minute information to the financial services work force. Deployments at major firms typically require customization and integration services.

•

Government Agencies - Government agencies, including federal intelligence agencies and state agencies, are deploying Jabber’s solutions to facilitate real-time communication exchange between intra- and inter-agency users. These agencies are able to bridge the gap between traditional independent sources of information, knitting together the right people at the right time, which may be particularly useful in times of crisis. Deployments at government agencies typically require customization and integration services.

•

Carriers and Service Providers - Carriers and service providers, including land-line and mobile telecommunication providers and internet service providers, use Jabber’s solution to provide IM services for their customers. Deployments by carriers and service providers typically require customization and integration services.

•

Technology OEMs - Technology companies who create and sell their own technology solutions use Jabber’s solutions to extend real-time presence information into their core products. These companies select Jabber because it is open, extensible, scalable, and standards-based, and gives them a time-to-market advantage when compared to building their own presence-based solution.

Jabber.org. Jabber.org was established in 1998 to create a new, open-source movement designed to bridge the proprietary IM networks by creating a single system capable of communicating with all IM networks and services. The Jabber.org IM protocol, XMPP, has been approved by the Internet Engineering Task Force as an internet standard. Jabber.org standardized on three key principles:

•

Open-source development. Jabber.org technology is based on open-source development taking place at www.jabber.org. As an open-source movement, anyone can leverage and contribute to the future of Jabber.org. Jabber IM is based on modular software design which facilitates quick integration of new server logic and business practices, as well as the development of new IM-based applications.

•

System, not a service. Jabber IM, like e-mail, is based on a network of distributed servers which communicate with each other. As a system, it is believed that Jabber IM will be better able to accommodate differing business models, development of value-added applications and use in an application service provider environment.

•

XML technology. Jabber.org uses XML technology for transmitting presence and messaging status in order to have a standards-based structured document as part of the native protocol of the messaging platform. By standardizing on XML, Jabber IM systems have improved cross-platform compatibility and the ability to create enhanced applications around the concepts of message warehousing, message mining and anything that requires the routing of structured content.

In early 1999, Webb became a commercial sponsor of Jabber.org. Webb’s initial interest in the Jabber.org technology was based on Webb’s desire to leverage the Jabber IM platform to provide IM services for Webb’s former AccelX product line which also utilized XML technology. Webb formed Jabber, Inc. as a subsidiary on February 15, 2000, in order to commercialize Jabber IM separately from its former AccelX business.

Relationship of Jabber.org and Jabber. Open-source software is free in the sense that the software’s source code is freely available for inspection and modification. A condition to open-source licenses under which the software is made available is that anyone who makes an improvement or modification to the software generally must contribute the improvements and modifications back to the open-source community. At the core of the open-source community is a voluntary group of people dedicated to developing a variety of software packages. The community includes the engineers who create the software, the writers who document it and the designers who create the web sites that serve as the community’s home on the internet. Jabber is a commercial sponsor of the Jabber.org open-

source movement. This sponsorship includes dedicating the services of a number of Jabber’s employees to work on XMPP-related projects and promoting the more rapid deployment of the XMPP protocol.

Jabber.org software is provided to the community and others under the Jabber Open Source License (JOSL), an Open Source Initiative approved open-source license. Like other open-source licenses, the JOSL requires that modifications or improvements to the core Jabber IM software be contributed back to the community. The JOSL, like some other more recent open-source licenses, has a narrower definition of derivative works than does the GNU General Public License, one of the first and best known open-source licenses. This allows code to be linked to the core open-source software without requiring that the linked code be covered by the JOSL and, therefore, to be made freely available. Software developed by Jabber may be released under the JOSL or under commercial license agreements that do not make the software code freely available. For example, the Jabber Commercial Server IM software is made available only pursuant to a commercial license which does not include free access to the source code. The Jabber Commercial Server software is, however, fully compatible with the free Jabber IM software.

Employees

At March 31, 2005, Webb had 1 employee in a management position. Webb contracts with Jabber for financial and accounting services.

Property and Facilities

Webb subleases from Jabber approximately 175 square feet of office space in Denver, Colorado, leased for a term ending in August 2007 at a base monthly rental of $650. Jabber leases approximately 21,400 square feet of office space in Denver, Colorado pursuant to a lease which expires in August 2007.

MANAGEMENT

Directors and Executive Officer


Name	Age	Director Since	Position
Lindley Branson	62	—	Vice President, General Counsel and Secretary
Robert Lacey	50	2002	Director
Peter Ren	46	2003	Director
Barry Roelofs	49	2005	Director

Lindley Branson, joined Webb as Vice President, General Counsel and Secretary in May 1999 and has served as Secretary and General Counsel of Jabber since its formation in February 2000. Mr. Branson has been a partner with the Minneapolis law firm of Gray, Plant, Mooty, Mooty & Bennett, P.A. for more than twenty years, with an emphasis in corporate finance, mergers and acquisitions and general corporate law.

Robert Lacey, has been a director of Webb since March 2002. Mr. Lacey has served since February 2002 as Director of Technology for Nerd Tech, an unincorporated subsidiary of Nerd Gas Company, LLC, a privately-held Casper, Wyoming oil and gas exploration company. From January 1998 through March 1999, Mr. Lacey was a principal of Computer Engineers, LLC, and from March 1999 through February 2002, he was a principal of its successor, R&J Computer Consultants, both of which are privately-held consulting companies based in Casper, Wyoming. Mr. Lacey was employed as a computer consultant and technician by Touchtronics, Inc., a Casper, Wyoming privately-held computer hardware and software company, from October 1995 through January 1998.

Peter Ren, has been a director of Webb since March 2003. Mr. Ren has served as the President of Copier Technologies, Inc., a Trevose, Pennsylvania based provider of digital office solutions since 1982. Mr. Ren also provides consulting services in the areas of marketing and sales.

Barry Roelofs, has been a director of Webb since February 2005. Mr. Roelofs has served as the Data Center Facilities Manager for Pfizer Inc. since September 2004. He has also served as the President and owner of Roelofs Trucking Inc., a Portage, Michigan—based trucking company since December 2003. Prior to his employment with Pfizer, Mr. Roelofs served as Director of Technology for USF Corporation from November 2001 to July 2003; was employed by Kellogg Company from August 1995 through October 2001 (including serving as Senior Global Technology Manager from 1998 through 2001); and served as Manager of Technology for United Parcel Service, Inc. from 1991 through 1995. Mr. Roelofs received his B.A. degree in Finance at Western Michigan University in 1989.

Committees of the Board of Directors

The Company’s board of directors has an audit committee and a compensation/nominating committee.

Robert Lacey, Barry Roelofs and Peter Ren are the current members of the audit committee of the board of directors. Barry Roelofs is a “financial expert,” as that term is used in the Exchange Act. All of the members are “independent” under the rules promulgated by the Nasdaq Stock Market. The audit committee represents the board in discharging its responsibilities relating to our accounting, reporting and financial control practices. The audit committee has general responsibility for review with management of our financial controls, accounting, and audit and reporting activities. It annually reviews the qualifications and engagement of our independent accountants, appoints the independent accountants, approves the scope of and fees for their services, and reviews the results of their audit and their management comment letters.

Robert Lacey, Barry Roelofs and Peter Ren are the current members of the compensation/nominating committee, which oversees compensation for directors, officers and key employees of Webb, and identifies and selects nominees for directors.

Executive Compensation

The following table summarizes the annual compensation paid by Webb during years ended December 31, 2002, 2003, and 2004 to William Cullen, our former Chief Executive Officer, and Lindley Branson, our only other executive officer.


		Summary Compensation Table
		Annual Compensation					Long-Term Compensation
Name and Principal Position	Year	Salary ($)		Bonus ($)		Other ($)	Securities Underlying Options		All Other Compensation
William Cullen ⁽¹⁾	2004	$	180,991		—	—	—		—
Former Chief Executive Officer,	2003	$	221,375		—	—	150,000 shs.	⁽²⁾	—
President, Chief Financial Officer	2002	$	213,500	$	140,000	—	400,000 shs.	⁽³⁾	—
Lindley Branson ⁽⁴⁾	2004	$	184,239		—	—	—		—
Vice President and	2003	$	178,062		—	—	75,000 shs.	⁽⁵⁾	—
General Counsel	2002	$	172,417	$	70,000	—	200,000 shs.	⁽³⁾	—

⁽¹⁾

Mr. Cullen resigned from Webb on September 30, 2004, at which time he also resigned as a director. Webb reimbursed Mr. Cullen for commuting expenses, which totaled $13,065 in 2004. In connection with Mr. Cullen’s resignation, Webb agreed to forgive outstanding loans of $124,676, provided that he provided consulting services as requested until January 2005. The loans were forgiven in January 2005.

⁽²⁾	Does not include an option to purchase 500,000 shares of common stock that was granted to Mr. Cullen in 2003 and cancelled by mutual agreement of Webb and Mr. Cullen on March 23, 2004. Mr. Cullen received no consideration for the cancellation.

⁽³⁾	The vesting of the shares underlying the option was subject to performance-based criteria. The criteria was not met: one-half of the option expired on December 31, 2002; the other half expired on June 30, 2003.

⁽⁴⁾	Webb reimburses Mr. Branson for commuting expenses, which totaled $19,353 in 2004.

⁽⁵⁾	Does not include an option to purchase 400,000 shares of common stock that was granted to Mr. Branson in 2003 and cancelled by mutual agreement of Webb and Mr. Branson on March 23, 2004. Mr. Branson received no consideration for the cancellation.

Webb Stock Options

Webb did not issue options to the named executive officers nor were there any options exercised during 2004.

Aggregated Option Exercises During Year Ended December 31, 2004 and

Option Values at December 31, 2004


Name	Shares Acquired on Exercise (#)	Value Realized ($) ⁽¹⁾	Number of Securities Underlying Options at December 31, 2004 (#) Exercisable /Unexercisable	Value of Unexercised In-The- Money Options at December 31, 2004 ($) ⁽²⁾ Exercisable / Unexercisable
William Cullen	—	—	400,000 / —	$	— /$—
Lindley Branson⁽⁴⁾	—	—	442,313 / 75,000	$	— /$—

⁽¹⁾	The value realized is determined by multiplying the number of shares exercised by the favorable difference between the exercise price per share and the closing bid price per share on the date of exercise.

⁽²⁾	The value of unexercised in-the-money options is determined by multiplying the number of shares subject to such options by the favorable difference between the exercise price per share and $0.33, the closing price per share on December 31, 2004.

Board of Director Compensation

Members of our board of directors do not receive cash compensation for their services as directors, but they are reimbursed for their reasonable expenses in attending board meetings. During 2004, we issued the following seven-year options to our non-employee directors for their services:

•

Robert Lewis received an option to purchase 50,000 shares at an exercise price of $0.55 per share.

•

Richard Jennewine received an option to purchase 50,000 shares at an exercise price of $0.55 per share.

•

Robert Lacey received an option to purchase 50,000 shares at an exercise price of $0.55 per share.

•

Peter Ren received an option to purchase 50,000 shares at an exercise price of $0.55 per share.

Certain Transactions

William Cullen, our former President, Chief Executive Officer and Chief Financial Officer and a director, owed us $124,676 as of September 30, 2004. The entire amount of this receivable was written-off on September 30, 2004, in connection with his separation from Webb.

PRINCIPAL AND SELLING SHAREHOLDERS

Information as of April 1, 2005 of the name, address and stockholdings of: (i) each person known by Webb to be a beneficial owner of more than five percent of our common stock; (ii) our directors; (iii) each executive officer named in the Summary Compensation Table; (iv) the selling shareholders; and (v) all executive officers and directors, as a group, is set forth below. Except as indicated below, we believe that each person has the sole (or joint with spouse) voting and investment powers with respect to such shares.


Name/Address of Shareholder/Director	Beneficial Ownership Before Offering⁽¹⁾				Shares to be Sold		Beneficial Ownership After Offering ⁽¹⁾
	Shares		Percent		Shares to be Sold		Shares		Percent
Robert R. Lacey 1899 Wynkoop, Suite 600 Denver, Colorado 80202	150,000	⁽²⁾	*		—		150,000	⁽²⁾	*

Peter Ren 1899 Wynkoop, Suite 600 Denver, Colorado 80202	249,475	⁽³⁾	*		100,000	⁽⁴⁾	149,475	⁽⁵⁾	*

Barry Roelofs 1899 Wynkoop, Suite 600 Denver, Colorado 80202	184,100		*		—		184,000		*

Jona, Inc. P.O. Box 949 Casper, Wyoming 82602	9,250,000	⁽⁶⁾	36.4	%	7,450,000		1,800,000	⁽⁶⁾	6.9	%

DiamondCluster International, Inc. ⁽¹⁰⁾ Suite 3000 875 North Michigan Avenue Chicago, Illinois 60611	904,000		3.6	%	904,000		0		*

Davi d Curtis 120 South Durbin Street Casper, Wyoming 82601	575,000	⁽⁷⁾	2.2	%	575,000	⁽⁷⁾	0		*

Lindley Branson 1899 Wynkoop, Suite 600 Denver, Colorado 80202	467,313	⁽⁸⁾	1.8	%	—		467,313	⁽⁸⁾	1.8	%

Directors and executive officers as a group (four persons)	1,050,888	⁽⁹⁾	4.1	%	100,000	⁽⁴⁾	950,888	⁽¹⁰⁾	3.8	%

*	Less than one percent of shares outstanding.

⁽¹⁾

In calculating percentage ownership, all shares of common stock which a named shareholder has the right to acquire within 60 days from the date of this report upon exercise of options or warrants are deemed to be outstanding for the purpose of computing the percentage of common stock owned by that shareholder, but are not deemed to be outstanding for the purpose of computing the percentage of common stock owned by any other shareholder.

⁽²⁾	Consists of options to purchase 200,000 shares of common stock.

⁽³⁾	Includes warrants and options to purchase 150,000 shares of common stock.

⁽⁴⁾	Consists of warrants to purchase 100,000 shares of common stock.

⁽⁵⁾	Includes options to purchase 50,000 shares of common stock.

⁽⁶⁾	Does not include 15,000 shares of common stock owned by Neil A. McMurry and his spouse. Mr. McMurry, who is the sole shareholder, president and director of Jona, Inc., is deemed to be the beneficial owner of Webb’s securities owned by Jona.

⁽⁷⁾	Consists of warrants to purchase 575,000 shares of common stock.

⁽⁸⁾	Includes options for the purchase of 442,313 shares of common stock, but excludes options for the purchase of 75,000 shares of common stock that are not exercisable during the next 60 days.

⁽⁹⁾	Includes warrants and options for the purchase of 792,313 shares of common stock, but excludes options for the purchase of 75,000 shares of common stock that are not exercisable during the next 60 days.

⁽¹⁰⁾	Includes options to purchase 692,313 shares of common stock, but excludes options to purchase 75,000 shares of common stock that are not exercisable during the next 60 days.

A total of 9,029,000 shares of common stock are being offered for sale under this prospectus by Jona, Inc., David Curtis, Peter Ren and DiamondCluster International, Inc.

During the period January through March 2002, Jona, Inc. acquired 7,500,000 shares and warrants to purchase 10,000,000 shares of common stock under a January 17, 2002 securities purchase agreement. Jona, Inc. paid a total of $7,500,000 for the shares and the warrants. As part of the purchase of the common stock and warrants under the securities purchase agreement, Jona, Inc. loaned Webb a total of $1,200,000 in December 2001 and January 2002, at an annual interest rate of 10%. On December 21, 2001, we issued Jona, Inc. a warrant to purchase 60,000 shares of common stock at an exercise price of $1.00 per share as partial consideration for these loans. On October 21, 2003, Jona, Inc. agreed to exchange the warrants for 1,800,000 shares of Webb common stock. The exchange was closed on November 12, 2003. The 1,800,000 shares received by Jona in the exchange are restricted shares under federal and state securities laws. We are under no obligation to register them for resale by Jona and they are not a part of the shares offered for sale by Jona under this prospectus.

The Jona, Inc. securities purchase agreement required Webb to: (1) amend its Bylaws to require the unanimous consent and approval of all members of the board of directors in attendance at a duly convened meeting of the board of directors prior to (i) incurring indebtedness for borrowed money, if such borrowing would result in Webb’s then outstanding liability for all such then outstanding borrowings to exceed $1,000,000; (ii) taking any action that results in the redemption of any of Webb’s outstanding shares of common stock or preferred stock; (iii) approving any merger, other corporate reorganization, sale of control of Webb or any transaction in which substantially all of the assets of Webb are sold; or (iv) approving an amendment to or waiving any of the provisions of Webb’s articles of incorporation or bylaws; and (2) use its best efforts to cause two nominees of Jona, Inc. to be elected to the board of directors so long as Jona, Inc. beneficially owns 25% or more of Webb’s common stock. There is currently one nominee of Jona serving on our board of directors, Robert Lacey. The securities purchase agreement also requires us to register for resale by Jona, Inc. the 7,500,000 shares of common stock. Jona has sold 50,000 of the shares we registered, so 7,450,000 shares are being offered under this prospectus.

Mr. Curtis received a warrant to purchase 575,000 shares as consideration for his assistance in the sale of the securities to Jona, Inc. and Mr. Ren received a warrant to purchase 100,000 shares of our common stock for services, including his assistance in the sale of the securities to Jona, Inc. Each warrant is exercisable at $1.00 per share. Mr. Curtis’ warrant expires in March 2007 and Mr. Ren’s warrant expires in April 2007. The warrants are identical in all other regards to that issued to Jona, Inc. Mr. Curtis is offering 575,000 shares of common stock under this prospectus, all of which are issuable upon the exercise of the warrant he holds. Mr. Ren is offering 100,000 shares of common stock under this prospectus, all of which are issuable upon the exercise of the warrant he holds. We agreed to register for resale by Messrs. Curtis and Ren the shares issuable upon exercise of the warrants.

The warrants held by Messrs. Curtis and Ren contain an anti-dilution provision, so that if we issue common stock below $1.00 per share during the term of the warrants, the exercise price of the warrants will be reduced according to a formula based on value of the common stock issued below $1.00 compared to the value of our common stock already outstanding. The anti-dilution provision is subject to exceptions, including shares issuable: (i) upon options issued under stock option plans; (ii) in a merger, acquisition or strategic investment; (iii) under a derivative security already existing when the warrants were issued; or (iv) a firm-commitment secondary offering of our common stock. The warrants contain a cashless exercise provision, so that instead of paying cash to exercise the warrants, the holder will receive shares upon surrendering a portion of the warrant deemed to be worth the value of the stock to be issued upon the exercise.

DiamondCluster International, Inc. acquired 911,645 shares of Webb common stock in April 2002 when it exchanged 690,000 shares of series B convertible preferred stock and 35,000 shares of common stock it owned in Jabber, Inc., a subsidiary of Webb. DiamondCluster originally acquired the Jabber stock in July 2000. The exchange agreement with DiamondCluster International, Inc. requires us to register the common shares for resale by DiamondCluster. DiamondCluster has sold 7,645 shares for sale so far. This prospectus is offering the remaining 904,000 shares held by DiamondCluster for sale.

DESCRIPTION OF SECURITIES

General

Our articles of incorporation authorize our board of directors to issue 65,000,000 shares of capital stock, including 60,000,000 shares of common stock and 5,000,000 shares of preferred stock, with rights, preferences and privileges as are determined by our board of directors.

Common Stock

As of March 31, 2005, we had 25,433,552 shares of common stock outstanding. All outstanding shares of our common stock are fully paid and non-assessable and the shares of our common stock offered by this prospectus will be, upon issuance, fully paid and non-assessable. The following is a summary of the material rights and privileges of our common stock.

Voting. Holders of our common stock are entitled to cast one vote for each share held at all shareholder meetings for all purposes, including the election of directors. The holders of more than 50% of the voting power of our common stock issued and outstanding and entitled to vote and present in person or by proxy, and any preferred stock issued and outstanding and entitled to vote and present in person or by proxy, constitute a quorum at all meetings of our shareholders. The votes of the holders of shares of common stock, present or represented at the meeting and of any preferred stock present or represented at the meeting and entitled to vote at the meeting, will decide any question brought before the meeting, except when Colorado law, our articles of incorporation, or our bylaws require a greater vote and except when Colorado law requires a vote of any preferred stock issued and outstanding, voting as a separate class, to approve a matter brought before the meeting. Holders of our common stock do not have cumulative voting for the election of directors.

Dividends. Holders of our common stock are entitled to dividends when, as and if declared by the board of directors out of funds available for distribution. The payment of any dividends may be limited or prohibited by loan agreement provisions or priority dividends for preferred stock that may be outstanding.

Preemptive Rights. The holders of our common stock have no preemptive rights to subscribe for any additional shares of any class of our capital stock or for any issue of bonds, notes or other securities convertible into any class of our capital stock.

Liquidation. If we liquidate or dissolve, the holders of each outstanding share of our common stock will be entitled to share equally in our assets legally available for distribution to our shareholders after payment of all liabilities and after distributions to holders of preferred stock legally entitled to be paid distributions before the payment of distributions to holders of our common stock.

Series D Junior Convertible Preferred Stock

As of March 31, 2005, we had 734 shares of series D junior convertible preferred stock outstanding. The series D junior convertible preferred stock does not bear dividends and does not entitle the holders to any voting rights except as required by Colorado law. The following is a summary of the material terms of the series D junior convertible preferred stock.

Conversion. The preferred stock is convertible into common stock unless the conversion would result in the holder being a beneficial owner of more than 4.99% of our common stock. The current conversion price is $1.00 per share. The conversion price is subject to anti-dilution protection if we issue our common stock at prices less than the conversion price for the preferred stock or the then current price for our common stock and for stock splits, stock dividends and other similar transactions. If the conversion price is reduced, we may be required to record a charge to income.

Liquidation Preference. If we liquidate, dissolve or wind-up our business, whether voluntarily or involuntarily, after we pay our debts and other liabilities, the holder of the preferred stock will be entitled to receive

from our remaining net assets, before any distribution to the holders of our common stock, the amount of $1,000 per share.

PLAN OF DISTRIBUTION

The sale of the shares offered by this prospectus may be made in the over-the-counter electronic bulletin board or other over-the-counter markets at prices and at terms then prevailing or at prices related to the then current market price or in negotiated transactions. These shares may be sold by one or more of the following:

•

A block trade in which the broker or dealer will attempt to sell shares as agent but may position and resell a portion of the block as principal to facilitate the transaction.

•

Purchases by a broker or dealer as principal and resale by a broker or dealer for its account using this prospectus.

•

Ordinary brokerage transactions in which the broker does not solicit purchasers and transactions in which the broker does solicit purchasers.

•

Transactions directly with a market maker.

•

In privately negotiated transactions not involving a broker or dealer.

Each sale may be made either at market prices prevailing at the time of the sale, at negotiated prices, at fixed prices which may be changed, or at prices related to prevailing market prices.

The selling shareholders may also resell all or a portion of the shares offered by this prospectus in open market transactions in reliance upon Section 4(1) of the Securities Act or Rule 144 under the Securities Act rather than by this prospectus.

Brokers or dealers engaged by selling shareholders to sell the shares may arrange for other brokers or dealers to participate. Brokers or dealers engaged to sell the shares will receive compensation in the form of commissions or discounts in amounts to be negotiated immediately before each sale. These brokers or dealers and any other participating brokers or dealers may be determined to be underwriters within the meaning of the Securities Act of 1933, as amended. We will receive no proceeds from any resales of the shares offered by this prospectus, and we anticipate that the brokers or dealers, if any, participating in the sales of the shares will receive the usual and customary selling commissions.

The selling shareholders may enter into hedging transactions. Persons with whom it enters into hedging transactions may engage in short sales of our common stock. The selling shareholders may engage in short sales of our common stock and transactions involving options, swaps, derivatives and other transactions involving our securities or its investments in those securities, and may sell and deliver the shares covered by this prospectus under agreements to undertake these transactions or in settlement of securities loans. These transactions may be entered into with broker-dealers or other financial institutions that may resell those shares. The selling shareholders may pledge its shares to secure borrowings. Upon delivery of the shares or a default by a selling shareholder, the broker-dealer or financial institution may offer and sell the pledged shares.

To comply with the securities laws of some states, if applicable, the shares will be sold in those states only through brokers or dealers. The shares may not be sold in some states unless they have been registered or qualified for sale in those states or an exemption from registration or qualification is available and is complied with.

If necessary, the specific shares of our common stock to be sold, the name of the selling shareholder, the purchase and public offering prices, the names of any agent, dealer or underwriter, and any applicable commissions or discounts will be disclosed in an accompanying prospectus supplement or, if appropriate, a post-effective amendment to the registration statement of which this prospectus is a part.

We entered into registration rights agreements with the selling shareholders. The registration rights agreement requires us to register the shares of our common stock under applicable federal and state securities laws. The registration rights agreement with Jona, Inc. provides for cross-indemnification of Jona, Inc. and us and each party’s directors, officers and controlling persons against liability for the offer and sale of the common stock,

including liabilities under the Securities Act of 1933, as amended, and to contribute to payments the parties may be required to make. We have agreed to indemnify and hold harmless Jona, Inc. from liability under the Securities Act of 1933, as amended.

The rules and regulations in Regulation M under the Securities Exchange Act of 1934, as amended, provide that during the period that any person is engaged in the distribution within the meaning of Regulation M of our common stock, that person usually may not purchase shares of our common stock. The selling shareholders are subject to the rules and regulations of the Securities Act of 1933, as amended, and Securities Exchange Act of 1934, as amended, including Regulation M, which may limit the timing of purchases and sales of shares of our common stock by Jona, Inc. The prohibition on purchases under Regulation M may include purchases to cover short positions by the selling shareholders, and the failure by a selling shareholder to cover a short position at a lender’s request and purchases by the lender in the market of shares to cover such a short position may constitute an inducement to buy those shares prohibited by Regulation M. This may affect the marketability of the common stock.

We will bear all expenses of the offering of the common stock, except that the selling shareholders will pay any applicable underwriting commissions and expenses, brokerage fees and transfer taxes, and the fees and disbursements of its counsel and experts.

WHERE YOU CAN FIND MORE INFORMATION

We file annual, quarterly and special reports, proxy statements and other information with the Securities and Exchange Commission. You may read and copy any document we file with the SEC at the SEC’s public reference room located at 450 Fifth Street, N.W., Washington, D.C. 20549. Please call the SEC at 1-800-SEC-0330 for further information on the operation of the public reference room. You can also obtain copies of this material from the SEC’s Internet site located at http://www.sec.gov.

Shareholder Services

Webb Interactive Services, Inc.

1899 Wynkoop

Suite 600

Denver, Colorado 80202

(303) 308-3227

This prospectus is part of a registration statement we filed with the SEC. You should rely only on the information or representations provided in this prospectus. We have authorized no one to provide you with different information. The selling shareholders will not make an offer of these shares in any state where the offer is not permitted. You should not assume that the information in this prospectus is accurate as of any date other than the date on the front page of this prospectus.

LEGAL MATTERS

Gray, Plant, Mooty, Mooty & Bennett, P.A., Minneapolis, Minnesota, has issued an opinion about the legality of the shares registered by this prospectus. Lindley Branson, a principal of Gray, Plant, Mooty, Mooty & Bennett, P.A., serves as our vice president and general counsel. Mr. Branson holds 25,000 shares of our common stock, and options to purchase an additional 442,313 shares.

EXPERTS

The consolidated financial statements of Webb Interactive Services, Inc. appearing in this prospectus and the registration statement at December 31, 2004, and for the year then ended have been audited by Ehrhardt Keefe

Steiner & Hottman P.C., independent registered public accounting firm, and at December 31, 2003, and for the year then ended have been audited by Ernst & Young, LLP, independent registered public accounting firm, as set forth in their reports thereon appearing elsewhere herein, and are included in reliance upon such reports given on the authority of such firms as experts in accounting and auditing.

CHANGES IN ACCOUNTANTS

On February 11, 2005, the Audit Committee of the Board of Directors of Webb Interactive Services, Inc. (“Webb”) approved retaining Ehrhardt Keefe Steiner & Hottman P.C. (“EKS&H”) as Webb’s independent registered public accounting firm to audit Webb’s financial statements for the year ended December 31, 2004. On February 11, 2005, Webb notified Ernst & Young LLP, Webb’s former public accounting firm, that Webb had received a proposal from EKS&H. to serve as Webb’s independent registered public accounting firm and Ernst & Young LLP advised Webb that it declined to stand for re-appointment.

During Webb’s two most recent fiscal years, the nine months ended September 30, 2004 and the subsequent interim period ended February 10, 2005, Webb (i) did not engage EKS&H to act as either the principal accountant to audit Webb’s financial statements or as an independent accountant to audit a significant subsidiary of Webb; (ii) did not consult with EKS&H on the application of accounting principles to a specified transaction, either completed or proposed, or the type of audit opinion that might be rendered on Webb’s financial statements; and (iii) did not consult with EKS&H on any matter that was either the subject of a disagreement or a reportable event, as those terms are defined in Item 304(a)(1)(iv) of Regulation S-B and the related instruction to Item 304 of Regulation S-B.

During the two fiscal years ended December 31, 2003, the nine months ended September 30, 2004, and the subsequent interim period ended February 10, 2005, there were no disagreements with Ernst & Young LLP on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure, which disagreements, if not resolved to the satisfaction of Ernst & Young LLP, would have caused it to make reference to the subject matter of the disagreement in connection with its reports. Furthermore, Ernst & Young LLP’s audit reports for the two most recently completed fiscal years did not contain any adverse opinion or disclaimer of opinion, nor were they qualified or modified as to uncertainty, audit scope or accounting principles. In addition, during the Company’s two most recent fiscal years and through the issuance of Webb’s quarterly report for the nine months ended September 30, 2004, no reportable events, as defined in Item 304(a)(1)(iv)(B) of Regulation S-B, occurred.

INDEMNIFICATION

Our articles of incorporation provide that we shall indemnify, to the full extent permitted by Colorado law, our directors, officers, employees or agents who are made, or threatened to be made, a party to a proceeding against judgments, penalties, fines, settlements and reasonable expenses if specified standards are met. Although indemnification for liabilities arising under the Securities Act of 1933, as amended, may be permitted to our directors, officers and controlling persons under these provisions, we have been advised that, in the opinion of the SEC, indemnification for liabilities arising under the Securities Act of 1933, as amended, is against public policy as expressed in that act and is unenforceable.

Our articles of incorporation also limit the liability of our directors to the fullest extent permitted by the Colorado law. Specifically, our articles of incorporation provide that our directors will not be personally liable for monetary damages for breach of fiduciary duty as directors, except for:

•

Any breach of the duty of loyalty to us or our shareholders;

•

Acts or omissions not in good faith or that involved intentional misconduct or a knowing violation of law;

•

Dividends or other distributions of corporate assets that are in contravention of specified statutory or contractual restrictions;

•

Violations of specified laws; or

•

Any transaction from which the director derives an improper personal benefit.

WEBB INTERACTIVE SERVICES, INC.

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS


		Page

Reports of Independent Registered Public Accounting Firms		F-2

Consolidated Balance Sheets as of December 31, 2004 and 2003		F-4

Consolidated Statements of Operations for the Years Ended December 31, 2004 and 2003		F-5

Consolidated Statements of Stockholders’ Equity for the Years Ended December 31, 2004 and 2003		F-6

Consolidated Statements of Cash Flows for the Years Ended December 31, 2004 and 2003		F-7

Notes to Consolidated Financial Statements		F-8

F-1

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Board of Directors and Stockholders

Webb Interactive Services Inc.:

We have audited the accompanying consolidated balance sheet of Webb Interactive Services, Inc. and subsidiaries (the “Company”) as of December 31, 2004, and the related consolidated statements of operations, stockholders’ equity and cash flows for the year then ended. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audit.

We conducted our audit in accordance with the Standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. 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 audit provides 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 at December 31, 2004, and the consolidated results of its operations and its cash flows for the year then ended in conformity with accounting principles generally accepted in the United States.

The accompanying consolidated financial statements have been prepared assuming Webb Interactive Services, Inc. and subsidiaries will continue as a going concern. As discussed in Note 1 to the consolidated financial statements, among other factors, the Company has incurred significant and recurring losses from operations, and has an accumulated deficit of $120,216,129, such losses are expected to continue in the near future, which raises substantial doubt about the ability of the Company to continue as a going concern. Management’s plans in regard to these matters are described in Note 1. The accompanying consolidated financial statements do not include any adjustments relating to the recoverability and classification of asset carrying amounts or the amount and classification of liabilities that might result should the Company be unable to continue as a going concern.

/s/ Ehrhardt Keefe Steiner & Hottman P.C.

Denver, Colorado,

April 8, 2005

F-2

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Board of Directors and Stockholders

Webb Interactive Services, Inc.:

We have audited the accompanying consolidated balance sheet of Webb Interactive Services, Inc. and subsidiaries (the “Company”) as of December 31, 2003, and the related consolidated statements of operations, stockholders’ equity and cash flows for the year then ended. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). 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 audit provides 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 at December 31, 2003, and the consolidated results of its operations and its cash flows for the year then ended in conformity with U. S. generally accepted accounting principles.

/s/ ERNST & YOUNG LLP

Denver, Colorado,

February 10, 2004

F-3

WEBB INTERACTIVE SERVICES, INC.

CONSOLIDATED BALANCE SHEETS


	December 31,
	2004			2003
ASSETS
Current assets:
Cash	$	42,688		$	559,590
Prepaid expenses		15,082			12,957
Notes receivable from Company officer (Note 3)		—			134,130
Note and accounts receivable from Jabber (Note 4)		249,249			136,479

Total current assets		307,019			843,156
Investment in Jabber (Note 4)		422,348			1,591,985
Property and equipment, net (Note 5)		—			258,834

Total assets	$	729,367		$	2,693,975

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable and accrued liabilities	$	30,875		$	23,246
Accrued compensation, benefits and payroll taxes		16,404			71,928

Total current liabilities		47,279			95,174
Commitments and contingencies
Stockholders’ equity:
Preferred stock, no par value, 5,000,000 shares authorized:
Series D junior convertible preferred stock, 734 and 784 shares issued and outstanding, respectively, liquidation preference of $1,000 per share		561,781			600,049
Common stock, no par value, 60,000,000 shares authorized, 25,433,552 and 25,268,167 shares issued and outstanding, respectively		109,834,689			105,654,866
Warrants and options		10,501,727			14,643,282
Accumulated deficit		(120,216,109	)		(118,299,396	)

Total stockholders’ equity		682,088			2,598,801

Total liabilities and stockholders’ equity	$	729,367		$	2,693,975

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

F-4

WEBB INTERACTIVE SERVICES, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS


	Years Ended December 31,
	2004			2003
Net revenues	$	—		$	646,613

Operating expenses:
Cost of revenues		—			161,899
Sales and marketing		—			356,983
Product development		—			590,569
General and administrative		697,334			1,240,896
Depreciation		72,408			205,702

		769,742			2,556,049

Loss from operations		(769,742	)		(1,909,436	)
Interest income		9,092			18,928
Loss from investment in Jabber (Note 4)		(1,169,637	)		(306,809	)
Other income, net		13,574			6,974

Net loss before minority interest		(1,916,713	)		(2,190,343	)
Minority interest in losses of subsidiary		—			2,709

Net loss	$	(1,916,713	)	$	(2,187,634	)

Net loss per share, basic and diluted	$	(0.08	)	$	(0.10	)

Weighted average shares outstanding, basic and diluted		25,418,104			23,013,372

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

F-5

WEBB INTERACTIVE SERVICES, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

FOR THE YEARS ENDED DECEMBER 31, 2004 AND 2003


	Series D Junior Preferred Stock					Common Stock				Warrants and Options			Accumulated Deficit			Stockholders’ Equity
	Shares		Amount			Shares	Amount			Warrants and Options			Accumulated Deficit			Stockholders’ Equity
Balances January 1, 2003	2,584		$	1,977,713		21,668,167	$	103,644,832		$	19,448,886		$	(122,913,504	)	$	2,157,927
Issuance of common stock for cancellation of warrants:
Issuance of common stock	—			—		1,800,000		1,890,000			—			—			1,890,000
Cancellation of warrants	—			—		—		(3,850,202	)		(4,827,787	)		6,787,989			(1,890,000	)
Gain on re-capitalization of Jabber	—			—		—		2,548,345			—			—			2,548,345
Conversion of series D junior preferred stock to common stock	(1,800	)		(1,377,664	)	1,800,000		1,377,664			—			—			—
Warrants and options issued for services	—			—		—		—			66,410			—			66,410
Cancellation of warrants	—			—		—		44,227			(44,227	)		—			—
Other comprehensive income	—			—		—		—			—			13,753			13,753
Net loss	—			—		—		—			—			(2,187,634	)		(2,187,634	)

Balances, December 31, 2003	784			600,049		25,268,167		105,654,866			14,643,282			(118,299,396	)		2,598,801
Conversion of series D junior preferred stock to common stock	(50	)		(38,268	)	50,000		38,268			—			—			—
Cash-less exercise of common stock purchase warrant	—			—		115,385		883,538			(883,538	)		—			—
Cancellation of warrants and stock options	—			—		—		3,258,017			(3,258,017	)		—			—
Net loss	—			—		—		—			—			(1,916,713	)		(1,916,713	)

Balances, December 31, 2004	734		$	561,781		25,433,552	$	109,834,689		$	10,501,727		$	(120,216,109	)	$	682,088

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

F-6

WEBB INTERACTIVE SERVICES, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS


	Years Ended December 31,
	2004			2003
Cash flows from operating activities:
Net loss	$	(1,916,713	)	$	(2,187,634	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation expense		72,408			205,702
Loss from investment in Jabber		1,169,637			306,809
Write-off of note receivable from Company officer		124,676			—
Minority interest in losses of subsidiary		—			(2,709	)
Warrants and stock options issued for services		—			66,410
Gain on sale and disposal of property and equipment		(13,574	)		(7,621	)
Changes in operating assets and liabilities:
Increase in accounts receivable		—			(404,246	)
(Increase) decrease in prepaid expenses and other current assets		(3,797	)		82,589
Increase in accounts payable and accrued liabilities		7,629			106,688
Decrease in accrued salaries and payroll taxes payable		(55,524	)		(662	)
Increase in deferred revenue		—			653,287

Net cash used in operating activities		(615,258	)		(1,181,387	)

Cash flows from investing activities:
Purchase of property and equipment		—			(6,121	)
Purchase of Jabber securities from third-party investors		—			(34,993	)
Cash retained by Jabber at March 19, 2003		—			(68,991	)
Collection on note receivable from Jabber		88,902			93,445
Collections from Jabber		—			20,477
Collection on notes receivable from Company officers		9,454			13,346

Net cash provided by investing activities		98,356			17,163

Net decrease in cash and cash equivalents		(516,902	)		(1,164,224	)
Effect of foreign currency exchange rate changes on cash		—			9,737
Cash, beginning of year		559,590			1,714,077

Cash, end of year	$	42,688		$	559,590


Supplemental schedule of non-cash investing and financing activities:
Equity adjustment related to sale of Jabber stock	$	—		$	2,548,345
Series D preferred stock converted to common stock	$	38,268		$	1,377,664
Issuance of common stock for cancellation of warrants	$	—		$	1,890,000
Property and equipment sold to Jabber for note receivable	$	200,000		$	220,059

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

F-7

WEBB INTERACTIVE SERVICES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(1)

ORGANIZATION AND BUSINESS

The sole business of Webb Interactive Services, Inc. (the Company, Webb, we, us or our) is the ownership of securities of Jabber, Inc. (Jabber). At December 31, 2004, on an as-if converted basis, we owned 43.4% of Jabber’s common stock.

On April 8, 2005, Jabber sold 8,571,458 shares of its series E preferred stock for $1.5 million to an affiliate of Webb. As a result of the transaction, Webb’s ownership of Jabber was reduced from approximately 43% to 38% of Jabber’s outstanding common stock on an as-if converted basis. The series E preferred stock purchase agreement included an option which expires on December 28, 2005, enabling the investor to purchase up to an additional $2 million worth of series E preferred stock on the same terms as the original investment. In the event that the full $2 million of the additional series E preferred stock is sold, Webb’s ownership interest in Jabber would be reduced to approximately 33% of Jabber’s then outstanding common stock on an as-if converted basis.

On March 19, 2003, Jabber issued 25,218,914 shares of its series D convertible preferred stock for $5 million in gross cash proceeds and the cancellation of $2.2 million of convertible notes payable to Webb. As a result of this transaction, Webb’s ownership of Jabber was reduced from 74.8% to 43.3% of Jabber’s outstanding common stock on an as-if converted basis. As a result of the reduction in Webb’s ownership interest, after March 19, 2003, Webb ceased consolidating the financial results of Jabber in its financial statements and began to report its investment in Jabber under the equity method of accounting.

Jabber is a commercial developer of real-time communications software and instant messaging (IM) solutions offering proprietary, scalable extensible IM software solutions for enterprises, government agencies, carriers and service providers and distribution partners. We became a commercial sponsor of the Jabber.org instant messaging open-source movement in September 1999. We formed Jabber in February 2000. Jabber commenced operations in May 2000, and released its initial proprietary IM software product in March 2001. During 2004 and 2003, Jabber earned revenues from licensing its software, fees from support and maintenance agreements and fees from professional service contracts.

We have not been profitable since inception. Webb does not currently have a source of revenue but does incur operating expenses separate from those of Jabber. Our success depends upon the ability of Jabber to market its products and services and generate revenues sufficient to exceed its expenses. Because of the new and evolving nature of instant messaging technologies and Jabber’s early stage of development, we cannot be sure that its revenue model will prove to be viable, whether demand for its products and services will materialize at the prices it expects to charge, or whether current or future pricing levels will be sustainable. Jabber has expended significant funds to develop its current product offerings and Jabber anticipates continuing losses through at least 2005 as it further develops and markets its products.

At December 31, 2004, we had $42,688 in cash and $259,740 in working capital. We have no current source of cash other than the amounts we collected from Jabber during the first four months of 2005 for amounts owed to us by Jabber at December 31, 2004, totaling $249,249 and $24,000 from the cost sharing agreement we have with Jabber that expired on April 1, 2005.

We have initiated efforts to raise additional operating capital so that we may maintain our status as a reporting company under the Securities Exchange Act of 1934. We estimate that so long as we remain only a holding company, we will require approximately $110,000 of additional operating capital to sustain our status as a reporting company through the end of 2005 and approximately $400,000 of additional operating capital for each year thereafter that we remain a reporting company. In the event that we are not able to raise additional working capital by July 2005, we will consider terminating our status as a reporting company under the Securities Exchange Act of 1934, in order to sustain our operations until at least December 31, 2005. We estimate that the cost of maintaining our operations as a non-reporting company would be approximately $140,000 per year. There can be no assurance

F-8

that we will be able to raise additional operating capital or, if we are able to raise operating capital, that the terms upon which such capital is available will be acceptable.

As a result of our continuing operating losses and limited working capital to fund expected operating losses, substantial doubt exists about Webb’s ability to continue as a going concern. The accompanying consolidated financial statements do not include any adjustments relating to the recoverability and classification of asset carrying amounts or the amount and classification of liabilities that might result should Webb be unable to continue as a going concern.

(2)

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Financial Statements: As a result of the March 19, 2003, Jabber financing transaction, on March 20, 2003, Webb ceased consolidating the financial results of Jabber with its financial statements and began to report its investment in Jabber under the equity method of accounting. As such, prior to March 20, 2003, the results of operations from Jabber were consolidated with Webb’s results of operations. During this time, all material intercompany balances and transactions were eliminated in consolidation. The net loss attributable to the minority stockholders’ interests, which relates to our Jabber subsidiary, is recorded based upon the minority interest share of the ownership of Jabber.

Estimates and Assumptions: Our consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States (GAAP). These accounting principles require us to make certain estimates, judgments and assumptions. We believe that the estimates, judgments and assumptions upon which we rely are reasonable based upon information available to us at the time that these estimates, judgments and assumptions are made. These estimates, judgments and assumptions can affect the reported amounts of assets and liabilities as of the date of the financial statements as well as the reported amounts of revenues and expenses during the periods presented. To the extent there are material differences between these estimates, judgments or assumptions and actual results, our financial statements will be affected. In many cases, the accounting treatment of a particular transaction is specifically dictated by GAAP and does not require management’s judgment in its application. There are also areas in which management’s judgment in selecting among available alternatives would not produce a materially different result.

Concentration of Credit Risk: Financial instruments that potentially subject us to significant concentrations of credit risk consist primarily of cash and cash equivalents, notes receivable and accounts receivable. We have no off balance-sheet concentrations of credit risk such as foreign exchange contracts, option contracts or other foreign hedging arrangements. We maintain our cash in the form of demand deposits with financial institutions that we believe to be of high credit quality.

Property and Equipment: On December 31, 2004, pursuant to a 2003 agreement (See Note 4), Webb sold all of its existing property and equipment to Jabber (See Note 5). As such, at December 31, 2004, Webb no longer owns any property and equipment.

Property and equipment was stated at cost or estimated fair value upon acquisition and depreciation was provided using the straight-line method over the estimated useful lives of the respective assets, generally ranging from three to seven years. Maintenance and repairs were expensed as incurred and improvements were capitalized.

Impairment of Long-Lived Assets: We review long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of these assets may not be recoverable. We assess these assets for impairment based on estimated undiscounted future cash flows from these assets. If the carrying value of the assets exceeds the estimated future undiscounted cash flows, a loss is recorded for the excess of the asset’s carrying value over the fair value. For the years ended December 31, 2004 and 2003, we did not recognize any impairment loss for long-lived assets.

Fair Value of Financial Instruments: Financial instruments consist of cash and notes receivable. As of December 31, 2004, the carrying values of such instruments approximated their fair values.

F-9

Income Taxes: The current provision for income taxes represents actual or estimated amounts payable on tax return filings each year. Deferred tax assets and liabilities are recorded for the estimated future tax effects of temporary differences between the tax basis of assets and liabilities and amounts reported in the accompanying balance sheets, and for operating loss and tax credit carryforwards. The change in deferred tax assets and liabilities for the period measures the deferred tax provision or benefit for the period. Effects of changes in enacted tax laws on deferred tax assets and liabilities are reflected as adjustments to the tax provision or benefit in the period of enactment. Our deferred tax assets have been reduced by a valuation allowance to the extent it is more likely than not that some or all of the deferred tax assets will not be realized (See Note 11).

Stock Option Accounting and Other Stock-Based Compensation Arrangements: We issue stock options to our employees and outside directors to purchase our stock pursuant to stockholder approved stock option programs. We have elected to account for our stock-based compensation plans under the intrinsic value method of accounting as defined by Accounting Principles Board Opinion No. 25 (APB 25), “Accounting for Stock Issued to Employees” and related interpretations. We apply the disclosure provisions of SFAS Statement No. 123, “Accounting and Disclosure of Stock Based Compensation” (SFAS 123), as amended by SFAS Statement No. 148, “Accounting for Stock-Based Compensation—Transition and Disclosure.”

The following table illustrates the effect on net loss and loss per share if we had accounted for our stock option plans under the fair value method of accounting:


	Years Ended December 31,
	2004			2003
Net loss	$	(1,916,713	)	$	(2,187,634	)
Expense calculated under SFAS 123		(201,642	)		(841,668	)

Pro-forma net loss	$	(2,118,355	)	$	(3,029,302	)

Pro-forma net loss per share-basic and diluted	$	(0.08	)	$	(0.13	)

We estimate the fair value of our options using a Black-Scholes option value model, which was developed for use in estimating the fair value of traded options that have no vesting restrictions and are fully transferable. Option valuation models require the input of assumptions, including the expected stock price volatility. Our options have characteristics significantly different from those of traded options, and changes in the input assumptions can materially affect the fair value estimates. The fair value of options granted were estimated at the date of grant using a Black-Scholes pricing model with the following weighted average assumptions.


	2004		2003
Risk-free interest rate	1.59	%	3.79	%
Expected dividend yield	0	%	0	%
Expected lives	2 Years		3.6 Years
Expected volatility	144	%	133	%

Included in the expense calculated under SFAS 123 for the year ended December 31, 2003, are options granted under the Jabber stock option plan, which totaled 1,900,394 for the period ended March 19, 2003.

Equity instruments issued to non-employees are accounted for in accordance with SFAS 123 and related interpretations. Certain grants of warrants require the use of variable plan accounting whereby the warrants are valued using the Black-Scholes option-pricing model at the date of issuance and at each subsequent reporting date with final valuation on the vesting date. Such instruments can result in substantial volatility in our results of operations until they are vested.

Net Loss Per Common Share: Net loss per share is calculated in accordance with SFAS No. 128, “Earnings Per Share” (SFAS 128). Under the provisions of SFAS 128, basic net loss per share is computed by dividing net loss applicable to common shareholders for the period, subject to certain adjustments, by the weighted average number of common shares outstanding for the period. Diluted net loss per share is computed by dividing the net loss for the period by the weighted average number of common and potential common shares outstanding during the period if the

F-10

effect of the potential common shares is dilutive. As a result of our net losses, all potentially dilutive securities, as indicated in the table below, would be anti-dilutive and are excluded from the computation of diluted loss per share, and there are no differences between basic and diluted per share amounts for all years presented.


	December 31,
	2004	2003
Stock options	2,749,599	5,317,086
Series D preferred stock	734,000	784,000
Warrants	1,874,584	2,674,700

Total	5,358,183	8,775,786

The number of share equivalents excluded from the earnings per share calculation because they are anti-dilutive, using the treasury stock method, were 299,528 and 389,508 for the years ended December 31, 2004 and 2003, respectively.

Comprehensive Loss: Included in accumulated deficit for 2003 were nominal other comprehensive income and loss due to foreign currency translation.

Subsidiary Stock Transactions: We comply with the requirements of Securities Exchange Commission Staff Accounting Bulletin No. 51, “Accounting for Sales of Stock by a Subsidiary” (SAB 51), which requires that the difference between the carrying amount of the parent’s investment in a subsidiary and the underlying net book value of the subsidiary after the issuance of stock by the subsidiary be reflected as either a gain or loss in the statement of operations or reflected as an equity transaction. We have elected to record gains or losses resulting from the sale of a subsidiary’s stock as equity transactions.

Revenue Recognition: Revenues in 2003 were generated from the license of Jabber’s software products, professional service arrangements and maintenance and support services. Software license revenue is recognized in accordance with the American Institute of Certified Public Accountants (AICPA) Statement of Position (SOP) 97-2 “Software Revenue Recognition” (SOP 97-2) and related interpretations and amendments as well as Technical Practice Aids issued from time to time by the AICPA.

Revenue from software arrangements is recognized only when persuasive evidence of an agreement exists, delivery has occurred, the fee is fixed or determinable, and collectibility is probable. Under certain circumstances, software license revenue is deferred until all criteria of SOP 97-2 are met. Certain arrangements contain provisions which result in the recognition of revenue from software licenses ratably over the term of the contract or in accordance with long-term contract accounting.

Revenue from professional services billed on a time and materials basis is recognized as the services are performed and amounts due from customers are deemed collectible and contractually non-refundable. Revenue from fixed price long-term contracts is recognized on the percentage of completion method for individual contracts. Revenues are recognized in the ratio that costs incurred bear to total estimated contract costs. The use of the percentage of completion method of revenue recognition requires estimates of percentage of project completion. Changes in job performance, estimated profitability and final contract settlements may result in revisions to costs and income in the period in which the revisions are determined. Provisions for any estimated losses on uncompleted contracts are made in the period in which such losses are determinable. In instances when the work performed on fixed price agreements is of relatively short duration, or if sufficiently accurate estimates of costs are not determinable at the outset of the arrangement, the completed contract method of accounting is used whereby revenue is recognized when the work is completed. Customer payments and billed amounts due from customers in excess of revenue recognized are recorded as deferred revenue.

Revenue from maintenance and support agreements is recognized on a straight-line basis over the term of the related maintenance and support agreement.

F-11

For software arrangements with multiple elements, revenue is recognized using the residual method prescribed by SOP 98-9, “Modification of SOP 97-2 ‘Software Revenue Recognition’ with Respect to Certain Transactions.” Revenue applicable to undelivered elements, principally software maintenance, training and implementation services, is determined based on vendor specific objective evidence (VSOE) of the fair value of those elements. VSOE is established by the price of the element when it is sold separately (i.e., the renewal rate for software maintenance and normal prices charged for training and professional services). Revenue applicable to elements for which VSOE of fair value is not determinable is deemed equal to the remainder/residual amount of the fixed arrangement price. Assuming none of the undelivered elements and VSOE of fair value exists for all undelivered elements are essential to the functionality of any of the delivered elements, the residual revenue attributed to the delivered elements is recognized when all other criteria for revenue recognition for those elements have been met.

Cost of Revenues: Cost of revenues include nominal direct costs of delivering software, direct labor costs for maintenance and support and professional services, and an allocation of overhead costs. Costs of revenues does not include any allocation of depreciation or amortization expense.

Reclassifications: Certain prior period amounts have been reclassified to conform to current period presentation.

(3)

NOTES RECEIVABLE FROM COMPANY OFFICER

During 2000, pursuant to demand notes, Webb loaned a total of $165,827 to an officer of the Company. In connection with a separation agreement entered into on September 23, 2004, between the Company and its Chief Executive/Chief Financial Officer, the notes receivable were forgiven in consideration for the officer continuing to provide consulting services to the Company until January 2005. As a result, in September 2004 we recorded a non-cash expense for the balance of the notes receivable totaling $124,676. During 2004 and 2003, the Company was repaid principal on these notes totaling $9,454 and $13,346, respectively.

(4)

INVESTMENT IN JABBER

Jabber is a Delaware corporation founded by Webb in February 2000. Jabber is a commercial developer of extensible instant messaging software for enterprises, government agencies, carriers and service providers and distribution partners that require real-time communication and collaboration solutions. Jabber’s products are based on the standardized extensible message and presence protocol, XMPP, developed by the Jabber.org open-source movement. Jabber instant messaging solutions differ from packaged and consumer instant messaging solutions in their ability to support and to be integrated with other applications and services.

As a result of the Jabber investment transaction on March 19, 2003, Webb’s ownership in Jabber was reduced to less than 50%. With this change in ownership interest, after March 19, 2003, Webb ceased consolidating the financial results of Jabber with that of its own and began to report its investment in Jabber under the equity method of accounting.

On April 8, 2005, Jabber sold 8,571,428 shares of Jabber’s series E preferred stock for $1.5 million to an affiliate of Webb. As a result of the transaction, Webb’s ownership interest in Jabber was reduced from approximately 43% to approximately 38% of Jabber’s outstanding common stock on an as-if converted basis. The investor also acquired an option which, expires on December 28, 2005, to purchase up to an additional 11,428,572 shares of the series E preferred stock for $2 million. In the event all of the additional shares are purchased, Webb’s ownership interest in Jabber would be reduced to approximately 33% of Jabber’s then outstanding common stock on an as-if converted basis.

On March 19, 2003, Webb, France Telecom Technologies Investissements, a wholly owned subsidiary of France Telecom (FTTI) and Intel Capital Corporation, a wholly owned subsidiary of Intel Corporation (Intel), purchased an aggregate of 25,218,914 shares of Jabber’s series D convertible preferred stock for an aggregate consideration of $7.2 million. Webb’s investment was in the form of the cancellation of a $2.2 million convertible note receivable from Jabber for 7,705,779 shares of Jabber’s series D preferred stock.

F-12

Without the prior approval of the holder of the series E preferred stock and holders of 66 2/3% of the outstanding shares of Jabber series D convertible preferred stock, Jabber will not engage in any transaction or arrangement for the distribution of Jabber’s securities to the public, except in connection with a qualified public offering; permit any transaction which would result in any of the holders of the Jabber preferred stock owning more than 49% of Jabber’s outstanding shares of capital stock calculated either by ownership percentage or voting power; or take any other action, other than in connection with a qualified public offering, that would result in Jabber becoming a reporting company under the Securities Exchange Act of 1934. In addition, commencing after January 1, 2005, Webb may require FTTI, on an annual basis until an event has occurred that permits Webb to distribute its Jabber securities to the Webb shareholders, to sell Webb 1,000,000 shares of the Jabber common stock held by FTTI, at a purchase price equal to the conversion price for the Jabber series D convertible preferred stock plus interest compounded at 15% per annum. If the 49% ownership limit described above limits Webb’s ability to exercise this right, then the right will be suspended until Webb is able to exercise the right in full within the 49% limitation or upon an event which provides liquidity for all of Jabber’s shareholders, at which time the 49% limitation would be waived.

As a result of the investment transaction in Jabber in March 2003, Webb recorded an adjustment to equity of $3,472,282 in accordance with SAB 51. The amount was computed as the difference between Webb’s investment in Jabber immediately after the investment transaction and multiplying Jabber’s net worth at March 19, 2003, by Webb’s ownership percentage immediately after the investment transaction.

In connection with the series D preferred stock purchase agreement, Jabber purchased business software owned by Webb and was scheduled to make payments at a rate of $12,000 per month for a period of 21 months commencing April 1, 2003. At December 31, 2004, the balance of the note was $49,249. In addition, Jabber also purchased Webb’s computer equipment, office furnishings and fixtures and other office equipment at a purchase price of $200,000 (See Note 5). We collected the $249,249 in the first four months of 2005.

The unaudited condensed financial information for Jabber is presented below:

Results of Operations


	Years Ended December 31,
	2004			2003
Net revenues	$	5,374,683		$	7,418,282
Costs and expenses		8,059,548			9,068,841

Loss from operations		(2,684,865	)		(1,650,559	)
Other loss, net		(10,149	)		(1,614,089	)

Net loss	$	(2,695,014	)	$	(3,264,648	)

Webb’s loss from investment in Jabber	$	(1,169,637	)	$	(306,809	)

Financial Position


	December 31,
	2004		2003
Cash and cash equivalents	$	1,387,161	$	5,375,388
Accounts receivable, net	$	1,253,382	$	1,052,228
Other current assets	$	261,546	$	174,969
Property and equipment, net	$	387,724	$	452,320
Accounts payable and accrued liabilities	$	1,204,285	$	1,406,938
Deferred revenue	$	961,372	$	1,928,868
Note and other amounts payable to Webb	$	249,249	$	136,479
Stockholders’ equity	$	874,907	$	3,582,620

Webb’s loss from investment in Jabber for the year ended December 31, 2003, includes net losses from March 20, 2003 to December 31, 2003. Prior to March 20, 2003, the results of operations from Jabber were consolidated with Webb’s results of operations.

F-13

Included in other loss, net for the year ended December 31, 2003, is a $1.57 million non-cash loss on debt extinguishment resulting from the exchange of the convertible note payable to Webb for shares of Jabber’s series D preferred stock in the first quarter of 2003. This amount was eliminated in consolidation in the period ended March 19, 2003.

For the years ended December 31, 2004 and 2003, France Telecom accounted for 32% and 30%, respectively, of Jabber’s total revenues.

(5)

PROPERTY AND EQUIPMENT

Property and equipment consists of the following:


	December 31,
	2004		2003
Computer equipment	$	—	$	571,863
Office furniture and equipment		—		479,219

		—		1,051,082
Less accumulated depreciation		—		(792,248	)

Net property and equipment	$	—	$	258,834

On December 31, 2004, in connection with the Jabber series D preferred stock transaction (See Note 4), Jabber purchased all of Webb’s remaining property and equipment for an aggregate purchase price of $200,000. As a result, Webb recorded a gain totaling $28,234. In addition, in December 2004 Webb recorded a $14,660 loss on the disposition of obsolete computer equipment. As a result of these two transactions, Webb no longer owns any property and equipment. Included in other income, net for the years ended December 31, 2004 and 2003 are $13,574 and $7,621 in income, respectively, from the sale of or the disposition of excess and obsolete property and equipment.

We depreciated computer equipment, office equipment, and software over three to five years and office furnishings over seven years. Depreciation expense totaled $72,408 and $205,702 for the years ended December 31, 2004 and 2003, respectively.

(6)

ISSUANCE OF COMMON STOCK

On October 21, 2003, we entered into an agreement with Jona, Inc. (Jona) whereby on November 12, 2003, we issued Jona 1,800,000 restricted shares of our common stock in exchange for 10,060,000 outstanding warrants, with an exercise price of $1.00 per share, issued in connection with a private placement of our securities in January and March of 2002. As a result of the exchange, in November 2003 we recorded a credit to accumulated deficit of $6,787,989, calculated as the difference between the fair value of the warrants and the fair market value of the common stock on November 12, 2003, as follows:


Fair value of warrants using Black-Scholes option-pricing model	$	8,677,989
Fair market value of common stock		1,890,000

Credit to accumulated deficit	$	6,787,989


Black-Scholes option-pricing model assumptions:
Exercise price	$	1.00
Fair market value of common stock on valuation date	$	1.05
Option life		3.2 to 3.4 years
Volatility rate		144	%
Risk-free rate of return		2.04	%
Dividend rate		0	%

F-14

(7)

SERIES D JUNIOR CONVERTIBLE PREFERRED STOCK

Castle Creek Technology Partners LLC (Castle Creek) agreed to exchange up to 2,500 shares of series C-1 convertible preferred stock and $1,212,192 of principal of our 10% convertible note payable for up to 4,484 shares of our series D junior convertible preferred stock (the series D preferred stock) and a warrant to purchase 750,000 shares of our common stock at an exercise price of $1.00 per share. As part of the agreement, we reduced the exercise price of existing warrants to purchase 650,116 shares of our common stock held by Castle Creek. The exercise price for these warrants was reduced to $1.00. The 4,484 shares of series D preferred stock were convertible into 4,484,000 shares of our common stock.

As a result of the transactions described above, we issued 4,034 shares of series D preferred stock, with 734 and 784 shares being outstanding at December 31, 2004, and 2003, respectively. The series D preferred stock does not bear dividends and does not entitle the holders to any voting rights except as required by Colorado law. Each share of series D preferred stock is convertible into 1,000 shares of our common stock. The series D preferred stock is convertible into common stock unless the conversion would result in the holder being a beneficial owner of more than 4.99% of our common stock. The current conversion price is $1.00 per share. The conversion price was also subject to anti-dilution protection if we issued our common stock at prices less than the conversion price for the preferred stock or the then current price for our common stock and for stock splits, stock dividends and other similar transactions. The anti-dilution protection expired on January 17, 2004.

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

During the years ended December 31, 2004 and 2003, the holder of our series D preferred stock converted 50 and 1,800 shares, respectively, into 50,000 and 1,800,000 shares, respectively of our common stock at conversion prices per share of $1.00 as follows:


	Number of Shares
Conversion Date	Series D Preferred Stock	Common Stock
February 2, 2004	50	50,000

January 7, 2003	200	200,000
January 28, 2003	200	200,000
February 21, 2003	200	200,000
March 20, 2003	200	200,000
April 23, 2003	200	200,000
June 5, 2003	200	200,000
September 2, 2003	200	200,000
October 23, 2003	200	200,000
December 3, 2003	200	200,000

Total for 2003	1,800	1,800,000

(8)

STOCK OPTION PLANS

We have stock option plans for directors, officers, employees and other third parties, which provide for the issuance of up to 6,250,000 nonqualified and incentive stock options. The options vest over various terms with a maximum vesting period of 60 months and expire after a maximum of seven years from the date of grant. At December 31, 2004, there were options for 2,541,771 shares of common stock outstanding and options for 2,460,105 shares of common stock were vested, with 2,478,817 options available for future grants under the plans.

F-15

A summary of the status of the plans as of December 31, 2004 and 2003, and changes during the years then ended are as follows:


	2004				2003
	Shares		Weighted Average Exercise Price		Shares		Weighted Average Exercise Price
Outstanding at beginning of year	5,317,086		$	3.13	3,210,419		$	4.59
Granted	200,000		$	0.55	2,655,000		$	0.91
Forfeited and cancelled	(2,975,315	)	$	3.96	(548,333	)	$	2.87

Outstanding at end of year	2,541,771		$	1.96	5,317,086		$	3.13

Exercisable at end of year	2,460,105		$	1.99	3,350,420		$	4.42

The weighted average fair value of options granted during the years ended December 31, 2004 and 2003, with exercise prices greater than the fair market value on grant date are $0.32 and $0.72, respectively. The weighted average fair value of options granted during the year ended December 31, 2003, with exercise prices equal to the fair market value on grant date is $0.61.

The status of total stock options outstanding and exercisable under the plans as of December 31, 2004, is as follows:


	Stock Options Outstanding				Stock Options Exercisable
Range of Exercise Prices	Number of Shares	Weighted Average Exercise Price		Weighted Average Remaining Contractual Life (Years)	Number of Shares	Weighted Average Exercise Price
$0.55 – $ 1.38	2,008,224	$	0.72	4.6	1,926,558	$	0.71
$1.39 – $ 3.46	171,384	$	2.20	3.2	171,384	$	2.20
$3.47 – $ 8.68	173,163	$	6.59	1.6	173,163	$	6.59
$8.69 – $19.06	189,000	$	10.62	2.1	189,000	$	10.62

	2,541,771	$	1.96		2,460,105	$	1.99

F-16

(9)

WARRANTS AND OPTIONS FOR COMMON STOCK ISSUED OUTSIDE THE STOCK OPTION PLANS

We have issued common stock purchase warrants and options outside our stock option plans (Warrants) in connection with the sale of securities, business acquisitions and services rendered to the Company. The following table sets forth outstanding Warrants as of December 31, 2004 and 2003.


				2004	2003
Warrants and Options Issued in Connection With	Expiration Date	Current Exercise Price Per Share		Shares Underlying Warrants Outstanding	Shares Underlying Warrants Outstanding
Warrants issues with sale of private placement	January to April 2007	$	1.00	675,000	675,000

Warrant issued for exchange of 10% convertible note payable	January 2007	$	1.00	750,000	750,000

Series C-1 convertible preferred stock warrant	February 2004	$	1.00	—	500,000

Series B preferred stock warrants (Note 13)	February 2005	$	0.2425	343,750	343,750

10% convertible note payable warrant	December 2004	$	1.00	—	150,116

Financial services firm warrant	October 2004	$	2.50	—	125,000

Short-term note payable warrant	August 2004	$	2.50	—	25,000

Investor relations firm warrant	April 2006	$	1.00	100,000	100,000

Placement firm warrant	March 2005	$	38.44	5,834	5,834

Total				1,874,584	2,674,700

On February 5, 2004, the holder of the Series C-1 convertible preferred stock warrant to purchase 500,000 shares of our common stock exercised the entire warrant under its cash-less exercise provision whereby we issued 115,385 shares of our common stock. The number of shares issued were calculated by multiplying the number of shares exercised by the quotient of the difference between the average closing price five days immediately prior to the exercise date ($1.30) and the exercise price ($1.00) divided by the average closing price five days immediately prior to the exercise date.

On February 15, 2005, the holder of the Series B preferred stock warrants exercised the entire warrants under its cash-less exercise provisions where by we issued 122,050 shares of our common stock (See Note 13).

F-17

(10)

STOCK BASED COMPENSATION EXPENSE

In April 2003, we entered into a six-month consulting agreement with a company to provide Webb with investor relation services. In connection with the agreement, we issued the consulting company a three-year warrant to purchase 100,000 shares of our common stock at an exercise price of $1.00 per share, which vested 50,000 shares on July 16, 2003 and 50,000 on October 14, 2003. We applied variable plan accounting pursuant to SFAS 123 and related interpretations and valued the warrant at $61,907 utilizing the Black-Scholes option-pricing model with the assumptions in the table that follows. The value of the warrant was amortized to expense over the term of the agreement and for the year ended December 31, 2003, we recorded $60,479 of non-cash compensation expense.


Black-Scholes option-pricing model assumptions:
Exercise price	$	1.00
Fair market value of common stock on valuation date	$	0.82
Option life		3 years
Volatility rate		144	%
Risk-free rate of return		2.8	%
Dividend rate		0	%

In April 2003, we entered into a month-to-month consulting agreement with a company to provide Webb with investor relation services including stock support. In connection with the agreement, we issued two separate three-year options to purchase 10,000 shares each of our common stock at $1.00 per share. The first option vested ratably over a three-month period beginning on May 2, 2003. The second option, which was cancelled in 2004, was to vest based on an average daily trading volume for any 60-day trading period subsequent to the date of the option agreement. We applied variable plan accounting pursuant to SFAS 123 and related interpretations and valued the option and recorded non-cash compensation expense for the year ended December 31, 2003, totaling $5,931 utilizing the Black-Scholes option-pricing model with the assumptions in the table that follows.


Black-Scholes option-pricing model assumptions:
Exercise price	$	1.00
Fair market value of common stock on valuation date	$	0.67 to $0.82
Option life		3 to 2.8 years
Volatility rate		144%
Risk-free rate of return		2.76% to 2.92%
Dividend rate		0%

F-18

(11)

INCOME TAXES

The statutory federal income tax rate was 34% for the years ended December 31, 2004 and 2003. Differences between the income tax expense reported in the statements of operations and the amount reported by applying the statutory federal income tax rate to loss applicable to common shareholders before income taxes are as follows:


	Years Ended December 31,
	2004			2003
Benefit at statutory rate	$	(648,348	)	$	(743,796	)
Increase (decrease) due to:
State income taxes		(23,357	)		(29,901	)
Nondeductible expenses		407,687			435,727
Valuation allowance		264,018			337,970

Income tax provision	$	—		$	—

Components of net deferred assets as of December 31, 2004 and 2003 are as follows:


	Years Ended December 31,
	2004			2003
Deferred tax assets:
Accrued liabilities and other reserves	$	3,185		$	14,159
Net operating losses		20,453,444			20,194,838
Stock and warrant expense		393,549			393,549

Total deferred tax assets		20,850,178			20,602,546
Deferred tax liabilities:
Depreciation		—			(53,328	)
Valuation allowance		(20,850,178	)		(20,549,218	)

Net deferred tax assets	$	—		$	—

For income tax purposes, we have approximately $55 million of net operating loss carryforwards that expire at various dates through 2021. The Tax Reform Act of 1986 contains provisions that may limit the net operating loss carryforwards available to be used in any given year in the event of a significant change in ownership. Realization of net operating loss carryforwards is dependent on generating sufficient taxable income prior to the expiration dates.

During 2004 and 2003, we increased our valuation allowance by $264,018 and $337,970, respectively, due mainly to uncertainty relating to the realiability of the 2002 and 2001 net operating loss carryforwards.

(12)

RELATED PARTY TRANSACTIONS

Webb’s vice-president of administration and corporate counsel, who began his employment with the Company in 1999, is also a partner in the law firm we retain for our legal services. We incurred $23,069 and $55,022 in legal fees to the law firm during the years ended December 31, 2004 and 2003, respectively. As of December 31, 2004 and 2003, our accounts payable balances included $901 and $1,799, respectively, payable to the law firm.

(13)

SUBSEQUENT EVENTS

Exercise of Warrant. On February 15, 2005, the holder of the Series B preferred stock warrants exercised the entire warrants under its cash-less exercise provisions where by we issued 122,050 shares of our common stock. The number of shares issued were calculated by multiplying the number of shares exercised by the quotient of the difference between the average closing price five days immediately prior to the exercise date ($0.38) and the exercise price ($0.2425) divided by the average closing price five days immediately prior to the exercise date.

F-19

Jabber, Inc. Financing. On April 8, 2005, Jabber sold 8,571,428 shares of Jabber’s series E preferred stock for $1.5 million to an affiliate of Webb. As a result of the transaction, Webb’s ownership in Jabber was reduced from approximately 43% to approximately 38% of Jabber’s outstanding common stock on an as-if converted basis. The investor also acquired an option, which expires on December 28, 2005, to purchase up to an additional 11,428,572 shares of the series E preferred stock for $2 million.

The series E preferred stock is convertible into shares of Jabber’s common stock on a one-for-one basis. The series E stock includes a liquidation preference which entitles the holders of the preferred stock on the liquidation of Jabber, including a sale of Jabber, to first be paid their original purchase price for their preferred stock and then to participate with holders of common stock on an as-converted basis in the distribution of the remaining proceeds. The conversion price of the preferred stock would be adjusted on a weighted average basis in the event that Jabber sells shares of its common stock or securities convertible into or exercisable for common stock at a price less than the original purchase price for the preferred stock.

Without the prior approval of the holder of the series E preferred stock, Jabber may not engage in any transaction or arrangement for the distribution of Jabber’s securities to the public; permit any transaction which would result in any of the holders of Jabber’s series E or D preferred stock owning more than 49% of Jabber’s outstanding shares of capital stock; or take any other action that would result in Jabber becoming a reporting company under the Securities Exchange Act of 1934.

F-20

WEBB INTERACTIVE SERVICES, INC.

UNAUDITED SUPPLEMENTAL FINANCIAL INFORMATION

RECONCILIATION OF WEBB PARENT ONLY FINANCIAL STATEMENTS TO AS REPORTED FINANCIAL STATEMENTS

With the purchase of Jabber’s series D convertible preferred stock on March 19, 2003, by Webb, FTTI and Intel, Webb’s ownership in Jabber was reduced from 74.8% on an as-if converted basis prior to the transaction to 43.3% immediately after the transaction. Due to this change in ownership, on March 20, 2003, Webb ceased consolidating the financial results of Jabber with Webb’s financial statements and began to report its investment in Jabber under the equity method of accounting. Presented below are the unaudited consolidating financial statements for all periods in which Webb consolidated Jabber’s results of operations with its own to aid the reader in better understanding the financial statements of Webb for all periods presented. The amounts in the column labeled “Consolidated” represent the presentation in accordance with accounting principles generally accepted in the United States (GAAP) and the amounts reported in our financial statements.

UNAUDITED CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS

YEAR ENDED DECEMBER 31, 2003


	WEBB			JABBER (1)			ELIMINATIONS			GAAP CONSOLIDATED
Net revenues	$	—		$	646,613		$	—		$	646,613

Operating expenses:
Cost of revenues		—			161,899			—			161,899
Sales and marketing expenses		—			356,983			—			356,983
Product development expenses		—			590,569			—			590,569
General and administrative expenses		813,735			427,161			—			1,240,896
Depreciation and amortization		158,874			46,828						205,702

		972,609			1,583,440			—			2,556,049

Loss from operations		(972,609	)		(936,827	)		—			(1,909,436	)
Interest income		1,629,062			413			(1,610,547	)		18,928
Loss from investment in Jabber		(2,851,755	)		—			2,544,946			(306,809	)
Loss on extinguishment of convertible notes payable to Webb		—			(1,571,900	)		1,571,900			—
Other income (loss), net		7,668			(694	)		—			6,974
Interest expense		—			(38,647	)		38,647			—

Net loss before minority interest in losses of Jabber		(2,187,634	)		(2,547,655	)		2,544,946			(2,190,343	)
Minority interest in losses of subsidiary		—			—			2,709			2,709

Net loss	$	(2,187,634	)	$	(2,547,655	)	$	2,547,655		$	(2,187,634	)

(1)	The operating results of Jabber are for the period ended March 19, 2003.

F-21

UNAUDITED CONSOLIDATING STATEMENTS OF CASH FLOWS

YEAR ENDED DECEMBER 31, 2003


	WEBB			JABBER (1)			ELIMINATIONS			GAAP CONSOLIDATED
Cash flows from operating activities:
Net loss	$	(2,187,634	)	$	(2,547,655	)	$	2,547,655		$	(2,187,634	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation expense		158,874			46,828			—			205,702
Interest income on exchange of convertible note receivable from Jabber		(1,571,900	)		—			1,571,900			—
Loss on extinguishment of convertible notes payable to Webb		—			1,571,900			(1,571,900	)		—
Loss from investment in Jabber		2,851,755			—			(2,544,946	)		306,809
Minority interest in losses of subsidiary		—			—			(2,709	)		(2,709	)
Stock and stock options issued for services		66,410			—			—			66,410
Gain on sale and disposal of property and equipment		(7,621	)		—			—			(7,621	)
Accrued interest receivable		(1,377	)		—			—			(1,377	)
Accrued interest payable on convertible note payable		—			38,647			(38,647	)		—
Changes in operating assets and liabilities:
Increase in accounts receivable		—			(404,246	)		—			(404,246	)
(Increase) decrease in prepaid expenses		10,554			35,024			—			45,578
Decrease in short-term deposits and other assets		38,388			—			—			38,388
Increase (decrease) in accounts payable and accrued liabilities		(92,174	)		160,215			38,647			106,688
Increase (decrease) in accrued compensation, benefits and payroll taxes		7,944			(8,606	)		—			(662	)
Increase in deferred revenue		—			653,287			—			653,287

Net cash used in operating activities		(726,781	)		(454,606	)		—			(1,181,387	)

Cash flows from investing activities:
Purchase of property and equipment		(1,621	)		(4,500	)		—			(6,121	)
Cash invested in Jabber		(195,000	)		—			195,000			—
Purchase of Jabber securities from third-party investors		(34,993	)		—			—			(34,993	)
Cash retained by Jabber at March 19, 2003		—			—			(68,991	)		(68,991	)
Collection of note receivable from Jabber		93,445			—			—			93,445
Collections from Jabber		20,477			—			—			20,477
Collection of notes receivable from Company officer		13,346			—			—			13,346

Net provided by (cash used) in investing activities		(104,346	)		(4,500	)		126,009			17,163

Cash flows from financing activities:
Cash investment from Webb		—			195,000			(195,000	)		—

Net cash provided by financing activities		—			195,000			(195,000	)		—

Net decrease in cash and cash equivalents		(831,127	)		(264,106	)		(68,991	)		(1,164,224	)
Effect of foreign currency exchange rate changes on cash		7,519			2,218			—			9,737
Cash and cash equivalents, beginning of year		1,383,198			330,879			—			1,714,077

Cash and cash equivalents, end of year	$	559,590		$	68,991		$	(68,991	)	$	559,590

(1)	The cash flows for Jabber are for the period ended March 19, 2003.

F-22

You should rely only on the information contained or incorporated by reference in this prospectus. We have not authorized anyone to provide you with different information. We are not making an offer of these securities in any state where the offer is not permitted. You should not assume that the information contained in this prospectus is accurate as of any date other than the date on the front of this document.

TABLE OF CONTENTS


		Page
Prospectus Summary.		1
Risk Factors		3
Dividends		6
Special Note About Forward-Looking Statements		6
Use of Proceeds		6
Market for Common Equity and Related Stockholder Matters		6
Management’s Discussion and Analysis of Financial Condition and Results of Operations		7
Business		13
Management		16
Principal and Selling Shareholders		18
Description of Securities		21
Plan of Distribution		22
Where You Can Find More Information		23
Legal Matters		23
Experts		23
Changes in Accountants		24
Indemnification		24
Financial Statements		F-1

WEBB INTERACTIVE SERVICES, INC.

PROSPECTUS

, 2005

PART II

INFORMATION NOT REQUIRED TO BE IN PROSPECTUS

Item 24. Indemnification of Directors and Officers

Our articles of incorporation provide that we shall indemnify, to the full extent permitted by Colorado law, any of our directors, officers, employees or agents made or threatened to be made a party to a proceeding, by reason of the fact that such person is or was a director, officer, employee or agent of Webb against judgments, penalties, fines, settlements and reasonable expenses incurred by the person in connection with the proceeding if the person conducted himself or herself in good faith and in a manner he or she reasonably believed to be in or not opposed to our best interests, and, with respect to any criminal action or proceeding, had no reasonable cause to believe his or her conduct was unlawful. Insofar as indemnification for liabilities arising under the Securities Act of 1933 (the “Act”) may be permitted to our directors, officers and controlling persons pursuant to the foregoing provisions, we has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable.

Our articles of incorporation limit the liability of our directors to the fullest extent permitted by Colorado law. Specifically, the articles of incorporation provide that our directors will not be personally liable for monetary damages for breach of fiduciary duty as directors, except for:

•

any breach of the duty of loyalty to us or our shareholders;

•

acts or omissions not in good faith or that involved intentional misconduct or a knowing violation of law;

•

dividends or other distributions of corporate assets that are in contravention of statutory or contractual restrictions; or

•

any transaction from which the director derives an improper personal benefit.

Liability under federal securities law is not limited by the articles of incorporation.

Item 25. Other Expenses of Issuance and Distribution

The following table sets forth our various expenses in connection with the sale and distribution of the shares being registered pursuant to this Form SB-2 registration statement. All of the amounts shown are estimates, except for the Securities and Exchange Commission registration fee. We will pay all of such expenses.


Securities and Exchange Commission fee	$	533.77
Accounting fees and expenses		3,500.00
Legal fees and expenses		7,000.00
Printing and mailing		1,000.00
Transfer agent fees		1,000.00
Miscellaneous		1,966.23

TOTAL	$	15,000.00

Item 26. Recent Sales of Unregistered Securities

During the past three years the Registrant has sold the following securities pursuant to exemptions from registration under the Securities Act of 1933, as amended:

1. In February 1999 through July 2001, the Registrant issued an aggregate of 58,331 shares to three individuals as consideration for services rendered.

2. In June 1999, the Registrant issued 71,429 shares of common stock to one investor in connection with a merger.

3. In June 1999 through October 1999, the Registrant issued 947,626 shares of common stock, convertible promissory notes in an aggregate principle amount of $894,879, convertible into 82,402 shares of common stock, warrants to purchase 186,378 shares of common stock (at exercise prices ranging between $6.61 and $10.16 per share), to a total of 18 persons in connection with a merger, together with a warrant to purchase 50,150 shares of common stock at an exercise price of $14.13, as a commission.

II-1

4. In June 1999 through August 1999, the Registrant issued warrants to purchase an aggregate of 161,467 shares at exercise prices between $9.19 and $9.94 per share to three customers.

5. In August 1999, the Registrant issued a 10% convertible promissory note, to one investor for an aggregate purchase price of $5,000,000. In December 1999, the terms of the promissory note were amended and, as partial consideration therefor, the Registrant issued the investor a warrant to purchase 136,519 shares of common stock at an exercise price of $18.51 per share. In February 2001, the warrant was adjusted by its own terms, resulting in an additional 13,597 shares being covered at an exercise price of $9.33 per share. In February 2000, one-half of the promissory note was converted into 248,262 shares of common stock at a conversion price of $10.07 per share. During 2000, an aggregate of $164,110 principal amount of similar 10% convertible notes were issued to pay interest on the note. In July 2001, the investor converted a portion of the 10% convertible notes into 42,652 shares of common stock. In January 2002 through March 2002, the Registrant issued an aggregate of 4,034 shares of Series D Preferred Stock and a warrant to purchase 750,000 shares of common stock at an exercise price of $1.00 per share in exchange for the 10% convertible notes and Series C-1 Preferred Stock held by the investor.

6. In January 2000, the Registrant issued 278,411 shares of common stock to 18 investors in connection with an acquisition.

7. In February 2000, the Registrant issued 6,250 shares of Series B Preferred Stock, together with a warrant to purchase an aggregate of 171,875 shares at an exercise price of $20.20 per share, to one investor for an aggregate price of $6,250,000, and issued a similar number of Series B-2 Preferred Stock and a warrant to a second investor for an aggregate price of $6,250,000.

8. In March 2000, the Registrant, issued a warrant to purchase 5,834 shares of common stock at an exercise price of $38.44 per share to one individual as consideration for services rendered.

9. In February 2001, the Registrant issued 2,500 shares of Series C-1 Preferred Stock, together with a warrant to purchase 500,000 shares of common stock at an exercise price of $3.75 per share, for an aggregate purchase price of $2,500,000.

10. In August 2001, the Registrant issued a warrant to purchase 25,000 shares of common stock at an exercise price of $2.50 as partial consideration for a short-term loan.

11. In October 2001, the Registrant issued a warrant to purchase 125,000 shares of common stock at an exercise price of $2.50 per share to one individual as consideration for services rendered.

12. In January 2002, the Registrant issued to one investor 4,300 shares of its series D convertible preferred stock, a warrant to purchase 750,000 shares of its common stock at an exercise price of $1.00 per share and reduced the exercise price of warrants to purchase 650,116 shares owned by the investor to $1.00 per share, in exchange for 2,500 shares of the Registrant’s series C-1 convertible preferred stock and $1,100,000 principal amount of the Registrant’s 10% convertible note payable.

13. In January through March 2002, the Registrant issued 7,500,000 shares of common stock and warrants to purchase 10,060,000 of common stock for an aggregate price of $7,500,000 to one investor, and issued a warrant to purchase 575,000 shares of common stock at an exercise price of $1.00 as a commission in connection with the transaction.

14. In April 2002, the Registrant issued a warrant to purchase 100,000 shares of common stock at an exercise price of $1.00 in consideration for consulting services.

15. In April 2002, the Registrant issued 908,445 shares of its common stock to one investor in exchange for 690,000 shares of the Registrant’s series B convertible preferred stock and 35,000 shares of Jabber, Inc. common stock.

16. In November 2003 the Registrant issued 1,800,000 shares of its common stock to one investor in exchange for a warrant to purchase 10,060,000 shares of the Registrant’s common stock.

II-2

The purchasers of the securities described above acquired them for their own account and not with a view to any distribution thereof to the public. The certificates evidencing the securities bear legends stating that the securities may not be offered, sold or transferred other than pursuant to an effective registration statement under the Securities Act of 1933, as amended, or an exemption from such registration requirements. The Registrant has placed stop transfer instructions with its transfer agent with respect to all such securities. No underwriting commissions or discounts were paid with respect to the sales of the unregistered securities described above.

The securities described above were issued or sold pursuant to provisions of the Registrant’s Articles of Incorporation and were exempted from registration under the Securities Act of 1933, as amended, in reliance upon Section 4(2) as transactions by the issuer not involving a public offering.

Item 27. Exhibits



3.1	(a)	Articles of Incorporation, as amended, of Webb Interactive Services, Inc. (1)

3.1	(b)	Articles of Amendment setting forth the terms of Series D Junior Convertible Preferred Stock (2)

3.2		Bylaws of Webb Interactive Services, Inc. (3)

4.1		Specimen form of Webb Interactive Services, Inc. common stock certificate (4)

4.2		Webb Interactive Services, Inc. Stock Option Plan of 1995 (3)

4.3		Form of Incentive Stock Option Agreement for Webb Interactive Services, Inc. Stock Option Plan of 1995 (3)

4.4		Form of Nonstatutory Stock Option Agreement for Webb Interactive Services, Inc. Stock Option Plan of 1995 (3)

4.5		Webb Interactive Services, Inc. Stock Option Plan of 2000, including forms of Incentive and Nonstatutory Stock Option Agreements (5)

4.6		Stock Purchase Warrant dated August 25, 1999, as amended December 18, 1999, issued by Webb Interactive Services, Inc. to Castle Creek Technology Partners, Inc. (6)

4.7

4.8		Stock Purchase Warrant dated December 31, 1999 issued to by Webb Interactive Services, Inc. Marshall Capital Management, Inc. and Castle Creek Technology Partners, LLC (7)

4.9		Form of Stock Purchase Warrant dated February 28, 2001 issued by Webb Interactive Services, Inc. to Castle Creek Technology Partners, LLC (8)

4.10

10.1		Form of Nondisclosure and Nonsolicitation Agreement between Webb Interactive Services, Inc. and its employees (1)

10.2		Employment Agreement between Webb Interactive Services, Inc. and Lindley S. Branson, dated March 1, 2002 (9)

10.3		Securities Purchase Agreement dated as of January 17, 2002, between Webb Interactive Services, Inc. and Jona, Inc. Included as an exhibit is a Registration Rights Agreement (2)

10.4		Letter Agreement between Webb Interactive Services, Inc. and Jona, Inc. (9)

10.5		Exchange Agreement dated January 17, 2002 between Webb Interactive Services, Inc. and Castle Creek Technology Partners LLC. Included as an exhibit is a Registration Rights Agreement (2)

10.6		Series D Preferred Stock Purchase Agreement dated March 17, 2003, by and among Jabber, Inc. France Telecom Technologies Investissements, Intel Capital Corporation, and Webb Interactive Services, Inc. Included as exhibits to the Stock Purchase Agreement are the Restated Certificate of Incorporation of Jabber, Inc. and the following additional agreements among the parties to the Stock Purchase Agreement: Investors Rights Agreement; Right of First Refusal and Co-Sale Agreement; and Voting Agreement. (10)

10.7		Jabber, Inc. Certificate of Designation for Series E and D Convertible Preferred Stock (11)

10.8		Exchange Agreement, dated as of October 21, 2003, by and between Webb Interactive Services, Inc. and Jona, Inc. (12)

10.9		Investor Rights Agreement, Right of First Refusal and Co-Sale Agreement and Voting Agreement, all dated April 8, 2005, among Jabber, Inc., Jona, Inc., France Telecom Technologies Investissements and Intel Capital Corporation (11)

13.1		The registrant intends to deliver to its shareholders a copy of 2004 Annual Report on Form 10-KSB (without exhibits), in lieu of a separate Annual Report to Shareholders

21.1		Subsidiaries of Webb Interactive Services, Inc. (11)

23.1		Consent of Ehrhardt Keefe Steiner & Hottman PC*

23.2		Consent of Ernst & Young LLP*

24.1		Power of Attorney* (Included in signature page)

31.1		Certification of Chief Executive Officer and Chief Financial Officer (11)

II-3



32.1		Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (11)

*	Filed herewith.

(1)	Filed with the Registration Statement on Form S-3, filed January 29, 1999, Commission File No. 333-71503.

(2)	Filed with the Registration Statement on Form SB-2, filed April 5, 1996, Commission File No. 333-3282-D.

(3)	Filed with the Registration Statement on Form S-3, filed September 24, 1999, Commission File No. 333-86465.

(4)	Filed with the Form 10-KSB Annual Report for the year ended December 31, 2000, Commission File No. 0-28462.

(5)	Filed with the Current Report on Form 8-K, filed January 22, 2002 and amended on January 29, 2002, Commission File No. 0-28462.

(6)	Filed with Amendment No. 2 to Webb’s Registration Statement on Form S-3, filed January 3, 2000, Commission File No. 333-87887.

(7)	Filed with the Current Report on Form 8-K, filed January 5, 2000, Commission File No. 0-28462.

(8)	Filed with the Current Report on Form 8-K, filed March 1, 2001, Commission File No. 0-28462.

(9)	Filed with the Form 10-KSB Annual Report for the year ended December 31, 2001, Commission File No. 0-28462.

(10)	Filed with the Current Report on Form 8-K, filed on March 20, 2003, Commission File No. 0-28462.

(11)	Filed with the Form 10-KSB Annyal Report for the year ended December 31, 2004, Commission File No. 0-28462.

(12)	As filed with the Quarterly Report on Form 10-QSB for the quarter ended September 30, 2003, Commission File No. 0-28462.

Item 28. Undertakings

The undersigned Registrant hereby undertakes:

1. To file, during any period in which it offers or sells securities, a post-effective amendment to this registration statement to:

a. Include any prospectus required by Section 10(a)(3) of the Securities Act of 1933;

b. Reflect in the prospectus any facts or events which, individually or together, represent a fundamental change in the information in the registration statement;

c. Include any additional or changed material information on the plan of distribution.

2. That, for determining liability under the Securities Act, to treat each post-effective amendment as a new registration statement of the securities offered, and the offering of the securities at that time to be the initial bona fide offering.

3. To file a post-effective amendment to remove from registration any of the securities that remain unsold at the end of the offering.

4. Insofar as indemnification for liabilities arising under the Securities Act of 1933 (the “Act”) may be directors, officers and controlling persons of the Registrant pursuant to the foregoing provisions, or otherwise, the Registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable.

5. In the event that a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred and paid by a director, officer or controlling person of the Registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered hereby, the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue.

II-4

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, as amended, the registrant certifies that it has reasonable grounds to believe that it meets all of the requirements for filing on Form SB-2 and has duly caused this amendment to the registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Denver, State of Colorado, on May 12, 2005.


WEBB INTERACTIVE SERVICES, INC.

By:		/s/ Lindley Branson
		Lindley S. Branson, Vice President and
		General Counsel

Know all persons by these presents, that each person whose signature appears below hereby constitutes and appoints Lindley Branson his true and lawful attorney-in-fact and agent, with full power of substitution and resubstitution for him and in his name, place, and stead, in any and all capacities, to sign any and all amendments to this registration statement and to file the same, with all amendments thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorney-in-fact and agent full powers and authority to do and perform each and every act and thing requisite or necessary to be done in and about the premises, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorney-in-fact and agent or his substitute or substitutes, may lawfully do or cause to be done by virtue hereof.

Pursuant to the requirements of the Securities Act of 1933, this amendment to the registration statement has been signed below on the 12th day of May, 2005, by the following persons in the capacities indicated:

/s/ Lindley Branson

Lindley Branson

(Vice President – General Counsel, as registrant’s only executive officer, in accordance with Rules 13a-14 and 15d-4 pursuant to the Securities and Exchange Act of 1934, as amended, registrant’s Chief Executive Officer and Chief Financial Officer for purposes of this report)

/s/ Stuart J. Lucko

Stuart J. Lucko

(Chief Accounting Officer)

/s/ Peter Ren

Peter Ren

(Director)

/s/ Robert Lacey*

Robert Lacey

(Director)

/s/ Barry Roelofs

Barry Roelofs

(Director)

* By Lindley Branson, attorney-in-fact

II-5

Webb Interactive Services, Inc.

Form SB-2

Index to Exhibits

(a)	Listing of Exhibits:


3.1(a)		Articles of Incorporation, as amended, of Webb Interactive Services, Inc. (1)

3.1(b)		Articles of Amendment setting forth the terms of Series D Junior Convertible Preferred Stock (2)

3.2		Bylaws of Webb Interactive Services, Inc. (3)

4.1		Specimen form of Webb Interactive Services, Inc. common stock certificate (4)

4.2		Webb Interactive Services, Inc. Stock Option Plan of 1995 (3)

4.3		Form of Incentive Stock Option Agreement for Webb Interactive Services, Inc. Stock Option Plan of 1995 (3)

4.4		Form of Nonstatutory Stock Option Agreement for Webb Interactive Services, Inc. Stock Option Plan of 1995 (3)

4.5		Webb Interactive Services, Inc. Stock Option Plan of 2000, including forms of Incentive and Nonstatutory Stock Option Agreements (5)

4.6		Stock Purchase Warrant dated August 25, 1999, as amended December 18, 1999, issued by Webb Interactive Services, Inc. to Castle Creek Technology Partners, Inc. (6)

4.7

4.8		Stock Purchase Warrant dated December 31, 1999 issued to by Webb Interactive Services, Inc. Marshall Capital Management, Inc. and Castle Creek Technology Partners, LLC (7)

4.9		Form of Stock Purchase Warrant dated February 28, 2001 issued by Webb Interactive Services, Inc. to Castle Creek Technology Partners, LLC (8)

4.10

10.1		Form of Nondisclosure and Nonsolicitation Agreement between Webb Interactive Services, Inc. and its employees (1)

10.2		Employment Agreement between Webb Interactive Services, Inc. and Lindley S. Branson, dated March 1, 2002 (9)

10.3		Securities Purchase Agreement dated as of January 17, 2002, between Webb Interactive Services, Inc. and Jona, Inc. Included as an exhibit is a Registration Rights Agreement (2)

10.4		Letter Agreement between Webb Interactive Services, Inc. and Jona, Inc. (9)

10.5		Exchange Agreement dated January 17, 2002 between Webb Interactive Services, Inc. and Castle Creek Technology Partners LLC. Included as an exhibit is a Registration Rights Agreement (2)

10.6		Series D Preferred Stock Purchase Agreement dated March 17, 2003, by and among Jabber, Inc. France Telecom Technologies Investissements, Intel Capital Corporation, and Webb Interactive Services, Inc. Included as exhibits to the Stock Purchase Agreement are the Restated Certificate of Incorporation of Jabber, Inc. and the following additional agreements among the parties to the Stock Purchase Agreement: Investors Rights Agreement; Right of First Refusal and Co-Sale Agreement; and Voting Agreement. (10)

10.7		Jabber, Inc. Certificate of Designation for Series E and D Convertible Preferred Stock (11)

10.8		Exchange Agreement, dated as of October 21, 2003, by and between Webb Interactive Services, Inc. and Jona, Inc. (12)

10.9		Investor Rights Agreement, Right of First Refusal and Co-Sale Agreement and Voting Agreement, all dated April 8, 2005, among Jabber, Inc., Jona, Inc., France Telecom Technologies Investissements and Intel Capital Corporation (11)

13.1		The registrant intends to deliver to its shareholders a copy of 2004 Annual Report on Form 10-KSB (without exhibits), in lieu of a separate Annual Report to Shareholders

21.1		Subsidiaries of Webb Interactive Services, Inc. (11)

23.1		Consent of Ehrhardt Keefe Steiner & Hottman PC*

23.2		Consent of Ernst & Young LLP*

24.1		Power of Attorney* (Included in signature page)

31.1		Certification of Chief Executive Officer and Chief Financial Officer (11)

32.1		Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (11)

*	Filed herewith.

(1)	Filed with the Registration Statement on Form S-3, filed January 29, 1999, Commission File No. 333-71503.

(2)	Filed with the Registration Statement on Form SB-2, filed April 5, 1996, Commission File No. 333-3282-D.

(3)	Filed with the Registration Statement on Form S-3, filed September 24, 1999, Commission File No. 333-86465.

(4)	Filed with the Form 10-KSB Annual Report for the year ended December 31, 2000, Commission File No. 0-28462.

(5)	Filed with the Current Report on Form 8-K, filed January 22, 2002 and amended on January 29, 2002, Commission File No. 0-28462.

(6)	Filed with Amendment No. 2 to Webb’s Registration Statement on Form S-3, filed January 3, 2000, Commission File No. 333-87887.

(7)	Filed with the Current Report on Form 8-K, filed January 5, 2000, Commission File No. 0-28462.

(8)	Filed with the Current Report on Form 8-K, filed March 1, 2001, Commission File No. 0-28462.

(9)	Filed with the Form 10-KSB Annual Report for the year ended December 31, 2001, Commission File No. 0-28462.

(10)	Filed with the Current Report on Form 8-K, filed on March 20, 2003, Commission File No. 0-28462.

(11)	Filed with Form 10-KSB Annual Report for the year ended December 31, 2004. Commission File No. 0-28462.

(12)	As filed with the Quarterly Report on Form 10-QSB for the quarter ended September 30, 2003, Commission File No. 0-28462.