10-Q

FORM 10-QSB– Quarterly
Report Under Section 13 or 15(d) of the Securities Exchange Act of 1934

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

FORM 10-QSB

x Quarterly Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of l934.

For the period ended September 30, 2002.

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

For the transition period from to .

Commission File Number 0-28462.

WEBB INTERACTIVE SERVICES, INC.
(Exact name of registrant as specified in its charter)

COLORADO
(State or other jurisdiction
of incorporation or organization
84-1293864
I.R.S. Employer
Identification No.)

1899 WYNKOOP, SUITE 600, DENVER, CO
(Address of principal executive offices)
80202
(Zipcode)

(303) 308-3180
(Registrant’s telephone number, including area code)

______________________________________________________________
Former name, former address and former fiscal year, if changed since last report.)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

x Yes      o No

APPLICABLE ONLY TO CORPORATE ISSUERS:

             As of November 1, 2002, Registrant had 21,655,667 shares of common stock outstanding.

1

WEBB INTERACTIVE SERVICES, INC.

Index

			Page
Part I.	Financial Information
	Item 1.	Unaudited Financial Statements
		Condensed Consolidated Balance Sheets as of September 30, 2002 and December 31, 2001	3
		Condensed Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2002 and 2001	4
		Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2002 and 2001	5
		Notes to Condensed Consolidated Financial Statements	7-20
	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	21-37
	Item 3.	Disclosure Controls and Procedures	38-39
Part II.	Other Information
	Items 1 - 5.	Not Applicable	40
	Item 6.	Exhibits and Reports on Form 8-K	40-41

Signatures	42
Certifications	43-44

This report contains forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended, and Section 27A of the Securities Act of 1933, as amended, and is subject to the safe harbors created by those sections. These forward-looking statements are subject to significant risks and uncertainties, including those identified in the section of this Form 10-QSB entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations -- Factors That May Affect Future Operating Results,” which may cause actual results to differ materially from those discussed in such forward-looking statements. The forward-looking statements within this Form 10-QSB are identified by words such as “believes,” “anticipates,” “expects,” “intends,” “may,” “will” and other similar expressions. However, these words are not the exclusive means of identifying such statements. In addition, any statements which refer to expectations, projections or other characterizations of future events or circumstances are forward-looking statements. The Company undertakes no obligation to publicly release the results of any revisions to these forward-looking statements which may be made to reflect events or circumstances occurring subsequent to the filing of this Form 10-QSB with the Securities and Exchange Commission (“SEC”). Readers are urged to carefully review and consider the various disclosures made by the Company in this report and in the Company’s other reports filed with the SEC that attempt to advise interested parties of the risks and factors that may affect the Company’s business.

2

PART I FINANCIAL INFORMATION

ITEM 1.    FINANCIAL STATEMENTS

WEBB INTERACTIVE SERVICES, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(UNAUDITED)

	September 30, 2002			December 31, 2001
ASSETS
Current assets:
Cash and cash equivalents	$	2,090,958		$	919,198
Accounts receivable, net of allowance for doubtful accounts of $44,823        and $27,005, respectively		530,453			307,247
Accounts receivable from a related party		81,316			107,744
Prepaid expenses		152,923			33,377
Note receivable from Company officer		150,813			160,822
Short-term deposits and other current assets		8,904			68,862
Total current assets		3,015,367			1,597,250
Property and equipment, net of accumulated depreciation of $1,188,142 and     $924,856, respectively		1,105,759			1,541,045
Intangible assets, net of accumulated amortization of none and $2,370,495,     respectively		—			727,301
Deferred financing assets		—			233,451
Total assets	$	4,121,126		$	4,099,047
LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)
Current liabilities:
Accounts payable and accrued liabilities	$	539,945		$	741,923
Accrued salaries and payroll taxes payable		645,249			344,316
10% convertible note payable, net of discount of none and $84,776,        respectively		—			1,847,416
Convertible note and accrued interest payable		—			104,607
Capital leases payable		—			63,930
Short-term note payable		—			175,000
Accrued interest payable		—			58,964
Deferred revenue and customer deposits		159,788			192,592
Net current liabilities of discontinued operations		27,581			306,846
Total current liabilities		1,372,563			3,835,594
Commitments and contingencies
Minority interest in subsidiary		118,739			5,674,496
Stockholders’ equity (deficit):
Preferred stock, no par value, 5,000,000 shares authorized:
Series D junior convertible preferred stock, 2,784 and none shares          issued and outstanding, respectively		1,862,497			—
Series C-1 convertible preferred stock, none and 2,500 shares issued          and outstanding, respectively		—			2,450,000
Common stock, no par value, 60,000,000 shares authorized, 21,445,667        and 11,331,522 shares issued and outstanding, respectively		103,165,757			93,155,341
Warrants and options		20,039,427			15,010,930
Accumulated other comprehensive loss		(13,729	)		(5,049	)
Accumulated deficit		(122,424,128	)		(116,022,265	)
Total stockholders’ equity (deficit)		2,629,824			(5,411,043	)
Total liabilities and stockholders’ equity (deficit)	$	4,121,126		$	4,099,047

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

3

WEBB INTERACTIVE SERVICES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)

	Three Months Ended September 30,						Nine Months Ended September 30,
	2002			2001			2002			2001
Net revenues	$	801,514		$	242,333		$	1,861,715		$	415,866
Net revenues from a related party		124,999			3,400			288,229			87,346
Total net revenues		926,513			245,733			2,149,944			503,212
Operating expenses:
Cost of revenues		229,452			183,098			447,024			665,019
Cost of revenues from a related party		60,572			—			150,070			—
Sales and marketing expenses		608,422			277,645			1,469,158			739,209
Product development expenses		677,315			805,956			1,969,256			2,172,192
General and administrative expenses		779,383			1,371,865			3,184,932			4,462,970
Depreciation and amortization		118,900			575,307			1,099,468			1,675,070
		2,474,044			3,213,871			8,319,908			9,714,460
Loss from operations		(1,547,531	)		(2,968,138	)		(6,169,964	)		(9,211,248	)
Interest income		8,517			12,630			34,055			118,970
Other income, net		4,402			8,780			12,191			23,246
Loss on extinguishment of 10% note payable		—			—			(1,162,934	)		—
Interest expense		—			(212,397	)		(616,162	)		(3,106,544	)
Net loss from continuing operations		(1,534,612	)		(3,159,125	)		(7,902,814	)		(12,175,576	)
Net loss from discontinued operations		—			(2,200,006	)		—			(6,725,968	)
Net loss before minority interest		(1,534,612	)		(5,359,131	)		(7,902,814	)		(18,901,544	)
Minority interest in losses of subsidiary		8,893			72,550			2,048,855			251,090
Net loss before extraordinary income		(1,525,719	)		(5,286,581	)		(5,853,959	)		(18,650,454	)
Extraordinary income		—			—			225,993			—
Net loss		(1,525,719	)		(5,286,581	)		(5,627,966	)		(18,650,454	)
Preferred stock dividends		—			(57,989	)		(125,187	)		(57,989	)
Accretion of preferred stock to redemption value		(10,387	)		(35,192	)		(648,710	)		(2,921,633	)
Net loss applicable to common stockholders	$	(1,536,106	)	$	(5,379,762	)	$	(6,401,863	)	$	(21,630,076	)
Net loss applicable to common stockholders from     continuing operations per share, basic and     diluted	$	(0.07	)	$	(0.30	)	$	(0.35	)	$	(1.41	)
Net loss applicable to common stockholders per     share from discontinued operations, basic and     diluted		—		$	(0.20	)		—		$	(0.63	)
Net loss per share, basic and diluted	$	(0.07	)	$	(0.50	)	$	(0.35	)	$	(2.04	)
Weighted average shares outstanding, basic and     diluted		21,342,624			10,872,058			18,527,602			10,605,041

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

4

WEBB INTERACTIVE SERVICES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

	Nine Months Ended September 30,
	2002			2001
Cash flows from operating activities:
Net loss	$	(5,627,966	)	$	(18,650,454	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation expense		407,720			938,261
Amortization expense		691,748			2,660,522
Impairment loss		—			1,019,301
Loss from extinguishment of 10% note payable		1,162,934			—
Extraordinary income from creditor concessions		(225,993	)		—
Minority interest in losses of subsidiary		(2,048,855	)		(251,090	)
Stock and stock options issued for services		71,143			562,189
Gain on sale and disposal of property and equipment		(2,022	)		(1,330	)
Bad debt expense		24,918			67,073
Accrued interest payable on convertible note payable		2,394			43,134
Accrued interest income on notes receivable		—			(10,054	)
Interest expense on 10% convertible note from beneficial conversion feature		255,060			2,394,234
Interest expense for reset of second 10% note payable warrant		74,086			—
Interest expense for reset of warrant issued with Jona short-term note payable		14,365			—
Notes payable issued for interest on 10% convertible note payable		—			9,809
Amortization of 10% convertible note payable discount		49,144			118,155
Amortization of short-term note payable discount		29,976			7,869
Amortization of 10% convertible note payable financing costs		135,388			326,894
Amortization of short-term notes payable financing costs		—			10,500
Changes in operating assets and liabilities:
Decrease in restricted cash		—			50,000
(Increase) decrease in accounts receivable		(219,110	)		236,581
Decrease (increase) in accounts receivable from a related party		26,428			(107,744	)
(Increase) decrease in prepaid expenses		(112,193	)		45,547
Decrease in short-term deposits and other assets		59,958			371,000
(Decrease) increase in accounts payable and accrued liabilities,		(347,221	)		114,111
Increase (decrease) in accrued salaries and payroll taxes payable		279,702			(433,207	)
Decrease in accrued interest payable		(48,632	)		(11,175	)
Decrease in customer deposits and deferred revenue		(32,804	)		(3,606	)
Net cash used in operating activities		(5,379,832	)		(10,493,480	)
Cash flows from investing activities:
Proceeds from the sale of property and equipment		2,022			22,293
Purchase of property and equipment		(59,327	)		(198,721	)
Collection of notes receivable from Company officers		10,009			30,000
Net cash used in investing activities		(47,296	)		(146,428	)
Cash flows from financing activities:
Payments on capital leases		(35,599	)		(109,961	)
Payment of short-term notes payable		(1,340,000	)		—
Payment on 10% note payable		(720,000	)		—
Proceeds from issuance of short-term notes payable		1,200,000			340,000
Proceeds from issuance of common stock and warrants		7,500,000			—
Proceeds from exercise of stock options and warrants		—			24,219
Proceeds from issuance of convertible note payable		—			2,500,000
Proceeds from issuance of series C-1 preferred stock and warrant		—			2,500,000
Proceeds form issuance of Jabber preferred stock		—			2,525,000
Short-term notes payable financing costs		—			(21,000	)
Preferred stock cash offering costs		—			(50,000	)
Net cash provided by financing activities		6,604,401			7,708,258
Net increase (decrease) in cash and cash equivalents		1,177,273			(2,931,650	)
Effect of foreign currency exchange rate changes on cash		(8,680	)		(5,357	)
Cash and cash equivalents, beginning of period		922,365			4,856,686
Cash in discontinued operations		—			(3,604	)
Cash and cash equivalents, end of period	$	2,090,958		$	1,916,075

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

5

WEBB INTERACTIVE SERVICES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
(UNAUDITED)

	Nine Months Ended September 30,
	2002		2001
Supplemental disclosure of cash flow information:
Cash paid for interest	$	104,381	$	201,031
Supplemental schedule of non-cash investing and financing activities:
Accretion of preferred stock to stated value and other deemed dividends	$	648,710	$	2,921,633
Preferred stock dividends on Jabber preferred stock	$	125,187	$	57,989
Preferred stock converted to common stock	$	1,250,000	$	492,553
10% note payable exchanged for series D preferred stock	$	1,078,497	$	—
10% note payable converted to common stock	$	—	$	568,938

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

6

WEBB INTERACTIVE SERVICES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2002
(UNAUDITED)

NOTE 1 – BASIS OF PRESENTATION

         The accompanying unaudited interim condensed consolidated financial statements include the accounts of Webb Interactive Services, Inc. and its subsidiaries (collectively “Webb” or the “Company”). All significant intercompany balances and transactions have been eliminated in consolidation. Webb is the founder and the majority stockholder of Jabber, Inc. (“Jabber”), a company in the early stages of developing extensible instant messaging (“IM”) software products and services. Continuing operations of Webb refer to the Jabber business segment and Webb’s corporate activities. Minority interest share of the net loss of our Jabber subsidiary is recorded based upon the minority interest share in the net assets of Jabber. These condensed consolidated financial statements have been prepared without audit pursuant to rules and regulations of the SEC and reflect, in the opinion of management, all adjustments, which are of a normal and recurring nature, necessary for a fair presentation of the financial position and results of operations for the periods presented. The preparation of financial statements in accordance with accounting principles generally accepted in the United States requires management to make estimates and assumptions. Such estimates and assumptions affect the reported amounts of assets and liabilities as well as disclosure of contingent assets and liabilities at the date of the accompanying financial statements, and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. The results of operations for the interim periods are not necessarily indicative of the results for the entire year. The interim financial statements should be read in connection with the financial statements included in our Annual Report on Form 10-KSB for the year ended December 31, 2001, filed with the SEC.

         We have not been profitable since inception. Our ability to become profitable depends on our ability to market our products and services and generate revenues sufficient to exceed our expenses. Because of the new and evolving nature of instant messaging technologies and Jabber’s early stage of development, we cannot be sure that our revenue model will prove to be viable, whether demand for our products and services will materialize at the prices we expect to charge, or whether current or future pricing levels will be sustainable. In January and March 2002, we raised $7.5 million in cash through the sale of Webb’s common stock and common stock purchase warrants (See Note 5). At September 30, 2002, we had $2,090,958 in cash and cash equivalents.

         We have expended significant funds to develop Jabber’s current product offerings and we anticipate continuing losses in 2002 and at least the first nine months of 2003 as we further develop and market Jabber’s products in advance of market acceptance in sufficient quantities to achieve positive cash flow from operations. Webb does not currently have a source of revenue which is independent from its Jabber subsidiary, and is therefore dependent on the success of its Jabber subsidiary. As a result of the France Telecom Technologies Investissements (“FTTI”) investment in Jabber, Jabber is being funded separately. Webb expects to make additional investments in Jabber in the future. Our continued long-term viability depends, in part, on Jabber’s ability to obtain additional profitable customer contracts.

         We believe that the funds available at November 1, 2002 provide us with sufficient capital to operate Webb through at least September 2003 and Jabber to March 2003. We have begun discussions with several investors for an additional $4 to $7 million of financing for Jabber through the sale of Webb or Jabber securities. However, we have no commitment for the additional sale of these securities. Therefore, there can be no guarantee that this financing will be completed, or if completed, that the terms of any such financing will be acceptable. If we are not successful in obtaining funding in appropriate amounts or on appropriate terms, we would consider additional reductions in our operating activities.

         Certain reclassifications to prior period financial statements have been made to conform to the current period presentation.

7

NOTE 2 – REVENUE RECOGNITION

         Revenues are generated from the license of our software products and from professional service arrangements. 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.

         We recognize revenue on software arrangements 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 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 are 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 we are unable to make sufficiently accurate estimates of costs at the outset of the arrangement, we use the completed contract method of accounting 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.

         For software arrangements with multiple elements, we apply 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 limited 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 the delivered elements is deemed equal to the remainder/residual amount of the fixed arrangement price. Assuming none of the undelivered elements are essential to the functionality of any of the delivered elements, we recognize the residual revenue attributed to the delivered elements when all other criteria for revenue recognition for those elements have been met.

         We believe our current revenue recognition policies and practices are consistent with the provisions of SOP 97-2, as amended by SOP 98-4 and SOP 98-9, which were issued by the AICPA, as well as other related authoritative literature. Implementation guidelines for these standards, as well as potential new standards, could lead to unanticipated changes in our current revenue recognition policies. Such changes could affect the timing of our future revenue and results of operations.

8

         Net revenues from continuing operations are comprised of the following:

	Three Months Ended September 30,				Nine Months Ended September 30,
	2002		2001		2002		2001
Net revenues
Licenses	$	467,447	$	220,000	$	1,179,302	$	280,000
Licenses to France Telecom, a related party		—		—		—		73,746
Total license revenue		467,447		220,000		1,179,302		353,746
Services		334,067		22,333		682,413		135,866
Services provided to France Telecom, a related party		124,999		3,400		288,229		13,600
Total service revenue		459,066		25,733		970,642		149,466
Total net revenues	$	926,513	$	245,733	$	2,149,944	$	503,212

         Included in net service revenues for the three and nine months ended September 30, 2002, is $119,248 and $270,976, respectively, in professional service revenue and $5,751 and $17,253, respectively, in support and maintenance revenue from France Telecom (collectively France Telecom and its subsidiaries or affiliates, “FT”), an investor in Jabber. In February 2002, Jabber and FT entered into a fixed price professional services agreement, valued at $455,000, whereby Jabber is providing professional consulting services for general IM technology as well as IM technology integration with FT proprietary product offerings. Jabber expects to recognize $113,796 in revenue from this contract during the remainder of 2002 and $70,228 during the first quarter of 2003. Support and maintenance revenue recognized in the first quarter relates to the one-year support and maintenance agreement FT entered into on October 1, 2001, in connection with the license of Jabber’s commercial server to FT (“OEM license”). In October 2002, Jabber entered into an agreement with FT to amend the OEM license agreement whereby FT purchased a user-based license including the first year of support and maintenance for $500,000. In addition, FT has an option to purchase additional licenses on or before December 15, 2002, and a second option to purchase an unlimited user license on or before December 15, 2003. We expect to recognize at least $437,489 in revenue in the fourth quarter of 2002 from the initial purchase. Should the additional options be exercised, the resulting revenue would be recognized on a straight-line basis over the three-year term of the contract.

NOTE 3 – INTANGIBLE ASSETS

         On January 1, 2002, we adopted Statement of Financial Accounting Standards (“SFAS”) No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets (“SFAS 144”). SFAS 144 requires us to evaluate the carrying value of our long-lived assets and certain identifiable intangibles for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to future undiscounted net cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount which the carrying amount of the assets exceed the fair value of the assets. Assets to be disposed of are reported at the lower of the carrying amount or fair value less the estimated cost to sell the asset. At September 30, 2002, the intangible assets, which consisted of technology utilized by Jabber acquired by Webb in a 1999 acquisition, were fully amortized.

         We recorded amortization expense totaling $0 and $940,071 (including $511,151 from discontinued operations in 2001) for the three months ended September 30, 2002 and 2001, respectively. We recorded amortization expense totaling $691,748 and $2,660,522 (including $1,503,637 from discontinued operation in 2001) for the nine months ended September 30, 2002 and 2001, respectively. Amortization expense was reduced in the

9

2002 nine-month period by $35,553 as a result of the step-down adjustment allocated to intangible assets resulting from Webb’s purchase of Jabber minority interest in April 2002 (See Note 7).

NOTE 4 – NET LOSS PER 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 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, there are no differences between basic and diluted per share amounts for all periods presented.

	September 30,
	2002		2001
Stock options		4,557,919		3,586,358
Warrants		12,715,315		1,255,315
Series D preferred stock		2,784,000		—
10% convertible note payable		—		772,877
Series B-2 preferred stock		—		180,000
Series C-1 preferred stock		—		1,000,000
Total		20,057,234		6,794,550

         The number of potential shares excluded from the earnings per share calculation because they are anti-dilutive, using the treasury stock method, were 75,525 and 199,670 for the three and nine months ended September 30, 2002, respectively, and 104,710 and 147,380 for the three and nine months ended September 30, 2001, respectively.

NOTE 5 – INVESTMENT BY JONA, INC.

         On January 17, 2002, we sold 1,100,000 units of our securities to Jona Inc. (“Jona”) for $1,100,000 (the “January 2002 Jona transaction”). Each unit consisted of one share of common stock and one warrant to purchase an additional share of common stock at an exercise price of $1.00 per share. The warrants may be exercised at any time by the holder from the date of issuance for a period of 5 years. On March 11, 2002, Webb’s shareholders approved the sale to Jona of an additional 3,900,000 units for $3,900,000, which were purchased by Jona on March 12, 2002.

         In connection with the January 2002, Jona transaction, we also granted Jona an option to purchase 2,500,000 units for $2,500,000 on or before August 31, 2002. The issuance of this option was approved by Webb’s shareholders on March 11, 2002. On March 28, 2002, Jona exercised this option and purchased 2,500,000 units for which we received $2,500,000 in proceeds (the “March 28, 2002 Jona transaction”). In consideration for Jona exercising the option more than five months before the option expired and prior to the conclusion of the first quarter of the current fiscal year, we granted Jona an additional warrant representing the right to acquire 2,500,000 shares of our common stock at $1.00 per share. The value of this warrant, totaling $1,769,369, was recorded as an offering cost of the Jona transactions.

         We valued the warrants using the Black-Scholes option pricing model and allocated the relative fair value to the common stock and the warrants as follows:

	2002 Closings
Security	January 17		March 12		March 28
Common stock	$	521,445	$	1,848,760	$	1,185,102
Warrant to purchase common stock		578,555		2,051,240		1,314,898
Total	$	1,100,000	$	3,900,000	$	2,500,000

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         We used the following assumptions to value the warrants:

	2002 Closings
	January 17			March 12			March 28			March 28
	Unit Warrant			Unit Warrant			Unit Warrant			Warrant Offering Costs
Number of Warrants		1,100,000			3,900,000			2,500,000			2,500,000
Exercise price	$	1.00		$	1.00		$	1.00		$	1.00
Fair market value of common stock on date of     issuance	$	0.97		$	0.74		$	0.74		$	0.83
Option life		5 years			5 years			5 years			5 years
Volatility rate		127	%		127	%		127	%		127	%
Risk-free rate of return		6	%		6	%		6	%		6	%
Dividend rate		0	%		0	%		0	%		0	%
Calculated value	$	921,959		$	2,435,594		$	1,561,278		$	1,769,369

         In connection with the January 2002 and March 28, 2002 Jona transactions, we issued two five-year warrants to purchase 450,000 and 125,000 shares, respectively, of our common stock to a financial advisor and a five year warrant to purchase 100,000 shares of our common stock to a private business owner and stockholder for payment of fees associated with the transactions. The warrants may be exercised at any time from the date of issuance by the holder at an exercise price of $1.00 per share. We recorded the value of the warrants, totaling $549,447 as offering costs and valued the warrants using the Black-Scholes option pricing model utilizing the following assumptions:

	January 17, 2002			March 28, 2002
Number of shares underlying warrants		550,000			125,000
Exercise price	$	1.00		$	1.00
Fair market value of common stock on date of issuance	$	0.97		$	0.83
Option life		5 years			5 years
Volatility rate		127	%		127	%
Risk-free rate of return		6	%		6	%
Dividend rate		0	%		0	%
Calculated value	$	460,979		$	88,468

We allocated the warrant offering costs based on the relative fair value of the units as follows:

	Common Stock		Warrants		Total
Relative fair value of securities	$	3,555,307	$	3,944,693	$	7,500,000
2,500,000 warrant offering costs	$	838,753	$	930,616	$	1,769,369
550,000 warrant value		218,523		242,456		460,979
125,000 warrant value		41,937		46,531		88,468
Total	$	1,099,213	$	1,219,603	$	2,318,816

         The warrants issued in connection with the units, as well as the warrants issued as offering costs provide for anti-dilution protection in the event we issue common stock at prices less than the current conversion or exercise price for the securities or the then current price for our common stock and for stock splits, stock dividends and other similar transactions. If the exercise price is reduced, we may be required to record additional charges against income and such charges may be significant.

11

         At the time Jona agreed to purchase the units, it loaned us $900,000 at an interest rate of 10% per year. On January 8, 2002, Jona had also loaned us $300,000 at an interest rate of 10%. On March 12, 2002, we repaid the $1.2 million of principal and accrued interest totaling $18,164. We also issued Jona a three-year warrant to purchase 60,000 shares of our common stock at an initial exercise price of $2.50 per share as part of the $300,000 loan. The exercise price was reduced to $1.00 in connection with the January 2002 Jona transaction, for which we recorded non-cash interest expense totaling $14,365 in the first quarter of 2002. The value of the warrant, totaling $29,976, was recorded as a discount to the $300,000 note and amortized to interest expense during the first quarter of 2002.

         We valued the warrant utilizing the Black-Scholes option pricing model using the following assumptions:

	Initial Valuation			January 17, 2002 Valuation
Exercise price	$	2.50		$	1.00
Fair market value of common stock on date of issuance or revaluation	$	0.82		$	0.97
Option life		3 years			3 years
Volatility rate		131	%		127	%
Risk-free rate of return		6	%		6	%
Dividend rate		0	%		0	%
Warrant value	$	29,976		$	44,341
Expense recorded		N/A		$	14,365

         In connection with the January 2002 Jona transaction, and in accordance with the original terms of the securities, the conversion prices for our 10% convertible note payable and series C-1 preferred stock as well as the exercise prices for the second 10% note payable warrant and the series C-1 preferred stock warrant were all reset to $1.00 per share (See Note 7 for the calculations of the resets). As a result, we recorded non-cash expenses in the first quarter of 2002 as follows:

Security Reset	Non-Cash Expense
10% note payable (additional interest expense due to anti-dilution protection on conversion feature)	$	255,060
Series C-1 preferred stock (additional preferred stock accretion)		479,442
Second 10% note payable warrant (non-cash interest expense)		74,086
Series C-1 preferred stock warrant (additional preferred stock accretion)		148,259
Total	$	956,847

NOTE 6 – PREFERRED STOCK AND 10% NOTE PAYABLE

         At the same time we agreed to sell the units to Jona, Castle Creek Technology Partners LLC (“Castle Creek”) agreed to exchange up to 2,500 shares of series C-1 preferred stock and $1,212,192 of principal of our 10% 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 is now $1.00. We recorded non-cash interest and accretion expense for the reset of these warrants in the first quarter of 2002 totaling $222,345 (See Note 7). The 4,484 shares of series D preferred stock are convertible into 4,484,000 shares of our common stock. If we had not reached the agreement to exchange the series C-1 convertible preferred stock and the 10% convertible promissory notes, these securities would have been convertible into 3,712,192 shares of our common stock and Castle Creek would have been entitled to an additional warrant for 2,500,000 shares at an exercise price of $1.00 per share.

         On January 31 and February 21, 2002, Castle Creek exchanged 1,500 and 550 shares, respectively, of series C-1 preferred stock for 1,500 and 550 shares, respectively, of our series D preferred stock.

12

         On March 12, 2002, we repaid $720,000 of principal of the 10% convertible note and accrued interest of $37,585. On March 13, 2002, we exchanged the remaining principal balance of $1,212,192 for 1,984 shares of our series D preferred stock. As a result of this exchange, in the first quarter of 2002 we recorded a non-cash loss on debt extinguishment totaling $625,164 computed as follows:

Balance of 10% note payable exchanged for series D preferred stock	$	1,212,192
Number of common shares 10% note payable would have converted into immediately prior to     exchange		1,212,192
Number of common shares convertible into series D preferred stock immediately after exchange		1,984,000
Increase in number of common shares		771,808
Fair market value of common stock on March 13, 2002	$	0.81
Loss on debt extinguishment	$	625,164

         On January 17, 2002, we issued Castle Creek a five-year warrant to purchase 750,000 shares of our common stock as part of the exchange of our 10% note payable owned by Castle Creek for our series D junior preferred convertible stock. The exercise price for the warrant is currently $1.00 per share. The exercise price for the warrant is also subject to anti-dilution protection if we issue our common stock at prices less than the exercise price for the warrant and for stock splits, stock dividends and other similar transactions. If the warrant price is reset, we may record additional charges to income. The warrant is subject to early expiration for one-third of the shares if our common stock trades at $2.00 or more for five consecutive days and for an additional one-third of the shares if our common stock trades at $3.00 or more for five consecutive days.

         We recorded a loss on debt extinguishment for the value of the warrant totaling $537,770 in the first quarter of 2002. We valued the warrant using the Black-Scholes option pricing model utilizing the following assumptions:

Exercise price	$	1.00
Fair market value of common stock on date of issuance	$	0.84
Option life		5 years
Volatility rate		127	%
Risk-free rate of return		6	%
Dividend rate		0	%

         Series D Junior Convertible Preferred Stock-

         As a result of the transactions described above, we issued 4,034 shares of series D preferred stock with 2,784 shares being outstanding at September 30, 2002. 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 is also 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.

         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.

13

         During the nine months ended September 30, 2002, the holder of our series D preferred stock converted 1,250 shares into 1,250,000 shares of our common stock at conversion prices per share of $1.00 as follows:

	Number of Shares
Conversion Date	Series C-1 Preferred Stock		Common Stock
March 15, 2002		250		250,000
April 3, 2002		200		200,000
April 25, 2002		100		100,000
May 7, 2002		150		150,000
May 8, 2002		50		50,000
June 13, 2002		50		50,000
June 18, 2002		50		50,000
June 25, 2002		200		200,000
August 21, 2002		200		200,000
		1,250		1,250,000

         During October 2002, the holder of our series D preferred stock converted 200 shares into 200,000 shares of our common stock at conversion prices per share of $1.00 (See Note 13).

Conversion of Series C-1 Preferred Stock-

         During January and February 2002, the holder of our series C-1 preferred stock converted 450 shares into 450,000 shares of our common stock at conversion prices per share of $1.00 as follows:

	Number of Shares
Conversion Date	Series C-1 Preferred Stock		Common Stock
January 22, 2002		175		175,000
January 28, 2002		175		175,000
February 12, 2002		100		100,000
		450		450,000

NOTE 7 – CONVERSION OF JABBER SECURITIES INTO JABBER COMMON STOCK AND
                   PURCHASE OF JABBER MINORITY INTEREST BY WEBB

         On April 8, 2002, we entered into an agreement with Jabber and FTTI, pursuant to which Webb and FTTI agreed to convert substantially all of their respective shares of Jabber’s preferred stock into shares of Jabber’s common stock as of the “FTTI Effective Date.” The FTTI Effective Date was April 29, 2002. As part of the agreement, the pledge by Webb to FTTI of 1,400,000 shares of Webb’s Jabber preferred stock was terminated, Webb exchanged the principal and interest of a $1,100,000 note payable from Jabber for shares of Jabber’s common stock at $1.00 per share and FTTI converted the principal and interest on a Jabber convertible note for $100,000 into shares of Jabber’s common stock, also at $1.00 per share.

         As a result of the transaction, Webb recorded a non-cash adjustment to minority interest in Jabber of $1,611,869, which represents the difference between the Jabber losses allocated to FTTI prior to the FTTI Effective Date and the amount of Jabber losses that would have been allocated to FTTI had the transaction occurred at inception of the FTTI investment in Jabber. Additionally, Webb recorded $3,043,038 as an increase to additional paid-in capital in accordance with Staff Accounting Bulletin No. 51. “Accounting for Sales of Stock By a Subsidiary” (SAB 51). The amount was computed as the difference between FTTI’s minority interest balance after the transaction and allocation of the $1,611,869 FTTI minority interest adjustment and multiplying Jabber’s net worth at April 29, 2002, by FTTI’s ownership percentage after the transaction.

14

         In a separate transaction, Webb acquired all of the shares of Jabber’s common stock and preferred stock owned by DiamondCluster International, Inc. (“DiamondCluster”), valued at $759,503, in consideration for which Webb issued to DiamondCluster 911,645 shares of Webb’s common stock at $0.67 per share. The resulting difference between the value of the Webb shares issued and the value of the Jabber securities acquired was $122,451, resulting in a reduction in the cost basis for Jabber’s property and equipment and intangible assets, of $86,898 and $35,553, respectively. During the three and nine months ended September 30, 2002, we recorded $9,440 and $15,736, respectively, less in depreciation expense and $35,553 less in amortization expense during the nine months ended September 30, 2002, as a result of this transaction.

         Jabber common stock equivalents at April 29, 2002, before the April 2002 stock transactions were as follows:

Securities	Webb			FTTI			Diamond Cluster			Others			Total
Series A preferred stock		8,050,000			750,000			—			—			8,800,000
Series B preferred stock and accrued     dividends		—			4,428,710			733,253			—			5,161,963
Series C preferred stock and accrued     dividends		8,464,038			—			—			26,397			8,490,435
Common stock		—			—			37,500			875,000			912,500
Total		16,514,038			5,178,710			770,753			901,397			23,364,898
Ownership percentage		70.7	%		22.2	%		3.3	%		3.8	%		100.0	%

         Jabber common stock equivalents at April 29, 2002, after the April 2002 stock transactions are as follows:

Securities	Webb			FTTI			Diamond Cluster		Others			Total
Series A preferred stock		—			—			—		—			—
Series B preferred stock		—			100,000			—		—			100,000
Series C preferred stock		100,000			—			—		25,000			125,000
Common stock		18,290,232			5,185,712			—		876,397			24,352,341
Total		18,390,232			5,285,712			—		901,397			24,577,341
Ownership percentage		74.8	%		21.5	%		—		3.7	%		100.0	%

15

NOTE 8 – RESET OF CONVERSION AND EXERCISE PRICES OF SECURITIES

         The original terms of our 10% convertible note payable, preferred stock and the warrants issued in connection with those securities provide for anti-dilution protection in the event we issue common stock at prices less than the current conversion or exercise price for the securities or the then current price for our common stock and for stock splits, stock dividends and other similar transactions. On January 17, 2002, we issued common stock at $1.00 per share (See Note 5). Accordingly, in accordance with terms of the original agreements, the conversion prices for the 10% note payable and our series C-1 preferred stock as well as the exercise prices for the second 10% note payable warrant and series C-1 preferred stock warrant were reset as indicated in the tables that follow.

	Conversion or Exercise Price Immediately Preceding Reset		Conversion or Exercise Price Immediately After Reset
10% convertible note payable	$	2.50	$	1.00
Series C-1 preferred stock	$	2.50	$	1.00
Series C-1 preferred stock warrant	$	2.50	$	1.00
Series B preferred stock warrants	$	0.766	$	0.766
Second 10% note payable warrant	$	9.33431	$	1.00

         The non-cash expense resulting from the reset was recorded as additional interest expense for the 10% convertible note payable and as an additional deemed preferred stock dividend for the series C-1 preferred stock. The non-cash expense was calculated based on the incremental common shares issuable upon conversion and our appropriate common stock value. The additional beneficial conversion feature non-cash expense in 2002 was limited to the net proceeds from the sale of the securities less the amount of beneficial conversion feature expense recorded in previous periods. The calculations of the non-cash expenses are presented in the table that follow.

	Series C-1 Preferred Stock		10% Convertible Note Payable
Value of security	$	2,500,000	$	1,932,192
Conversion price before reset	$	2.50	$	2.50
Number of common shares issuable upon conversion before reset		1,000,000		772,877
Conversion price after reset	$	1.00	$	1.00
Number of common shares issuable upon conversion after reset		2,500,000		1,932,192
Fair market value of common stock on commitment date	$	3.00	$	10.07
Calculated beneficial conversion feature	$	3,000,000	$	11,674,302
Net proceeds from sale of securities	$	1,714,721	$	4,616,816
Accretion or interest expense recorded in previous periods	$	1,235,279	$	4,361,756
Additional interest expense due to anti-dilution protection on conversion feature		—	$	255,060
Additional beneficial conversion feature recognized as deemed preferred stock     dividend	$	479,442		—

16

         The non-cash expense resulting from the reset was recorded as non-cash interest expense for the second 10% note payable warrant and preferred stock accretion expense for the series C-1 preferred stock warrant, computed based on the difference of the warrant value immediately before the reset to the value immediately after the reset using the Black-Scholes option pricing model as indicated below:

	Second 10% Note Payable Warrant						Series C-1 Preferred Stock Warrant
	Immediately Preceding Reset			Immediately After Reset			Immediately Preceding Reset			Immediately After Reset
Common stock issuable upon exercise of warrant		150,116			150,116			500,000			500,000
Exercise price	$	9.33431		$	1.00		$	3.75		$	1.00
Fair market value of common stock on valuation date	$	0.97		$	0.97		$	0.97		$	0.97
Option life		2.9 years			2.9 years			2 years			2 years
Volatility rate		104	%		126	%		120	%		131	%
Risk-free rate of return		6.0	%		6.0	%		6.0	%		6.0	%
Dividend rate		0	%		0	%		0	%		0	%
Calculated value	$	33,377		$	107,463		$	177,600		$	325,859
Expense recorded		N/A		$	74,086			N/A		$	148,259

         The exercise price for the series B preferred stock warrants is subject to being reset every 90 days until January 20, 2003, based upon future market prices for our common stock. If the current exercise price is higher than the current market price (the lower of the average closing bid prices for the 10-day period ending on such date or the closing bid price on such date), the exercise price will be reset to the market price. The exercise price was reset to $0.71 per share on February 7, 2002, to $0.52 on May 8, 2002, and to $0.2425 on August 6, 2002. As a result, we recorded preferred stock accretion expense totaling $10,837 and $21,009 for the three and nine months ended September 30, 2002, respectively, calculated using the Black-Scholes option pricing model utilizing the following assumptions:

	February 7, 2002						May 8, 2002						August 6, 2002
	Immediately Preceding Reset			Immediately After Reset			Immediately Preceding Reset			Immediately After Reset			Immediately Preceding Reset			Immediately After Reset
Warrant value	$	178,592		$	180,980		$	158,335		$	166,569		$	62,385		$	72,722
Exercise price	$	0.766		$	0.71		$	0.71		$	0.52		$	0.52		$	0.2425
Fair market value of common     stock on re-determination     date	$	0.70		$	0.70		$	0.62		$	0.62		$	0.28		$	0.28
Option life		3 years			3 years			2.8 years			2.8 years			25 years			2.5 years
Volatility rate		126	%		126	%		134	%		134	%		138	%		138	%
Risk free rate of return		6.71	%		6.71	%		6.71	%		6.71	%		2.59	%		2.59	%
Dividend rate		0	%		0	%		0	%		0	%		0	%		0	%
Expense recorded		NA		$	2,388			NA		$	8,234			NA		$	10,387

17

NOTE 9 – STOCK BASED COMPENSATION EXPENSE

         During 2000, Jabber issued 912,500 shares of its common stock to employees of Jabber, a former officer of Webb and members of the Jabber advisory boards. The shares vest over periods ranging from grant date to two years. We recorded the value of these shares as deferred compensation, totaling $523,700, and recognize the related non-cash expense in the period the shares vest. During the three and nine months ended September 30, 2002, we recognized $7,500 and $34,936, respectively, of deferred compensation as non-cash compensation expense. At September 30, 2002, the remaining deferred compensation was zero.

         On March 12, 2002, we entered into a nine-month consulting agreement with an investor relations firm to provide Webb with services to strengthen our shareholder base and enhance company awareness among investors and brokers. Compensation to the firm included a cash retainer fee of $7,000 per month and 12,500 restricted shares of our common stock, which we issued on June 5, 2002. We valued the shares of common stock at the fair market value on the grant date and recorded compensation expense on the grant date totaling $6,500.

NOTE 10 – DISCONTINUED OPERATIONS

         During October 2001, we terminated our AccelX local commerce business. This segment is reflected as a sale of a discontinued operation in the accompanying condensed consolidated financial statements. Accordingly, the assets, liabilities; and revenues, costs and expenses of this discontinued operation has been excluded from the respective captions in the Condensed Consolidated Balance Sheets and Condensed Consolidated Statement of Operations and have been reported as “Net current liabilities from discontinued operations” and “Loss from discontinued operations” for all periods presented.

         Loss from discontinued operations consist of the following:

	Three Months Ended September 30,					Nine Months Ended September 30,
	2002		2001			2002		2001
Net revenues	$	—	$	296,782		$	—	$	1,766,541
Costs and expenses:
Cost of revenues		—		581,569			—		2,562,889
Sales and marketing expenses		—		90,566			—		767,440
Product development expenses		—		251,172			—		2,030,579
General and administrative expenses		—		48,399			—		544,356
Depreciation and amortization		—		536,568			—		1,581,743
Impairment loss		—		1,019,301					1,019,301
Total costs and expenses		—		2,528,115			—		8,506,308
Operating loss		—		(2,231,333	)		—		(6,739,767	)
Other income, net		—		31,327			—		13,799
Loss from discontinued operations	$	—	$	(2,200,006	)	$	—	$	(6,725,968	)

18

         Net current liabilities of discontinued operations consists of the following:

	September 30, 2002		December 31, 2001
Net current liabilities of discontinued operations:
Current assets of discontinued operations:
Cash	$	—	$	3,167
Accounts receivable, net		—		29,014
Prepaid expenses and other current assets		—		7,353
Total current assets of discontinued operations		—		39,534
Accounts payable and accrued liabilities		27,581		325,149
Accrued salaries and payroll taxes payable		—		21,231
Total current liabilities of discontinued operations		27,581		346,380
Net current liabilities of discontinued operations	$	27,581	$	306,846

NOTE 11 – EXTRAORDINARY INCOME

         As a result of settlements negotiated with our creditors during 2002 for liabilities incurred generally in 2001, we recorded an extraordinary gain totaling $225,993 during the nine months ended September 30, 2002.

NOTE 12 – BUSINESS SEGMENT INFORMATION

         We have two reportable business segments: Jabber andWebb. Jabber is a commercial developer of real-time communications software and IM solutions and is building upon the growing demand and adoption of the Jabber.org open-source project by offering proprietary, scalable extensible IM solutions for carriers and service providers, for OEM and ISV partners, and for large enterprises. Webbconsists of corporate activities such as accounting, administration, public reporting and financing activities. All revenue from continuing operations for all periods presented is from our Jabber segment.

	September 30, 2002			December 31, 2001
Assets
Webb	$	(1,049,779	)	$	(1,475,819	)
Jabber		1,355,712			2,327,766
Eliminations		3,815,193			3,247,100
Total assets	$	4,121,126		$	4,099,047
Property and equipment, net
Webb	$	711,990		$	1,287,486
Jabber		464,931			253,559
Eliminations		(71,162	)		—
Total	$	1,105,759		$	1,541,045

19

	Three Months Ended September 30,						Nine Months Ended September 30,
	2002			2001			2002			2001
Net Loss from Continuing Operations
Webb	$	(1,535,159	)	$	(2,369,475	)	$	(7,638,676	)	$	(11,207,475	)
Jabber		(1,240,366	)		(2,057,225	)		(4,565,846	)		(6,152,130	)
Eliminations		1,240,913			1,267,575			4,301,708			5,184,029
Net loss from continuing operations	$	(1,534,612	)	$	(3,159,125	)	$	(7,902,814	)	$	(12,175,576	)
Depreciation and Amortization
Webb	$	71,740		$	112,994		$	265,053		$	433,489
Jabber		56,600			462,313			885,704			1,241,581
Eliminations		(9,440	)		—			(51,289	)		—
Total depreciation and amortization	$	118,900		$	575,307		$	1,099,468		$	1,675,070
Property and equipment additions
Webb							$	10,000		$	39,423
Jabber								49,327			123,562
Discontinued operations								—			35,736
Total							$	59,327		$	198,721

NOTE 13 – SUBSEQUENT EVENTS

         During October 2002, the holder of our series D preferred stock converted 200 shares into 200,000 shares of our common stock at conversion prices per share of $1.00.

20

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

GENERAL

         Webb is the founder and the majority stockholder of Jabber. Continuing operations of Webb refer to the Jabber business segment and Webb’s corporate activities. We formed Jabber in February 2000, to commercialize the Jabber.org instant messaging system begun in 1998 by Jeremie Miller, the founder of this open-source movement. We became the commercial sponsor of the Jabber.org open-source movement in September 1999. Jabber’s business involves the development and marketing of extensible instant messaging software for telecommunications carriers, service providers, and enterprises that require real-time, XML-based, communication and collaboration solutions. Jabber’s business development efforts are focused on four areas:

• Development of proprietary server technologies emphasizing scalability, reliability, customization and integration;

• Expansion of direct and indirect sales channels;

• Development of strategic relationships in order to expand distribution opportunities and to promote widespread adoption of Jabber-supported standards; and

• Financial and administrative support of the Jabber.org development community and the Jabber Software Foundation to support the widespread adoption of the open source extensible messaging and presence protocol, or XMPP, as the preferred standard for XML-based message routing and delivery.

         On March 1, 2001, Jabber released its first proprietary server software, the Jabber Commercial Server, a highly scaleable Jabber server that provides the foundation for Jabber’s current and future server products. The Jabber Commercial Server provides enterprises and service providers with enhanced performance, scalability, reliability and security compared to the Jabber open-source software.

         Prior to October 2001, we operated our AccelX business segment which was focused primarily on selling software and services to distributors of local commerce. We terminated that business in October 2001. The income and expense from this business segment is reflected as a discontinued operation for all periods presented.

         We have incurred losses from operations since inception. At September 30, 2002, we had an accumulated deficit of approximately $122 million, which included approximately $67 million of non-cash expenses related to the following:

• Beneficial conversion features related to the 10% convertible note payable, preferred stock and preferred stock dividends;

• Loss on extinguishment of debt;

• Reset of warrant exercise prices;

• Stock and stock options issued for services;

• Warrants issued to customers;

• Interest expense on the 10% convertible note paid by the issuance of similar notes;

• Amortization of intangible assets acquired in consideration for the issuance of our securities;

• Impairment loss on acquired intangible assets and goodwill; and

• Write-off of securities received for our e-banking business.

         We have not been profitable since inception. Our ability to become profitable depends on our ability to market our products and services and generate revenues sufficient to exceed our expenses. Because of the new and evolving nature of instant messaging technologies and Jabber’s early stage of development, we cannot be sure that our revenue model will prove to be viable, whether demand for our products and services will materialize at the prices we expect to charge, or whether current or future pricing levels will be sustainable. We have expended significant funds to develop Jabber’s current product offerings and we anticipate continuing losses in 2002 and at least the first nine months of 2003 as we further develop and market Jabber’s products in advance of market acceptance in sufficient quantities to achieve positive cash flow from operations. Webb does not currently have a source of revenue which is independent from its Jabber subsidiary, and is therefore dependent on the success of its Jabber subsidiary. As a result of the FTTI investment in Jabber, Jabber and Webb are being funded separately.

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Webb expects to make additional investments in Jabber in the future. Our continued long-term viability depends, in part, on Jabber’s ability to obtain additional profitable customer contracts.

         Jabber projects revenues to increase significantly during 2003 and 2004 compared to 2002 and to achieve positive cash flow from operations by the fourth quarter of 2003. Because of our limited operating history, we do not have significant historical financial data upon which to base our revenue or expense forecasts and there can be no assurance that we will be able to meet our projections for 2003 and subsequent years. Jabber’s revenues in the first three quarters of 2002 were derived primarily from software license sales, software support and maintenance fees and professional service fees.

LIQUIDITY AND CAPITAL RESOURCES

         We used $5,379,832 in cash to fund our consolidated operations for the nine months ended September 30, 2002, compared to $10,493,480 for the similar 2001 period. We used $47,296 in cash from investing activities for the nine months ended September 30, 2002, compared to $146,428 for the similar 2001 period. We received $6,604,401 in net cash from financing activities for Webb and Jabber for the nine months ended September 30, 2002, compared with $7,708,258 for the similar 2001 period.

         Following the purchase of Jabber preferred stock by FTTI in July 2001, our Webb and Jabber businesses have been separately funded. Consequently, liquidity and capital resources for each business is presented below.

         As of September 30, 2002, Jabber had cash and cash equivalents of $152,295 and working capital deficit of $1,817,103. Webb financed Jabber’s operations and capital expenditures and other investing activities during the nine months ended September 30, 2002, primarily through a $1.1 million investment in Jabber common stock and a $1.6 million convertible secured loan.

         Jabber used $3,369,965 in cash to fund its operations for the nine months ended September 30, 2002, compared to $4,613,429 for the similar 2001 period. The decrease in cash used by operations in 2002 was primarily due to an increase of $1.4 million in cash collected from customers and a reduction in operating expenses of $100,000 compared with the similar 2001 period.

         Jabber used $49,332 in investing activities for the purchase of property and equipment for the nine months ended September 30, 2002, compared with $123,562 for the similar 2001 period. Jabber plans to purchase approximately $415,000 of property and equipment during the next twelve months.

         Jabber received $2.68 million from financing activities which includes $1.1 million from the sale of common stock and $1.6 million in the form of demand loans from Webb, compared with $6,577,770 for the similar 2001 period, which included cash invested by Webb of $2,327,770 and $4,250,000 invested by FTTI.

         We believe that Jabber’s cash on hand of $150,000, collections from the outstanding accounts receivable of $900,000 and the $495,000 Webb has budgeted to fund Jabber at November 1, 2002, will be sufficient to fund Jabber’s activities to March 2003. Jabber will need to raise additional working capital of at least $2 million to fund its operations until Jabber is expected to achieve cashflow break even, which is currently estimated to be by the fourth quarter of 2003. Our belief regarding Jabber’s cash requirements is based on Jabber’s current financial projections which forecast Jabber consuming $860,000 of cash for operations during the last quarter of 2002 and $2 million during 2003. The use of cash is predicated on Jabber meeting its revenue projections and managing its expense levels to forecasted amounts. We estimate Jabber revenues for the last quarter of 2002 to be $1.1 to $1.4 million and revenues for 2003 to increase 2.5 times over those of 2002 and to double from 2003 to 2004. Software license fees are projected to account for 60% of net revenues for the remainder of 2002, and 70% in 2003 and 2004. We estimate Jabber’s expenses, excluding depreciation and amortization, to be $2 million for the last quarter of 2002 and to increase to $10 million in 2003 and $12.6 million in 2004. Jabber has a limited operating history upon which to base its projections, particularly its revenue projections, and there can be no assurance that Jabber will be able to meet its projections for revenues and expenses. In addition, since many of Jabber’s expenses are fixed or must be incurred in advance of revenues, Jabber’s working capital requirements could increase significantly over projected levels if Jabber does not

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meet its revenue projections. Therefore, Jabber may require more cash for its operations than our current projections indicate. In this circumstance, Jabber would have to seek additional funding or reduce its operating activities. Webb and Jabber have begun discussions with investors for an additional $4 to $7 million of financing through the sale of Webb or Jabber securities. However, we have no commitment for the additional sale of securities and there can be no guarantee that this financing will be completed, or if completed, that the terms of any such future financing will be acceptable. If we are not successful in obtaining funding in appropriate amounts or on appropriate terms, we would consider additional reductions in Jabber’s operating activities.

         As of September 30, 2002, Webb had cash and cash equivalents of $1,938,663 and working capital of $3,459,907, including the Jabber note receivable of $1.6 million. We financed our operations and capital expenditures and other investing activities during 2002 through the sale of securities for which we received $7.5 million in net proceeds (See Item I - Financial Statements Note 5 to Notes to Condensed Consolidated Financial Statements for information regarding sales of securities). Of the $7.5 million raised in the first quarter of 2002, approximately $1.1 million has been used to pay outstanding obligations, $2.7 million has been used to fund Jabber’s operations, $822,000 has been used to pay the portion of the principal and accrued interest of our 10% convertible note payable which was not exchanged for shares of our preferred stock, and approximately $978,000 has been used to pay Webb’s 2002 operating expenses. Of the remaining balance of approximately $1.9 million at September 30, 2002, $1.1 million is to be used to fund Webb’s operating expenses, $325,000 was loaned to Jabber during October 2002, and $495,000 may be used to fund Jabber’s future operating expenses.

         We used $2,009,867 in cash to fund Webb’s operations for the nine months ended September 30, 2002, compared to $5,880,051 for the similar 2001 period. The decrease in 2002 is primarily a result of $6,725,968 in losses in 2001 from our AccelX business which we terminated in October 2001, and a net reduction of $698,000 in Webb’s corporate expenses in 2002 as a result of reducing the size of Webb’s corporate organization. These reductions in the use of cash were partially offset by an increase in the use of cash of $900,000 as a result of paying 2001 obligations in the first quarter of 2002. Webb’s monthly cash operating expenses are estimated to average approximately $90,000 per month for the remainder of 2002.

         Webb used $2,677,964 in net investing activities for the nine months ended September 30, 2002, compared with $2,350,636 in net cash for the similar period of 2001, which included $2,327,770 of cash invested in Jabber. Webb invested $1.1 million in Jabber in the first quarter of 2002, loaned Jabber an additional $1.6 million in the second and third quarters of 2002 and has budgeted up to an additional $820,000 to fund Jabber’s future operations. Webb does not plan to purchase a significant amount of property and equipment during 2002.

         During the nine months ended September 30, 2002, Webb received $6,604,401 in net cash from financing activities, compared with $3,458,258 for the similar 2001 period. During 2002, Webb received proceeds of $1.2 million from the issuance of short-term notes payable and $7.5 million from the sale of common stock and warrants. During 2002, Webb repaid $1.34 million of short-term notes payable, including accrued interest payable, and $36,000 in capital leases payable.

         Webb had cash on-hand of approximately $1.6 million at November 1, 2002. We believe that these funds, less the amounts we have budgeted to fund Jabber's operations will be adequate to sustain Webb’s operations until at least the third quarter of 2003. We will need to raise additional working capital of at least $2 million to fund the combined operations until Jabber can achieve cashflow break even, which is currently estimated to be by the fourth quarter of 2003. In order to provide greater flexibility in determining the timing and the level of investments in marketing and product development initiatives, to provide operating reserves which could be required to fund operations in the event that Jabber does not achieve projected revenues and to establish additional strategic relationships, we are continuing to seek additional equity investments through either additional sales of Webb or Jabber securities. We have no commitments or agreements for the sale of any additional securities and there can be no assurance that we will be able to raise any additional working capital.

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RESULTS OF OPERATIONS

         Continuing operations of Webb refer to the Jabber business segment and Webb’s corporate activities. Jabber commenced operations in May 2000, and was a development-stage enterprise through March 2001.

Revenues:

         Jabber’s total revenue for the 2002 three-month period ended September 30, 2002, increased 3.8 times to $926,513 compared to $245,733 for the similar 2001 period. The revenue mix between license fees and services was 50% each for the 2002 three-month period. Jabber’s total revenue for the 2002 nine-month period ended September 30, 2002, increased 4.3 times to $2,149,944 compared to $503,212 for the similar 2001 period. The revenue mix between license fees and services was 55% and 45%, respectively, for the 2002 nine-month period. The significant increase in revenues in the 2002 periods are primarily due to revenues earned from licensing Jabber’s proprietary IM software products, which were initially released in March 2001 and associated professional service revenues earned in connection with integrating and customizing its products. Prior to March 2001, Jabber earned revenue primarily from professional service contracts for the customization of the open-source IM software.

         Components of net revenues from continuing operations and cost of revenues, which excludes any allocation of depreciation or amortization expense, are as follows:

	Three Months Ended September 30,				Nine Months Ended September 30,
	2002		2001		2002		2001
Net revenues
Licenses	$	467,447	$	220,000	$	1,179,302	$	353,746
Professional services fees		392,437		—		772,040		97,625
Support and maintenance fees		66,629		25,733		198,602		51,841
Total net revenues:		926,513		245,733	$	2,149,944		503,212
Cost of revenues:
Cost of licenses		146		—		399		—
Cost of professional services		238,142		120,590		479,554		401,254
Cost of support and maintenance		51,737		62,508		117,141		263,765
Total cost of revenues		290,024		183,098		597,094		665,019
Gross margin	$	636,489	$	62,635	$	1,552,850	$	(161,807	)

         License revenues represent fees earned for granting customers licenses to use Jabber software products. During the third quarter of 2001, Jabber began licensing products based on a perpetual license, registered user pricing model. License revenues for the three months ended September 30, 2002, were $467,447, which represents a 112% increase when compared with $220,000 for the similar 2001 period. License revenues for the nine months ended September 30, 2002, were $1,179,302, which represents a 233% increase when compared with $353,746 for the similar 2001 period. The increases in the 2002 three-and-nine-month periods is a result of stronger demand for Jabber’s products and additional license purchases from existing customers, which represented 70% and 41% of license revenues during the 2002 three-and-nine-month periods, respectively. Software revenue recognized in the 2001 three-and nine-month month periods was primarily from licenses to two customers, including France Telecom, a related party. We are forecasting revenues from license fees to be $675,000 to $825,000 for the remainder of 2002 and to increase to $5.8 to $7.1 million in 2003 and to $12.6 to $15.4 million in 2004.

         Professional service revenue represents fees earned for custom programming, installation and integration services of Jabber software products, generally with larger enterprise organizations and consulting services.

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Professional service revenues were $392,437 for the three months ended September 30, 2002, compared to $0 for the similar 2001 period. Professional service revenues were $772,040 for the nine months ended September 30, 2002, which represents a 691% increase when compared with $97,625 for the similar 2001 period. Revenues recognized from professional services in the 2002 periods were primarily from (i) a customization contract with Euro RSCG of $232,521 in the 2002 three-month period; (ii) a consulting contract with France Telecom, a related party, of $119,248 and $270,976 in the 2002 three-and-nine month periods, respectively; and (iii) a customization and integration contract with AT&T of $194,800 in the 2002 nine-month period. We are forecasting revenues from professional service contracts to be $365,000 to $447,000 for the remainder of 2002 and increase to $1.8 to $2.2 million in 2003 and to $2.8 to $3.5 million in 2004.

         Support and maintenance fee revenues are derived from annual support and maintenance contracts associated with the sale of Jabber’s software products and customized month-to-month support agreements with customers generally billed on a time and materials basis. Annual fees for support and maintenance are generally 15% to 18% of the license fee revenue and the related revenue is recognized over the term of the contract. Customers may purchase support and/or maintenance contracts for which they receive telephone support and product updates and upgrades during the term of the agreement. Customers are not obligated to purchase support and maintenance. Support and maintenance fees were $66,629 for the three months ended September 30, 2002, which represents a 159% increase when compared with $25,733 for the similar 2001 period. Support and maintenance fees were $198,602 for the nine months ended September 30, 2002, which represents a 283% increase when compared with $51,841 for the similar 2001 period. Support and maintenance fee revenues in 2002 were derived from annual support and maintenance agreements sold in connection with the licensing of Jabber’s software, while revenues in 2001 were primarily from custom support contracts which were billed at a fixed price or on a time and material basis and were for a fixed number of hours or a fixed period of time, generally less than two months. We are forecasting revenues from support and maintenance agreements to be $89,000 to $109,000 for the remainder of 2002 and increase to $0.8 to $1.0 million in 2003 and to $2.3 to $2.8 million in 2004.

         Included in net service revenues for the three and nine months ended September 30, 2002, is $119,248 and $270,976, respectively, in professional service revenue and $5,751 and $17,253, respectively, in support and maintenance revenue from France Telecom (collectively France Telecom and its subsidiaries or affiliates, “FT”), an investor in Jabber. In February 2002, Jabber and FT entered into a fixed price professional services agreement, valued at $455,000, whereby Jabber is providing professional consulting services for general IM technology as well as IM technology integration with FT proprietary product offerings. Jabber expects to recognize $113,796 in revenue from this contract during the remainder of 2002 and $70,228 during the first quarter of 2003. Support and maintenance revenue recognized in the first quarter relates to the one-year support and maintenance agreement FT entered into on October 1, 2001, in connection with the license of Jabber’s commercial server to FT (“OEM license”). In October 2002, Jabber entered into an agreement with FT to amend the OEM license agreement whereby FT purchased a user-based license including the first year of support and maintenance for $500,000. In addition, FT has an option to purchase additional licenses on or before December 15, 2002, and a second option to purchase an unlimited user license on or before December 15, 2003. We expect to recognize at least $437,489 in revenue in the fourth quarter of 2002 from the initial purchase. Should the additional options be exercised, the resulting revenue would be recognized on a straight-line basis over the three-year term of the contract.

Cost of Revenues:

         Cost of license revenues for the 2002 three-and-nine month periods were $146 and $399, respectively, and consists of shipping costs to deliver software products net of amounts billed to customers. We expect cost of license revenues to increase as we incorporate third-party software into our product offerings.

         Cost of professional service revenues consists of compensation costs and consulting fees associated with performing custom programming, installation and integration services for Jabber’s customers. Cost of professional service revenues was $238,142 for the three months ended September 30, 2002, or 61% of net professional service revenues, compared to $120,590 for the similar 2001 period. Cost of professional service revenues was $479,554 for the nine months ended September 30, 2002, or 62% of net professional service revenues, compared to $401,254, or 411% of net professional service revenues for the similar 2001 period. During

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the 2002 three-and-nine month periods, we reduced our fixed costs by approximately $26,000 and $79,000, respectively, compared to the same 2001 periods as a result of restructuring the professional services organization in the third quarter of 2001 through the consolidation of responsibilities and the reduction in the number of employees in this organization from ten to four in order to better meet our current customer service levels. Fixed costs are expected to be approximately $28,000 per month for the remainder of 2002 before allocation of costs to sales or product development activities. Direct project expenses for the 2002 three-month period were $198,128 on revenues of $392,437 representing a gross margin of 50%. Direct project expenses for the 2002 nine-month period were $375,179 on revenues of $772,040 representing a gross margin of 51%, compared to $39,346 on revenues of $97,625 representing a gross margin of 60% for the similar 2001 period. The decrease in gross margin in the 2002 nine-month period is a result of lower effective billing rates in 2002 for two fixed price customer contracts compared with two time and material contracts in the similar 2001 period. In October 2002, we signed a license contract valued at $157,000 with a customer in the financial services industry. In connection with this contract, we agreed to perform significant professional services in order to develop functionality for our software products required by this customer and the financial services industry in general. The cost of the professional services for this contract are expected to exceed revenues by approximately $400,000 in the fourth quarter of 2002. We agreed to incur these costs as they are expected to result in the development of functionality for our products which will lead to additional sales to customers in the financial services industry. Excluding this contract, we expect costs of professional services revenues to be approximately 76% of net professional service revenues for the remainder of 2002. We do not expect this percentage to decrease significantly in 2003 as we believe we will continue to provide significant customization services as part of our effort to expand the functionality of our products as well as to meet the needs of individual customers. Our goal is to reduce this percentage to a more normal percentage of approximately 45% in 2004 and subsequent years as we are required to provide less customization for individual customers due to expanded functionality of our product offerings

         Cost of support and maintenance revenue was $51,737 for the three months ended September 30, 2002, or 78% of net support and maintenance revenues, compared to $62,508, or 243% of net support and maintenance fees for the similar 2001 period. Cost of support and maintenance revenue was $117,141 for the nine months ended September 30, 2002, or 59% of net support and maintenance revenues, compared to $263,765, or 509% of net support and maintenance fees for the similar 2001 period. The decrease in absolute dollars in the 2002 periods was a result of cost saving measures we implemented in the third quarter of 2001 to reduce our fixed costs in this organization through the reduction in headcount by the consolidation of responsibilities. For the 2002 nine-month period, we had an average of 2 fewer employees in 2002 as compared to the similar 2001 period. We expect cost of support and maintenance revenues to be 54% of support and maintenance revenues for the remainder of 2002, 49% in 2003 and 25% in 2004. Projected increases in costs associated with delivering these services are expected to result only to the extent required to support new customer contracts.

Operating Expenses:

         Sales and marketing expenses consist primarily of employee compensation, cost of travel, advertising and public relations costs, trade show expenses, user conferences, and costs of marketing materials. Sales and marketing expenses were $608,422 for the three-months ended September 30, 2002, or 66% of net revenues, compared to $277,645, or 113% of net revenues for the similar 2001 period. Sales and marketing expenses were $1,469,158 for the nine months ended September 30, 2002, or 68% of net revenues, compared to $739,209, or 147% of net revenues for the similar 2001 period. During the second quarter of 2002, Jabber opened a sales and marketing office in Europe in order to facilitate our emerging European market and incurred $112,405 and $183,775 in costs, primarily employee compensation, associated with these operations in the 2002 three-and-nine-month periods, respectively. We also incurred $120,410 in additional cost in the 2002 nine-month period in connection with our European Jabber users conference. In addition, the increase in absolute dollars for the 2002 three-and-nine-month periods were also attributable to (i) incurring $140,360 and $290,402 more, respectively, in commission expense; (ii) an increase in contract labor of $18,476 and $39,955, respectively, associated with telemarketing sales and business development activities; and (iii) and an increase in severance costs of $41,974 and $37,743, respectively, due to a reduction in staff in August of 2002. The increase in the 2002 nine-month period was also due to an increase in employee compensation costs of $98,232 as a result of increasing headcount by 3 employees in the first half of 2002. We expect Jabber’s sales and marketing expenses to increase on an absolute dollar basis in future periods as Jabber

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continues to market its products and services, develop business relationships and execute its sales plan. We estimate sales and marketing expenses to be approximately $440,000 for the remainder of 2002.

         Product development expenses consist primarily of employee compensation and programming fees relating to the development, maintenance and enhancement of the features and functionality of Jabber’s software products. During 2002 and 2001, all product development costs were expensed as incurred. Product development expenses were $677,315 for the three months ended September 30, 2002, or 73% of net revenues, compared to $805,956 or 328% of net revenues for the similar 2001 period. Product development expenses were $1,969,256 for the nine months ended September 30, 2002, or 92% of net revenues, compared to $2,172,192 or 432% of net revenues for the similar 2001 period. The absolute dollar decreases for the 2002 three-and-nine month periods were primarily due to (i) a decrease in wage expense of $24,599 and $119,450, respectively, as a result of consolidating several management positions and replacing them with less expensive developers coupled with a reduction in headcount of 4 employees for the first eight months of 2002 compared with the same 2001 period; (ii) a decrease in contract labor expense of $67,468 and $131,009, respectively; and (iii) a decrease in software expense of $29,619 and $31,726, respectively, primarily from the purchase in 2001 of third-party software we incorporated into Jabber’s products. Product development expenses were further reduced in the 2002 three-month period by $127,839 in payroll costs which are reflected in cost of professional service revenues from product development resources working on professional service contracts. Product development expenses were further reduced in the 2002 nine-month period by a decrease in employee relocation expense of $12,000 and by a decrease in travel expense of $11,638. These decreases were partially offset by an increase in bonus expense of $30,669 and $122,188 for the 2002 three-and-nine month periods, respectively. We believe that significant investments in product development are critical to attaining Jabber’s strategic objectives and, as a result, we expect Jabber’s product development expenses to continue to increase in future periods. We estimate product development expenses to be approximately $560,000 million for the remainder of 2002.

         General and administrative expenses consist primarily of employee compensation, consulting expenses, fees for professional services, and non-cash expense related to stock and warrants issued for services. General and administrative expenses were $779,383 for the three-months ended September 30, 2002, or 84% of net revenues, compared with $1,371,865, or 558% of net revenues for the similar 2001 period. General and administrative expenses were $3,184,932 for the nine months ended September 30, 2002, or 148% of net revenues, compared with $4,462,970, or 887% of net revenues for the similar 2001 period. General and administrative expenses specifically related or allocated to Jabber were $517,672 for the three months ended September 30, 2002, compared to $567,659 for the similar 2001 period. General and administrative expenses specifically related or allocated to Jabber were $1,771,032 for the nine months ended September 30, 2002, compared to $1,808,240 for the similar 2001 period. During the 2002 three-and-nine month periods, Jabber incurred $54,101 and $173,710, respectively, for its share of Webb’s corporate expenses, which is comprised primarily of employee compensation and related expenses. This represents a decrease in the 2002 three-and-nine month periods of $76,463 and $472,420, respectively, compared with the similar 2001 periods. The decreases in the 2002 three-and-nine-month periods were primarily due to (i) a reduction in non-cash compensation expense of $75,050 and $194,183, respectively, related to grants of Jabber’s common stock in 2000, and (ii) incurring $22,309 and $25,351, respectively, less in travel costs due to fewer trips to Europe. General and administrative expenses were further reduced in the 2002 nine-month period as a result of incurring $26,110 less in legal fees. These decreases were partially offset in the 2002 three-and-nine month periods by (i) an increase in compensation costs of $37,875 and $278,745, respectively, as a result of adding four employees, including an executive officer; and (ii) an increase in accounting fees of $33,300 and $77,800, respectively, as a result of performing a June 30 audit in 2002. General and administrative expense decreases were also partially offset in the nine-month period by an increase of $52,262 in office rent for the lease of a larger space in connection with Jabber being the prime lessee for the space occupied by Jabber and Webb. We expect Jabber’s general and administrative expenses to increase in future periods as Jabber continues to build the administrative infrastructure needed to support its business. We estimate Jabber’s general and administrative expenses to be at least $580,000 for the remainder of 2002. General and administrative expenses specifically related or allocated to Webb, primarily for general corporate activities, were $261,710 for the three months ended September 30, 2002, compared with $804,206 for the similar 2001 period. General and administrative expenses specifically related or allocated to Webb were $1,413,900 for the nine months ended September 30, 2002, compared with $2,654,730 for the similar 2001 period. General and administrative expenses were reduced primarily as a result of cost saving measures implemented in the fourth quarter of 2001 and a general reduction in costs associated with supporting a smaller

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organization since the termination our AccelX business in October 2001. We reduced headcount from 18 to 5 employees between the first quarter of 2001 and the second quarter of 2002, which resulted in a reduction of $246,331 and $780,236, in the 2002 three-and-nine month periods, respectively, in compensation and other employee related and travel expenses. General and administrative expenses were further reduced in the 2002 three-and-nine month periods as a result of (i) a decrease of non-cash expense associated with stock and warrants issued for services of $13,916 and $296,863, respectively; (ii) a decrease of $100,453 and $331,418, respectively, in office rent due to the assignment of the lease to Jabber and a sublease of space from Jabber at a reduced monthly cost; (iii) a reduction of $50,098 and $225,516, respectively, in consulting fees incurred for investor relations; and (iv) a reduction in of $25,368 and $85,826, respectively, for computer hardware and software expenses including support agreements and outsourced hosting services. For the 2002 nine-month period, general and administrative expenses were further reduced by $206,080 as a result of incurring registration penalty fees in the 2001 period to an investor because of a delay in registering the shares of our common stock issuable upon conversion of our series C-1 preferred stock and by $52,558 as a result of contract labor associated with outsourced human resource and recruiting services incurred in 2001. These reductions were partially offset by decreases in the 2002 three-and-nine month periods of $76,463 and $472,420, respectively, in expenses allocated to Jabber. In future periods, we expect corporate general and administrative expenses to decrease as a percentage of revenues as revenues increase. We estimate Webb’s general and administrative expenses to be approximately $260,000 for the remainder of 2002.

         Depreciation and amortization was $118,900 and $1,099,468 for the three and nine months ended September 30, 2002, respectively, compared to $575,307 and $1,675,070, respectively, for the similar 2001 periods. During the three and nine months ended September 30, 2002, Jabber recorded amortization expense totaling $0 and $727,300, respectively, related to intangible assets compared to $429,580 and $1,156,885, respectively, for the same 2001 periods. As of June 30, 2002, Jabber’s intangible assets were fully amortized.

Other Income and Expenses:

         Interest income was $8,517 and $34,055 for the three and nine months ended September 30, 2002, respectively, compared to $12,630 and $118,970, respectively, for the 2001 periods. We earn interest by investing surplus cash in highly liquid investment funds or AAA or similarly rated commercial paper.

         Interest expense was $0 and $616,162 for the three and nine months ended September 30, 2002, respectively, compared to $212,397 and $3,106,544, respectively, for the similar 2001 periods. The decrease in interest expense in the 2002 three-month period is a result of the repayment of a portion of our 10% convertible note payable and exchange of the balance into convertible preferred stock in March 2002; the repayment of short-term notes payable during the first quarter of 2002; and the conversion of the Jabber convertible note payable to Jabber’s common stock in April 2002. As of September 30, 2002, we do not have any remaining outstanding debt obligations, however, as a result of a bill of exchange entered into in November 2002 between Jabber and a financial institution, we will incur approximately $25,000 of interest expense during the fourth quarter of 2002 and the first quarter of 2003. Interest expense is summarized in the following table:

	Three Months Ended September 30,				Nine Months Ended September 30,
	2002		2001		2002		2001
10% note payable	$	—	$	175,147	$	551,224	$	3,020,491
Short-term notes payable		—		21,448		62,544		21,448
Jabber convertible note payable		—		10,879		2,394		43,362
Capital leases payable		—		4,922		—		21,243
Total interest expense		—		212,397		616,162		3,106,544
Non- cash interest expense		—		154,909		560,413		2,942,755
Net cash interest expense	$	—	$	57,488	$	55,749	$	163,789

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Non-cash interest expense is recorded for the following items:

• Amortization of financing costs associated with the issuance of the 10% note payable;

• Amortization of discounts on the notes from the allocation of a portion of the cash proceeds to the value of the warrants issued in connection with the notes;

• Interest paid through the issuance of similar notes;

• Resets of the conversion price for the 10% note payable;

• Resets of the exercise price resets for the warrants issued in connection with the 10% note payable and one of the convertible notes payable; and

• Warrant issued in connection with exchange of the 10% note payable balance for preferred stock.

(See Item 1 – Financial Statements Notes 5, 6 and 8 to Notes to Condensed Consolidated Financial Statements for information regarding the non-cash interest expense recorded for these transactions). A summary of non-cash interest expense is as follows:

	Three Months Ended September 30,				Nine Months Ended September 30,
	2002		2001		2002		2001
10% note payable –
Amortization of financing costs	$	—	$	33,423	$	135,388	$	268,452
Amortization of discount		—		91,865		49,144		176,597
Principal-in-kind notes		—		373		—		9,809
Additional interest expense due to anti-dilution protection on     conversion feature		—		—		255,060		2,394,234
Additional interest expense due to reset of second 10% note     payable warrant		—		—		74,086		31,932
Total non-cash interest expense on 10% note payable		—		125,661		513,678		2,881,024
Convertible note payable -
Amortization of discount		—		7,869		29,976		7,869
Amortization of financing costs		—		10,500		—		10,500
Additional interest expense due to reset of warrant		—		—		14,365		—
Total non-cash interest expense on convertible note payable		—		18,369		44,341		18,369
Interest paid with issuance on notes payable on Jabber     convertible note payable		—		10,879		2,394		43,362
Total non-cash interest expense	$	—	$	154,909	$	560,413	$	2,942,755

         Loss on debt extinguishment was $1,162,934 for the nine months ended September 30, 2002. The loss on debt extinguishment was comprised of $625,164 resulting from consummating a transaction in March 2002, with the holder of our 10% convertible note in which $1,212,192 of the outstanding principal was exchanged for 1,984 shares for our series D preferred stock. The loss was calculated by multiplying the increase in the number of common shares issuable upon conversion by the fair market value of our common stock on the date the transaction closed. We recorded an additional loss on debt extinguishment of $537,770 for the value of the warrant in connection with exchange for series D preferred stock. The value of the warrant was computed using the Black-Scholes option pricing model. Refer to Item 1 – Financial Statements Note 6 to Notes to Condensed Consolidated Financial Statements for a description of this transaction.

         Other income was $4,402 and $12,191 for the three and nine months ended September 30, 2002, respectively. Other income was $8,780 and $23,246 for the three and nine months ended September 30, 2001,

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respectively. Other income in the 2002 and 2001 periods was primarily from collections of accounts receivable, which were previously written off as a bad debt expense in previous periods.

Discontinued Operations:

         In October 2001, we terminated our AccelX local commerce business.

         The termination of this segment is reflected as a sale of a discontinued operation in the accompanying condensed consolidated financial statements. Accordingly, the revenues, costs and expenses of this discontinued operation has been excluded from the respective captions in the Condensed Consolidated Statement of Operations and has been reported as “Loss from discontinued operations” for all periods presented.

         Loss from discontinued operations consist of the following:

	Three Months Ended September 30,					Nine Months Ended September 30,
	2002		2001			2002		2001
Net revenues	$	—	$	296,782		$	—	$	1,766,541
Costs and expenses:
Cost of revenues		—		581,569			—		2,562,889
Sales and marketing expenses		—		90,566			—		767,440
Product development expenses		—		251,172			—		2,030,579
General and administrative expenses		—		48,939			—		544,356
Depreciation and amortization		—		536,568			—		1,581,743
Impairment loss		—		1,019,301			—		1.019.301
Total costs and expenses		—		2,528,115			—		8,506,308
Operating loss		—		(2,231,333	)		—		(6,739,767	)
Other income (expenses), net		—		31,327			—		13,799
Loss from discontinued operations	$	—	$	(2,200,006	)	$	—	$	(6,725,968	)

Minority Interest:

         Minority interest arises from the allocation of losses in Jabber to its minority stockholders. Minority stockholders of Jabber include holders of Jabber’s common stock, holders of Jabber’s series B preferred stock, and the holder of 25 shares of Jabber’s series C preferred stock. We allocate a portion of Jabber’s net losses to the minority shareholders to the extent of their share in the net assets of Jabber. For the three and nine months ended September 30, 2002, we allocated $8,893 and $2,048,855, respectively, of Jabber’s losses to its minority stockholders, compared to $72,550 and $251,090 for the three and nine months ended September 30, 2001, respectively. As a result of the transaction entered into with FTTI as discussed below, losses allocated to minority interest for the 2002 three-and-nine month periods included $1,611,869 of Jabber’s losses allocated to FTTI which represents the difference between the Jabber losses allocated to FTTI prior to the FTTI Effective Date and the amount of Jabber losses that would have been allocated to FTTI had the transaction occurred from inception of the FTTI investment in Jabber (the “FTTI catch-up”).

         On April 8, 2002, we entered into an agreement with Jabber and FTTI, pursuant to which Webb and FTTI agreed to convert substantially all of their respective shares of Jabber’s preferred stock into shares of Jabber’s common stock as of the “FTTI Effective Date.” The FTTI Effective Date was April 29, 2002. As part of the agreement, the pledge by Webb to FTTI of 1,400,000 shares of Webb’s Jabber preferred stock was terminated, Webb exchanged the principal and interest of a $1,100,000 note payable from Jabber for shares of Jabber’s common stock at $1.00 per share and FTTI converted the principal and interest on a Jabber convertible note for $100,000 into shares of Jabber’s common stock, also at $1.00 per share.

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         Additionally, Webb recorded $3,043,038 as an increase to additional paid-in capital in accordance with SAB 51. The amount was computed as the difference between FTTI’s minority interest balance after the transaction and allocation of the FTTI catch-up and multiplying Jabber’s net worth at April 29, 2002, by FTTI’s ownership percentage after the transaction.

         In a separate transaction, Webb acquired all of the shares of Jabber’s common stock and preferred stock owned by DiamondCluster, valued at $759,503, in consideration for which Webb issued to DiamondCluster 911,645 shares of Webb’s common stock at $0.67 per share. The resulting difference between the value of the Webb shares issued and the value of the Jabber securities acquired was $122,451, resulting in a reduction in the cost basis for Jabber’s property and equipment and intangible assets, of $86,898 and $35,553, respectively. During the three and nine months ended September 30, 2002, we recorded $9,440 and $15,736 less in depreciation expense and $35,553 less in the 2002 nine-month period in amortization expense as a result of this transaction.

         As a result of the transactions discussed above, through September 30, 2002, we have allocated Jabber’s losses to FTTI to the full extent of its minority interest in Jabber represented by the value of Jabber common stock owned by FTTI. Consequently, unless FTTI or other potential investors purchase Jabber securities which permit for the allocation of Jabber losses to those investors, the amount of Jabber losses allocated to minority shareholders in future periods will be limited to the series C preferred stock investor.

         Jabber common stock equivalents at April 29, 2002, before the April 2002 stock transactions were as follows:

Securities	Webb			FTTI			DiamondCluster			Others			Total
Series A preferred stock		8,050,000			750,000			—			—			8,800,000
Series B preferred stock and accrued     dividends		—			4,428,710			733,253			—			5,161,963
Series C preferred stock and accrued     dividends		8,464,038			—			—			26,397			8,490,435
Common stock		—			—			37,500			875,000			912,500
Total		16,514,038			5,178,710			770,753			901,397			23,364,898
Ownership percentage		70.7	%		22.2	%		3.3	%		3.8	%		100.0	%

         Jabber common stock equivalents at April 29, 2002, after the April 2002 stock transactions are as follows:

Securities	Webb			FTTI			DiamondCluster		Others			Total
Series A preferred stock		—			—			—		—			—
Series B preferred stock		—			100,000			—		—			100,000
Series C preferred stock		100,000			—			—		25,000			125,000
Common stock		18,290,232			5,185,712			—		876,397			24,352,341
Total		18,390,232			5,285,712			—		901,397			24,577,341
Ownership percentage		74.8	%		21.5	%		—		3.7	%		100.0	%

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Preferred Stock Accretion Expense and Dividends:

         The terms of our preferred stock grant the holders the right to convert the preferred stock into shares of our common stock at specified conversion prices. In each issuance of preferred stock, the conversion price has included a beneficial conversion feature because the value of the common stock resulting from a theoretical conversion of the preferred stock on the issuance date was greater than the allocated value of the preferred stock. In addition, if the conversion price of the preferred stock is reduced in future periods, accounting principles generally accepted in the United States require us to record a deemed dividend to the preferred shareholder based upon the amount of additional shares that are issuable as a result of the change in the conversion feature.

         Accounting principles generally accepted in the United States require us to record the beneficial conversion feature, other deemed dividends, the value of warrants and, in most instances, the cash offering costs as additional preferred stock dividends. This non-cash charge to net loss applicable to common stockholders is labeled “Accretion of preferred stock to redemption value” in the accompanying condensed consolidated statement of operations.

         Accretion expense was $10,387 and $648,710 for the three and nine months ended September 30, 2002, respectively. We recorded accretion expense of $479,442 as a result of the reset of the conversion price of our series C-1 preferred stock in January 2002, from $2.50 per share to $1.00 per share. The accretion expense was calculated by multiplying the increase in the number of common shares issuable upon conversion by the fair market value of our common stock on the commitment date. The accretion expense was limited to the net proceeds from the sale of the series C-1 preferred stock less the total accretion expense recorded in previous periods. We also recorded accretion expense of $148,259 and $10,622 for the 2002 nine month period for the resets of the series C-1 preferred stock and series B preferred stock warrants, respectively. The accretion expense was calculated by computing the difference between the warrant value immediately preceding and after the reset using the Black-Scholes option pricing model. Refer to Item 1 – Financial Statements Note 8 to Notes to Condensed Consolidated Financial Statements for the calculation of these charges.

         During the 2001 three-and-nine-month periods, we recorded accretion expense totaling $35,192 and $2,921,633, respectively, including $1,970,558 related to the issuance of our series C-1 preferred stock and $886,069 related to the reset of the conversion price of our series B-2 preferred stock on February 28, 2001.

         The series D junior preferred stock issued in the first quarter of 2002 is also subject to anti-dilution protection in the event we issue common stock at prices less than the current 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 prices are reduced, we may be required to record additional charges against income and such charges may be significant.

         We may also incur additional preferred stock accretion expense in future periods as a result of the convertible preferred stock Jabber issued in connection with the investment by FTTI in Jabber. The accretion expense, if any, in future periods as a result of this transaction or the issuance of other securities with similar terms may be significant.

         The terms of Jabber’s series B preferred stock provided for an 8% cumulative dividend. For the three and nine months ended September 30, 2002, we recorded $0 and $125,187, respectively, of preferred stock dividends, all of which are payable to third parties. In addition, Jabber’s series C preferred stock also provided for an 8% cumulative dividend. The series C preferred stock dividends totaled $0 and $200,120 for the three and nine months ended September 30, 2002, respectively, of which $199,484 for the nine-month period, was eliminated in consolidation as the dividends were payable to Webb.

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Net Loss Applicable to Common Stockholders:

         Net loss applicable to common stockholders was $1,536,105 and $6,401,863 for the three and nine months ended September 30, 2002, respectively, compared with $5,379,762 and $21,630,076 for the similar 2001 periods, respectively. Jabber’s net loss applicable to common stockholders for the three and nine months ended September 30, 2002, were $1,240,366 and $4,890,518, respectively, including $0 and $324,671, respectively, in non-cash preferred stock dividend expense, compared with net loss applicable to common stockholders of $2,375,715 and $6,470,620for the similar 2001 three-and-nine month periods, respectively.

         The decrease in losses for the three months ended September 30, 2002, are primarily a result of (i) incurring $2,231,333 less in operating losses for our AccelX operations as a result of the termination of this business segment in October 2001; (ii) an increase in Jabber’s gross margin of $573,854, primarily as a result of increased revenues and a change in the revenue mix from lower margin professional service fees to higher margin software license fee revenues; (iii) a decrease in operating expenses of $390,346 as a result of decreasing headcount by 8 employees for the period; and (iv) incurring $212,397 less in interest expense as the notes payable were either repaid or exchanged for preferred stock. Losses for the nine months ended September 30, 2002 were further reduced by (i) a reduction of Webb’s interest expense of $2,490,382; (ii) a decrease of $2,205,725 in preferred stock dividends and preferred stock accretion expense; (iii) an increase in Jabber’s gross margin of $1,714,656, primarily a result of increased revenues and a change in the revenue mix from lower margin professional service fees to higher margin software license fee revenues; and (iv) a decrease in depreciation and amortization expense of $575,602. These reductions in 2002 were partially offset by $1,162,934 more in non-cash charges related to a loss on debt extinguishment. We expect Webb’s losses to be approximately $260,000 for the remainder of 2002. We expect Jabber to incur approximately $800,000 in losses for the remainder of 2002 due to the significant time between product development and market introduction as well as the long sales cycle for most of Jabber’s products.

         Included in net losses allocable to common stockholders are non-cash expenses for transactions related to acquisitions, financing, and securities we issued for services as summarized in the following table:

	Three Months Ended September 30,				Nine Months Ended September 30,
	2002		2001		2002		2001
Amortization of intangible assets and goodwill	$	—	$	901,017	$	691,748	$	2,620,808
Stock and warrants issued for services		7,500		128,488		71,143		562,189
Beneficial conversion feature, amortization of discount     and financing costs to interest expense and non-cash     interest related to the 10% convertible note payable		—		162,992		513,678		2,881,024
Amortization of discount and non-cash interest expense on     short-term note payable		—		18,369		44,340		18,369
Loss on debt extinguishment		—		—		1,162,934		—
Preferred stock dividends		—		57,989		125,187		57,989
Accretion of preferred stock		10,387		35,192		648,710		2,921,633
Total	$	17,887	$	1,304,047	$	3,257,740	$	9,062,012

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FACTORS THAT MAY AFFECT FUTURE RESULTS

                  Factors that may affect our future results include, but are not limited to, the following items as well as the information in “Item 1 – Financial Statements – Notes to the Condensed Consolidated Financial Statements” and “Item 2 – Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

                  Our limited operating history makes it difficult to evaluate our business. We were founded in March 1994 and began sales in February 1995. Subsequently, our business model has changed periodically to reflect changes in technology and markets. We have a limited operating history for our current business model upon which you may evaluate us. Our 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;

• Limited ability to adjust our business plan to address marketplace and technological changes; and

• Difficulty in obtaining operating capital.

                  We expect to incur net losses into 2003. We have incurred net losses since we began our business totaling approximately $122 million through September 30, 2002, including approximately $67 million of non-cash expenses. We expect to incur additional substantial operating and net losses in 2002, and do not expect to achieve positive cash flow from operations until at least the third quarter of 2003. We expect to incur these additional losses because:

• We intend to incur capital expenditures and operating expenses in excess of revenues of approximately $860,000 during the fourth quarter of 2002 to cover the increasing activities of Jabber, Inc.;

• We expect to spend approximately $260,000 during the remainder of 2002 to finance operating expenses besides those for Jabber, Inc.; and

• We may incur significant non-cash expenses from current financing transactions and may continue to incur significant non-cash expenses due to financing and other equity-based transactions.

                  If we are unable to raise additional working capital, we may not be able to sustain our operations. Our present cash and cash equivalents and working capital will, based on current estimates, be adequate to sustain operations for Jabber, Inc. only to March 2003. In the event that Jabber’s revenues are less than projected or we desire to increase marketing and business development expenses over projected levels, we will need to obtain additional capital to fund our business. Operating expenses for Jabber, Inc. currently exceed revenues by approximately $290,000 per month. Operating expenses for our corporate activities are being funded separately from those for Jabber, Inc., and are expected to be approximately $260,000 for the remainder of 2002 and $370,000 for the first nine months of 2003. There is no assurance that we will be able to raise additional funds in amounts required or upon acceptable terms. If we cannot raise additional funds when needed, we may be required to curtail or scale back our operations or sell some of our assets, including our stock in our Jabber subsidiary.

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

• The extent to which consumers and businesses use our products and services; and

• The success of our distribution partners in marketing their products and services.

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

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                  If the Internet does not develop into a significant source of business-related communication, then our business will not be successful. Our business plan assumes that the Internet will develop into a significant source of business-related communication and communication interactivity. However, the Internet market is new and rapidly evolving and there is no assurance that the Internet will develop in this manner. If the Internet does not develop in this manner, our business may not be successful.

                  A limited number of our customers generate a significant portion of our revenues. We had three and four customers representing 65% and 75% of revenues for the three and nine months ended September 30, 2002, respectively. We expect that current customers will account for a significant percentage of our revenues during the remainder of 2002 and 2003. There is no assurance that we will be able to retain major customers or attract additional major customers. The loss of, or reduction in demand for our products or services from major customers could have a material adverse effect on our operating results and cash flow from operations.

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

• Identify new product and service opportunities; or

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

                  Even if we are able to identify new opportunities, our working capital constraints limit our ability to pursue them. If we are unable to identify and develop and introduce new products and services on a timely basis, demand for our products and services will decline.

                  We must identify and develop markets for our products and services. A suitable market for our 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 we are 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 our products and services and our ability to address sustainable markets:

• The failure of our business plan to accurately predict the types of products and services the future Internet marketplace will demand;

• Our limited working capital may not allow us to commit the resources required to adequately support the introduction of new products and services;

• The failure of our business plan to accurately predict the estimated sales cycle, price and acceptance of our products and services; or

• The development by others of products and services that makes our products and services noncompetitive or obsolete.

                  There is a lot of competition in the Internet market which could hurt our revenues or cause our expenses to increase. Our current and prospective competitors include many companies, including Microsoft Corporation, IBM and AOL Time Warner, Inc., whose financial, technical, marketing and other resources are substantially greater than ours. We may not have the financial resources, technical expertise or marketing, sales and support capabilities to compete successfully. The presence of these competitors in the Internet marketplace could hurt our business by causing us to:

• Reduce the selling prices for our products and services; or

• Increase our spending on marketing, sales and product development.

                  We may not be able to offset the effects of price reductions or increases in spending. Further, our financial condition may put us at a competitive disadvantage relative to our competitors.

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                  It usually takes a long time before we are able to make a sale of our products and services to a customer. While our sales cycle varies from customer to customer, it is long, typically ranging from two to nine months or more, and unpredictable. Our pursuit of sales leads typically involves an analysis of our prospective customer’s needs, preparation of a written proposal, one or more presentations and contract negotiations. We often provide significant education to prospective customers about the use and benefits of our Internet technologies and services. Our sales cycle may also be affected by a prospective customer’s budgetary constraints and internal acceptance reviews, over which we have little or no control.

                  Offering proprietary products derived from the Jabber.org open-source movement may jeopardize our relationship with open-source communities. An important element of the business model for our Jabber, Inc. subsidiary is based upon Jabber’s ability to offer proprietary products compatible with Jabber.org open-source instant messaging systems. A key element of open-source software development movements is that the software and its code be offered to other developers and users free, provided that anyone who makes an improvement or modification to the software and who intends to commercialize the improvement or modification, makes them available for free to the community and other users. If the Jabber.org open-source community or other open-source communities withdraw their support for either Jabber, Inc. or Jabber instant messaging products, demand for Jabber instant messaging products will likely decline.

                  We may be unable to reduce our expenses if sales do not occur as expected. Because of our limited operating history, we do not have significant historical financial data upon which to base planned operating expenses or to forecast revenues and there can be no assurance that we will be able to meet our revenue or expense projections. Our expense levels are based in part on our expectations of future sales and to a large extent are fixed. We typically operate with little backlog and the sales cycles for our products and services may vary significantly. We may be unable to adjust spending in a timely manner to compensate for any unexpected sales shortfalls. If we were unable to so adjust, any significant shortfall of demand for our products and services in relation to our expectations would result in operating losses or reduced profitability. Further, we intend to incur significant capital expenditures and operating expenses to fund the operations of our Jabber, Inc. subsidiary. If these expenditures are not subsequently followed by increased sales with substantial margins, then we will need to raise additional capital to stay in business.

                  An investment in our common stock is risky because the price of our stock is highly volatile. Our common stock closed as high as $1.18 per share and as low as$0.16 per share between January 1, 2002 and November 1, 2002. Historically, the over-the-counter markets for securities such as our common stock have experienced extreme price and volume fluctuations. Some of the factors leading to this volatility include:

• Price and volume fluctuations in the stock market at large that do not relate to our operating performance;

• Fluctuations in our quarterly 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 numerous options, warrants, and convertible securities to acquire our common stock that could have a dilutive effect on our shareholders. As of November 1, 2002, we had issued warrants and options to acquire approximately 16.3 million shares of our common stock, exercisable at prices ranging from $0.65 to $38.44 per share, with a weighted average exercise price of approximately $1.85 per share. We had also reserved 2,584,000 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 will 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.

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                  The significant number of shares issuable upon conversion of our convertible securities could make it difficult to obtain additional financing. 2,584,000 shares of our common stock may be issued if our series D junior convertible preferred stock is converted. The number of our shares issuable upon conversion or exercise of our derivative securities could increase due to future financings. Due to this significant potential increase in the number of our outstanding shares of common stock, new investors may either decline to make an investment in Webb due to the potential negative effect this additional dilution could have on their investment or require that their investment be on terms at least as favorable as the terms of the notes or convertible preferred stock. If we are required to provide similar terms to obtain required financing in the future, the onerous terms and significant dilution of these financings could be perpetuated and significantly increased. The current price of our common stock may make it difficult to raise capital because of the terms of the notes and the convertible preferred stock. Issuances of common stock below $1.00 in future financings would result in substantial additional shares being issued to a significant shareholder and to holders of our convertible securities, causing substantial dilution to other shareholders as well as substantial non-cash charges against our earnings.

                  Future 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. November 1, 2002, these shares consist of:

• Up to 2,584,000 shares issuable upon conversion of our series D junior convertible preferred stock; and

• Approximately 16.3 million shares issuable to warrant and option holders.

                  The trading volume of our common stock may diminish significantly if our common stock is subject to the penny stock rules. Our common stock is currently traded on the Nasdaq over-the-counter bulletin board. In the event that our stockholders’ equity, $2,629,824 at September 30, 2002, should drop below $2,000,000, our common stock would be subject to rules under the Securities and Exchange Commission, regulating broker/dealer practices in transactions in low-priced stocks. If our common stock became subject to the penny stock rules, many brokers may be unwilling to engage in transactions in our common stock because of the added regulation, making it more difficult for purchasers of our common stock to dispose of their shares.

                  Future sales of our common stock in the public market could limit our ability to raise capital. Actual or potential future sales of substantial amounts of our common stock in the public by our officers and directors, and upon exercise or conversion of derivative securities could affect our ability to raise capital through the sale of equity securities.

                  The issuance of convertible securities has resulted in significant non-cash expenses which has increased significantly our net loss applicable to common shareholders. We recorded approximately $2.1 million of non-cash expenses in the first quarter of 2002 due to the reset of the conversion price for our 10% note payable and series C-1 preferred stock and the reset of exercise price for warrants issued in connection with those securities and the exchange of our 10% note payable and series C-1 preferred sock for shares of series D junior convertible preferred stock.

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Item 3.    Controls and Procedures

Quarterly evaluation of Disclosure Controls and Internal Controls. Within the 90 days prior to the date of this Quarterly Report on Form 10-QSB, we evaluated the effectiveness of the design and operation of our “disclosure controls and procedures” (Disclosure Controls), and our “internal controls and procedures for financial reporting” (Internal Controls). This evaluation (the Controls Evaluation) was done under the supervision and with the participation of our Chief Executive Officer (CEO) and Chief Financial Officer (CFO). Rules adopted by the Securities and Exchange Commission (“SEC”) require that in this section of the Quarterly Report we present the conclusions of the CEO and the CFO about the effectiveness of our Disclosure Controls and Internal Controls based on and as of the date of the Controls Evaluation.

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In accord with SEC requirements, the CEO/CFO notes that, since the date of the Controls Evaluation to the date of this Quarterly Report, there have been no significant changes in Internal Controls or in other factors that could significantly affect Internal Controls, including any corrective actions with regard to significant deficiencies and material weaknesses.

Based upon the Controls Evaluation, our CEO/CFO has concluded that, our Disclosure Controls are effective to ensure that material information relating to Webb Interactive Services and its consolidated subsidiaries is made known to management, including the CEO/CFO, particularly during the period when our periodic reports are being prepared, and that our Internal Controls are effective to provide reasonable assurance that our financial statements are fairly presented in conformity with generally accepted accounting principles.

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PART II

OTHER INFORMATION

Items 1 - 5.    Not Applicable

Item 6.    Exhibits and Reports on Form 8-K

(a) Listing of Exhibits:

3.1	Articles of Incorporation, as amended, of Webb Interactive Services, Inc. (1)
3.2	Bylaws of Webb Interactive Services, Inc. (2)
4.1	Specimen form of Webb Interactive Services, Inc. Common Stock certificate (3)
4.2	Webb Interactive Services, Inc. Stock Option Plan of 1995 (2)
4.3	Form of Incentive Stock Option Agreement for Webb Interactive Services, Inc. Stock Option Plan of 1995 (2)
4.4	Form of Nonstatutory Stock Option Agreement for Webb Interactive Services, Inc. Stock Option Plan of 1995 (2)
4.5	Webb Interactive Services, Inc. Stock Option Plan of 2000, including forms of Incentive and Nonstatutory Stock Option Agreements (4)
4.6	Jabber, Inc. Stock Option Plan of 2000, including forms of Incentive and Nonstatutory Stock Option Agreements (4)
4.7	Articles of Amendment setting forth the terms of Series D Junior Convertible Preferred Stock (5)
4.8	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)
4.9	Stock Purchase Warrant dated December 18, 1999 issued by Webb Interactive Services, Inc. to Castle Creek Technology Partners, Inc. (6)
4.10	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)
4.11	Form of Stock Purchase Warrant dated February 28, 2001 issued by Webb Interactive Services, Inc. to Castle Creek Technology Partners, LLC (8)
4.12	Form of Stock Purchase Warrant, form of Series D Stock Purchase Warrant and form of amended Stock Purchase Warrants dated January 17, 2002 issued by Webb Interactive Services, Inc. to Castle Creek Technology Partners, LLC (5)
4.13	Form of Stock Purchase Warrant dated December 21, 2001 issued by Webb Interactive Services, Inc. to Jona, Inc. (5)
4.14	Form of Stock Purchase Warrant dated January 17, 2002 issued by Webb Interactive Services, Inc. to Jona, Inc. (5)
10.1	Form of Nondisclosure and Nonsolicitation Agreement between Webb Interactive Services, Inc. and its employees (1)
10.2	Employment Agreement between Jabber, Inc. and Robert Balgley, dated December 11, 2000 (12)
10.3	Employment Agreement between Jabber, Inc. and Gwenael Hagen, dated August 1, 2001 (12)
10.4	Employment Agreement between Webb Interactive Services, Inc. and William R. Cullen, dated March 1, 2002 (12)
10.5	Employment Agreement between Webb Interactive Services, Inc. and Lindley S. Branson, dated March 1, 2002 (12)
10.6	Office lease for Webb Interactive Services, Inc.’s principal offices commencing May 2000 (9)
10.7	First Amendment to office lease, Assignment and Assumption of Lease and Consent to Lease (12)
10.8	Agreement for sublease of office space (12)
10.9	Form of Change of Control Agreement between Webb Interactive Services, Inc. and certain employees (10)
10.10	Stock Purchase Agreement dated July 6, 2001, among Jabber, Inc., France Telecom Technologies Investissements and Webb Interactive Services. Included as an exhibit is the certificate of designation for Jabber, Inc. series B convertible preferred stock, investors rights agreement and stockholders agreement (11)

40

10.11	Agreement dated April 8, 2002, among Webb Interactive Services, Inc., Jabber, Inc. and France Telecom Technologies Investissements (13)
10.12	Exchange Agreement dated as of April 26, 2002 between Webb Interactive Services, Inc. and DiamondCluster International, Inc. (13)
10.13	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 (5)
10.14	Letter Agreement between Webb Interactive Services, Inc. and Jona, Inc. (12)
10.15	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 (5)
10.16	General Agreement for the Procurement of The License of Software and Services Between Jabber, Inc. and AT&T Corp. dated March 22, 2002 (14)
10.17	First Amendment to Jabber OEM Software License Agreement dated October 17,2002, between Jabber, Inc. and France Telecom (*)
10.18	PINO Chat Services Agreement dated August 16, 2002, between Benjamens Van Doorn EURO RSCG BV and Jabber, Inc. (*)
21	Subsidiaries of Webb Interactive Services, Inc. (12)

______________

(*) 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, 2002. Commission File No. 0-28462.

(5) Filed with the current report on Form 8-K, filed on January 22, 2002 and amended on January 29, 2002.

(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 Form 8-K Current Report, filed January 5, 2000, Commission File No. 0-28642.

(8) Filed with the Form 8-K Current Report, filed March 1, 2001, Commission File No. 0-28642.

(9) Filed with the Form 10-KSB Annual Report for the year ended December 31, 1999, Commission File No. 0-28462.

(10) Filed with the Form 10-KSB Annual Report for the year ended December 31, 1998, Commission File No. 0-28462.

(11) Filed with the current report on Form 8-K, filed August 1, 2001, Commission File No. 0-28642.

(12) Filed with the From 10-KSB Annual report for the year ended December 31, 2001, Commission File No. 0-28462

(13) Filed with the current report on Form 9-K, filed May 2, 2002, Commission File No. 0-286842.

(14) Filed with the Form 10-QSB, filed May 15, 2002, Commission File No. 0-28642.

(b) Reports on Form 8-K. The Company filed reports on Form 8-K during the quarter ended September 30, 2002, as follows: (i) under Item 4 of Form 8-K, on July 1, 2002; (ii) under Item 5 of Form 8-K, on August 22, 2002.

41

Signatures

In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

	WEBB INTERACTIVE SERVICES, INC.
Date: November 14, 2002	By:	/s/ WILLIAM R. CULLEN
		Chief Executive Officer - Chief Financial Officer

/s/ STUART LUCKO

Controller

42

CERTIFICATIONS

I, William R. Cullen, certify that:

1.	I have reviewed this quarterly report on Form 10-QSB of Webb Interactive Services, Inc.
2.	Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;
3.	Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all materials respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;
4.	The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:

a)	designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;
b)	evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the “Evaluation Date”); and
c)	presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date.

5. The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):

a)	all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and
b)	any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and

6. The registrant’s other certifying officers and I have indicated in this quarterly report whether there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

Date: November 14, 2002

/s/ WILLIAM R. CULLEN

William R. Cullen
Chief Executive and Chief Financial Officer

43

         The undersigned hereby certifies, for the purposes of Section 1350 of Chapter 63 of Title XVIII of the United States Code, in his capacity as an officer of Webb Interactive Services, Inc., that, to his knowledge, the Quarterly Report of Webb Interactive Services, Inc. on Form 10-QSB for the period ended September 30, 2002, fully complies with the requirements of Section 13a of the Securities Exchange Act of 1934 and that the information contained in such report fairly represents, in all material respects, the financial condition and results of operation of Webb Interactive Services, Inc.

/s/ WILLIAM R. CULLEN

William R. Cullen
Chief Executive and Chief Financial Officer

Date: November 14, 2002

44

EX-10.17

EXHIBIT 10.17

FIRST AMENDMENT
TO
JABBER OEM SOFTWARE LICENSE AGREEMENT

          This FIRST AMENDMENT TO JABBER OEM SOFTWARE LICENSE AGREEMENT (this “Amendment”) by and between Jabber, Inc., a Delaware corporation (“Jabber”), and France Telecom, a French corporation (“Distributor”), is dated as of October 17, 2002.

RECITALS

         WHEREAS, Jabber and Distributor are parties to that certain Jabber OEM Software License Agreement dated as of October 1, 2001 (“Agreement”); and

         WHEREAS, the parties desire, pursuant to Section 36 of the Agreement, to amend certain provisions of the Agreement.

AGREEMENT

         NOW, THEREFORE, in consideration of the mutual covenants, agreements and understandings herein contained, the receipt and sufficiency of which is hereby acknowledged, the parties hereto hereby agree as follows:

         1.       Third Party Resellers. Each appearance in the Agreement of the term “Third Party Reseller” or “Third Party Resellers” is hereby replaced with the term “Affiliate” or “Affiliates,” respectively.

         2.       Amendment to Section 3(iv). Section 3(iv) of the Agreement is amended and restated in its entirety as follows:

(iv) market, publicly perform, publicly display, sublicense and distribute the Software worldwide solely to Affiliates pursuant to Distribution Agreements (as defined below) entered into between Distributor and one or more Affiliates. The Affiliates shall have the right to sublicense the Software to any Customer (as defined below) solely for purposes of providing the Product to such Customer, provided that (i) the Software is hosted by the Affiliate on servers maintained and accessed exclusively by the Affiliate or its designee, and the Customer receives only remote access to the Software; (ii) the Customer is permitted to use the Software solely for its own internal business purposes (without the right of further sublicense or distribution); and (iii) the provision of the Software to Customers and the Product is branded under the Affiliate’s trade name or other proprietary indicia of commercial origin. Subject to the foregoing, Affiliates shall have the right to distribute the Software and the Product to Customers through authorized agents, provided that no Affiliate shall be relieved of any of its contractual or other

obligations to Distributor and/or Jabber or liability therefore under this Agreement or the applicable Distribution Agreement by virtue of the appointment of such agents.

         3.       Amendment to Section 3(v). The first sentence of Section 3(v) of the Agreement is deleted in its entirety and the following sentence is added at the end of the Section:

“A party will be assumed to control another party if it owns 20% or more of the party’s outstanding voting securities.”

         4.       Amendment to Section 11. Section 11 of the Agreement is deleted and amended and restated in its entirety as follows:

11.      Enhancements and Upgrades; Distributor-Developed Software. For Jabber to remain competitive, Jabber believes it should average at least two Major Upgrades to the Software during each of the next several years. In order to improve Jabber’s product development capabilities, Jabber desires to work closely with Distributor to develop upgrades to the Software, particularly upgrades designed to address the needs of current and potential Mobile and ISP and Public customers (as defined in Exhibit D). Jabber and Distributor have been working together to assist the other in its respective product development efforts. In the event that Distributor elects to pursue Part II, the parties will formalize their current working relationship in an effort to further accelerate their respective product development efforts. It is understood that by this Agreement, Distributor has not committed to make any of its intellectual property available to Jabber nor has Jabber committed to make any particular improvement to or number of Major Upgrades to the Software. Rather, this joint effort is intended to assist each party in its efforts to develop industry-leading products and services that it can market to its current and future customers.

(i)  Jabber Software Release Schedules. During the Time-Based, Fixed Fee license period (as described in Exhibit D hereto) and the term of any period during which Distributor is licensing any New Releases (as defined in Exhibit D hereto), Distributor agrees to assist Jabber to accomplish its goal of releasing at least two Major Upgrades per year. A “Major Upgrade” shall mean any upgrade of the Software that introduces significant new functionalities, as determined by Jabber in its reasonable discretion.

(ii)  Technical Cooperation. As part of the planning process associated with the development of Major Upgrades, Jabber and Distributor agree to cooperate closely in good faith and Jabber agrees to use its commercially reasonable best efforts to inform Distributor of the nature of at least 80% of the new capabilities it plans for each Major Upgrade at least 120 days before the planned release of the Major Upgrade. An internal discussion and dispute resolution process (the “Committee Process”) will be created to facilitate such cooperation and resolve any disputes arising in connection therewith. The Committee Process shall include:

Technology Development Committee – This four to six member committee will be made up of architects, program managers, and technical product managers from Distributor and

- 2 -

Jabber. This group will determine the convergence process for Distributor-created software, seek to define common technology direction for Jabber Major Upgrades, and negotiate any differences in the prioritization, technical approach, and validity of any change desired by Distributor or planned by Jabber. Any items that are not able to be resolved by this committee and that are considered by either party to be significant will be placed before the Technology Steering Committee for a best efforts attempt at resolution,

Technology Steering Committee – This four to six member committee will be made up of senior- and executive-level technology personnel from Distributor and Jabber. This group will provide long-term strategic direction to the Technology Development Committee. The Technology Steering Committee will also seek to resolve any items of disagreement presented it by the Technology Development Committee. Any items that are not able to be resolved by this committee and that are considered by either party to be significant will be placed before the Executive Committee for a best efforts attempt at resolution,

Executive Committee – This committee will be made up of one top-level executive from each of Distributor and Jabber. The Executive Committee is responsible for all aspects of the relationship between Distributor and Jabber, and will use best efforts to resolve any items of disagreement presented it by the Technology Steering Committee.

The parties agree to actively pursue in good faith and to exhaust all remedies afforded by the Committee Process.

5. Amendment to Section 21. The first sentence of Section 21 of the Agreement is revised to read as follows:

“Any and all assignment of rights or delegation of obligations under this Agreement by Distributor to any party other than an Affiliate, as defined in Section 3(iv) of this Agreement, provided that for purposes of this Section 21, control is represented by ownership of 50% or more of the voting securities of a company, are void without the express, prior written consent of Jabber.”

6. Amendment to Section 33. The second sentence of Section 33 of the Agreement is revised to read as follows:

“The Parties agree to allow the use of each other’s names and official logos for promotional and publicity purposes including, without limitation, on marketing collateral and media kits and listings on web pages; provided that Jabber will not issue any press announcements regarding this Agreement without Distributor’s prior written consent, which consent will not be unreasonably withheld.

7. Amendment to Exhibit B. The last sentence of Exhibit B is amended and restated as follows:

- 3 -

The Distributor’s Products shall mean any Product in which the Software is embedded in order to provide Instant Messaging (IM) services to Mobile, B-to-B and ISP and Public customers (as such terms are defined in Exhibit D hereto).

         6.       Amendment to Exhibit D. Exhibit D, including Attachment D-1, of the Agreement is deleted and amended and restated in its entirety to read as set forth in the attachment hereto.

         7.       Governing Law. Section 27 of the Agreement, “Governing Law,” is expressly incorporated herein by reference and made a part hereof.

         8.       No Third-Party Beneficiaries. The provisions of this Amendment are for the exclusive benefit of the parties hereto and their permitted assigns. Nothing contained in this Agreement will be deemed to create any third-party beneficiaries or confer any benefit or rights on or to any person not a party hereto, and no person not a party hereto (including without limitation customers, suppliers or creditors of either party) shall be entitled to enforce any provisions hereof or exercise any rights hereunder.

         9.       Definitions. All capitalized terms not defined herein shall have the meaning ascribed to them in the Agreement.

         10.      Effect of Amendment. Except as modified by this Amendment, the Agreement shall remain in full force and effect. In the event of any conflict between this Amendment and the Agreement, this Amendment shall prevail.

- 4 -

         11.      Counterparts. This Amendment may be executed simultaneously in one or more counterparts, any one of which need not contain the signatures of more than one party, but all such counterparts taken together shall constitute one and the same Amendment. This Amendment may be delivered by facsimile, and facsimile signatures will be treated as original signatures for all applicable purposes.

[SIGNATURE PAGE FOLLOWS]

- 5 -

                  IN WITNESS WHEREOF, the parties hereto have executed this First Amendment to Jabber OEM License Agreement on the day and year first above written.

JABBER, INC.
By:	/s/ GWENAEL HAGAN
Name:	Gwenael Hagan
Its:	COO/CFO

FRANCE TELECOM
By:	/s/ P. VIGINIER
Name:	P. Viginier
Its:	Director of France Telecom R&D

FIRST AMENDMENT TO OEM SOFTWARE LICENSE AGREEMENT
Signature Page

 

EXHIBIT D
Payment Terms and Conditions

This Payment Terms and Conditions is Exhibit D to the Jabber OEM Software License Agreement (the “Agreement”) entered into by Jabber, Inc. (“Jabber”) and France Telecom (“Distributor”) on Effective Date.

Definitions. For purposes of this Agreement, the following terms shall have the following meanings:

“Mobile” means the provisioning of carrier network service to end-user customers using any mobile telecommunication device.

“ISP and Public” means the provisioning of Products to Internet service providers and free or consumer portal providers, respectively, to allow these entities to offer the Products as part of their service offerings to end-user, consumer (i.e., non-business) customers.

“B-to-B” means the provisioning of Products to enterprises for their internal use, for use between their trading partners, or in interactions with their customers. Pricing for the right to distribute the Software and the Products to B-to-B customers shall be negotiated separately and in good faith between the parties after the date of this Amendment, and is expressly excluded from the terms of the Agreement and specifically this Exhibit D.

License Fees.

         (1) Time-Based, Fixed Fee. In consideration of the right to license the Software and the other materials licensed under the Agreement to Mobile and ISP and Public customers, Distributor shall pay to Jabber a time-based, fixed, license fee, which, if Distributor elects Parts II and III, shall be unlimited for customer growth and will be inclusive of support and maintenance fees. As set forth in the schedule below, the time-based license fee shall include a committed Part I, and optional Parts II and III. Pricing for Part I shall apply for the fourth calendar quarter of 2002. Pricing for Part II shall apply for the period January 1, 2003 through December 31, 2003 upon the election of Distributor delivered by written notice on or before December 15, 2002. Pricing for Part III shall apply for the period from January 1, 2004 through September 30, 2005 upon the election of Distributor delivered by written notice on or before December 15, 2003. In the event Distributor does not elect the Part II pricing schedule, the Part I license fee shall be a perpetual User Software license, effective for all periods after October 1, 2002, accessible by a maximum number of __________ Users, including __________ Users previously paid for, and an additional __________ Users, priced at $__________ per User, with a one-year support and maintenance fee of $__________covering the period October 1, 2002 through September 30, 2003, in accordance with the current Maintenance and Support agreement between the parties. In the event Distributor elects the Part II pricing schedule but does not elect the Part III pricing schedule, the Part II license fee shall be a perpetual User License for a total of __________ Users, including the __________ Users covered by Part I and an additional __________ Users priced at $_______________ per User, with a one-year support and maintenance fee of $500,000 covering the period January 1, 2003 through December 31, 2003, in accordance with the current Maintenance and Support agreement between the parties. A “User” shall mean an individual, registered account that has access to the functionality provided by the Software, and which may establish multiple simultaneous connections to the Software from one or more workstations. In order to exceed the maximum number of Users, Distributor must obtain one or more additional licenses of the Software from Jabber on terms to be mutually agreed.

         Time-Based, Fixed-Fee Schedule:

Quarter	License Fee
Q4 2002          Part I
Q1 2003          Part II
Q2 2003          Part II
Q3 2003          Part II
Q4 2003          Part II
Q1 2004          Part III
Q2 2004          Part III
Q3 2004          Part III
Q4 2004          Part III
Q1 2005          Part III
Q2 2005          Part III
Q3 2005          Part III

         (2) Upgrade Fees. Beginning in the third calendar quarter of 2005, the parties will use their commercially reasonable best efforts to negotiate in good faith and agree on the nature and terms for Distributor’s continued access to new releases of the Software (“New Releases”). In negotiating such terms, Jabber will take into account the fees paid under the Time-Based, Fixed Fee schedule, and the pricing under comparable contracts, if applicable, to help ensure that Distributor receives pricing commensurate with the license fees paid and services received.

         (3) Support Fees. During the term of this Agreement, Jabber will provide support for the then current version of the Software and version 2.5 of the Software and any other prior version of the Software being used by Distributor or an Affiliate, In the event the parties fail to enter into an agreement for access to New Releases, or in the event Distributor does not elect the Part II or Part III pricing schedule set forth above, Distributor, at its option, shall have the right to purchase support for the Software licensed under the Time-Based, Fixed Fee schedule for periods with respect to which Distributor has not previously purchased support. If elected by Distributor, the support fees will be an annual fee equal to from 6% to 8% of the payments received under the Time-Based, Fixed Fee schedule. Distributor shall have the right to purchase support, that will be available from Jabber, for a period of up to three years from the termination of any license of Software under the Time-Based, Fixed Fee schedule, or the termination of any license of New Releases.

Payment Terms. All fees will be due and payable thirty (30) days after receipt by Distributor of Jabber’s invoice. Jabber will deliver the Part I invoice at the date of the election of Part II or in the absence of such election, on December 15, 2002. All fees are exclusive of, and Distributor, its Affiliates, and/or its/their Customers shall pay for, shipping, any sales, use, property, value added or similar taxes, federal, state, local or foreign taxes, or other charges imposed on or with respect to the Product or its delivery, use or possession, except taxes based upon the net income of Jabber. Delivery shall be FOB Jabber.

Receipt of Payments. Amounts due shall be considered paid when Jabber is in receipt of the amount due or upon confirmation of receipt by a bank designated by Jabber. For all payments not received within forty-five (45) days of the due date, a late payment fee shall accrue daily on such unpaid amounts at the rate of one-and-one-half percent (1.5%) per month or the maximum rate permitted by law, whichever is lower.

Payment Currency and Instrument. All payments hereunder shall be in U.S. dollars wired to Jabber’s bank account.

Reports. Not applicable.

Records. Distributor and its Affiliates shall keep accurate books and records reflecting the installation of the Product and all authorized uses thereof. Not more than once in any calendar year, Jabber may retain an independent certified public accountant (“Accountant”) who may, upon one week’s written notice and during normal business hours and with minimal disruption to Distributor’s and/or its Affiliates’ operations, inspect and audit the records of

Distributor and/or its Affiliates with respect to installation and use of the Products and compliance with the terms of the Agreement. The Accountant’s activities shall be subject to a non-disclosure agreement between the Accountant and Distributor and/or its Affiliates and any information obtained by the Accountant and conveyed to Jabber shall be subject to the confidentiality provisions in the Agreement. If, upon performing such audit, it is determined that Distributor has underpaid Jabber by an amount greater than five percent (5%) of the payments due Jabber in the period being audited (based upon Jabber’s then current product usage license fees as published by Jabber), Distributor will bear all reasonable expenses and costs of such audit in addition to its obligation to make full payment in accordance with the terms of this Agreement.

JABBER Jabber, Inc.		DISTRIBUTOR France Telecom
By:	/s/ GWENAEL HAGAN	By:	/s/ P. VIGINIER
Name:	Gwenael Hagan	Name:	P. Viginier
Title:	COO/CFO	Title:	Director France Telecom R&D
Date:	October 17, 2002	Date:	October 17, 2002

EX-10.18

Exhibit 10.18

PINO CHAT Services
Agreement
between
EURO RSCG and JABBER

Date: JULY 23th , 2002

PINO CHAT Services
Agreement
between
EURO RSCG and Jabber

BENJAMENS VAN DOORN EURO RSCG B.V., a Dutch company with limited liability, whose registered office is in Amstelveen, the Netherlands, represented by C. Middeldorp, Managing Director, hereinafter referred to as “EURO RSCG”

and

Jabber, Inc., a Delaware corporation with principal offices located at 1899 Wynkoop, Suite 600, Denver, Colorado 80202, represented by Robert Balgley, Chief Executive Officer, hereinafter referred to as “JABBER”

Whereas

• NOKIA CORPORATION, NOKIA MOBILE PHONES business group, hereinafter NOKIA, will organize a new multimedia game in 2002, codename PINO (-project) or PINO;

• EURO RSCG shall carry out the PINO project for NOKIA as prime contractor;

• EURO RSCG wishes to involve JABBER in the PINO project for delivering of Chat Services as mentioned in this contract and described in Attachment A;

• EURO RSCG desires to obtain from JABBER for this PINO project and JABBER desires to provide EURO RSCG with the services described in this Agreement on the terms and conditions set forth in this Agreement;

• Jabber will be the provider of the Services described in this Agreement.

Therefore Parties agree as follows:

The PINO Chat Services Agreement, dated as of the Effective Date, is set forth below.

This Agreement is the complete and exclusive agreement between the Partiesregarding the subject matter of this Agreement, and replaces any prior oral or written communications between the Parties with respect to the subject matter of this Agreement.

Page 1 of  21

By signing below, the Parties agree to be bound by the terms of this Agreement. Once signed, unless prohibited by applicable law, any reproduction of this Agreement made by reliable means (for example, photocopy or facsimile) is considered an original.

Agreed to	Agreed to:
Benjamens van Doorn EURO RSCG B.V.	Jabber Inc.

By:	/s/ CHRIS MIDDELDORP	By:	/s/ GWENAEL HAGAN
Authorized Signature		Authorized Signature

Chris Middeldorp, Managing Director	Gwenael Hagan, Chief Financial Officer
Name and Title Date: Place: Address Burg. A. Colijnweg 2 1182 AL Amstelveen The Netherlands	Name and Title Date: Place: Address 1899 Wynkoop Suite 600 Denver, Colorado 80202

Page 2 of  21

1.0 Definitions	Attachments
2.0 Term	A      Service descriptions
3.0 Conflicts	B      Service Levels
4.0 Management of this Agreement	C      Charges
4.1Project Executives	D      Transition Phase
4.2Steering Committee	E      Milestones
4.3Dispute Resolution	F      Software/hardware
4.4Personnel	G      Facilities
4.5Change
4.6Meetings
5.0 Services
5.1Description of Services
5.2Transition Phase
5.3Software
5.4Services Machines
5.5Required Consents
6.0 Charges, Credits, and Payments
6.1Charges
6.2Payments
7.0 Termination
7.1Termination for Convenience
7.2Termination for Cause
8.0 Confidential Information
9.0 Intellectual Property Rights
10.0 Indemnification
11.0 Limitation of Liability
12.0 Warranty
13.0 General
13.1 Assignment and Binding Nature
13.2 Data Privacy
13.3 Environmental
13.4 Facilities
13.5 Force Majeure
13.6 Freedom of Action
13.7 Governing Law And Jurisdiction
13.8 Limitations Period
13.9 Modifications
13.10 Notifications and Approvals
13.11 Publicity
13.12 Relationship
13.13 Risk of Loss
13.14 Severability
13.15 Survival
13.16 Third Party Beneficiaries
13.17 Waiver

Page 3 of  21

1.       Definitions

The following terms have the meanings set forth below.

a.	Affiliate means any entity controlling, controlled by, or under common control with PARTY or EURO RSCG. The term “Control” and its correlative meanings, “controlling,” “controlled by” and “under common control with,” means the legal, beneficial or equitable ownership, directly or indirectly, of more than fifty percent of the aggregate of all voting equity interests in an entity.
b.	Agreement means this agreement, dated as of the Effective Date, between EURO RSCG and JABBER and its Attachments.
c.	Applications Software means the programs, including all supporting documentation, source code (Only for the custom made PINO parts), and media that:
1.	perform specific data processing and telecommunication tasks; and
2.	are listed as Applications Software in Attachment (Software).
d.	Attachments mean the Attachments if applicable and Exhibits, collectively.
e.	Breaching Party has the meaning set forth in Section 7 (Termination) of this Agreement.
f.	Confidential Information has the meaning set forth in Section 8 (Confidential Information) of this Agreement.
g.	Defense has the meaning set forth in Section 10 (Indemnification) of this Agreement.
h.	Defense Costs means reasonable attorneys’ fees and costs of investigation incurred by the Indemnified Party in connection with defending a claim subject to indemnification under Section 10 (Indemnification) of this Agreement.
i.	Derivative Work means a work based on one or more preexisting works, including a condensation, transformation, translation, modification, expansion, or adaptation, that, if prepared without authorization of the owner of the copyright of such preexisting work, would constitute a copyright infringement under applicable law.
j.	Discloser has the meaning set forth in Section 8 (Confidential Information) of this Agreement.
k.	Dispute Resolution Process has the meaning set forth in Section 4.3 (Dispute Resolution) of this Agreement.
l.	Effective Date means the date of signing as stated in this agreement
m.	Exhibit means the exhibit, if any, expressly referenced in and attached to an Attachment.
n.	Expiration Date means ECT 23:59 hourson 31 December 2002.
o.	Facilities means any location:
1.	leased, rented, or used by EURO RSCG that PARTY may use in providing the Services; and
2.	that is listed in Attachment G (Facilities).
p.	Force Majeure Event has the meaning set forth in Section 13.5 (Force Majeure) of this Agreement.
q.	Hazardous Material means any substance or material classified or considered hazardous or toxic under applicable law.
s.	PARTY Products means PARTY designated software made generally available by PARTY or its Affiliates.
t.	JABBER Regulatory Requirements means the laws applicable to JABBER in its capacity as an information technology services provider.
u.	Indemnified Party has the meaning set forth in Section 10.0 (Indemnification) of this Agreement.

v. Indemnifying Party has the meaning set forth in Section 10.0 (Indemnification) of this Agreement.

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w. Materials means expressions of literary works or other works of authorship (such as programs, program listings, programming tools, documentation, reports, drawings and similar works) that are developed by PARTY, or by PARTY and EURO RSCG, under this Agreement, delivered by PARTYto EURO RSCG as part of the Services, and are not available under vendor software license agreements (including license agreements for PARTY Products). Materials do not include the underlying literary works or other works of authorship upon which such Materials are based.

x.	Milestones are listed in Attachment E (Milestones).
y.	Services Charge means the charges to EURO RSCG for the Services of PARTY as mentioned in section 6
z.	Invoice has the meaning set forth in Section 6.1 (Charges) of this Agreement.
aa.	EURO RSCG means Benjamens van Doorn EURO RSCG BV, a wholly owned subsidiary of Benjamens van Doorn Groep Nederland B.V and any other affiliated Benjamens van Doorn Groep Nederland B.V. company
ab.	EURO RSCG Data means any information relating to an identifiable individual (Personal Data) that PARTY processes on behalf of EURO RSCG in performing the Services. EURO RSCG Data excludes Personal Data processed by PARTY for any reason other than PARTY’s performance of the Services;
ac.	EURO RSCG-Provided Product means any equipment, system, program, product, or business process provided to PARTY by EURO RSCG under this Agreement or used by EURO RSCG in conjunction with the Services.
ad.	EURO RSCG Regulatory Requirements means the laws applicable to EURO RSCG.
ae.	PINO means the all media game organized by NOKIA CORPORATION, Nokia Mobile Phones business group with its affiliates having its principal office at Keilalahdentie 4, FIN-02150 Espoo, Finland.
af.	Nonbreaching Party has the meaning set forth in Section 7.0 (Termination) of this Agreement.
ag.	Nonperforming Party has the meaning set forth in Section 13.5 (Force Majeure) of this Agreement.
ah.	Other Products has the meaning set forth in Section 12.0 (Warranty) of this Agreement.
ai.	Owner has the meaning set forth in Section 9.0 (Intellectual Property Rights) of this Agreement.
aj.	Party means either Jabber or EURO RSCG, alternatively.
ak.	Parties means Jabber and EURO RSCG, collectively.
al.	Payable Date has the meaning set forth in Section 6.2 (Payments) of this Agreement.
am.	Procedures Manual means the manual (electronic or hard copy) describing the operating processes and procedures governing the performance of the Services. The Procedures Manual is a Type II Materials.
an.	Project Executive has the meaning set forth in Section 4.1 (Project Executives) of this Agreement.
ao.	Recipient has the meaning set forth in Section 8.0 (Confidential Information) of this Agreement.
ap.	Required Consents means any consents or approvals required to give to PARTY and its Affiliates the right or license to use, execute, reproduce, display, perform, distribute copies of, and modify (including creating Derivative Works), any services, products, programs, materials, information, or facilities that PARTY may use or access in providing the Services under this Agreement.
aq.	Residual Information has the meaning set forth in Section 8.0 (Confidential Information) of this Agreement.
ar.	Attachments means the Attachments expressly referenced in and attached to this Agreement. An Attachment includes, if applicable, the Exhibits expressly referenced in and attached to an Attachment.

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as. Services means the information technology services and functions provided by PARTY to EURO RSCG, as set forth in Attachment A (Services and Support Responsibilities).

at.	Service Levels means the service delivery criteria established for certain of the Services, as set forth in Attachment B (Service Levels).
au.	Services Machines means machines that are owned, leased, or rented by PARTY and used by PARTY to provide the Services. Machines located at the Facilities are listed as Services Machines in Attachment F (Machines).
av.	Software means Applications Software and Systems Software, collectively.
aw.	Steering Committee has the meaning set forth in Section 4.2 (Steering Committee) of this Agreement.
ax.	Subcontractors means contractors, vendors, agents, and consultants selected and retained by PARTY or EURO RSCG, respectively.
ay.	Systems Software means the programs, including all source code (meaning only the custom made PINO parts), supporting documentation and media that:
1.	perform tasks basic to the functioning of data processing and telecommunication; and
2.	are required to operate the Applications Software.
b.	Term has the meaning set forth in Section 2.0 (Term) of this Agreement.
bb.	Third Party and Third Parties means any entity or person other than PARTY and EURO RSCG, NOKIA CORPORATION and their respective Affiliates, directors, officers, and employees.
bc.	Transition Phase has the meaning set forth in Section 5.2 (Transition of Services) of this Agreement.
bd.	Type I Materials has the meaning set forth in Section 9.0 (Intellectual Property Rights) of this Agreement.
be.	Type II Materialshas the meaning set forth in Section 9.0 (Intellectual Property Rights) of this Agreement.

2.0      Term

This Agreement begins on the Effective Date and expires on the Expiration Date (the Term), unless earlier terminated or extended under the terms of this Agreement. The Expiration date will be 31st of December 2002

3.0      Conflicts

If there is a conflict among the terms in the various documents within this Agreement:

a.	to the extent the conflicting provisions can reasonably be interpreted so that such provisions are consistent with each other, such consistent interpretation will prevail; and
b.	to the extent Section 3.0 (a) (Conflicts; consistency) does not apply, the following order of precedence will prevail:
1.	this Agreement (exclusive of its Attachments) will prevail over a conflicting term in its Attachments with the exception of Section 3.0 (b3); and
2.	an Attachment will prevail over a conflicting term in the Exhibits.
3.	By way of exception to Section 3.0 (b1) applies that solely with regard to Standard “off the shelf” software, Sections 13, 14, 22, 23, and 29 of Attachment F will prevail over this agreement. Standard “off the shelf” software is defined as: all (parts of) software not custom made or developed under this agreement.

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4.0      Management of this Agreement

4.1      Project Executives

a.	PARTY and EURO RSCG will each appoint an individual (the Project Executives) who has the authority to represent and bind PARTY and EURO RSCG, respectively, in connection with all aspects of this Agreement.
b.	Before assigning an individual as a Project Executive, initially and subsequently, PARTY and EURO RSCG will:
1.	introduce the individual to the other;
2.	consistent with its personnel practices, provide the other with any information reasonably requested regarding the individual; and
3.	discuss any reasonable objections the other may have to such assignment.
b.	Each Party will confirm to the other in writing the names of their respective representatives (Project Executives, Steering Committee members and Lead Executives) and any changes therein.

4.2      Steering Committee

a.	PARTY and EURO RSCG will create a committee (the Steering Committee) consisting of one or more employees from EURO RSCG and its Affiliates and one employee from PARTY and its Affiliates to oversee the management of this Agreement. A senior nominee from EURO RSCG chairs the Steering Committee. Within 5 days after the Effective Date, PARTY and EURO RSCG will identify the titles of the initial members of the Steering Committee and will agree upon a process for replacement of the Steering Committee members.
b.	The Steering Committee:
1.	will regularly conduct reviews of the operating and strategic plans prepared by the Project Executives. EURO RSCG will issue minutes of these meetings within two working days following the meeting;
2.	will upon PARTY’s or EURO RSCG’s request, assist in resolving any issues arising during the negotiation of an amendment to this Agreement;
3.	will participate in the Dispute Resolution Process;

4.3      Dispute Resolution

a.	If EURO RSCG and PARTY have a dispute regarding the Services, EURO RSCG and PARTY will follow the dispute resolution process described in this Section (the Dispute Resolution Process).
b.	Procedure
1.	Project Executives

A dispute under this Agreement initially will be referred in writing to the Project Executives.

2. Steering Committee

If the Project Executives are unable to resolve the dispute within five business days of their receipt of the written referral to the Project Executives, the dispute will be referred in writing to the Steering Committee.

3. Lead Executives

If the Steering Committee is unable to resolve the dispute within 5 days of their receipt of the written referral to such designated representatives, the dispute will be referred in writing to the highest level of mandatory escalation.

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4. EURO RSCG and PARTY will exercise reasonable, good faith efforts to resolve the dispute throughout the Dispute Resolution Process.

c.	PARTY and EURO RSCG may not initiate formal proceedings for the resolution of such dispute until the earlier of:
1.	the lead executives’ joint written conclusion that amicable resolution through continued negotiation is unlikely;
2.	60 days after the written referral to such lead executives was made; or
3.	30 days before the limitations period governing any such cause of action relating to such dispute would expire.
d.	JABBER and EURO RSCG

agree that written or oral statements or offers of settlement made in the course of the Dispute Resolution Process set forth in this Section:

(a)	will be Confidential Information,
(b)	will not be offered into evidence, disclosed, or used for any purpose other than the Dispute Resolution Process, and
(c)	will not constitute an admission or waiver of rights; and
(d)	will be promptly returned to the other, upon request, any such written statements or offers of settlement, including all copies thereof.

e.	Continued Performance
f.	Except where clearly prevented by the nature of the dispute or in the event of EURO

RSCG’s breach of payment regulations as set forth in this Agreement and Attachment C,

PARTY and EURO RSCG agree to continue performing their respective obligations under this Agreement while a dispute is being resolved under the condition that Euro RSCG shall have the right the postpone or cease Payments to Party as set forth in article 6 of this Agreement and Attachment C (Charges) in case Party does not comply to the mutually agreed upon delivery dates in regard to Party’s Services or parts thereof as set forth in Attachment E (Milestones) of this Agreement, after Party has been notified in writing (including email) of its omission to meet Party’s obligations, within a reasonable time.

4.4      Personnel

a.	PARTY will comply with EURO RSCG’s reasonable rules and regulations communicated in writing to PARTY regarding personal and professional conduct if and while at the Facilities.
b.	PARTY and EURO RSCG will each be responsible for the management, direction, control, supervision, and compensation of its own employees.
c.	The Services will be provided under the management, direction, control, and supervision of PARTY under this Agreement. Notwithstanding PARTY’s intention to keep changes in the Project Team as low as reasonably possible, PARTY may choose in its absolute discretion to perform its responsibilities under this Agreement through its Affiliates or Subcontractors, provided that PARTY will not be relieved of its obligations under this Agreement by the use of such Affiliates or Subcontractors.
c.	If EURO RSCG reasonably determines that it is not in EURO RSCG’s best interests for an employee of PARTY, PARTY’s Affiliates or their Subcontractors to continue performing the Services, EURO RSCG will provide PARTY with a written notice and explanation for EURO RSCG’s request that PARTY remove such employee from providing Services. Promptly after receiving such notice and explanation, PARTY will investigate the matter and take appropriate action, which may include the removal of such employee.

4.5      Change

a. Except for changes made by JABBER on an emergency basis, JABBER will:

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1. obtain EURO RSCG’s approval before making any unplanned changes that will have a material adverse effect on EURO RSCG’s business operations;

2.	Attachment change activities with the goal of minimizing unreasonable interruptions to EURO RSCG’s business operations; and
3.	prepare a monthly Attachment of planned and ongoing changes that will have a material adverse effect on EURO RSCG’s business operations.
b.	With respect to changes:
1.	materially affecting EURO RSCG’s business operations that were made by PARTY on an emergency basis; or
2.	for which PARTY was not required to obtain EURO RSCG’s approval as set forth in this Section;

PARTY will provide EURO RSCG with documentation of such changes within five business days after such change was made.

4.6      Meetings

Within the week after the Effective Date, EURO RSCG and PARTY will mutually determine a Attachment for periodic meetings between EURO RSCG and PARTY, which meetings will include:

1.	regular operations meeting in the project team to discuss daily performance and planned or anticipated activities and changes;
2.	a time Attachment for Steering Committee meeting to review other matters as appropriate.

5         Services

5.1      Description of Services

PARTY will provide the Services as set forth in this Agreement, Attachment A, EURO RSCG will perform, at no charge to PARTY, its obligations set forth in this Agreement.

5.2      Transition Phase

a. There will be a transition phase (“Transition Phase”) beginning on the Effective Date, to be ended ultimately on the date of the ‘Start of Registration’, as mentioned in Attachment A.
The Transition Phase may be extended with mutual agreement of the Parties. During the Transition Phase, PARTY will be responsible for:

1.	preparing, delivering and installing the Services as mentioned in Attachment A, including the necessary Software
2.	providing EURO RSCG with a Software license for the Package XXX, if applicable as mentioned in Attachment F. Parties will set the license conditions by separate Agreement, if applicable
3.	meeting with the PARTY Milestones and activities in connection therewith as mentioned in and in conformance with Attachment E
4.	participating in the testing phase of the PINO system to the extent needed for ensuring complete functionality of the system
5.	creating final service level agreements;
6.	creating or adjusting reports indicating the true service level in relation to the service level agreements;
7.	creating or adjusting relevant procedures, such as user instructions and change management, work instructions (see also Attachment D)

b. EURO RSCG will cooperate with PARTY, as it is cooperating with the other suppliers in

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the PINO project, in accomplishing all aspects of the transition, including the commitment of the resources necessary to complete the transition during the Transition Phase. The obligations with regard to the service levels as described in Attachment B (Service Levels) will not take effect before the final SLA’s have been agreed upon and after required changes, if any, have been implemented. If necessary the Transition Phase shall be extended to accommodate any such change.

c. The Transition Phase will not end until EURO RSCG will have agreed upon the results of testing the services as described in Attachment A on the basis of the acceptance criteria as mentioned in Attachment D

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5.3      Software

5.3.1 If and as far as EURO RSCG software or software from subcontractors of EURO RSCG is used by PARTY to provide the Services:

a.	EURO RSCG represents and warrants that, during the Term, PARTY has the right to access and use such software in the manner in which EURO RSCG was using such software as of the Effective Date.
b.	EURO RSCG hereby grants to PARTY, for PARTY’s provision of the Services, the same rights to use such software that EURO RSCG has with respect to such software, subject to Section 5.5 (Required Consents) of this Agreement.

5.3.2 The same as mentioned in 5.3.1 applies for PARTY providing software to EURO RSCG necessary in executing the PINO project

5.4      Services Machines

a. Services Machines

If and as far as delivered by PARTY in the PINO project, PARTY retains all right, title and interest in and to all Machines of this Agreement. PARTY represents and warrants that PARTY is either the owner of the Services Machines or is authorized by its owner to include it under this Agreement.

b. Additional or Replacement Services Machines

Additional or replacement Services Machines, including upgrades, may be added by PARTY as PARTY determines necessary to perform the Services in accordance with the Service Levels.

5.5      Required Consents

a.	EURO RSCG will obtain and provide to PARTY, with PARTY’s reasonable assistance, all Required Consents, which will be consistent with the terms of this Agreement (such as confidentiality and liability).
b.	If any Required Consent is not obtained, EURO RSCG and PARTY will cooperate with each other in achieving a reasonable alternative arrangement to continue to process its work with as minimal interference to its business operations as is reasonable until such Required Consent is obtained.

6         Charges, Credits, and Payments

6.1      Charges

As set forth in Attachment C (Charges):

a. Services Charge

JABBER will invoice EURO RSCG for the Services Charge, according to the schedule as set forth in Attachment C (Charges)

b. Termination Charges

If a EURO RSCG elects to terminate this Agreement for its convenience, as set forth in Section 7.1 (Termination for Convenience) of this Agreement, PARTY will invoice EURO RSCG for the charges for the Services already performed and still open to the date of termination as mentioned in section 2, PARTY will also invoice EURO RSCG for all reasonable costs PARTY has already made in executing the services in this Agreement. Last invoice(s) shall be detailed and costs shall be made evident.

c.	Other Charges
1.	If EURO RSCG requests that Services be performed in a certain manner or by certain employees of PARTY, its Affiliates, or their Subcontractors, which request is different than or in addition to that

	agreed upon in this Agreement, PARTY will advise EURO RSCG in advance of the additional charges, if any, for such request.
2.	PARTY will invoice EURO RSCG for any other agreed upon charges.

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6.2      Payments

EURO RSCG will pay PARTY’s invoices as set forth below.

a.	The Payable Date for all invoices provided to EURO RSCG by PARTY under this Agreement, will be 30 days after receipt of such invoice following payment schedule as mentioned in Attachment C. EURO RSCG will pay each invoice to an account specified by PARTY.
b.	If any payments are not received by PARTY within 60 days after the Payable Date, EURO RSCG will also pay PARTY a late fee of the lesser of one and one-half (1.5%) percent per month or the highest percentage allowed by Dutch lawof such payments per every thirty days.

7         Termination

7.1      Termination for Convenience

EURO RSCG may elect to terminate this Agreement for its convenience as per the dates as mentioned in Attachment C, by providing PARTY with a 30 days prior written notice stating its election to terminate this Agreement for convenience. In such case EURO RSCG has to pay PARTY the Charges (Termination Charges) as mentioned in section 2.2 of Attachment C.

7.2      Termination for Cause

a.	EURO RSCG or PARTY (the Nonbreaching Party) may elect to terminate this Agreement because of a material breach of this Agreement by the other (the Breaching Party) after having followed the Dispute Resolution Process as described in article 4.3 above by following the process set forth in this Section.
b.	The Nonbreaching Party will provide the Breaching Party with written notice of such material breach within 21 days after noticing the material breach, describing in detail the specific nature and dates of the material breach, and will provide the Breaching Party with the opportunity to cure the material breach as follows:

1.	in the event of a failure to pay any amount due on the Payable Date, thirty days; and
2.	in the event of any other material breach, 10 days. If the nature of any nonmonetary breach is such that it would be unreasonable to expect a cure within 10 days, an additional 10 days will be allowed.

c. If the material breach is not cured during the applicable cure period set forth above, the Nonbreaching Party may terminate this Agreement for material breach by providing the Breaching Party with written notice within 10 days after the expiration of the cure period specified above, declaring termination of this Agreement for material breach under this Section, effective on the date stated in such notice. Such effective date will be no later than 14 days after the Breaching Party’s receipt of such notice of termination for material breach.

8         Confidential Information

Reference is made to the GENERAL NON-DISCLOSURE AGREEMENT between the Parties, Agreement Number: as signed on June 20th 2002. which is considered integral part of this Agreement.

9         Intellectual Property Rights

A. This Section specifies the ownership and license rights of Materials. Materials are either Type I Materials or Type II Materials.

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B. Type I Materials are Works or software for which the pre - existing copyright is owned by EURO RSCG or of which EURO RSCG is the licensee. All Materials are Type II Materials, except for Type I Materials.

C. Type I Materials

         1.       Ownership

Type I Materials are owned by EURO RSCG. PARTY will retain one copy of Type I Materials, as far is necessary to provide the Services and only for the duration of the Agreement

         2.       License Rights

EURO RSCG hereby grants to PARTY and its Affiliates, as far as necessary to provide the Services and only for the duration of the Agreement, the following license to Type I Materials:

(a)	a nonexclusive, worldwide, paid-up, irrevocable license to use, execute, reproduce, display, perform, distribute copies of, and modify (including creating Derivative Works based on) Type I Materials; and
(b)	the right to authorize others to do any of the former.

D. Type II Materials

         1.       Ownership

Type II Materials are owned by PARTY, its Affiliates or Third Parties.

         2.       License Rights

PARTY hereby grants to EURO RSCG and its Affiliates the following license to Type II Materials:

(a) a nonexclusive, worldwide, paid-up license to use, execute, reproduce, display, perform and distribute copies of Type II Materials, but only for:

(i)	EURO RSCG’s internal use;
(ii)	for the purpose of EURO RSCG’s receipt of the Services during the Term for the PINO game provided that such license will terminate upon PARTY’s termination of this Agreement for EURO RSCG’s material breach; and

(b) the right to authorize others to do any of the former.

E.	The ownership and license rights granted in this Section are limited by and subject to any patents and copyrights held by, and the terms of any license agreements with, applicable vendor software providers (including PARTY and its Affiliates) as informed to the other when applicable.
F.	PARTY and EURO RSCG grant only the licenses and rights specified in this Agreement. No other licenses or rights (including licenses or rights under patents) are granted.
G.	EURO RSCG and PARTYeach agree to reproduce the copyright notice and any other legend of ownership on the original and any copies made under the licenses granted in this Section. No copyright notice and any other legend of ownership is visible towards the final consumer participants participating in the live phase of the PINO project.

10.      Indemnification

a. Defense by PARTY

PARTY will defend EURO RSCG, its Affiliates and NOKIA CORPORATION, and their respective employees, officers, and directors against any claim by a Third Party:

1.	that an PARTY Product provided to EURO RSCG by PARTY under this Agreement infringes such Third Party’s patent or copyright; and
2.	for interest, or penalties against EURO RSCG that are obligations of PARTY pursuant to of this Agreement.

b. Defense by EURO RSCG

EURO RSCG will defend PARTY, its Affiliates, and their respective employees, officers, and directors against any claim by a Third Party:

1. that a EURO RSCG-Provided Product infringes such Third Party’s patent or

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         copyright;

2.	for interest, or penalties against PARTY that are obligations of EURO RSCG pursuant to of this Agreement;
3.	based on an environmental claim arising out of this Agreement or as a result of the Services performed at the Facilities, except to the extent that PARTY has caused the environmental damage as a result of PARTY’s breach of its obligations under this Agreement; and
4.	based on any products or services provided by EURO RSCG or its Affiliates.

c. If PARTY or EURO RSCG is obligated to provide the defense in subsections (a) (Defense by PARTY) or (b) (Defense by EURO RSCG) above (the Indemnifying Party), subject to subsection (e) (Indemnification Procedures), the Indemnifying Party agrees to pay to the other (the Indemnified Party) all:

1.	damages that a court finally awards to such Third Party towards PARTY or EURO RSCG/NOKIA CORPORATION) for such claim and any Defense Costs; or
2	the amount of any settlement agreed to by the Indemnifying Party and any Defense Costs, in each case ((1) and (2)), in proportion to the Indemnifying Party’s comparative fault in causing such amounts.

d. Patent and Copyright Claims

1. The Indemnifying Party will have no obligation for patent or copyright claims pursuant to subsections (a) (Defense by PARTY) or (b) (Defense by EURO RSCG) above to the extent such claims are a result of:

(a)	modifications of the PARTY Products or EURO RSCG-Provided Products, or the use of such products in other than their specified operating environment;
(b)	the Indemnified Party’s combination, operation, or use of the PARTY Products or EURO RSCG-Provided Products with products, data, or apparatus not provided by the Indemnifying Party; unless such modification, combination, operation or use was at the direction or request of, or in accordance with the specifications provided by the Indemnifying Party.

2. PARTY will have no obligation for patent or copyright claims pursuant to subsection

(a) (Defense by PARTY) above to the extent such claims arise from PARTY Products acquired or licensed from a third party without a warranty of any kind.

3. If a patent or copyright infringement claim is made or appears likely to be made, the Indemnified Party agrees to permit the Indemnifying Party to obtain the right for the Indemnified Party to continue to use the PARTY Product or EURO RSCG-Provided Product, or to modify or replace it with one that is at least functionally equivalent.

e. Indemnification Procedures

1.	The Indemnifying Party’s obligations under this Section are subject to the Indemnified Party following the procedures set forth in this subsection (e) (Indemnification Procedures).
2.	The Indemnified Party will promptly notify the Indemnifying Party in writing of a claim covered by this Section.
3.	The Indemnifying Party will be entitled to take sole control of (or in case of NOKIA CORPORATION entitled to participate in) the defense and investigation of the claim (collectively, the Defense) at its own expense, and to use attorneys of its choice, by providing prompt written notice to the Indemnified Party. The Indemnifying Party will not be liable to the Indemnified Party for any Defense Costs incurred after such notice, except for Defense Costs to the extent really necessary for Indemnified Party’s Defence in addition to the Indemnifying Party’s control of the Defence or incurred at the Indemnifying Party’s request.

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4.	The Indemnified Party will cooperate in all reasonable respects with the Indemnifying Party and its attorneys in the Defense of such claim, and may reasonably participate at its own expense, through its attorneys or otherwise, in such Defense.
5.	If the Indemnifying Party does not take sole control of the Defense of a claim as provided in this subsection (e) (Indemnification Procedures):

(a)	the Indemnifying Party may participate in such Defense, at its sole cost and expense; and
(b)	the Indemnified Party will have the right to defend the claim in such manner as it may deem appropriate; and
(c)	the Indemnifying Party will pay the Indemnified Party’s Defense Costs.

6. All settlements of claims subject to indemnification under this Section will:

(a)	be entered into only with the consent of the Indemnified Party, which consent will not be unreasonably withheld; and
(b)	include an appropriate confidentiality agreement prohibiting disclosure of the terms of such settlement.

11.      Limitation of Liability

a. General Intent

PARTY’s and EURO RSCG’s and their respective Affiliates’, employees’, officers’, and directors’ entire liabilityunder this Agreement, and their exclusive remedies, are set forth in this Section and Section 10.0 (Indemnification) of this Agreement.

b. Damages

         Except in cases of intentional misconduct or gross negligence, PARTY and EURO RSCG and their respective Affiliates’, employees’, officers’ and directors’ entire liability for actual, direct damages under this Agreement, regardless of the basis on which PARTY or EURO RSCG is entitled to claim damages (including breach, negligence, misrepresentation, or other contract or tort claim), will be limited in the aggregate for all claims and causes of actions to EUR 500.000 (fivehundredthousand Euros) or the amount of the agreed Service Fee, whichever is greater. Any damages as a result of delaying, canceling (the agreed start of) or stopping the PINO game because of PARTY’s failure of delivering their services and/or meeting with their Milestones are direct damages under this Agreement

         The limitation of liability in subsection 11.0 (b) (Damages) above does not apply to:

1.	any damages for bodily injury (including death) and damage to real property and tangible personal property;
2.	EURO RSCG’s or PARTY’s obligation to indemnify the other under this Agreement, as provided in Sections 10.0 (a) (1) and (b) (1) (infringement), Sections 10.0 (a) (3) and 10.0 (b) (3) (taxes), Section 10.0 (b) (4) (environmental), and Section 10.0 (b) (5) (EURO RSCG’s products or services) of this Agreement; and
3.	any damages associated with EURO RSCG’s infringement or violation of the intellectual property rights of PARTY or its Affiliates and any damages associated with PARTY’s infringement or violation of the intellectual property rights of EURO RSCG or its Affiliates.
c.	Subject to the subsection 10.0 (b), in no event will PARTY, EURO RSCG, or their respective Affiliates, employees, officers, and directors have any liability under this Agreement, regardless of the basis on which PARTY or EURO RSCG is entitled to claim damages (including breach, negligence, misrepresentation, or other contract or tort claim), for any special, incidental, punitive, or indirect damages, or for any economic consequential damages (including lost profits or savings), even if foreseeable or even if EURO RSCG or PARTY has been advised of the possibility of such damages.
d.	In no event will PARTY or its Affiliates, employees, officers, and directorshave any liability under this Agreement, regardless of the basis on which EURO RSCG is entitled to claim damages (including breach, negligence, misrepresentation, or other contract or tort claim), for claims for damages made against EURO RSCG by Third Parties or EURO RSCG’s Affiliates, except for

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PARTY’s obligation to indemnify EURO RSCG pursuant to Section 10.0 (Indemnification) and for damages for bodily injury (including death) and damage to real property and tangible personal property.

In no event will EURO RSCG or its Affiliates, employees, officers, and directorshave any liability under this Agreement, regardless of the basis on which PARTY is entitled to claim damages (including breach, negligence, misrepresentation, or other contract or tort claim), for claims for damages made against PARTY by Third Parties or PARTY’s Affiliates, except for EURO RSCG’s obligation to indemnify PARTY pursuant to Section 10.0 (Indemnification) and for damages for bodily injury (including death) and damage to real property and tangible personal property.

e. In no event will PARTY, its Affiliates, or their respective employees, officers, and directors have any liability for any damages to the extent caused by EURO RSCG’s, its Affiliates’, or their respective employees’, officers’, or directors’ failure to perform EURO RSCG’s obligations under this Agreement, nor will EURO RSCG, its Affiliates, or their respective employees, officers, and directors have any liability for any damages if to the extent caused by PARTY’s, its Affiliates’, or their respective employees’, officers’, or directors’ failure to perform PARTY’s obligations under this Agreement.

12.      Warranty

a. Compliance with Laws and Obligations

1.	JABBER represents and warrants that it complies with the JABBER Regulatory Requirements to the extent that such PARTY Regulatory Requirements relate to the performance of its obligations under this Agreement.
2.	EURO RSCG represents and warrants that it complies with the EURO RSCG Regulatory Requirements to the extent that such EURO RSCG Regulatory Requirements relate to the performance or utilization of the Services, and will identify and make interpretations of any EURO RSCG Regulatory Requirements applicable to the performance or utilization of the Services.

b. Other Disclaimers

PARTY does not warrant uninterrupted or error-free operation of any machines, software, products, or Services or that PARTY will find or correct all defects. Nevertheless, PARTY will comply and warrant operation with the Service Levels given in Attachment B.

13.      General

13.1    Assignment and Binding Nature

a. PARTY may not delegate its obligations, and EURO RSCG may not assign its rights or delegate its obligations, under this Agreement, without the prior written consent of the other, except that PARTY may delegate its obligations and EURO RSCG may assign its rights or delegate its obligations to their respective Affiliates, provided:

1.	such Affiliate accepts such assignment and assumes such obligations, in writing;
2.	EURO RSCG or PARTY, respectively, remains fully liable for and is not relieved from the full performance of its obligations; and
3.	EURO RSCG and PARTY provide the other with written notice, together with a copy of the signed assignment, delegation, and assumption agreement, within three business days of such assignment, delegation, or both.

b.	PARTY’s and EURO RSCG’s respective permitted successors and assigns will be bound by this Agreement.
c.	A change in Control or a sale of all or substantially all of the assets of PARTY or EURO RSCG will be deemed an assignment and delegation of this Agreement, requiring consent as set forth in this Section.

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c. Any attempted assignment or delegation of all or any part of this Agreement that does not comply with this Section is void.

13.2    Data Privacy

a.	General
1.	PARTY and EURO RSCG are each responsible for complying with their respective obligations under the applicable data protection laws governing EURO RSCG Data.
2.	EURO RSCG remains solely responsible for determining the purposes and means of PARTY’s processing of EURO RSCG Data under this Agreement, including that such processing will not place PARTY in breach of the applicable data protection laws.
3.	Data protection laws are EURO RSCG Regulatory Requirements with respect to EURO RSCG Data, except and only to the extent such data protection laws regulate PARTY’s processing of EURO RSCG Data in PARTY’s performance of the Services. PARTY and EURO RSCG each acknowledge that it is not investigating the steps the other is taking to comply with applicable data protection laws. Nothing in this Agreement prevents PARTY or EURO RSCG from taking the steps it deems necessary to comply with applicable data protection laws.
b.	Security
1.	PARTY acknowledges it is solely responsible for determining that the security measures specified in this Agreement constitute appropriate technical and organizational measures to protect EURO RSCG Data as required by the applicable data protection laws.
2.	As a processor of EURO RSCG Data, PARTY will process EURO RSCG Data as specified in Attachment A (Services and Support Responsibilities). EURO RSCG agrees that PARTY may perform such processing as PARTY reasonably considers necessary or appropriate to perform the Services.
c.	Transborder Data Flows

PARTY is solely responsible for determining that any transfer by PARTY or EURO RSCG of EURO RSCG Data across a country border under this Agreement complies with the applicable data protection laws.

d. Information

1.	If EURO RSCG is required to provide information to an individual regarding EURO RSCG Data, PARTY will reasonably cooperate with EURO RSCG in providing such information. EURO RSCG will reimburse PARTY for its reasonable charges for such assistance.
2.	Upon PARTY’s or EURO RSCG’s reasonable written request, EURO RSCG or PARTY will provide the other with such information that it has regarding EURO RSCG Data and its processing that is necessary to enable the requester to comply with its obligations under this Section and the applicable data protection laws.
3.	Nothing in this Section requires PARTY to provide EURO RSCG access to PARTY’s, its Affiliates’, or any of their Subcontractors’ premises or systems or to information relating to PARTY’s, its Affiliates’, or their Subcontractors’ other customers.

13.3    Environmental

a. EURO RSCG represents and warrants that during the Term the Facilities will not contain any unsafe condition or Hazardous Materials. If EURO RSCG becomes aware of the existence of any unsafe condition or Hazardous Materials at a Facility, EURO RSCG will promptly provide JABBER with written notice specifying the nature and location of such unsafe condition or Hazardous Materials. JABBER reserves the right to discontinue performance of the Services affected by such unsafe condition or the presence of Hazardous Materials until the unsafe condition or presence of Hazardous Materials has been remedied.

b. EURO RSCG will ensure that the Facilities provide a safe working environment, including complying with any applicable laws.

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c. EURO RSCG will remedy any violation of law with respect to any unsafe condition or the presence of Hazardous Materials. The investigation, detection, abatement, and remediation of any unsafe condition or Hazardous Materials at the Facilities are not within the scope of this Agreement.

d. JABBER shall have the same obligations as described under this article 13.3 subsections a, b, c if EURO RSCG uses Facilities of JABBER.

13.4    Facilities

EURO RSCG will provide JABBER if necessary with:

1.	the use of space, equipment, and support at the Facilities reasonably necessary for the performance of the Services.
2.	coordination of Facility access security requirements, and administrative support to be used by PARTY in support of the Services. EURO RSCG will provide PARTY with full and safe access to such Facilities, subject to Section 4.4 (a) (Personnel, facility rules) of this Agreement; and
3.	the same or similar access to EURO RSCG’s workplace services, such as parking and cafeteria facilities, if any, as EURO RSCG provides to its employees and Subcontractors.

EURO RSCG may request a reasonable compensation from PARTY for the costs incurred by the above.

13.5    Force Majeure

a.	PARTY and EURO RSCG will not be liable for any default or delay in the performance of their respective obligations, to the extent that such default or delay:
1.	is caused, directly or indirectly, by an event beyond the reasonable control of PARTY or EURO RSCG, whichever is the entity unable to perform (the Nonperforming Party), such as fire, flood, earthquake, elements of nature, acts of war, terrorism, riots, civil disorders, rebellions or revolutions, strikes, lockouts or labor difficulties; and
2.	could not have been prevented by commercially reasonable precautions, alternative sources, workaround plans, or other means.

Such default or delay ((1) and (2), collectively) is a Force Majeure Event.

b. The Nonperforming Party will be excused from any further performance of the obligations affected by such Force Majeure Event for as long as such Force Majeure Event continues and the Nonperforming Party continues to use commercially reasonable efforts to recommence performance. The Nonperforming Party will immediately notify the other under this Agreement by telephone (to be confirmed in writing within five days of the inception of such default or delay) and describe at a reasonable level of detail the circumstances causing such Force Majeure Event. If a Force Majeure Event substantially prevents, hinders, or delays PARTY’s performance of the Services necessary for the operation of EURO RSCG’s Critical Functions, if any, for more than 14 consecutive days, then EURO RSCG may either:

1.	procure such Services from an alternate provider until JABBER is able to provide the Services. Subject to Section 13.5 (d) (Force Majeure, charges) below, JABBER will reimburse EURO RSCG for any reasonable payments to such alternate provider for such Services, for the lesser of 14 days or the remainder of the Term; or
2.	terminate this Agreement by providing JABBER with a written notice of termination.

13.6    Freedom of Action

a. PARTY may enter into similar agreements with others and develop and provide hardware, software or services that are similar to or competitive with the hardware, software, and Services provided under this Agreement, except to the extent that such hardware, software or services infringe EURO RSCG’s patent rights or copyrights under applicable law.

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b. PARTY personnel providing Services to EURO RSCG under this Agreement may perform similar services for others and this Agreement will not prevent PARTY from using the personnel and equipment provided to EURO RSCG under this Agreement for such purposes.

c. EURO RSCG will be the sole contracting Party of JABBER for the PINO project and therefore PARTY will not communicate with NOKIA CORPORATION, Nokia Mobile Phones business group on the subject of the PINO project without EURO RSCG’s prior consent, unless reasonable grounds arise on which PARTY disputes this principle of non-communicating with NOKIA CORPORATION, Nokia Mobile Phones business group, following the Dispute Resolution Process, as described in art. 4.3 of this Agreement.

13.7    Governing Law And Jurisdiction

a.	This Agreement, its Attachments, Exhibits and Attachments will be governed by the laws of The Netherlands.
b.	Disputes which cannot be settled as stipulated in Section 4 shall be finally settled by arbitration by three arbitrators and shall be brought forward to a competent and officially recognized arbitrage institution, Geschillencommissie Automatiseringsbranche.

13.8    Limitations Period

Neither PARTY nor EURO RSCG may bring a legal action, more than one year after the cause of action arose, unless otherwise provided by applicable law without the possibility of contractual waiver or limitation.

13.9    Modifications

a.	Modifications to this Agreement may be made only by a written amendment signed byJABBER and EURO RSCG.
b.	Modifications in any other form are void.
d.	Any terms on any order or written notification that are not signed by PARTY and EURO RSCG are void.

13.10   Notifications and Approvals

a.	When PARTY’s performance of the Services requires or is contingent upon EURO RSCG’s performance of an obligation (including providing approval or notification or taking a recommended corrective action) under this Agreement, and EURO RSCG delays or withholds its performance beyond the agreed time period (or beyond five business days, if a time period is not specified), PARTY will be relieved of its obligation to perform such Services entirely or, if it is reasonable for PARTY to perform once EURO RSCG performs, until a reasonable period following EURO RSCG’s performance of its responsibility. In addition to charges as agreed upon and as set forth in Attachment C, EURO RSCG will pay PARTY for any additional and proven expenses incurred as a result of EURO RSCG’s delay or nonperformance.
b.	PARTY and EURO RSCG may communicate with each other by electronic means. Such communication is acceptable as a signed writing to the extent permissible under applicable law. An identification code (called a user ID) contained in an electronic document will be deemed sufficient to verify the sender’s identity and the document’s authenticity.
c.	Unless specified otherwise in this Agreement, when PARTY or EURO RSCG is required to provide notice to the other, such notice will be deemed given upon the earlier of:

1.	the day of receipt, if delivered in person or electronically;
2.	one business day after being given to an express courier with a reliable system for tracking delivery; or
3.	three business days after the date of mailing, when using local postal services, registered or certified mail, return receipt requested, postage prepaid.

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d. PARTY and EURO RSCG will provide notifications under this Agreement to the following:

1. For termination, breach or default:

If to JABBER :
	Chief Executive Officer of Jabber Inc. Robert Balgley 1899 Wynkoop Suite 600 Denver, Colorado 80202
	With a copy to: JABBER Project Executive Mark Troyer Managing Director, Europe Jabber BV
If to EURO RSCG:	Managing Director of Benjamens van Doorn EURO RSCG B.V. Chris Middeldorp Burg. A. Colijnweg 2 1182 AL Amstelveen With a copy to: EURO RSCG Project Executive Dennis Bruin

2. For all other notices:

If to PARTY:	JABBER Project Executive Mark Troyer
If to EURO RSCG:	EURO RSCG Project Executive Dennis Bruin

e. JABBER or EURO RSCG may change its address, phone and facsimile numbers for notification purposes by giving the other prior written notice of the new information and its effective date.

13.11   Publicity

Advertising/Public Relations (PR) Campaign

         Subject to the General Non-Disclosure Agreement and article 8 of this Agreement:

a.	EURO RSCG has the sole responsibility for its advertising/PR campaign. PARTY will have no liability for any resulting consequences, costs, and or expenses incurred by EURO RSCG.
b.	PARTY and EURO RSCG will obtain the other’s prior written consent before publicly using any advertising, written sales promotion, press releases, or other publicity matters relating to this Agreement or in which the other’s name is used or may reasonably be inferred. Which consent will always be in line with the agreed principles in the GENERAL NON-DISCLOSURE AGREEMENT between the Parties, Agreement as signed on June 20th 2002.
c.	Within the time frame of this Agreement PARTY may, with prior written approval by EURO RSCG, include the other’s name, and a factual description of the work performed under this Agreement:

1.	on employee bulletin boards;
2.	in its list of references;
3.	in the experience section of proposals;
4.	in internal business planning documents;

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         5.       in its annual report to stockholders; and

6. whenever necessary to comply with generally accepted accounting principles or applicable laws.

13.12   Relationship

         This Agreement will not be construed as:

a.	constituting EURO RSCG to be a partner of JABBER;
b.	creating any form of legal association betweenEURO RSCG and JABBER that would impose liability upon one for the act or failure to act of the other, or any form of a fiduciary relationship or duty between JABBER and EURO RSCG; or
c.	granting EURO RSCG or JABBER the right, power, or authority (express or implied) to create any duty or obligation for the other.

13.13   Risk of Loss

EURO RSCG is responsible for risk of loss of and damage to equipment owned, leased, or rented by PARTY that is located on EURO RSCG’s Facilities and any loss of and damage to software owned by or licensed to PARTY that is in EURO RSCG’s possession at the time of such loss or damage. PARTY is responsible for risk of loss of and damage to equipment owned, leased, or rented by EURO RSCG that is located on PARTY’s premises and any loss of and damage to software owned by or licensed to EURO RSCG that is in PARTY’s possession at the time of such loss or damage.

13.14   Severability

If any provision of this Agreement is held to be invalid, illegal, or unenforceable, the remaining provisions of this Agreement will not in any way be affected or impaired, and the invalid, illegal, or unenforceable provision will be restated to reflect the original intentions of EURO RSCG and PARTY under this Agreement as nearly as possible in accordance with applicable laws.

13.15   Survival

Any terms of this Agreement that by their nature extend beyond its expiration or termination remain in effect until fulfilled, including Confidential Information, governing law and jurisdiction, indemnification,intellectual property rights, limitation of liability, limitations period, charges, credits and payments, survival, third party beneficiaries, and warranty.

13.16   Third Party Beneficiaries

This Agreement does not create anybenefits, rights, claims, obligations,or causes of action in, to, or on behalf of, any person or entity (including Affiliates,Third Parties, or Subcontractors) other than to EURO RSCG and PARTY under this Agreement, except as set forth in Section 10.0 (Indemnification) and Section 11.0 (Limitation of Liability) of this Agreement.

13.17   Waiver

The exercise or waiver, in whole or in part, of any right, remedy, or duty provided for in this Agreement will not constitute the waiver of any prior, concurrent or subsequent right, remedy, or duty within this Agreement.

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_____________________________________________________________________________________________

PINO CHAT Services
Agreement
between
EURO RSCG and Jabber

_____________________________________________________________________________________________

Attachment A: Statement of Work

Euro RSCG

Jabber PINO Project

Exhibit 1: Software Requirements Specification

Pino Chat Services Agreement between Euro RSCG and Jabber: Attachment A: Statement of Work Exhibit 1 Software Requirements Specification

Jabber, Inc.:	Benjamens van Doorn Euro RSCG B. V, Inc.:
By:	By:
Name:	Name:
Title:	Title:
Date:	Date:

Attachment A-1
Jabber, Inc.
Professional Services Agreement
For
Benjamens van Doorn Euro RSCG B.V.

         THIS PROFESSIONAL SERVICES AGREEMENT (“Agreement”) between Jabber, Inc. (“Jabber, Inc.”), a Delaware corporation with principal offices located at 1899 Wynkoop, Suite 600, Denver, Colorado 80202 and Benjamens van Doorn Euro RSCG B.V.(“Client”) whose name, principal business address, and jurisdiction of incorporation are set forth below, is effective as of June 21, 2002 (“Effective Date”). Jabber, Inc. and Client are referred to collectively as the “Parties.”

Client Name(s):	Benjamens van Doorn Euro RSCG B.V.
Address:	Burg. A. Colijnweg 2
City/State/Zip or City/Province/Postal Code:	1182 AL AMSTELVEEN
County:
Country:	The NETHERLANDS
Jurisdiction of Incorporation:	Registration Chamber of Commerce under 33.150.140

Background

         WHEREAS, Client desires to have Jabber, Inc.provide professional services related to the Jabber Software as described in Exhibit D-1.

         WHEREAS, Jabber, Inc. is willing to offer professional services subject to the terms of this Agreement.

Agreement

In consideration of the foregoing, the Parties agree as follows:

1.       Definitions. Capitalized terms used but not defined in this Agreement shall have the meanings ascribed to them in the Master Agreement.

2.       Jabber Inc.’s Obligations

         2.1      Jabber, Inc. shall perform for Client the professional services (the “Services”) specified in Exhibit D-1, in the form of Statement of Work, as same may be revised in writing from time to time by mutual agreement of the Parties, each of which will be made a part of this Agreement. In the event of a conflict between any term of this Agreement and an Exhibit, the terms of the Exhibit shall prevail.

         2.2      Changes within the scope of the Services shall be made only in a writing executed by authorized representatives of both parties. Jabber, Inc. shall not commence work in connection with any change until the fee and/or schedule impact of the change is agreed upon by the parties in writing.

         2.3      Jabber, Inc. reserves the right to determine which of its personnel shall be assigned to perform the Services, and to replace or reassign such personnel during the term hereof; provided, however, that it will, subject to scheduling and staffing considerations, use reasonable efforts to attempt to honor Client’s request for specific individuals.

         2.4      Jabber, Inc. shall have the right to outsource its obligations under this Agreement to a third party, provided that Jabber, Inc. shall remain responsible for its obligations under this Agreement that are performed by such third party.

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3.       Client Obligations

         3.1      In connection with Jabber, Inc.’s provision of the Services, Client shall perform all tasks and assume all responsibilities not expressly described as the Services and, in particular, shall perform those tasks and assume those responsibilities specified in the applicable Exhibit (“Client Responsibilities”). The Exhibit shall also contain any assumptions related to the Services. Client understands that Jabber, Inc.’s performance is dependent on Client’s timely and effective satisfaction of Client Responsibilities hereunder and timely decisions and approvals by Client. Jabber, Inc. shall be entitled to rely on all decisions and approvals of the Client in connection with the Services. Changes in decisions and approvals are subject to the provisions of Section 2.2, above.

         3.2      In addition to any particular items which may be specified in the Exhibit, when required by Jabber, Inc., Client shall supply on-site Jabber, Inc. personnel with reasonably suitable office space, desks, storage, furniture, and other normal office equipment support, including adequate telephone service, postage, copying, typing, and general office supplies which are necessary in connection with Jabber Inc.’s performance of the Services.

4.       Term and Termination

         4.1      Either party may at any time terminate this Agreement by giving thirty (30) days’ written notice of termination to the other. In the event of such termination, Client shall pay Jabber, Inc. the lesser of 1) the amount specified in the applicable Exhibit or 2) the amount incurred by Jabber, Inc. for all Services rendered and expenses incurred by Jabber, Inc. prior to the date of termination.

         4.2      If either party is in material default of its obligations hereunder and such material default continues for thirty (30) days following receipt of written notice from the other party, the non-breaching party may terminate this Agreement immediately, in addition to any other remedies it may have.

5.       Charges, Taxes and Payments

         5.1      Client shall pay Jabber, Inc. for the Services as defined in the applicable Exhibit at Jabber, Inc.’s then current rates for professional services, unless otherwise specified in the applicable Exhibit.

         5.2      Unless the Parties agree otherwise in writing, Client shall make a retainer pre payment of 17.5% of the value of tbe Exhibit prior to the commencement of any professional service activities. In the event that the retainer fee is not consumed in professional services as specified in the applicable Exhibit, Jabber Inc shall issue a credit note for the remaining balance on clients account.

         5.3      Unless the Parties agree otherwise in writing or unless provided otherwise in Exhibit D-1, Statement of Work, Client shall pay the amounts payable to Jabber, Inc. hereunder within thirty ( 30 ) days of receipt of invoices submitted by Jabber, Inc. Any invoice remaining unpaid for more than sixty (60 ) days from receipt shall accrue interest at the rate of the lesser of one and one-half (1.5%) percent per month or the highest rate allowed by Dutch law.

         5.4      Unless provided otherwise in an Exhibit, Jabber, Inc. shall be reimbursed by Client for all reasonable and necessary expenses incurred by Jabber, Inc. in the performance of the Services, including, but not necessarily limited to, travel and lodging expenses, communications charges and supplies.

         5.5      The charges specified in this Agreement are exclusive of all federal, state, local and foreign taxes, levies and assessments. Client agrees to bear and be responsible for the payment of all such taxes, levies and assessments imposed on Client or Jabber, Inc. arising out of this Agreement excluding any income tax imposed on Jabber, Inc. by a governmental entity of the United States.

6.       Confidential Information.

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         6.1      “Confidential Information” means any trade secret or other information or data of a proprietary or confidential nature belonging to either party, including but not limited to: (a) technical or developmental information (including associated documentation); (b) marketing or pricing information; (c) business practices or relationships; (d) performance results or benchmark test results of all or any portion of the Products; (e) designs, ideas, concepts, inventions, technical know how, software programs, program flow charts, file layouts, and all record bearing media containing or disclosing such information. Confidential Information shall not include information of one party that: (i) is or becomes lawfully available to the public through no act or omission of the other party; (ii) is in the other party’s lawful possession prior to the disclosure and was not obtained by the other party either directly or indirectly from the disclosing party; (iii) is lawfully disclosed to the other party by a third party without restriction on disclosure.

         6.2      Neither party shall use or disclose to any person, either during the term or after the termination of this Agreement, any Confidential Information owned by the other party, except as expressly permitted pursuant to the terms of this Agreement or as required in response to a valid order or requirement of a court or other governmental body having competent jurisdiction provided, however, that the party proposing to so disclose first gives prior written notice of such proposed disclosure to the other party.

         6.3      Parties agree upon signing a mutually acceptable Non-Disclosure Agreement (the “NDA”) that will be considered an integral part of this Agreement and that will be attached to Exhibit D-1 as Exhibit D-2. In case of any conflict the NDA will prevail over the articles of this article 6 or any other article in this Agreement relating to the subject of Confidential Information.

7.       Non-Solicitation.

         Neither party shall solicit for employment, whether directly or indirectly through an associated or affiliated company or subsidiary from the date of this Agreement or any Exhibit and for a period of one (1) year thereafter, any person who is employed or contracted by the other party during the duration of this Agreement. .

8.       Proprietary Materials and Work Product.

         8.1      Unless the parties agree otherwise in writing, the parties acknowledge and agree that all work product (the “Work”) developed in providing the Services by Jabber, Inc. or resulting from providing the Services by Jabber, Inc. shall become and remain the exclusive property of Jabber, Inc.. No right, title or interest in all or any portion of the Work, is conveyed or assigned to Client either expressly or by implication by virtue of this Agreement including any patents, copyrights, trade secrets, trademarks, trade names or other intellectual property (collectively, the “Intellectual Property Rights”) Unless agreed otherwise in writing. Jabber, Inc. grants Benjamens van Doorn Euro RSCG B.V. and its client NOKIA Corporation a nonexclusive, worldwide license to use such Intellectual Property Rights of Jabber, Inc. as are necessary for the purpose of developing, implementing and executing the Project PINO, as described in Exhibit D-1, Statement of Work. This license does not include a license to use any Jabber Software Products, including but not limited to the JCP or Webclient, to be integrated into Project PINO as provided in the Statement of Work, the license for which shall be granted pursuant to a separated mutually acceptable license agreement among the Parties.

         8.2      Nothing in this Agreement shall preclude Jabber, Inc. from developing for itself, or for others, materials which are competitive with those produced as a result of the Services provided hereunder, irrespective of their similarity to items which may be delivered to Client pursuant to this Agreement. Jabber, Inc. shall not use any of the Work for itself or others for any cross media games sponsored by mobile handset manufacturers. .

9.       Warranty, Limitation of Liability and Indemnification

         9.1      Jabber warrants that the Services will be provided in a professional, workmanlike manner, consistent with the standards in the industry. Jabber represents and warrants that it will comply with the requirements of the Services as set out in the Statement of Work and as set out in this Agreement. THE WARRANTIES SET FORTH IN THIS AGREEMENT ARE EXCLUSIVE AND IN LIEU OF ALL OTHER WARRANTIES WITH RESPECT TO SUCH SERVICES WHETHER ORAL OR WRITTEN, EXPRESS OR

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IMPLIED. THERE ARE NO EXPRESS OR IMPLIED WARRANTIES INCLUDING BUT NOT LIMITED TO THE IMPLIED WARRANTIES OF MERCHANTABILITY ANDF FITNESS FOR A PARTICULAR PURPOSE.

         9.2      JABBER, INC. WILL NOT BE LIABLE FOR ANY FAILURE OR DELAY IN PERFORMANCE DUE IN WHOLE OR IN PART TO ANY CAUSE BEYOND JABBER, INC.’S REASONABLE CONTROL INCLUDING FORCE MAJEURE. IN NO EVENT SHALL EITHER PARTY BE LIABLE TO THE OTHER PARTY FOR (A) ANY SPECIAL, INDIRECT, INCIDENT OR CONSEQUENTIAL DAMAGES, OR (B) ANY DAMAGES RESULTING FROM LOSS OF USE, DATA OR PROFITS, WHETHER BASED ON CONTRACT, TORT OR ANY OTHER LEGAL THEORY.

         9.3      Client will hold Jabber, Inc. and its directors, officers, employees, representatives and agents, (collectively, “Jabber, Inc. Representatives”) harmless from, and defend and indemnify Jabber, Inc.and Jabber, Inc. Representatives against, any and all claims, losses, damages and expenses, including reasonable attorneys’ fees, arising from a third party claim against Jabber, Inc. or Jabber, Inc. Representatives. to the extent that such third party claim is based on the negligence or willful misconduct of Client or its agents or representatives.

         9.4      Jabber, Inc. will hold Client and its directors, officers, employees, representatives and agents (collectively, “Client Representatives”) harmless from, and defend and indemnify Client and Client Representatives against, any and all claims, losses, damages and expenses, including reasonable attorneys’ fees, arising from a third party claim against Client or Client Representatives to the extent that such third party claim is based. on: (a) the negligence or willful misconduct of Jabber, Inc. or Jabber, Inc. Representatives or (b) claims of infringement of Intellectual Property Rights against Client or Client Representatives for the authorized use of the Products.

         9.5      If a third party asserts a claim that is eligible for indemnification under Sections 9.3 or 9.4: (a) the indemnified party will promptly notify the indemnifying party of the suit or claim; (b) the indemnified party will give the indemnifying party sole authority to defend or settle the suit or claim, provided that the indemnifying party does not agree to a settlement of the suit or claim unless the settlement is reasonably acceptable to the indemnified party; (c) the indemnified party will provide to the indemnifying party all information in its control concerning the suit or claim; and (d) the indemnified party will reasonably cooperate with the defense of the suit or claim. The indemnification obligations under Sections 9.3 and 9.4 are subject to and conditioned upon compliance with this Section 9.5 by the indemnified party.

10.      General

         10.1    In connection with this Agreement each party is an independent contractor and as such will not have any authority to bind or commit the other. Nothing herein shall be deemed or construed to create a joint venture, partnership or agency relationship between the parties for any purpose.

         10.2    The waiver by either party of a breach of or a default under any provision of this Agreement by the other party shall not be construed as a waiver of any subsequent breach of the same or any other provision of this Agreement nor shall any delay or omission on the part of either party to exercise or avail itself of any right or remedy it has or may have hereunder operate as a waiver of any right or remedy by such party.

         10.3    This Agreement and any Exhibits attached hereto contains the full understanding of the parties with respect to the professional services and supersedes all prior understandings and writings relating thereto. No waiver, consent modification, amendment or change of the terms of this Agreement shall be binding unless in writing and signed by Jabber, Inc. and Client.

         10.4    This Agreement and Exhibits shall be governed by the laws of the Netherlands. Disputes will be exclusively decided upon by the District Court of Amsterdam. Any license agreements for software products, as suggested by Section 8.1, will contain a choice of law provision specifying law of the State of Colorado.

         10.5    Any notice or other communication in connection with this Agreement shall be furnished in writing and shall be effective upon receipt, except for the notices of changes as stated in Article 2.2 of this Agreement.

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         10.6    Except for Client’s payment obligations for professional services already completed by Jabber, Inc., neither Client nor Jabber, Inc. will be deemed to be in default of any provision of this Agreement or for any failure in performance, resulting from acts or events beyond the reasonable control of Client or Jabber, Inc., as the case may be including, without limitation, acts of God, civil or military authority, civil disturbance, war, strikes, fires, other catastrophes, telecommunication outages, equipment malfunctions or other such major events beyond Client’s or Jabber, Inc.’s reasonable control.

Jabber, Inc.:		Client: Benjamens van Doorn Euro RSCG B.V.
By:	/s/ GWENAEL HAGAN	By:	/s/ CHRIS MIDDELDORP
Name:	Gwenael Hagen	Name:	Chris Middeldorp
Title:	Chief Financial Officer	Title:	Managing Director
Date:		Date:

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Attachment B-2

Jabber, Inc. Maintenance and Support Agreement

This Maintenance and Support Agreement (the “Agreement”) is entered into between Jabber Inc., a Delaware corporation with its principal place of business at 1899 Wynkoop St., Suite 600, Denver, Colorado, 80202 (“Jabber”) and Benjamens van Doorn Euro RSCG B.V., a Dutch B.V. with its principal place of business at Burg. A. Colijnweg 2, 1182 AL AMSTELVEEN , The Netherlands, (“Customer”), (individually, a “Party,” and collectively, the “Parties”).

1.	Background. Jabber has licensed certain Software to Customer pursuant to the Jabber Commercial Software License and an Offer to License signed by Customer. Customer desires to have Jabber maintain and/or support that Software during the term of this Agreement.
2.	Definitions.

“Maintenance” means Jabber, using commercially reasonable efforts, will provide Minor Releases or Major Releases (as those terms are later defined) of the Software, when and as released during the term of this Agreement.

“Support “ means Jabber, using commercially reasonable efforts, will provide a problem reporting service and remote assistance (through telephone, email, instant messaging or other mechanism(s) at Jabber’s discretion), to assist Customer in identifying and fixing documented and reproducible failures of the Software to perform as specified in its written specifications. Support also includes the provision by Jabber of Service Releases (as that term is later defined) of the Software to Customer when and as released during the term of this Agreement.

“Response Time” means the length of time between when the Customer reports a problem and when Jabber delivers an initial meaningful response.

“Release Number” means the three-integer number, of the form A.B.C, or two-integer number, of the form A.B (equivalent to A.B.0), by which Jabber identifies a new release of the Software. The integer A identifies the “Major Release,” the integer B identifies the “Minor Release, and the integer C identifies the “Service Release” of the Software, as follows:

• Service Release. Successive Service Releases denote bug fixes or minor improvements with no significant changes in specification.

• Minor Release. Successive Minor Releases denote minor new features, improvements and enhancements within the framework of an existing specification.

• Major Releases. Successive Major Releases denote major new features, improvements and enhancements within the framework of an existing specification, or architectural changes in or additions to the specification.

“Severity Levels” means the categorization, by Jabber, of a problem with the Software reported by Customer, as follows:

• Severity Level 1: Catastrophic product failures that do not have a viable workaround, including any failure that causes a complete interruption of service, are of Severity Level 1. Jabber promises to make reasonable commercial efforts to resolve these problems to the exclusion of all other work.

• Severity Level 2: Problems that have been substantiated as a serious inconvenience to Customer or its Users, including Severity Level 1 failures for which a temporary workaround is available, are of Severity Level 2. Jabber promises to make reasonable commercial efforts to resolve these problems in the next Service Release or Minor Release of the Software, or in the form of a patch that can be applied to the current release.

• Severity Level 3: Problems for which there is a reasonable workaround or for which Customer claims no urgency, are of Severity Level 3. Jabber promises to make reasonable commercial efforts to resolve these problems in the next Service Release or Minor Release of the Software.

• Severity Level 4: Enhancement requests are of Severity Level 4. Jabber considers these enhancement requests for implementation in the next Minor Release or Major Release of the Software.

3. Maintenance Plan. Upon execution of this Agreement and start of the Initial Term, Jabber will provide new Releases of the Software that are made generally available during the Initial Term of this Agreement, and for Renewal Terms upon payment of the Annual Maintenance Fee in effect and published by Jabber at the time of renewal.

x  Maintenance. Jabber will provide to Customer all releases of the Software that are made generally available by Jabber during the Initial Term and any Renewal Term of this Agreement.

4. Support Plans. Support is only available to those Customers for whom a Maintenance Plan is currently in effect. Upon execution of this Agreement and start of the Initial Term, Jabber will provide technical support during the Initial Term of this Agreement to address problems with the Software reported by Customer to Jabber, and for Renewal Terms upon payment of the Annual Support Fee in effect and published by Jabber at the time of renewal. Jabber will also distribute Service Releases to Customer under each of the following Support Plans. Customer hereby selects one of two Support Plans, as indicated below:

x  Extended Hours Support: Jabber provides email, Jabber IM and telephone support from 7:00 a.m. to 6:00 p.m. (MST) on Jabber’s business days and Customer will have access to Jabber’s support site. Jabber will make reasonable commercial efforts to provide an initial response within thirty (30) minutes from receipt of query for all Severity Levels.

5. Contacts. Customer designates the individual below as primary contact for support services. Jabber will accept requests for support only from the designated contacts. Customer may designate up to four additional contacts and may change the contacts from time to time on an as needed basis (Customer should refer to the Helpdesk Usage Document for changing contacts).

Primary Contact: __________________________

Phone number: ___________________________

Email address: ____________________________

6.	Term. Maintenance Plan and Support Plan services shall be provided for a Term of three (3) months starting on October 1, 2002 and terminating on December 31, 2002.
7.	Termination. This Agreement, and any Maintenance Plan and/or Support Plan selected by Customer hereunder, will terminate (i) upon the expiration of the Initial Term and any Renewal Term, unless the Maintenance Plan and/or Support Plan is renewed, or (ii) upon the termination for any reason of the Jabber Commercial Software License for the Software.
8.	Supported Releases. Jabber shall provide Support to Customers, as specified herein, for the current Release of the Software. Jabber shall also provide Support for one previous Release of the Software until the earlier of (i) the expiration or earlier termination of the Support Plan, or (ii) six (6) months after the general availability of the current Release of the Software.
9.	Engineering Services. Jabber shall have no obligation hereunder to provide Customer with engineering services other than as expressly set forth herein.
10.	Outsourcing. Jabber reserves the right to outsource its obligations under this Agreement to third parties, provided that Jabber shall remain responsible for its obligations that are performed by said third parties.