U.S. SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549


                                   FORM 10-QSB


              [X] Quarterly Report Under Section 13 or 15(d) of the
                        Securities Exchange Act of 1934.


               For the quarterly period ended: September 30, 2004
                          Commission File No 000-21235


                               LOYALTYPOINT, INC.
        (Exact name of small business issuer as specified in its charter)


                   DELAWARE                                 11-2780723
                   --------                                 ----------
       (State or other jurisdiction of                   (I.R.S. Employer
       incorporation or organization)                  Identification Number)

            3885 Crestwood Parkway, Suite 550, Duluth, Georgia 30096
                    (Address of principal executive offices)

                                 (770) 638-5101
                           (Issuer's telephone number)

          -------------------------------------------------------------
              (Former name, former address and former fiscal year,
                         if changed since last report)

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

State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date:

We had 101,649,174 shares of our common stock outstanding as of November 11,
2004.

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




<PAGE>
<TABLE>
<CAPTION>


                                      INDEX

<S>     <C>                                                                                                 <C>

                         PART I - FINANCIAL INFORMATION

ITEM 1.    Financial Statements
           Condensed Consolidated Balance Sheet as of September 30, 2004 (unaudited)                            1

           Condensed Consolidated Statements of Operations and Comprehensive Loss
                for the Three and Nine Months Ended September 30, 2004 and 2003 (unaudited)                     3

           Condensed Consolidated Statement of Stockholders' Deficiency for the
                Nine Months Ended September 30, 2004 (unaudited)                                                4

           Condensed Consolidated Statements of Cash Flows
                for the Nine Months Ended September 30, 2004 and 2003 (unaudited)                               5

           Notes to Condensed Consolidated Financial Statements                                                 7

ITEM 2.    Management's Discussion and Analysis of Interim Financial Condition  and
           Results of Operations                                                                               24

ITEM 3.    Controls and Procedures                                                                             29


                           PART II - OTHER INFORMATION


ITEM 1.    Legal Proceedings                                                                                   31

ITEM 2.    Changes in Securities                                                                               31

ITEM 3.    Defaults upon Senior Securities                                                                     31

ITEM 4.    Submission of Matters to a Vote of Security Holders                                                 31

ITEM 5.    Other Information                                                                                   31

ITEM 6.    Exhibits                                                                                            31

</TABLE>

                                       ii
<PAGE>

                       LOYALTYPOINT, INC. AND SUBSIDIARIES
                      CONDENSED CONSOLIDATED BALANCE SHEET
                               SEPTEMBER 30, 2004
                                  (Unaudited)

ITEM 1.  FINANCIAL STATEMENTS
                                     ASSETS
CURRENT ASSETS
     Cash and cash equivalents                                        $2,483,117
     Investments - marketable equity securities                           23,800
     Accounts receivable, net of allowance
       of $111,769                                                       370,362
     Inventory, net                                                    1,081,303
     Prepaid expenses and other current assets                           435,668
                                                                      ----------

         TOTAL CURRENT ASSETS                                          4,394,250

PROPERTY AND EQUIPMENT, NET                                              407,569

OTHER ASSETS
     Intangible assets, net of accumulated amortization
        of $427,053                                                      671,827
     Goodwill                                                          1,517,116
     Due from related party                                              149,170
     Deposits                                                             25,335
                                                                      ----------

         TOTAL OTHER ASSETS                                            2,363,448
                                                                      ----------



         TOTAL ASSETS                                                 $7,165,267
                                                                      ==========



            See notes to condensed consolidated financial statements.

                                        1

<PAGE>

                       LOYALTYPOINT, INC. AND SUBSIDIARIES
                      CONDENSED CONSOLIDATED BALANCE SHEET
                               SEPTEMBER 30, 2004
                                  (Unaudited)

                    LIABILITIES AND STOCKHOLDERS' DEFICIENCY

CURRENT LIABILITIES
     Accounts payable - trade                                      $  1,843,150
     Accounts payable - school rebates                                1,259,736
     Accrued expenses                                                 1,686,143
     Line of credit                                                     430,000
     Current portion of notes payable - stockholders
       and related parties                                              228,324
     Current portion of note payable - SchoolCash                       106,041
     Other current liabilities                                          116,114
                                                                   ------------

         TOTAL CURRENT LIABILITIES                                    5,669,508

LONG-TERM LIABILITIES
     Deferred Revenue                                                    76,173
     Notes payable - stockholders and related parties
       less current portion                                           1,078,371
     Note payable - SchoolCash less current portion                     143,959
     Other liabilities                                                  215,000
                                                                   ------------
         TOTAL LONG-TERM LIABILITIES                                  1,513,503
                                                                   ------------

         TOTAL LIABILITIES                                            7,183,011
                                                                   ------------

COMMITMENTS AND CONTINGENCIES

STOCKHOLDERS' DEFICIENCY
     Preferred Stock; 50,000,000 shares authorized:
       Series A preferred stock; $.001 par value;
         3 shares issued and outstanding                                   --
       Series B preferred stock; $.001 par value; 30,769,231
         shares issued and outstanding                                   30,769
     Common stock; $.001 par value; 200,000,000 shares
           authorized, 102,391,257 issued and outstanding               102,390
     Additional paid-in capital                                      17,708,215
     Deferred compensation                                             (100,154)
     Accumulated other comprehensive loss                               (16,800)
     Accumulated deficit                                            (17,742,164)
                                                                   ------------

         TOTAL STOCKHOLDERS' DEFICIENCY                                 (17,744)
                                                                   ------------

         TOTAL LIABILITIES AND
           STOCKHOLDERS' DEFICIENCY                                $  7,165,267
                                                                   ============

            See notes to condensed consolidated financial statements.

                                       2
<PAGE>

                       LOYALTYPOINT, INC. AND SUBSIDIARIES

               CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND
                               COMPREHENSIVE LOSS
<TABLE>
<CAPTION>


                                      FOR THE THREE MONTHS ENDED      FOR THE NINE MONTHS ENDED
                                     SEPTEMBER 30,   SEPTEMBER 30,   SEPTEMBER 30,   SEPTEMBER 30,
                                         2004            2003            2004            2003
                                     ------------    ------------    ------------    ------------
                                      (unaudited)     (unaudited)     (unaudited)     (unaudited)

<S>                                  <C>             <C>             <C>             <C>
REVENUES                             $ 15,755,321    $    394,598    $ 42,018,227    $    488,464
COST OF REVENUES                       15,583,615         153,769      41,155,848         232,885
                                     ------------    ------------    ------------    ------------
       Gross Profit                       171,706         240,829         862,379         255,579
                                     ------------    ------------    ------------    ------------

OPERATING EXPENSES
     Salaries and wages                   859,544         390,239       2,178,851         830,232
     Stock based compensation           1,616,878       1,478,137       1,640,078       2,619,925
     Selling, general, and
     administrative expenses              909,391         548,256       2,625,377       1,116,326
     Depreciation and amortization        102,883          50,321         300,315         130,690
     Impairment - intangibles                --           772,729            --           772,729
                                     ------------    ------------    ------------    ------------

       Total Operating Expenses         3,488,696       3,239,682       6,744,621       5,469,902
                                     ------------    ------------    ------------    ------------
       Net Operating Loss              (3,316,990)     (2,998,853)     (5,882,242)     (5,214,323)

OTHER INCOME                              546,787            --           546,787            --
INTEREST EXPENSE, NET                      26,510         149,152         137,473         388,803
                                     ------------    ------------    ------------    ------------
NET LOSS                               (2,796,713)     (3,148,005)     (5,472,928)     (5,603,126)
                                     ------------    ------------    ------------    ------------

OTHER COMPREHENSIVE LOSS
     Unrealized loss on marketable
     securities                            (1,528)             --         (16,800)             --
                                     ------------    ------------    ------------    ------------
TOTAL COMPREHENSIVE LOSS             $ (2,798,241)   $ (3,148,005)   $ (5,489,728)   $ (5,603,126)
                                     ============    ============    ============    ============

Net loss per common share,
basic and diluted                    $      (0.03)   $      (0.09)   $      (0.06)   $      (0.25)
                                     ============    ============    ============    ============
Weighted average common shares
outstanding, basic and diluted         98,564,412      35,863,779      88,372,166      22,333,447
                                     ============    ============    ============    ============
</TABLE>

            See notes to condensed consolidated financial statements.

                                       3
<PAGE>

                       LOYALTYPOINT, INC. AND SUBSIDIARIES

          CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' DEFICIENCY

                  FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2004
                                   (UNAUDITED)
<TABLE>
<CAPTION>


                                                 Series A Preferred Stock  Series B Preferred Stock            Common Stock
                                                   Shares      Amount       Shares          Amount        Shares          Amount
                                                 ----------- ----------- --------------  ----------- ----------------- -------------


<S>                                              <C>         <C>           <C>           <C>               <C>         <C>
Balance at December 31, 2003                              -  $        -              -   $        -        48,886,674  $     48,887

     Common stock issued for services rendered            -           -              -            -           911,980           911

     Common stock issued in exchange for loans            -           -              -            -        19,143,287        19,143

     Effect of reverse merger with
       BarPoint.com, Inc.                                 3           -              -            -        26,649,980        26,650

     Common stock issued for exercise of
       stock options                                      -           -              -            -            14,292            14

     Common stock issued in connection with
       acquisitions                                       -           -              -            -         1,785,044         1,785

     Common stock issued in connection with
       exclusive agreement                                -           -              -            -         5,000,000         5,000

     Preferred stock issued in connection with
       private placement, net of stock issuance
       costs of $93,076                                   -           -     30,769,231       30,769                 -             -

     Beneficial conversion option on
       Series B preferred stock                           -           -              -            -                 -             -

     Other comprehensive loss                             -           -              -            -                 -             -

     Net loss                                             -           -              -            -                 -             -

     Issuance of options to employees                     -           -              -            -                 -             -

                                                 ----------- ----------- --------------  ----------- ----------------- -------------
Balance at September 30, 2004 (Unaudited)                 3  $        -     30,769,231   $   30,769       102,391,257  $    102,390
                                                 =========== =========== ==============  =========== ================= =============
[restubbed table]
<CAPTION>

                                                                                                       Accumulated       Total
                                                 Additional Paid-      Deferred      Accumulated     Comprehensive  Stockholders'
                                                    In Capital       Compensation      Deficit            Loss        Deficiency
                                                 ----------------- -------------- -----------------  ------------  ----------------


<S>                                              <C>               <C>            <C>                <C>           <C>
Balance at December 31, 2003                     $      6,295,287  $           -  $     (9,500,005)  $         -   $    (3,155,831)

     Common stock issued for services rendered            159,898              -                 -             -           160,809

     Common stock issued in exchange for loans          1,728,157              -                 -             -         1,747,300

     Effect of reverse merger with
       BarPoint.com, Inc.                                 951,050              -                 -             -           977,700

     Common stock issued for exercise of
       stock options                                        1,786              -                 -             -             1,800

     Common stock issued in connection with
       acquisitions                                       323,215              -                 -             -           325,000

     Common stock issued in connection with
       exclusive agreement                              1,476,232              -                 -             -         1,481,232

     Preferred stock issued in connection with
       private placement, net of stock issuance
       costs of $93,076                                 3,876,155              -                 -             -         3,906,924

     Beneficial conversion option on
       Series B preferred stock                         2,769,231              -        (2,769,231)            -                 -

     Other comprehensive loss                                   -              -                 -       (16,800)          (16,800)

     Net loss                                                   -              -        (5,472,928)            -        (5,472,928)

     Issuance of options to employees                     127,204       (100,154)                -             -            27,050

                                                 ----------------- -------------- -----------------  ------------  ----------------
Balance at September 30, 2004 (Unaudited)        $     17,708,215  $    (100,154) $    (17,742,164)  $   (16,800)  $       (17,744)
                                                 ================= ============== =================  ============  ================
</TABLE>


            See notes to condensed consolidated financial statements.

                                       4
<PAGE>


                       LOYALTYPOINT, INC. AND SUBSIDIARIES

                 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>

                                                                       Nine Months Ended
                                                                -----------------------------
                                                                September 30,   September 30,
                                                                     2004          2003
                                                                 -----------    -----------
                                                                 (Unaudited)    (Unaudited)
<S>                                                              <C>            <C>
CASH FLOWS FROM OPERATING ACTIVITIES
     Net loss                                                    $(5,472,928)   $(5,603,126)
     Adjustments to reconcile net loss to
       net cash used in operating activities:
           Depreciation                                              126,941         12,629
           Amortization                                              173,374        118,061
           Loss on sale of marketable securities                     112,762           --
           Impairment of intangible assets                              --          772,729
           Reserve for bad debts                                        --          (25,857)
           Reserve for inventory                                     (96,026)        17,887
           Amortization of debt discount                              31,535        316,223
           Stock based compensation                                1,640,078      2,619,925
           Changes in operating assets and liabilities
                Accounts receivable, net                             137,851        213,424
                Inventory, net                                       210,883        (61,962)
                Prepaid expenses and other current assets           (372,462)       (88,733)
                Due from related party                                92,502           --
                Accounts payable - trade                           1,436,881        176,464
                Account payable - school rebates                     (13,814)       126,986
                Accrued expenses and other current liabilities      (942,389)        80,162
                Deferred revenue                                      45,153        (50,773)
                                                                 -----------    -----------

     NET CASH USED IN OPERATING ACTIVITIES                        (2,889,659)    (1,375,961)
                                                                 -----------    -----------

CASH FLOWS FROM INVESTING ACTIVITIES
     Purchase of property and equipment                              (87,453)       (14,011)
     Decrease in restricted funds                                    567,000           --
     Acquisition of Schoolpop, net of cash acquired                     --          149,283
     Cash payment for acquisitions                                   (50,000)          --
     Cash received from the Company merger                           629,617           --
     Proceeds from sale of marketable equity securities              187,012           --
                                                                 -----------    -----------

     NET CASH PROVIDED BY INVESTING ACTIVITIES                     1,246,176        135,272
                                                                 -----------    -----------

CASH FLOWS FROM FINANCING ACTIVITIES
     Net increase in lines of credit                                    --          927,997
     Proceeds from exercise of stock options                           1,800           --
     Net proceeds from issuance of preferred stock                 3,906,924           --
     Proceeds from notes payable                                     303,719      1,000,100
     Principal payments on notes payable and capital leases         (324,638)      (205,000)
                                                                 -----------    -----------

     NET CASH PROVIDED BY FINANCING ACTIVITIES                     3,887,805      1,723,097
                                                                 -----------    -----------

</TABLE>
           See notes to condensed consolidated financial statements.

                                       5
<PAGE>
                       LOYALTYPOINT, INC. AND SUBSIDIARIES

                 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                                    CONTINUED
<TABLE>
<CAPTION>


                                                                    Nine Months Ended
                                                               -----------------------------
                                                               September 30,   September 30,
                                                                    2004          2003
                                                                -----------    -----------
                                                                (Unaudited)    (Unaudited)
<S>                                                           <C>            <C>



     NET INCREASE IN CASH AND CASH EQUIVALENTS                    2,244,321      482,408

CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD                    238,796        3,703
                                                                 ----------   ----------

CASH AND CASH EQUIVALENTS AT END OF PERIOD                       $2,483,117   $  486,111
                                                                 ==========   ==========

Supplemental Disclosures of Cash Flow Information:

Cash paid for:

     Interest                                                     $   79,870   $   30,764
                                                                  ==========   ==========
     Income Taxes                                                 $     --     $     --
                                                                  ==========   ==========

Non-cash investing and financing activities:

     Conversion of notes payable and accrued interest into
        common stock                                              $1,747,300   $  395,100
                                                                  ==========   ==========

     Decline in market value of marketable equity securities      $   16,800   $     --
                                                                  ==========   ==========

     Deferred compensation                                        $  127,204   $     --
                                                                  ==========   ==========

     Liabilities assumed in connection with NSC acquisition of
       inventory and furniture, fixtures and equipment            $1,246,217   $     --
                                                                  ==========   ==========

     Issuance of common stock in exchange for goodwill from
       One Stop School Shop acquisition                           $  225,000   $     --
                                                                  ==========   ==========

     Issuance of common stock in exchange for goodwill from
       Your Auction Stop acquisition                              $  100,000   $     --
                                                                  ==========   ==========

     Liabilities assumed in connection with Your Auction Stop
       acquisition                                                $   40,626   $     --
                                                                  ==========   ==========

     Debt discount on preferred stock issued in connection
       with loans                                                 $     --     $  304,682
                                                                  ==========   ==========
</TABLE>


           See notes to condensed consolidated financial statements.

                                       6
<PAGE>

                       LOYALTYPOINT, INC. AND SUBSIDIARIES

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)
--------------------------------------------------------------------------------

NOTE 1--NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES

INTERIM FINANCIAL INFORMATION: The accompanying condensed consolidated financial
statements have been prepared by LoyaltyPoint, Inc. (the "Company") and are not
audited. Accordingly, they do not include all of the information and footnotes
as required by U.S. generally accepted accounting principles for annual
financial statements. These interim financial statements include all adjustments
consisting of normal recurring items which management considers necessary to
make the financial statements not misleading. The results of operations for the
nine-month period ended September 30, 2004 are not necessarily indicative of
results that may be expected for any other interim period or for the full year.
These financial statements should be read in conjunction with the consolidated
financial statements and related notes included in the Company's Annual Report
on Form 10-KSB for the year ended December 31, 2003 as well as the Form 8-K/A
filed on July 2, 2004 with the Securities and Exchange Commission.

CONDENSED CONSOLIDATED FINANCIAL STATEMENTS: These condensed consolidated
financial statements present the results of the Company, formerly BarPoint.com,
Inc., and its wholly-owned subsidiaries, FUNDever, Inc. ("FUNDever") and
Schoolpop, Inc. ("Schoolpop"), which was acquired by FUNDever on July 31, 2003.
As further described in Note 6, certain assets of The National Scrip Center,
Inc. ("NSC") were acquired by Schoolpop on January 9, 2004, and the results of
those operations from January 9, 2004 are included in these interim condensed
financial statements. Additionally, certain assets of One Stop School Shop, Inc.
("One Stop") were acquired by Schoolpop on June 3, 2004, and the results of its
operations from June 3, 2004 are included in these interim condensed financial
statements. Finally, certain assets of Your Auction Stop, LLC ("YAS") were
acquired on September 13, 2004, and the results of its operations from September
13, 2004 are included in these interim condensed financial statements. All
inter-company balances and transactions have been eliminated in consolidation.

On February 18, 2004, the Company, a publicly-traded company listed on the
Over-the-Counter Bulletin Board with no active business acquired 100% of
FUNDever, a privately-held Delaware corporation. Pursuant to the merger, the
stockholders of FUNDever received 68,246,115 shares of the Company's common
stock and a group of holders of certain FUNDever convertible promissory notes
received 16,133,000 shares of the Company's common stock. As a result, these two
groups owned approximately 72% of the outstanding common stock of the Company
immediately following the merger. In addition, FUNDever executives replaced the
Company's management, and three FUNDever board members became members of the
four-person board of directors of the Company. At the acquisition date, the
Company established an escrow account and funded it with $567,000 related to
certain contingent tax liabilities. In July 2004, these liabilities were
resolved and the funds in the escrow were used to pay a special dividend to
stockholders of record at February 17, 2004.

The transaction has been accounted for as a reverse merger in which FUNDever is
considered to be the acquirer of the Company. Accordingly, the reverse merger
was accounted for as a recapitalization in which (i) the assets and liabilities
of FUNDever and the Company were combined on the basis of their historical book
values, (ii) the common stock and additional paid in capital of FUNDever were
retroactively restated to give effect to the exchange of FUNDever common stock
for the Company common stock, and (iii) the retained earnings balance of the
Company at the date of the merger was converted into additional paid-in capital.

                                       7
<PAGE>
                       LOYALTYPOINT, INC. AND SUBSIDIARIES

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)
--------------------------------------------------------------------------------

NOTE 1--NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES -- CONTINUED

NATURE OF BUSINESS: The Company is a loyalty marketing company focused on
nontraditional fundraising for schools and other nonprofit organizations. A
consumer shopping online or using prepaid merchant gift cards (scrip) generate
revenues for the Company, a portion of which are paid to participating schools
and other nonprofit organizations.

USE OF ESTIMATES: The preparation of condensed consolidated financial statements
in conformity with accounting principles generally accepted in the United States
of America requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosures and contingent assets
and liabilities at the date of the condensed consolidated financial statements
and the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.

CASH AND CASH EQUIVALENTS: For purposes of the condensed consolidated statements
of cash flows, the Company considers all short-term investments purchased with a
maturity of three months or less to be cash equivalents. The Company places its
cash and cash equivalents with financial institutions and invests these funds in
various short-term interest bearing instruments. From time to time the amount of
deposits in any one institution that exceeds federally insured limits is subject
to credit risk.

INVENTORY: Inventory is valued at lower of cost or market, with cost generally
stated on a first-in, first-out basis. Reserves for obsolescence or slow moving
inventory are recorded when such conditions are identified. Reserves of $300,546
were recorded at September 30, 2004.

PROPERTY AND EQUIPMENT: Property and equipment are stated at cost. Depreciation
is computed using the straight-line method over the estimated useful lives of
the assets, generally three to five years. Leasehold improvements are amortized
over the shorter of the estimated useful life of the improvement or the lease
term.

LONG-LIVED ASSETS: The Company evaluates long-lived assets, including property
and equipment and intangible assets subject to amortization, 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 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 by which the carrying amount of the assets exceeds the fair value of the
assets.


                                       8
<PAGE>

                       LOYALTYPOINT, INC. AND SUBSIDIARIES

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)
--------------------------------------------------------------------------------

NOTE 1--NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES -- CONTINUED

GOODWILL AND IDENTIFIABLE INTANGIBLE ASSETS: In July 2001, the Financial
Accounting Standards Board ("FASB") issued Statement of Financial Account
Standards ("SFAS") No. 141, "Business Combinations" and SFAS No. 142, "Goodwill
and Other Intangible Assets." SFAS No.141 was effective for all business
combinations completed after September 30, 2001. SFAS No.142 was effective for
fiscal years beginning after December 15, 2001. SFAS No. 142 eliminated the
amortization for goodwill and other intangible assets with indefinite lives.
Intangible assets with lives restricted by contractual, legal, or other means
are to be amortized over their useful lives. SFAS No. 142 requires that goodwill
and other intangible assets not subject to amortization be tested for impairment
at least on an annual basis or more frequently if events or changes in
circumstances indicate that the asset might be impaired.

SFAS No. 142 requires a two-step process for testing impairment. First, the fair
value of each reporting unit is compared to its carrying value to determine
whether an indication of impairment exists. If impairment is indicated, then the
implied fair value of the reporting unit's goodwill is determined by allocating
the unit's fair value to its assets and liabilities (including any unrecognized
intangible assets) as if the reporting unit had been acquired in a business
combination. The amount of impairment for goodwill and other intangible assets
is measured as the excess of its carrying value over its implied fair value.

INCOME TAXES: The Company accounts for income taxes under an asset and liability
approach. Deferred income taxes reflect the impact of temporary differences
between assets and liabilities recognized for financial reporting purposes and
such amounts recognized for income tax reporting purposes and net operating loss
carry-forwards measured by applying currently enacted tax laws. Valuation
allowances are provided when necessary to reduce deferred tax assets to an
amount that is more likely than not to be realized.

CERTAIN SIGNIFICANT RISKS AND UNCERTAINTIES: Financial instruments which
potentially subject the Company to concentrations of credit risk consist
primarily of cash and cash equivalents, investments and accounts receivable.
Cash and cash equivalents are held primarily with two financial institutions and
consist primarily of cash in bank accounts. The Company generates revenue
primarily from Internet-based merchants in the United States and maintains
allowances for estimated potential bad debt losses.

ACCOUNTS RECEIVABLE: The Company records an allowance for doubtful accounts
based on specific identification of those accounts that they consider to be
uncollectible and based on a percentage of historical uncollectible amounts.

                                       9
<PAGE>
                       LOYALTYPOINT, INC. AND SUBSIDIARIES

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)
--------------------------------------------------------------------------------


NOTE 1--NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES -- CONTINUED

REVENUE RECOGNITION: The Company recognizes revenue when persuasive evidence of
an arrangement with a merchant exists, delivery has occurred or services have
been rendered, the price is fixed or determinable and collectibility is
reasonably assured. Revenue is recognized when affiliated program merchants
report a sale to the Company as a result of shoppers' purchases. Revenue earned
under affiliated merchant arrangements which contractually obligate the Company
to pass on specified rebate amounts to schools is recorded on a gross commission
basis with the related rebates reflected as cost of revenues. Revenue from scrip
sales, the Company's primary revenue, is recognized when the money is received
from the school or nonprofit and the product has been shipped. Marketing and
advertising revenue is generally recognized ratably over the period of time
during which the advertisement appears.

SCHOOL REBATES: School rebates include cash amounts paid and payable to schools
or organizations calculated upon one, or any combination, of the following: (i)
a percentage of the purchase made by the shopper; (ii) a flat fee per shopper;
(iii) a minimum rebate amount; and (iv) the school's student/supporter
participation percentage.

STOCK-BASED COMPENSATION: In October 1995, SFAS No. 123, "Accounting for
Stock-Based Compensation" ("SFAS 123") was issued. SFAS 123 prescribes
accounting and reporting standards for all stock-based compensation plans,
including employee stock options, restricted stock, employee stock purchase
plans and stock appreciation rights. SFAS 123 requires compensation expense to
be recorded (i) using the new fair value method or (ii) using the existing
accounting rules prescribed by Accounting Principles Board ("APB") Opinion No.
25, "Accounting for Stock Issued to Employees" ("APB 25") and related
interpretations with pro forma disclosure of what net income and earnings per
share would have been had the Company adopted the new fair value method. The
Company intends to account for its stock based compensation plans in accordance
with the provisions of APB 25.

On December 31, 2002, the FASB issued SFAS No. 148 ("SFAS 148"), Accounting for
Stock Based Compensation-Transition and Disclosure. SFAS 148 amends SFAS No.
123 to provide an alternative method of transition to SFAS 123's fair value
method of accounting for stock based employee compensation. SFAS 148 also amends
the disclosure provisions of SFAS 123 and APB Opinion No. 28, "Interim Financial
Reporting", to require disclosure in the summary of significant accounting
policies of the effects of an entity's accounting policy with respect to stock
based employee compensation on reported net income and earnings per share in
annual and interim financial statements. While the statement does not amend SFAS
123 to require companies to account for employee stock options using the fair
value method, the disclosure provisions of SFAS 123 are applicable to all
companies with stock based employee compensation, regardless of whether they
account for that compensation using the fair value method of SFAS 123, or the
intrinsic value method of APB Opinion No. 25.

                                       10
<PAGE>
                       LOYALTYPOINT, INC. AND SUBSIDIARIES

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)
--------------------------------------------------------------------------------

NOTE 1--NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES -- CONTINUED

Due to the merger, all employee stock options outstanding at the merger date
vested. The following table illustrates what the Company's net loss and loss
per share would have been if the Company had used the fair value based method of
accounting for its employee stock option plans, as prescribed by SFAS 123:
<TABLE>
<CAPTION>

                                                                        Three months ended   Nine months ended
                                                                           September 30,       September 30,
                                                                               2004                2004
                                                                            -----------       -------------
<S>                                                                         <C>               <C>
Net loss, as reported                                                       $(2,796,713)      $  (5,472,928)
Add:
Stock-based  employee  compensation  expense included in reported net
income                                                                           27,050              27,050
Deduct:
Total  stock-based  employee  compensation  expense  determined under
fair value based method for all awards                                          (33,621)            (33,621)
                                                                            -----------       -------------
Proforma net loss under fair value method                                   $(2,803,284)      $  (5,479,499)
                                                                            ===========       =============
Net loss per common share basic and diluted, as reported                    $     (0.03)      $       (0.06)
                                                                            ===========       =============
Proforma net loss per common share basic and diluted                        $     (0.03)      $       (0.06)
                                                                            ===========       =============
</TABLE>

COMPREHENSIVE INCOME: The Company complies with the provisions of SFAS No. 130,
Reporting Comprehensive Income. SFAS No. 130 establishes standards for reporting
comprehensive income and its components in the financial statements.
Comprehensive income, as defined, includes all changes in equity during a period
from non-owner sources. The only item of other comprehensive income (loss) that
the Company currently reports is unrealized gains and losses on investments in
marketable securities.

NET LOSS PER SHARE: Basic EPS is computed by dividing income (loss) available to
common stockholders by the weighted-average number of common shares outstanding
for the period. Diluted EPS is based on the weighted-average number of shares of
common stock and common stock equivalents outstanding at the end of the period.
Common stock equivalents have been excluded from the weighted-average shares for
the three and nine months ended September 30, 2004 and 2003, as their inclusion
would be anti-dilutive (See Note 5). Stock options, common stock purchase
warrants and convertible preferred stock which could potentially dilute earnings
per share in the future totaled 46,327,913 and 0 at September 30, 2004 and 2003,
respectively.

RECLASSIFICATIONS: Certain prior year balances have been reclassified to conform
to the current year presentation.

                                       11
<PAGE>
                       LOYALTYPOINT, INC. AND SUBSIDIARIES

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)
--------------------------------------------------------------------------------

NOTE 2--PROPERTY & EQUIPMENT, NET

Property and equipment includes the following:

                                             September 30,
                                                 2004
                                              ---------

Business equipment and software               $ 489,091
Furniture and fixtures                          109,857
Leasehold improvements                           91,819
                                              ---------
                                                690,767
Less accumulated depreciation                  (283,198)
                                              ---------

Property and equipment, net                   $ 407,569
                                              =========

Depreciation expense totaled $53,937 and $8,203 for the three months ended
September 30, 2004 and 2003, respectively, and $126,941 and $12,629 for the nine
months ended September 30, 2004 and 2003, respectively.

NOTE 3--INTANGIBLE ASSETS

Intangible assets at September 30, 2004 include the following:
<TABLE>
<CAPTION>

--------------------------------------------------------------------------------------
                                   September 30, 2004
--------------------------------------------------------------------------------------
                                 Estimated                 Accumulated      Intangible
             Asset              Useful Lives    Amount     Amortization     Assets, net
--------------------------------------------------------------------------------------

Amortized Intangible Assets:
--------------------------------
<S>                                <C>         <C>          <C>           <C>
Websites                           2 yrs       $  227,894   $ (227,894)   $      --
Enrolled supporters                2 yrs          391,561     (199,159)       192,402
                                             -----------------------------------------
    Sub-total, amortized intangible assets        619,455     (427,053)       192,402

Unamortized Intangible Assets:
--------------------------------
Websites/Trademarks              indefinite    $  200,000            0        200,000
Registered entities              indefinite       225,425                     225,425
Merchant relationships           indefinite        54,000                      54,000
                                             -----------------------------------------
    Sub-total, unamortized intangible assets      479,425                     479,425

                                             -----------------------------------------
Total, Intangible Assets                      $ 1,098,880   $ (427,053)   $   671,827
                                             =========================================

Goodwill                                      $ 1,517,116   $     --      $ 1,517,116
                                             =========================================
</TABLE>


                                       12
<PAGE>

                      LOYALTYPOINT, INC. AND SUBSIDIARIES

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)
--------------------------------------------------------------------------------

NOTE 3--INTANGIBLE ASSETS--CONTINUED

Amortization expense for the three months ended September 30, 2004 and 2003 was
$48,947 and $42,118, respectively, and $173,375 and $118,061 for the nine months
ended September 30, 2004 and 2003, respectively.

Future amortization expense for the above intangible assets as of September 30,
2004 is as follows:

        For the year ending December 31,                Amounts
        ---------------------------------              ---------
                      2004                             $  48,943
                      2005                               143,459
                                                       ---------
                      Total                            $ 192,402
                                                       =========



NOTE 4--NOTES PAYABLE
<TABLE>
<CAPTION>

                                                                                                       September 30,
                                                                                                            2004
NOTES PAYABLE - STOCKHOLDERS AND RELATED PARTIES                                                       -------------
<S>                                                                                                  <C>

Promissory note payable to stockholder, original amount of $31,626 on October
28, 2002, annual interest rate at 12%. Payable interest only each month with
maturity date of December 31, 2003.
                                                                                                       $     31,626

Promissory notes payable to related party, original amounts of $100,000 in
November 2002, and multiple advances in 2003 totaling $550,100. In 2003,
$130,000 was repaid and $395,100 was converted into shares of common stock of
the Company, leaving a remaining balance of $125,000 at December 31, 2003. In
2004, $64,000 was repaid. In January, 2004, this related party purchased a
$125,000 note payable to a related party and converted the loan into common
stock of the Company.                                                                                        61,000

Promissory note payable to related party, interest at prime plus 1.5%, secured
by all chattel paper, accounts, equipment and general intangibles. Principal
payments to begin in 2006. Subordinate to line of credit.                                                 1,000,200
</TABLE>

                                       13
<PAGE>
                      LOYALTYPOINT, INC. AND SUBSIDIARIES

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S>                                                                                                  <C>

NOTE 4--NOTES PAYABLE--CONTINUED
Promissory note payable to related party, original principal amount of $200,000,
interest rate at 6% per annum, due August 31, 2004, secured by marketable
securities. This loan was paid in full in October 2004.                                                $     14,750

Promissory note payable to stockholder, original amount of $100,000 in January
2004, interest at 2% per month, principal and interest payments of $3,923
starting February 2004 through January 2007. In October 2004, the stockholder
agreed to convert the principal balance into 659,244 shares of common stock of
the Company.                                                                                                 83,493

Promissory note payable to stockholder assumed in the YAS
acquisition.  Original principal balance of $50,000; 2% interest
per month, with 36 monthly payments of $1,961 including interest.                                            40,626

Promissory note payable to related parties issued in connection with YAS
acquisition. Original principal balance of $75,000 payable in twelve
equal monthly installments of $6,250.                                                                        75,000
                                                                                                       ------------

Total notes payable - stockholders and related parties                                                    1,306,695
Less current portion                                                                                        228,324
                                                                                                       ------------
Long-term portion notes payable - stockholders and related parties                                     $  1,078,371
                                                                                                       ============

NOTE PAYABLE - SCHOOLCASH

Note payable issued in connection with SchoolCash acquisition, annual interest
rate of 12%, payments of $6,000 per month for six months beginning in November
2004, then 16 monthly payments of $16,010; secured by assets of FUNDever.                              $    250,000

Less current portion                                                                                        106,041
                                                                                                       ------------
Long-term portion note payable - SchoolCash                                                            $    143,959
                                                                                                       ============

LINE OF CREDIT

Line of credit with bank at prime plus 0.5%, payable on demand, expiring May
2005, secured by all equipment and accounts receivable of the Company.                                 $    430,000
                                                                                                       ============
</TABLE>

                                       14
<PAGE>
                      LOYALTYPOINT, INC. AND SUBSIDIARIES

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)
--------------------------------------------------------------------------------

NOTE 5--STOCKHOLDERS' DEFICIENCY

PREFERRED STOCK: The Company is authorized to issue 50,000,000 shares of
preferred stock, par value $0.001 per share, of which three shares of Series A
are issued and outstanding and 30,769,231 of Series B are issued and
outstanding. The Series B shares are convertible into an equal number of common
stock shares. The remaining shares may be issued with such rights, preferences
and limitations as may be adopted by the Board of Directors.

COMMON STOCK: The Company is authorized to issue 200,000,000 shares of common
stock, par value $0.001, of which 102,391,257 shares were issued and outstanding
at September 30, 2004.

In January 2004, the Company issued 19,143,287 shares of common stock in
exchange for loans outstanding, plus accrued interest, in the amount of
$1,747,300. Also in January 2004, the Company issued 216,153 shares of common
stock valued at $32,211 to individuals for services provided.

On April 1, 2004, the Company entered into an Agreement with ROI Group
Associates, Inc. for investment advisory services. In addition to monthly cash
payments, the Company was obligated to issue 541,981 shares of its common stock
valued at $108,596, which were issued in August 2004.

In June 2004, the Company issued 14,292 shares of common stock for proceeds of
$1,800 in connection with the exercise of stock options.

On August 11, 2004, the Company, with the consent of holders of a majority of
the outstanding voting power of the Company, amended its certificate of
incorporation to increase the number of authorized shares of capital stock to
200,000,000 shares of common stock and 50,000,000 shares of preferred stock.
Except for the outstanding three shares of Series A Preferred Stock and the
30,769,231 shares of Series B Preferred Stock issued on August 13, 2004, the
remaining shares of preferred stock may be issued with such preferences, rights,
privileges and limitations as the board of directors may determine without
consulting the stockholders.

On August 12, 2004, we entered into a long-term agreement with American Express
Incentive Services, LLC ("AEIS") relating to our being an exclusive provider of
their scrip products. We agreed to pay AEIS $1,500,000 in exclusivity fees over
five years, including $250,000 down, and we issued AEIS 5,000,000 shares of our
common stock and five year warrants to purchase 3,000,000 shares of common
stock, with 1,000,000 warrants each exercisable at $0.43, $0.75, and $1.00 per
share.

Management has determined that the common stock and common stock equivalents
issued to AEIS were deemed earned upon the execution of the exclusive agreement,
and though the agreement contains cancellation provisions, there is no
provision for a pro rata recovery of the common stock or common stock
equivalents issued. Therefore, the fair market value of those instruments, based
upon the closing market price of $0.20 on August 11, 2004, was charged to
operations during the period, resulting in stock base compensation of $1,000,000
for the shares of common stock and $481,232 for the common stock warrants, which
value was calculated using the Black-Scholes pricing model.


                                       15
<PAGE>

                      LOYALTYPOINT, INC. AND SUBSIDIARIES

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)
--------------------------------------------------------------------------------

NOTE 5--STOCKHOLDERS' DEFICIENCY--CONTINUED

On August 13, 2004, the Company received gross proceeds of $4 million by selling
30,769,231 shares of a new series of Series B Preferred Stock to five investors,
including four affiliated with an investment partnership which owns
approximately 5% of the Company's outstanding common stock. One of the
partnership's partners was (through an entity he controls) one of the four
affiliated investors. Additionally, we issued the investors five-year warrants
to purchase a total of 5,142,858 shares of common stock of the Company, with
equal amounts exercisable at $0.40, $0.75 and $1.00 per share. The issuance of
the Series B preferred stock included a beneficial conversion feature in the
total amount of $2,769,231 which represents the aggregate fair value at the
issue date of the Company's common stock into which the preferred stock is
convertible over the proceeds received in the issuance of the preferred shares.
This amount has been included in additional paid-in capital and accumulated
deficit at September 30, 2004. The partner referred to above, Mr. John C.
Colligan, joined our board of directors upon the closing of the financing and
received a grant of options to purchase 2,253,759 shares of common stock of the
Company at $0.20 per share vesting 12.5% after six months and 2.0833% monthly
thereafter, subject to continued board service on each applicable vesting date.

In August 2004, the Company reached an agreement with a law firm to issue
153,846 shares of common stock, valued at $20,000, in lieu of cash payment due
for services rendered.

Stock Option Plans and Warrants: The Company applies APB No. 25 and related
interpretations in accounting for its plans and outstanding options granted
under stock option agreements. Accordingly, compensation cost for options issued
to employees has been recognized only for options that are granted with exercise
prices that are less than the fair value of the underlying stock at the time of
issuance.

As of September 30, 2004, there were outstanding options to purchase 6,633,445
shares of common stock at a weighted average purchase price of $1.24 per share
and a weighted average life of approximately 6 years. Of these options,
2,805,434 were vested, at a weighted average purchase price of $2.72 per share
and a weighted average life of approximately 4 months.

For the nine months ended September 30, 2004, there were two options granted to
two executives with exercise prices less than fair value. These grants occurred
during the quarter ended June 30, 2004. Options to purchase 950,000 shares at
$0.15 per share and 832,337 shares at $0.04 per share were approved by the board
of directors on June 30, 2004 when the fair market value of the stock was $0.17
per share. The exercise prices of these two options were established pursuant to
employment offers with these employees. Deferred compensation expense of
$127,204 was accrued at June 30, 2004 and will be recognized over the vesting
schedule of the options. During the three months and nine months ended September
30, 2004, $27,050 of the deferred compensation had been recognized as stock
based compensation expense.

At the Company's annual stockholder meeting held on November 5, 2004,
stockholders approved the adoption of the LoyaltyPoint, Inc. 2004 Stock Plan
(the "2004 Plan"), which provides for stock-based incentives and awards to be
granted to qualified employees, consultants, officers and directors. These
awards include stock options, stock appreciation rights and restricted stock
grants. The aggregate number of shares of common stock which may be issued under
the 2004 Plan is 8,000,000. As of November 11, 2004, there were 1,500,000
options outstanding under the 2004 Plan.


                                       16
<PAGE>
                      LOYALTYPOINT, INC. AND SUBSIDIARIES

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)
--------------------------------------------------------------------------------

NOTE 5--STOCKHOLDERS' DEFICIENCY--CONTINUED

In connection with the merger with FUNDever, the Company also has the Equity
Incentive Plan as previously adopted by the stockholders of the Company (the
"Incentive Plan"). It has been the Company's intention to discontinue the use of
the Incentive Plan, and as such, the Company has not granted any awards under
the Incentive Plan since the merger date. There have been no new grants or
awards under the Incentive Plan in 2004. At September 30, 2004 there were
2,597,349 options issued under the Incentive Plan, all of which were fully
vested with a weighted-average exercise price of $2.93. Of these options,
2,390,120 expire in the first quarter of 2005, 28,583 expire in the second
quarter of 2005 and the remainder, 178,646, expire in the fourth quarter of
2005.

As of September 30, 2004, there were outstanding warrants to purchase 8,925,237
shares of common stock. Of this amount, 383,020 warrants, with an average
exercise price of $5.47 per share, expire in April 2005. Warrants to purchase
399,360 shares, at an average exercise price of $0.14 per share, expire in July
2006. In connection with the Series B preferred stock issuance, discussed above,
the Company issued five-year warrants to purchase 5,142,858 shares of common
stock to a group of five investors, with equal amounts exercisable at $0.40,
$0.75 and $1.00 per share. In addition, the Company also issued five-year
warrants to purchase 3,000,000 shares of common stock to AEIS, as discussed
above, in equal amounts exercisable at $0.43, $0.75, and $1.00 per share.

NOTE 6--ACQUISITIONS

On January 9, 2004, Schoolpop purchased certain assets and assumed certain
liabilities from NSC, a Santa Rosa, California-based nonprofit company that is
in the scrip industry (gift certificates and store value purchase cards). Under
the terms of the agreement, the Company agreed to: (i) pay $200,000 in cash
three days after closing; (ii) pay a five-year contingent earn-out consisting of
2% of net revenue generated from specified customers; (iii) satisfy up to
$1,266,000 owed to certain schools and other nonprofit customers of NSC; and
(iv) assume approximately $244,166 in leases and deferred payments on computer
software and hardware. The cash portion of the purchase price has been deferred
and has been included in the accrued expenses on the accompanying condensed
consolidated balance sheet as of September 30, 2004. The preceding consideration
is subject to further adjustment based upon the ascertainment of revised figures
and facts regarding the on-going business. As part of these adjustments and
subsequent to the acquisition, the total amount owed to certain schools and
other nonprofit customers has been revised downward to $1,019,111 and the amount
of deferred payments on computer software has been revised downward to $27,106.
NSC had substantial debts owed to trade vendors and other creditors, and
Schoolpop did not agree to assume those liabilities.


                                       17
<PAGE>
                      LOYALTYPOINT, INC. AND SUBSIDIARIES

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)
--------------------------------------------------------------------------------


NOTE 6--ACQUISITIONS--CONTINUED
The following summarizes the allocation of the purchase price:


            Purchase Price:                                           Amount
            --------------------------------------------        -------------
               Cash                                             $    200,000
               Due to nonprofits                                   1,019,111
               Capital lease obligation                               27,106
                                                                -------------
                     Total Purchase Price                       $  1,246,217
                                                                =============

            Allocation of Purchase Price:
            --------------------------------------------
               Inventory, net                                   $  1,172,111
               Furniture, fixtures & equipment                        74,106
                                                                -------------
                     Total Assets                               $  1,246,217
                                                                =============

On June 3, 2004, the Company acquired the assets of One Stop, a provider of
school supplies that generate funds for schools and which targets parents of
school children. Terms of the agreement include payment of: (i) $25,000 cash;
(ii) 1,196,809 shares of common stock of the Company; and (iii) a contingent
earn-out consisting of (a) 50% of the net profit in 2004 and (b) 10% of the net
profit in 2005 generated from the One Stop division to be paid in cash and
common stock of the Company.

The following table summarizes the allocation of the purchase price:


         Purchase Price:                                              Amount
         -----------------------------------------------          -----------
            Cash                                                  $   25,000
            1,196,809 shares of common stock                         225,000
                                                                  -----------
                  Total Purchase Price                            $  250,000
                                                                  ===========

         Allocation of Purchase Price:
         -----------------------------------------------
            Inventory, net                                         $   8,382
            Prepaid inventory                                         11,433
            Rent deposit                                               2,678
            Goodwill                                                 227,507
                                                                  -----------
                  Total Assets                                    $  250,000
                                                                  ===========

                                       18
<PAGE>
                      LOYALTYPOINT, INC. AND SUBSIDIARIES

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)
--------------------------------------------------------------------------------


NOTE 6--ACQUISITIONS--CONTINUED

On September 13, 2004, the Company acquired the assets of YAS, a provider of
auction services for consigned merchandise through eBay, which also provided
fulfillment services for the Company's scrip business and handled auction
related services of the Company's Auction & Earn program. Paul Robinson, our
Chairman, CEO and President, and Steve Avalone, our Chief Marketing Officer and
director, are majority stockholders of YAS (See Note 7). Terms of the asset
purchase agreement include: (i) $25,000 cash; (ii) the issuance of a $75,000
note payable; (iii) 588,235 shares of common stock; (iv) assumption of $40,626
of debt; and (v) the cancellation of money owed to the Company of $62,582.
Messrs. Robinson and Avalone did not receive any of the common stock.

The following table summarized the allocation of the purchase price:

         Purchase Price                                                 Amount
         --------------------------------------------------       -------------
            Cash                                                  $     25,000
            588,235 shares of common stock                             100,000
            Note payable                                                75,000
            Cancellation of debt                                        62,582
            Assumed debt                                                40,626
                                                                  -------------
                  Total Purchase Price                            $    303,208
                                                                  =============

         Allocation of Purchase Price
         --------------------------------------------------
            Furniture & fixtures                                  $        729
            Equipment                                                   11,715
            Leasehold improvement                                        9,848
            Rent deposit                                                 3,250
            Goodwill                                                   277,666
                                                                  -------------
                  Total Assets                                    $    303,208
                                                                  =============

Proforma unaudited information giving effect to the NSC acquisition as if it had
occurred at the beginning of the current periods and at the beginning of the
comparable prior year periods is not included in these Notes to Condensed
Consolidated Financial Statements as the financial information required is not
yet available.


                                       19
<PAGE>
                      LOYALTYPOINT, INC. AND SUBSIDIARIES

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)
--------------------------------------------------------------------------------

NOTE 7--RELATED PARTY TRANSACTIONS

The former board of directors of the Company required FUNDever to extend its
lines of credit, which had been guaranteed by certain FUNDever officers and a
director, in order to close the merger. One bank line of credit in the amount of
$1,000,200 was replaced with a loan from a director, who was also a stockholder
of the Company, on February 18, 2004 at an interest rate of .5% above the prior
bank loan. In addition, the director and certain officers of the Company remain
guarantors on a $430,000 line of credit. This loan has been extended to May 31,
2005. Additionally, on June 24, 2004 the Company borrowed $200,000 from this
director. The note matured on August 31, 2004 and was paid in full in October
2004. The note bore 6% per annum interest and was secured by a pledge of the
Company's marketable securities. See Note 4 which describes the terms of notes
with related parties.

On August 9, 2004, the Company's subsidiary, Schoolpop amended its prior
one-year strategic partnership agreement with YAS. Paul Robinson, our Chairman,
CEO and President and Steve Avalone, our Chief Marketing Officer and director,
are majority stockholders of YAS. As discussed in Note 6, the Company purchased
the assets of YAS on September 13, 2004.

Prior to the acquisition, YAS provided shipping, cleaning, photographing, and
listing of donated items on eBay. These items are donated by parents and
supporters of our school and nonprofit clients, who may receive an individual
tax deduction per donated item. The school or nonprofit receives 50% of the
selling price of donated items, and we shared in Auction & Earn profits equally
with YAS. The August 9, 2004 amendment provided for outsourced scrip fulfillment
services in support of our Scrip & Earn fundraising program.

As of September 12, 2004, prior to the acquisition date, Schoolpop had billed
YAS $185,355 for payroll reimbursement and payroll services, of which $145,351
remained due and owing at the date of acquisition. YAS had billed Schoolpop
$82,769 for services, of which $82,769 remained due and owing at the date of
acquisition. The difference between these amounts, $62,582 due to Schoolpop, was
forgiven and was included in the total purchase price.

NOTE 8--COMMITMENTS AND CONTINGENCIES

Legal Proceedings

Albertson's Inc. ("Albertson's") filed an action against Schoolpop on October
31, 2003 in the United States District Court, Central District of California.
Albertson's alleged violations of the Lanham Act, breach of contract,
interference with prospective economic advantage, and violation of the unfair
competition law of California. The allegations related to certain alleged acts
of Schoolpop prior to FUNDever acquiring Schoolpop. Pursuant to the merger
agreement between FUNDever and Schoolpop, prior stockholders of Schoolpop agreed
to indemnify FUNDever for any damages incurred with regard to this action.
Management has settled the Albertson's litigation for $300,000 with $20,000 paid
upon execution of the final settlement agreement and $5,000 monthly over 56
months thereafter. FUNDever is offsetting contingent earn-out payments otherwise
payable to the former stockholders of Schoolpop that have agreed to indemnify
FUNDever for any damages with regard to this action. An accrual in the amount of
$300,000 was established in 2003 for this liability, and as of September 30,
2004, $275,000 is reflected in the accompanying Condensed Consolidated Financial
Statements. Recovery through nonpayment of the earn-out provision is recognized
as the earn-out is expensed. As of September 30, 2004, $150,830 in recovery had
been recognized.


                                       20
<PAGE>
                      LOYALTYPOINT, INC. AND SUBSIDIARIES

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)
--------------------------------------------------------------------------------

NOTE 8--COMMITMENTS AND CONTINGENCIES--CONTINUED

Honey Baked Ham, Inc. and Gerard, Inc. filed an action in February 2004 against
Schoolpop in the Superior Court of California, County of Sonoma. The plaintiffs
are seeking to recover approximately $140,000 in damages for alleged violations
of the unfair competition law of California, conversion and unjust enrichment as
a result of Schoolpop's January 2004 purchase of scrip assets from The National
Scrip Center, Inc. ("NSC"). The plaintiffs alleged that NSC had the inventory on
consignment, did not pay for it, and transferred the inventory to Schoolpop, as
an alter ego of NSC, without any consideration. Schoolpop's defense is that it
paid fair consideration for the purchase of the gift certificates as an
arms-length purchaser without any knowledge of an adverse claim, and management
believes that Schoolpop should not be held liable for the obligations of NSC to
the plaintiffs. No accrual for this potential liability has been recorded in
these condensed consolidated financial statements.

In March 2004, The Cheesecake Factory Restaurants, Inc. ("Cheesecake Factory")
filed an action in Superior Court of California, County of Los Angeles, against
Schoolpop alleging that Schoolpop is liable for a contractual obligation of NSC
to Cheesecake Factory in the approximate amount of $40,000. Cheesecake Factory
is seeking collection from Schoolpop as an alleged successor-in-interest,
transferee and assignee of NSC and alleges that Schoolpop is jointly liable for
debts and obligations of NSC to Cheesecake Factory. Schoolpop acquired no
inventory of Cheesecake Factory from NSC and did not agree to assume any
obligations of NSC to Cheesecake Factory in connection with the purchase from
NSC. The Company believes that Schoolpop should not be held liable for the
obligations of NSC to Cheesecake Factory. No accrual for this potential
liability has been recorded in these condensed consolidated financial
statements.

On June 21, 2004, Mary Elizabeth Doherty, a spouse of a former employee of
Schoolpop, filed an action against Schoolpop in the United States District Court
for the Northern District of California alleging failure to pay ERISA benefits,
breach of contract, breach of fiduciary duty under ERISA and violation of
Section 502(a)(3) of ERISA. The plaintiff has alleged that she is entitled to
benefits under the Schoolpop's life insurance and accidental death policy and is
seeking to recover damages in the amount of $200,000 plus interest. The subject
plan contains an exclusion for benefits when the death is a result of
participation in a felony and Schoolpop understands that the felony exclusion
should apply. The plaintiff further alleged that Schoolpop breached its
fiduciary duty by not providing plaintiff's husband with a summary plan
description setting forth the felony acts exclusion. Litigation counsel for the
Company has advised the Company that it believes these claims are without merit
since the plaintiff's husband was the chief executive officer of Schoolpop.
Schoolpop was dismissed with prejudice as a party to the action in October 2004.
However, the insurance company has indicated that it may seek indemnification
from Schoolpop if the insurance company is held liable due to Schoolpop's
alleged failure to provide notice of the felony acts exclusion to its chief
executive officer. While Schoolpop believes this claim is without merit, it may
be required to defend the claim. No accrual for this potential liability has
been recorded in these condensed consolidated financial statements.

                                       21
<PAGE>
                      LOYALTYPOINT, INC. AND SUBSIDIARIES

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)
--------------------------------------------------------------------------------

NOTE 8--COMMITMENTS AND CONTINGENCIES--CONTINUED

At the time that Schoolpop purchased the scrip assets from NSC, it was
represented by NSC that the assets were free and clear of all liens and
encumbrances. Shortly after the closing, it was learned that the primary lender
of NSC had a lien on all of NSC's assets, including those purchased by
Schoolpop. Shortly after the closing, the lender verbally agreed to release the
security interest, but due to intervening events has not yet fulfilled its
agreement. The Company has been in continuing discussions with the lender and
hopes to have the encumbrance released shortly. Litigation counsel to the
Company has advised the Company that the lender should not prevail in attempting
to enforce its security interest; nevertheless, if the lender is successful, the
Company could be required to compensate the lender to the extent of the value of
the purchased scrip assets which cost may be material.

Employment Agreements

FUNDever entered into employment agreements with three of its executive officers
on January 1, 2004 which were assumed by the Company. Subsequently, one of the
executive officers resigned his position in September 2004. On November 5, 2004,
the Company renewed the employment agreements of the two remaining officers for
one-year terms expiring on December 31, 2005 on the same terms, except that the
salaries were increased to cover the cost (including the additional income
taxes) of automobile allowances which were discontinued. Such agreements provide
for annual salaries, and reimbursement for a portion of their health insurance
premiums. Upon termination or non renewal of their agreements (except for
cause), the officers are entitled to severance packages. Except for the
employment agreements described above, the Company does not pay any other
compensation to these officers.

In May 2004, our directors voted to form a compensation committee to review the
annual base salary of our Chairman and CEO. The board appointed a committee
consisting of two non-employee directors. On May 20, the committee unanimously
approved an increase in the executive's base salary from $200,000 per annum to
$240,000 per annum, based on job performance and fair market value, with such
increase contingent upon the closing of the $4 million financing (See Note 5).
The salary increase was effective August 13, 2004, concurrent with the closing
of such transaction.


                                       22
<PAGE>
                      LOYALTYPOINT, INC. AND SUBSIDIARIES

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)
--------------------------------------------------------------------------------

NOTE 9--NEW ACCOUNTING PRONOUNCEMENTS

In January 2003, Financial Accounting Standards Board ("FASB") issued FASB
Interpretation No. 46, "Consolidation of Variable Interest Entities" ("FIN 46"),
an interpretation of Accounting Research Bulletin No. 51. FIN 46 expands upon
and strengthens existing accounting guidance that addresses when a company
should include in its financial statements the assets, liabilities and
activities of another entity. A variable interest entity is any legal structure
used for business purposes that either does not have equity investors with
voting rights or has equity investors that do not provide sufficient financial
resources for the entity to support its activities. FIN 46 requires a variable
interest entity to be consolidated by a company if that company is subject to a
majority of the risk of loss from the variable interest entity's activities or
entitled to receive a majority of the entity's residual returns or both. The
consolidation requirements of FIN 46 apply immediately to variable interest
entities created after January 31, 2003. The consolidation requirements apply to
older entities in the first fiscal year or interim period beginning after June
15, 2003. However, in December 2003, FASB deferred the latest date by which all
public entities, which meet the definition of small business issuer under SEC
Regulation S-B, must apply FIN 46 to the first interim or annual reporting
period ended after December 15, 2004. The effect of the adoption of this new
accounting pronouncement did not have a significant impact on the Company's
financial statements.

NOTE 10-SUBSEQUENT EVENTS

On November 5, 2004, the Company appointed Mr. Jeffrey S. Benjamin as Chief
Financial Officer with an annual salary of $140,000 per year. The Company issued
Mr. Benjamin options to purchase 1,500,000 shares of common stock exercisable at
$.14 per share, with 25% vesting on November 5, 2005 and the balance vesting
quarterly in increments of 6.25%, subject to continued employment on each
applicable vesting date. Mr. Curtis Ramsey, the Company's former Chief Financial
Officer, remains employed by the Company.


                                       23
<PAGE>


ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF INTERIM FINANCIAL CONDITION AND
        RESULTS OF OPERATIONS

The following discussion of our financial condition and results of operations
should be read together with the financial statements and related notes included
in this Report. This discussion contains forward-looking statements that involve
risks and uncertainties. Our actual results may differ materially from those
anticipated in those forward-looking statements as a result of certain factors,
including, but not limited to, those contained in the discussion on
forward-looking statements that follows this section.

OVERVIEW

Effective on February 18, 2004, the Company merged with FUNDever in a reverse
merger transaction. We now operate as a holding company for merchant, school,
and nonprofit loyalty marketing programs. We market online, store, and
catalog-based loyalty programs that generate contributions to schools,
nonprofits and other organizations, based upon parent and supporter purchases.
The mission of Schoolpop, our principal subsidiary, is to help eliminate the
negative impact of budget shortfalls by providing a one-stop shop for schools
and other nonprofits to enroll in a suite of nontraditional fundraising programs
that are hassle-free for schools, convenient for parents, and safe for students.

As explained in Note 1 to the Condensed Consolidated Financial Statements, the
merger through which FUNDever became a wholly-owned subsidiary of the Company
has been treated as a reverse merger and the historical financial statements
contained in this report are those of FUNDever. FUNDever has grown significantly
through acquisitions. These acquisitions affect a comparison of our results of
operations for the three and nine months ended September 30, 2004 versus 2003.
The table below reflects the length of time each of our principal operating
subsidiaries and business units operated during the comparable nine-month
periods ended September 30, 2004 and September 30, 2003.

Approximate number of months each principal subsidiary or business unit is
included in operating results:

                                            --------------------------------
                                                   Nine Months Ended
                                                     September 30,
                                            --------------------------------
                                                  2004            2003
                                                  ----            ----
                  FUNDever                         9                9
                  Schoolpop                        9                5
                  Scrip Business                  8.7               0

One Stop and YAS are not principal business units.

Highlights for the third quarter of 2004 include:

     o    Our management negotiated the $4 million financing and AEIS agreements
          referred to in Note 5 to our Condensed Consolidated Financial
          Statements.

     o    During this three-month period, our revenue from the NSC assets we
          purchased was approximately $15,000,000.

                                       24
<PAGE>


     o    Our President resigned eliminating the cost of $175,000 annual salary
          plus benefits effective after payment of the three month severance we
          agreed to pay him. Our Chief Executive Officer assumed the title of
          President.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

Our discussion and analysis of our financial condition and results of operations
are based upon our consolidated financial statements, which have been prepared
in accordance with accounting principles generally accepted in the United States
of America. The preparation of these financial statements requires us to make
estimates and judgments that affect the reported amounts of assets, liabilities,
revenues and expenses, and related disclosures of contingent assets and
liabilities. On an ongoing basis, we evaluate our estimates, including those
related to impairment of long-lived assets, and contingencies and litigation. We
base our estimates on historical experience and on various other assumptions
that we believe to be reasonable under the circumstances, the results of which
form the basis for making judgments about the carrying value of assets and
liabilities that are not readily apparent from other sources. Actual results may
differ from these estimates under different assumptions or conditions; however,
we believe that our estimates, including those for the above-described items,
are reasonable.

IMPAIRMENT OF LONG-LIVED ASSETS. Our long-lived assets consist of property and
equipment and intangible assets subject to amortization. We assess impairment of
long-lived assets whenever changes or events indicate that the carrying value
may not be recoverable. In performing our assessment we must make assumptions
regarding estimated future cash flows and other factors to determine the fair
value of the respective assets. When these estimates change we are required to
record impairment charges against these respective assets.

GOODWILL. Goodwill is tested annually for impairment, and is tested more
frequently if events and circumstances indicate that the asset might be
impaired. An impairment loss is recognized to the extent that the carrying
amount exceeds the asset's fair value. In performing our assessment we must make
assumptions regarding estimated future cash flows and other factors to determine
the fair value of the respective assets. When these estimates change we are
required to record impairment charges against these respective assets.

CONTINGENCIES AND LITIGATION. We are party to various claims and legal
proceedings. We record a reserve for these matters when an adverse outcome is
probable and the amount of the potential liability is reasonably estimable.
Although the ultimate outcome of these matters is currently not determinable, we
do not believe that the resolution of these matters will have a material effect
upon our financial condition, results of operations or cash flows. See "Legal
Proceedings" footnote.


                                       25
<PAGE>



RESULTS OF OPERATIONS

The following table summarizes our results of operations as a percentage of net
revenue for the three and nine months ended September 30, 2004 and 2003:
<TABLE>
<CAPTION>

(Amounts in
thousands, except per
share data)                    Three months ended September 30,                      Nine months ended September 30,
                        -----------------------------------------------    ----------------------------------------------------
                                2004                     2003                         2004                        2003
                        ---------------------    ----------------------    ---------------------------    ----------------------
<S>                        <C>          <C>      <C>              <C>           <C>              <C>        <C>           <C>
Revenue                    $ 15,755     100%     $     395        100%          $  42,018        100%       $   488       100%
Gross profit                    172       1%           241        nmf                 862        2.1%           256      52.7%
Operating expenses            3,489      22%         3,240        nmf               6,745       16.0%         5,470       nmf
                           --------     ----     ---------      ------          ---------     -------       -------     ------

Net loss                   $ (2,797)   (18)%     $  (3,148)       nmf           $  (5,473)    (13.0)%      $ (5,603)      nmf
                           ========    =====     =========      ======          =========     =======      ========     ======
Loss per share,
basic and diluted          $  (0.03)              $  (0.08)                     $   (0.06)                 $  (0.12)
                           ========               ========                      =========                  ========
</TABLE>

In the table above, "nmf" designates not meaningful to the reader.

Revenue

Our revenue for the three and nine months ended September 30, 2004, was
$15,755,321 and $42,018,227, respectively, compared to revenues of $394,598 and
$488,465 for the same periods in 2003. This increase is primarily attributable
to Schoolpop's acquisition of NSC on January 9, 2004, which accounted for 95%
and 96% of revenue during the three and nine month periods ended September 30,
2004, respectively.

Cost of Revenue

Our cost of revenue for the three and nine months ended September 30, 2004, was
$15,583,615 and $41,155,848, respectively, compared to $153,769 and $232,885 for
the same periods in 2003. This increase is primarily attributable to the
acquired operation of the scrip business. The scrip business generates lower
gross margins, or conversely higher cost of revenue, than the Company's other
businesses. The scrip business gross margin for the three and nine months ended
September 30, 2004 was approximately 1.15% and 1.41%, respectively, compared to
the Company's other product lines, which averaged approximately 39% and 42%,
respectively.

Operating Expenses

Our operating expenses for the three and nine months ended September 30, 2004,
were $3,488,696 and $6,744,621, respectively, compared to $3,239,682 and
$5,469,902 for the same periods in 2003. This represents an increase of 8% and
23% for the three and nine month periods ended September 30, 2004, respectively.
For the three months ended September 30, 2004, a primary reason for the increase
was an increase in salaries of $469,305 from $390,239 to $859,544 due to
increased staffing levels related to acquisitions. The increase in selling,
general, and administrative expenses of $361,135 from $548,256 to $909,391 was
primarily attributable to an increase in legal fees related to the August 2004
AEIS agreement, SEC reporting costs and litigation and accounting fees
associated with FUNDever's audits and the Company's reviews, which were billed
during the period, and increased overhead due to higher staffing levels. For the
nine months ended September 30, 2004, salaries increased $1,348,619 from
$830,232 to $2,178,851, again attributable to increased staffing related to
acquisitions. Selling, general and administrative expenses increased $1,509,051
from $1,116,326 to $2,625,377 during this period, primarily attributable to
increased legal and accounting fees, the merger and the related SEC filing
requirements and increased overhead due to higher staffing levels.

                                       26
<PAGE>

For the three months ended September 30, 2004, stock based compensation
increased $138,741 over the previous year from $1,478,137 to $1,616,878. The
increase was related to the 5,000,000 shares of common stock and 3,000,000
warrants issued to AEIS during the period. See Note 5 - Stockholders' Deficiency
to the Condensed Consolidated Financial Statements. For the nine months ended
September 30, 2004, stock based compensation decreased $979,847 over the same
period in the previous year from $2,619,925 to $1,640,078. In early 2003,
FUNDever issued stock grants to employees in order to attract and retain quality
personnel and was also able to satisfy certain obligations with stock in lieu of
cash payments.

For the nine month periods ending September 30, 2004 and 2003, depreciation and
amortization expense increased by $169,625, or 130%, to $300,315 from $130,690.
For the three month period ending September 30, 2004 and 2003, depreciation and
amortization expense increased $52,562, or 104%, from $50,321 to $102,883. This
is due to the additions to fixed and intangible assets associated with the 2003
acquisitions, and those results being included for a full nine months in 2004,
and the 2004 acquisitions and those results being included for a full three
months in 2004.

Other Income

The Company recognized $546,787 in other income during the three months ended
September 30, 2004, while no other income was recognized in 2003. The largest
component of other income was the extinguishment or expiration of certain
liabilities totaling $434,548. An additional component of other income was the
receipt of $225,000 in a favorable settlement of patent infringement litigation
brought by the Company in defense of its patents. These items were partially
offset by a loss of $112,762 recognized on the sale of marketable securities.

Net Loss

Our net loss for the three and nine months ended September 30, 2004, was
$2,796,713 and $5,472,928, respectively, compared to $3,148,005 and $5,603,126
for the same periods in 2003. This represents a decrease of 13% and 2% for the
three and nine month periods ended September 30, 2004, respectively. The
decrease in the net loss was primarily attributable to the $546,787 in other
income recognized during the period.

LIQUIDITY AND CAPITAL RESOURCES

For the nine months ended September 30, 2004, we used $2,889,659 in cash for
operations compared to $1,375,961 for the same period in 2003, an increase of
$1,513,698 or 110%.

For the nine months ended September 30, 2004, net cash provided by investing
activities was $1,246,176 compared to $135,272 for the corresponding period in
2003. The purchase of fixed assets and additions to leasehold improvements used
$87,453, while the acquisition of assets from One Stop and YAS used $50,000 (See
Note 6 to the Condensed Consolidated Financial Statements). These uses were
offset by $629,617 in cash received in the FUNDever merger, $187,012 in proceeds
from the sale of marketable equity securities and $567,000 withdrawn from
restricted deposits.

For the nine months ended September 30, 2004, net cash provided by financing
activities was $3,887,805 compared to net cash provided by financing activities
of $1,723,097 in the same period for 2003, an increase of 125%. Net proceeds
from the issuance of Series B preferred stock were $3,906,924, while proceeds

                                       27
<PAGE>

from loans and capital leases totaled $303,719 (See Note 4, Note 5 and Note 7 to
the Condensed Consolidated Financial Statements). These amounts were partially
offset by $324,638 in principal payments on loans and capital leases.

At September 30, 2004, we had approximately $2,483,000 in cash and cash
equivalents and approximately $23,800 in marketable equity securities. As of
November 9, 2004, we had approximately $2,338,000 in cash and cash equivalents
and had liquidated all of our marketable securities. At September 30, 2004, our
current liabilities exceeded our current assets by approximately $1,275,000.

FUNDever has historically generated insufficient cash flow from operations to
cover operating expenses. FUNDever has had to raise additional capital
through commercial bank loans and private investors in order to meet its
operating capital needs. FUNDever has also been able to obtain capital through
the acquisition of companies and assuming the cash and cash equivalent balances
of those companies. We believe that we have adequate capital for the next 12
months; however we may require additional capital prior to the end of such
period due to unforeseen events.

At the time that Schoolpop purchased the scrip assets from NSC, it was
represented by NSC that the assets were free and clear of all liens and
encumbrances. Shortly after the close, it was learned that the primary lender of
NSC had a blanket lien filed on all of NSC's assets, including those purchased
by Schoolpop. Shortly after the closing, the lender verbally agreed to release
the lien, but due to intervening events has not yet fulfilled its agreement. The
Company has been in continuing discussions with the lender and hopes to have the
encumbrance released shortly. Litigation Counsel to the Company has advised the
Company that the lender should not prevail in attempting to enforce its security
interest; nevertheless, if the lender is successful, the Company could be
required to compensate the lender to the extent of the value of the purchased
scrip assets, which cost may be material.

CAPITAL EXPENDITURES AND COMMITMENTS

Except for the purchase and implementation of new accounting software estimated
to cost approximately $150,000 and upgrading our website at an estimated cost of
$50,000, we do not currently have any plans to acquire a material amount of
fixed assets during 2004.

OFF-BALANCE SHEET ARRANGEMENTS

In the normal course of business, we enter into contractual commitments to
purchase materials and services from suppliers in exchange for favorable pricing
arrangements or more beneficial terms. We also have entered into acquisition
agreements which require us to pay the sellers contingent earn-outs based upon
the future revenue or profit of the businesses or assets we acquired. In
addition to the possible earn-out described in Note 6 to the Condensed
Consolidate Financial Statements, we may pay three other companies earn-outs,
two of which are described in Item 1 "Description of Business" of our Annual
Report on Form 10-KSB for 2003. For the three and nine-month periods ended
September 30, 2004, earn-out expense was $77,913 and $162,563, respectively.

RELATED PARTY TRANSACTIONS

In June 2004 we borrowed $200,000 from a director, Robert Scellato, who was our
largest stockholder prior to the August 13, 2004 $4 million financing. We
pledged our marketable securities as collateral. This loan was paid in full in

                                       28
<PAGE>

October 2004 from the net proceeds of the sale of marketable securities. See
Note 4 and Note 7 to the Condensed Consolidated Financial Statements.

In September 2004, we purchased certain assets from YAS. The principal
stockholders of YAS are Paul Robinson, our Chairman, CEO and President, and by
Stephen Avalone, our Chief Marketing Officer and a director. See Note 6 to the
Condensed Consolidated Financial Statements. Earlier, in August 2004 we amended
our strategic partnership agreement with YAS. See Note 7 to the Condensed
Consolidated Financial Statements.

On August 13, 2004 we amended the employment agreement with our Chairman and
CEO, Paul Robinson as described in Note 8 to the Condensed Consolidated
Financial Statements. We also renewed the employment agreements with Messrs.
Robinson and Avalone in November 2004. See Note 8 to the Consolidated Financial
Statements. On November 5, 2004, we hired Mr. Jeffrey S. Benjamin as Chief
Financial Officer at an annual salary of $140,000 per year. See Note 10 to the
Condensed Consolidated Financial Statements.

FORWARD-LOOKING STATEMENTS

This Report contains forward-looking statements within the meaning of the
Private Securities Litigation Reform Act of 1995 relating to our liquidity, the
removal of UCC-1 liens on the NSC assets, resolution of litigation, and
anticipated capital expenditures. Additionally, words such as "seek," "intend,"
"believe," "plan," "estimate," "expect," "anticipate" and other similar
expressions are forward-looking statements within the meaning of the Act. Some
or all of the results anticipated by these forward-looking statements may not
occur. Forward-looking statements involve known and unknown risks and
uncertainties, both general and specific to the matters discussed in this press
release. Factors that could cause or contribute to such differences include, but
are not limited to, the future price of our stock, the Company's ability to
manage its anticipated growth, uncertanties inherent in litigation and resolving
contractual issues. Further information on the Company's risk factors is
contained in the Company's other filings with the Securities and Exchange
Commission ("SEC") including its Form 10-KSB for the year ended December 31,
2003. We undertake no obligation to publicly update or revise any
forward-looking statements, whether as the result of new information, future
events or otherwise.

ITEM 3.  CONTROLS AND PROCEDURES

We carried out an evaluation required by Rule 13a-15(b) of the Securities
Exchange Act of 1934 under the supervision and with the participation of our
management, including our chief executive officer and chief financial officer,
of the effectiveness of the design and operation of our "disclosure controls and
procedures" as of the end of the period covered by this Report.

Disclosure controls and procedures are designed with the objective of ensuring
that (i) information required to be disclosed in an issuer's reports filed under
the Securities Exchange Act of 1934 is recorded, processed, summarized and
reported within the time periods specified in the SEC rules and forms and (ii)
information is accumulated and communicated to management, including our chief
executive officer and chief financial officer, as appropriate to allow timely
decisions regarding required disclosures.

The evaluation of our disclosure controls and procedures included a review of
our objectives and processes and effect on the information generated for use in
this Report. This type of evaluation will be done quarterly so that the

                                       29
<PAGE>

conclusions concerning the effectiveness of these controls can be reported in
our periodic reports filed with the SEC. We intend to maintain these controls as
processes that may be appropriately modified as circumstances warrant.

Based on their evaluation, our chief executive officer and chief financial
officer have concluded that our disclosure controls and procedures are effective
in timely alerting them to material information relating to the Company required
to be included in our periodic reports filed with the SEC as of the end of the
period covered by this Report. There were no changes in our internal control
over financial reporting that occurred during our last fiscal quarter that have
materially affected, or are reasonably likely to materially affect, our internal
control over financial reporting. However, a control system, no matter how well
conceived and operated, can provide only reasonable, not absolute, assurance
that the objectives of the control system are met. Management necessarily
applied its judgment in assessing the benefits of controls relative to their
costs. Because of the inherent limitations in all control systems, no evaluation
of controls can provide absolute assurance that all control issues and instances
of fraud, if any, within the company have been detected. The design of any
system of controls is based in part upon certain assumptions about the
likelihood of future events, and there can be no assurance that any design will
succeed in achieving its stated goals under all potential future conditions,
regardless of how remote. Because of the inherent limitations in a control
system, misstatements due to error or fraud may occur and may not be detected.


                                       30
<PAGE>

                           PART II - OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

     Not applicable.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

     (a) During the three months ended September 30, 2004, we issued shares of
     our common and preferred stocks and options and warrants to purchase shares
     of common stock to the following individuals and corporation which were not
     covered by an effective registration statement but were exempt under
     Section 4(2) of the Securities Act of 1933 and Rule 506 thereunder:

     On July 20, 2004, we issued 1,196,809 shares of common stock to One Stop
     School Shop, Inc. as part of the consideration for purchasing their assets.

     On August 11, 2004, we issued 5,000,000 shares of common stock and
     five-year warrants to purchase 3,000,000 shares of common stock to American
     Express Incentive Services, LLC. as consideration for entering into a
     long-term exclusive service provider agreement. 1,000,000 warrants each are
     exercisable at $0.43, $0.75, and $1.00 per share.

     On August 13, 2004, we issued an aggregate of 30,769,231 shares of Series B
     Preferred Stock and five-year warrants to purchase 5,142,858 shares of
     common stock to a group of five accredited investors in exchange for $4
     million. Equal amounts of the warrants are exercisable at $0.40, $0.75 and
     $1.00 per share.

     On August 13, 2004, we granted options to purchase 2,253,759 shares of
     common stock to Mr. John C. Colligan as consideration for service as a
     director of the Company. The options are exercisable at $0.20 per share and
     vest 12.5% after six months and 2.0833% monthly thereafter subject to
     continued service as a director.

     (b) Not applicable.

     (c) The following table provides information about purchases by us and our
     affiliated purchasers during the quarter ended September 30, 2004 of equity
     securities that are registered by us pursuant to Section 12 of the
     Securities Exchange Act of 1934:


<PAGE>

<TABLE>
<CAPTION>


                      ISSUER PURCHASES OF EQUITY SECURITIES
------------------------ ----------------------- -------------------- ------------------------------ --------------------------
PERIOD                            (A)                    (B)                       (C)                          (D)
                            TOTAL NUMBER OF      AVERAGE PRICE PAID    TOTAL NUMBER OF SHARES (OR       MAXIMUM NUMBER (OR
                           SHARES (OR UNITS)        PER SHARE (OR      UNITS) PURCHASED AS PART OF      APPROXIMATE DOLLAR
                               PURCHASED)               UNIT)          PUBLICLY ANNOUNCED PLANS OR     VALUE) OF SHARES (OR
                                                                              PROGRAMS (1)            UNITS) THAT MAY YET BE
                                                                                                        PURCHASED UNDER THE
                                                                                                       PLANS OR PROGRAMS (1)
------------------------ ----------------------- -------------------- ------------------------------ --------------------------
<S>                                <C>                   <C>                        <C>                          <C>
07/01/04-07/31/04                  0                     $0                         0                            0
------------------------ ----------------------- -------------------- ------------------------------ --------------------------
08/01/04-08/31/04                  0                     $0                         0                            0
------------------------ ----------------------- -------------------- ------------------------------ --------------------------
09/01/04-09/30/04                  0                     $0                         0                            0
------------------------ ----------------------- -------------------- ------------------------------ --------------------------
</TABLE>

(1) We have not entered into any plans or programs under which we may repurchase
our common stock.


ITEM 3. DEFAULTS UPON SENIOR SECURITIES

         Not applicable.


ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

         Not applicable.


ITEM 5.  OTHER INFORMATION

         Not applicable.


ITEM 6.  EXHIBITS
         EXHIBIT INDEX

Exhibit
Number     Description
--------   ---------------------------------------------------------------------
2.1      Asset Purchase Agreement with YAS dated September 13, 2004
3.1      Amendment to Certificate of Incorporation
3.2      Certificate of Designation
3.3      Certificate of Correction to Certificate of Designation
3.4      Amended and Restated Bylaws (1)
3.5      First Amendment to Amended and Restated Bylaws (2)
10.1     AEIS Stock Purchase Agreement
10.2     AEIS Reseller Agreement
10.3     Amended AEIS Reseller Agreement
10.4     AEIS Investor Rights Agreement
10.5     Stock Purchase Agreement - Series B Preferred Stock
10.6     Investor Rights Agreement - Series B Preferred Stock
31.1     Certification of CEO
31.2     Certification of CFO
32.1     Section 1350 certification of CEO
32.2     Section 1350 certification of CFO
---------
(1)      Contained in Report on Form 8-K filed on October 1, 2004.
(2)      Contained in Report on Form 8-K filed on October 4, 2004.


                                       31
<PAGE>

                                   SIGNATURES

In accordance with the requirements of the Securities Exchange Act of 1934, the
registrant caused this report to be signed on its behalf on November 15, 2004
by the undersigned, thereunto duly authorized.


                                LOYALTYPOINT, INC.


                                /s/ Paul Robinson
                                -----------------
                                Paul Robinson, Chief Executive Officer


                                /s/ Jeffrey S. Benjamin
                                -----------------------
                                Jeffrey S. Benjamin, Chief Financial Officer


                                  32