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

                                   FORM 10-KSB

 [X] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
     1934

                   For the fiscal year ended December 31, 2004
                                             -----------------

 [ ]  TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
      OF 1934

               For the transition period from _______ to ________

                        Commission File Number: 000-21235


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


             Delaware                                          11-2780723
  -------------------------------                         ------------------
  (State or other jurisdiction of                           (IRS Employer
   incorporation or organization)                         Identification No.)


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

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


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

                                      None


       Securities Registered Pursuant to Section 12(g) of the Exchange Act

                                  Common Stock
                               -------------------
                              (Title of each class)

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<PAGE>

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.   [X] Yes [] No

Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. [ ]

State issuer's revenue for its most recent fiscal year. $64,743,945

State the aggregate market value of the voting and non-voting common equity held
by non-affiliates computed by reference to the price at which the common equity
was sold, or the average bid and asked price of such common equity, as of April
11, 2005 was $2,460,776.

State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date. 103,165,884 shares of common stock
were outstanding as of March 18, 2005.

                       DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Proxy Statement for the Annual Meeting of Stockholders (the
"Proxy Statement") to be held on June 9, 2005, and to be filed within 120 days
after the registrant's fiscal year ended on December 31, 2004 are incorporated
by reference into Part III of this Report.

Transitional Small Business Disclosure Form (Check one):  Yes [ ];   No [X]
                                                             -----     -----

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                                      INDEX

PART I.
Item 1.     Description of Business                                           1
Item 2.     Description of Property                                           8
Item 3.     Legal Proceedings                                                 8
Item 4.     Submission of Matters to a Vote of Security Holders              10

PART II.
Item 5.     Market for Common Equity and Related Stockholder Matters         11
Item 6.     Management's Discussion and Analysis of Financial Condition
            and Results of Operations                                        12
Item 7.     Financial Statements                                             23
Item 8.     Changes In and Disagreements with Accountants on Accounting
            and Financial Disclosure                                         23
Item 8A.    Controls and Procedures                                          24
Item 8B.    Other Information                                                25

PART III.
Item 9.     Directors, Executive Officers, Promoters and Control Persons;
            Compliance With Section 16(a) of the Exchange Act                26
Item 10.    Executive Compensation                                           26
Item 11.    Security Ownership of Certain Beneficial Owners and Management   26
Item 12.    Certain Relationships and Related Transaction                    26
Item 13.    Exhibits                                                         27
Item 14.    Principal Accountant Fees and Services                           27


<PAGE>

                                     PART I

ITEM 1.  DESCRIPTION OF BUSINESS.

GENERAL

LoyaltyPoint, Inc. (the "Company") is a holding company for merchant, school,
and nonprofit loyalty marketing programs. The Company markets loyalty programs
that generate contributions to schools and nonprofits based upon supporter
purchases through hundreds of online, store, catalog and stored-value (gift)
card merchant participants. Our vision is to provide a one-stop shop for schools
and nonprofits to enroll in year-round nontraditional fundraising utilizing
everyday shopping purchases. Our corporate headquarters is based in the Atlanta,
Georgia area; we also maintain two offices in Northern California and a
fulfillment center in Norcross, Georgia.

OUR HISTORY

The Company initially operated in the real estate sector. In 1999, the Company
engaged in a reverse merger with BarPoint.com, Inc., a Florida corporation, and
changed its name to that of the Florida corporation. Through 2002, BarPoint.com
developed and obtained patents for wireless Internet software with applications
for online shopping. Revenue from this business was limited and decreased
through 2002. In 2003, this business generated no revenue and we began searching
to acquire another business.

Effective on February 18, 2004, the Company acquired FUNDever, Inc., a Delaware
corporation ("FUNDever"), in a reverse merger transaction issuing 68,249,976
shares of its common stock to FUNDever stockholders and certain noteholders.
Immediately prior to the merger, we paid a cash dividend to our stockholders of
approximately $0.05 per share and a stock dividend of approximately 0.429 shares
of common stock for each share held of record immediately prior to the effective
date of the merger. Additionally, we declared a second cash dividend payable to
stockholders of record prior to the merger of approximately $0.03 per share,
which we paid in August 2004. See Item 7. Note 8 to "Consolidated Financial
Statements." Following the merger, FUNDever stockholders owned approximately
71.9% of our common stock.

In connection with the merger, all of the officers and all but one of the
directors resigned. Mr. Leigh Rothschild remained as a director and appointed
Mr. Paul Robinson as a second director. Effective on or about April 11, 2004,
Messrs. Stephen Avalone and Robert Scellato became directors of the Company.
Effective in August 2004 Mr. Rothschild resigned as a director of the Company.
Our new management team consists of Mr. Paul Robinson, chairman, president and
chief executive officer; Mr. Jeffrey S. Benjamin, chief financial officer; and
Mr. Stephen Avalone, secretary, director and chief marketing officer. The
seasoned management team brings entrepreneurial, technology, and general
management experience in the education, software, and technology arenas, with an
emphasis on sales, marketing, and rapid-growth businesses. See Item 9.
"Directors, Executive Officers, Promoters and Control Persons; Compliance with
Section 16(a) of the Exchange Act."


<PAGE>

FUNDever commenced operations in April 2002, with a focus on nontraditional
fundraising programs, targeting approximately 88,000 elementary and middle
schools in the United States. In 2003, FUNDever experienced growth in its Learn
& Earn program and consummated three acquisitions, positioning FUNDever as a top
nontraditional fundraising company for schools and nonprofits in the United
States. Each of these acquisitions added significant new school, customer and
merchant relationships.

The most significant acquisition was our July 2003 merger with Schoolpop, Inc.
("Schoolpop"), based in Menlo Park, CA. Pursuant to the merger, Schoolpop became
a wholly-owned subsidiary of FUNDever. Under the terms of the merger agreement,
Schoolpop's stockholders received as merger consideration approximately
$13,000,000 cash, a convertible promissory note in the principal amount of
$1,055,000 (convertible into new Series B preferred stock of FUNDever in an
amount equal to 27% of all issued and outstanding shares of capital stock of
FUNDever) and also received a five-year contingent earn-out ranging from 6% to
10% of net revenue generated from specified schools and business lines, not to
exceed $32,000,000. Approximately $12,789,815 of the merger consideration came
from Schoolpop's existing cash. The convertible promissory note was subsequently
amended to be convertible immediately before the merger between FUNDever and the
Company into common stock of FUNDever in an amount equal to 17% of all issued
and outstanding shares of capital stock of the Company. As a result of the
merger between FUNDever and the Company, the convertible promissory note was
converted and the note holders received an aggregate of 16,133,000 shares of the
Company.

By the end of 2003, between FUNDever and its combined acquisitions, thousands of
schools and nonprofits had enrolled in FUNDever's support programs. FUNDever
rolled this combination into one portfolio and labeled its offering Year-Round
Nontraditional Fundraising.

In January 2004, Schoolpop completed an asset acquisition, further penetrating
the school and nonprofit market. It acquired certain assets and assumed certain
liabilities of The National Scrip Center, Inc. ("NSC"), the Santa Rosa,
California-based nonprofit company that founded the scrip industry in 1988.
Pursuant to the purchase, Schoolpop agreed to pay approximately $200,000 in
cash, subject to offsets of certain undisclosed liabilities and contingencies,
agreed to a five-year contingent earn-out consisting of 2% of net revenue
generated from specified customers and agreed to assume approximately $1,266,000
owed to certain nonprofit creditors of NSC and approximately $244,166 owed for
computer software and hardware. The preceding consideration is subject to
further adjustment based upon the ascertainment of revised figures and facts
regarding the on-going business. Subject to 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. We did not
agree to assume liabilities to trade vendors or any other creditors of NSC.

In June 2004, we entered the back-to-school supply business through the
acquisition of assets from One Stop School Shop, Inc. ("One Stop"), a provider
of school supplies in which sales of the supplies generate funds for schools,
targeting parents of school children. We paid: (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 school supply sales to be paid in cash and common stock
of the Company. For the year ended December 31,2004, there was no net profit
from the school supplies business; as a result no earnout was due for the
period.

                                       2

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In September 2004, the Company, through a wholly-owned subsidiary, acquired the
assets of Your Auction Stop, LLC, a provider of auction services for consigned
merchandise through eBay, which also handled auction related services of our
Auction & Earn program. Terms of the asset purchase agreement included: (i)
$25,000 cash; (ii) the issuance of a $75,000 note payable; (iii) 588,235 shares
of common stock of the Company; (iv) assumption of $40,626 of debt; and (v) the
cancellation of money owed to the Company in the amount of $62,582. Two of our
executive officers and directors, Messrs Paul Robinson and Stephen Avalone, were
principal owners of the seller. The consideration received by Your Auction Stop,
LLC was allocated such that Messrs Robinson and Avalone did not receive shares
of common stock of the Company but received cash payments of approximately
$18,375 and $10,938, respectively, during the year ended December 31, 2004.
Messrs. Robinson and Avalone will receive their remaining allocable shares of
the note payable in 2005 in the amount of $23,625 and $14,063, respectively. For
information concerning our 2004 acquisitions, see Note 11 to "Consolidated
Financial Statements."

OUR STRATEGY

The Company's corporate objective is to enhance stockholder value by growing
revenue, increasing margins, providing earnings and positive cash flow.

To accomplish this objective the Company is changing the way schools and
nonprofits raise money by changing the way parents and supporters make
contributions. Traditional fundraising depends on students and parents selling
commodities (such as candy, trinkets etc.) to multiple purchasers such as
neighbors and friends. From this selling, schools and nonprofits earn a
percentage of the retail price.

The Company's innovative approach is to leverage each parent's or supporter's
buying power through their everyday purchases made from the Company's hundreds
of name brand merchant participants. Each one of these everyday purchases
contributes a percentage at no additional cost to the supporter to their school
or nonprofit. In turn, the merchant receives loyal customers that will shop at
their stores to support their school or nonprofit.

To further differentiate the Company's offering in the market, the Company is
providing these "nontraditional fundraising" programs in a suite of synergistic
"everyday shopping" programs that adhere to four main value propositions:

     1.   Programs that leverage the upfront "get the word out" effort by
          generating year-round, recurring revenue streams for schools and
          nonprofits

     2.   Offering supporters and parents "everyday" essential products they
          would normally purchase in the course of shopping for their families

     3.   Providing these products at or below retail pricing by leveraging our
          merchant participants

     4.   Delivering these programs to the schools or nonprofits in a suite that
          is synergistic, easy to launch and hassle free to administer. As a
          result of this approach, the school or nonprofit focuses its time and
          efforts on increasing participation with parents and supporters and
          spends little time managing the program operations.

                                       3
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In order to execute, we intend to: COMPLETE OUR PROGRAM OFFERINGS, BUILD OUR
CUSTOMER BASE AND INCREASE OUR TECHNOLOGY COMPETENCIES.

WE EXPECT TO ACHIEVE GROWTH ORGANICALLY THROUGH MARKETING AND SALES AND
ACCELERATE GROWTH POSSIBLY THROUGH ACQUISITIONS.

Our acquisition strategy is to acquire:

     o    new synergistic programs that can be sold into existing or
          complimentary vertical markets;

     o    incremental revenue streams through similar existing programs that
          require no additional overhead; and

     o    complementary technology assets that enhance our technology platform
          and enhance our ability to deliver our products and services more
          effectively and efficiently.

DEVELOPMENT OF BUSINESS

Following its organization in 2002, FUNDever began test marketing of its
educational software business. It also developed its basic business model,
including the four value propositions described below under "Our Markets." In
2003 and 2004, FUNDever implemented its business strategy and completed the
acquisitions referred to above, which now constitute the business of the
Company.

OUR MARKETS

Our primary market is the approximately 88,000 elementary and middle schools in
the United States, from which we have identified an estimated $6.9 billion
addressable market opportunity. We identify this market as the nontraditional
fundraising market. Schools are facing record budget deficits and are looking
for incremental, easy to run, but financially significant funding programs to
complement or replace traditional fundraising mechanisms. Our primary
competitors are traditional fundraising programs which offer cookie dough,
candy, novelties, jewelry and gift wrap that require students, parents, and
supporters to sell and deliver products and use the schools as the primary cash
handling, inventory management, distribution and customer service vehicle.

A secondary addressable market opportunity exists with nonprofits, which are
facing similar budget cuts and volunteer constraints.




                                       4
<PAGE>

OUR PROGRAMS

The Company's nontraditional fundraising programs consist of the following:

Scrip & Earn. This is the Company's year-round offline shopping program. This
program offers cash-equivalent gift cards, gift certificates and stored value
purchase cards (collectively, "SVPs" or "scrip") that parents and supporters buy
from schools or nonprofits and use in their daily purchases (groceries, gas
stations, pharmacies, etc.). By using scrip instead of other payment methods,
supporters earn a varying contribution percentage for their school or nonprofit.
We purchase the scrip at a discount from face value direct from merchants, and
then sell it to schools and nonprofits at a slight mark-up. In turn, the schools
and nonprofits sell the scrip to parents and supporters at face value, earning
the difference. We believe the merchants primarily participate in order to build
loyalty by supporting causes important to their customers.

Our Scrip & Earn product offering includes a multi-merchant card provided by
American Express Incentive Services, LLP ("AEIS"). This is the Persona Select
card which is accepted at approximately 120 brand-name merchants as a gift card.
We have the exclusive rights to this card for the nonprofit market. In 2004 we
had additional products available to sell through our reseller agreement with
AEIS. Those products included Encompass Select, Fill it Up and Be My Guest. As
the result of an amendment to our reseller agreement which was finalized on
April 5, 2005, we will be focusing all of our sales effort on the Persona Select
card. (See "Liquidity and Capital Resources" section of MD&A for further
discussion).

Revenue from our scrip business is high in relation to our other revenue
sources, however, the gross margins are very low. Our business is focused on
selling scrip of AEIS and approximately 150 other merchants. We have limited our
merchant offerings in order to improve operating efficiencies and inventory
management. The impact of limiting our merchant offerings will be that our
anticipated revenue will be lower than the historical revenue generated from the
assets we acquired from NSC in January 2004. We anticipate that this scrip
revenue will increase in the long-term.

Shop & Earn. This is the Company's flagship online and offline, non-scrip
offering, which lets parents and supporters purchase goods from brand name
merchant participants online, at stores, or from catalogs and earn a varying
contribution percentage back to the school or nonprofit of the person's choice.

Charge & Earn. A secondary shopping tool, a special private label Chase Visa(TM)
card, allows purchasers to contribute one percent from every purchase placed on
the card, and also provides a one-time activation bonus to the school or
nonprofit of their choice. Additionally, as shoppers use their Schoolpop
registered cards at participating merchant stores, the merchant contributes a
varying percentage back to the school or nonprofit.

Learn & Earn. which includes discounted educational software, magazines and
books. This program is offered online with offline supplements such as flyers.
The school or nonprofit receives 25%-40% of the selling price, depending on the
product purchased.

                                       5

<PAGE>

Supply & Earn. This is the program we anticipate to have the largest margins and
is the "must have" program for the spring/summer season. It too provides
contributions to schools. Typically, students returning to school are required
to purchase supplies dictated by a teacher prepared list of required items.
Parents typically obtain a list of specific supplies from the teacher and shop
at multiple stores to purchase the products on the required list. Challenges to
this approach include finding the specified products, the unavailability of some
items, long lines and other shopping hassles. Schoolpop's Supply & Earn program
will address these issues by providing the exact kits and products on the
teacher lists and will customize the kits according to each school's
requirements on all grade levels. We market and sell this program throughout the
year, while the program launches and orders are received during the months of
March through June. These kits will be packaged and shipped directly to
student's home prior to the beginning of the school year. Our unique business
model leverages the inventory, operations and logistics expertise of a major
supply wholesaler so that the business will be fully scalable and will allow us
to service a nationwide customer base effectively and efficiently. Most
importantly, products will be sold at competitive prices equating to retail or
below and the schools will receive a contribution equal to 10% of the purchases
made by the students in their schools who participate in the program. We are
currently negotiating a large purchase order from a major supermarket chain to
purchase our school supply kits. Each kit sold by the chain would contain an
insert to be completed by the kit purchaser to direct the Company to issue a
payment to the school they choose representing a contribution in the amount of
10% of the purchase price of the kit.

Auction & Earn. This program is run in conjunction with eBay and allows parents
and supporters to donate potentially valuable goods (at least $50 in value) and
bring them to their school or nonprofit on "Auction Drop-Off Day." The donor
receives a tax deduction form, and we clean, photograph, and list the item on
eBay, manage the process and ship the item after sale. Post-sale, we pay up to
50% of the selling price to the donor's school or nonprofit.

SALES AND MARKETING

The primary distribution vehicle for these offerings is our telephone sales
staff. The Company utilizes an inside sales team based at our Atlanta area
headquarters, calling on an existing base of approximately 8,000 of our most
active school and nonprofit clients. The primary objective is to leverage
existing relationships with schools that are currently Shop & Earn customers and
cross-sell to the existing school "champions," typically parent volunteers,
additional programs. By doing so we can significantly increase the earning power
of participating organizations. This makes our programs more meaningful and
commands more attention from the participants as we increase our offerings.
Secondary distribution includes partner selling, telemarketing and a direct
sales force as well as direct marketing via email, direct mail, advertising and
partner marketing. Our products and services can be purchased via an online
shopping site at WWW.SCHOOLPOP.COM and also through catalogs and from merchant
stores.

COMPETITION

Our product selection is categorized as nontraditional fundraising which
includes new and innovative programs and is comprised of a cross section of the
three types of school and nonprofit fundraising described below. Our competition
consists of companies operating in these three primary segments of the school
and nonprofit fundraising market.

                                       6

<PAGE>

Product Fundraising. This includes cookie dough, candy, novelties, jewelry, gift
wrap, school supplies, software and magazines. We compete aggressively in the
supplies business offering an innovative alternative to resource-intensive
traditional supply programs and have an offering in software and magazines which
are offered bundled together at a discounted price, effectively differentiating
ourselves from individual product sales. In the supplies market we compete based
on our unique distribution model, product brands and quality, the customization
of supply kits by school and grade level as well as by shipping those kits
directly to the student's homes. Scalability is derived from a unique
relationship with a top supplies wholesaler. Products are name brand, top
quality and are sold at or below retail prices found at retail supply stores.
Primary competitors in this market are SchoolKidz and EPI. Other competitors
include QSP, Great American, IFS, Sally Foster, Innisbrook Wraps as well as
additional competition from national discount chains, supermarkets, drug stores
and office supply chains that sell similar products.

Community Event Fundraising. This arena includes auctions, book-fairs, bake
sales, school fairs, community dinners as well as other events. We compete in
the auction business with our Auction & Earn program. Our program uses schools
as the primary item drop off location and then, utilizing pre-printed shipping
labels we provide, ships the items to our Norcross, Georgia fulfillment center.
Typically our competitors build or lease retail space and ask supporters to drop
the items off at the location. Competitors include Auction Drop and Door to Door
Auctions.

Shopping-Based Fundraising. This includes credit card contributions, online
shopping, and scrip or SVPs. In the credit card rebate market, we offer a
private-label Chase Visa(TM) card under the Schoolpop brand, as previously
described. In the online shopping market, Schoolpop offers a robust, easy to use
shopping engine with access to over 380 brand-name merchants. In the scrip or
SVP program, we are the exclusive carrier of the AEIS Persona Select card,
offering variable contributions for everyday purchases from AEIS merchants.
Other merchant-specific SVP offerings include Starbuck's, Home Depot,
Blockbuster, and other brand-name, everyday shopping options. Principal
competitors in this category include boxtops4education.com, managed by General
Mills, schoolmall.com, schoolshare.com, and iGive.com. In the scrip market,
primary competitors include Great Lakes Scrip and Scrip Advantage.

INTELLECTUAL PROPERTY

One of the attractive elements of our merger with FUNDever was our four existing
United States patents. We have not used any of these patents in our business and
on April 11, 2005, we sold the patents to NeoMedia Technologies, Inc. for
$1,500,000 in cash plus royalties in the amount of 10% of the licensing fees
generated by the purchaser during the next 10 years. As additional consideration
for the sale, we retained the right to use the patents for our own use.

Our registered trademarks include Schoolpop, Technology 4 Kids Learn & Earn and
You're Going to Buy Stuff Anyway...Make it Count. We have used the phrases Shop
& Earn, Charge & Earn, Supply & Earn and Scrip & Earn and intend to apply for
trademarks and servicemarks for them.

                                       7

<PAGE>

EMPLOYEES

We currently have 42 full-time employees, 13 of which are sales staff, seven of
whom are customer service staff, and the remainder are administrative and
technology staff.

ITEM 2.  DESCRIPTION OF PROPERTY.

Our corporate headquarters are located in Duluth, Georgia, a suburb of Atlanta.
We lease approximately 6,238 square feet of space in a five story office
building, under a lease which expires in January 2010. The monthly cost is
$9,357. Our auction warehouse facility is located in Norcross, Georgia and also
acts as our scrip fulfillment center. There we lease approximately 6,000 square
feet in a one-story office strip center at a cost of approximately $3,250 per
month, which expires in February 2007. The Company also leases two separate
office spaces in California for the technology staff and for the scrip customer
service business. The technology staff, located in Redwood City, California,
currently uses approximately 1,156 square feet of office space in a single-story
office complex, under a lease which expires September 2006, with a monthly cost
of $1,329. The scrip customer service operation, located in Santa Rosa,
California, uses approximately 2,367 square feet of office space in a
single-story office complex, under a lease which expires in April 2006. The
monthly cost is $2,600. All of the offices we lease are in good condition. Upon
expiration of the leases, we do not anticipate any difficulties in renewing any
of the leases or obtaining new space without material increases in our cost.

ITEM 3.  LEGAL PROCEEDINGS.

Albertson's Inc. ("Albertson's") filed an action against Schoolpop on October
31, 2003 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, of which $20,000 was paid upon execution of
the final settlement agreement in August 2004, and $5,000 being paid monthly
over 56 months. 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. As of December 31, 2004,
$260,000 was due to Albertson's. Recovery through nonpayment of the earn-out
provision is recognized as the earn-out is expensed and as of December 31, 2004,
$119,540 in recovery had been recognized.

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. On April 1, 2005, Honey Baked
Ham notified Schoolpop of its intention to amend its complaint to add a claim
under the California Bulk Sales Law. 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 that the California
Bulk Sales Law does not apply to the transaction. Management believes that

                                       8

<PAGE>

Schoolpop should not be held liable for the obligations of NSC to the
plaintiffs. A mediation conference is scheduled for April 2005. Management
cannot predict the potential outcome of the mediation conference or the action
and therefore, no accrual for this potential liability has been recorded in
these consolidated financial statements.

In March 2004, The Cheesecake Factory Restaurants, Inc. ("Cheesecake Factory")
filed an action against Schoolpop alleging that Schoolpop was liable for a
contractual obligation of NSC to Cheesecake Factory in the approximate amount of
$40,000. 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. Schoolpop settled the action for a nominal amount in
November 2004 without an admission of liability.

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, resulting
from her husband's fatal automobile accident. 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, since Mr.
Doherty's automobile accident was alcohol-related. However, the plaintiff
contends that the exclusion should not apply because the plaintiff's husband was
not provided with a summary plan description setting forth the felony acts
exclusion. Schoolpop was dismissed with prejudice as a party to the action in
October 2004.

Standard Insurance Company ("Standard") was Schoolpop's insurance carrier who is
also a defendant in the action by Ms. Doherty. Standard has not been dismissed.
On March 22, 2005, Standard filed a third-party complaint against Schoolpop for
violation of ERISA and breach of contract. Schoolpop has not yet been served
with the complaint. Standard's complaint alleges that Schoolpop failed to
provide the plaintiff's husband with the summary plan description setting forth
the felony acts exclusion. Standard's claim is based on Schoolpop's status as
designated ERISA plan administrator and on Standard's interpretation of a
purported indemnification clause in the plan policy. Standard's complaint seeks
indemnification by Schoolpop against damages arising from Schoolpop's alleged
failure to provide notice of the felony acts exclusion to its chief executive
officer. Litigation counsel for the Company has advised the Company that it
believes the underlying claims are without merit since (i) the plaintiffs
husband, as chief executive officer of Schoolpop, should reasonably have been
aware of the felony acts exclusion; and (ii) there is no causation between any
failure by Schoolpop to provide the plaintiffs husband with a summary plan
description setting forth the felony acts exclusion and the damages suffered by
the plaintiffs husband. Because litigation counsel for the Company does not
believe liability is probable, no accrual for this potential liability has been
recorded in our consolidated financial statements. However, discovery on the
indemnity claim has not begun. Based on a preliminary analysis, it is possible
that Schoolpop could be found liable on the indemnity claim if it is found that
Schoolpop did not distribute Standard's summary plan description. If Schoolpop
is liable for indemnity, it would be liable at least for Standard's reasonable
attorneys' fees. We have no way of knowing what those fees would be at this
early stage of litigation.

                                       9

<PAGE>

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, including a bankruptcy
proceeding filed against NSC, has not yet fulfilled its agreement. We have been
in continuing discussions with the lender and hope to have the encumbrance
released. Litigation counsel to the Company has advised us that the lender
should not prevail should it attempt to enforce its security interest;
nevertheless, if the lender should attempt to enforce its security interest and
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. No
accrual for this potential liability has been recorded in our consolidated
financial statements as the chances of the lender seeking to enforce its
security interest or any potential recovery in seeking to enforce its security
interest would be remote.

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

         None










                                       10

<PAGE>

                                     PART II

ITEM 5.  MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.

MARKET INFORMATION

The following table sets forth, for the periods indicated, the range of
quarterly high and low sales prices for our common stock which trades on the
Over-the-Counter Bulletin Board under the symbol "LYLP." Prior to July 25, 2003,
our common stock traded on the Nasdaq Small Cap Market.


                                                   HIGH           LOW
                                                 --------      --------
FISCAL YEAR ENDING DECEMBER 31, 2004
First Quarter                                    $   0.39      $   0.12
Second Quarter                                       0.33          0.13
Third Quarter                                        0.28          0.14
Fourth Quarter                                       0.18          0.08
FISCAL YEAR ENDING DECEMBER 31, 2003
First Quarter                                    $   0.20      $   0.10
Second Quarter                                       0.37          0.11
Third Quarter                                        0.43          0.12
Fourth Quarter                                       0.25          0.13

HOLDERS

As of March 18, 2005, there were 268 holders of record of our common stock and
approximately 3,300 beneficial owners. In addition, there are three shares of
super voting Series A preferred stock outstanding that entitle the holder to
346,766 votes, which vote together with the common stock.

DIVIDEND POLICY

In connection with the FUNDever merger, the Company (i) paid a cash dividend to
the Company's stockholders of approximately $0.05 per share, (ii) paid a stock
dividend to the Company's stockholders of approximately 0.429 additional shares
per share of the Company's common stock, and (iii) declared a second cash
dividend to stockholders of approximately $0.03 per share which was paid in
August 2004.

Currently, we intend to retain future earnings in order to finance the growth
and development of our business and do not anticipate declaring dividends in the
foreseeable future.

SALES OF UNREGISTERED SECURITIES

During the year ended December 31, 2004, we issued the following shares of our
common stock which were not covered by an effective registration statement but
were exempt under Section 4(2) of the Securities Act of 1933. Issuances which
were included in previous quarterly reports on Form 10-QSB have not been
included.

In January and February 2004, the Company issued 19,143,284 shares of common
stock in exchange for loans outstanding, plus accrued interest, in the amount of
$1,763,513. Also in January 2004, the Company issued 216,152 shares of common
stock valued at $32,200 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 October 2004.

In June 2004, the Company issued 14,290 shares of common stock for proceeds of
$1,800 in connection with the exercise of stock options.

In June 2004, the Company issued 1,196,809 shares of common stock to One Stop
School Shop, Inc. in consideration for purchasing its assets.

In September 2004, the Company issued 588,235 shares of common stock to Your
Auction Stop, LLC. In consideration for purchasing its assets.

In August 2004, the Company reached agreements with two law firms to issue
153,846 shares of common stock, valued at $20,000, and 115,385 shares of common
stock, valued at $15,000, in lieu of cash payment due for services rendered.

                                       11

<PAGE>

In November 2004, we issued 659,244 shares of common stock in exchange for a
note payable, plus accrued interest, in the amount of $85,702.

PURCHASES OF EQUITY SECURITIES.

During the quarter ended December 31, 2004, we did not purchase any of our
equity securities, nor did any person or entity purchase any equity securities
on our behalf.

ITEM 6.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
         OF OPERATIONS.

The following discussion of our financial condition and results of operations
should be read in conjunction with the financial statements and related
footnotes included herein. This discussion contains forward-looking statements
which 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 and those contained in
"Risk Factors Relating to Our Business and Our Common Stock." We disclaim any
intention or obligation to publicly announce the results of any revisions to any
of the forward-looking statements contained herein to reflect future events or
developments.

OVERVIEW

From 1999 through 2003, we invented, developed and obtained patents for wireless
Internet software with applications for online shopping. Revenue from this
business was limited and decreased through 2002. In 2003, this business
generated no revenue. Pursuant the reverse merger in February 2004, our business
became that of FUNDever and discussion of the operating results for 2004 and
2003 and cash flow are those of FUNDever and its subsidiaries.

As explained in Note 1 to the 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 periods ended 2004 versus 2003. The table below reflects the
length of time each of our principal operating subsidiaries and business units
operated during the comparable 12-month periods ended December 31, 2004 and
2003.


                                       12

<PAGE>

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


                                                  ------------------------
                                                         Year Ended
                                                         December 31,
                                                  ------------------------
                                                     2004           2003
                                                     ----           ----
                  FUNDever                           12              12
                  Schoolpop                          12               5
                  Scrip Business                     11.7             0


Our primary revenue results from our sale of scrip which generates substantial
revenue but has very low margins. Since we purchased our scrip business in
January 2004, our revenue grew dramatically.

CRITICAL ACCOUNTING 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,
revenue 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. The following are our principal accounting estimates.

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. For the
12-months ended December 31, 2003, we recognized an impairment loss of $772,729
resulting from the Techonology4Kids, LLP asset purchase. See Note 1 to
"Consolidated Financial Statements."


                                       13

<PAGE>

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 Item 3
"Legal Proceedings."

In December 2004, the FASB issued Statement No. 123(R) which addresses the
accounting for share-based payment transactions (for example, stock options and
awards of restricted stock) in which an employer receives employee-services in
exchange for equity securities of the company or liabilities that are based on
the fair value of the company's equity securities. This proposal eliminates use
of APB Opinion No. 25, Accounting for Stock Issued to Employees, and requires
such transactions to be accounted for using a fair-value-based method and
recording compensation expense rather than optional pro forma disclosure. The
new standard substantially amends FASB Statement No. 123, Accounting for
Stock-Based Compensation. FASB Statement 123(R) is effective for financial
statements of small business issuers such as the Company in the first interim or
annual reporting period beginning after December 15, 2005. The Company may
reduce its reliance on issuing stock options and begin to use other stock based
compensation. The exact nature of future compensation awards will be determined
by our Compensation Committee. The Company has not determined what the potential
impact of adopting FASB Statement No. 123(R) will have on its future financial
position, results of operations or cash flows. We believe that adoption will
result in a change to earnings and therefore reduce net income or increase net
loss recognized in the financial statements of the Company. Although our
adoption of SFAS 123(R) may have a material impact on our financial position and
results of operations, we are still evaluating the potential impact from the
adoption of this statement. See Note 1 to Consolidated Financial Statements.

RESULTS OF OPERATIONS

The following table summarizes our results of operations as a percentage of net
revenue for the years ended December 31, 2004 and 2003:

<TABLE>
<CAPTION>
        (Amounts in thousands, except per share data)               December 31,
                                                     ------------------------------------------
                                                             2004                   2003
                                                     -------------------    -------------------
<S>                                                  <C>         <C>        <C>          <C>
        Net revenue                                  $ 64,743    100.0%     $  1,772     100.0%
        Gross profit                                    1,756      2.7%          715      40.3%
        Operating expenses                              8,665     13.4%        8,034     453.4%
                                                     --------   ------      --------   -------
        Net loss                                     $ (6,594)   (10.2)%    $ (7,850)   (443.0)%
                                                     ========   ======      ========   =======
        Loss per share, basic and diluted            $  (0.10)              $  (0.27)
                                                     ========               ========
</TABLE>

Revenues
--------

Our revenue for the year ended December 31, 2004, was $64,743,945 compared to
revenue of $1,772,249 for the same period in 2003. This increase is primarily
attributable to Schoolpop's acquisition of assets from NSC on January 9, 2004,
which accounted for approximately 95% of our revenue during the year ended
December 31, 2004.

                                       14

<PAGE>


Cost of Revenues
----------------

Our cost of revenues for the year ended December 31, 2004, was $62,988,028
compared to $1,056,862 for the same period 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 revenues, than our
other businesses. The scrip business gross margin for the period ended December
31, 2004 was approximately 1.43%, compared to the Company's other product lines,
which averaged approximately 42%.

Operating Expenses
------------------

Our operating expenses for the years ended December 31, 2004 and 2003 were
$8,664,797 and $8,033,602, respectively, an increase of $631,195 or 8%. The
primary reasons for this were an increase in salaries of $1,817,801 and an
increase in selling, general and administrative expenses of $ $1,775,215. Both
of these increases were a result of the acquisitions completed during 2004 and
the merger and related SEC filing requirements of becoming a publicly-reporting
company, which led to an increase in staffing levels, an increase in overhead
related to the staffing levels, and an increase in legal and accounting fees.

These increases were partially offset by a decrease in stock based compensation
of $2,367,172 or 59%, from $4,014,013 in 2003 to $1,646,841 in 2004. In 2003,
FUNDever issued stock grants and bonuses 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 years ended December 31, 2004 and 2003, depreciation and amortization
expense increased by $178,080, or 84%, to $390,730 from $212,650. This is due to
the additions to fixed and intangible assets associated with the 2003
acquisitions, and those results being included for a full 12 months in 2004.

Other Income (Expense)
----------------------

The Company recognized $315,101 in other income during the year ended December
31, 2004, compared to other expense of $531,559 recognized in 2003. The largest
component of other income was the extinguishment or expiration of certain
liabilities totaling $421,122. 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 on the sale of equipment of $45,714, a loss of $130,647
recognized on the sale of marketable securities and by interest expense, net.
Interest expense, net for the year ended December 31, 2004 was $154,660, a
$382,287, or 71%, decrease from the $536,947 for 2003. This is a result of the
reduction in notes payable of $1,459,753, due primarily to our ability to
convert approximately $1,767,000 of notes payable to common stock, and a
reduction of deferred debt issuance costs from $410,820 recognized in 2003,
compared to $31,535 recognized in 2004.

                                       15

<PAGE>

Net Loss
--------

Our net loss for the year ended December 31, 2004 was $6,593,779 compared to
$7,849,774 for the same period in 2003, a decrease of $1,255,995, or 16%. The
decrease in the net loss was attributable to an increase in gross profit of
$1,040,530, partially offset by the increase in operating expenses of $631,195,
and the increase in other income (expense) of $846,660 described in the
paragraph above.

LIQUIDITY AND CAPITAL RESOURCES

For the year ended December 31, 2004, we used $3,672,148 in cash for operations
compared to $1,577,775 for the same period in 2003, an increase of $2,094,373 or
133%. The year over year change is primarily attributable to the use of
non-cash, stock based compensation in 2003 being replaced by salaries in 2004.

For the year ended December 31, 2004, net cash provided by investing activities
was $696,995 compared to $87,565 for the corresponding period in 2003. The
purchase of fixed assets and additions to leasehold improvements used $92,349 in
2004, while the acquisition of assets used $50,000. See Note 11 to the
"Consolidated Financial Statements." These uses were offset in 2004 by $629,617
in cash received in the FUNDever merger and $209,727 in net proceeds from the
sale of marketable equity securities.

For the year ended December 31, 2004, net cash provided by financing activities
was $3,817,086 compared to $1,725,303 in the same period for 2003, an increase
of 121%. Net proceeds from the issuance of Series B preferred stock in 2004 were
$3,906,924, partially offset by the net payments on loans and capital leases of
$91,638. See Note 7 and Note 8 to the "Consolidated Financial Statements."

We have historically generated insufficient cash flow from operations to cover
operating expenses. We have raised additional capital through commercial bank
loans and private investors in order to meet our operating capital needs. We
have also been able to obtain capital through the acquisition of companies and
assuming the cash and cash equivalent balances of those companies. The Company
gives no assurances that it will be able to obtain adequate capital resources in
the future on acceptable terms and conditions.

At April 11, 2005, we had approximately $1,966,000 in cash, which is
approximately $ 885,000 more than at December 31, 2004. This increase in cash on
hand is attributable to the sale of our patents for $1,500,000 in cash.

We currently have an existing revolving credit facility with Shelby County Bank
in the amount of $860,000, of which approximately $270,000 is available to draw.
The line bears interest at the floating rate of prime plus 0.5% per annum, and
is payable on demand, and, if no demand is made, then monthly payments of
accrued interest. The line of credit expires in May 2005. This credit facility
is secured by all of LoyaltyPoint's accounts receivable, inventory and
equipment. Messrs. Paul Robinson, our Chief Executive Officer and Chairman of
our board of directors, Stephen Avalone, our Chief Marketing Officer and a

                                       16

<PAGE>

director, and Robert Scellato, a director, have guaranteed the line of credit.
Upon resolution by our board of directors, $430,000, including the approximately
$270,000 currently available of the line, may be used only to finance our
purchase of scrip inventory. There is no assurance that this line of credit will
be renewed or extended in May 2005, which would place the Company in default of
this debt and would limit our ability to secure scrip inventory.

We also have a term loan outstanding, in the amount of $1,000,200, payable to
Mr. Scellato. This loan bears interest at the floating rate of prime plus 1.5%
per annum. We make monthly payments of accrued interest only, with the principal
balance due in quarterly installments of $250,000, plus interest, beginning in
March 2006. The loan is secured by all of Schoolpop's inventory, chattel paper,
accounts, equipment and general intangibles. See Item 9. "Certain Relationships
and Related Transactions."

In connection with the acquisition of assets from Schoolcash (see Note 11 to the
Consolidated Financial Statements) we issued a $250,000 note payable to the
sellers secured by all of FUNDever's assets. This loan bears interest at 12% per
annum. Principal and accrued interest due under this note is payable in 23
monthly installments, beginning with 7 monthly installments of $6,000, including
interest, starting in November 2004, and then monthly installments of $16,010,
including interest, for the remaining 16 months.

In connection with the acquisition of assets from NSC, we initially agreed to
pay the sellers $200,000 three days after closing. However, this payment is
subject to offsets, pursuant to the asset purchase agreement, and payments have
been delayed until a full measurement of the offsets can be determined. We also
agreed with NSC to attempt to satisfy certain obligations to schools and
nonprofits, however, that obligation has been satisfied in part and the
remainder has expired. We are uncertain of the impact of the NSC bankruptcy
proceedings.

Pursuant to our exclusive reseller agreement with AEIS, we were required to pay
a total of $1,250,000 over a five year period commencing March 15, 2005.
However, on April 5, 2005 we amended our reseller agreement with AEIS which
reduced the $1,250,000 exclusivity fee to $125,000 paid in nine monthly
installments beginning April 30, 2005, and limited our product offering to the
"Persona Select" card.

As described below, under "Going Concern Qualification", our financial
statements have been prepared on a going concern basis. Our plan of operation is
described there as well. As we discuss above, excluding the one-time receipt of
$1,500,000 from our sale of our patents, our liquidity has further eroded since
December 31, 2004 as our cash balances have shrunk and we have borrowed
additionally under our line of credit. A key aspect of our plan is to generate
more higher margin business. In line with that goal, we are currently
negotiating the terms of a large purchase order from a major supermarket chain
for the sale of school supplies.

As discussed in Item 3. "Legal Proceedings," we are engaged in litigation which
could have a material adverse effect upon our future liquidity.

By December 31, 2006, we will be required to comply with Section 404 of the
Sarbanes-Oxley Act of 2002. We expect to incur material costs in 2006 in meeting
this requirement.

                                       17

<PAGE>

Historically, the Company's largest capital expenditures have been for computer
and networking equipment; software licenses and software development; and the
installation and implementation costs associated with this equipment and
software. Due to the amounts that have been invested by the former management of
the companies that have been acquired, we do not anticipate any material capital
expenditures in the foreseeable future.

OFF-BALANCE SHEET COMMITMENTS

In the NSC transaction, we also agreed to pay in the form of credits toward
future orders approximately $1,266,000 to schools and nonprofits. Our agreement
to assume these liabilities contemplated a continuation of continued scrip
business from these customers. Following the NSC acquisition, we learned that
many of the schools and nonprofits ceased purchasing NSC scrip, while others
purchased only AEIS products. We engaged in discussions with the schools and
nonprofits previously serviced by NSC offering to provide a credit to them in
exchange for future business. We are uncertain of the full extent to which we
will be successful in this regard.

Pursuant to the acquisitions completed in 2003 and 2004, we have entered into
earn-out agreements with the respective sellers which obligate the Company to
make payments to the sellers, based upon a certain percentage of future revenue
or profitability. Under GAAP, the payments associated with the earn-outs are
recognized as a current period expense when earned, or as an addition to the
purchase price, depending on the circumstances. There are no minimum amounts
associated with the earn-outs, so if the businesses fail to generate any future
revenue, then we would be under no obligation to make any payments to the
sellers.

NEW ACCOUNTING PRONOUNCEMENTS

In December 2004, the FASB issued Statement No. 153, Exchanges of Nonmonetary
Assets an amendment of APB No. 29. This Statement amends Opinion 29 to eliminate
the exception for nonmonetary exchanges of similar productive assets and
replaces it with a general exception for exchanges of nonmonetary assets that do
not have commercial substance. The Statement specifies that a nonmonetary
exchange has commercial substance if the future cash flows of the entity are
expected to change significantly as a result of the exchange. This Statement is
effective for nonmonetary asset exchanges occurring in fiscal periods beginning
after June 15, 2005. Earlier application is permitted for nonmonetary asset
exchanges occurring in fiscal periods beginning after the date this Statement is
issued. Retroactive application is not permitted. Management believes that its
adoption will not have any significant impact on the Company's financial
position, results of operations or cash flows.

In December 2004, the FASB issued Statement No. 123(R) which addresses the
accounting for stock-based payment transactions in which an employer receives
employee-services in exchange for equity securities of the company or
liabilities that are based on the fair value of the company's equity securities.
This standard eliminates use of APB 25 and requires such transactions to be
accounted for using a fair-value-based method and recording compensation expense
rather than optional pro forma disclosure. The new standard substantially amends
FASB Statement No. 123, Accounting for Stock-Based Compensation. FASB Statement

                                       18

<PAGE>

123(R) is effective for financial statements of small business issuers such as
the Company in the first interim or annual reporting period beginning after
December 15, 2005. Pro forma disclosures regarding the effect on the Company's
net loss and loss per common share in 2004 and 2003, had the Company applied the
fair value method of accounting or share-based compensation as prescribed by
SFAS123, are contained in the "Stock-based compensation" section of Note 1.

GOING CONCERN QUALIFICATION

The financial statements of the Company for the years ended December 31, 2004
and 2003 were prepared on the going-concern basis. For the years ended December
31, 2004 and 2003, the Company incurred net losses of $6,593,779 and $7,849,774,
respectively, had a working capital deficit of approximately $1,923,000 at
December 31, 2004, and had a stockholders' equity deficiency of approximately
$983,000 at December 31, 2004. These factors raise substantial doubt about the
ability of the Company to continue as a going concern. Management believes that
it will generate working capital sufficient to remain operational by emphasizing
generating revenue from higher margin products and that it can obtain additional
financing if necessary, although such financing will be very dilutive to
existing stockholders. There can be no assurances that the Company will be
successful in meeting these objectives. The financial statements do not include
any adjustments relating to the recoverability and classification of recorded
assets, or the amounts and classification of liabilities that might be necessary
in the event the Company cannot continue in existence.

FORWARD-LOOKING STATEMENTS

This Report contains forward-looking statements within the meaning of the
Private Securities Litigation Reform Act of 1995 relating to our strategy
including the consummation of additional acquisitions, modifications to the NSC
and the AEIS agreements, our future scrip revenue, outcome of our pending
litigation, our liquidity, our achieving positive cash flow and obtaining future
financing. 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, raising of additional capital, the future price of our stock, the
Company's ability to integrate its technology into its business model, its
ability to manage its anticipated growth, resolving contractual issues and its
ability to maintain its intellectual property. Further information on the
Company's risk factors is or will be contained in the Company's other filings
with the Securities and Exchange Commission.

RISK FACTORS RELATING TO OUR BUSINESS AND OUR COMMON STOCK

Investing in our common stock involves a high degree of risk. These risk factors
include the following as well as those contained above.

                                       19

<PAGE>

WE HAVE INCURRED SUBSTANTIAL LOSSES AND EXPECT TO CONTINUE TO INCUR LOSSES. WE
WILL NOT BE SUCCESSFUL UNLESS WE REVERSE THIS TREND.

We have incurred losses in every year since our inception. As of December 31,
2004, we had an accumulated deficit of $18,863,016. Although we expect to
generate positive cash flow from operations in the future, there are no
assurances we will meet this expectation. Unless we generate profitable
operations, we may not be successful and your investment could be lost.

IF WE FAIL TO RAISE ADDITIONAL CAPITAL, WE MAY NOT BE ABLE TO SUSTAIN OUR
CURRENT OPERATIONS.

The Company has historically generated losses from operations and may require
additional funding in the future to maintain the operations. There are no
assurances that we will be able to do so depending on market and other
conditions. If we are unsuccessful, the Company may not be able to sustain
operations.

A SIGNIFICANT PORTION OF OUR GROWTH HAS COME FROM ACQUISITIONS, AND WE PLAN TO
MAKE MORE ACQUISITIONS IN THE FUTURE AS PART OF OUR CONTINUING GROWTH STRATEGY.
THIS GROWTH STRATEGY SUBJECTS US TO NUMEROUS RISKS.

Our business strategy relies heavily on acquiring complementary business.
Acquisitions require significant capital resources and divert management's
attention from our existing business. Acquisitions also entail an inherent risk
that we could become subject to contingent or other liabilities, including
liabilities arising from events or conduct pre-dating our acquisition of a
business that were not known to us at the time of acquisition. We may also incur
significantly greater expenditures in integrating an acquired business than we
had anticipated at the time of its purchase. In addition, acquisitions may
create unanticipated tax and accounting problems, including the possibility that
we might be required to write-off goodwill which we have paid for in connection
with an acquisition. Additionally, we have not retained senior management from
companies we acquired, which may create difficulties in retaining business
relationships. Our failure to successfully accomplish future acquisitions or to
manage and integrate completed or future acquisitions could have a material
adverse effect on our business, financial condition or results of operations. We
cannot assure you that:

     o    We will identify suitable acquisition candidates;

     o    We can consummate acquisitions on acceptable terms;

     o    We can successfully integrate any acquired business into our
          operations or successfully manage the operations of any acquired
          business; or

     o    We will be able to retain an acquired company's significant client
          relationships, goodwill and key personnel or otherwise realize the
          intended benefits of any acquisition.

                                       20

<PAGE>

WE HAVE GROWN RAPIDLY SINCE 2003, AND OUR GROWTH HAS PLACED, AND IS EXPECTED TO
CONTINUE TO PLACE, SIGNIFICANT DEMANDS ON US.

Beginning in 2003, we have grown rapidly through acquisitions and are looking to
complete additional acquisitions. Businesses that grow rapidly often have
difficulty managing their growth. This rapid growth has placed and is expected
to continue to place significant demands on our management, on our accounting,
financial, information and other systems and on our business. Although we have
expanded our management, we need to continue recruiting and employing
experienced executives and key employees capable of providing the necessary
support. In addition, we will need to continue to improve our financial,
accounting, information and other systems in order to effectively manage our
growth, particularly with the requirement to comply with Section 404 of the
Sarbanes-Oxley Act of 2002 by December 31, 2006. We cannot assure you that our
management will be able to manage our growth effectively or successfully, or
that our financial, accounting, information or other systems will be able to
successfully accommodate our growth. Our failure to meet these challenges could
materially impair our business.

OUR OPERATING RESULTS CAN BE EXPECTED TO FLUCTUATE FROM PERIOD TO PERIOD.

Our business is seasonal and our operating results can be expected to fluctuate
from period to period. In 2004, we generated 35% of our total revenue and 53% of
our total gross profit in the fourth quarter, driven by the holiday season
shopping patterns of our registered supporters. In 2005, we anticipate that the
fourth quarter will continue to reflect our seasonality from our business.
Additionally, we expect that our revenue may be lower in the summer months. Our
varying periodic results may cause the drop of our common stock price if
investors react to our reporting operating results which are less favorable than
in a prior period or than those anticipated by investors or the financial
community generally.

ANY LIABILITY AS WELL AS LITIGATION COSTS RELATED TO THE ONGOING LITIGATION
INSTITUTED AGAINST US COULD HAVE A MATERIAL ADVERSE EFFECT ON OUR RESULTS OF
OPERATIONS AND FINANCIAL CONDITION.

We are involved in litigation including a lawsuit brought by a creditor of NSC.
In addition, our insurance carrier has demanded indemnification by us in
connection with a lawsuit brought by the spouse of a former Schoolpop employee.
Any liability as well as litigation costs related to ongoing litigation
instituted against us could have a material adverse effect on our results of
operations and financial condition.

IF WE LOSE THE SERVICES OF OUR KEY PERSONNEL OR ARE UNABLE TO ATTRACT QUALIFIED
STAFF, OUR BUSINESS COULD BE ADVERSELY AFFECTED.

Our success is dependent upon the performance, contributions and expertise of
our senior management team, including, among others, Paul Robinson, Stephen
Avalone and Jeffrey S. Benjamin. We also depend on our ability to attract and
retain qualified management, professional and operating staff. Our loss of the
services of any of the members of senior management, or any other key executive,
or our inability to continue to attract and retain qualified personnel, could
have a material adverse effect on our business.

                                       21

<PAGE>

OUR DIRECTORS CONTROL A SIGNIFICANT AMOUNT OF OUR OUTSTANDING VOTING POWER,
WHICH MEANS THAT THEY MAY STOP A THIRD PARTY FROM ACQUIRING US EVEN IF IT IS IN
THE BEST INTEREST OF OUR STOCKHOLDERS.

Our directors control approximately 28% of our outstanding voting power. As a
result, they may be able to exercise control over all matters requiring
stockholder approval including the election of directors and approval of
significant corporate transactions. Additionally, their voting control can have
the effect of delaying or preventing a change of control, whereby such change of
control may be beneficial to our stockholders.

WE MAY ISSUE COMMON OR PREFERRED STOCK WITHOUT THE APPROVAL OF OUR STOCKHOLDERS
WITH FEATURES WHICH COULD MAKE IT MORE DIFFICULT FOR A THIRD PARTY TO ACQUIRE US
AND COULD DEPRESS OUR STOCK PRICE.

In the future, our board of directors may issue one or more series of common or
preferred stock that has more than one vote per share without a vote of our
stockholders. This could permit our board of directors to issue preferred stock
to investors who support our management and increase control of our business by
management. Additionally, issuance of super voting common or preferred stock
could block an acquisition, even if an acquisition is in the best interest of
the stockholders. This could cause the market price of our common stock to drop
significantly.

ANTI-TAKEOVER PROVISIONS IN OUR CHARTER DOCUMENTS AND UNDER DELAWARE LAW MAY
MAKE AN ACQUISITION OF US, WHICH MAY BE BENEFICIAL TO OUR STOCKHOLDERS, MORE
DIFFICULT, WHICH COULD DEPRESS OUR STOCK PRICE.

We are incorporated in Delaware. Certain anti-takeover provisions of Delaware
law and our charter documents, as currently in effect, may make a change in
control of our company more difficult, even if a change in control would be
beneficial to the stockholders. Our charter documents provide that our board of
directors may issue, without a vote of our stockholders, one or more series of
preferred stock that has more than one vote per share. This could permit our
board of directors to issue preferred stock to investors who support our
management and give effective control of our business to our management.
Additionally, issuance of preferred stock could block an acquisition resulting
in both a drop in the price of our common stock and a decline in interest in the
stock, which could make it more difficult for stockholders to sell their shares.
This could cause the market price of our common stock to drop significantly,
even if our business is performing well. Our bylaws also limit who may call a
special meeting of stockholders and establish advance notice requirements for
nomination for election to the board of directors or for proposing matters that
can be acted upon at stockholder meetings. Delaware law also prohibits
corporations from engaging in a business combination with any holders of 15% or
more of their capital stock until the holder has held the stock for three years
unless, among other possibilities, the board of directors approves the
transaction. Our board of directors may use these provisions to prevent changes
in the management and control of our company. Also, under applicable Delaware
law, our board of directors may adopt additional anti-takeover measures in the
future.

                                       22

<PAGE>

SINCE OUR COMMON STOCK IS SUBJECT TO THE PENNY STOCK RULES, YOU MAY EXPERIENCE
SUBSTANTIAL DIFFICULTY IN SELLING THEM.

The Securities and Exchange Commission ("SEC") has established penny stock
rules, which restrict the ability of brokers to solicit the sale of certain
securities of companies whose assets, revenue, and/or stock prices fall below
minimal thresholds. Since we are subject to these rules, our common stock is
deemed a "penny stock." The penny stock rules limit the ability of a broker to
solicit purchasers which reduces liquidity. They also generally require a broker
to deliver a standardized risk disclosure document prior to a transaction in a
penny stock. The broker must also provide the customer with bid and offer
quotations for the penny stock, the compensation of the broker and its
salesperson in the transaction, and monthly account statements showing the
market value of each penny stock held in the customer's account. These
additional requirements may hinder your ability to sell your common stock.

BECAUSE OUR COMMON STOCK WILL NOT BE LISTED ON A STOCK EXCHANGE OR NASDAQ,
INVESTORS MAY BE UNABLE TO RESELL THEIR SHARES.

Our common stock trades on the Over-the-Counter Bulletin Board. The Bulletin
Board is not liquid and trading is limited. This may hinder your ability to sell
your common stock. Accordingly, investors must be able to bear the financial
risk of losing their entire investment. Additionally, our common stock has been
volatile in the past and may be volatile in the future.

SINCE WE INTEND TO RETAIN ANY EARNINGS FOR DEVELOPMENT OF OUR BUSINESS FOR THE
FORESEEABLE FUTURE, YOU WILL LIKELY NOT RECEIVE ANY DIVIDENDS

We do not intend to pay dividends in the foreseeable future as we intend to
retain any earnings for development and expansion of our business operations. As
a result, you will not receive any dividends on your investment for an
indefinite period of time.

ITEM 7.  FINANCIAL STATEMENTS.

See pages F-1 through F-31 beginning after page 28.


ITEM 8.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
         FINANCIAL DISCLOSURE.

Kaufman Rossin & Co., P.A., who had been engaged as the Company's principal
independent accountants since June 25, 2002, was dismissed on June 15, 2004.
Kaufman Rossin & Co., P.A.'s reports on the Company's consolidated financial
statements during the two-year period ended December 31, 2003 did not contain an
adverse opinion or disclaimer opinion, nor were such reports qualified or
modified as to uncertainty, audit scope or accounting principles. During the
two-year period ended December 31, 2003, and the subsequent interim period
preceding such dismissal, the Company did not have any disagreements with
Kaufman Rossin & Co., P.A. on any matter of accounting principles or practices,
financial statement disclosure, or auditing scope or procedure, which
disagreements, if not resolved to the satisfaction of Kaufman Rossin & Co.,
P.A., would have caused it to make a reference to the subject matter of the
disagreements in connection with its reports.

                                       23

<PAGE>

On June 15, 2004, we engaged Marcum & Kliegman LLP as our independent
accountants to audit the Company's consolidated financial statements for the
year ending December 31, 2004. The decision to change our independent
accountants from Kaufman Rossin & Co., P.A. to Marcum & Kliegman LLP was made by
our board of directors.

On October 15, 2004, the Company's board of directors authorized the dismissal
of Marcum & Kliegman LLP, which had been engaged as our principal independent
accountants since June 15, 2004. Marcum & Kliegman LLP did not audit or issue
any reports on the Company's consolidated financial statements during the
two-year period ended December 31, 2003. Marcum & Kliegman LLP did audit the
consolidated financial statements of our subsidiary, FUNDever, Inc., for the
year ended December 31, 2003 and the period from January 22, 2002 (inception) to
December 31, 2002, and that report did not contain an adverse opinion or
disclaimer opinion, nor was such report qualified or modified as to uncertainty,
audit scope or accounting principles, other than a modification as to an
uncertainty regarding the ability of the Company to continue as a going concern.
During the period from June 15, 2004 through the date of dismissal, we did not
have any disagreements with Marcum & Kliegman LLP on any matter of accounting
principles or practices, financial statement disclosure, or auditing scope or
procedure, which disagreements, if not resolved to the satisfaction of Marcum &
Kliegman LLP, would have caused it to make a reference to the subject matter of
the disagreements in connection with its reports.

On October 15, 2004, we engaged Tauber & Balser, P.C. as the Company's
independent registered public accounting firm to audit the Company's
consolidated financial statements for the year ending December 31, 2004. The
decision to change our independent accountants from Marcum & Kliegman LLP to
Tauber & Balser, P.C. was made by our board of directors.

ITEM 8A. CONTROLS AND PROCEDURES.

We carried out an evaluation required by Rule 13a-15(b) of the Securities
Exchange Act of 1934 (the "Exchange Act") 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.

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 Exchange Act 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 is done quarterly so that the 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.

                                       24

<PAGE>

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 which is required to be included
in our periodic reports filed with the SEC as of the filing of 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.

ITEM 8B. OTHER INFORMATION.

         None.













                                       25
<PAGE>

                                    PART III

ITEM 9.  DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
         COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT.

The information required by this Item is incorporated by reference from our
definitive proxy statement which will be filed with the SEC within 120 days from
December 31, 2004.

ITEM 10. EXECUTIVE COMPENSATION

The information required by this Item is incorporated by reference from our
definitive proxy statement which will be filed with the SEC within 120 days from
December 31, 2004.

ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.

The information required by this Item is incorporated by reference from our
definitive proxy statement which will be filed with the SEC within 120 days from
December 31, 2004.

ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

The information required by this Item is incorporated by reference from our
definitive proxy statement which will be filed with the SEC within 120 days from
December 31, 2004.


                                       26

<PAGE>

ITEM 13. EXHIBITS.

         (a) EXHIBIT INDEX

Exhibit Number    Description
--------------    ------------
2.1               Agreement and Plan of Merger (1)
2.2               Asset Purchase Agreement with YAS (6)
2.3               Asset Purchase Agreement with One Stop School Shop, Inc.
3.1               Amended and Restated Certificate of Incorporation (2)
3.3               Amendment to Amended and Restated Certificate of
                  Incorporation (6)
3.4               Certificate of Designation (6)
3.5               Certificate of Correction to Certificate of Designation (6)
3.6               Amended and Restated Bylaws (2)
3.7               First Amendment to Amended and Restated Bylaws (5)
4.1               Form of Common Stock Certificate
4.2               Form of Series B Preferred Stock Certificate
10.1              Employment Offer for Jeffrey Benjamin
10.2              Summary of Employment Agreement with Paul Robinson
10.3              Summary of Employment Agreement with Stephen Avalone
10.4              Agreement between Schoolpop and The National Scrip Center,
                  Inc. (3)
10.5              Note with Robert Scellato (3)
10.6              Security Agreement with Robert Scellato (3)
10.7              Service Agreement between Schoolpop and ROI Group Associates,
                  Inc. (4)
10.8              AEIS Stock Purchase Agreement (6)
10.9              AEIS Reseller Agreement (6)
10.10             Amended AEIS Reseller Agreement (6)
10.11               Second Amended AEIS Reseller Agreement (9)
10.12             Stock Purchase Agreement - Series B Preferred Stock (6)
10.13             Investor Rights Agreement - Series B Preferred Stock (6)
10.14             Settlement and General Release Agreement with
                  PriceGrabber.com (7)
10.15             Addendum to Settlement and General Release Agreement with
                  PriceGrabber.com (7)
10.16             LoyaltyPoint, Inc. 2004 Stock Plan
10.17             Form of LoyaltyPoint, Inc. Non-Qualified Stock Option
                  Agreement
10.18             Form of LoyaltyPoint, Inc. Incentive Stock Option Agreement
10.19             Settlement Agreement and Mutual Release with USA Direct, Inc.
10.20             Purchase Orders (8)
21                Subsidiaries
23.1              Consent of Tauber & Balser, P.C.
23.2              Consent of Marcum & Kliegman, LLP
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 Form 8-K filed on February 11, 2004.
(2)   Contained in Form 8-K filed on March 4, 2004.
(3)   Contained in Form 10-QSB filed on June 18, 2004.
(4)   Contained in Form 10-QSB filed on August 16, 2004.
(5)   Contained in Form 8-K filed on October 1, 2004.
(6)   Contained in Form 10-QSB filed on November 16, 2004.
(7)   Contained in Form 8-K filed on March 1, 2005.
(8)   Confidential Treatment Request filed with this Report.
(9)   Contained in Form 8-k filed on April 6, 2005.


ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES.

The information required by this Item is incorporated by reference from our
definitive proxy statement which will be filed with the SEC within 120 days from
December 31, 2004.

                                       27

<PAGE>


                                   SIGNATURES

In accordance with Section 13 or 15(d) of the Securities Exchange Act of 1934,
the registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized this 13th day of April 2005.


                                       LoyaltyPoint, Inc..


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


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

SIGNATURES                      TITLE                             DATE
----------                      -----                             ----


/s/ Paul Robinson               Chairman of the Board            April 13, 2005
------------------------          of Directors
Paul Robinson

/s/ Jeffrey S. Benjamin         Chief Financial Officer and      April 13, 2005
------------------------          Principal Accounting Officer
Jeffrey S. Benjamin

/s/ Stephen Avalone             Director                         April 13, 2005
------------------------
Stephen Avalone

/s/ Robert Scellato             Director                         April 13, 2005
------------------------
Robert Scellato

/s/ Jerry Malec                 Director                         April 13, 2005
------------------------
Jerry Malec

/s/ James Ernest Riddle         Director                         April 13, 2005
------------------------
James Ernest Riddle
/s/ John C. Colligan            Director                         April 13, 2005
------------------------
John C. Colligan



                                       28
<PAGE>


                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

Report of Independent Registered Public Accounting Firm                   F-1

Report of Independent Registered Public Accounting Firm                   F-2

Conolidated Balance Sheet as of December 31, 2004                         F-3

Consolidated Statements of Operations for the years
  ended December 31, 2004 and 2003                                        F-5

Consolidated Statements of Stockholders' Deficiency
  for the years ended December 31, 2004 and 2003                          F-6

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

Notes to Consolidated Financial Statements                             F-9 - F31


<PAGE>

             Report of Independent Registered Public Accounting Firm


To the Board of Directors and Stockholders
LoyaltyPoint, Inc.

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

We conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. The Company is not required to
have, nor were we engaged to perform, an audit of internal control over
financial reporting. Our audit included consideration of internal control over
financial reporting as a basis for designing audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Company's internal control over financial
reporting. Accordingly, we express no such opinion. An audit includes examining,
on a test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of LoyaltyPoint, Inc.
and subsidiaries as of December 31, 2004, and the results of their operations
and their cash flows for the year then ended in conformity with accounting
principles generally accepted in the United States of America.

The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note 2 to the
financial statements, the Company's recurring losses from operations and limited
capital resources raise substantial doubt about its ability to continue as a
going concern. Management's plans in regard to these matters are also described
in Note 2. The financial statements do not include any adjustments that might
result from the outcome of this uncertainty.

                                      F-1

<PAGE>

/s/ Tauber & Balser, P.C.
Atlanta, Georgia
March 4, 2005  (except for Note 15,
as to which the date is April 11, 2005)




             REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM



To the Board of Directors and Stockholders
LoyaltyPoint, Inc.

We have audited the accompanying consolidated statements of operations,
stockholders' deficiency and cash flows of LoyaltyPoint, Inc. and Subsidiaries
(formerly FUNDever, Inc and Subsidiary) (the "Company") for the year ended
December 31, 2003. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit.

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

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, consolidated results of operations and
consolidated cash flows of LoyaltyPoint, Inc. and Subsidiaries (formerly
FUNDever, Inc and Subsidiary) for the year ended December 31, 2003 in conformity
with U.S. generally accepted accounting principles.

The accompanying consolidated financial statements have been prepared assuming
the Company will continue as a going concern. As discussed in Note 2 to the
consolidated financial statements, the Company has had recurring losses from
operations, negative cash flows from operations, and has a working capital
deficiency that raises substantial doubt about its ability to continue as a
going concern. Management's plans in regard to these matters are also discussed
in Note 2. The consolidated financial statements do not include any adjustments
that might result from the outcome of this uncertainty.


/s/ Marcum & Kliegman llp

New York, New York
June 11, 2004

                                       F-2

<PAGE>

                       LOYALTYPOINT, INC. AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEET
                                DECEMBER 31, 2004


                                     ASSETS

CURRENT ASSETS
     Cash                                                     $1,080,729
     Accounts receivable, net of allowance of $89,023            686,570
     Inventory, net                                            1,544,071
     Prepaid expenses and other current assets                   189,067
                                                              ----------

         TOTAL CURRENT ASSETS                                  3,500,437
                                                              ----------

PROPERTY AND EQUIPMENT, NET                                      339,432
                                                              ----------

OTHER ASSETS
     Goodwill                                                  1,516,717
     Intangible assets, net                                      622,879
     Due from related party                                      180,460
     Deposits                                                     24,256
                                                              ----------

         TOTAL OTHER ASSETS                                    2,344,312
                                                              ----------


         TOTAL ASSETS                                         $6,184,181
                                                              ==========

                 See notes to consolidated financial statements.

                                       F-3

<PAGE>

                       LOYALTYPOINT, INC. AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEET
                                DECEMBER 31, 2004


                    LIABILITIES AND STOCKHOLDERS' DEFICIENCY

CURRENT LIABILITIES
     Accounts payable - trade                                   $  1,861,459
     Accounts payable - school rebates                             1,425,199
     Accrued expenses                                              1,427,997
     Line of credit                                                  430,000
     Current portion of capital lease obligations                     23,334
     Current portion of note payable                                 117,338
     Current portion of notes payable -
       stockholders and related parties                              121,935
     Other current liabilities                                        16,154
                                                                ------------

         TOTAL CURRENT LIABILITIES                                 5,423,416
                                                                ------------

LONG-TERM LIABILITIES
     Deferred revenue                                                 72,092
     Capital lease obligations less current portion                   43,901
     Note payable less current portion                               135,983
     Notes payable - stockholders and related parties
       less current portion                                        1,019,394
     Other liabilities                                               472,101
                                                                ------------
         TOTAL LONG-TERM LIABILITIES                               1,743,471
                                                                ------------

         TOTAL LIABILITIES                                         7,166,887
                                                                ------------

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 convertible preferred stock;
         $.001 par value; 30,769,231
         shares issued and outstanding                                30,769
     Common stock; $.001 par value; 200,000,000 shares
        authorized, 103,451,769 shares issued and outstanding        103,451
     Additional paid-in capital                                   17,839,484
     Deferred compensation                                           (93,391)
     Accumulated deficit                                         (18,863,016)
                                                                ------------

         TOTAL STOCKHOLDERS' DEFICIENCY                             (982,705)
                                                                ------------

         TOTAL LIABILITIES AND
           STOCKHOLDERS' DEFICIENCY                             $  6,184,181
                                                                ============

                 See notes to consolidated financial statements.

                                       F-4

<PAGE>

                       LOYALTYPOINT, INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                        FOR THE YEARS ENDED DECEMBER 31,


                                                    2004            2003
                                                ============    ============

REVENUES                                        $ 64,743,945    $  1,772,249
COST OF REVENUES (EXCLUDING
  DEPRECIATION AND AMORTIZATION
  SHOWN SEPARATELY BELOW)                         62,988,028       1,056,862
                                                ------------    ------------
         Gross Profit                              1,755,917         715,387
                                                ------------    ------------

OPERATING EXPENSES
     Salaries and wages                            3,125,050       1,307,249
     Stock based compensation                      1,646,841       4,014,013
     Selling, general and
       administrative expenses                     3,502,176       1,726,961
     Depreciation and amortization                   390,730         212,650
     Impairment - intangibles                             --         772,729
                                                ------------    ------------
       Total Operating Expenses                    8,664,797       8,033,602
                                                ------------    ------------
       Net Operating Loss                         (6,908,880)     (7,318,215)
                                                ------------    ------------

OTHER INCOME(EXPENSE)
     Gain on extinguishment of accrued
       expenses and capital lease obligations        421,122              --
     Legal settlement                                225,000              --
     Other income                                         --           5,388
     Loss on sale of equipment                       (45,714)             --
     Loss on sale of marketable securities          (130,647)             --
     Interest expense, net                          (154,660)       (536,947)
                                                ------------    ------------
       Total Other Income (Expense)                  315,101        (531,559)
                                                ------------    ------------
NET LOSS                                        $ (6,593,779)   $ (7,849,774)
                                                ============    ============

BASIC AND DILUTED NET LOSS PER COMMON SHARE
     Net Loss                                   $ (6,593,779)   $ (7,849,774)
     Add beneficial conversion feature of
       Series B Preferred Stock                    2,769,231              --
                                                ------------    ------------
NET  LOSS AVAILABLE TO COMMON STOCKHOLDERS      $ (9,363,010)   $ (7,849,774)
                                                ============    ============
Net loss per common share, basic and diluted    $      (0.10)   $      (0.27)
                                                ============    ============
Weighted average common shares outstanding
  basic and diluted                               91,984,926      29,560,699
                                                ============    ============

                 See notes to consolidated financial statements.

                                       F-5

<PAGE>


                       LOYALTYPOINT, INC. AND SUBSIDIARIES
               CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIENCY
                 FOR THE YEARS ENDED DECEMBER 31, 2004 AND 2003


<TABLE>
<CAPTION>


                                                          Series A Preferred Stock    Series B Preferred Stock
                                                            Shares      Amount            Shares        Amount
                                                          --------  ------------      -------------   --------
<S>                                                         <C>     <C>                <C>            <C>
Balance at December 31, 2002                                   --   $         --                 --   $     --

    Stock issued for compensation and services                 --             --                 --         --

    Stock issued in exchange for loans                         --             --                 --         --

    Stock issued for consulting services                       --             --                 --         --

    Stock issued for compensation and services                 --             --                 --         --

    Stock issued in connection with loans                      --             --                 --         --

    Stock issued in exchange for marketing rights              --             --                 --         --

    Stock issued in connection with acquisitions               --             --                 --         --

    Net loss                                                   --             --                 --         --
                                                             ----   ------------   ----------------   --------
Balance at December 31, 2003                                   --             --                 --         --

    Common stock issued for services rendered                  --             --                 --         --

    Common stock issued in exchange for loans                  --             --                 --         --

    Effect of reverse merger with BarPoint.com, Inc.            3             --                 --         --

    Common stock issued for exercise of stock options          --             --                 --         --

    Common stock issued in connection with acquisitions        --             --                 --         --

    Common stock issued in connection with
      exclusive agreement                                      --             --                 --         --

    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                                 --             --                 --         --

    Issuance of options to employees                           --             --                 --         --

    Net loss                                                   --             --                 --         --
                                                             ----   ------------   ----------------   --------
Balance at December 31, 2004                                    3   $         --         30,769,231   $ 30,769
                                                             ====   ============   ================   ========


[RESTUB]

<CAPTION>
                                                                                  Additional                               Total
                                                             Common Stock          Paid-In     Deferred    Accumulated Stockholders'
                                                          Shares       Amount      Capital    Compensation    Deficit    Deficiency
                                                        ----------   ---------  ------------  ------------ ------------  -----------
<S>                                                      <C>         <C>        <C>             <C>         <C>          <C>
Balance at December 31, 2002                             9,271,303   $    9,271 $  1,093,998    $    --     $(1,650,231) $ (546,961)

    Stock issued for compensation and services          30,009,233       30,009    2,766,533         --              --   2,796,542

    Stock issued in exchange for loans                   5,847,169        5,847      389,253         --              --     395,100

    Stock issued for consulting services                   289,004          289      187,964         --              --     188,253

    Stock issued for compensation and services           1,115,561        1,116      725,542         --              --     726,658

    Stock issued in connection with loans                1,085,505        1,086      303,596         --              --     304,682

    Stock issued in exchange for marketing rights          463,564          464      302,097         --              --     302,561

    Stock issued in connection with acquisitions           809,215          809      526,299         --              --     527,108

    Net loss                                                    --           --           --         --      (7,849,774) (7,849,774)
                                                        ----------   ----------   ----------     ----------  ----------   ---------
Balance at December 31, 2003                            48,890,554       48,891    6,295,283          --    (9,500,005)   3,155,831)

    Common stock issued for services rendered            1,027,362        1,027      174,780          --            --      175,807

    Common stock issued in exchange for loans           20,088,400       20,088    1,844,540          --            --    1,864,628

    Effect of reverse merger with BarPoint.com, Inc.    26,646,118       26,646      951,054          --            --      977,700

    Common stock issued for exercise of stock options       14,290           14        1,786          --            --        1,800

    Common stock issued in connection with acquisitions  1,785,044        1,785      323,215          --            --      325,000

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

    Issuance of options to employees                            --           --      127,204     (93,391)           --       33,813

    Net loss                                                    --           --           --          --    (6,593,779)  (6,593,779)
                                                       -----------   ----------   ----------   ---------  ------------  -----------
Balance at December 31, 2004                           103,451,769    $ 103,451  $17,839,484   $ (93,391) $(18,863,016)   $(982,705)
                                                       ===========    =========  ===========   =========  ============  ===========
</TABLE>

                See notes to consolidated financial statements.

                                       F-6

<PAGE>

                       LOYALTYPOINT, INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                        FOR THE YEARS ENDED DECEMBER 31,
<TABLE>
<CAPTION>

                                                                2004          2003
                                                             ===========   ===========
<S>                                                          <C>           <C>
CASH FLOWS FROM OPERATING ACTIVITIES
     Net loss                                                $(6,593,779)  $(7,849,774)
     Adjustments to reconcile net loss to
      net cash used in operating activities:
          Depreciation                                           168,407        38,573
          Amortization                                           222,323       174,077
          Loss on sale of marketable securities                  130,647            --
          Loss on sale of equipment                               45,704            --
          Impairment of intangible assets                             --       772,729
          Reserve for bad debts                                       --       (25,616)
          Reserve for inventory                                  (92,741)       60,153
          Reserve for prepaid royalties                               --       205,136
          Amortization of debt discount                           31,535       410,820
          Stock based compensation                             1,646,841     4,014,013
          Gain on extinguishment of accrued expenses and
           capital lease obligations                            (421,122)           --
          Changes in operating assets and liabilities,
           net of effects of acquisitions:
             Accounts receivable                                (178,357)       12,063
             Inventory                                          (255,170)      (53,713)
             Prepaid expenses and other current assets          (106,704)      (68,908)
             Due from related party                               61,212      (241,672)
             Deposits                                            548,922         2,136
             Accounts payable - trade                          1,390,191       197,509
             Account payable - school rebates                    151,649       277,641
             Accrued expenses and other current liabilities     (653,034)      531,787
             Deferred revenue and other liabilities              231,328       (34,729)
                                                              ----------    ----------

     NET CASH USED IN OPERATING ACTIVITIES                    (3,672,148)   (1,577,775)
                                                              ----------    ----------

CASH FLOWS FROM INVESTING ACTIVITIES
     Purchase of property and equipment                          (92,349)      (11,718)
     Acquisition of Schoolpop, net of cash acquired                   --       149,283
     Cash payment for acquisitions                               (50,000)      (50,000)
     Proceeds from sale of marketable securities                 209,727            --
     Cash received from the Company merger                       629,617            --
                                                              ----------    ----------

     NET CASH PROVIDED BY INVESTING ACTIVITIES                   696,995        87,565
                                                              ----------    ----------
CASH FLOWS FROM FINANCING ACTIVITIES
     Proceeds from  lines of credit                                   --       932,703
     Payments on lines of credit                                      --        (2,500)
     Proceeds from exercise of stock options                       1,800            --
     Net proceeds from issuance of preferred stock             3,906,924            --
     Proceeds from notes payable                                 300,000     1,000,100
     Principal payments on notes payable and capital leases     (391,638)     (205,000)
                                                              ----------    ----------

     NET CASH PROVIDED BY FINANCING ACTIVITIES                 3,817,086     1,725,303
                                                              ----------    ----------
</TABLE>

                 See notes to consolidated financial statements.

                                       F-7

<PAGE>
                       LOYALTYPOINT, INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                        FOR THE YEARS ENDED DECEMBER 31,

                                    CONTINUED
                                                             2004         2003
                                                         ===========   ========

     NET INCREASE IN CASH                                    841,933    235,093

CASH AT BEGINNING OF YEAR                                    238,796      3,703
                                                         -----------   --------
CASH AT END OF YEAR                                      $ 1,080,729   $238,796
                                                         ===========   ========
Supplemental Disclosures of Cash Flow Information:
Cash paid for:

     Interest                                            $   103,464   $ 49,186
                                                         ===========   ========
     Income Taxes                                        $        --   $     --
                                                         ===========   ========

Non-cash investing and financing activities:
     Conversion of notes payable and accrued
      interest into common stock                         $ 1,864,628   $395,100
                                                         ===========   ========

     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   $     --
                                                         ===========   ========

     Computers acquired through capital leases           $    53,499   $     --
                                                         ===========   ========

     Liabilities assumed in connection with Your
       Auction Stop acquisition of furniture,
       equipment, leasehold improvements and deposits    $    40,626   $     --
                                                         ===========   ========

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

     Preferred stock issued in connection with
       T4Kids acquisition                                $        --   $527,108
                                                         ===========   ========


       Refinance of line of credit with
        related party debt                               $ 1,000,200   $     --
                                                         ===========   ========

                 See notes to consolidated financial statements.

                                       F-8

<PAGE>

NOTE 1--ORGANIZATION, NATURE OF BUSINESS AND SUMMARY OF
        SIGNIFICANT ACCOUNTING POLICIES

Organization: On February 18, 2004, BarPoint.com, Inc. ("BarPoint"), a
publicly-traded company with no active business traded on the Over-the-Counter
Bulletin Board, acquired 100% of the outstanding capital stock of FUNDever, Inc.
a privately-held Delaware corporation ("FUNDever"). Pursuant to the merger, the
stockholders of FUNDever received 52,116,976 shares of BarPoint common stock and
a group of holders of certain FUNDever convertible promissory notes received
16,133,000 shares of BarPoint common stock. As a result, these two groups owned
approximately 72% of the outstanding common stock of BarPoint immediately
following the merger. In addition, FUNDever executives replaced BarPoint's
management, and three FUNDever board members became members of the four-person
board of directors of BarPoint.

The transaction has been accounted for as a reverse merger in which FUNDever is
considered to be the acquirer of BarPoint. Accordingly, the reverse merger was
accounted for as a recapitalization in which (i) the assets and liabilities of
FUNDever and BarPoint 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 BarPoint common stock, and (iii) the retained earnings balance of BarPoint
at the date of the merger was converted into additional paid-in capital.
Furthermore, the financial statements set forth in this report for all periods
prior to February 18, 2004 are the consolidated financial statements of
FUNDever.

On April 22, 2004, BarPoint changed its name to LoyaltyPoint, Inc. LoyaltyPoint,
Inc. and its subsidiaries are collectively referred to as the "Company".

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 generates revenue
for the Company, a portion of which are paid to participating schools and other
nonprofit organizations.

Principles of Consolidation: These consolidated financial statements present the
results of the Company and its wholly-owned subsidiaries, FUNDever and
Schoolpop, Inc. ("Schoolpop"), which was acquired by FUNDever on July 31, 2003.
As further described in Note 11, certain assets of The National Scrip Center,
Inc. ("NSC") were acquired on January 9, 2004, and the results of its operations
from January 9, 2004 are included in these financial statements. Additionally,
certain assets of One Stop School Shop, Inc. ("One Stop") were acquired on June
3, 2004, and the results of its operations from June 3, 2004 are included in
these 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 financial statements. All
inter-company balances and transactions have been eliminated in consolidation.

Use of Estimates: The preparation of 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 of contingent assets and
liabilities at the date of the consolidated financial statements and the
reported amounts of revenue and expenses during the reporting period. Actual
results could differ from those estimates.

Marketable Securities: Realized losses during 2004 on the sale of
available-for-sale marketable securities are recorded in the Statements of
Operations as other income (loss). For the purposes of computing realized
losses, cost is determined on a specific identification basis.

                                      F-9
<PAGE>

NOTE 1--ORGANIZATION, NATURE OF BUSINESS AND SUMMARY OF
        SIGNIFICANT ACCOUNTING POLICIES - CONTINUED

Inventory: Inventory, consisting mainly of gift cards and gift certificates, 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 $303,831 were recorded at
December 31, 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.

Impairment of Long-Lived Assets: The Company evaluates its 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.

Goodwill and Nonamortizable Intangible Assets: Goodwill and nonamortizable
intangible assets are 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.

For the years ended December 31, 2004 and 2003, we performed an impairment
analysis of our long-lived assets. As of December 31, 2003, we determined that
certain intangible assets acquired from Technology 4Kids, LP had been fully
impaired, as the value of these assets would not be recoverable in future
periods, and therefore recorded in 2003 a $772,729 impairment charge. The
impairment charge consisted of $234,375 of websites and $538,354 of enrolled
supporters. No other long-lived assets or goodwill were deemed to be impaired as
of December 31, 2004 and 2003.

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.

Fair Value of Financial Instruments: The carrying amounts of our financial
instruments, including cash and accounts receivable, approximate fair value due
to their short maturities. Management believes it is not practicable to estimate
the fair value of its other liability financial instruments due to the extended
payment of these liabilities and the current financial condition of the Company.

                                      F-10
<PAGE>

NOTE 1--ORGANIZATION, NATURE OF BUSINESS AND SUMMARY OF
        SIGNIFICANT ACCOUNTING POLICIES - CONTINUED

Concentrations of Credit Risk: Financial instruments which potentially subject
the Company to concentrations of credit risk consist primarily of cash and
accounts receivable. Cash is held primarily with two financial institutions and
consist primarily of cash in bank accounts. The amount of deposits in any one
institution that exceeds federally insured limits is subject to credit risk.
Such amounts were approximately $1.2 million at December 31, 2004.

Accounts receivable are stated at the amount management expects to collect from
outstanding balances. Management provides for probable uncollectible amounts
through a charge to earnings and a credit to a valuation allowance based on its
assessment of the current status of individual accounts. Balances that are still
outstanding after management has performed reasonable collection efforts are
written off through a charge to the valuation allowance and a credit to accounts
receivable. The Company grants credit to its customers without requiring
collateral. The amount of accounting loss that the Company is at risk for in
these unsecured accounts receivable is limited to their carrying value. Our
accounts receivable are made up of many customer accounts, with no single
customer comprising greater than 10% of total accounts receivable at December
31, 2004.

Major Supplier: We purchased from one vendor, AEIS, approximately $36,845,000 of
gift cards during 2004 which comprised approximately 57.7% of total gift card
purchases for the year. The balance of accounts payable to this supplier at
December 31, 2004 was $0. The terms with this vendor call for payment on the day
these cards are activated via electronic funds transfer.

Revenue Recognition: The Company recognizes revenue when persuasive evidence of
an arrangement with a customer exists, delivery has occurred or services have
been rendered, the price is fixed or determinable and collectibility is
reasonably assured. Revenue from scrip sales, our primary revenue, is recognized
when the money is received from the school or nonprofit and the product has been
shipped. Revenue from merchant rebates is recognized when merchants report a
sale to the Company as a result of shoppers' purchases. Revenue earned under
merchant arrangements, which contractually obligate the Company to pass on
specified rebate amounts to schools, are recorded on a gross commission basis
with the related rebates reflected as cost of revenue. 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: The Company applies Accounting Principles Board
Opinion No. 25, "Accounting for Stock Issued to Employees" ("APB 25") and
related interpretations in accounting for its stock based compensation plans and
outstanding options granted under stock option agreements. In applying the
intrinsic value method, as prescribed by APB 25, we determine the value of the
options granted by multiplying the total number of shares the individual is
entitled to receive by the difference between (i) the closing share price of the
stock on the date of grant and (ii) the stated exercise price in the option
agreement. If the stated exercise price is equal to or greater than the closing
share price, then the options would have no intrinsic value at the date of
grant. However, if the exercise price is less than the closing share price, then
the product of multiplying that amount times the number shares would be
considered compensation expense and would be recognized as such over the vesting
period of the

                                      F-11
<PAGE>

NOTE 1--ORGANIZATION, NATURE OF BUSINESS AND SUMMARY OF
        SIGNIFICANT ACCOUNTING POLICIES - CONTINUED

options by recording the total amount as deferred compensation expense in the
equity section of the balance sheet and recognizing such compensation expense in
the statement of operations as the options vest.

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 fair value method or
(ii) using the existing accounting rules prescribed by APB 25 with pro forma
disclosure of what net income and earnings per share would have been had the
Company adopted the fair value method. The following table illustrates what the
Company's net loss and earnings 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. During 2004 the fair value of each option was
estimated on the date of grant using the Black-Scholes option-pricing model with
the following weighted average assumptions: dividend yield of 0.0%; expected
volatility of 181%; risk-free interest rates of 3.47%; and an expected life of 3
years.

<TABLE>
<CAPTION>
                                                       Years Ended December 31,
                                                     ---------------------------
                                                         2004            2003
                                                     -----------    ------------
<S>                                                  <C>            <C>
Net loss available to common stockholders,
  as reported                                        $(9,363,010)   $  (7,849,774)
Add:
Stock-based employee compensation expense included
  in reported net loss                                    33,813               --
Deduct:
Total stock-based employee compensation expense
  determined under fair value based method
  for all awards                                         (42,026)              --
                                                     -----------    -------------
Proforma net loss available to common stockholders   $(9,371,223)   $  (7,849,774)
                                                     ===========    =============
Net loss per common share basic and diluted,
  as reported                                        $     (0.10)   $       (0.27)
                                                     ===========    =============
Proforma net loss per common share
  basic and diluted                                  $     (0.10)   $       (0.27)
                                                     ===========    =============
</TABLE>

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 periods ended December 31, 2004 and 2003, as their inclusion would be
anti-dilutive (See Note 8). Stock options, common stock purchase warrants and
convertible preferred stock which could potentially dilute earnings per share in
the future totaled 47,342,903 and 16,133,000 at December 31, 2004 and 2003,
respectively.

Comprehensive Loss: Our comprehensive loss for the years ended December 31, 2004
and 2003 as required to be reported by SFAS No. 130 "Reporting Comprehensive
Income", was identical to the actual net loss reported for those periods.

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

                                      F-12
<PAGE>

NOTE 1--ORGANIZATION, NATURE OF BUSINESS AND SUMMARY OF
        SIGNIFICANT ACCOUNTING POLICIES - CONTINUED

New Accounting Pronouncements and Interpretations:
-------------------------------------------------

In December 2004, the FASB issued Statement No. 153, Exchanges of Nonmonetary
Assets an amendment of APB No. 29. This Statement amends Opinion 29 to eliminate
the exception for nonmonetary exchanges of similar productive assets and
replaces it with a general exception for exchanges of nonmonetary assets that do
not have commercial substance. The Statement specifies that a nonmonetary
exchange has commercial substance if the future cash flows of the entity are
expected to change significantly as a result of the exchange. This Statement is
effective for nonmonetary asset exchanges occurring in fiscal periods beginning
after June 15, 2005. Earlier application is permitted for nonmonetary asset
exchanges occurring in fiscal periods beginning after the date this Statement is
issued. Retroactive application is not permitted. Management believes that its
adoption will not have any significant impact on the Company's financial
position, results of operations or cash flows.

In December 2004, the FASB issued Statement No. 123(R) which addresses the
accounting for stock-based payment transactions in which an employer receives
employee-services in exchange for equity securities of the company or
liabilities that are based on the fair value of the company's equity securities.
This standard eliminates use of APB 25 and requires such transactions to be
accounted for using a fair-value-based method and recording compensation expense
rather than optional pro forma disclosure. The new standard substantially amends
FASB Statement No. 123, Accounting for Stock-Based Compensation. FASB Statement
123(R) is effective for financial statements of small business issuers such as
the Company in the first interim or annual reporting period beginning after
December 15, 2005. Pro forma disclosures regarding the effect on the Company's
net loss and loss per common share in 2004 and 2003, had the Company applied the
fair value method of accounting or share-based compensation as prescribed by
SFAS123, are contained in the "Stock-based compensation" section of Note 1.

NOTE 2--GOING CONCERN

The accompanying consolidated financial statements have been prepared in
conformity with generally accepted accounting principles, which contemplate the
continuation of the Company as a going concern. However, the Company incurred
net losses of approximately $6,593,779 and $7,849,774 for the years ended
December 31, 2004 and 2003, respectively, and had a working capital deficiency
of approximately $1,923,000 and an equity deficiency of approximately $983,000
at December 31, 2004. The Company has sustained continuous losses from
operations. The Company has used, rather than provided, cash from its operating
activities during the years ended December 31, 2004 and 2003 and has deferred
payment of certain accounts payable and accrued expenses. Given these results,
additional capital or improved operations will be needed to sustain the
Company's operations. Other significant risks include the possibility that our
line of credit financing with Shelby Bank maturing at the end of May 2005 will
not be renewed or extended, therefore placing the Company in default of the
debt, which is secured by substantially all of our assets.

Management's plans in this regard include marketing and cross selling of its
product lines with special emphasis on its higher margin products, such as
school supplies to existing customers participating in the lower margin
programs. We believe that the fact that these programs benefit the schools by
providing larger contributions make it a compelling program that has potential
future value for our Company and our customers.

                                      F-13
<PAGE>

NOTE 2--GOING CONCERN - CONTINUED

In view of the matters described, there is substantial doubt about the Company's
ability to continue as a going concern. The recoverability of the recorded
assets and satisfaction of the liabilities reflected in the accompanying balance
sheet is dependent upon continued operation of the Company, which is in turn
dependent upon the Company's ability to meet its financing requirements on a
continuing basis and to succeed in its future operations. There can be no
assurance that management will be successful in implementing its plans. The
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.

NOTE 3--PROPERTY AND EQUIPMENT, NET
Property and equipment includes the following at December 31, 2004:

Computers and software                $   347,693
Furniture and fixtures                    109,897
Leasehold improvements                     91,971
                                      -----------
                                          549,561
Accumulated depreciation                 (210,129)
                                      -----------

Property and equipment, net           $   339,432
                                      ===========

Depreciation expense totaled $168,407 and $38,573 for the years ended December
31, 2004 and 2003, respectively.

NOTE 4 - GOODWILL

The changes and carrying amounts of goodwill are as follows:


              Balance at December 31, 2003
               (from SchoolPop acquisition)      $ 1,011,943


              OneStopSchoolShop acquisition          227,507
              Your Auction Stop acquisition          277,267
                                                 -----------

              Balance at December 31, 2004       $ 1,516,717
                                                 ===========

                                      F-14
<PAGE>

NOTE 5--INTANGIBLE ASSETS

Intangible assets at December 31, 2004 include the following:

<TABLE>
<CAPTION>
                                           Estimated                                             Accumulated Intangible
              Asset                      Useful Lives              Amount                       Amortization Assets, net
------------------------------------------------------------------------------------------------------------------------

<S>                                           <C>                 <C>                          <C>             <C>
Amortized Intangible Assets:
----------------------------------

Websites                                      2 yrs               $  227,894                   $ (227,894)     $      --
 Enrolled supporters                          2 yrs                  391,561                     (248,107)       143,454
                                                              ----------------------------------------------------------
    Sub-total, amortized intangible assets                          619,455                      (476,001)       143,454
                                                              ----------------------------------------------------------
Unamortized Intangible Assets:
----------------------------------
Websites/Trademarks                       indefinite              $ 200,000                    $       --        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                   $ (476,001)     $ 622,879
                                                              ========================================================
</TABLE>


Amortization expense for the years ended December 31, 2004 and 2003 was $222,323
and $174,077, respectively.

Future amortization expense for the above intangible assets as of December 31,
2004 is as follows:



                        2005               $  143,454
                                           ==========

NOTE 6--ROYALTY AGREEMENTS

During 2003 and 2002, we entered into multiple licensing arrangements with
various vendors for software distribution and licensing rights. These agreements
generally required us to either agree to purchase a pre-determined minimum
amount of titles, or to pay these vendors a minimum licensing fee in advance of
the related sales. Under the agreements, the royalties due under these
agreements could be offset against the advances paid by us at the time the
respective contracts were executed. During the periods ended December 31, 2003
and 2002, we advanced various vendors total prepaid royalties of approximately
$82,000 and $196,000, respectively, of which approximately $7,000 and $59,000,
respectively, were expensed during the respective periods due to sales of the
titles.

During the year ended December 31, 2003, we performed an assessment related to
the recoverability of the prepaid royalty amounts. The factors included in the
assessment were the likelihood of us selling any titles in the future out of our
existing inventory supplies, as well as, our inability to sell titles for which
we did not have any physical inventory, as we do not have any replication
capabilities. As a result of this assessment performed, we recorded a reserve
against these prepaid royalties in the amount of $205,136 to write down the
value of our prepaid royalties to its realizable value. As of December 31, 2004,
the amount of prepaid royalties included in the accompanying consolidated
balance sheet was $0.

                                      F-15
<PAGE>


NOTE 7--NOTES PAYABLE

Notes payable at December 31, 2004 consist of the following:

NOTES PAYABLE - STOCKHOLDERS AND RELATED PARTIES
------------------------------------------------

<TABLE>
<S>                                                                               <C>
Non-interest bearing note payable to a director of the Company, original amount
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. In 2004, $76,000 was repaid. Monthly payments of $4,000
until paid in full. Unsecured                                                     $   49,000

Note payable to a director of the Company bearing interest at prime plus 1.5%,
secured by all assets of the company and subordinate to the line of credit
Monthly payments of interest only, with quarterly principal payments of
$250,000 plus interest, to begin in March 2006 through December 2006               1,000,200

Note payable to a stockholder assumed in the YAS Acquisition,
bearing 24% interest.  Monthly payments of $1,961 including interest
through November 2006.  Unsecured                                                     35,879

Non-interest bearing note payable to two officers and directors
of the Company, issued in connection with YAS acquisition.  Payable
in twelve equal monthly installments of $6,250.  Unsecured                            56,250
                                                                                  ----------

Total notes payable - stockholders and related parties                             1,141,329
Less current portion                                                                 121,935
                                                                                  ----------
Long-term portion notes payable - stockholders and related parties                $1,019,394
                                                                                  ==========

NOTE PAYABLE

12% note payable to a corporation issued in connection with SchoolCash
acquisition, monthly payments of $6,000 including interest for six months
beginning in November 2004, then sixteen monthly payments of $16,010
including interest, through August 2006, secured by all assets of FUNDever        $  253,321

Less current portion                                                                 117,338
                                                                                  ----------
Long-term portion note payable                                                    $  135,983
                                                                                  ==========
</TABLE>

Future principal payments on the notes payable-stockholders and related parties
and note payable will be due as follows:

                           2005                           $  239,273
                           2006                            1,155,376
                                                          ----------
                                Total                     $1,394,649
                                                          ==========

                                      F-16

<PAGE>

NOTE 7--NOTES PAYABLE-CONTINUED

LINE OF CREDIT
--------------

$430,000 revolving line of credit with a bank at prime
plus 0.75% (5.75% at December 31, 2004) through
May 2005, payable on demand, secured by all assets of
the Company and certain real estate owned by a stockholder
and director of the Company, and personally guaranteed by
certain stockholders, officers and directors of the Company.
Fully drawn as of December 31, 2004.                           $ 430,000
                                                               =========

CAPITAL LEASE OBLIGATIONS
-------------------------

We have acquired computer equipment under capital lease obligations expiring
through December 2008. The assets and liabilities under capital leases are
recorded at the lower of the present value of the minimum lease payments (with
implicit interest rates ranging from 12.8% to 19.5%) or the fair values of the
assets. The cost of the assets, $80,606, less accumulated depreciation of
$11,245 at December 31, 2004, is included in property and equipment and is being
depreciated over the estimated useful lives of the assets.

Future minimum lease payments under capital lease obligations are as follows:

                      For the year ending December 31,
                         2005                                  $  32,656
                         2006                                     20,871
                         2007                                     18,514
                         2008                                     15,985
                                                               ---------
                      Total minimum lease payments                88,026
                         Imputed interest                        (20,791)
                                                               ---------
                      Present value of future
                        minimum lease payments                    67,235
                         Current portion                         (23,334)
                                                               ---------
                      Long-term portion                        $  43,901
                                                               =========

                                      F-17

<PAGE>


NOTE 8--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
at December 31, 2004. The remaining shares may be issued with such rights,
preferences and limitations as may be adopted by the Board of Directors.

Rights & Preferences of Series A Preferred Stock

i)            The Series A Preferred Stock shall not be entitled to any
              dividends and shall be entitled upon any liquidation, dissolution
              or winding up of the business to a liquidation preference equal to
              the par value of each share.

Rights & Preferences of Series B Preferred Stock

i)            If and when  declared by the Board of  Directors,  the holders of
              the Series B are entitled to receive dividends on parity with
              dividends payable on the Company's common stock.
ii)           In the event of any liquidation event, either voluntary or
              involuntary, the holders of the Series B will be entitled to
              receive, prior and in preference to any distribution of the
              proceeds to the holders of common stock, an amount per share equal
              to the applicable original issue price for such preferred stock,
              plus declared and unpaid dividends on such share.
iii)          If, upon the occurrence of such liquidation event, the proceeds
              thus distributed to the holders of preferred stock shall be
              insufficient to fully pay each share of preferred stock, then the
              entire proceeds shall be distributed ratably among the holders of
              the Series B, until such holders have received their applicable
              original issue price. If proceeds remain thereafter, then the
              remaining proceeds shall be distributed ratably among the holders
              of common stock.
iv)           Each holder of shares of Series B shall be entitled to the number
              of votes equal to the number of whole shares of common stock
              into which such shares of Series B could be converted.
v)            So long as 25% of the shares of the Series B initially issued are
              outstanding, the holders of such Series B, voting as a
              separate class, shall be entitled to elect one (1) director to
              the Company's Board of Directors.
vi)           Each share of preferred stock shall be convertible, at the option
              of the holder, at any time after the date of issuance into the
              Company's common stock as is determined by dividing the original
              issue price for such series by the conversion price, which such
              conversion price shall be the original issue price, as adjusted.
              Such conversion price shall be adjusted for (a) stock dividends
              declared on common stock; (b) a subdivision of the outstanding
              shares of common stock into a greater number of shares; or (c) a
              combination of the outstanding shares of common stock into a
              smaller number of shares.
vii)          Each share of preferred stock shall be automatically converted
              into common stock upon the Company's receipt of a written
              consent of the holders of a majority of the then outstanding
              shares of Series B.
viii)         So long as any shares of Series B remain outstanding, then the
              Company must receive an approval of the holders of at least the
              majority of the then outstanding Series B to effect certain
              corporate actions, including, but not limited to: alter or change
              the rights of the Series B which adversely effect the holders of
              Series B; increase or decrease the number of authorized shares of
              common stock, preferred stock or Series B preferred stock; issue
              any additional shares of Series B; authorize or issue any equity
              security having preference over, or in parity with, the Series B;
              take any action requiring the separate vote of the holders of

                                      F-18

<PAGE>


NOTE 8--STOCKHOLDERS' DEFICIENCY--CONTINUED

              the Series B, voting as a separate series; increase the authorized
              number of directors of the Company; or alter these restrictions.
ix)           The holders of at least a majority of the Series B may demand that
              the Company file a registration statement under the Securities
              Act of 1933 ("Securities Act") covering the registration of
              shares of common stock into which such Series B are convertible.
x)            If the Company shall file a registration statement under the
              Securities Act for purposes of effecting a public offering of
              securities, then the Company shall afford each holder of Series B
              an opportunity to include such holder's shares in such
              registration statement.
xi)           The holders of at least 30% of the then outstanding Series B may
              require that the Company effect a registration on Form S-3
              with respect to all or part of the common stock into which
              such Series B are convertible.
xii)          The Series B holders have the right of first refusal to purchase a
              pro rata share of any or all part of any new security that the
              Company may issue in the future.
xiii)         Upon the consummation of any public offering by the Company, the
              Company must offer to the holders of Series B the opportunity to
              purchase a pro rata share of securities offered in the public
              offering on the same terms and conditions offered therein.

Common Stock: The Company is authorized to issue 200,000,000 shares of common
stock, par value $0.001, of which 103,451,769 shares were issued and outstanding
at December 31, 2004.

In January and February 2004, the Company issued 19,143,271 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 216,152 shares of common
stock valued at $32,200 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 October 2004.

In June 2004, the Company issued 14,290 shares of common stock for proceeds of
$1,800 in connection with the exercise of stock options.

On August 10, 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 over five years,
including $250,000 down, in exclusivity fees 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. On April 5, 2005, we reduced the exclusivity payment to
$125,000. See note 15 - Subsequent Events.

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 the 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 based 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.

                                      F-19

<PAGE>

NOTE 8--STOCKHOLDERS' DEFICIENCY--CONTINUED

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 13, 2004, the Company received gross proceeds of $4 million by selling
a new series of 30,769,231 shares of Series B Preferred Stock to five investors,
four of which are affiliated with an investment partnership which owns
approximately 5% of our 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 December 31,
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 agreements with two law firms to issue
153,846 shares of common stock, valued at $20,000, and 115,383 shares of common
stock, valued at $15,011, in lieu of cash payment due for services rendered.

On August 10, 2004, pursuant to the merger agreement between BarPoint and
FUNDever, we paid a special dividend of $567,000, or approximately $0.03 per
share of common stock, which was declared by BarPoint prior to the merger date
to stockholders of record as of February 17, 2004. The Company used funds
deposited into a special escrow account that was established and funded by
BarPoint prior to the merger.

In October 2004, the Company reached an agreement with a note holder to convert
such note, plus accrued interest, into common stock. The company issued 659,244
shares of common stock valued at $85,702.

In December 2004, the Company reached an agreement to issue 285,885 shares of
its common stock in exchange for a loan outstanding, plus accrued interest, in
the amount of $31,626. The shares were subsequently issued in January 2005.

                                      F-20

<PAGE>

NOTE 8--STOCKHOLDERS' DEFICIENCY--CONTINUED

During the year ended December 31, 2003, the Company issued: 30,009,233 shares
of common stock valued at $2,796,542 for compensation and services; 5,847,169
shares of common stock valued at $395,100 for attainment of loans; 289,004
shares of common stock valued at $188,253 for consulting services; 1,115,561
shares of common stock valued at $726,658 for compensation and services;
1,085,505 shares of common stock valued at $304,682 for loan conversions;
463,564 shares of common stock valued at $302,561 for marketing rights; and
809,215 shares of common stock valued at $527,108 in connection with the
acquisition of T4Kids.

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. For the period ended December 31, 2004, there were two non-plan
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 is being
recognized over the vesting schedule of the options.

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 December 31, 2004, there were 1,500,000
options outstanding under the 2004 Plan with a weighted average 10-year life,
vesting over a 4-year period and a weighted average exercise price of $0.14.

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, 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 December 31, 2004 there were 2,112,339 options
outstanding under the Incentive Plan, all of which were fully vested with a
weighted-average exercise price of $2.87. Of these options, 1,905,110 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.

                                      F-21

<PAGE>

NOTE 8--STOCKHOLDERS' DEFICIENCY--CONTINUED

A summary of the Company's stock options as of December 31, 2004 and the changes
during the year is presented below:

<TABLE>
<CAPTION>
                                                         Number of     Weighted-Average
                                                          Options       Exercise Price
                                                       ------------    ----------------
<S>                                                     <C>                 <C>
         Balance at December 31, 2003                            --         $   --
         Options assumed in reverse merger                4,551,686         $ 2.98
         Options granted                                  5,536,096         $ 0.15
         Exercised                                         (14,292)         $ 0.13
         Forfeited                                      (2,425,055)         $ 2.99
                                                        -----------
            Balance at December 31, 2004                  7,648,435         $ 0.90
                                                          =========
            Options Exercisable at December 31, 2004      2,372,444         $ 2.56
                                                          =========
         Weighted-average grant-date fair value of
            options granted during the year                                 $ 0.16
</TABLE>


Additional information regarding options outstanding at December 31, 2004 is as
follows:

<TABLE>
<CAPTION>

                                      OPTIONS OUTSTANDING                     OPTIONS EXERCISABLE
                       -------------------------------------------------   -------------------------
                                             WEIGHTED
                                             AVERAGE        WEIGHTED                        WEIGHTED
                                            REMAINING        AVERAGE                         AVERAGE
     EXERCISE                NUMBER        CONTRACTUAL      EXERCISE           NUMBER       EXERCISE
      PRICES              OUTSTANDING      LIFE(YEARS)        PRICE         EXERCISABLE       PRICE
-------------------    -------------------------------------------------   -------------------------
<S>     <C>                    <C>             <C>           <C>                <C>          <C>
$0.04 - $0.28                  6,279,264       8.51          $ 0.16             1,003,274    $ 0.18
$1.33 - $1.40                    270,853       0.38          $ 1.38               270,853    $ 1.38
$2.49 - $3.50                    276,544       0.21          $ 2.57               276,544    $ 2.57
$4.88 - $8.92                    821,773       0.13          $ 5.85               821,773    $ 5.85
                       ------------------                                  ---------------
                               7,648,435                                        2,372,444
                       ==================                                  ===============
</TABLE>

As of December 31, 2003, there were no outstanding warrants. In February 2004,
warrants to purchase 443,000 shares of common stock with a weighted-average
exercise price of $4.86 per share were assumed in connection with the reverse
merger. Pursuant to certain anti-dilution provisions contained in the warrant
agreements, these warrants were adjusted to 782,379 shares of common stock with
a weighted-average exercise price of $2.75. Of these adjusted amounts, 383,020
warrants, with a weighted-average exercise price of $5.47 per share, expire in
April 2005. Warrants to purchase 399,360 shares, with a weighted-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. As of December 31, 2004, there were
outstanding warrants to purchase 8,925,237 shares of common stock with a
weighted-average exercise price of $0.90 per share.

                                      F-22

<PAGE>


NOTE 9--INCOME TAXES

The provision for income taxes differs from the amount computed by applying the
applicable U.S. statutory federal income tax rate of 35 percent to income (loss)
from continuing operations before income taxes as a result of the following:

<TABLE>
<CAPTION>
           (in thousands)                                                          Year ended December 31,
                                                                                   -----------------------
                                                                                       2004           2003
                                                                                       ----           ----
<S>                                                                                 <C>             <C>
           Federal tax benefit on loss before income taxes at
              statutory federal income tax rate                                     $ (2,308)       $(1,035)
           Change in valuation allowance                                               1,949          1,041
           State taxes, net of federal benefit                                          (330)          (148)
           Other                                                                         689            142
                                                                                    --------        -------
           Provision for income taxes                                               $     --        $    --
                                                                                    ========        =======
</TABLE>

Significant components of our deferred tax assets at December 31, 2004 consist
of:

Deferred tax assets (in thousands):

Fixed assets and intangibles                             $    350
Inventory reserve                                             121
Allowance for doubtful accounts                                36
Accrued expenses and other liabilities                        103
Net operating loss carryforwards                           18,802
                                                         --------

Total deferred tax assets                                  19,412
Valuation allowance                                       (19,412)
                                                         --------

Net deferred tax asset                                   $     --
                                                         ========

At December 31, 2004, we had net operating loss carryforwards available for tax
purposes of approximately $47,004,000 which will expire in the years 2011
through 2024. At December 31, 2004, we had recorded a valuation allowance equal
to our net deferred tax assets as management believes it is more likely than not
that the net deferred tax assets will not be realized.

                                      F-23

<PAGE>


NOTE 10--EMPLOYEE BENEFIT PLANS

Schoolpop maintained a 401(k) tax deferred savings plan. That plan was frozen
effective December 31, 2004 and no further deferrals or contributions will be
made under that plan. During 2004, management performed an internal review of
this plan and determined that an adjustment to the plan would be necessary to
maintain compliance. The Company has accrued on its balance sheet as of December
31, 2004 approximately $65,000 for this self-correction. Effective January 1,
2005 the Company adopted a new 401(k) plan to provide potential retirement
benefits to its employees. After enrollment, which is expected to occur by April
2005, eligible employees may make salary deferral contributions. The Company may
make contributions at the Board of Directors' discretion. The Company did not
make any employer contributions to the Schoolpop 401(k) tax deferred savings
plan for the years ended December 31, 2004 and 2003.

NOTE 11--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 consolidated
balance sheet as of December 31, 2004. Earnout payments are recorded as an
additional cost of the acquisition in the period the earnout is earned. There
was no earnout earned in 2004 under this agreement.

The preceding consideration is subject to further adjustment based upon the
ascertainment of revised figures and facts regarding the on-going business.
Subject to 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.
Subsequent to the acquisition, the Company discovered that certain customers
accounts purchased as part of the asset acquisition had outstanding balances for
unpaid orders. Pursuant to the terms of the asset purchase agreement, the
Company had the right to retain and did collect outstanding amounts from certain
of those accounts. An adjustment to the purchase price allocation has been made
to account for this asset in 2004 resulting in negative goodwill. This negative
goodwill, which is reflected on the Company's balance sheet at December 31, 2004
in other liabilities, will be reduced in subsequent periods by the amount of the
contingent earnout accrued, with any negative goodwill remaining at the end of
the earnout period to be recognized as extraordinary gain.

                                      F-24

<PAGE>

NOTE 11--ACQUISITIONS-CONTINUED

The following summarizes the allocation of the purchase price:


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

               Allocation of Purchase Price:
               ----------------------------
                  Inventory, net                                $  1,172,111
                  Accounts receivable                                220,000
                  Negative goodwill                                 (220,000)
                  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 generates funds for schools and which targets parents of
school children. Terms of the agreement included 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.

Earnout payments are recorded as an additional cost of the acquisition in the
period the earnout is earned. There was no earnout earned in 2004 under this
agreement.

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
                                                                  ==========

                                      F-25

<PAGE>

NOTE 11--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 12). Terms of the asset
purchase agreement included: (i) $25,000 cash; (ii) the issuance of a $75,000
note payable; (iii) 588,235 shares of common stock of the Company; (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 summarizes 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                       $      769
                    Equipment                                      11,922
                    Leasehold improvements                         10,000
                    Rent deposit                                    3,250
                    Goodwill                                      277,267
                                                            --------------
                          Total Assets                       $    303,208
                                                            ==============

The following table of proforma unaudited information gives effect to the
acquisitions of One Stop and Your Auction Stop as if they had occurred at the
beginning of the periods shown. 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 as the financial information required is unavailable.


<TABLE>
<CAPTION>
                                                   December 31, 2004         December 31, 2003
                                                   -----------------         -----------------

<S>                                                    <C>                       <C>
         Revenues                                      $  64,953,090             $   1,952,840
                                                       =============             =============

         Net Loss                                      $  (6,702,382)            $  (7,805,817)
                                                       =============             =============



         Net Loss Available to Common
         Stockholders                                  $  (9,471,613)            $  (7,805,817)
                                                       =============             =============

         Net Loss Per Share, Basic and Diluted         $       (0.10)            $       (0.26)
                                                       =============             =============
</TABLE>

                                      F-26

<PAGE>

NOTE 12--RELATED PARTY TRANSACTIONS-CONTINUED

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, or 6.5% at December 31, 2004. 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, which matured on August
31, 2004 and was paid in full in October 2004, paid 6% per annum interest and
was secured by a pledge of the Company's marketable securities. See Note 7 which
describes the terms of notes with related parties.

As discussed in Note 11, we purchased the assets of YAS on September 13, 2004.
Paul Robinson, our Chairman, CEO and President and Steve Avalone, our Chief
Marketing Officer and director, are majority stockholders of YAS. Of the total
consideration paid to YAS stockholders, Messrs. Robinson and Avalone received
cash consideration of $29,312 in 2004, and will receive $37,688 in 2005.

Prior to the acquisition, YAS provided services to the Company in connection
with our Auction & Earn program. These services included shipping, cleaning,
photographing, and listing donated items on eBay. Items donated by parents and
supporters of our school and nonprofit clients are sold on eBay with the school
or nonprofit receiving 50% of the selling price. Per the terms of our agreement,
we shared our profits equally with YAS. On August 9, 2004, we amended our prior
one-year strategic partnership agreement with YAS to provide for outsourced
scrip fulfillment services in support of our Scrip & Earn fundraising program.

As of September 12, 2004, prior to the acquisition date, we 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 us $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 us, was included in the
total purchase price.

At December 31, 2004, we have $180,460 due from related party reflected on our
balance sheet. See the discussion of the Albertson's Inc. litigation under Legal
Proceedings in Note 13.

NOTE 13 - COMMITMENTS AND CONTINGENCIES
---------------------------------------

Operating Lease Commitments
---------------------------

The Company leases office and warehouse facilities under non-cancelable
operating leases. Future minimum annual rental payments under the lease
agreements are as follows:

              For the year ending December 31,
              --------------------------------
                         2005                             $  199,759
                         2006                                177,406
                         2007                                124,559
                         2008                                120,430
                         2009                                128,039
                                                          ----------
                         Total                            $  750,194
                                                          ==========

                                      F-27

<PAGE>

NOTE 13--COMMITMENTS AND CONTINGENCIES

Rent expense was $258,920 and $131,551 for the years ended December 31, 2004 and
2003, respectively. Rent expense under the facility lease is recognized on a
straight-line basis over the term of the lease.

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. In
August 2004, management 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. If FUNDever fails to make the required monthly
payments, then Albertson's has the right to file a summary judgment against
FUNDever in the amount of $600,000, less payments they have received. 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 December 31, 2004, $260,000 is reflected
in accrued expenses. Recovery through nonpayment of the earn-out provision is
recognized as the earn-out is expensed. As of December 31, 2004, $119,540 in
recovery had been recognized.

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 held inventory on
consignment, did not pay for it, and transferred the inventory to Schoolpop, as
an alter ego of NSC, without any consideration. On April 1, 2005, Honey Baked
Ham notified Schoolpop of its intention to amend its complaint to add a claim
under the California Bulk Sales Law. 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 that the California
Bulk Sales Law does not apply to the transaction. Management believes that
Schoolpop should not be held liable for the obligations of NSC to the
plaintiffs. A mediation conference is scheduled for April 2005. Management
cannot predict the potential outcome of the mediation conference or the action
or the range of loss and therefore, no accrual for this potential liability has
been recorded in these 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. This action was
settled for a nominal amount in November 2004.

                                      F-28

<PAGE>

NOTE 13--COMMITMENTS AND CONTINGENCIES--CONTINUED

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, resulting
from her husband's fatal automobile accident. 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, since Mr.
Doherty's automobile accident was alcohol-related. However, the plaintiff
contends that the exclusion should not apply because the plaintiff's husband was
not provided with a summary plan description setting forth the felony acts
exclusion. Schoolpop was dismissed with prejudice as a party to the action in
October 2004.

Standard Insurance Company ("Standard") was Schoolpop's insurance carrier who is
also a defendant in the action by Ms. Doherty. Standard has not been dismissed.
On March 22, 2005, Standard filed a third-party complaint against Schoolpop for
violation of ERISA and breach of contract. Schoolpop has not yet been served
with the complaint. Standard's complaint alleges that Schoolpop failed to
provide the plaintiff's husband with the summary plan description setting forth
the felony acts exclusion. Standard's claim is based on Schoolpop's status as
designated ERISA plan administrator and on Standard's interpretation of a
purported indemnification clause in the plan policy. Standard's complaint seeks
indemnification by Schoolpop against damages arising from Schoolpop's alleged
failure to provide notice of the felony acts exclusion to its chief executive
officer.

Litigation counsel for the Company has advised the Company that it believes the
underlying claims are without merit since (i) the plaintiffs husband, as chief
executive officer of Schoolpop, should reasonably have been aware of the felony
acts exclusion; and (ii) there is no causation between any failure by Schoolpop
to provide the plaintiffs husband with a summary plan description setting forth
the felony acts exclusion and the damages suffered by the plaintiffs husband.
Because litigation counsel for the Company does not believe liability is
probable, no accrual for this potential liability has been recorded in our
consolidated financial statements. However, discovery on the indemnity claim has
not begun. Based on a preliminary analysis, it is possible that Schoolpop could
be found liable on the indemnity claim if it is found that Schoolpop did not
distribute Standard's summary plan description. If Schoolpop is liable for
indemnity, it would be liable at least for Standard's reasonable attorneys'fees.
We have no way of knowing what those fees would be at this early stage of
litigation.

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, including a bankruptcy
proceeding filed against NSC, has not yet fulfilled its agreement. We have been
in continuing discussions with the lender and hope to have the encumbrance
released. Litigation counsel to the Company has advised us that the lender
should not prevail should it attempt to enforce its security interest;
nevertheless, if the lender should attempt to enforce its security interest and
is successful, the Company could be required to compensate the lender to the
extent of the value of the purchased scrip assets of approximately $1,172,000.
No accrual for this potential liability has been recorded in these consolidated
financial statements as the chances of the lender seeking to enforce its
security interest or any potential recovery in seeking to enforce its security
interest would be remote.

                                      F-29

<PAGE>

NOTE 13--COMMITMENTS AND CONTINGENCIES--CONTINUED

In connection with the settlement of a Company lawsuit against a third party, we
disputed the $195,115 of legal fees charged to us by our litigation counsel. In
February 2005, we reached an agreement with counsel to pay them $124,455 in
total fees over a ten month period. If we fail to timely perform our obligations
under this agreement, then counsel shall have the right to demand payment in the
full amount of all fees and costs, less amounts previously paid thereunder. An
accrual in the amount of $195,115 is included on our balance sheet at December
31, 2004.

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,
we renewed the employment agreements of the two remaining officers for one-year
terms expiring on December 31, 2005 under the same terms, except that the annual
salaries were increased to $251,700 and $150,000. Upon termination or non
renewal of their agreements (except for cause), the officers are entitled to
severance packages equal to one-year's salary. 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, 2004 the committee
unanimously approved an increase in the executive's base salary from $200,000
per annum to $251,700 per annum, based on job performance and fair market value,
with such increase contingent upon the closing of the $4 million financing (See
Note 8). The salary increase was effective August 13, 2004, concurrent with the
closing of such transaction.

Significant Supplier Agreement
------------------------------

On August 10, 2004, we entered into a long-term agreement with AEIS relating to
our being an exclusive provider of their scrip products. We agreed to pay AEIS
$1,500,000 over five years, including $250,000 down, in exclusivity fees 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. We agreed to reduce the
remaining $1,250,000 exclusivity fee to $125,000 to be paid in 9 monthly
installments beginning April 30, 2005. In connection with this amendment, AEIS
has limited our product offering to one card, the "Persona Select" (See Note
15).

NOTE 14-SIGNIFICANT FOURTH QUARTER ADJUSTMENTS

Pursuant to the acquisition of assets from NSC (see Note 11), we discovered that
certain customer accounts had outstanding balances for unpaid orders at the
acquisition date, and were subsequently collected and retained by us and
recorded as revenue during the period in which they were collected. At December
31, 2004, we made a cumulative year-end adjustment to remove these amounts from
reported revenue and reclassify them as negative goodwill reflected in other
liabilities on our balance sheet. The result of this year-end adjustment was a
reduction in revenue of $220,000.

                                      F-30

<PAGE>

NOTE 15-SUBSEQUENT EVENTS

In January 2005 we increased our line of credit with a bank from $430,000 to
$860,000 under substantially the same terms.

In connection with the action against Schoolpop by Mary Elizabeth Doherty which
was dismissed as described in Note 13 above, on or about March 22, 2005,
Standard Insurance Company filed a third party complaint against Schoolpop
alleging violation of ERISA and breach of contract and is seeking
indemnification for damages arising from Schoolpop's alleged failure to provide
notice of the felony acts exclusion to its former chief executive officer.

On April 5, 2005, we amended our Reseller Agreement with AEIS which reduced our
exclusivity fee from $1,250,000 to $125,000 and limited our product offering
from AEIS to the "Persona Select" card.

On April 11, 2005, we sold our four patents to NeoMedia Technologies, Inc. for
$1,500,000 in cash plus royalties in the amount of 10% of the licensing fees
generated by the purchaser during the next 10 years.

                                      F-31