**UNITED
STATES**


**SECURITIES
AND EXCHANGE COMMISSION**


**Washington,
D.C. 20549**





****


**FORM
10-KSB**




**(Mark
One)**


x
    **ANNUAL
      REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE****SECURITIES
      AND EXCHANGE ACT OF 1934**




**For
the Fiscal Year Ended December 31, 2004**




o
    **TRANSITION
      REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE****SECURITIES
      EXCHANGE ACT OF 1934**




**Commission
File Number 000-26293**










**DIGITAL
LEARNING MANAGEMENT CORPORATION**


**(formerly
FreePCSQuote.Com, Inc.)**




(Name of
small business issuer in its charter)




**Delaware**
      (State
      or other jurisdiction of
      incorporation
      or organization)
    
    **88-0420306**
      (I.R.S.
      Employer
      Identification
      Number)**19950
      Mariner Avenue**
      **Torrance,
      California**
    ****
    **90503**
      (Zip
      Code)(Address
      of principal executive offices)**(310) 921-3444**
      (Issuer's
      telephone number)







Securities
registered under Section 12(b) of the Exchange
Act:    None




Securities
registered under Section 12(g) of the Exchange Act: Common Stock, $.001 Par
Value




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




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 the 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.    o




Issuer's
revenues for its most recent fiscal year:    $3,711,440




Aggregate
market value of the voting stock held by non-affiliates computed by reference to
the closing price at which the Common Stock was sold on the Over-the-Counter on
May 11, 2005: $1,010,201. The voting stock held by non-affiliates on that date
consisted of **** 5,385,127
shares of Common Stock.




Number
of shares outstanding of each of the issuer's classes of common stock at May 11,
2005:




Common
Stock:   20,204,022        Preferred
Stock:    0




The
registrant has incorporated by reference into Part III of this Form 10-KSB
portions of its definitive proxy to be filed with the Securities and Exchange
Commission within 120 days after the fiscal year to which this Report
relates.




Transitional
Small Business Disclosure Format (check
one)    Yes o Nox









**FORM
10-KSB INDEX**


PART
      I
    1ITEM
      1. DESCRIPTION OF BUSINESS
    1ITEM
      2. DESCRIPTION OF PROPERTIES
    5ITEM
      3. LEGAL PROCEEDINGS
    5ITEM
      4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
    6PART
      II
    6ITEM
      5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
    6ITEM
      6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF
    OPERATION
    7ITEM
      7. FINANCIAL STATEMENTS.
    24ITEM
      8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
      FINANCIAL DISCLOSURES
    25ITEM
      8A. CONTROLS AND PROCEDURES.
    25PART
      III
    25ITEM
      9. DIRECTORS AND EXECUTIVE OFFICERS
    25ITEM
      10. EXECUTIVE COMPENSATION
    26ITEM
      11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
      MANAGEMENT
    27ITEM
      12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
    28ITEM
      13. EXHIBITS AND REPORTS ON FORM 8-K
    29ITEM
      14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
    30SIGNATURES
    31POWER
      OF ATTORNEY
    31CERTIFICATIONS
    32








-i-




**NOTE
CONCERNING FORWARD-LOOKING STATEMENTS**




This
Report contains certain forward-looking statements, including the plans and
objectives of management for the business, operations, and economic performance
of Digital Learning Management Corporation (formerly FreePCSQuote.Com, Inc.).
These forward-looking statements generally can be identified by the context of
the statement or the use of words such as the Company or its management
“believes,” “anticipates,” “intends,” “expects,” “plans” or words of similar
meaning. Similarly, statements that describe the Company's future operating
performance, financial results, plans, objectives, strategies, or goals are
forward-looking statements. Although management believes that the assumptions
underlying the forward-looking statements are reasonable, these assumptions and
the forward-looking statements are subject to various factors, risks and
uncertainties, many of which are beyond the control of the Company. Accordingly,
actual results could differ materially from those contemplated by the
forward-looking statements.


**PART
I**




**ITEM
1. DESCRIPTION OF BUSINESS** ****




**History**




Digital
Learning Management Corporation, a Delaware corporation (hereinafter sometimes
referred to as the “Company,” “we,” “us,” and “our”), incorporated on
February 18, 1999, under the name FreePCSQuote.Com, Inc., was a development
stage company with a principal business objective to allow businesses the
opportunity to generate revenues through the use of our Internet technology
solutions and services. Through the use of our computer software, network
technology, and systems management, we provided our customers outsourced web
site and application hosting solutions. We had yet to generate significant
revenues from operations through the end of fiscal 2003.




An
objective of management became the acquisition of an operating company with
experienced management and the potential for profitable growth in exchange for
our securities. Pursuant to this objective, on January 16, 2004, we entered
into an Agreement and Plan of Merger (the “Agreement”) pursuant to which we,
through our wholly-owned subsidiary, FPQT Acquisition Corporation, a Nevada
corporation (“Merger Sub”), acquired Digital Learning Institute, Inc., a
privately held Delaware corporation (“DLI”) in exchange for shares of our Common
Stock (the “Merger”). Upon consummation of the Merger, Aurangzeb Bhatti was
named President and a Director, Umesh Patel was named Vice President and a
Director and Al Jinnah was named Secretary. Eric Borgerson resigned as our
President and sole Director.




**Description
of the Company Post-Merger**




DLI is a
for-profit continued education company that leveraged existing universities’
(course credits) accreditations, and campuses to provide training and education.
The company enrolls active students though several different Vocational Schools,
Colleges and Universities. Our business strategy during 2004 was to grow our
enrollment base under our existing course offerings and to reduce the cost of
learning through our proprietary Learning Management Software called
‘CourseMate’.




During
2004 we sought to increase our enrollment base, add to our curriculum offerings
and supplement our accreditations offerings through our acquisition of McKinley
University in 2003, as well as additional planned acquisitions of small
vocational schools. The acquisitions were based on our belief that we would have
more breadth in course offerings through the school’s accreditations and
business class offerings while using our scaleable education software
application to conduct courses over the Internet. In March 2005 we decided to
discontinue and exit the traditional vocational training business and direct
substantial proportion of our resources and concentrate our focus on our
proprietary On-Line learning solution products, training and
education.




-1-




On
February 27, 2004, we completed a $3.0 million offering of convertible
notes through a private placement to affiliated entities of Renaissance Capital.




On March
8, 2004, and in connection with the closing of the convertible note transaction
with Renaissance Capital, the following individuals were appointed to our Board
of Directors: Khalid Sheikh, Gregory J. Frazer, Richard Rappaport, Robert
Pearson and Al Jinnah.




A major
portion of the proceeds from the convertible notes were used to complete the
acquisition of two Vocational Training Schools, Software Education of America,
Inc. (SEA), and Global Computer systems, Inc. (Global). SEA discontinued all
operations in March 2005 and Global substantially reduced operations in March
2005.




DLI
entered into an agreement to acquire SEA on January 13, 2004. The transaction
was subject to approval of the change-of-control of SEA from the California
Bureau for Private Postsecondary Vocational Education ("BPPVE") and the
Accrediting Commission of Career Schools and Colleges of Technology ("ACCSCT").
The BPPVE approval was received during the quarter ended June 30 and as of May
1, 2004, DLI assumed responsibility for the marketing and managing of SEA sales
and providing working capital. DLI advanced funding to SEA pending final closing
of the transaction which occurred on July 1, 2004 after receipt of the formal
approval from ACCSCT on July 1, 2004. Effective July 1, 2004 SEA became a
wholly-owned subsidiary of DLI.





We
entered into an agreement to acquire Global on April 30, 2004. The transaction
was subject to approval of the change-of-control of Global from the BPPVE and
the ACCSCT. As of September 1, 2004, DLI assumed responsibility for the
marketing and managing of Global sales and providing working capital. DLI
advanced funding to Global pending final closing of the transaction, which
occurred on November 15, 2004.




On
February 27, 2004, we raised a total of $3,000,000 from three investors in an
offering of 7% convertible debenture notes through a private placement. The
terms of the debentures are for a period of 7 years. Interest accrues at 7% per
annum and is due and payable monthly beginning April 1, 2004. The debentures
mature on February 27, 2011, at which time all remaining unpaid principal and
interest will be payable in full. If the debentures are not sooner redeemed or
converted as provided in the loan, commencing February 27, 2007 and continuing
on the first day of each successive month prior to maturity, we will pay to the
lenders monthly principal installments of $10 per $1,000 of the then remaining
principal balance. These debentures are convertible, at the holder’s option,
into common stock at a rate of $0.4478 per share, entitling the holders to
6,699,833 shares of our common stock.




On
March 19, 2004, we effectuated our name change from FreePCSQuote.Com, Inc.
to Digital Learning Management Corporation and a 7.8680269:1 forward split of
our Common Stock. In connection with the name change, our trading symbol on the
Over-the-Counter Bulletin Board (the “OTCBB”) changed from “FPQT” to
“DGTL.”




In April
2004, the Company changed from Nevada to Delaware as its place of
incorporation.




On
February 22, 2005 the Company was served with notice of default under its $3.0
million convertible notes.




On
February 22, 2005 Robert Pearson resigned as a director. On February 28, 2005,
Richard Rappaport resigned as a director.




On March
16, 2005, we decided to discontinue operations at our vocational schools and our
acquisition strategy of accredited vocational schools and campuses. In
connection with this change in business strategy, we decided to close the
operations of SEA and substantially reduced operations of Global.





As of
April, 2005, the principal shareholders have loaned the Company $264,000 to keep
the Company operating.




**Business
and Operations**




After the
merger with FreePCSQuote.Com, we operated as a for-profit continued education
company that leveraged existing schools and university accreditations (course
credits), and campuses to provide vocational training and education. We had
enrolled active students though several different vocational schools, colleges
and universities. Our strategy was to grow our enrollment base under our
existing course offerings and to reduce the cost of learning through
implementing our proprietary Learning Management Software which we branded under
the name ‘CourseMate’.




-2-




We were
also looking to increase our enrollment base, add to our curriculum offerings
and supplement our accreditations offerings through additional acquisitions of
small vocational schools. The acquisitions were based on our belief that the
company would have more breadth in course offerings through the school’s
accreditations and business class offerings while using its scaleable education
software application to conduct courses over the Internet.




In March
2005 the Company closed its vocational schools and stopped offering In-Class
vocational training. We are now a provider of enterprise e-learning solutions
and related services to the education industry, government agencies and
corporate clients. Our patented Virtual University Appliance (“VU Appliance”) is
a state-of-the-art hardware and software package which incorporates our
CourseMate Virtual University System.




The VU
Appliance product, which was introduced by the Company in October 2004, is a
pre-packaged and “turn-key” hardware and software solution designed to address
the e-Learning needs of corporations and educational institutions. It is a
comprehensive "out-of-the-box" virtual learning solution that allows customers
to quickly create 100% web-based virtual learning environments. The platform
allows customers to create, publish and deliver courseware for e-Learning in
addition to managing their traditional classroom learning environment. The
Company utilizes its acquired United States Patent (Provisional) in its VU
Appliance. The Company believes its success in the future lies in successfully
marketing, selling and improving its VU Appliance product and related services.
The Company intends to remain focused on further developing and adding to its
intellectual property assets, utilizing its expertise to help the online
learning initiatives of its customers with e-Learning systems
solutions.




The VU
Appliance is feature-rich and allows corporations, educational institutions and
industry associations to create web-based virtual e-learning environments very
quickly and inexpensively. The appliance is a standard rack mounted device and
comes pre-configured with the following software:




§
    Course
      Builder - a software for creating/aggregating content for
      courses




§
    Courseware
      Repository - for storing all the courses and tracking their
      usage




§
    Learning
      Management and Registration System (LMS) - for registering and tracking
      Online as well as traditional in-class and web-cast
    students




§
    Online
      Exams Server - for creating comprehensive Exams, Quizzes and
      exercises




§
    Online
      Evaluations Server - for Students Evaluations, Instructor Evaluations, and
      other progress/quality tracking features




§
    Collaboration
      Server for Online Discussion Forums & Chat
Sessions




§
    Online
      Marketing Server - for promoting new courses and recruiting
      Instructor/Mentors




The
Appliance solution can accept content created in multiple formats and presents
that content over the Internet or Intranet. All interaction and administration
is performed with a web browser. The appliance can be placed at the clients
locations behind the fire wall or housed and managed at any remote hosting
location. Our clients can use our hard-software solution to integrate technology
into the education experience and campus life as well as in government and
corporate training environments. Our products support activities such as
professor or trainer assigned digital material on class or a corporate website,
student collaboration with peers or complete research online; an administrator
managing a departmental website; or a merchant conducting cash-free transactions
with students or employees and faculty through pre-funded debit accounts. Our
target clients include government agencies, colleges, universities, vocation
schools, other education providers and corporations, as well as textbook
publishers and education-focused merchants who serve these education providers
and training entities.




-3-




We expect
to generate revenues from sales of our VU Appliance product, licensing of the
product and professional services such as hosting, customization, training,
courseware development and third party course license fees. Our product revenues
consist of bundled hard-software product sales, annual licensing fees, client
hosting engagement. We typically sell our licenses and hosting services under
annually renewable agreements, and our clients generally pay the annual fees in
the beginning of the annual contract term.. Billing from these revenues are
recognized as deferred revenues and are then recognized ratably into revenue
over the contract term. Our product sale revenues are recognized upon the
shipment of the product to our customers.




We derive
professional services revenues primarily from training, implementation,
installation and other consulting services. All our professional services
revenues are on time and material and are recognized as the services are
performed.


****


**Competition**




The
market for e-Learning systems is very competitive and there are several products
in the market from large and well capitalized companies such as SumTotalTM,
eCollegeTM, BlackboardTM and WebCTTM and several others. These companies have far
greater resources than us and therefore can make our entry in the e-Learning
systems marketplace difficult. With this in mind, there can be no assurance that
we will succeed in our business objectives.




**Patents**




We have
obtained a United States Provisional Patent on our Virtual University
Appliance product. The preliminary patent was granted on December 12, 2004. The
patent is for a hardware and software combination designed to make e-Learning
easier to implement. We have capitalized the cost of the development of this
product at $360,000 for the past two years. We believe our patent is designed to
bring simplicity to complexity and make e-learning initiatives easier to
implement by packaging and tying all e-learning components and their related
processes together in our VU Appliance.




**Growth
Strategy**





We seek
to capitalize on our position as a low-cost provider in our market to grow our
business by supporting several significant aspects of education, including
on-line teaching, on-line learning, commerce and faculty and student affairs.
Key elements of our growth strategy include:





**Increasing
penetration of the U.S. postsecondary education and Corporate
market.** As of
December 31, 2004, we have packaged our suite of e-Learning products as a
‘turn-key’ appliance targeted towards mid-sized and smaller postsecondary
institutions and corporate accounts. We intend to capitalize on our ability to
rapidly deliver a fully functional e-Learning platform for under
$30,000.





**Growing
annual hosting revenues.** We
intend to increase annual hosting revenues with clients by selling new hosting
contracts and upgrading existing contracts, cross-selling complementary
applications and focusing on client satisfaction.





**Offering
new products to our target markets.** Using
feedback gathered from our clients and our sales and technical support groups,
we intend to continue to develop and offer new upgrades, applications and
application suites to increase our presence on campuses and expand the value
provided to our clients.





**Increasing
sales to international postsecondary education institutions and Corporations.** We intend
to continue to expand sales and marketing efforts to increase sales of our
applications to international postsecondary education institutions as well as
Corporations.





**Pursuing
strategic relationships and acquisition opportunities.** We intend
to continue to pursue strategic relationships with, acquisitions of, and
investments in, companies that enhance the technological features of our
products, offer complementary products, services and technologies, or broaden
the scope of our product offerings into other areas.




-4-




**Industry
Overview**





We
believe that the global education industry is large, complex and changing
rapidly, due in part to the accelerating adoption of information technology.
According to the U.S. Department of Education, overall annual spending on
education in the United States, including postsecondary and K-12 education, was
$745 billion in the 2001-2002 school year. In addition, Gartner, Inc., an
independent market research firm, estimates that worldwide spending on hardware,
internal services, information technology services and software in the education
industry was $34.0 billion in 2003.





Colleges,
universities, schools, government agencies and other education providers in the
United States and many other countries are under increasing pressure to
accommodate the rising number of students and working adults seeking education
and to provide more flexible and efficient methods of delivering education
services. In response, we believe that many institutions are seeking to utilize
technology and Internet-based applications to improve learning, flexibility and
their overall competitiveness in attracting and serving technology-oriented
students. One such application is online distance learning. Eduventures, Inc.,
an education consulting and research firm, estimates that 350,000 students, or
slightly less than 2% of the total postsecondary student population, were
enrolled in online distance learning programs in 2002 and that this market will
grow from $2.5 billion in the 2002-2003 school year to more than $4.2 billion in
the 2004-2005 school year, representing a compound annual growth rate of 31%.





**Seasonality**





Our
business is somewhat seasonal. Highest enrollment and revenues typically occur
during the fall back-to-school period. Slightly lower enrollment is experienced
in the spring, and the lowest enrollment generally occurs during the summer
months. Results of operations going forward may reflect this seasonal enrollment
pattern.





**Employees
and Labor Relations**





We
currently have two full-time employees and seven contract employees with whom
our labor relations are good.


Legislative
Actions and Potential New Accounting Pronouncements





In order
to comply with the newly adopted Sarbanes-Oxley Act of 2002 and proposed
accounting changes by the Securities and Exchange Commission, we may be required
to increase our internal controls, hire additional personnel and additional
outside legal, accounting and advisory services, all of which could cause our
general and administrative costs to increase. Proposed changes in the accounting
rules, including legislative and other proposals to account for employee stock
options as compensation expense among others, could increase the expenses that
we report under Generally Accepted Accounting Principles and could adversely
affect operating results.





**ITEM
2. DESCRIPTION OF PROPERTIES**




*Corporate
Headquarters.* Our
executive offices are located at 19950 Mariner Avenue, Torrance, California
90503. We lease approximately 19,833 square feet of office space at this
location under a five-year lease, which expires in September 2008.




We have
reached tentative agreement with our landlord (a related party) to vacate the
present premises and relocate to smaller offices in order to considerably reduce
our costs.




**ITEM
3. LEGAL PROCEEDINGS** ****




Software
Education of America, Inc. (SEA), a wholly owned subsidiary of the Company,
filed a voluntary petition in United States Bankruptcy Court for the Central
District of California on March 30, 2005 under chapter 7 of the Bankruptcy Code.
The filing was necessitated because SEA was running up losses which could not be
sustained.




-5-




On
February 2, 2005, Cyber Properties, LLC filed an unlawful detainer action
against Global Computer Systems, Inc., in Orange County Superior Court. One of
our subsidiaries, Global Computer Systems, Inc., signed a settlement agreement,
whereby it agreed to pay $24,950 for rent owed on its offices premises, which it
vacated at the end of February 2005. No judgment will be entered unless the
Company defaults on the rent payments.




On
November 9, 2004, Wells Fargo Bank filed a complaint in Orange County Superior
Court against Software Education of America (“SEA”), a subsidiary of the
Company, alleging SEA’s default on a line of credit in the aggregate amount of
approximately $158,000. Wells Fargo Bank is seeking damages in the amount of
approximately $158,000, plus interest and attorney’s fees. The line of credit is
guaranteed by the former owners of SEA (the “Guarantors”), who have been named
as co-defendants in the complaint. The Guarantors filed a cross-complaint
against the Company on February 4, 2005 for indemnity relating to the line of
credit, as well as indemnity in the amount of approximately $73,000 for claims
relating to credit card balances that the Company is obligated to repay pursuant
to the terms of its acquisition of SEA. The cross complaint further alleges a
breach of an employment agreement between the Company and Daniel Day, one of the
Guarantors, and seeks damages in the amount of approximately $100,000, plus
attorney’s fees against the Company. Additionally, the cross complaint alleges a
loss of credit cause of action by each of the Guarantors against the Company in
the aggregate amount of approximately $300,000, plus attorney’s fees. The
Company intends to file a cross-complaint against the Guarantors for
misrepresentation and against the accountants of the Guarantors for professional
negligence in preparing the audit upon which the Company relied in its
acquisition of SEA.




One of
the other guarantors of the line of credit filed a cross-complaint against the
Company on March 1, 2005 for indemnity in the amount of approximately $158,000,
plus attorneys’ fees. The cross complaint also alleges a default on separate
note by SEA in the amount of approximately $9,000. The prior shareholders of SEA
have also filed a cross-complaint for indemnity on the Wells Fargo loan and for
damages for breach of employment contract in the amount of $100,000 and other
obligations undertaken by Digital Learning Institute, Inc. (DLI) under the
acquisition agreement. There is also a tortuous claim made for loss of credit.
DLI has answered all these complaints and cross complaints and denied liability,
together with the filing of a cross complaint against these shareholders for
breach of contract and fraud, and against the accountants, who prepared the
financial statements of SEA prior to the acquisition, for negligence. DLI is
seeking recovery of the damages it has suffered as a result of these breaches of
contract and torts committed relating to the transaction.




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




There
were no matters submitted to a vote of our security holders during the fourth
quarter ended December 31, 2004.




**PART
II** ****




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




**Market
for Common Stock; Related Information**





Our
Common Stock is traded on the OTCBB under the symbol “DGTL”. Prior to
March 19, 2004, our Common Stock traded under the symbol “FPQT”. The
following table sets forth, for the fiscal quarter indicated, the high and low
closing price per share sales prices for the Common Stock, as reported by OTCBB:





****
    
    **High**
    
    **Low****2003**First
      quarter (1)
    
    $
    N/A
    
    $
    N/ASecond
      quarter (1)
    
    $
    N/A
    
    $
    N/AThird
      quarter (1)
    
    $
    N/A
    
    $
    N/AFourth
      quarter
    
    $
    5.50
    
    $
    0.10**2004**First
      quarter
    
    $
    9.00
    
    $
    3.05Second
      quarter
    
    $
    2.0
    
    $
    1.15Third
      quarter
    
    $
    1.25
    
    $
    0.30Fourth
      quarter
    
    $
    0.96
    
    $
    0.33







(1)
    There
      were no purchases or sales of our Common Stock during the first three
      quarters ended December 31, 2003, and no posted bid or
ask.




-6-




On May
11, 2005, there were 26 holders of record of our Common Stock and no holders of
record of our Preferred Stock. For information concerning historical dividends
and our dividend policy, see "Item 6—Management's Discussion and Analysis or
Plan of Operation—Dividends and Distributions."





On
October 1, 2004 the Company issued 300,000 fully paid common shares from
treasury to Linear Group, LLC nominees as consideration for marketing and public
relation services to be provided. This agreement expires on April 06, 2006. In
April 2005, the Company agreed to issue to Daniel Madoni 500,000 fully paid
common shares as a bonus for software consultancy work performed in the future
and as an incentive for consulting work to be performed in the future. Refer to
Item 11 below for information with respect to our equity compensation
plans.





**ITEM
6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF
OPERATION** ****




**Management's
Discussion and Analysis of Financial Condition and Results of Operations**




*The
following discussion should be read in conjunction with our Financial
Statements, including the related notes thereto, and other financial information
included herein. The information in this Report includes forward-looking
statements. In addition, past operating results are not necessarily indicative
of the results to be expected for future periods.*





**Overview**




Digital
Learning Management Corporation, a Delaware corporation (hereinafter sometimes
referred to as the “Company,” “we,” and “us”), incorporated on February 18,
1999, under the name FreePCSQuote.Com, Inc., was a development stage company
with a principal business objective to allow businesses the opportunity to
generate revenues through the use of our Internet technology solutions and
services. Through the use of our computer software, network technology, and
systems management, we provided our customers outsourced web site and
application hosting solutions. We had yet to generate significant revenues from
operations through the end of fiscal 2003.




An
objective of management became the acquisition of an operating company with
experienced management and the potential for profitable growth in exchange for
our securities. Pursuant to this objective, on January 16, 2004, we entered
into an Agreement and Plan of Merger (the “Agreement”) pursuant to which we,
through our wholly-owned subsidiary, FPQT Acquisition Corporation, a Nevada
corporation (“Merger Sub”), acquired Digital Learning Institute, Inc., a
privately held Delaware corporation (“DLI”) in exchange for shares of our Common
Stock (the “Merger”). Upon consummation of the Merger, Aurangzeb Bhatti was
named President and a Director, Umesh Patel was named Vice President and a
Director and Al Jinnah was named Secretary. Eric Borgerson resigned as our
President and sole Director.




**Change
in Business Strategy**




Effective
March 16, 2005, the Company decided to discontinue operations at its vocational
schools and will no longer pursue acquisitions of accredited vocational schools
and campuses going forward. The Company will continue to focus on its online
e-Learning systems and related services strategy, with sales and services
focused around its VU Appliance product, training and education.




The VU
Appliance product, which was introduced by the Company in October 2004, is a
pre-packaged and “turn-key” hardware and software solution designed to address
the e-Learning needs of corporations and educational institutions. It is a
comprehensive "out-of-the-box" virtual learning solution that allows customers
to quickly create 100% web-based virtual learning environments. The platform
allows customers to create, publish and deliver courseware for e-Learning in
addition to managing their traditional classroom learning environment. The
Company utilizes its acquired United States Patent (Provisional) in its VU
Appliance. The Company believes its success in the future lies in successfully
marketing, selling and improving its VU Appliance product and related services.
The Company intends to remain focused on further developing and adding to its
intellectual property assets, utilizing its expertise to help the online
learning initiatives of its customers with e-Learning systems
solutions.




-7-




*Late
Filing of Annual Report on Form 10-K*




Due to
our liquidity crisis, we may not be able to file our Annual Report on
Form 10-KSB on a timely basis. Such failure may cause us to be delisted by
the OTC Bulletin Board and could adversely affect our ability to raise
additional needed funds.




**Critical
Accounting Policies Used in Financial Statements**




We
prepare our financial statements in accordance with accounting principles
generally accepted in the United States. The preparation of these financial
statements requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and the disclosure of contingent
assets and liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Management's
estimates and judgments are based on historical experience and various other
factors that are believed to be reasonable under the circumstances, the results
of which form the basis for making judgments about the carrying values of assets
and liabilities that are not readily apparent from other sources. Actual results
may differ from these estimates under different assumptions or
conditions.




Our
operating expenses consists of costs of sale, research and development, sales
and marketing expenses and general and administrative expenses. Major component
of our cost of product revenue is the cost of the Appliance hardware. Cost of
product revenues will also include amortized internally developed courseware
content and technology available for sale, employee compensation and benefit for
personnel related to hosting, support and product functions, as well as related
facility rent, communication costs, utilities, depreciation expense and cost of
out side professional services used in these functions. Our cost of professional
services revenues include cost and compensation to employees and outside
consultants who are involved in the performance of these services with our
clients, as well as travel and related expense in facility rent, utilities and
communication costs and depreciation expenses. All these costs are expensed as
they are incurred. Our sales and marketing costs include cost and
compensation including commissions to employees and outside consultants who are
involved in the performance of these services with our clients, as well as
travel and related expense in facility rent, utilities and communication costs
and depreciation expenses and promotional items provided to students. All these
costs are expensed as they are incurred. Our General and Administration costs
include cost and compensation to employees and outside consultants who are
involved in the performance of these services, including legal, finance and
human resources expenses, as well as travel and related expense in facility
rent, utilities and communication costs and depreciation expenses, these
expenses include executive management compensation and benefits and expenses and
Information Management Systems and its related human and product costs . All
these costs are expensed as they are incurred.







-8-





**Results
of Operations—Years Ended December 31, 2004 and 2003**




The
following table sets forth certain statement of operations data for the years
ended December 31, 2004 and 2003:




**Year
      Ended****December
      31,**
    
    **December
      31,****2004**
    
    **2003**REVENUES,
      net
    
    $
    3,711,440
    
    $
    4,551,087OPERATING
      EXPENSES:Educational
      services
    
    
    1,229,156
    
    
    1,507,081General
      and administrative
    
    
    2,626,994
    
    
    1,289,372Depreciation
      expense
    
    
    59,997
    
    
    74,475Marketing
      and advertising
    
    
    1,301,397
    
    
    1,141,086TOTAL
      EXPENSES
    
    
    5,217,544
    
    
    4,012,014LOSS
      FROM OPERATIONS
    
    
    (1,506,104
    )
    
    539,073OTHER
      EXPENSES:Shell
      acquisition costs
    
    
    (213,362
    )
    
    --Impairment
      of Goodwill
    
    
    (1,187,853
    )
    
    --Interest
      expense
    
    
    (564,158
    )
    
    (48,334
    )Interest
      expense, related party
    
    
    --
    
    
    (20,602
    )Interest
      expense - non-cash beneficialconversion
      feature charge
    
    
    (3,000,000
    )
    
    --TOTAL
      OTHER EXPENSES
    
    
    (4,965,373
    )
    
    (68,936
    )NET
      INCOME (LOSS) BEFORE PROVISION (BENEFIT) FOR INCOME TAXES
    
    
    (6,471,477
    )
    
    470,137PROVISION
      (BENEFIT) FOR INCOME TAXES
    
    
    (135,000
    )
    
    214,773NET
      INCOME (LOSS)
    
    $
    (6,336,477
    )
    $
    255,364






-9-




*Revenues.* We
generated $3,711,440 in revenues in fiscal 2004, as compared to $4,551,087 in
fiscal 2003. The material changes were primarily for two reasons. First, the two
vocational schools that we acquired in 2004 continued to have losses which
drained our financial and human resources. We were not able to integrate these
vocational schools into our business model successfully. Second, three of our
major Accredidation providers stopped using our services to perform contract
training for their offsite extended education. As a result, we lost our main
source of revenue and ran out of working capital. **





*Expenses* .
Operating expenses consist primarily of educational services expenses, general
and administrative expenses, and marketing and advertising expenses. Operating
expenses increased 30% to $5,217,544 for the year ended December 31, 2004 from
$4,012,014 in the same period of 2003. This increase in operating expenses was
primarily due to the increase in advertising and marketing expenses incurred in
connection with the launch of our Virtual University Appliance product in the
third quarter and in absorbing the costs of SEA on a consolidated basis. We
expect our operating expenses to increase as our revenue base expands and we
strive to grow our operations.





*Educational
services.* Educational
services expenses include direct operating expense of our school consisting
primarily of contract salaries, occupancy and supplies expenses. As a percentage
of revenues, educational services expenses remained consistent at 33%.
Educational services expenses decreased 18% to $1,229,156 for the year ended
December 31, 2004 from $1,507,081 in the same period of 2003. The decrease in
costs was due to a decrease in revenues. **





*General
and administrative.* General
and administrative expenses include corporate payroll related expenses, office
occupancy expenses, professional fees and other support related expenses. As a
percentage of revenues, general and administrative expenses increased to 71% of
revenues for the year ended December 31, 2004 from 28% in the same period of
2003. General and administrative expenses increased 104% to $2,626,994 in the
year ended December 31, 2004 from $1,289,372 in the same period of 2003. The
increase in dollars and on a percentage basis was primarily due to professional
costs incurred in connection with our public reporting requirements, increased
payroll and payroll related expenses and absorbing the expense of SEA on a
consolidated basis.





*Marketing
and advertising.* Marketing
and advertising expenses as a percentage of revenue increased to 35% in the year
ended December 31, 2004 from 25% in the same period of 2003. Marketing and
advertising expenses increased 14% to $1,301,397 in the year ended December 31,
2004 from $1,141,086 in the same period of 2003. The increase in dollars was due
to additional spending to marketing in an effort to increase
revenue.





*Impairment
expense.* Impairment
expense in the year ended December 31, 2004 relates to the write off of goodwill
generated with the acquisitions of SEA and Global. Due the SEA filing bankruptcy
in March 2005 and the discontinuation of the operations of Global, we wrote off
the goodwill from both these acquisitions as well as goodwill acquired in our
acquisition of Mckinley University in 2003.





*Income
from operations.* Income
from operations decreased 379% to a loss of $1,506,104 in the year ended
December 31, 2004 from income of $539,073 in the same period of 2003. As a
percentage of revenues, loss from operations was 41% of revenues in the year
ended December 31, 2004 from income of 12% of revenues for the same period of
2003. The decrease in dollars and on a percentage basis relates primarily to
higher professional cost and other costs related to public reporting and other
increases in general and administrative expenses as we continue to build our
infrastructure. The decrease is also attributable to the fact that the revenues
in the first quarter of 2003 included a transaction pursuant to which one of our
customers had an extraordinary amount of funding available on a one-time basis
to train a substantial number of students in that quarter. This sales
opportunity accounted for $530,000 of the additional revenue for the first
quarter of 2003, which was not repeated in 2004. The decrease is also due in
part to a significant revenue loss for our telecom seminar classroom business
resulting from policy changes implemented by customers of one of our major
partners who was no longer able to outsource work to us.





*Net
income (loss).* We
incurred a net loss of $6,336,477 in the year ended December 31, 2004, as
compared to net income of $255,364 in the same period of 2003. This was due to a
cash expense charge of $213,362 related to acquisition costs incurred in
connection with our reverse merger in January and $3,000,000 in a non-cash
non-recurring investment expense charge incurred in connection with our
debenture financing completed in February 2004. We are required to take the
$3,000,000 non-recurring, non-cash charge due to the beneficial conversion
feature of these convertible notes. The net loss is also due in part to a
significant revenue loss for our telecom seminar classroom business resulting
from policy changes implemented by customers of one of our major partners who
was no longer able to outsource work to us, from higher professional costs
related to public reporting requirements, an increase in the general and
administrative expenses as we continued to build our marketing infrastructure to
launch our Virtual University Appliance product and the absorption of losses by
SEA on a consolidated basis .




-10-


**Liquidity
and Capital Resources**




We have
generated minimal revenues during the period contained in this report from the
sale of our Virtual University Product, which is the main component of our
business strategy going forward. It is unknown when we Will generate any
significant revenues. During our normal course of business, we may experience
severe negative cash flows from operations, pending receipt of additional
revenues.





If we are
unable to successfully obtain additional financing, we will not have sufficient
cash to continue operations. As of December 31, 2004, we had cash and cash
equivalents of approximately $174,000. We will need to raise additional funds
from either one or a combination of additional financings, exercise and/or
conversion of outstanding securities, mergers or acquisitions, or otherwise
obtain capital via sale or license of certain of our assets, in order to satisfy
our future liquidity requirements. Current market conditions present uncertainty
as to our ability to secure additional financing or effectuate any merger or
acquisition, as well as our ability to reach profitability. There can be no
assurances that we will be able to secure additional financing or effectuate any
such merger or acquisition, or obtain favorable terms on such financing if it is
available, or as to our ability to achieve positive cash flow from operations.
If we cannot effectuate financing transactions to raise needed funds on
acceptable terms, we will not be able to develop or enhance our products, take
advantage of future opportunities or respond to competitive pressure or
unanticipated requirements. A material shortage of capital will require us to
take drastic steps such as reducing our level of operations, disposing of
selected assets or seeking protection under federal bankruptcy laws. We cannot
assure you that we will be able to meet our future capital
requirements.





Unless we
arrange new financing in the amount of a minimum of $2.0 million through the
issuance of additional equity or convertible notes through a private placement,
we believe we will not have sufficient capital to finance our operations for the
next 12 months.




**Off-Balance
Sheet Arrangements**




We do not
have any off-balance sheet arrangements.




**Dividends
and Distributions**




We have
not paid any cash dividends to date. We intend to retain our future earnings, if
any, and we do not anticipate paying cash dividends on either class of our stock
in the foreseeable future.







-11-





**RISK
FACTORS**




You
should carefully consider the risks described below before making an investment
decision. Investing in our common stock involves a high degree of risk. Any of
the following factors could harm our business and future results of operation.
As a result, the trading price of our common stock could decline and result in a
partial or complete loss of your investment.




**Risks
Related to Our Business**




**We
have only had a few profitable quarters and may never achieve sustained
profitability.**




Although
we were profitable in 2003 on a net income basis, we have not been profitable in
2004, and may not be profitable in future periods, either on a short- or
long-term basis. Our profitability was not attributed to any sales of our
products. We incurred a net loss of ($6,336,477) for the year ended December 31,
2004. As of December 31, 2004, we had an accumulated deficit of $5,984,263. We
can give you no assurance that operating losses will not recur in the future or
that we will ever sustain profitability on a quarterly or annual basis.




**Providing
enterprise software applications to the education industry is an emerging and
uncertain business; if the market for our products fails to develop, we will not
be able to grow our business.**




Our
success will depend on our ability to generate revenues by providing enterprise
software applications and services to colleges, universities, schools,
government agencies and other education providers. This market has only recently
developed and the viability and profitability of this market is unproven. Our
ability to grow our business will be compromised if we do not develop and market
products and services that achieve broad market acceptance with our current and
potential clients and their students and employees. The use of online education,
transactional or content management software applications and services in the
education industry may not become widespread and our products and services may
not achieve commercial success. Even if potential clients decide to implement
products of this type, they may still choose to design, develop or manage all or
a part of their system internally.




Given our
clients’ relatively early adoption of enterprise software applications aimed at
the education industry, they are likely to be less risk-averse than most
colleges, universities, schools, government agencies and other education
providers. Accordingly, the rate at which we have been able to establish
relationships with our clients in the past may not be indicative of the rate at
which we will be able to establish additional client relationships in the
future.




**Our
clients use our products to facilitate online education, which is a relatively
new field; if online education does not continue to develop and gain acceptance,
demand for our products could suffer.**




Our
success will depend in part upon the continued adoption by our clients and
potential clients of online education initiatives. Some academics and educators
are opposed to online education in principle and have expressed concerns
regarding the perceived loss of control over the education process that can
result from offering courses online. Some of these critics, particularly college
and university professors, have the capacity to influence the market for online
education, and their opposition could reduce the demand for our products and
services. In addition, the growth and development of the market for online
education may prompt some members of the academic community to advocate more
stringent protection of intellectual property associated with course content,
which may impose additional burdens on clients and potential clients offering
online education. This could require us to modify our products, or could cause
these clients and potential clients to abandon their online education
initiatives.




**Our
level of fixed expenses may cause us to incur operating losses if we are
unsuccessful in achieving revenue growth.**




Our
expense levels are based, in significant part, on our estimates of future
revenues and are largely fixed in the short term. As a result, we may be unable
to adjust our spending in a timely manner if our revenues fall short of our
expectations. Accordingly, any significant shortfall of revenues in relation to
our expectations would have an immediate and material effect on our results of
operations. In addition, as our business grows, we anticipate increasing our
operating expenses to expand our product development, technical support, sales
and marketing and administrative organizations. Any such expansion could cause
material losses to the extent we do not generate additional revenues sufficient
to cover the additional expenses.




-12-




**Because
most of our hosting and support services are renewable on an annual basis, a
reduction in our license renewal rate could significantly reduce our revenues.**




Our
clients have no obligation to renew their hosting or support contracts for our
products after the expiration of the initial license period, which is typically
one year, and some clients have elected not to do so. A decline in license
renewal rates could cause our revenues to decline. Although we have experienced
favorable license renewal rates in recent periods, we have limited historical
data with respect to rates of renewals, so we cannot accurately predict future
renewal rates. Our license renewal rates may decline or fluctuate as a result of
a number of factors, including client dissatisfaction with our products and
services, our failure to update our products to maintain their attractiveness in
the market or budgetary constraints or changes in budget priorities faced by our
clients.




**If
our products and services do not gain widespread market acceptance, our
financial results could suffer.**




We
introduced our newest software application suite as an ‘Appliance’ called the
“Virtual University Appliance” in October 2004. Our ability to grow our business
will depend, on client acceptance of this product, which is currently unproven.
If we are not successful in gaining widespread market acceptance of this
product, our revenues may fall below our expectations, which could cause our
stock price to decline.




**Because
we generally recognize certain types of revenues which are ratably over the term
of our contract with a client, downturns or upturns in sales will not be fully
reflected in our operating results until future periods.**




We
recognize most of our hosting and support revenues from clients monthly over the
terms of their agreements, which are typically 12 months, although terms can
range from one month to 48 months. As a result, much of the revenue we report in
each quarter is attributable to agreements entered into during previous
quarters. Consequently, a decline in sales, client renewals, or market
acceptance of our products in any one quarter will not necessarily be fully
reflected in the revenues in that quarter, and will negatively affect our
revenues and profitability in future quarters. This ratable revenue recognition
also makes it difficult for us to rapidly increase our revenues through
additional sales in any period, as revenues from new clients must be recognized
over the applicable agreement term.




**Our
operating margins may suffer if our professional services revenues increase in
proportion to total revenues because our professional services revenues have
lower gross margins.**




Because
our professional services revenues typically have lower gross margins than our
product revenues, an increase in the percentage of total revenues represented by
professional services revenues could have a detrimental impact on our overall
gross margins, and could adversely affect our operating results. In addition, we
sometimes subcontract professional services to third parties, which further
reduces our gross margins on these professional services. As a result, an
increase in the percentage of professional services provided by third-party
consultants could lower our overall gross margins.




**If
our products contain errors or if new product releases are delayed, we could
lose new sales and be subject to significant liability claims.**




Because
our systems and software products are complex, they may contain undetected
errors or defects, known as bugs. Bugs can be detected at any point in a
product’s life cycle, but are more common when a new product is introduced or
when new versions are released. In the past, we have encountered product
development delays and defects in our products. We would expect that, despite
our testing, errors will be found in new products and product enhancements in
the future. Significant errors in our products could lead to:




§
    delays
      in or loss of market acceptance of our products;




§
    diversion
      of our resources;




§
    a
      lower rate of hosting and support contract renewals or upgrades;




§
    injury
      to our reputation; and




§
    increased
      service expenses or payment of damages.




-13-




Because
our clients use our products to store and retrieve critical information, we may
be subject to significant liability claims if our products do not work properly.
We cannot be certain that the limitations of liability set forth in our licenses
and agreements would be enforceable or would otherwise protect us from liability
for damages. A material liability claim against us, regardless of its merit or
its outcome, could result in substantial costs, significantly harm our business
reputation and divert management’s attention from our operations.




**The
length and unpredictability of the sales cycle for our product and services
could delay new sales and cause our revenues and cash flows for any given
quarter to fail to meet our projections or market expectations.**




The sales
cycle between our initial contact with a potential client and the signing of a
confirmed order with that client typically ranges from 1 to 6 months. As a
result of this lengthy sales cycle, we have only a limited ability to forecast
the timing of sales. A delay in or failure to complete purchase and/or license
transactions could harm our business and financial results, and could cause our
financial results to vary significantly from quarter to quarter. Our sales cycle
varies widely, reflecting differences in our potential clients’ decision-making
processes, procurement requirements and budget cycles, and is subject to
significant risks over which we have little or no control, including:




§
    clients’
      budgetary constraints and priorities;




§
    the
      timing of our clients’ budget cycles;




§
    the
      need by some clients for lengthy evaluations that often include both their
      administrators and faculties; and




§
    the
      length and timing of clients’ approval processes.




Potential
clients typically conduct extensive and lengthy evaluations before committing to
our products and services and generally require us to expend substantial time,
effort and money educating them as to the value of our offerings.




**Our
sales cycle with international prospects may be longer than our historic U.S.
sales cycle, which could cause us to incur greater costs and could reduce our
operating margins.**




As we
target more of our sales efforts at international markets, we could face greater
costs, longer sales cycles and less predictability in completing some of our
sales, which may harm our business. In both of these markets, a potential
client’s decision to use our products and services may be a decision involving
multiple institutions and, if so, these types of sales would require us to
provide greater levels of education to prospective clients regarding the use and
benefits of our products and services. In addition, we expect that potential
clients in both of these markets may demand more customization, integration
services and features. As a result of these factors, these sales opportunities
may require us to devote greater sales support and professional services
resources to individual sales, thereby increasing the costs and time required to
complete sales and diverting sales and professional services resources.




**We
may not be able to effectively manage our expanding operations, which could
impair our ability to operate profitably.**




We may be
unable to operate our business profitably if we fail to manage our growth. We
have experienced significant expansion since our inception, which has sometimes
strained our managerial, operational, financial and other resources. Future
growth could continue to strain our resources. Our failure to successfully
manage growth and to continue to refine our financial controls and accounting
and reporting systems and to add and retain personnel that adequately support
our growth would disrupt our business.




Our
future success and our ability to pursue our growth strategy will depend to a
significant extent on the continued service of our key management and technical
personnel, including Aurangzeb Bhatti, our chief executive officer and
president, and Daniel Madoni, our contract software engineer. Although we have
employment agreements with several of our executive officers, including Mr.
Bhatti, these agreements do not obligate them to remain employed by us.
Similarly, the contract arrangement with Mr. Madoni is also has an ‘at-will’
arrangement with the company. The loss of services of any key management
personnel or key contract programmers could make it more difficult to
successfully pursue our business goals.




**If
we do not maintain the compatibility of our products with third-party
applications that our clients use in conjunction with our products, demand for
our products could decline.**




Our
products and services can be used with a variety of third-party applications
used by our clients to extend the functionality of our products, which we
believe contributes to the attractiveness of our products in the market. If we
are not able to maintain the compatibility of our products with third-party
applications, demand for our products could decline and we could lose sales. We
may desire in the future to make our products compatible with new or existing
third-party applications that achieve popularity within the education
marketplace, and these third-party applications may not be compatible with our
designs. Any failure on our part to modify our applications to ensure
compatibility with such third-party applications would reduce demand for our
products and services.




-14-




**If
we are unable to protect our proprietary technology and other rights, it will
reduce our ability to compete for business.**




If we are
unable to protect our intellectual property, our competitors could use our
intellectual property to market products similar to our products, which could
decrease demand for our products. In addition, we may be unable to prevent the
use of our products by persons who have not paid the required license fee, which
could reduce our revenues. We rely on a combination of copyright, trademark and
trade secret laws, as well as licensing agreements, third-party nondisclosure
agreements and other contractual provisions and technical measures, to protect
our intellectual property rights. These protections may not be adequate to
prevent our competitors from copying or reverse-engineering our products. Our
competitors may independently develop technologies that are substantially
equivalent or superior to our technology. To protect our trade secrets and other
proprietary information, we require employees, consultants, advisors and
collaborators to enter into confidentiality agreements. These agreements may not
provide meaningful protection for our trade secrets, know-how or other
proprietary information in the event of any unauthorized use, misappropriation
or disclosure of such trade secrets, know-how or other proprietary information.
The protective mechanisms we include in our products may not be sufficient to
prevent unauthorized copying. Existing copyright laws afford only limited
protection for our intellectual property rights and may not protect such rights
in the event competitors independently develop products similar to ours. In
addition, the laws of some countries in which our products are or may be
licensed do not protect our products and intellectual property rights to the
same extent as do the laws of the United States.




If we are
found to infringe the proprietary rights of others, we could be required to
redesign our products, pay significant royalties or enter into license
agreements with third parties.




A third
party may assert that our technology violates its intellectual property rights.
As the number of software products in our markets increases and the
functionality of these products further overlap, we believe that infringement
claims will become more common. Any claims, regardless of their merit, could:




§
    be
      expensive and time consuming to defend;




§
    force
      us to stop licensing our products that incorporate the challenged
      intellectual property;




§
    require
      us to redesign our products;




§
    divert
      management’s attention and other company resources; and




§
    require
      us to enter into royalty or licensing agreements in order to obtain the
      right to use necessary technologies, which may not be available on terms
      acceptable to us, if at all.




**Expansion
of our business internationally will subject our business to additional economic
and operational risks that could increase our costs and make it difficult for us
to operate profitably.**




One of
our key growth strategies is to pursue international expansion. Expansion of our
international operations may require significant expenditure of financial and
management resources and result in increased administrative and compliance
costs. As a result of such expansion, we will be increasingly subject to the
risks inherent in conducting business internationally, including:




§
    foreign
      currency fluctuations, which could result in reduced revenues and
      increased operating expenses;




§
    potentially
      longer payment and sales cycles;




§
    difficulty
      in collecting accounts receivable;




§
    the
      effect of applicable foreign tax structures, including tax rates that may
      be higher than tax rates in the United States or taxes that may be
      duplicative of those imposed in the United States;




§
    tariffs
      and trade barriers;




§
    general
      economic and political conditions in each country;




§
    inadequate
      intellectual property protection in foreign countries;




§
    uncertainty
      regarding liability for information retrieved and replicated in foreign
      countries;




§
    the
      difficulties and increased expenses in complying with a variety of foreign
      laws, regulations and trade standards; and




§
    unexpected
      changes in regulatory requirements.


****


**Unauthorized
disclosure of data, whether through breach of our computer systems or otherwise,
could expose us to protracted and costly litigation or cause us to lose clients.**




Maintaining
the security of online education and transaction networks is an issue of
critical importance for our clients because these activities involve the storage
and transmission of proprietary and confidential client and student information,
including personal student information and consumer financial data, such as
credit card numbers. Individuals and groups may develop and deploy viruses,
worms and other malicious software programs that attack or attempt to infiltrate
our products. If our security measures are breached as a result of third-party
action, employee error, malfeasance or otherwise, we could be subject to
liability or our business could be interrupted. Penetration of our network
security could have a negative impact on our reputation and could lead our
present and potential clients to choose competitive offerings. Even if we do not
encounter a security breach ourselves, a well-publicized breach of the consumer
data security of any major consumer Web site could lead to a general public loss
of confidence in the use of the Internet, which could significantly diminish the
attractiveness of our products and services.




-15-




**Our
success depends in part on our ability to expand the content of our existing
programs and develop new programs in a cost-effective manner and on a timely
basis.**




Our
success depends in part on our ability to expand the content of our programs,
develop new programs in a cost-effective manner, and meet our students’ needs in
a timely manner. The expansion of our existing programs and the development of
new programs may not be accepted by our students or the online education market.
Even if we are able to develop acceptable new programs, we may not be able to
introduce these new programs as quickly as our students require or as quickly as
our competitors.




**Failure
to adequately respond to changes in market needs and technologies could have a
material adverse effect on our business and results of
operations.**




Many
prospective employers of our graduates increasingly demand that their
entry-level employees possess practical technological or professional skills.
Education programs offered by us must keep pace with such shifting requirements.
Our inability to adequately respond to changes in market requirements due to
financial constraints, technological change or other factors could have a
material adverse effect on our business and results of operations.




**Capacity
constraints or system disruptions to our computer networks could damage our
reputation and limit our ability to attract and retain
students.**




The
performance and reliability of our program infrastructure is critical to our
reputation and our ability to attract and retain students. Any system error or
failure, or a sudden and significant increase in traffic, may result in the
unavailability of our computer networks. We have experienced system failures due
to both software defects and operational errors. Most failures resulted in brief
periods of slow performance rather than interruptions in service. Individual,
sustained, or repeated occurrences could significantly damage our reputation and
result in a loss of potential or existing students. We cannot assure you that we
will be able to expand our program infrastructure on a timely basis sufficient
to meet demand for our programs.




Our
computer systems and operations are vulnerable to interruption or malfunction
due to events beyond our control, including natural disasters and
telecommunications failures. We presently have a limited amount of redundant
facilities, and our formal disaster recovery plan has never been tested. Any
interruption to our computer systems or operations could have a material adverse
effect on our ability to attract and retain students.




**Our
computer networks may be vulnerable to security risks that could disrupt
operations and require us to expend significant resources.**




Our
computer networks may be vulnerable to unauthorized access, computer hackers,
computer viruses, and other security problems. A user who circumvents security
measures could misappropriate proprietary information or cause interruptions or
malfunctions in operations. Due to the sensitive nature of the information
contained on our networks, such as students’ grades, our networks may be
targeted by hackers. As a result, we may be required to expend significant
resources to protect against the threat of these security breaches or to
alleviate problems caused by these breaches.




**We
may incur liability for the unauthorized duplication or distribution of class
materials posted online for class discussions.**




In some
instances, our instructors may post various articles or other third-party
content on the class discussion board. We may incur liability for the
unauthorized duplication or distribution of this material posted online for
class discussions. We cannot assure you that a third party will not raise a
claim against us for the unauthorized duplication of this material. Any such
claim could subject us to costly litigation and impose a significant strain on
its financial resources and management personnel regardless of whether the
claims have merit. Our general liability insurance may not cover or be adequate
for potential claims of this type and we may be required to alter the content of
its classes or pay financial damages.




-16-




**We
cannot predict our future capital needs, and may not be able to secure
additional financing.**




We will
likely need to raise additional funds in the future to fund our operations, to
expand our markets and product offerings, or to respond to competitive pressures
or perceived opportunities. We cannot assure you that additional financing will
be available on favorable terms, or at all. If adequate funds are not available
when required or on acceptable terms, we may be forced to cease our operations,
and even if we are able to continue operations, our ability to increase
enrollments and revenues may be adversely affected.




**Our**  **future
success depends in part upon our ability to recruit and retain key
personnel.**




Our
success to date has been, and our continuing success will be, substantially
dependent on the continued services of our executive officers and other key
personnel, who generally have extensive experience in the industry and have been
employed by us for substantial periods of time. If we ceased to employ any of
these integral personnel and failed to manage a smooth transition to new
personnel, our business could suffer.




Our
success also depends, in large part, upon our ability to attract and retain
highly qualified faculty and school presidents and administrators. Due to the
nature of our business, we may have difficulty locating and hiring qualified
personnel to fill open positions, and retaining such personnel once hired. The
loss of the services of any key employees, or our failure to attract and retain
other qualified and experienced personnel on acceptable terms, could have an
adverse effect on our business and results of operations.




**Our
business is subject to seasonal fluctuations, which may cause our operating
results to fluctuate from quarter-to-quarter. This fluctuation may result in
volatility or have an adverse effect on the market price of our Common
Stock.**




We
experience, and expect to continue to experience, seasonal fluctuations in our
revenue because fewer students are enrolled during the summer months. These
seasonal fluctuations in our operating results could result in volatility or
have an adverse effect on the market price of our Common Stock. In addition, as
our revenues continue to grow, these seasonal fluctuations may become more
evident.




-17-




**If
we undertake business combinations and acquisitions, they may be difficult to
integrate, disrupt our business, dilute stockholder value or divert management
attention.**




During
the course of our history, we have acquired several businesses, and a key
element of our growth strategy is to pursue additional acquisitions in the
future. Any acquisition could be expensive, disrupt our ongoing business and
distract our management and employees. We may not be able to identify suitable
acquisition candidates, and if we do identify suitable candidates, we may not be
able to make these acquisitions on acceptable terms or at all. If we make an
acquisition, we could have difficulty integrating the acquired technology,
employees or operations. In addition, the key personnel of the acquired company
may decide not to work for us. Acquisitions also involve the risk of potential
unknown liabilities associated with the acquired business.




As a
result of these risks, we may not be able to achieve the expected benefits of
any acquisition. If we are unsuccessful in completing or integrating
acquisitions that we may pursue in the future, we would be required to
reevaluate our growth strategy and we may have incurred substantial expenses and
devoted significant management time and resources in seeking to complete and
integrate the acquisitions.




Future
business combinations could involve the acquisition of significant intangible
assets. We currently record in our statements of operations ongoing significant
amortization of intangible assets acquired in connection with our historic
acquisitions, and may need to recognize similar charges in connection with any
future acquisitions. In addition, we may need to record write-downs from future
impairments of identified intangible assets and goodwill. These accounting
charges would reduce any future reported earnings, or increase a reported loss.
In addition, we could use substantial portions of our available cash, including
some or all of the proceeds of this offering, to pay the purchase price for
acquisitions. We could also incur debt to pay for acquisitions, or issue
additional equity securities as consideration for these acquisitions, which
could cause our stockholders to suffer significant dilution.




**Operational
failures in our network infrastructure could disrupt our remote hosting service,
could cause us to lose current hosting clients and sales to potential hosting
clients and could result in increased expenses and reduced revenues.**




Unanticipated
problems affecting our network systems could cause interruptions or delays in
the delivery of the hosting services we provide to some of our clients. If there
are operational failures in our network infrastructure that cause interruptions,
slower response times or loss of data for our remotely hosted clients, we may be
required to issue credits or pay penalties, current hosting clients may
terminate their contracts or elect not to renew them, and we may lose sales to
potential hosting clients. We will be providing remote hosting through computer
hardware that will be located in a third-party co-location facility in Los
Angeles, California. We do not control the operation of this co-location
facility. Lengthy interruptions in our hosting service could be caused by the
occurrence of a natural disaster, power loss, vandalism or other
telecommunications problems at the co-location facility or if this co-location
facility were to close without adequate notice. Although we have multiple
transmission lines into the co-location facility through two telecommunications
service providers, we have experienced problems of this nature from time to time
in the past, and we will continue to be exposed to the risk of network failures
in the future.




We
currently do not have adequate computer hardware and systems to provide
alternative service for our hosted clients. Our back-up strategy has not been
fully tested under actual disaster conditions. We yet have to begin the process
of securing another co-location facility for disaster recovery purposes, but we
do not believe we will have a geographically remote back-up facility in
operation before December 2005, if ever.




**Risks
Related to Our Industry**




**We
face intense and growing competition, which could result in price reductions,
reduced operating margins and loss of market share.**




We
operate in highly competitive markets and generally encounter intense
competition to win contracts. If we are unable to successfully compete for new
business and license renewals, our revenue growth and operating margins may
decline. The markets for online education, transactional, portal and content
management products are intensely competitive and rapidly changing, and barriers
to entry in such markets are relatively low. With the introduction of new
technologies and market entrants, we expect competition to intensify in the
future. Some of our principal competitors offer their products at a lower price,
which has resulted in pricing pressures. Such pricing pressures and increased
competition generally could result in reduced sales, reduced margins or the
failure of our product and service offerings to achieve or maintain more
widespread market acceptance.




-18-




Our
primary competitors for the Virtual University Appliance and System Suite are
companies that provide course management systems, such as BlackBoard, Inc.
WebCT, Inc., eCollege.com, SumTotal, Saba and Desire2Learn Inc., learning
content management systems, such as HarvestRoad Ltd. and Concord USA, Inc., and
education enterprise information portal technologies, such as SunGard SCT Inc.,
an operating unit of SunGard Data Systems Inc. We also face competition from
clients and potential clients who develop their own applications
internally.




We may
also face competition from potential competitors that are substantially larger
than we are and have significantly greater financial, technical and marketing
resources, and established, extensive direct and indirect channels of
distribution. As a result, they may be able to respond more quickly to new or
emerging technologies and changes in client requirements, or to devote greater
resources to the development, promotion and sale of their products than we can.
In addition, current and potential competitors have established or may establish
cooperative relationships among themselves or prospective clients. Accordingly,
it is possible that new competitors or alliances among competitors may emerge
and rapidly acquire significant market share to our detriment.




**If
potential clients or competitors use open source software to develop products
that are competitive with our products and services, we may face decreased
demand and pressure to reduce the prices for our products.**




The
growing acceptance and prevalence of open source software may make it easier for
competitors or potential competitors to develop software applications that
compete with our products, or for clients and potential clients to internally
develop software applications that they would otherwise have licensed from us.
One of the aspects of open source software is that it can be modified or used to
develop new software that competes with proprietary software applications, such
as ours. Such competition can develop without the degree of overhead and lead
time required by traditional proprietary software companies. If potential
clients use open source software to internally develop software or if a current
or potential competitor develops products using open source software that are
competitive with our products and services, we may face decreased demand for our
products and services.




**We
could lose revenues if there are changes in the spending policies or budget
priorities for government funding of colleges, universities, schools, other
government agencies and other education providers.**




Most of
our clients and potential clients are colleges, universities, schools,
government agencies and other education providers who depend substantially on
government funding. Accordingly, any general decrease, delay or change in
federal, state or local funding for colleges, universities, schools, other
government agencies and other education providers could cause our current and
potential clients to reduce their purchases of our products and services, to
exercise their right to terminate licenses, or to decide not to renew licenses,
any of which could cause us to lose revenues. In addition, a specific reduction
in governmental funding support for products such as ours would also cause us to
lose revenues.




**U.S.
and foreign government regulation of the Internet could cause us to incur
significant expenses, and failure to comply with applicable regulations could
make our business less efficient or even impossible.**




The
application of existing laws and regulations potentially applicable to the
Internet, including regulations relating to issues such as privacy, defamation,
pricing, advertising, taxation, consumer protection, content regulation, quality
of products and services and intellectual property ownership and infringement,
can be unclear. It is possible that U.S., state and foreign governments might
attempt to regulate Internet transmissions or prosecute us for violations of
their laws. In addition, these laws may be modified and new laws may be enacted
in the future, which could increase the costs of regulatory compliance for us or
force us to change our business practices. Any existing or new legislation
applicable to us could expose us to substantial liability, including significant
expenses necessary to comply with such laws and regulations, and dampen the
growth in use of the Internet.




-19-




Specific
federal laws that could also have an impact on our business include the
following:




§
    The
      Children’s Online Protection Act and the Children’s Online Privacy
      Protection Act restrict the distribution of certain materials deemed
      harmful to children and impose additional restrictions on the ability of
      online services to collect personal information from children under the
      age of 13; and




§
    The
      Family Educational Rights and Privacy Act imposes parental or student
      consent requirements for specified disclosures of student information,
      including online information.




Our
clients’ use of our product as their central platform for online education
initiatives may make us subject to any such laws or regulations, which could
impose significant additional costs on our business or subject us to additional
liabilities.




**Our
status under state and federal financial services regulation is currently
unclear, and any violation of any present or future regulation could expose us
to liability, force us to change our business practices or force us to stop
selling or modify our products and services.**




Our
transaction processing products and service offering could be subject to state
and federal financial services regulation. The Virtual University System will in
the future support the creation and management of student debit accounts and the
processing of payments against those accounts for both on-campus vendors and
off-campus merchants. For example, one or more federal or state governmental
agencies that regulate or monitor banks or other types of providers of
electronic commerce services may conclude that we are engaged in banking or
other financial services activities that are regulated by the Federal Reserve
under the U.S. Federal Electronic Funds Transfer Act or Regulation E thereunder
or by state agencies under similar state statutes or regulations. Regulatory
requirements may include, for example:




§
    disclosure
      of our business policies and practices;




§
    restrictions
      on specified uses and disclosures of information;




§
    data
      security requirements;




§
    government
      registration; and




§
    reporting
      and documentation requirements.




A number
of states have enacted legislation regulating check sellers, money transmitters
or transaction settlement service providers as banks. If we were deemed to be in
violation of any current or future regulations, we could be exposed to financial
liability and adverse publicity or forced to change our business practices or
stop selling some of our products and services. As a result, we could face
significant legal fees, delays in extending our product and services offerings,
and damage to our reputation that could harm our business and reduce demand for
our products and services. Even if we are not required to change our business
practices, we could be required to obtain licenses or regulatory approvals that
could cause us to incur substantial costs.




**There
is a very limited public market for our common stock, and our stock price could
be volatile and could decline following this offering, resulting in a
substantial loss on your investment.**




Our stock
is considered a penny-stock. In addition, the stock market in general, and the
market for technology-related stocks in particular, has been highly volatile in
the recent past. As a result, the market price of our common stock is likely to
be similarly volatile, and investors in our common stock may experience a
decrease in the value of their stock, including decreases unrelated to our
operating performance or prospects. The price of our common stock could be
subject to wide fluctuations in response to a number of factors, including those
listed in this section of this prospectus and others such as:




§
    changes
      in our revenues or earnings estimates or recommendations by securities
      analysts;




§
    publication
      of research reports about us or our industry by securities analysts;




§
    speculation
      in the press or investment community;




§
    changes
      in accounting principles; and




§
    general
      market or economic conditions, including factors unrelated to our
      performance.




In the
past, securities class action litigation has often been instituted against
companies following periods of volatility in their stock price. This type of
litigation could result in substantial costs and divert our management’s
attention and resources.




-20-




**A
substantial number of shares will be eligible for sale in the near future, which
could cause our common stock price to decline significantly.**




If our
stockholders sell, or the market perceives that our stockholders intend to sell,
substantial amounts of our common stock in the public market following this
offering, the market price of our common stock could decline significantly.
These sales also might make it more difficult for us to sell equity or
equity-related securities in the future at a time and price that we deem
appropriate.




**If
we fail to meet revenues and earnings expectations, our stock price may fall
rapidly.**




Due in
part to the length of our sales cycle and the unpredictability of our emerging
industry, our operating results are difficult to predict, and they may fluctuate
significantly from quarter to quarter. If our quarterly revenues or operating
results are below the expectations of public market analysts and investors, the
price of our common stock could fall rapidly. Our results of operations depend
on both the continued growth of demand for our products and services and general
economic and business conditions in our markets. Because we expect that our
operating results may fluctuate significantly on a quarterly basis,
period-to-period comparisons of our operating results may not be meaningful, and
you should not rely upon them as an indication of future performance.




**The
market for online learning may not continue to develop.**




The use
of online education and training may not increase as anticipated and our
programs may not be accepted by working adult students. Also, some educators are
opposed to online education and have the capacity to negatively influence the
market for our programs. Some critics have also expressed concerns regarding the
perceived loss of control over the educational process that can result from the
outsourcing of online campuses and courses. We may be unable to continue to
increase the number of students and revenues if the higher education and
training market does not more generally accept online learning.




**We
operate in a highly competitive market with rapid technology changes and we may
not have the resources needed to compete successfully.**




Online
education and related solutions are a highly fragmented and competitive market
that is subject to rapid technological change. Competitors vary in size and
organization from traditional colleges and universities, many of which have some
form of online education programs, to for-profit schools, corporate
universities, and software companies providing online education and training
software. We expect the online education and training market to be subject to
rapid changes in technologies. We may not have the resources necessary to
compete with the rapidly changing technologies being developed by our
competitors and our success will depend on our ability to adapt to these
changing technologies.




**Competitors
may harm our business by operating more effectively or more efficiently in its
market.**




The
On-line solutions market is highly competitive. Our On-line offerings compete
with several other providers offerings including traditional public and private
two-year and four-year colleges and universities and other for-profit schools,
including those that offer distance-learning programs. Certain public and
private colleges and universities may offer programs similar to those offered by
us. Public institutions are often able to charge lower tuition, due in part to
government subsidies, government and foundation grants, tax-deductible
contributions and other financial resources not available to for-profit schools
like those operated by us. Some of our competitors, in both the public and
private sectors, have substantially greater financial and other resources, which
may allow them to have greater success in the market.




**Changes
in the extensive regulations to which we are subject could increase our cost of
doing business or affect our ability to grow.**




We are
subject to extensive private, federal, and state regulation. New or revised
interpretations of the regulations by any of the regulatory entities that
determine our accreditation, state licensure, or eligibility for federal
financial aid could increase our cost of doing business or affect our ability to
continue increasing the number of students and revenue.




-21-




**State
regulations for distance education are currently uncertain and may require us to
expend significant resources and significantly limit our ability to expand our
business.**




State
regulations for distance education providers are uncertain. We may have to
devote significant time and financial resources in order to comply with various
state laws and regulations if states determine to regulate online education. We
may not have sufficient resources to comply with any new laws and regulations
that may be enacted, which could preclude us from operating in one or more
states and could significantly limit the ability to expand our
business.




**Risks
Related To the Company’s Capital Structure**




**There
is no assurance of an established public trading market.**




Although
our Common Stock trades on the OTCBB, a regular trading market for the
securities may not be sustained in the future. The NASD has enacted recent
changes that limit quotations on the OTCBB to securities of issuers that are
current in their reports filed with the Securities and Exchange Commission. The
effect on the OTCBB of these rule changes and other proposed changes cannot be
determined at this time. The OTCBB is an inter-dealer, Over-The-Counter market
that provides significantly less liquidity than the NASD’s automated quotation
system (the “NASDAQ Stock Market”). Quotes for stocks included on the OTCBB are
not listed in the financial sections of newspapers as are those for the NASDAQ
Stock Market. Therefore, prices for securities traded solely on the OTC Bulletin
Board may be difficult to obtain and holders of common stock may be unable to
resell their securities at or near their original offering price or at any
price. Market prices for our Common Stock will be influenced by a number of
factors, including:




o
    the
      issuance of new equity securities;




o
    changes
      in interest rates;




o
    competitive
      developments, including announcements by competitors of new products or
      services or significant contracts, acquisitions, strategic partnerships,
      joint ventures or capital commitments;




o
    variations
      in quarterly operating results;




o
    change
      in financial estimates by securities
analysts;




o
    the
      depth and liquidity of the market for our Common
Stock;




o
    investor
      perceptions of our company and the technologies industries generally;
      and




o
    general
      economic and other national conditions.




**Our
Common Stock could be considered a “penny stock.”**




Our
Common Stock could be considered to be a “penny stock” if it meets one or more
of the definitions in Rules 15g-2 through 15g-6 promulgated under Section 15(g)
of the Securities Exchange Act of 1934, as amended. These include but are not
limited to the following: (i) the stock trades at a price less than $5.00 per
share; (ii) it is NOT traded on a “recognized” national exchange; (iii) it is
NOT quoted on the NASDAQ Stock Market, or even if so, has a price less than
$5.00 per share; or (iv) is issued by a company with net tangible assets less
than $2.0 million, if in business more than a continuous three years, or with
average revenues of less than $6.0 million for the past three years. The
principal result or effect of being designated a “penny stock” is that
securities broker-dealers cannot recommend the stock but must trade in it on an
unsolicited basis.




**Broker-dealer
requirements may affect trading and liquidity** .




Section
15(g) of the Securities Exchange Act of 1934, as amended, and Rule 15g-2
promulgated thereunder by the SEC require broker-dealers dealing in penny stocks
to provide potential investors with a document disclosing the risks of penny
stocks and to obtain a manually signed and dated written receipt of the document
before effecting any transaction in a penny stock for the investor’s
account.




-22-




Potential
investors in our Common Stock are urged to obtain and read such disclosure
carefully before purchasing any shares that are deemed to be “penny stock.”
Moreover, Rule 15g-9 requires broker-dealers in penny stocks to approve the
account of any investor for transactions in such stocks before selling any penny
stock to that investor. This procedure requires the broker-dealer to (i) obtain
from the investor information concerning his or her financial situation,
investment experience and investment objectives; (ii) reasonably determine,
based on that information, that transactions in penny stocks are suitable for
the investor and that the investor has sufficient knowledge and experience as to
be reasonably capable of evaluating the risks of penny stock transactions; (iii)
provide the investor with a written statement setting forth the basis on which
the broker-dealer made the determination in (ii) above; and (iv) receive a
signed and dated copy of such statement from the investor, confirming that it
accurately reflects the investor’s financial situation, investment experience
and investment objectives. Compliance with these requirements may make it more
difficult for holders of our Common Stock to resell their shares to third
parties or to otherwise dispose of them in the market or otherwise.




**SPECIAL
NOTE REGARDING FORWARD-LOOKING STATEMENTS**




This
Annual Report contains forward-looking statements that involve substantial risks
and uncertainties. You can identify these statements by forward-looking words
such as “anticipate”, “believe”, “could”, “estimate”, “expect”, “intend”, “may”,
“plan”, “potential”, “should”, “will” and “would” or similar words. You should
read statements that contain these words carefully because they discuss our
future expectations, contain projections of our future results of operations or
of our financial position or state other forward-looking information. We believe
that it is important to communicate our future expectations to our investors.
However, there may be events in the future that we are not able to predict
accurately or control. The factors listed above in the section captioned “Risk
Factors,” as well as any cautionary language in this Annual Report, provide
examples of risks, uncertainties and events that may cause our actual results to
differ materially from the expectations we describe in our forward-looking
statements. Before you invest in our common stock, you should be aware that the
occurrence of the events described in these risk factors and elsewhere in this
Annual Report could have a material adverse effect on our business, results of
operations and financial position.







-23-





**ITEM
7. FINANCIAL STATEMENTS.** ****




**Digital
Learning Management Corporation and Subsidiaries**


**Consolidated
Financial Statements**


**Years
Ended December 31, 2004 and 2003**





**Contents**





Page**Independent
      Auditors' Report:**Report
      of Independent Registered Public Accounting Firm
    F-1**Financial
      Statements:**Consolidated
      Balance Sheet as of December 31, 2004
    F-2Consolidated
      Statements of Operations for the years ended December 31, 2004 and
      2003
    F-3Consolidated
      Statements of Stockholders’ (Deficit) for the years ended December
      31, 2004 and 2003
    F-4Consolidated
      Statements of Cash Flows for the years ended December 31, 2004 and
      2003
    F-5Notes
      to Consolidated Financial Statements
    F-7











-24-
 
  A J. ROBBINS, P.C.


**CERTIFIED
PUBLIC ACCOUNTANTS**
 **216
16th STREET SUITE 600** ****
 **DENVER,
COLORADO**


**REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM**





Board of
Directors and Stockholders


Digital
Learning Management Corporation


Torrance,
California





We have
audited the accompanying consolidated balance sheet of Digital Learning
Management Corporation and subsidiaries as of December 31, 2004, and the related
consolidated statements of operations, stockholders’ (deficit) and cash flows
for each of the years in the two year period 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 audits.





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





In our
opinion, the financial statements referred to above present fairly, in all
material respects, the financial position of Digital Learning Management
Corporation and subsidiaries as of December 31, 2004, and the results of their
operations and their cash flows for each of the years in the two year
period then ended, in conformity with accounting principles generally accepted
in the United States of America.





The
accompanying financial statements have been prepared assuming that the Company
will continue as a going concern. As discussed in Note 1 to the financial
statements, the Company has incurred a significant loss for the year ended
December 31, 2004 and at December 31, 2004 has a stockholders’ deficit and a
working capital deficit. In addition, the Company is in default on its
convertible debentures. Management's plans in regard to these matters are also
described in Note 1. The financial statements do not include any adjustments
that might result from the outcome of this uncertainty.





**/s/
A J. ROBBINS, P.C.**


**CERTIFIED
PUBLIC ACCOUNTANTS**





Denver,
Colorado


April 29,
2005





F-1





**Digital
Learning Management Corporation and Subsidiaries**


**Consolidated
Balance Sheet**








**December
      31,****2004****ASSETS**CURRENT
      ASSETS:Cash
      and cash equivalents
    
    $
    174,179Restricted
      cash
    
    
    70,000Accounts
      receivable, net of allowance for doubtful accounts of
    $342,278
    
    
    358,685Prepaid
      expenses
    
    
    24,959Inventory
    
    
    10,481Income
      tax refund receivable
    
    
    135,000Other
      current assets
    
    
    162,912TOTAL
      CURRENT ASSETS
    
    
    936,216PROPERTY
      AND EQUIPMENT, net
    
    
    591,075TOTAL
      ASSETS
    
    $
    1,527,291**LIABILITIES
      AND STOCKHOLDERS' (DEFICIT)**CURRENT
      LIABILITIES:Convertible
      notes payable
    
    $
    3,000,000Accounts
      payable and accrued expenses
    
    
    629,087Accrued
      compensation
    
    
    242,239Accounts
      payable
    
    
    32,640Unearned
      tuition, net
    
    
    22,106Notes
      payable
    
    
    162,666Line
      of credit
    
    
    90,961Due
      to factor
    
    
    124,424TOTAL
      CURRENT LIABILITIES
    
    
    4,304,123COMMITMENTS
      AND CONTINGENCIES
    
    
    --STOCKHOLDERS'
      DEFICITPreferred
      stock, $0.001 par value; 5,000,000 sharesauthorized; 0 shares
      issued and outstanding
    
    
    --Common
      stock; $0.001 par value; 75,000,000 sharesauthorized;
      20,204,024 shares issued and outstanding
    
    
    20,204Additional
      paid-in capital
    
    
    3,211,977Prepaid
      consulting
    
    
    (24,750
    )Accumulated
      deficit
    
    
    (5,984,263
    )TOTAL
      STOCKHOLDERS' (DEFICIT)
    
    
    (2,776,832
    )TOTAL
      LIABILITIES AND STOCKHOLDERS' (DEFICIT)
    
    $
    1,527,291The
      accompanying notes are an integral part of these consolidated financial
      statements





F-2





**Digital
Learning Management Corporation and Subsidiaries**


**Consolidated
Statements of Operations**





**Year
      Ended****December
      31,**
    
    **December
      31,****2004**
    
    **2003**REVENUES
      net
    
    $
    3,711,440
    
    $
    4,551,087OPERATING
      EXPENSES:Educational
      services
    
    
    1,229,156
    
    
    1,507,081General
      and administrative
    
    
    2,626,994
    
    
    1,289,372Depreciation
      expense
    
    
    59,997
    
    
    74,475Marketing
      and advertising
    
    
    1,301,397
    
    
    1,141,086TOTAL
      EXPENSES
    
    
    5,217,544
    
    
    4,012,014INCOME
      (LOSS) FROM OPERATIONS
    
    
    (1,506,104
    )
    
    539,073OTHER
      (EXPENSES):Shell
      acquisition costs
    
    
    (213,362
    )
    
    --Impairment
      of goodwill
    
    
    (1,187,853
    )
    
    --Interest
      expense
    
    
    (564,158
    )
    
    (48,334
    )Interest
      expense, related party
    
    
    --
    
    
    (20,602
    )Interest
      expense - non-cash beneficialconversion feature
    charge
    
    
    (3,000,000
    )
    
    --TOTAL
      OTHER EXPENSES
    
    
    (4,965,373
    )
    
    (68,936
    )NET
      INCOME (LOSS) BEFOREPROVISION
      (BENEFIT) FOR INCOME TAXES
    
    
    (6,471,477
    )
    
    470,137PROVISION
      (BENEFIT) FOR INCOME TAXES
    
    
    (135,000
    )
    
    214,773NET
      INCOME (LOSS)
    
    $
    (6,336,477
    )
    $
    255,364BASIC
      AND DILUTED LOSS PERCOMMON SHARE
    
    $
    (0.32
    )
    $
    0.01WEIGHTED
      AVERAGE NUMBER OFCOMMON SHARES OUTSTANDING - BASIC AND
      DILUTED
    
    
    19,784,901
    
    
    17,372,839The
      accompanying notes are an integral part of these consolidated financial
      statements










F-3





**Digital
Learning Management Coporation and Subsidiaries**


**Consolidated
Statements of Stockholders' (Deficit)**





**For
      the Years Ended December 31, 2004 and 2003****Retained****Additional**
    
    
    
    **Earnings****Common
      Stock**
    
    **Paid-in**
    
    **Prepaid**
    
    **Accumulated****Shares**
    
    **Amount**
    
    **Capital**
    
    **Consulting**
    
    **(Deficit)**
    
    **Total****Balance,
      December 31, 2002,**as restated for stock splits
    
    
    **13,724,543**
    
    **$**
    **13,725**
    
    **$**
    **(13,724**
    **)**
    **$**
    
    
    **$**
    **96,850**
    
    **$**
    **96,851**Common
      shares issued for services
    
    
    3,648,296
    
    
    3,648
    
    
    6,852
    
    
    
    
    
    
    
    
    10,500Warrants
      issued for compensation
    
    
    
    
    
    
    
    
    6,000
    
    
    
    
    
    
    
    
    6,000Net
      income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    255,364
    
    
    255,364**Balance,
      December 31, 2003,**as restated for stock split
    
    
    **17,372,839**
    
    
    **17,373**
    
    
    **(872**
    **)**
    
    **--**
    
    
    **352,214**
    
    
    **368,715**Shares
      issued in connection with merger withFREEPCSQUOTE.COM,
      Inc.
    
    
    2,431,185
    
    
    2,431
    
    
    (2,431
    )
    
    
    
    
    
    
    
    --Common
      shares issued for services
    
    
    300,000
    
    
    300
    
    
    32,700
    
    
    (33,000
    )
    
    
    
    
    --Common
      shares issued for acquistion of GlobalComputer
      Systems, Inc.
    
    
    100,000
    
    
    100
    
    
    61,900
    
    
    
    
    
    
    
    
    62,000Warrants
      issued with merger withFREEPCSQUOTE.COM,
      Inc.
    
    
    
    
    
    
    
    
    109,880
    
    
    
    
    
    
    
    
    109,880Warrants
      issued with acquistion of Software Eductionof
      America, Inc.
    
    
    
    
    
    
    
    
    10,800
    
    
    
    
    
    
    
    
    10,800Value
      of beneficial conversion featureon
      convertible debentures
    
    
    
    
    
    
    
    
    3,000,000
    
    
    
    
    
    
    
    
    3,000,000Amortization
      of prepaid consulting
    
    
    
    
    
    
    
    
    
    
    
    8,250
    
    
    
    
    
    8,250Net
      (loss)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (6,336,477
    )
    
    (6,336,477
    )**Balance,
      December 31, 2004**
    
    
    **20,204,024**
    
    **$**
    **20,204**
    
    **$**
    **3,211,977**
    
    **$**
    **(24,750**
    **)**
    **$**
    **(5,984,263**
    **)**
    **$**
    **(2,776,832**
    **)**The
      accompanying notes are an integral part of these consolidated financial
      statements










F-4





**Digital
Learning Management Corporation and Subsidiaries**


**Consolidated
Statements of Cash Flows**




**Year
      Ended****December
      31,**
    
    **December
      31,****2004**
    
    **2003**CASH
      FLOW FROM OPERATING ACTIVITIES:Net 
      income (loss)
    
    $
    (6,336,477
    )
    $
    255,364Adjustment
      to reconcile net income (loss) to net cashused in operating
      activities:Depreciation
    
    
    59,997
    
    
    74,475Amortization
      of prepaid consulting
    
    
    8,250
    
    
    --Common
      stock issued for services
    
    
    --
    
    
    10,500Warrants
      issued for compensation
    
    
    --
    
    
    6,000Warrants
      issued in shell acquisition
    
    
    109,880
    
    
    --Beneficial
      conversion feature
    
    
    3,000,000
    
    
    --Deferred
      income taxes
    
    
    (80,842
    )
    
    22,484Impairment
      of goodwill
    
    
    1,187,853
    
    
    --Loss
      recognized on acquired companies prior to taking control
    
    
    49,050
    
    
    --Write
      off of deferred offering costs
    
    
    72,220
    
    
    --Write
      off of prepaid loan fees
    
    
    329,479
    
    
    --Changes
      in operating assets and liabilities:Accounts
      receivable
    
    
    767,822
    
    
    486,302Prepaid
      expenses
    
    
    56,110
    
    
    (80,330
    )Inventory
    
    
    1,739
    
    
    --Other
      assets
    
    
    (90,240
    )
    
    (22,751
    )Accounts
      payable
    
    
    253,464
    
    
    56,053Accrued
      expenses, related party
    
    
    29,631
    
    
    44,676Due
      to factor
    
    
    124,424
    
    
    (353,751
    )Accrued
      compensaton
    
    
    (52,730
    )
    
    --Unearned
      Tuition
    
    
    (183,624
    )
    
    --Income
      taxes
    
    
    (286,407
    )
    
    151,407Net
      cash provided by (used) in operating activities
    
    
    (980,401
    )
    
    650,429CASH
      FLOW FROM INVESTING ACTIVITIES:Acquisition
      of subsidiary
    
    
    --
    
    
    (25,000
    )Issuance
      of note receivable - related party
    
    
    --
    
    
    (600,000
    )Advances
      to acquired companies, net of cash acquired
    
    
    (1,025,933
    )
    
    -Purchase
      of equipment and software development
    
    
    (413,342
    )
    
    (7,700
    )Net
      cash (used) in investing activities
    
    
    (1,439,275
    )
    
    (632,700
    )CASH
      FLOW FROM FINANCING ACTIVITIES:Payments
      on loans and note payable
    
    
    (111,667
    )
    
    --Payments
      on line of credit
    
    
    (36,500
    )
    
    --Proceeds
      from convertible notes payable
    
    
    3,000,000
    
    
    --Payment
      for deferred offering costs
    
    
    (72,220
    )
    
    --Payment
      for prepaid loan fees
    
    
    (329,479
    )
    
    --Net
      cash provided by financing activities
    
    
    2,450,134
    
    
    --INCREASE 
      IN CASH
    
    
    30,458
    
    
    17,729CASH,
      Beginning of year
    
    
    143,721
    
    
    125,992CASH,
      End of year
    
    $
    174,179
    
    $
    143,721SUPPLEMENTAL
      DISCLOSURES OF CASH FLOW INFORMATION:Interest
      paid
    
    $
    159,370
    
    $
    68,936Income
      taxes paid
    
    $
    323,421
    
    $
    34,082The
      accompanying notes are an integral part of these consolidated financial
      statements








F-5





**** **Digital
Learning Management Corporation and Subsidiaries**


**Consolidated
Statements of Cash Flows, continued**








*Supplemental
non-cash investing and financing activities:*





During
the year ended December 31, 2003, the Company issued 3,648,296 shares of its
common stock for services rendered valued at $10,500.





During
the year ended December 31, 2004, the Company issued: 1) 300,000 shares if its
common stock for services rendered valued at $33,000 and 2) 100,000 shares of
its common stock in connection with the acquisition of Global Computer Systems,
Inc. valued at $62,000.








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







F-6


**** **Digital
Learning Management Corporation and Subsidiaries**


**Notes
to Consolidated Financial Statements**





****


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





Organization





Digital
Learning Management Corporation (the “Company” or “DGTL”), formerly
FreePCSQuote.com, Inc. acquired Digital Learning Institute, Inc. on January 16,
2004 in a transaction accounted for as a reverse merger. The financial
statements in the filings of FreePCSQuote.com, Inc. became those of Digital
Learning Institute, Inc. In addition on March 19, 2004, FreePCSQuote.com, Inc.
changed its name to Digital Learning Management Corporation. Thus, the
historical financial statements are still those of "Digital Learning Institute,
Inc."





On
January 16, 2004, Digital Learning Institute, Inc. (“DLI”), FPQT Acquisition
Corporation, a Nevada corporation ("Merger Sub") and FreePCSQuote.com, Inc., a
publicly held Nevada corporation ("Free"), entered into an Agreement and Plan of
Merger (the "Agreement"). Free, through its wholly-owned subsidiary, Merger Sub,
acquired DLI in exchange for shares of Free's common stock (the "Merger");
17,372,839 shares were issued to the stockholders of DLI and 300,000 shares were
issued into escrow to cover indemnification obligations, if any, of DLI. Merger
Sub was merged with and into DLI. The separate existence of Merger Sub ceased,
and DLI continued as the surviving corporation (the "Surviving Corporation")
under the name Digital Learning Institute, Inc.  Immediately after the
Merger was consummated and further to the Agreement, the controlling stockholder
of Free cancelled 19,670,000 shares of Free's Common Stock held by him (the
"Cancellation"). In addition, the Company issued an aggregate of 819,984 shares
of its common stock to certain individuals identified by the Company's
investment banker.





The
stockholders of DLI as of the closing date of the Merger and after giving effect
to the Cancellation, owned approximately 86.8% of the Company’s common stock
outstanding as of January 16, 2004. Each share of DLI’s common stock (an
aggregate of 5,000,000 shares) was converted into one share of the Company's
common stock in the Merger at an exchange ratio of 1 to .441606 (the "Exchange
Ratio").




For
accounting purposes, this transaction is being accounted for as a reverse
merger, since the stockholders of DLI own a majority of the issued and
outstanding shares of common stock of the Company, and the directors and
executive officers of DLI became the directors and executive officers of the
Company.





Stock
split





In March
2004, the Company enacted a 7.8680269-for-1 forward stock split. All per share
amounts and number of shares outstanding have been retroactively restated for
this adjustment.





Nature
of Business





The
Company's primary business is the operation of post-secondary education training
primarily in the business, information technology, telecommunications and other
trade fields, offering certificates, degrees and college credits through
strategic partners. Revenues generated from these schools consist primarily of
tuition and fees paid by students or their employers, generally from public
universities and large corporations.




The
Company is a provider of enterprise e-learning solutions and related services to
the education industry, government agencies and corporate clients. Its patented
Virtual University Appliance (“VU Appliance”) is a hardware and software
package, which incorporates its CourseMate Virtual University
System.
   DLI
acquired Webvision Internet Works, Inc. on January 1, 2003 through transfer of
ownership and is now a wholly owned subsidiary. McKinley Educational Services,
Inc. was acquired on March 7, 2003 and Digital Knowledge Works, Inc. and
Coursemate, Inc. were acquired on November 6, 2003 and all are wholly-owned
subsidiaries of DLI.





DLI
entered into an agreement to acquire Software Education of America, Inc. ("SEA")
on January 13, 2004. The transaction was subject to approval of the
change-of-control of SEA from the California Bureau for Private Postsecondary
Vocational Education ("BPPVE") and the Accrediting Commission of Career Schools
and Colleges of Technology ("ACCSCT"). The BPPVE approval was received during
the quarter ended June 30 and as of May 1, 2004, DLI assumed responsibility for
the marketing and managing of SEA sales and providing working capital. DLI
advanced funding to SEA pending final closing of the transaction which occurred
on July 1, 2004 after receipt of the formal approval from ACCSCT on July 1,
2004. Effective July 1, 2004 SEA became a wholly-owned subsidiary of DLI.




F-7




**** **Digital
Learning Management Corporation and Subsidiaries**
 **Notes
to Consolidated Financial Statements**


DLI
entered into an agreement to acquire Global Computer Systems, Inc. ("Global") on
April 30, 2004. The transaction was subject to approval of the change-of-control
of Global from the BPPVE and the ACCSCT. As of September 1, 2004, DLI assumed
responsibility for the marketing and managing of Global sales and providing
working capital. DLI advanced funding to Global pending final closing of the
transaction. Effective November 15, 2004 Global became a wholly-owned subsidiary
of DLI.





Going
Concern





The
accompanying consolidated financial statements have been prepared in conformity
with accounting principles generally accepted in the United States of America,
which contemplates continuation of the Company as a going concern. The Company
incurred a significant net loss for the year ended December 31, 2004 and, at
December 31, 2004, had an accumulated deficit and a working capital deficit. In
addition, subsequent to December 31, 2004, the Company was in default on its
convertible debenture obligations, its SEA subsidiary filed for bankruptcy and
it made the decision to close its Global subsidiary. These conditions raise
substantial doubt as to the Company's ability to continue as a going concern.
These consolidated financial statements do not include any adjustments that
might result from the outcome of this uncertainty. These consolidated financial
statements do not include any adjustments relating to the recoverability and
classification of recorded asset amounts, or amounts and classification of
liabilities that might be necessary should the Company be unable to continue as
a going concern.





The
Company plans to take the following steps that it believes will be sufficient to
provide the Company with the ability to continue in existence. In March 2005 the
Company closed its vocational schools and stopped offering In-Class vocational
training. The Company is now a provider of enterprise e-learning solutions and
related services to the education industry, government agencies and corporate
clients. Its patented (provisional) Virtual University Appliance (“VU
Appliance”) is a  hardware and software package which incorporates its
CourseMate Virtual University System.  The VU
Appliance product, which was introduced by the Company in October 2004, is a
pre-packaged and “turn-key” hardware and software solution designed to address
the e-Learning needs of corporations and educational institutions. It is a
comprehensive "out-of-the-box" virtual learning solution that allows customers
to quickly create 100% web-based virtual learning environments. The platform
allows customers to create, publish and deliver courseware for e-Learning in
addition to managing their traditional classroom learning environment. The
Company utilizes its acquired United States Patent (Provisional) in its VU
Appliance. The Company believes its success in the future lies in successfully
marketing, selling and improving its VU Appliance product and related services.
The Company intends to remain focused on further developing and adding to its
intellectual property assets, utilizing its expertise to help the online
learning initiatives of its customers with e-Learning systems solutions. The
Company expects that sales from its VU Appliance product and related services
will be sufficient to sustain operations for the foreseeable future. Management
believes it needs to arrange new financing in the minimum amount of $2.0 million
through the issuance of additional equity or convertible notes through a private
placement, in order to have sufficient capital to finance its operations for the
next 12 months.






Principles
of Consolidation





The
consolidated financial statements include the accounts of the following
entities, collectively referred to as "Company" or "DGTL". All significant
inter-company transactions have been eliminated.




Digital
Learning Management Corporation


Digital
Learning Institute, Inc.


Webvision
Internet Works, Inc.


McKinley
Educational Services, Inc.


Digital
Knowledge Works, Inc.


Coursemate,
Inc.


Software
Education of America, Inc. (2004)


Global
Computer Systems, Inc.  (2004)




F-8




**** **Digital
Learning Management Corporation and Subsidiaries**
 **Notes
to Consolidated Financial Statements**
  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. Such estimates and assumptions affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results could differ
from estimated amounts.





Cash
and Cash Equivalents





Cash and
cash equivalents consist primarily of cash in banks and highly liquid
investments with original maturities of 90 days or less.





Restricted
Cash





Restricted
cash consists of certificates of deposit held as collateral for a $70,000 letter
of credit as required by the United States Department of Education. As of
December 31, 2004, the Company holds one certificate of deposit of $70,000. The
$70,000 certificate of deposit held by the Company is being used as the
collateral for the letter of credit as required by the United States Department
of Education.





Goodwill





Goodwill
was recorded at its purchase price and is not being amortized. Pursuant to SFAS
142 ("Goodwill and Other Intangible Assets") and SFAS 144 ("Accounting for the
Impairment or Disposal of Long-Lived Assets"), the Company has evaluated its
goodwill for impairment and has determined as of December 31, 2004 that an
impairment charge should be recognized for the full amount of the goodwill of
$1,187,853.





Marketing
and Advertising Costs





Marketing
and advertising costs are charged to expense during the period incurred. These
costs arise primarily from promotional items vouchers offered to students.





Revenue
Recognition





Revenues
consist primarily of tuition and fees derived from courses taught in the
Company's schools. Tuition and fee revenues are recognized pro-rata (on a
straight-line basis) over the term of the applicable course (usually two to four
weeks for DLI and up to six months for SEA and Global). Tuition is billed after
the course has been completed for DLI. If a student withdraws from a course or
program, the paid but unearned portion of the student tuition is refunded.
Textbook sales and other revenues are recognized as sales occur or services are
performed and represent less than 10% of total revenues. SEA and Global bill
tuition as students register for classes. In the second quarter of 2004, the
Company began to receive unearned tuition. Unearned tuition is the portion of
payments received but not earned or receivables not yet collected. This unearned
tuition will be reflected as a current liability in the Company's consolidated
balance sheets as this amount would be expected to be earned within the next 12
months from the date of prepayment or recording of receivable.




Revenues
from sales of the Company’s VU Appliance include product, licensing of the
product and professional services such as hosting, customization, training,
courseware development and third party course license fees. Product revenues
consist of bundled hard-software product sales, annual licensing fees, and
client hosting engagement. The Company intends to sell its licenses and hosting
services under annually renewable agreements, which the clients will generally
pay annual fees in the beginning of the annual contract term. Billing from these
revenues are recognized as deferred revenues and are then recognized ratably
over the contract term. Product sale revenues are recognized upon the shipment
of the product to customers


Allowances
for Doubtful Accounts





The
Company maintains an allowance for doubtful accounts resulting from the
inability, failure or refusal of its students to make required payments.
The Company determines the adequacy of this allowance by regularly reviewing the
accounts receivable aging and applying various expected loss percentages to
certain student accounts receivable categories based upon historical bad debt
experience. The Company generally writes-off accounts receivable balances deemed
uncollectible.





Educational
Services





Educational
services include direct operating expenses of the schools consisting primarily
of contract salaries, occupancy and supplies.




F-9




**** **Digital
Learning Management Corporation and Subsidiaries**
 **Notes
to Consolidated Financial Statements**
  Earnings
Per Common Share





The
Company computes earnings per common share in accordance with Statement of
Financial Accounting Standards No. 128, "Earnings per Share" (SFAS No. 128). The
Statement requires dual presentation of basic and diluted EPS on the face of the
income statement for all entities with complex capital structures and requires a
reconciliation of the numerator and denominator of the basic EPS computation to
the numerator and denominator of the diluted EPS computation. Basic loss per
share is computed by dividing loss available to common shareholders by the
weighted average number of common shares outstanding. The computation of diluted
loss per share is similar to the basic loss per share computation except the
denominator is increased to include the number of additional shares that would
have been outstanding if the dilutive potential common shares had been issued.
In addition, the numerator is adjusted for any changes in income or loss that
would result from the assumed conversions of those potential shares. However,
such presentation is not required if the effect is antidilutive. Accordingly,
the diluted per share amounts do not reflect the impact of warrants and options
because the effect of each is antidilutive.





Property
and Equipment





Property
and equipment are recorded at cost. Depreciation expense is provided on a
straight-line basis using estimated useful lives of 3-7 years. Maintenance and
repairs are charged to expense as incurred. Depreciation expense was $59,997 and
$74,475 for the years ended December 31, 2004 and 2003, respectively.





Facilities





The
Company leases office space owned by a related party as well as additional
office space from unrelated parties. Rent expense was $221,843 and $174,009 for
the years ended December 31, 2004 and 2003, respectively.





The
Company also rented classrooms from an unrelated university on an "as needed
basis." Rent expense was $38,150 and $37,147 for the years ended December 31,
2004 and 2003, respectively.





Income
Taxes





The
Company accounts for income taxes under the asset and liability method. Under
this method, deferred income taxes are recorded to reflect the tax consequences
in future years of temporary differences between the tax basis of assets and
liabilities and their financial statement amounts at the end of each reporting
period. Valuation allowances are established when necessary to reduce deferred
tax assets to the amount expected to be realized. Income tax expense represents
the tax payable for the current period and the change during the period in
deferred tax assets and liabilities. Deferred tax assets and liabilities have
been netted to reflect the tax impact of temporary differences.





Deferred
tax assets arise primarily from the net operating loss carry-forward and
expenses accrued for book basis but not for tax basis. Deferred tax liabilities
primarily result from revenues recognized for book basis but not for tax basis.





Fair
Value of Financial Instruments





The
carrying value of cash, accounts receivable, notes payable, accounts payable and
accrued expenses approximate fair value because of the short maturity of these
items.





Concentrations
of Risk





The
Company maintains all cash and cash equivalents in financial institutions, which
at times may exceed federally insured limits. The Company has not experienced a
loss in such accounts.





Two customers
accounted for 60% and two customers accounted for 95% of sales during the years
ended December 31, 2004 and 2003, respectively. The same two customers
accounted for 31% of accounts receivable at December 31,
2004.





The
Company performs regular evaluations concerning the ability of its customers to
satisfy their obligations and records a provision for doubtful accounts based
upon these evaluations, when necessary.





Stock
Based Compensation





The
Company accounts for stock based compensation in accordance with Statement of
Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" ("SFAS 123"). This standard requires the Company to adopt the
"fair value" method with respect to stock-based compensation of consultants and
other non-employees. The Company did not change its method of accounting with
respect to employee stock options; the Company continues to account for these
under the "intrinsic value" method, and to furnish the pro-forma disclosures
required by SFAS 123.




F-10




**** **Digital
Learning Management Corporation and Subsidiaries**
 **Notes
to Consolidated Financial Statements**


Valuation
of the Company's Common Stock





Unless
otherwise disclosed, all stock based transactions entered into by the Company
have been valued at the market value of the Company's common stock on the date
the transaction was entered into or have been valued using
the Black-Scholes Model to estimate the fair market value.





Software
Development Costs





The
Company has developed software to enable students to access and take online
classes. The software development costs were expensed as research and
development costs as incurred until the software reached technological
feasibility in accordance with Statement of Financial Accounting Standards No.
86, "Accounting for the Costs of Computer Software to be Sold, Leased or
Otherwise Marketed" ("SFAS 86"). The Company capitalized $359,691 of software
development costs at December 31, 2004.





Inventory





Inventory
primarily consists of books and course material purchased for resale to
students. Inventory is accounted for on a first-in-first-out basis.





Reclassification





Certain
amounts reported in the Company’s financial statements for the year ended
December 31, 2003 have been reclassified to conform to current year
presentations.





Recently
Issued Accounting Pronouncements





In
November 2004, the FASB issued SFAS No. 151, entitled *Inventory
Costs -- An Amendment of ARB No. 43, Chapter 4* . SFAS
No. 151 amends the guidance in ARB No. 43, Chapter 4, entitled *Inventory
Pricing* [June
1953], to clarify the accounting for "abnormal amounts" of idle facility
expense, freight, handling costs, and wasted material [spoilage]. Before
revision by SFAS No. 151, the guidance that existed in ARB No. 43 stipulated
that these type items may be "so abnormal" that the appropriate accounting
treatment would be to expense these costs as incurred [i.e., these costs would
be current-period charges]. SFAS No. 151 requires that these type items be
recognized as current-period charges *without
regard* to
whether the "so abnormal" criterion has been met. Additionally, SFAS No. 151
requires that allocation of fixed production overheads to the costs of
conversion be based on the normal capacity of the production facilities. The
adoption of SFAS 151 did not impact the consolidated financial
statements.





In
December 2004, the FASB issued SFAS No. 153, entitled *Exchanges
of Nonmonetary Assets -- An Amendment of APB Opinion No.29* . SFAS
No. 153 amends Opinion 29 to eliminate the exception for nonmonetary exchanges
of nonmonetary assets that do not have commercial substance. 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. The adoption of
SFAS 153 did not impact the consolidated financial statements.




F-11




**** **Digital
Learning Management Corporation and Subsidiaries**
 **Notes
to Consolidated Financial Statements**


In
December 2004, the FASB issued SFAS No. 123 (Revised), entitled *Share-Based
Payment* . This
revised Statement eliminates the alternative to use APB Opinion No. 25’s
intrinsic value method of accounting that was provided in SFAS No. 123 as
originally issued. Under Opinion 25, issuing stock options to employees
generally resulted in recognition of no compensation cost. This Statement
requires entities to recognize the cost of employee services received in
exchange for awards of equity instruments based on the grant-date fair value of
those awards. For public companies that file as a small business issuer, this
Statement is effective as of the beginning of the first interim or annual
reporting period that begins after December 15, 2005. The adoption of SFAS 123
(Revised) will have an impact the consolidated financial statements unless the
Company issues stock options to employees.







**NOTE
2 - PROPERTY AND EQUIPMENT**




The cost
of property and equipment at December 31, 2004 consisted of the
following:





Computers
      and office equipment
    
    $
    1,036,569Furniture
      and fixtures
    
    
    124,624Leasehold
      improvements
    
    
    31,286Software
    
    
    359,6911,552,170Less
      accumulated depreciation
    
    
    (961,095
    )$
    591,075








**NOTE
3 - CONVERTIBLE NOTES PAYABLE AND THE RESULTING NON-CASH BENEFICIAL CONVERSION
FEATURE CHARGE**





On
February 27, 2004, the Company raised a total of $3,000,000 from three investors
in an offering of 7% convertible debenture notes through a private placement.
The terms of the debentures are for a period of seven years. Interest accrues at
7% per annum and is due and payable monthly beginning April 1, 2004. The
debentures mature on February 27, 2011, at which time all remaining unpaid
principal and interest will be payable in full. If the debentures are not sooner
redeemed or converted, as provided in the loan, commencing February 27, 2007 and
continuing on the first day of each successive month prior to maturity, the
Company will pay to the lenders monthly principal installments of $10 per $1,000
of the then remaining principal balance. These debentures are convertible, at
the holder's option, into common stock at a rate of $0.4478 per share, entitling
the holders to 6,699,833 shares of the Company's common stock.





These
debentures are immediately convertible and therefore the Company has expensed
the calculated value of the beneficial conversion feature, as a one-time
non-cash debenture interest expense of $3,000,000 and a one time non-cash
increase in additional paid-in capital during the year ended December 31,
2004. Management believes that the value assigned to the beneficial conversion
feature is the result of assuming that the closing market price on the day of
issuance reflects the true fair value of the Company's common stock.





The
Company accounted for the beneficial conversion feature of these convertible
notes in accordance with Emerging Issues Task Force 98-5 "Accounting For
Convertible Securities With Beneficial Conversion Features Or Contingently
Adjustable Conversion Ratios" ("EITF 98-5"). This value, calculated as the
difference between the conversion price of $ 0.4478 and the fair value of $0.92
(adjusted closing price on the day of the debenture issue) of the common stock
multiplied by the number of shares (6,699,833) into which the debenture is
convertible, amounts to $3,163,846. According to EITF 98-5 the value of the
beneficial conversion feature cannot exceed the value of the proceeds received
from the debt issuance of $3,000,000.




F-12


**** **Digital
Learning Management Corporation and Subsidiaries**
 **Notes
to Consolidated Financial Statements**


On
February 22, 2005, the Company received a notice of default from the holders of
the convertible debentures. The notice states that the Company has failed to
make interest payments in the amount of $5,945 to each debenture holder and that
such failure to pay has remained un-remedied for more than three days.
Consequently, the debentures holders have declared the unpaid principal amount
of and all interest accrued but unpaid on, the debentures due and payable.
Pursuant to the terms of the Convertible Loan Agreement, the debenture holders
have further demanded that the Company redeem all the unpaid principal amount of
the debentures, together with an amount equal to an 18% annual yield on the
principal amount through the redemption date of the debentures.




As a
result of the Company being in default on its convertible debentures, as of
December 31, 2004, the Company has written off the deferred loan costs of
$329,479 to interest expense.




**NOTE
4 - LINE OF CREDIT AND DUE TO FACTOR**





DLI has a
factoring agreement with PM Factors Bancorp to factor its accounts receivable up
to $500,000. PM Factors Bancorp advances to DLI 80% of the accounts receivable
that PM Factors Bancorp believes are eligible for factoring. The remaining
balance is withheld as a reserve against possible non-collectible accounts. A
finance fee of 0.76% per ten day period on the face value of each account as
long as the account remains unpaid will be charged, accruing on the purchase
date. DLI owed $124,424 to PM Factors Bancorp at December 31,
2004. Factored receivables at December 31, 2004 were $187,644.





The
Company assumed a line of credit with its acquisition of Global. The line of
credit provides for borrowings for an amount up to $100,000 with interest at
6.75% annually. Interest only payments are due monthly. As of December 31, 2004
the outstanding balance on this line of credit is $90,961 and is in default.





**NOTE
5 - NOTES PAYABLE**





Notes
payable as of December 31, 2004 relate to debt acquired from SEA and consist of
two unsecured, non-interest bearing notes payable to two former stockholders of
SEA totaling $16,666 due January 15, 2005. No payments have been made subsequent
to year end.





Notes
payable also includes a $164,000 line of credit acquired from SEA and converted
into a term loan payable with interest at the prime rate plus 3.5% (8.25% as of
December 31, 2004) secured by all assets of SEA of approximately $127,000 and
guaranteed by the former stockholders of SEA. This loan is payable in monthly
principal payments of $6,083 plus interest until November 15, 2006, at which
time all unpaid principal and accrued interest is due. A technical event of
default occurred with this note.


**NOTE
6 - COMMON STOCK**





The
Company amended its articles of incorporation to change its number of authorized
common stock shares from 20,000,000 to 75,000,000. The Company is also
authorized to issue 5,000,000 shares of preferred stock with a $.001 par value.





In March
2004, the Company enacted a 7.8680269-for-1 forward stock split. All per share
amounts and number of shares outstanding have been retroactively restated for
this adjustment.





During
the year ended December 31, 2003, the Company adopted a stock option plan that
reserved 550,000 shares of the Company’s common stock.


Upon
completion of the merger and completion of the forward split, the Company has
410,000 outstanding options granted during 2003, which can be redeemed for an
equal number of common shares of the Company. These options have an expiration
date of January 20, 2007. 335,000 of these options are fully vested and are
redeemable at the exercise price of $0.38 per share. There are also an
additional 85,500 fully vested stock options, which are redeemable at $2.00 per
share. These options do not have an expiration date. These options were granted
under the Digital Learning Institute, Inc. 2003 Stock Incentive Plan.




F-13




**** **Digital
Learning Management Corporation and Subsidiaries**
 **Notes
to Consolidated Financial Statements**


During
the year ended December 31, 2003, the Company granted warrants to purchase
50,000 shares of common stock at $1.00 per share for the benefit of a related
party. The warrants will expire five years from the date of issuance and may be
exercised becomes a publicly traded entity. The warrants were valued at $6,000,
the fair market value using the Black-Scholes  pricing model. The average
risk-free interest rate used was 3.07%, volatility was estimated at 50% and the
expected life was five years. The value of the warrants was expensed as
compensation.





The
Company has also issued warrants to purchase common shares of the Company as
follows:





i.
    50,000
      at $1.00 per share and expiring on September 30, 2008;


ii.
    670,000
      at $0.45 per share and expiring on January 16, 2009; and


iii.
    50,000
      at $3.00 per share and expiring July 1, 2009





**NOTE
7 - INCOME TAXES**





Deferred
income taxes reflect the net tax effects of temporary differences between the
carrying amounts of assets and liabilities for financial statement purposes and
the amounts used for income tax purposes. Significant components of the
Company's deferred tax liabilities and assets as of December 31, 2004 are as
follows:





Deferred
      tax assets:Accrued
      compensation
    
    $
    71,609Prepaid
      expenses
    
    
    7,524Accounts
      payable and accrued expenses
    
    
    172,360Accounts
      payable, related party
    
    
    12,153Property
      and equipment
    
    
    39,937Net
      operating loss carryforwards
    
    
    413,472Less
      valuation allowance
    
    
    (623,115
    )93,940Deferred
      tax liabilities -Accounts
      receivable
    
    
    (93,940
    )(93,940
    )Net
      deferred tax liability
    
    $
    —





The
components of deferred income tax expense (benefit) are as follows:





**December
      31,**
      **2004**
    
    **December
      31,**
      **2003**Property
      and equipment
    
    $
    (48,805
    )
    $
    (6,332
    )Interest
      stockholders
    
    
    --
    
    
    5,846Accrued
      compensation
    
    
    22,391
    
    
    --Accounts
      receivable
    
    
    (147,003
    )
    
    (182,850
    )Prepaid
      expense
    
    
    (3,423
    )
    
    (4,101
    )Accounts
      payable and accrued expense
    
    
    (102,503
    )
    
    (21,075
    )Accounts
      payable, related party
    
    
    (11,142
    )
    
    78,773Application
      of NOL carryback
    
    
    80,842
    
    
    --Net
      operating loss carryforward
    
    
    (413,472
    )
    
    152,223Increase
      in valuation allowance
    
    
    623,115
    
    
    --Income
      tax expense
    
    $
    —
    
    $
    22,484




F-14




**** **Digital
Learning Management Corporation and Subsidiaries**
 **Notes
to Consolidated Financial Statements**


Following
is a reconciliation of the amount of income tax expense (benefit) that would
result from applying the statutory federal income tax rates to pre-tax income
and the reported amount of income tax expense (benefit):





**December
      31,**
      **2004**
    
    **December
      31,**
      **2003**Tax
      benefit at federal statutory rates
    
    $
    (2,234,858
    )
    $
    159,954Depreciation
      expense
    
    
    (416
    )
    
    5,726California
      income tax expense
    
    
    (27,481
    )
    
    (10,908
    )Meals
      and entertainment
    
    
    2,040
    
    
    1,477Officers
      life insurance
    
    
    10,451
    
    
    1,029Shell
      Acquisition Costs
    
    
    72,543
    
    
    2,496Goodwill
      Impairment
    
    
    403,870
    
    
    --Accrual
      to cash conversion
    
    
    203,935
    
    
    104,175Beneficial
      Conversion Feature
    
    
    1,020,000
    
    
    --Stock
      based compensation
    
    
    41,032
    
    
    --Net
      operating loss carryforward
    
    
    373,884
    
    
    (140,287
    )Income
      tax (benefit) expense
    
    $
    (135,000
    )
    $
    123,662





Income
tax expense (benefit) consists of the following for the years
ended:





**December
      31,**
      **2004**
    
    **December
      31,**
      **2003**Current
    
    $
    (135,000
    )
    $
    192,289Deferred
    
    
    --
    
    
    22,484Income
      tax expense
    
    $
    (135,000
    )
    $
    214,773




At
December 31, 2004, the Company has provided a valuation allowance for the
deferred tax assets since management has not been able to determine that the
realization of that asset is more likely than not. The net change in valuation
allowance for the year ended December 31, 2004 was an increase of $623,115. Net
operating loss carryforwards of approximately $1,100,000 expire starting in
2019.


**NOTE
8 - RELATED PARTY TRANSACTIONS**





During
the year ended December 31, 2004, the Company paid rent to a related party in
the amount of $221,843.





During
the years ended December 31, 2004 and 2003, DLI paid a related party $92,500 and
$75,500 respectively, for legal services, including 1,042,370 shares of common
stock issued January 23, 2003 for legal services valued at $3,000.





During
the years ended December 31, 2004 and 2003, DLI paid related parties $481,655
and $401,554, respectively, for commissions and contract services. These related
parties advanced $32,640 during 2004.





During
the years ended December 31, 2004 and 2003, DLI paid a former related party
$56,699 and $92,601, respectively, for marketing and advertising services.
During the year ended December 31, 2003 DLI issued 2,605,926 shares of common
stock to this former related party for consulting services valued at $7,500. The
former related party, as trustee of the shares, transferred his common stock to
unrelated parties on September 30, 2003 and is no longer considered a related
party for all subsequent periods.




F-15




**** **Digital
Learning Management Corporation and Subsidiaries**
 **Notes
to Consolidated Financial Statements**


The
Company had loans and notes payable due to two stockholders totaling $-0- and
$330,592 at December 31, 2003 and 2002, respectively, with the notes bearing
interest at 10% per year. The notes were due on demand and unsecured.





During
the year ended December 31, 2003 the Company loaned $600,000 to two of its
stockholders. As repayment of the loan the Company reduced notes, including the
$330,592 above, and accounts payable to these stockholders by $600,000.





**NOTE
9 - COMMITMENTS AND CONTINGENCIES**





Contracts





On
January 20, 2004, the Company retained the services of a new Vice-President of
Finance on a consultancy basis. On May 1, 2004, this individual became a
full-time employee. As an incentive to join the Company, this individual was
granted options to purchase 100,000 post-split shares of common stock to vest
over a four-year period at the rate of 25,000 shares per annum. The first 25,000
options vested on January 20, 2004. The exercise price of these options is $0.38
per share. These options were granted under the Digital Learning Institute, Inc.
2003 Stock Incentive Plan. Effective August 31, 2004 this individual resigned as
the Company's Vice-President of Finance. Effective August 31, 2004 this
individual agreed to accept a position with the Company as a consultant on a
month-to-month basis with compensation of $10,000 per month, which was
terminated in December 2004.





On
January 6, 2004, DLI entered into an amendment to an engagement agreement with
Westpark Capital, Inc. ("Westpark") dated February 19, 2003. In accordance with
the amendment, Westpark was retained as the Company's investment banker relating
to matters associated with the Company's proposed financing of $3,000,000. The
Company paid 6% of the funds raised and a $6,000 monthly retainer due each month
for the term of the agreement. The Company closed on the financing of $3,000,000
and paid $213,362 in costs associated with the raising of funds to Westpark and
other companies.





On
January 6, 2004, DLI entered into a separate engagement agreement with Westpark
to retain Westpark as DLI's investment banker in respecting matters relating to
the DLI's proposed acquisition of and merger with a publicly traded shell
company. The closing of the purchase of the shell company closed on January 16,
2004. DLI paid $70,000 and granted warrants for the purchase of 670,000 shares
of common stock of the Company. The warrants are exercisable at $0.45 per share
for a period of five years. The Warrants were valued at $109,880, the fair value
using the Black-Scholes Pricing Model. The average risk rate used was 2.9%,
volatility was estimated at 50% and the expected life was five years. Based upon
the closing of the transaction, the Company will retain Westpark as its
consultant for a period of not less than 12 months and will pay Westpark $9,000
per month for these consulting services. The agreement has
expired.





On May 1,
2004 the Company agreed to retain the public relation firm of
Cynapsys, Inc. for a period of one year to manage the Company's Investor and
Public Relations Department. The Company has agreed to pay $5,000 a month for
services of Cynapsys, Inc. The contract can be cancelled on 30-day notice.





F-16




**** **Digital
Learning Management Corporation and Subsidiaries**
 **Notes
to Consolidated Financial Statements**


The
Company has entered into employment agreements with two members of its
management for two years commencing April 1, 2003. The agreements allow for
participation in any annual incentive plan. The Company is required to pay base
salaries of $240,000 each. Management elected to waive one half of their
salaries through December 31, 2004.




Leases





The
Company entered into an operating lease with a related party for office space.
The term of the lease is five years beginning October 1, 2003, with monthly rent
payments of $18,500. The following are future minimum payments under the terms
of the lease:





**Operating**
      **Leases**Year
      ending December 31,2005
    
    $
    222,0002006
    
    
    222,0002007
    
    
    222,0002008
    
    
    166,500$
    832,500






Litigation





Software
Education of America, Inc. (SEA), a wholly owned subsidiary of the Company,
filed a voluntary petition in United States Bankruptcy Court for the Central
District of California on March 30, 2005 under chapter 7 of the Bankruptcy Code.
The filing was necessitated because SEA was unable to continue to meet its
financial obligations
  On
February 2, 2005, Cyber Properties, LLC filed an unlawful detainer action
against Global Computer Systems, Inc., Orange County Superior Court. Global
Computer Systems, Inc., signed a settlement agreement, whereby it agreed to pay
$24,950 for rent owed on its offices premises, which it vacated at the end of
February 2005. No judgment will be entered unless the Company defaults on the
rent payments.
  On
November 9, 2004, Wells Fargo Bank filed a complaint in Orange County Superior
Court against Software Education of America (“SEA”), alleging SEA’s default on a
line of credit in the aggregate amount of approximately $158,000. Wells Fargo
Bank is seeking damages in the amount of approximately $158,000, plus interest
and attorney’s fees. The line of credit is guaranteed by the former owners of
SEA (the “Guarantors”), who have been named as co-defendants in the complaint.
The Guarantors filed a cross-complaint against the Company on February 4, 2005
for indemnity relating to the line of credit, as well as indemnity in the amount
of approximately $73,000 for claims relating to credit card balances that the
Company is obligated to repay pursuant to the terms of its acquisition of SEA.
The cross complaint further alleges a breach of an employment agreement between
the Company and Daniel Day, one of the Guarantors, and seeks damages in the
amount of approximately $100,000, plus attorney’s fees against the Company.
Additionally, the cross complaint alleges a loss of credit cause of action by
each of the Guarantors against the Company in the aggregate amount of
approximately $300,000, plus attorney’s fees. One of the other guarantors of the
line of credit filed a cross-complaint against the Company on March 1, 2005 for
indemnity in the amount of approximately $158,000, plus attorneys’ fees. The
cross complaint also alleges a default on separate note by SEA in the amount of
approximately $9,000.
  DLI has
answered all these complaints and cross complaints and denied liability,
together with the filing of a cross complaint against these shareholders for
breach of contract and fraud, and against the accountants, who prepared the
financial statements of SEA prior to the acquisition, for negligence. DLI is
seeking recovery of the damages it has suffered as a result of these breaches of
contract and torts committed relating to the transaction.
  **NOTE
10 - ACQUISTIONS**





Software
Education of America, Inc.





On
January 13, 2004, DLI entered into an agreement to acquire Software Education of
America, Inc. ("SEA"). The final closing of this transaction occurred on July 1,
2004. In accordance with the agreement, DLI assumed liabilities totaling
$744,798. In addition, DLI guaranteed the release to the original shareholders
for collateral provided by the original shareholders for securing a $70,000
letter of credit used instead of a bond per the requirements of the U.S.
Department of Education. In addition, the Company granted to the original
shareholders of SEA warrants to purchase 50,000 shares of common stock at $3.00
per share (see Note _). These warrants were valued at $10,800 using the Black
Scholes Pricing Model with volatility of 50%, interest rate of 3.71% and
estimate life of five years. These warrants will expire on July 1, 2009. After
the approval to the change-of-control by the Bureau of Private Postsecondary
Vocational Education, and to secure the funding advanced to SEA, DLI by
agreement with SEA assumed responsibility for all SEA sales and expenses pending
final closing of the Agreement after formal approval to the acquisition was
forthcoming from ACCSCT. This approval was granted on July 1, 2004 and the
formal closing was completed on the same day. The Company recorded $990,076 of
goodwill. Listed below is a list of the fair value of assets purchased and
liabilities assumed and the allocation of the excess purchase price to goodwill,
which was subsequently impaired.





F-17


**** **Digital
Learning Management Corporation and Subsidiaries**
 **Notes
to Consolidated Financial Statements**


Assets
      purchased:Cash
    
    $
    4,632Restricted
      cash
    
    
    70,000Accounts
      receivable
    
    
    311,958Prepaid
      expenses
    
    
    739Other
      current assets
    
    
    15,675Fixed
      assets
    
    
    54,563Other
      assets
    
    
    23,770Inventory
    
    
    12,220493,557Less
      liabilities assumed:Accounts
      payable and accrued expenses
    
    
    (183,226
    )Notes
      payable
    
    
    (128,333
    )Accrued
      compensation
    
    
    (44,969
    )Line
      of credit
    
    
    (182,500
    )Unearned
      revenue
    
    
    (205,730
    )(744,798
    )Net
      liabilities
    
    
    (251,241
    )Advances
      from DLI
    
    
    (776,214
    )Value
      of warrants issued
    
    
    (10,800
    )Goodwill
    
    
    1,038,255Less
      income attributed to DLI prior to acquisition
    
    
    (48,179
    )Net
      goodwill
    
    $
    990,076





Global
Computer Systems, Inc.





On
September 1, 2004, DLI entered into an agreement to acquire Global Computer
Systems, Inc. (“Global”). The final closing of this transaction occurred on
November 15, 2004. In accordance with the agreement, DLI assumed liabilities
totaling $97,528. In addition, the Company granted to the shareholders of Global
100,000 shares of the Company’s common stock valued at $62,000. The Company
recorded $172,777 of goodwill related to this acquisition. Listed below is a
list of the fair value of assets purchased and liabilities assumed and the
allocation of the excess purchase price to goodwill , which was subsequently
impaired..





F-18


**** **Digital
Learning Management Corporation and Subsidiaries**
 **Notes
to Consolidated Financial Statements**





Assets
      purchased:Cash
    
    $
    2,974Accounts
      receivable
    
    
    173,743Fixed
      assets
    
    
    66,488243,205Less
      liabilities assumed:Accounts
      payable and accrued expenses
    
    
    (6,567
    )Line
      of credit
    
    
    (90,961
    )(97,528
    )Net
      assets
    
    
    145,677Advances
      from DLI
    
    
    (257,325
    )Value
      of 100,000 common shares issued
    
    
    (62,000
    )Goodwill
    
    
    173,648Less
      income attributed to DLI prior to acquisition
    
    
    (871
    )Net
      goodwill
    
    $
    172,777







**NOTE
11 - EARNINGS PER SHARE**





The
Company reports earnings (loss) per share in accordance with SFAS No. 128,
"Earnings per Share.” Basic earnings (loss) per share are computed by dividing
income (loss) available to common stockholders by the weighted average number of
common shares available. Diluted earnings (loss) per share is computed similar
to basic earnings (loss) per share except that the denominator is increased to
include the number of additional common shares that would have been outstanding
if the potential common shares had been issued and if the additional common
shares were dilutive. Diluted earnings (loss) per share have not been presented
since the effect of the assumed conversion of options and warrants to purchase
common shares would have an anti-dilutive effect. The following potential common
shares have been excluded from the computation of diluted net loss per share for
the years ended December 31, 2004 and 2003 were 1,265,000 and 545,500
respectively.





Below is
a computation of earnings per share for the years ended December 31, 2004 and
2003:





**Year
      Ended****December
      31, 2004****Loss**
    
    **Shares**
    
    **Per****(Numerator)**
    
    **(Denominator)**
    
    **Share****Basic
      (loss) per share**Net
      loss
    
    $
    (6,336,477
    )
    
    19,784,901
    
    $
    (0.32
    )Effect
      of dilutive securities
    
    
    --
    
    
    --**Diluted
      (loss) per share**Net
      (loss)
    
    $
    (6,336,477
    )
    
    19,784,901
    
    $
    (0.32
    )





**Year
      Ended****December
      31, 2003****Income**
    
    **Shares**
    
    **Per****(Numerator)**
    
    **(Denominator)**
    
    **Share****Basic
      earnings per share**Net
      income
    
    $
    255,364
    
    
    17,372,839
    
    $
    0.01Effect
      of dilutive securities
    
    
    --
    
    
    --**Diluted
      earnings per share**Net
      income
    
    $
    255,364
    
    
    17,372,839
    
    $
    0.01




F-19


**** **Digital
Learning Management Corporation and Subsidiaries**
 **Notes
to Consolidated Financial Statements**
  **NOTE
12 - SUBSEQUENT EVENTS**




On
February 22, 2005, the Company received a notice of default from the holders of
the convertible debentures. The notice states that the Company has failed to
make interest payments in the amount of $5,945 to each debenture holder and that
such failure to pay has remained un-remedied for more than three days.
Consequently, the debentures holders have declared the unpaid principal amount
of and all interest accrued but unpaid on, the debentures due and payable.
Pursuant to the terms of the Convertible Loan Agreement, the debenture holders
have further demanded that the Company redeem all the unpaid principal amount of
the debentures, together with an amount equal to an 18% annual yield on the
principal amount through the redemption date of the debentures.




On
February 22, 2005, Mr. Robert Pearson, who had been representing the interest of
the debenture holders on the board of directors resigned from the board.





On
February 28, 2005, Mr. Richard Rappaport resigned from the board of
directors.





On March
30, 2005, Software Education of America, Inc., filed a petition in bankruptcy
under Chapter 7 of the U.S. Bankruptcy Code. The petition was necessitated
because SEA was unable to continue to meet its financial
obligations.





On April
5, 2005, the Company entered an agreement with Linear Group for investment
relation services. The agreement extends the term of the existing October 1,
2004 agreement to April 6, 2006.





On April
20, 2005, the Company entered an agreement with a software consultant whereby
the Company granted to the consultant 500,000 shares of the Company’s common
stock.





On April
27, 2005, Global Computer Systems, Inc. settled its litigation with its
landlord. Global has agreed to pay the equivalent of two months rent and to
vacate the rented premises. The cost of the settlement will be $24,950 and is
payable in four monthly installments commencing May 20, 2005.




As of
April 2005, the principal shareholders have loaned the Company $264,000.
 
 WESTPARK
CAPITAL
 
 During
2004 the Company deposited $100,000 with WestPark Capital Market Inc.
(“Westpark”). The Company’s understanding was this was a term deposit for eight
months, and the funds were to be refund on April 6, 2005. In February 2005
Westpark indicated the funds forwarded to them in 2004 were not for a deposit
but for the purchase of the Company’s common stock. On May 16, 2005, the Company
received written notification from Westpark that it would not repay the
$100,000.
 
 A dispute
exists between the two parties on this issue. The Company is contemplating
commencing litigation to recover the funds.


F-20


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




Not
applicable.




**ITEM
8A. CONTROLS AND PROCEDURES.**




As of
December 31, 2004, an evaluation was carried out under the supervision and with
the participation of our management, including our Chief Executive Officer and
Chief Financial Officer, of the effectiveness of our disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e) under the
Securities Exchange Act of 1934). Based on their evaluation, our Chief Executive
Officer and Chief Financial Officer have concluded that our disclosure controls
and procedures are, to the best of their knowledge, effective to ensure that
information required to be disclosed by us in reports that we file or submit
under the Exchange Act is recorded, processed, summarized and reported within
the time periods specified in Securities and Exchange Commission rules and
forms.





There
have not been any changes in our internal control over financial reporting (as
defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of
1934) during the fourth quarter of fiscal 2004 that has materially affected, or
is reasonably likely to materially affect, our internal control over financial
reporting.





**Item
8B. OTHER INFORMATION**





None.





**PART
III**




**ITEM
9. DIRECTORS AND EXECUTIVE OFFICERS.**




**Information
Concerning Our Directors and Executive Officers**





The
following table sets forth, as of May 11, 2005, the names of, and certain
information concerning, our directors and executive officers :





Name
      and Title Other Than Director
    
    Age
    
    Year
      First
      Appointed
      Director
    
    Principal
      Occupation During the Past Five YearsAurangzeb
      Bhatti, President
    
    49
    
    2004
    
    Mr.
      Bhatti has over 25 years experience in information technology and the
      education field. In 1995, Mr. Bhatti founded WebVision, Inc. and served as
      its Chief Executive Officer and Chief Technology Officer until 2001. In
      2001, after leaving WebVision, Inc., Mr. Bhatti co-founded another company
      by the name of School of I.T with Mr. Patel. This company is the
      forerunner of Digital Learning Management Corporation.Umesh
      Patel, Vice President, Chief Financial Officer
    
    47
    
    2004
    
    Mr.
      Patel has over 14 years experience in business development and sales. From
      1990 to 2001, Mr. Patel served as the President of Tech Med Billing
      Services, where he was responsible for managing and projecting financials
      for the company. In 2001, Mr. Patel co-founded School of I.T. with Mr.
      Bhatti. Mr. Patel served as its Vice President and was responsible for
      marketing.Al
      Jinnah, General Counsel and Secretary
    
    64
    
    2004
    
    Mr.
      Jinnah has been a practicing attorney for over 35 years. He has wide
      experience in business law and civil litigation, having served as in-house
      counsel in various industries. He has operated his own private practice
      for the past 5 years.Gregory
      Frazer
    
    51
    
    2004
    
    From
      1996 to 2001, Dr. Frazer was Vice-President of Business Development and on
      the Board of Directors of Sonus-USA, Inc., a publicly traded corporation.
      From 2001 to 2003, Dr. Frazer was a professor at Arizona School for Health
      Sciences in the Au.D. Program. In 2003 , Dr. Frazer entered private
      practice and is now the Director of Audiology at Pecific Eye & Ear
      Specialists, Inc. in Brentwood, California.Khalid
      Sheikh
    
    65
    
    2004
    
    Dr.
      Sheik has a Doctorate degree in Physiology from the University of London.
      His entire career has been devoted to the hospital environment. Since
      1985, he been a consultant in the Radiation Oncology department at Long
      Beach Memorial Medical center. In his career Dr. Sheik has served on
      numerous Boards in the medical field. At present, he serves on the Board
      of Endocurietherapy research Foundation, Long Beach,
      California.





None of
our directors were selected pursuant to any arrangement or understanding other
than with our directors and executive officers acting within their capacities as
such. There are no family relationships between any of our directors.




-25-


**The
Board of Directors and Committees**





Our Board
does not maintain a separate audit, nominating or compensation committee.
Functions customarily performed by such committees are performed by the Board as
a whole. We are not required to maintain such committees under the applicable
rules of the Over-the-Counter Bulletin Board. None of our independent directors
qualify as an “audit committee financial expert.”





**Code
of Ethics**





We
adopted a Code of Ethics that applies to our principal executive officer,
principal financial officer, principal accounting officer or controller or
persons performing similar functions.





**Section 16(a)
Beneficial Ownership Compliance**





Section 16(a)
of the Securities Exchange Act of 1934 requires our directors and certain
executive officers and persons who own more than ten percent (10%) of a
registered class of our equity securities (collectively, the “Reporting
Persons”), to file reports of ownership and changes in ownership with the
Securities and Exchange Commission. The Reporting Persons are required by
Securities and Exchange Commission regulation to furnish us with copies of all
Section 16(a) forms they file.





To our
knowledge, based solely on our review of the copies of such forms received by
it, or written representations from the Reporting Persons, all of our insiders
complied with all filing requirements during 2004.





**ITEM
10. EXECUTIVE COMPENSATION.** ****




**Summary
Compensation Table**





The
following table sets forth information concerning the compensation during each
of the last three fiscal years by our former principal executive officer (the
“Named Executive Officer”). None of our other executive officers received
compensation in excess of $100,000 for the most recent fiscal year.




**Long
      Term Compensation****Annual
      Compensation**
    **Awards**
    **Payouts****(a)**
    **(b)**
    **(c)**
    **(d)**
    **(e)**
    **(f)**
    **(g)**
    **(h)**
    **(i)**Name
      and Principal Position
    Year
    Salary
      ($)
    Bonus
      ($)
    Other
      Annual Compensation(1)($)
    Restricted
      Stock Award(s) ($)
    Options/
      SARs(2)
    LTIP
      Payouts ($)
    All
      Other Compensation(3)($)**Eric
      Borgeson, Former President**
    2004
    --
    --
    --
    --
    --
    --
    --2003
    --
    --
    --
    --
    --
    --
    --2002
    --
    --
    --
    --
    --
    --
    --**Aurangzeb
      Bhatti, President & CEO**
    2004
    120,000
    --
    --
    --
    --
    --
    --2003
    90,000
    --
    --
    --
    42,750
    --
    --2002
    75,000
    --
    --
    --
    --
    --
    --**Umesh
      Patel, VP**
    2004
    120,000
    --
    --
    --
    --
    --
    --2003
    90,000
    --
    --
    --
    42,750
    --
    --2002
    75,000
    --
    --
    --
    --
    --
    --**Al
      Jinnah, Corporate Secretary**
    2004
    110,000
    --
    --
    --
    --
    --
    --2003
    72,500
    --
    --
    --
    --
    --
    --2002
    --
    --
    --
    --
    --
    --
    --







-26-





**Option/SAR
Grants in Last Fiscal Year**





No stock
options were granted to the Named Executive Officer during the last fiscal
year.





**Aggregated
Option/SAR Exercises in Last Fiscal Year and Year End Option/SAR Value**





No stock
options were granted to or held by the Named Executive Officer during the last
fiscal year.





**Employment
Contracts**





Two year
employment agreements with our executive officers, Messrs. Bhatti and Patel
expire on December 10, 2005. We have not entered into employment agreements with
any of our executive officers.





**Director
Compensation**





Our outside directors are reimbursed reasonable expenses incurred in connection
with their attendance at Board meetings.





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




**Equity
Compensation Plan Information**





The
following table provides information as of December 31, 2004 regarding
compensation plans (including individual compensation arrangements) under which
equity securities of our company are authorized for issuance. Pursuant to the
terms of our merger with Digital Learning Institute, Inc., we will issue options
to purchase an aggregate of 595,500 shares of our common stock to certain former
Digital Learning Institute, Inc. option holders.





**Plan
      Category**
    
    **Number
      of Securities to be issued upon exercise of outstanding options, warrants
      and rights**
      **(a)**
    
    **Weighted-average
      exercise price of outstanding options, warrants and
      rights**
      **(b)**
    
    **Number
      of securities remaining available for future issuance under equity
      compensation plans (excluding securities reflected in column
      (a)**
      **(c)**Equity
      compensation plans approved by
      security
      holders
    
    
    0
    
    
    N/A
    
    
    2,000,000(1
    )Equity
      compensation plans not approved by
      security
      holders
    
    
    N/A
    
    
    N/A
    
    
    N/A







(1)
    Refers
      to shares underlying our 2004 Stock Option, Deferred Stock and Restricted
      Stock Plan. As of December 31, 2004, no options, deferred stock or
      restricted stock have been issued under the plan.





**Shareholdings
of Certain Beneficial Owners, Directors and Executive
Officers**





We know
of no person who owns, beneficially or of record, either individually or
together with associates, five percent (5%) or more of the outstanding shares of
Common Stock, except as set forth in the table below. The following table sets
forth, as of May 11, 2005, the number and percentage of shares of Common Stock
beneficially owned, directly or indirectly, by each of our directors, the Named
Executive Officer and principal shareholders and by our current directors and
executive officers as a group. The shares “beneficially owned” are determined
under applicable Securities and Exchange Commission rules, and do not
necessarily indicate ownership for any other purpose. In general, beneficial
ownership includes shares over which the director, principal shareholder or
executive officer has sole or shared voting or investment power and shares which
such person has the right to acquire within 60 days of May 11, 2005. Each
person in the table, except as noted has sole voting and investment powers over
the shares beneficially owned.




-27-




Unless
indicated otherwise, the address for each person named is c/o Digital Learning
Management Corporation, 19950 Mariner Avenue, Torrance, California
90503.





**Beneficial
      Owner**
    
    **Amount
      and Nature**
      **of
      Beneficial Ownership**
    
    **Percent**
      **of
      Class***Current
      Directors and Executive Officers:*Aurangzeb
      Bhatti, President and Director
    
    
    6,668,680(1
    )
    
    24.8
    %Umesh
      Patel, Vice President, Chief Financial Officer and
Director
    
    
    6,668,680(2
    )
    
    24.8
    %Al
      Jinnah, General Counsel, Secretary and Director
    
    
    1,052,,040
    
    
    3.9
    %Gregory
      Frazer, Director
    
    
    ---
    
    
    *Khalid
      Sheikh, Director
    
    
    ---
    
    
    *(All
      Current Directors and Executive Officers as a Group, 5 in
    all)
    
    
    14,389,400(4
    )
    
    53.5.
    %*Former
      President:**Eric
      Borgeson (5)*
    
    
    ---
    
    
    **5%
      Shareholders:*RENN
      Capital Group, Inc.
      8080
      N. Central Expressway, Suite 210, LB-59
      Dallas,
      Texas 75206
    
    
    6,699,834(3
    )
    
    24.9
    %Faisel
      H. Khan
    
    
    1,615,000
    
    
    6.1
    %








*
    Less
      than 1%


(1)
    Includes
      options to purchase 42,750 shares of Common Stock, all of which 42,750 are
      held by the Bhatti Family Trust.


(2)
    Includes
      options to purchase 42,750 shares of Common Stock, all of which are held
      by the Patel Family Trust.


(3)
    Based
      on Schedule 13D filed April 13, 2004. The shares of Common Stock deemed to
      be beneficially owned by RENN Capital Group, Inc. are comprised of shares
      issuable upon the conversion of $3,000,000 7.00% Convertible
      Debentures.


(4)
    Includes
      options to purchase 85,550 shares of Common Stock.


(5)
    All
      of Mr. Borgeson’s shares were cancelled in the change-of-control
      transaction referenced below.




**ITEM
12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.** ****




We have
entered into indemnification agreements with certain of our directors and
executive officers pursuant to which we have agreed to indemnify any officer or
director against all costs associated with the defense of any action brought
against him or her in his/her capacity as an officer or director.




-28-




Each of
Messrs. Bhatti, Patel and Jinnah were shareholders of Digital Learning, Inc.
prior to the Merger referenced in Item 1. ** The three
individuals acquired approximately 74.0% of our outstanding common stock as of
January 20, 2004.





As of
April, 2005 Messrs. Bhatti and Patel had advanced $264,000 to the Company to
meet some of the Company obligations.





**ITEM
13. EXHIBITS.** ****




(a)
Exhibits




**Exhibit**
      **Number**
    ****
    ****3.1
    
    Articles
      of Incorporation & Bylaws (a) Articles of Incorporation of the
      Registrant filed February 18, 1999 and (b) By-Laws of the Company adopted
      March 12, 1999 (incorporated by reference to Exhibit 3 to the Registrant's
      General Form For Registration Of Securities Of Small Business Issuers on
      Form 10-SB, filed with the SEC on November 5, 1999).3.1(a)
    
    Certificate
      of Amendment of Articles of Incorporation of the Registrant (incorporated
      by reference to Exhibit A of the Registrant’s definitive information
      statement on Schedule 14C filed with the SEC on February 25,
      2004).2.1
    
    Agreement
      and Plan of Merger, dated as of January 16, 2004, by and among
      FreePCSQuote.Com, Inc., FPQT Acquisition Corporation and Digital Learning
      Institute, Inc. (incorporated by reference to Exhibit 2.1 to the
      Registrant’s current report on Form 8-K filed with the SEC on January 30,
      2004).4.1
    
    7.00%
      Convertible Debenture issued on February 27, 2004 to The Frost National
      Bank, Custodian FBO Renaissance US Growth Investment Trust PLC, Trust No.
      W00740100 (incorporated by reference to Exhibit 4.1 to the Registrant’s
      current report on Form 8-K filed with the SEC on March 11,
      2004).4.2
    
    7.00%
      Convertible Debenture issued on February 27, 2004 to The Frost National
      Bank, Custodian FBO Renaissance Capital Growth & Income Fund III,
      Inc., Trust No. W00740000 (incorporated by reference to Exhibit 4.2 to the
      Registrant’s current report on Form 8-K filed with the SEC on March 11,
      2004).4.3
    
    7.00%
      Convertible Debenture issued on February 27, 2004 to HSBC Global Custody
      Nominee (U.K.) Limited, Designation No. 896414 (incorporated by reference
      to Exhibit 4.3 to the Registrant’s current report on Form 8-K filed with
      the SEC on March 11, 2004).10.1
    
    Convertible
      Loan Agreement dated as of February 27, 2004, by and among Digital
      Learning Institute, Inc., FreePCSQoute.com, Inc., Digital Learning
      Management Corporation, Renaissance Capital Growth & Income Fund, III,
      Inc., Renaissance US Growth Investment Trust PLC, BFSUS Special
      Opportunities Trust PLC, and Renn Capital Group, Inc. (incorporated by
      reference to Exhibit 10.1 to the Registrant’s current report on Form 8-K
      filed with the SEC on March 11, 2004).14.1
    
    Code
      of Ethics (incorporated by reference to Exhibit 14.1 to the Registrant’s
      Amendment No. 1 to its annual report on Form 10-KSB for the year ended
      December 31, 2003).16.1
    
    Letter
      regarding change in certifying accountant (incorporated by reference to
      Exhibit 16.1 to the Registrant’s current report on Form 8-K filed with the
      SEC on November 18, 2003).24
    
    Power
      of Attorney (included on the signature page).31.1
    
    Certification
      of Chief Executive Officer pursuant to Item 601(b)(31) of Regulation S-B,
      as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of
      2002.31.2
    
    Certification
      of Chief Financial Officer pursuant to Item 601(b)(31) of Regulation S-B,
      as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of
      2002.32.1
    
    Certifications
      of Chief Executive Officer and Chief Financial Officer pursuant to 18
      U.S.C. Section 1350 as adopted pursuant to Section 906 of the
      Sarbanes-Oxley Act of 2002.*







*
    This
      exhibit shall not be deemed “filed” for purposes of Section 18 of the
      Securities Exchange Act of 1934 or otherwise subject to the liabilities of
      that section, nor shall it be deemed incorporated by reference in any
      filing under the Securities Act of 1933 or the Securities Exchange Act of
      1934, whether made before or after the date hereof and irrespective of any
      general incorporation language in any filings.






-29-


**ITEM
14. PRINCIPAL ACCOUNTANT FEES AND SERVICES.** ****




The
following table sets forth fees billed to us by our auditors during the fiscal
years ended December 31, 2004 and December 31, 2003 for: (i) services rendered
for the audit of our annual financial statements and the review of our quarterly
financial statements, (ii) services by our auditor that are reasonably related
to the performance of the audit or review of our financial statements and that
are not reported as Audit Fees, (iii) services rendered in connection with tax
compliance, tax advice and tax planning, and (iv) all other fees for services
rendered.





December
      31, 2004
    
    December
      31, 2003(i)
    
    Audit
      Fees
    
    $
    140,000
    
    $
    54,000(ii)
    
    Audit
      Related Fees
    
    
    --
    
    
    --(iii)
    
    Tax
      Fees (1)
    
    
    13,000
    
    
    12,500(iv)
    
    All
      Other Fees
    
    
    --
    
    
    --Total
      fees
    
    $
    153,000
    
    $
    66,500




(1) Fees billed in
connection with services relating to the preparation of tax
returns.





Our Board
has considered the provision of non-audit services provided by AJ Robbins, PC to
be compatible with maintaining the independence of AJ Robbins, PC. The Board
will continue to approve all audit and permissible non-audit services provided
by our independent auditors. These services may include audit services and
related services, tax services, and other services.








-30-





**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.








**DIGITAL
LEARNING MANAGEMENT CORPORATION**





By: /s/
Aurangzeb Bhatti


Name:  Aurangzeb
Bhatti


Title:  President


(Principal
Executive Officer)








**POWER
OF ATTORNEY**





KNOW ALL
PERSONS BY THESE PRESENTS, that each of the persons whose signature appears
below hereby constitutes and appoints Aurangzeb Bhatti and Al Jinnah, each of
them acting individually, as his or her attorney-in-fact, each with the full
power of substitution, for him or her in any and all capacities, to sign any and
all amendments to this Annual Report on Form 10-KSB, and to file the same, with
all exhibits thereto and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact, and
each of them, full power and authority to do and perform each and every act and
thing requisite and necessary to be done in and about the premises as fully to
all intents and purposes as he or she might or could do in person, hereby
ratifying and confirming our signatures as they may be signed by our said
attorney-in-fact and any and all amendments to this Annual Report on Form
10-KSB.





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.





**Signature**
    ****
    **Title**
    ****
    **Date**/s/
      Aurangzeb BhattiAurangzeb
      Bhatti
    
    President
      and Director
    
    May
      19, 2005/s/
      Umesh PatelUmesh
      Patel
    
    Vice
      President, Chief Financial Officer and Director
    
    May
      19, 2005/s/
      Al JinnahAl
      Jinnah
    
    General
      Counsel, Secretary and Director
    
    May
      19, 2005











-31-