SECURITIES AND EXCHANGE COMMISSION
                              WASHINGTON, DC 20549
                                  UNITED STATES
                                   FORM 10-KSB



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

FOR THE FISCAL YEAR ENDED MAY 31, 2003

                                       OR

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

                  FOR THE TRANSITION PERIOD FROM ___________ TO ________________


                         COMMISSION FILE NUMBER: 0-22814

                                  INSYNQ, INC.
                 (Name of Small Business Issuer in Its Charter)

              NEVADA                                 22-3894506
   (State or other jurisdiction of         (IRS Employer Identification No.)
   incorporation or organization)


        1127 BROADWAY PLAZA, SUITE #202                   98402
             TACOMA, WASHINGTON

   (Address of principal executive offices)             (Zip Code)


                                 (253) 284-2000
              (Registrant's telephone number, including area code)

    Securities registered pursuant to Section 12(b) of the Exchange Act: None
    Securities registered pursuant to Section 12(g) of the Exchange Act:

                     COMMON STOCK, PAR VALUE $.001 PER SHARE


<PAGE>


Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or Indicate by check mark whether the Registrant (1)
has filed all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or for such
shorter period that the Registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days. Yes [X] No[ ]

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-B is not contained herein, and will not 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 [ ].

The Registrant's revenue for its most recent fiscal year:  $1,053,855

The aggregate market value of the Registrant's common stock, $.001 par value,
held by non-affiliates as of September 9, 2003, on the OTC Bulletin Board, was:
$4,313,157.

As of September 9, 2003 there were 144,946,484 shares of the Registrant's common
stock outstanding.

DOCUMENTS INCORPORATED BY REFERENCE:  No documents are incorporated by reference
into this Annual Report on Form 10-KSB.







<PAGE>


                                                        INSYNQ, INC.

                                                         FORM 10-KSB
<TABLE>
<CAPTION>

                                                      TABLE OF CONTENTS


        <S>            <C>                                                                             <C>
        PART I

          ITEM 1.      DESCRIPTION OF BUSINESS......................................................... 4
          ITEM 2.      DESCRIPTION OF PROPERTY......................................................... 23
          ITEM 3.      LEGAL PROCEEDINGS............................................................... 23
          ITEM 4.      SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS............................. 24


        PART II

          ITEM 5.      MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER
                       MATTERS......................................................................... 24
          ITEM 6.      MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
                       OPERATIONS...................................................................... 28
          ITEM 7.      FINANCIAL STATEMENTS............................................................ 38
          ITEM 8.      CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
                       DISCLOSURE...................................................................... 39
          ITEM 8a      CONTROLS AND PROCEDURES......................................................... 39

        PART III

          ITEM 9.      DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS, AND CONTROL PERSONS, COMPLIANCE
                       WITH SECTIONS 16(A) OF THE EXCHANGE ACT......................................... 39
          ITEM 10.     EXECUTIVE COMPENSATION.......................................................... 41
          ITEM 11.     SECURITY OWNERSHIP OF CERTAIN BENEFICAL OWNERS AND
                       MANAGEMENT...................................................................... 43
          ITEM 12.     CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.................................. 44
          ITEM 13.     EXHIBITS AND REPORTS ON FORM 8-K................................................ 45


          SIGNATURES................................................................................... 59

          INDEX TO FINANCIAL STATEMENTS................................................................ F-1
</TABLE>







<PAGE>

                                     PART I

ITEM 1.  DESCRIPTION OF BUSINESS

GENERAL

         Except for historical information, the following description of our
business contains forward-looking statements based on current expectations that
involve risks and uncertainties. Our actual results could differ materially from
those set forth in these forward-looking statements as a result of a number of
factors, including those set forth in this Annual Report under the heading "Risk
Factors."

         We are an application service provider, or ASP and we have been
delivering out-sourced software application hosting and managed information
technology services through our IQ Data Utility Service since 1997. We host
software applications on our servers located at two data centers, rent computing
services to our customers for a monthly fee, and perform remote management and
maintenance of our customers' servers from our network operations center. Our
customers connect to our facilities over the Internet, through a dedicated
telecommunications line or by wireless connection. Our goal is to provide our
services with the speed, simplicity and reliability of a utility service. Like a
utility company, we allow business customers to "turn on", or access, their
software applications and data instantly through any web enabled computer,
regardless of operating system. We currently have approximately 1125 users,
which can freely access their software and data in real time from any computer,
anywhere in the world.

         We provide our customers with the tools necessary to implement business
workflow and process ideas quickly and cost effectively. We make it possible for
many businesses to take advantage of technology solutions that have typically
been reserved for larger business enterprises. These solutions enable our
customers to benefit from reliable technology operations, which can grow to
accommodate increasing business needs and can be delivered without undertaking
the difficulty and expense associated with building the required expertise
in-house.

         We provide our services through our IQ Data Utility Service, which
allow us to consistently deploy our customers operations across multiple
locations and to maintain those services through our centralized operations
center. Among other things, our services enable our customers to:

o    quickly expand their Internet presence as business opportunities arise in
     new geographies; and
o    efficiently incorporate new technologies into their existing business
     operations as these technologies evolve.

         The application service provider model of distributing computer
processing services over the Internet has proven itself to deliver a lower total
cost of ownership as compared to building and maintaining physically separated
information technology systems. This is due in part to the increasing
complexities of successfully deploying and maintaining the various components of
software solutions, as well as the hardware and connectivity required for a
successful Internet business operation. In addition, the in-house expertise
required to meet these challenges is significant and typically requires a host
of technical specialists.

         We target small and medium enterprises and the high-end segment of the
small office and home office market for hosted software and access to
Internet-related services. We provide products and services to our customer
subscriber base that allows our customers to adopt "Web-based" computing that
serves as an alternative to both local area networks and traditional network
implementations. Generally, we market ourselves as an Internet utility company
that can provide technology solutions for its customers on a cost effective
basis.

HISTORY

         Our predecessor company, Xcel Management, Inc., formerly known as
"Palace Casinos, Inc.," was inactive from the end of 1995 until the consummation
of an asset purchase transaction with Insynq, Inc., a Washington corporation.
During the two-year period prior to the transaction with Insynq, Xcel and its
management, worked to complete a plan of reorganization confirmed in the United
States Bankruptcy Court under Chapter 11 of the federal bankruptcy laws. Xcel
also undertook necessary steps to position Xcel to seek new business
combinations, including either a merger or reorganization, or an acquisition
transaction. These efforts resulted in Xcel entering into an asset purchase
agreement with Insynq, which was completed in February 2000.

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<PAGE>

         Xcel was originally incorporated in the state of Utah on May 22, 1980,
under the name Ward's Gas & Oil, to engage in the oil and gas business. This
business was terminated after a few years of operations. From November 1992
until approximately the end of 1995, Xcel (then called Palace Casinos, Inc.),
was engaged, through its then wholly-owned subsidiary, Maritime Group, Ltd., in
the development of a dockside gaming facility in Biloxi, Mississippi. In April
1994, the subsidiary completed the development of the Biloxi gaming facility,
Palace Casino, and commenced operations.

         On December 1, 1994, Xcel and its subsidiary separately filed voluntary
petitions for relief under Chapter 11 of the federal bankruptcy laws in the
United States Bankruptcy Court for the District of Utah, Central Division.
Xcel's Chapter 11 proceedings were then transferred to the United States
Bankruptcy Court for the Southern District of Mississippi. On September 22,
1995, Xcel, having been operating as a debtor-in-possession in connection with
the bankruptcy proceeding, entered into an asset purchase agreement under the
terms of which it agreed, subject to the approval of the bankruptcy court, to
sell substantially all of its subsidiary's operating assets. This transaction
was approved by the bankruptcy court and was completed in the end of 1995, which
resulted in all of the net proceeds of the transaction being distributed to
creditors. Following the completion of the sale of the subsidiary's assets, Xcel
had essentially no assets and liabilities and its business operations ceased.

         In February 1999, Steve Rippon and Edward D. Bagley, Xcel's management,
submitted to the bankruptcy court a plan of reorganization, which was confirmed
by the bankruptcy court on June 16, 1999. Under the terms of the plan:

o    all of Xcel's priority creditors were paid a total of $5,000;
o    unsecured creditors, holding between $300,000 and $500,000 in claims, were
     issued pro rata a total of 900 shares of post-bankruptcy common stock in
     full satisfaction of such obligations; and
o    all of the equity holders of Xcel common stock were issued, pro rata, a
     total of approximately 900 shares of common stock in lieu of a total 87,944
     shares of preferred and common stock issued and outstanding, which resulted
     in 0.000102 shares of common stock of Xcel being issued for each previously
     outstanding share of common stock and preferred stock.

         Under the terms of the plan, all of Xcel's outstanding warrants and
options expired. In connection with the plan, Messrs. Rippon and Bagley,
creditors of the bankruptcy estate and the plan proponents, were elected as
Xcel's officers and directors and were issued a total of 16,200 shares of common
stock (8,100 shares each) in consideration of their contributions of services
and approximately $20,000 in cash provided to pay for legal services and costs
incurred in the plan confirmation process and related activities.

         Following the confirmation of the plan in June 1999, Xcel completed the
plan in accordance with its terms. Immediately following the confirmation of the
plan, Xcel had a total of approximately 18,000 shares of common stock issued and
outstanding. On December 3, 1999, the bankruptcy court, after reviewing the
efforts by the plan proponents, issued an order closing the bankruptcy estate.

         Subsequent to the completion of the plan, Xcel completed updated
financial statements, prepared and filed updated periodic reports with the
Securities and Exchange Commission, and undertook actions that enabled Xcel to
seek a business opportunity for either a merger or acquisition. These efforts
resulted in the asset purchase transaction with Insynq.

         On January 26, 2000, Xcel entered into an asset purchase agreement with
Insynq. Since September 1998, Insynq was engaged in the business of providing
hardware, software, computer Internet and related connectivity services and
products to the small to medium enterprise and the high-end small office home
office markets. The terms of the asset purchase agreement between Xcel and
Insynq were completed on February 18, 2000. Under the terms of the asset
purchase agreement, Xcel acquired substantially all of the assets of Insynq and
assumed substantially all of the obligations of Insynq, in exchange for the
issuance by Xcel of a total of 76,041 shares of restricted common stock of Xcel
to the Insynq shareholders pro rata. As a result of the transaction, Xcel had a
total of approximately 94,041 shares issued and outstanding, of which the former
Insynq shareholders held 76,041 shares, or approximately 80.9%. In connection
with the asset purchase agreement, Insynq obtained approval of the sale of its
assets by its shareholders at a duly called and convened shareholders' meeting.

         Pursuant to the terms of the asset purchase agreement, Xcel acquired
essentially all of the assets, tangible and intangible, of Insynq and became
engaged in Insynq's business. These assets included computer hardware and
software and related equipment, furniture and fixtures, proprietary technology
developed by Insynq, all contractual rights including

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capitalized lease equipment and other leasehold rights, trade names and
trademarks, all client lists and marketing data and materials, cash and cash
equivalents, accounts receivable, inventory, work-in-progress and related
assets.

         Under the asset purchase agreement, Xcel also agreed to assume all
equipment leases, leaseholder obligations covering office space utilized by
Insynq, all consulting contracts, and all other contract obligations. Xcel also
assumed essentially all of the obligations and liabilities of Insynq, including
capital lease obligations on equipment, accounts payable, accrued payroll and
other business taxes, notes payable, and other liabilities. In addition to such
liabilities, Xcel agreed to assume all other contractual obligations of Insynq.
Finally, at the time of completion of the Insynq asset acquisition, Insynq had
outstanding to various shareholders a number of warrants and options which
entitled the holders to purchase shares of restricted common stock of Insynq,
which warrants and options were converted into like warrants and options to
purchase shares of Xcel's common stock.

         In that regard, Xcel entered into employment contracts with certain
individuals who were executives or key employees of Insynq on substantially the
same employment terms as between Insynq and such individuals.

         Prior to September 1998, the business, which ultimately became Insynq's
business was under development as a potential product/services line of
Interactive Information Systems Corporation, a company wholly owned by M.
Carroll Benton, our secretary, treasurer and chief administrative officer. In
September 1998, Interactive transferred to Charles Benton, husband of Ms. Benton
and then a creditor of Interactive, in satisfaction of a debt obligation owed by
Interactive to Charles Benton, all of Interactive's right, title and interest in
and to the following:

o    certain equipment and other tangible personal property; and
o    the intellectual properties, computer software, trademarks, copyrights,
     ideas, work-in-progress, and other tangible and intangible property
     comprising the system known as the "Insynq Project" which later developed
     into our IQ Delivery System.

         Mr. Benton then contributed all of the Insynq Project intellectual
property assets to Insynq in exchange for the initial shares of common stock
issued by Insynq at the time of its formation. Mr. Benton also sold the
equipment and other tangible property to the newly formed Insynq in exchange for
a note. Mr. Benton then sold all of his shares of Insynq common stock to M.
Carroll Benton and John P. Gorst, our chief executive officer, chairman of the
board and president. Insynq continued the development of the Insynq Project
business until February 18, 2000, when Xcel acquired all of that business under
the terms of the asset purchase agreement.

         On August 3, 2000, at a special meeting of stockholders, Xcel completed
a re-incorporation merger with its wholly owned subsidiary, Insynq, Inc., a
Delaware corporation, pursuant to a plan of merger dated June 30, 2000. Pursuant
to the plan of merger, each stockholder of Xcel received two (2) shares of
Insynq common stock for each one (1) share of Xcel stock held on the date of the
merger and the company's state of incorporation was changed to the State of
Delaware.

         On December 23, 2002, Insynq, Inc., a Delaware corporation, merged with
and into its wholly owned subsidiary, Insynq, Inc., a Nevada corporation whereby
Insynq, Inc. (Delaware) was reincorporated as a Nevada corporation. Pursuant to
the merger, each holder of Insynq Delaware common stock received one share of
common stock of Insynq Nevada for every one hundred shares of common stock. The
holders of preferred stock of Insynq Delaware received ten shares of common
stock of Insynq Nevada for every share of preferred stock of Insynq Delaware.

INDUSTRY BACKGROUND

THE INTERNET

         The Internet is fundamentally changing the way businesses interact with
their customers, partners and other businesses and has become an important
medium for both commerce and communications. Improvements in the quality and
reliability of global telecommunications networks and common Internet protocols
permit large volumes of data to be delivered to end users over a variety of
Internet-enabled devices. Businesses are now able to access and distribute a
wide array of software services over the Internet, allowing them to, among other
things, implement supply chain management solutions and enable other operating
functions on-line, market and sell products and services to customers and offer
web-based customer self-service programs. As a result, businesses are
substantially increasing their investments in Internet sites, services,
software, network infrastructure, information technology personnel and hardware
to utilize the reach and efficiency of the Internet.

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         Even as companies have increased their investments in Internet
infrastructure, the complexity of successfully deploying and maintaining
Internet business operations continues to increase. In particular, the software
infrastructure required to deploy and maintain Internet business operations has
become increasingly complex. For example, businesses deploying Internet business
operations can choose from multiple software applications with varying levels of
functionality and complexity, all of which must integrate to become a seamless
information system. In addition, with increasing globalization, businesses often
must maintain their operations in multiple locations and design their
infrastructure to accommodate local standards, while remaining synchronized with
operations in other geographies.

         The in-house expertise required to meet these challenges is significant
and typically requires a host of technical specialists, including network
administrators, systems administrators, database administrators, security
experts, monitoring and management experts, project managers, software
operations specialists, troubleshooting specialists and performance engineers.
It is often difficult, time consuming and costly to hire and retain these
experts. Even if businesses can effectively hire and retain these experts,
deploying this talent to maintain a business' Internet infrastructure is
inefficient as it diverts these resources from enhancing a business' core
competencies.

         To effectively manage the increasing complexity of Internet business
operations, we believe that companies require a new set of infrastructure
services to run Internet business operations on an automated and global basis. A
reliable, secure, expandable and cost-effective software infrastructure network
would permit businesses to focus on their core competencies and provide greater
functionality and flexibility than they could otherwise attain on their own.
Businesses could also access a global and robust technology infrastructure
without incurring the time or financial costs associated with building
equivalent functionality on their own. In addition, businesses would be able to
access the operational capacity they require to efficiently run their
Internet-based software applications, and to efficiently increase or reduce that
capacity as business needs dictate. The solution would also consistently deploy
and maintain businesses' operations across multiple locations via centralized
network operations centers.

         We believe that we provide all of these services in an affordable and
easy to deliver package and that corporate information technology departments
have a resource that they can depend on to deliver advanced technology
solutions.

THE INDUSTRY

         An application service provider can be defined as an entity that
supplies another company with hosted applications, information technology
infrastructure and support services. Instead of buying hardware and business
software from vendors and using its own information technology staff to
implement and maintain the system, a customer contracts with an application
service provider for software applications and services that may include system
administration, upgrades and day-to-day operations such as backup, recovery and
security.

         This arrangement enables customers to focus on getting value from
leased applications, free of the need to administer, maintain and upgrade them.
Renting rather than buying may provide a financial advantage, since such
services are treated as operating expenses, rather than capital investments.

         There are many benefits available to organizations that utilize the
services of application service providers. We believe these benefits include a
solution to the scarcity of information technology staff, rapid software
application deployment, and a lower total cost of ownership. By avoiding the
time and cost of developing internal systems, customers also save money that
would otherwise be spent on maintenance, updates and training, raising their
overall productivity. Finally, application service provider customers are
protected from technological obsolescence and benefit from the latest
applications and services.

THE TECHNOLOGY

         We believe that the following key features of our technology allow us
to provide dependable and affordable services to our clients:

         Our IQ Data Utility Service was originally developed by Interactive, a
computer integration company located in Tacoma, Washington. The early stages of
the IQ Data Utility Services was purchased by Insynq in September 1998 and were
subsequently assumed by Xcel as part of the Insynq asset purchase agreement
entered into between Xcel and Insynq in February 2000. The complete IQ Data
Utility Service includes managed network and application services and can span
from a

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customer's keyboard to the data center. The final pieces of the service are the
data centers, which are located in Bellingham and Kent, Washington. These
facilities house our server equipment and routers and have redundant power,
bandwidth, and cooling.

         In the process of developing the IQ Data Utility Service, we believe we
developed valuable technological expertise. We created new methodologies and
produced hardware and software that we believe is essential to the configuration
and effective management of Internet-based networks and outside deployment of
shared software applications.

         To support Microsoft Corporation's Windows-based applications, the IQ
Data Utility Service uses proprietary Citrix Systems, Inc. independent computer
architecture software to increase end-user performance and reduce a customer's
total cost of owning and maintaining computer hardware and software. Our
technology allows us to manage all hosted application processing functions. The
centrally managed servers also house customers' data, provide storage and
backup, file and directory security, and anti-virus protection.

         The IQ Data Utility Service receives and transmits information in the
form of images rather than data, requiring less bandwidth than traditional
network configurations. Customers may connect to the IQ Data Utility Service via
a variety of carriers and connectivity technologies, including public access
over the Internet with encryption, through private connections, or other
available access methods. Properly provisioned connections, whether public or
private, generally provide a quality end-user experience.

         The first type of customer configuration, Internet browser-based Thin
Client devices, also called Internet Appliances, allow a user to interact with
the images transmitted over the Internet using only a monitor, keyboard, and a
mouse. The Internet Appliance actually does very little since its functions are
limited to sending user instructions to centrally managed servers. Using the IQ
Data Utility Services, an Internet Appliance communicates the user's data-entry
and retrieval commands to servers located at the data center, where all
computing functions are performed. Internet Appliances do not have disk or tape
drives which generally increases customer productivity by restricting users'
ability to install extraneous software applications, such as computer games, or
tamper with a computer's operating system. This access device imposes a
singleness of purpose upon the operation, and improves manageability,
simplicity, and reliability.

         The traditional computer workstation, utilizing a central processing
unit and disk resources, constitutes the second type of customer configuration.
These customers may need to use fully equipped workstations for certain
individuals that utilize non-Windows software applications or very specialized,
complex applications such as computer aided design used, for example, in
engineering. This is not our recommended option because it does not free the
customer from the technical problems and service costs associated with
maintaining this type of configuration. Customers may choose to use existing
workstations to connect to the IQ Data Utility Services, however, because this
machine uses an operating system that we do not manage, the workstation may be
more susceptible to various failures.

         Once connected to the IQ Data Utility Service, users can acquire any of
the following computer services:

VIRTUAL OFFICE - We can establish a virtual office for a customer, allowing
professionals, employers, employees, clients, and customers to utilize a wide
variety of software applications and/or interact directly in a network
environment. This office is always open, irrespective of the time of day or the
user's location.

OFFICE SOFTWARE SUITE - Customers may select from one (1) of three (3) Office
Software Suites as part of the virtual desktop subscription. Customers may also
select from a wide variety of other fully supported Windows-based software
applications. We serve some vertical markets and in many cases incorporate
specialized software for these customers. We regularly test new applications and
make them available to our customers. If a customer wishes to use Windows-based
software that is not already offered for use with our service, we may test, and
subsequently configure, load, and maintain compatible applications for an
additional monthly fee.

INTERNET CONNECTION - We may provide customers with connectivity to the Internet
through their Virtual Office as part of our service. Our customers must provide
their own local Internet connection in order access their service with us.
Customers may also provide private connections to our data centers.

WEB SITE HOSTING - For an additional fee, we may put the customer's Internet Web
site on one of our servers and host the site for them. Further, we can assist
our customer in performing Web site changes and updates.

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DATA BACK-UP AND STORAGE - The IQ Data Utility Service provides daily automatic
backup of customer data on high-speed tape and logs the activity. Upon request,
a customer can receive their backup data and related backup logs. On average we
provide one (1) gigabyte of data storage with each business subscription. For
larger customers, we tailor storage requirements to the customers' needs and
price it accordingly.

SECURITY - We believe our IQ Data Utility Service generally raise the level of a
customer's computer security in several ways. First, our servers are located in
secured rooms with keycard access. Second, customers utilizing thin client
technology additionally prevents unauthorized disk installation and installation
of extraneous software, both of which can introduce computer corruptions and
viruses. Third, access to customer data is restricted through the use of secured
application servers located at the data centers, which are protected by firewall
filters and Internet protocol based networking rules. Last, customer data is
rarely transmitted; transmissions between the customer's site and the servers
located in the data centers generally occur in the form of indecipherable,
encrypted images.

REDUNDANCY - Our IQ Data Utility Service secures customer data on redundant disk
arrays with ready spare disk drives. We make a best effort to assure application
redundancy, so that if one server fails, we can reroute customers to similar
servers, thereby minimizing customer downtime.

                               OUR STRATEGIC PLAN

MARKET DRIVERS

         We believe that the information technology requirements of the small to
midsize enterprises are almost identical to those of Fortune 1000 enterprises.
Despite their large numbers and information technology requirements, small to
medium sized enterprises have limited budgets, which rarely makes them the
direct target of sophisticated professional service providers who are considered
our competitors. As a result, this sector of the economy remains open to the
services of emerging professional service providers like us.

KEY DIFFERENTIATORS

         We believe we are different from other service providers due to our
focus on the information technology needs of both the small to medium sized
enterprise and the small office home office customers for low cost services.
These businesses require the same level of reliable information technology
services as Fortune 1000 businesses, but generally do not have the financial
resources to make the required investment for Internet business operations. We
enable these customers to rent, on an as needed basis, their information
technology needs.

CHALLENGES

         Our greatest challenge is to educate our target markets regarding the
cost savings and productivity enhancements gained through using Internet based
computing services as an alternative to traditionally deployed computer
networks.

STRATEGY

         We will continue to position our products and services as a cost
effective way to utilize the latest computer network technologies without making
a significant investment in computer equipment, software or private
telecommunications network infrastructure.

         We market and sell our services primarily through the sales
organizations of independent software vendors, telecommunications and Internet
service providers, managed service providers and technology consultants.

         We intend to continue to invest in the development and integration of
additional services that address the evolving needs of our customers. Our goal
is to integrate additional product enhancements that extend the capabilities of
our services across a large universe of existing and potential customers. We
believe that by continuing to broaden our service offerings, we will be viewed
by our customers as the single and best source for all of their information
technology service requirements.

         In addition to expanding the scope of our services, we are also
developing services geared to the needs of particular segments of our customer
base. We will continue to review the applicability of our service offerings to
our target customers

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and create additional category- specific offerings based on the size and
profitability of the market segment.

         While we believe that it is paramount that we remain focused on our
plan, we must have the ability, inherent in any company, to adapt quickly to the
ever-changing market conditions.

         In addition to internally generated growth, we intend to expand our
business through strategic acquisitions in the United States and possibly
abroad. We believe our acquisitions will allow us to accelerate our penetration
of key geographical markets, broaden our offerings of products and services,
expand our technical staff, as well as our market entry points. To attain this
goal, we are aggressively pursuing opportunities to merge and/or acquire
compatible companies with which to utilize management, financial and operational
resources. We presently do not have any current plans to enter into an
acquisition, financing or other business combination.

SALES AND MARKETING

         We focus our sales and marketing efforts on the small to medium size
enterprise and the small office home office market. Although specific definition
for these market segments vary somewhat, we view the high-end, small office home
office market to represent small offices with up to ten employees, and the small
to medium size enterprise market to represent companies that employ
approximately 11 to 500 people. We will occasionally pursue larger
opportunities. We sell to these segments through the sales organizations of the
software publishers, information technology consultants, telecommunication
carriers and Internet service providers.

         We have developed a packaged service offering targeting these small
businesses that delivers a combination of software and marketing services
designed for these market segments.

COMPETITION

         The market for Internet based data processing and information
technology services is rapidly evolving and intensely competitive. In addition
to internally built and supported operations, our primary current and
prospective competitors include:

o    providers of computer equipment;
o    co-location, web site hosting and related services;
o    technology vendors that have recently announced their intentions to offer
     some of the services that we offer currently to a portion of our targeted
     customer base; and
o    providers of Internet based systems integration or professional services.

         Many of our competitors have been in business longer than us, have
significantly greater financial, technical, and other resources, or greater name
recognition. Our competitors may be able to respond more quickly to new or
emerging technologies and changes in customer requirements. Competition could
negatively impact our ability to sell additional services on terms favorable to
us. Competitive pressures could cause us to lose market share or to reduce the
price of our services, either of which could harm our business, financial
condition and operating results.

         We believe that the principal competitive factors in our market
include:

o    quality and reliability of services offered;
o    scope of supported applications and technology platforms;
o    ability to expand the operational environments supported;
o    extent to which the services offered provide a complete solution to a
     potential customer's operations requirements;
o    engineering and technical expertise and development of automation software;
o    rapid deployment of services;
o    quality of customer service and support;
o    and price.

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GOVERNMENT REGULATION

         There are currently few laws or regulations directly governing access
to, or commerce upon, the Internet. Due to the increasing popularity and use of
the Internet, it is possible that a number of laws and regulations may be
adopted with respect to the Internet, covering issues such as user privacy,
pricing and characteristics and quality of products and services.

         Such legislation could dampen the growth in the use of the Internet
generally and decrease the acceptance of the Internet as a communications and
commercial medium, and could, thereby, have a material adverse effect on our
business, results of operations and financial condition. Other nations,
including Germany, have taken actions to restrict the free flow of material
deemed to be objectionable on the Internet. In addition, several connectivity
carriers are seeking to have connectivity over the Internet regulated by the
Federal Communications Commission in the same manner as other connectivity
services. For example, America's Carriers Connectivity Association has filed a
petition with the Commission for this purpose. In addition, because the growing
popularity and use of the Internet has burdened the existing connectivity
infrastructure and many areas with high Internet use have begun to experience
interruptions in phone service, local telephone carriers, such as Pacific Bell,
have petitioned the Commission to regulate Internet service providers and online
service providers, in a manner similar to long distance telephone carriers and
to impose access fees on these service providers. If either of these petitions
is granted, or the relief sought therein is otherwise granted, the costs of
communicating on the Internet could increase substantially, potentially slowing
the growth in use of the Internet, which could in turn decrease the demand for
our products.

         Also it is possible that laws will be adopted or current laws
interpreted in a manner to impose liability on online service providers, such as
us, for linking to third party content providers and other Internet sites that
include materials that infringe copyrights or other rights of others. Such laws
and regulations if enacted could have an adverse effect on our business,
operating results and financial condition. Moreover, the applicability to the
Internet upon the existing laws governing issues such as property ownership,
copyright defamation, obscenity and personal privacy is uncertain, and we may be
subject to claims that our services violate such laws. Any such new legislation
or regulation or the application of existing laws and regulations to the
Internet could have a material adverse effect on our business, operating results
and financial condition.

         In addition, as our products and services are available over the
Internet in multiple states and foreign countries, such jurisdictions may claim
that we are required to qualify to do business as a foreign corporation in each
such state or foreign country. We are qualified to do business only in the
states of Washington and California, and our failure to qualify as a foreign
corporation in a jurisdiction where we are required to do so could subject us to
taxes and penalties and could result in the our inability to enforce contracts
in such jurisdictions. Any such new legislation or regulation, the application
of laws and regulations from jurisdictions whose laws do not currently apply to
our business, or the application of existing laws and regulations to the
Internet and other online services may severely restrict the sale of new
contracts and materially effect our ability to maintain our current customers.

         At present, we do not collect sales or other similar taxes in respect
of sales and shipments of our products through Internet purchases. However,
various states have sought to impose state sales tax collection obligations on
out-of-state direct marketing companies similar to us. A successful assertion by
one or more of these states that it should have collected or be collecting sales
tax on the sale of our products could result in additional costs and
corresponding price increases to its customers. The U.S. Congress has passed
legislation limiting for three years the ability of states to impose taxes on
Internet-based transactions. Failure to renew this legislation could result in
the broad imposition of state taxes on e-commerce.

INTELLECTUAL PROPERTY AND PROPRIETARY RIGHTS

         We regard our service marks, trademarks, domain names, and similar
intellectual property as critical to our success. We have applied for federal
trademark or service mark registration of a number of names and terms, including
"Insynq," "Your Internet Utility Company," "Interlynq," and "Idesq." Our domain
names include, INSYNQ.com, CPA-ASP.com, ON-Q.net, SIMPLENETWORKS.net,
APPLICATIONVAULT.com, MESSAGEIQ.com, OURACCOUNTING.com, OURBOOKEEPER.com, and
RAPIDNETWORKS.com, all of which are now owned by us. We have also applied for a
patent covering our multi-platform network application management and
connectivity system: our InterLynQ and IdesQ components of our customer premise
equipment solution.

         We rely on trademark, unfair competition and copyright law, trade
secret protection and contracts such as confidentiality and license agreements
with our employees, customers, partners, and others to protect our proprietary
rights. Despite precautions, it may be possible for competitors to obtain and/or
use the proprietary information without authorization,

                                       11
<PAGE>

or to develop technologies similar to ours and independently create a similarly
functioning infrastructure. Furthermore, the protection of proprietary rights in
Internet-related industries is uncertain and still evolving. The laws of some
foreign countries do not protect proprietary rights to the same extent, as do
the laws of the United States. Protection for proprietary rights in the United
States or abroad may not be adequate.

         We intend to continue to license certain technology from third parties
such as Citrix, Microsoft, and others, for our technologies that support
business systems. The market is evolving and we may need to license additional
technologies to remain competitive. We may not be able to license these
technologies on commercially reasonable terms or at all. In addition, we may
fail to successfully integrate licensed technology into our operations.

         Although we are not aware of any infringement or misappropriation of
our intellectual property or similar proprietary rights, it may be anticipated
that infringements and misappropriations will occur as our business grows and
there is more brand loyalty attaching to our trade names and domain names. We
intend to police against infringement or misappropriation. However, we cannot
guarantee that we will be able to enforce our rights and enjoin the alleged
infringers from their use of confusingly similar trademarks, service marks,
telephone numbers, and domain names.

         In addition, third parties may assert infringement claims against us.
We cannot be certain that our technologies or trademarks do not infringe valid
patents, trademarks, copyrights, or other proprietary rights held by third
parties. We may be subject to legal proceedings and claims from time to time
relating to the intellectual property of others in the ordinary course of our
business. Intellectual property litigation is expensive and time-consuming and
could divert management resources away from running the business.

RESTRUCTURING

         We have implemented cost restructuring strategies of our operations,
both in sales and marketing and in our executive management team, and
implemented certain cost-cutting measures. We believe this restructuring and the
cost-cutting measures, which resulted in a workforce reduction of approximately
55 people, which were primarily in sales-related positions, in addition to
changes to our executive management team, have allowed us to:

o    reduce operating costs;
o    provide operational efficiencies; and
o    focus on the development of strategic business plans in preparation for
     future growth initiatives.

         As part of our corporate cost restructuring, we consolidated our sales
activities into our corporate headquarters office located in Tacoma, Washington.

         In addition to the restructuring, retroactive to September 1, 2000, we
reduced salaries and benefits for certain employees. Also, we have negotiated
with many of our vendors to reduce the amounts owed or to extend more favorable
payment terms. For the year ended May 31, 2003, we settled approximately
$465,000 of past due obligations for approximately $14,575 in cash and/or common
stock. For the year ended May 31, 2002, we settled approximately $659,800 of
past due obligations for approximately $196,000 in cash and/or stock. In
addition, in June 2003, we recently settled a past due capitalized computer
equipment lease obligation vital to the continuation of our operations. Terms of
the settlement required us to pay $35,000 in cash. The debt associated with this
settlement was approximately $868,600. Further, in August 2003, we settled the
following:

o     in exchange for the issuance of 65,000,000 shares of common stock the
      holder of a promissory note in the amount of $1,501,500 including interest
      agreed to cancel such note. The note was in default. . The market value of
      the common stock at the date of settlement was $.01 per share;

o     past due trade payable and a promissory note to the same vendor totaling
      approximately $116,000 for $6,000;

o     an equipment lease, in default, at face value, or approximately $4,000.

      We believe that the combination of the restructuring, the salary
reductions and negotiated trade payables and other liabilities will reduce our
corporate overhead and improve our cash flow.
                                      12
<PAGE>
CUSTOMER SERVICE

         Our customer support service is comprised of Customer Support
Representatives and is further supplemented by Senior Technical Support
Representatives consisting of Microsoft and Citrix Certified Engineers and
Insynq Server Technicians. Customer Support is available via toll-free telephone
lines to offer support for any aspect of the IQ Data Utility Service.

EMPLOYEES

         We currently have twelve employees, including four full-time
management, one part-time clerical, two technical people, two customer support
personnel, and three marketing and sales personnel. We may, from to time, review
our staffing requirements.

MANAGEMENT

         Our board of directors consists of John P. Gorst, M. Carroll Benton and
David D. Selmon, each of whom took this position upon or shortly after the
consummation of the asset purchase on February 18, 2000, and continued in these
positions after the re-incorporation mergers effected on August 3, 2000 and
December 23, 2002. On November 19, 2001, our stockholders approved the election
of Donald Kaplan as a director. Donald Kaplan subsequently resigned effective
June 3, 2002.

         Our executive officers are:

o    John P. Gorst, Chief Executive Officer, President and Chairman of the
     Board;
o    M. Carroll Benton, Chief Administrative Officer, Secretary and Treasurer;
     and
o    Joanie C. Mann, Vice President of Strategic Alliances.

         In September 2000, we appointed Stephen C. Smith as our interim chief
financial officer. On May 6, 2002 we accepted Stephen Smith's resignation
effective June 30, 2002.

RISK FACTORS

         There are a number of factors that could cause actual results to differ
materially from those discussed in the forward-looking statements, including
those factors described below. Other factors not identified herein could also
have such an effect. Among the factors that could cause actual results to differ
materially from those discussed in the forward-looking statements are the
following:

NEED FOR ADDITIONAL CAPITAL

         Our securities purchase agreements with our debenture investors
prohibit us from entering into any financial arrangement that would involve the
issuance of common stock for a period of two years from the date of two
registration statements filed October 3, 2001 and June 25, 2002, respectively,
without offering a right of first refusal to the debenture investors.

RISKS RELATING TO OUR BUSINESS:

      WE HAVE HISTORICALLY OPERATED AT A LOSS, HAVE EXPERIENCED NEGATIVE
OPERATING CASH FLOWS, AND ANTICIPATE THAT LOSSES WILL CONTINUE, AND IF LOSSES
CONTINUE WE MAY BE REQUIRED TO CEASE OR CURTAIL OUR OPERATIONS.

         We have experienced net losses and negative cash flows from operations
since we began implementing our current business plan. For the year ended May
31, 2003, we have incurred a net loss of $2,930,773. In addition, for the year
ended May 31, 2002, we incurred a net loss of $4,599,430. We expect that the
ongoing implementation of our current business plan will increase our net losses
and our negative cash flows from operations for the foreseeable future as we
continue to incur
                                       13
<PAGE>
significant operating expenses and make capital investments in our business. We
may never generate sufficient revenues to achieve profitability, and if we are
unable to make a profit, we may not be able to continue to operate our business.
Even if we do become profitable, we may not be able to sustain or increase
profitability on a quarterly or annual basis.

      WE HAVE RECEIVED A GOING CONCERN OPINION FROM OUR AUDITORS INDICATING
THERE IS DOUBT AS TO WHETHER WE CAN REMAIN IN BUSINESS.

         In its audit report dated August 29, 2003, our auditors indicated that
there was substantial doubt as to our ability to continue as a going concern and
that our ability to continue as a going concern was dependant upon our obtaining
additional financing for our operations or reaching profitability. There can be
no assurance that we will be able to achieve either of these.

      WE ARE DELINQUENT IN THE PAYMENT OF BUSINESS AND PAYROLL TAXES. IF WE ARE
UNABLE TO NEGOTIATE WORKOUT ARRANGEMENTS OR TO MAKE TIMELY PAYMENTS, WE COULD
EXPERIENCE A SEVERE NEGATIVE IMPACT ON OUR BUSINESS OR OUR RESOURCES.

         As of September 9, 2003, we are delinquent in the payment of
approximately $504,200 of business and payroll taxes, plus an estimated $331,000
of related assessed penalties and interest. The majority of the past due amount
of approximately $760,800 is for payroll taxes, penalties and interest due to
the Internal Revenue Service. In April 2002, the Internal Revenue Service filed
a Federal Tax Lien on our assets for all past due employment taxes, penalties
and accrued interest. In November 2002 we submitted an Offer In Compromise to
the Internal Revenue Service seeking relief on a portion of its overall
obligation and to structure a payment plan on the settled amount of taxes due.
We were notified on April 1, 2003 that the Offer In Compromise was denied. In
June 2003, management resubmitted its second Offer In Compromise in an effort to
mitigate the same tax issues. As of September 9, 2003, the Internal Revenue
Service has only communicated with us that it is processing the Offer. Unless
the Internal Revenue Service and Insynq can agree to a mutually agreeable and
beneficial workout, the Internal Revenue Service could take possession of our
assets and we may be forced to file for bankruptcy protection and/or to cease
operations altogether.

         As of September 9, 2003, we have workout agreements for past due taxes
with three State of Washington taxing authorities as follows:

o        the Department of Revenue in the amount of $4,575;
o        the Department of Labor and Industries in the amount of $4,756; and
o        the City of Tacoma in the amount of $7,262.

         As of September 9, 2003, we paid off two other workout arrangements.
Terms of these remaining workouts require us to pay between $150 and $2,000 per
month until each tax obligation is fulfilled. Two of these taxing agencies have
either filed a lien or a warrant with the local county authorities to protect
their position during the respective workout periods.

         Additionally, two liens have been filed by two other states for past
due taxes, plus accrued interest and penalties. One lien was filed by the State
of Utah for approximately $28,000 for prior years' income taxes assessed to our
predecessor company. This amount is in dispute and amended returns to correct
this deficiency have been filed, but not yet approved or denied. The second lien
was filed by the State of California for approximately $26,337 for past due
payroll taxes, assessed penalties and accrued interest. We have submitted a
proposal for a long-term workout of the tax debt. We believe the proposal is
currently in review and under consideration with the state authorities.

         There can be no assurances, however, that we will be able to agree or
commit to any proposed terms set forth by the Internal Revenue Service or
favorably negotiate terms with other taxing authorities. If we are unsuccessful,
the taxing authorities could take possession of some or all of our assets.
Should this occur, we likely would be forced to cease our operations.


      WE ARE DELINQUENT IN THE PAYMENT OF CERTAIN TRADE PAYABLES IN THE AMOUNT
OF APPROXIMATELY $636,600 AS OF SEPTEMBER 9, 2003. IF WE ARE UNABLE TO NEGOTIATE
WORKOUT ARRANGEMENTS OR TO MAKE TIMELY PAYMENTS, WE COULD EXPERIENCE A SEVERE
NEGATIVE IMPACT ON OUR BUSINESS OR OUR RESOURCES.

         As of September 9, 2003, we were late in payment of certain creditor
trade payables in the amount of approximately $636,600. We have initiated
contact with many of our vendors and have negotiated a reduction in amounts owed
or were
                                       14
<PAGE>
extended to more favorable terms. If we are unable to negotiate payment plans
with the remaining vendors, or if we are unable to execute such negotiated
payment plans with those who have accepted such plans, we could experience a
severe negative impact on our business resources.

      IN ORDER TO EXECUTE OUR BUSINESS PLAN, WE WILL NEED TO RAISE ADDITIONAL
CAPITAL. IF WE ARE UNABLE TO RAISE ADDITIONAL CAPITAL, WE WILL NOT BE ABLE TO
ACHIEVE OUR BUSINESS PLAN AND YOU COULD LOSE YOUR INVESTMENT.

         We need to raise additional funds through public or private debt or
equity financings as well as obtain credit from our vendors to be able to fully
execute our business plan. Any additional capital raised through the sale of
equity may dilute your ownership interest. We may not be able to raise
additional funds on favorable terms, or at all. If we are unable to obtain
additional funds or credit from our vendors, we will be unable to execute our
business plan and you could lose your investment.

         Our future capital requirements will depend upon many factors,
including the following:

o    costs to develop and maintain our on-line hosting software;
o    the rate at which we expand our operations;
o    the extent to which we develop and upgrade our technology;
o    the occurrence, timing, size and success of acquisitions; and
o    the response of competitors to our service offerings.

         We have recently negotiated with many of our vendors to reduce the
amounts owed or to extend more favorable payment terms. While these negotiated
terms have reduced cash out-lays and expenditures, we cannot rely on future
relationships with these vendors, which could result in limiting our purchasing
and credit abilities.

      WE HAVE GRANTED A SECURITY INTEREST IN ALL OF OUR ASSETS TO THE FOUR
INVESTORS IN CONNECTION WITH THE SECURITIES PURCHASE AGREEMENTS ENTERED IN JUNE
2001, JANUARY 2002 AND SEPTEMBER 2002, AND, IF WE WERE TO DEFAULT ON THE PAYMENT
OF THE CONVERTIBLE DEBENTURES, THE INVESTORS WOULD BE ENTITLED TO TAKE
POSSESSION OF ALL OF OUR ASSETS.

         In consideration of the receipt of the funding received by us in
connection with the issuance of the convertible debentures under the Securities
Purchase Agreements entered into in June 2001, January 2002 and September 2002,
we provided the investors, AJW Offshore Ltd., AJW Partners, LLC, New Millennium
Capital Partners II, LLC and AJW Qualified Partners, LLC, a security interest in
essentially all of our assets. In the event that we were to default on the
payment of the debentures, the investors would be entitled to take possession of
all of our assets and, as a result our operations would cease.

      IF WE ARE UNABLE TO OBTAIN KEY SOFTWARE APPLICATIONS FROM CERTAIN VENDORS,
WE WILL BE UNABLE TO DELIVER OUR SERVICES, WHICH MAY RESULT IN THE TERMINATION
OF OUR OPERATIONS.

         We rely on third-party suppliers, including Microsoft and Citrix to
provide us with key software applications for our infrastructure. Certain
applications are only available from limited sources. If we are unable to obtain
these products or other services, including connectivity services, in a timely
manner at an acceptable cost or at all, it may substantially inhibit our ability
to deliver our services, which may result in the termination of our operations.

         As of September 9, 2003 we are not in compliance with the proper
registration and licensing of certain software applications and products
critical to support the customer base and our own internal operations.
Management has initiated negotiations with these software vendors in an effort
to purchase or lease/rent the licenses to meet the licensing requirements.
Should we not be able to reach a satisfactory agreement with these vendors, and
due to the vital and critical nature of these licenses to support our services,
sales and operations we may be forced to cease operations and/or to file
bankruptcy.

      SOME OF OUR APPLICATION SERVICE PROVIDER SERVICE CONTRACTS GUARANTEE
CERTAIN SERVICE LEVELS, AND, IF WE FAIL TO MEET THESE SERVICE LEVELS, OUR
APPLICATION SERVICE PROVIDER CUSTOMERS ARE ENTITLED TO RECEIVE CERTAIN SERVICES
FOR FREE AND MAY BE ENTITLED TO CANCEL THEIR CONTRACT, WHICH SUCH CANCELLATIONS
WOULD REDUCE OUR REVENUE AS WELL AS DAMAGE OUR REPUTATION.

         Some of our application service provider contracts contain service
guarantees that obligate us to provide our hosted
                                       15
<PAGE>

applications at a guaranteed level of performance. To the extent we fail to meet
those service levels we may be obligated to provide our customers certain
services free of charge. If we continue to fail to meet these service levels,
our application service provider customers have the right to cancel their
contracts with us. These credits or cancellations will cost us money and damage
our reputation with our customers and prospective customers.

      WE DEPEND HEAVILY ON OUR MANAGEMENT TEAM AND THE LOSS OF ANY OR ALL OF THE
MEMBERS OF SUCH MANAGEMENT TEAM COULD MATERIALLY ADVERSELY AFFECT OUR BUSINESS,
RESULTS OF OPERATIONS AND FINANCIAL CONDITION AS WELL AS THE IMPLEMENTATION OF
OUR BUSINESS PLAN.

         Our success depends, to a significant extent, upon the efforts and
abilities of John P. Gorst, president, chairman of the board and chief executive
officer, as well as on the efforts of other officers and management. Loss of the
services of any or all of our management team could materially adversely affect
our business, results of operations and financial condition, and could cause us
to fail to successfully implement our business plan.

      THERE IS INTENSE COMPETITION FOR QUALIFIED TECHNICAL PROFESSIONALS AND
SALES AND MARKETING PERSONNEL, AND OUR FAILURE TO ATTRACT AND RETAIN THESE
PEOPLE COULD AFFECT OUR ABILITY TO RESPOND TO RAPID TECHNOLOGICAL CHANGES AND TO
INCREASE OUR REVENUES.

         Our future success also depends upon our ability to attract and retain
qualified technical professionals and sales and marketing personnel. Competition
for talented personnel, particularly technical professionals, is intense. This
competition could increase the costs of hiring and retaining personnel. We may
not be able to attract, retain, and adequately motivate our personnel or to
integrate new personnel into our operations successfully.

      WE MAY NOT BE ABLE TO PROTECT OUR PATENTS, COPYRIGHTS, TRADEMARKS AND
PROPRIETARY AND/OR NON-PROPRIETARY TECHNOLOGY, AND WE MAY INFRINGE UPON THE
PATENTS, COPYRIGHTS, TRADEMARKS AND PROPRIETARY RIGHTS OF OTHERS, WHICH COULD
AFFECT OUR ABILITY TO COMPETE EFFECTIVELY AND OUR RESULTS OF OPERATIONS.

         Our services are highly dependent upon proprietary technology, which
allows us to upgrade and manage the customer's computing environment, both at
the data centers and customer level. In addition, we rely on contracts,
confidentiality agreements, and copyright, patent, trademark, and trade-secrecy
laws to protect our proprietary rights in our technology. We have also obtained,
or are pursuing, several trademark, copyright, and patent registrations for our
various product names. The protective steps we have taken may not be adequate to
deter misappropriation of our proprietary information. In addition, some
end-user license provisions protecting against unauthorized use, copying,
transfer and disclosure of a licensed program may be unenforceable under the
laws of certain jurisdictions and foreign countries. In addition, the laws of
some foreign countries do not protect proprietary rights to the same extent as
the laws of the United States. Failure to adequately protect our intellectual
property could harm our brand name, devalue our proprietary content, and affect
our ability to compete effectively. Furthermore, defending our intellectual
property rights could result in the expenditure of significant financial and
managerial resources, which could materially adversely affect our business,
results of operations and financial condition. Also, it is possible that our
competitors or others will adopt product or service brands similar to ours,
possibly leading to customer confusion.

      WE UTILIZE OPEN SOURCE SERVICES AND CODE FOR SOME PRODUCTS. WHILE WE CAN
MODIFY OPEN SOURCE AND CHARGE FOR IT, WE MUST RELEASE CERTAIN CHANGES BACK TO
THE OPEN SOURCE COMMUNITY, WHICH MAY INCLUDE COMPETITORS. THIS COULD NEGATIVELY
AFFECT OUR ABILITY TO COMPETE EFFECTIVELY AND HAVE A MATERIAL ADVERSE AFFECT ON
OUR FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

         Some of our technology, including our proprietary code, performs
functions similar to technology available from third parties. Therefore, we
could be subject to claims that our technology infringes the proprietary rights
of third parties. Claims against us, even if without merit, could subject us to
costly litigation and could divert the time and attention of our technical and
management teams. A claim of infringement may require us, and our customers, to
obtain one or more licenses from third parties. We cannot assure you that we or
our customers will be able to obtain necessary licenses from third parties at a
reasonable cost or at all. Any failure to obtain a required license could
negatively affect our ability to do business.

      DISRUPTIONS TO THE DATA CENTERS, OR TO THE OFFSITE BACKUP STORAGE
FACILITIES OF THIRD PARTIES WITH WHOM WE DO BUSINESS, COULD MATERIALLY AFFECT
OUR BUSINESS.
                                       16
<PAGE>
         The continued and uninterrupted performance of our computer systems,
and of the backup storage facilities of third parties with whom we do business,
is critical to our success. Any system failure that causes interruptions in our
ability to deliver our products and services to our customers, including
failures that affect our customers' abilities to access our hosted hardware,
software, and stored data, could reduce customer satisfaction and, if sustained
or repeated, would reduce the attractiveness of our services or result in
material liabilities or costs.

         Our software hosting business strategy, including data backup and
storage, depends on the consistent performance of the data centers and those of
third parties. We offer offsite back-up storage of data for all customers. The
current data centers, and those of third parties, may be vulnerable to
interruption from fire, earthquake, flood, power loss, connectivity failures,
vandalism and other malicious acts, and other events beyond our control,
including natural disasters. If the data centers are damaged in any way, a
customer whose data is stored there may lose some or all data, despite routine
backup procedures. Our operations are dependent on our ability to protect our
computer system, and customer systems, applications and data against damages,
including, but not limited to those from computer viruses, fire, earthquake,
flood, power loss, connectivity failures, vandalism and other malicious acts,
and other events beyond our control, including natural disasters. Damage to our
computer system, or to the systems, applications, or data of our customers,
could delay or prevent delivery of our products and, result in the loss of our
customers or in material liabilities. In addition, a failure of our
telecommunication providers to provide the data communications capacity in the
time frame required by us for any reason could cause interruptions in the
delivery of our products. Substantially all of our computer and communications
hardware are located at two facilities and the loss of this hardware or the data
it contains would cause severe business interruptions. In the event that we
experience significant disruptions that affect the data centers, we could lose
customers or fail to attract new customers.

      WE COULD EXPERIENCE BREACHES OF SECURITY WHEN TRANSMITTING DATA TO OR FROM
OUR CUSTOMERS, INCLUDING THE USE OF THIRD PARTY VENDOR SECURITY TECHNOLOGIES AND
METHODOLOGIES, AND THE OCCURRENCE OF ANY BREACH OF SECURITY COULD RESULT IN THE
LOSS OF CUSTOMERS, DAMAGE TO OUR REPUTATION OR EXPOSURE TO LIABILITY.

         Our business depends upon our ability to securely transmit confidential
information between the data centers, third-party backup locations, and the
servers of our customers, including the use of third-party vendor security
technologies and methodologies. Despite our physical design and setup and the
implementation of a variety of security measures, there exists the risk that
certain unauthorized access, computer viruses, accidental or intentional
disturbances could occur. We may need to devote substantial capital and
personnel resources to protect against the threat of unauthorized penetration of
our delivery system or to remedy any problems that such penetration might cause.
The occurrence of any of these events could cause us to lose customers, cause
harm to our reputation, and expose us to material liability.

      WE DEPEND ON LICENSED SOFTWARE APPLICATION AND IF THESE LICENSES ARE
TERMINATED WE MAY BE REQUIRED TO CEASE OUR OPERATIONS.

         We depend on contracts with third-party software manufacturers to allow
their software applications to be hosted or run at the data centers, which can
then be provided to our customers. We depend on non-exclusive agreements with
third-party companies, including, but not limited to, Microsoft and Citrix, that
allow us to host some of their software applications at the data centers or
re-license their software applications to our customers. Under most of these
agreements, the software manufacturer can terminate its relationship with us for
any reason by giving us as little as 30 days notice. In these instances, the
software manufacturer is not liable to us, or to our customers, for any damages
resulting from termination. If our relationships with these software
manufacturers are terminated, or if these or other software manufacturers do not
allow our customers to obtain a license to operate the software application on
the data centers, our ability to do business would be severely inhibited.

         We have defaulted on a software license agreement dated September 29,
2000. Our agreement required us to purchase 10,000 licenses totaling $235,000.
We have paid a total of $1,500 toward this obligation and the term of this
agreement expired March 30, 2003. We have initiated contacted with the provider
in an effort to amend the agreement and change the contractual obligation to
reflect actual licenses sold. We anticipate settling this matter within the next
few months by paying for the actual licenses sold since entering this agreement.

      THE HARDWARE AND SOFTWARE WE USE IS COMPLEX AND MAY CONTAIN DEFECTS AND
THESE DEFECTS COULD RESULT IN SERVICE INTERRUPTIONS, OR THE LOSS OF DATA, WHICH
COULD IMPAIR OUR REVENUE OR DELAY MARKET ACCEPTANCE OF OUR SERVICE.

         Our service offerings depend on complex hardware and software that may
contain defects, particularly when initially introduced or when new versions are
released. Although we test internal and third party software applications prior
to
                                       17
<PAGE>
deployment, we may not discover software defects that could affect our new or
current services or enhancements until deployed. These defects could cause
service interruptions or the loss of data, which could damage our reputation,
increase our operating costs, impair our ability to generate or collect revenue,
delay market acceptance or divert our management and technical resources. Any
software modifications we perform as part of our integration services could
cause problems in application delivery. Also, because we offer an open-source
software solution to our customers, they are likely to hold us accountable for
any problems associated with their software, even if the manufacturer caused the
problem or defect. Typically, software manufacturers disclaim liability for any
damages suffered as a result of software defects and provide only limited
warranties. As a result, we may have no recourse against the providers of
defective software applications.

      GROSS MARGINS ON CERTAIN PRODUCTS OR LINES OF BUSINESS MAY DECLINE OVER
TIME, WHICH MAY RESULT IN A DECREASE TO OUR NET INCOME.

         Gross margins may be adversely affected by increases in material or
labor costs, heightened price competition, changes in channels of distribution,
or in the mix of products sold. We have recently introduced several new
products, and we plan to release additional new products in the future. If
warranty costs associated with new products are greater than we have experienced
historically, gross margins may be adversely affected. Geographic mix, as well
as the mix of configurations within each product group, may also impact our
gross margins. We continue to expand third party and indirect distribution
channels, which generally result in reduced gross margins. In addition,
increasing third party and indirect distribution channels generally results in
greater difficulty in forecasting the mix of our products, and to a certain
degree, the timing of our orders.

      WE ARE INVOLVED IN, AND MAY BECOME INVOLVED IN, LEGAL PROCEEDINGS WITH
FORMER EMPLOYEES, CONSULTANTS, AND OTHER THIRD PARTIES THAT, IF DETERMINED
AGAINST US, COULD REQUIRE US TO PAY DAMAGES. THE PAYMENT OF DAMAGES COULD
MATERIALLY ADVERSELY AFFECT OUR FINANCIAL CONDITION AND, THEREFORE, OUR ABILITY
TO ACHIEVE OUR BUSINESS PLAN.

         We are involved in the following legal proceedings:

          o    We are a party to a lawsuit, dated May 31, 2001, in which our
               vice president of sales and marketing seeks payment for various
               claims in the amount of approximately $115,000. We have reached a
               partial settlement of the matter.
          o    We are a party to a lawsuit, dated August 6, 2001, in which one
               of our vendors seeks payment for goods and services provided in
               the amount of $20,760. We have reached a partial settlement of
               the matter.
          o    We are a party to a lawsuit, dated October 4, 2001, by our former
               landlords. The allegations relate to the default by us of our
               long-term lease obligations and a settlement agreement dated May
               2001.
          o    We were a party to a lawsuit, dated July 2, 2002, by our former
               director of sales and marketing. The lawsuit alleged breach of
               contract, wage and hour violations and violation of the
               Washington law against discrimination. We have reached a
               settlement of the matter.
          o    We are a party to a lawsuit, dated December 6, 2002, in which one
               of our vendors seek payment for services provided in the amount
               of $4,150. We intend to negotiate a settlement of the matter.
          o    On April 30, 2003 were served with a complaint alleging a breach
               of the Telephone Consumer Protection Act. We have a settlement in
               this matter for the amount of $1,875.
          o    We are a party to a complaint filed May 29, 2003, in which one of
               our vendors seek payment for services provided in the amount of
               $145,265. We intend negotiate or defend this matter.

         In the past, we have negotiated with third parties and entered into
contracts, in the normal course of our business, with advisors, consultants and
others based on business plans and strategies that we may no longer be pursuing.
We believe that such negotiations were terminated and that those contracts are
no longer effective. However, it is possible that the other parties to those
negotiations and contracts could claim that we did not fulfill our obligations.
If a court finds that we are obligated under any of those contracts,
arrangements or otherwise, we could be liable for an undeterminable amount of
compensation or stock or both.

         If any such litigation occurs, it is likely to be expensive for us. If
such suits are determined against us and a court awards a material amount of
cash damages, our business results of operations and financial condition will be
materially adversely affected. In addition, any such litigation could divert our
management's attention and resources.

      MANY COMPANIES USE NAMES SIMILAR IN SOUND OR SPELLING TO "INSYNQ".
INTELLECTUAL PROPERTY INFRINGEMENT CLAIMS
                                       18
<PAGE>
AGAINST US, EVEN IF WITHOUT MERIT, COULD BE EXPENSIVE TO DEFEND AND DIVERT
MANAGEMENT'S ATTENTION FROM OUR BUSINESS. IF A CLAIM TO STOP US FROM USING OUR
NAME IS SUCCESSFUL, WE WILL HAVE TO EITHER BUY THE RIGHT TO USE OUR NAME, WHICH
MAY BE EXPENSIVE, OR CHANGE OUR NAME, WHICH MAY ALSO BE EXPENSIVE.

         We are aware that other companies have claimed use of names similar to
"Insynq" for products or services similar to our own. We are in the process of
investigating the rights, if any, others may have to the name. In addition, we
are attempting to register "Insynq" as a trademark in the United States, Europe,
and Canada. However, we may not be able to obtain proprietary rights to the use
of this name. We will incur expenses if called to defend our use of the "Insynq"
name. Any such litigation, even if without merit, may be time consuming and
expensive to defend. It also could divert our management's attention and
resources and require us to enter into costly royalty or licensing agreements.
In addition, if any company in our industry is able to establish a use of the
"Insynq" name that is prior to our use, we could be liable for damages and could
be forced to stop using the name unless we are able to buy the right to use the
name. If we were unable to buy the right to use our name after we lose an
infringement claim, we would have to change our name, which may require us to
spend money to build new brand recognition and incur other costs. Third parties
may assert other infringement claims against us. Any of these events could
divert management attention and complicate our ability to do business.

      OUR INDUSTRY IS CHARACTERIZED BY RAPIDLY CHANGING TECHNOLOGY WITH
CONTINUOUS IMPROVEMENTS IN BOTH COMPUTER HARDWARE AND SOFTWARE, AND RAPID
OBSOLESCENCE OF CURRENT SYSTEMS. IF WE DO NOT RESPOND EFFECTIVELY AND ON A
TIMELY BASIS TO RAPID TECHNOLOGICAL CHANGE IN OUR INDUSTRY, WE WILL NOT BE ABLE
TO EFFECTIVELY SELL OUR SERVICES AND OUR SALES WILL MATERIALLY ADVERSELY
DECLINE.

         We must continually buy new computer hardware and license new computer
software systems to effectively compete in our industry. Our software delivery
methodologies must be able to support changes in the underlying software
applications that are delivered to our customers. The rapid development of new
technologies increases the risk that current or new competitors could develop
products or services that would reduce the competitiveness of our products or
services. We rely on software providers to produce software applications that
keep pace with our customers' demands.

         There is no assurance that we will successfully develop or adopt new
technologies, introduce new services or enhance our existing services on a
timely basis, or that new technologies, new services or enhancements we use or
develop will achieve market acceptance. If we fail to address these
developments, we will lose sales to our competitors.

      ALTHOUGH OUR CURRENT OPERATIONS INCLUDE OPERATING AS A TECHNOLOGY FOCUSED
COMPANY, OUR PREVIOUS BUSINESS ACTIVITIES INCLUDED GAMING, NATURAL RESOURCE
MINING, AND EXPLORATION. AS A RESULT, WE MAY BE EXPOSED TO UNKNOWN ENVIRONMENTAL
AND OTHER LIABILITIES THAT COULD REQUIRE US TO EXPEND OUR FINANCIAL RESOURCES
AND MATERIALLY ADVERSELY AFFECT OUR FINANCIAL CONDITION.

         The assets of a predecessor company were acquired by a publicly-traded
company that was engaged, prior to August 1999, in gaming, and prior to 1993, in
natural resource exploration and development, including mining, and oil and gas.
We no longer own any mining, oil and gas, or gaming-related assets. The mining,
mineral processing, and oil and gas industries are subject to extensive
governmental regulations for the protection of the environment, including
regulations relating to air and water quality, site reclamation, solid and
hazardous waste handling and disposal and the promotion of occupational safety.
We could be held responsible for any liabilities relating to our previous
involvement in gaming, mining or oil and gas exploration and development, which
liabilities would result in our spending our cash resources.

      WE HAVE NOT INDEPENDENTLY VERIFIED THE RELIABILITY OF MARKET DATA
CONTAINED HEREIN AND SUCH DATA MAY BE INCOMPLETE AND/OR INACCURATE.

         Market data used within this report was obtained from internal sources
and from industry publications. Such industry publications typically contain a
statement to the effect that the information contained therein was obtained from
sources considered to be reliable, but that the completeness and accuracy of
such information is not guaranteed. While we believe that the market data
presented herein is reliable, we have not independently verified such data.
Similarly, market data supplied by internal sources, which we believe to be
reliable, has not been verified by independent sources.

RISKS RELATED TO OUR INDUSTRY:

      THE FAILURE OF THE INTERNET TO GROW OR REMAIN A VIABLE COMMERCIAL MEDIUM
COULD HARM OUR GROWTH.
                                       19
<PAGE>
         Our success depends in large part on the maintenance of the Internet
infrastructure as a reliable network frame that provides adequate speed, data
capacity, and security. Our success also depends on the timely development of
products, such as high-speed modems, that enable reliable Internet access and
services. The Internet may continue to experience significant growth in the
number of users, frequency of use and amount of data transmitted. The Internet
infrastructure may not be able to support the demands placed on it and the
performance or reliability of the Internet may be adversely affected by this
continued growth. In addition, the Internet could lose its commercial viability
if the number of people who use the Internet does not continue to grow. A number
of factors, including unreliable service, unavailability of cost-effective,
high-speed access to the Internet or concerns about security, could impede this
growth. The infrastructure or complementary products and services necessary to
maintain the Internet, as a viable commercial medium may not be developed, and,
as a result, the Internet may not continue to be a viable commercial medium for
us.

      IF THE GOVERNMENT ADOPTS REGULATIONS THAT CHARGE INTERNET ACCESS FEES OR
IMPOSE TAXES ON SUBSCRIPTIONS TO OUR WEB-BASED PRODUCTS, OUR OPERATING EXPENSE
WILL INCREASE.

         Currently, there are few laws or regulations that specifically regulate
communications or commerce on the Internet. However, laws and regulations may be
adopted that address issues such as pricing and the characteristics of products
and services. In addition, several connectivity companies have petitioned the
Federal Communications Commission to regulate Internet and on-line service
providers in a manner similar to long-distance telephone carriers and to impose
access fees on them. This regulation, if imposed, could increase the cost of
transmitting data over the Internet. Moreover, it may take years to determine
the extent to which existing laws relating to issues such as intellectual
property ownership and infringement, libel, obscenity and personal privacy are
applicable to the Internet. Finally, state tax laws and regulations relating to
the provision of products and services over the Internet are still developing. A
few states have tried to impose taxes on products and services provided over the
Internet. If additional states try to do so, our operating costs may increase
and we may not be able to increase the price that we charge for our products to
cover these costs. Any new laws or regulations or new interpretations of
existing laws and regulations relating to the Internet could decrease the growth
in the use of the Internet, decrease the demand for traffic on our Website,
increase our operating expenses, or otherwise adversely affect our business.

RISKS RELATING TO OUR CURRENT FINANCING ARRANGEMENT:

      THERE ARE A LARGE NUMBER OF SHARES UNDERLYING OUR CONVERTIBLE DEBENTURES
AND WARRANTS THAT MAY BE AVAILABLE FOR FUTURE SALE AND THE SALE OF THESE SHARES
MAY DEPRESS THE MARKET PRICE OF OUR COMMON STOCK.

         As of September 9, 2003, we had 144,946,484 shares of common stock
issued and outstanding and convertible debentures outstanding that may be
converted into an estimated 138,357,143 shares of common stock and outstanding
warrants to purchase 5,200,000 shares of common stock. In addition, the number
of shares of common stock issuable upon conversion of the outstanding
convertible debentures may increase if the market price of our stock declines.
All of the shares, including all of the shares issuable upon conversion of the
debentures and upon exercise of our warrants, may be sold without restriction.
The sale of these shares may adversely affect the market price of our common
stock.

      THE CONTINUOUSLY ADJUSTABLE CONVERSION PRICE FEATURE OF OUR CONVERTIBLE
DEBENTURES COULD REQUIRE US TO ISSUE A SUBSTANTIALLY GREATER NUMBER OF SHARES,
WHICH WILL CAUSE DILUTION TO OUR EXITING STOCKHOLDERS.

         Our obligation to issue shares upon conversion of our convertible
debentures is essentially limitless. The following is an example of the amount
of shares of our common stock that are issuable, upon conversion of our
convertible debentures in the amount of $2,020,477 (including accrued interest)
issued pursuant to the Securities Purchase Agreements entered in June 2001 and
January 2002, and convertible debentures in the amount of $327,275 (including
accrued interest) issued pursuant to the Securities Purchase Agreement entered
in September 2002, based on market prices 25%, 50% and 75% below the market
price, as of September 9, 2003 of $0.035.

    % Below     Price Per   With Discount   Number of Shares  % of Outstanding
     MARKET       SHARE         AT 60%          ISSUABLE           STOCK
     ------       -----         ------          --------           -----
      25%        $.0263         $.0105         223,595,429         60.67%
      50%        $.0175         $.0070         335,393,143         69.82%
      75%        $.0088         $.0035         670,786,286         82.23%
                                       20
<PAGE>
         As illustrated, the number of shares of common stock issuable upon
conversion of our convertible debentures will increase if the market price of
our stock declines, which will cause dilution to our existing stockholders. In
the event that the market price of our shares substantially decreases below the
current market price, we may not have an adequate number of shares of common
stock to support the conversion of all of our convertible debentures. For
example, as September 9, 2003 we had 144,946,484 shares of common stock
outstanding. If the price of our common stock were to decrease to $.0088 or 75%
below our current market price of $.035, then we would be obligated to issue
670,786,286 shares of common stock upon conversion of all of our outstanding
convertible debentures, which would require the issuance of 315,732,770 shares
of common stock in excess of our authorized shares. We will be in default under
the convertible debentures if we are not able to fully satisfy the conversion
due to the unavailability of shares of common stock.

      THE CONTINUOUSLY ADJUSTABLE CONVERSION PRICE FEATURE OF OUR CONVERTIBLE
DEBENTURES MAY ENCOURAGE INVESTORS TO MAKE SHORT SALES IN OUR COMMON STOCK,
WHICH COULD HAVE A DEPRESSIVE EFFECT ON THE PRICE OF OUR COMMON STOCK.

         The convertible debentures are convertible into shares of our common
stock at a 60% discount to the trading price of the common stock prior to the
conversion. The significant downward pressure on the price of the common stock
as the selling stockholder converts and sells material amounts of common stock
could encourage short sales by investors. This could place further downward
pressure on the price of the common stock. The selling stockholder could sell
common stock into the market in anticipation of covering the short sale by
converting their securities, which could cause the further downward pressure on
the stock price. In addition, not only the sale of shares issued upon conversion
or exercise of debentures, warrants and options, but also the mere perception
that these sales could occur, may adversely affect the market price of the
common stock.

      THE ISSUANCE OF SHARES UPON CONVERSION OF THE CONVERTIBLE DEBENTURES AND
EXERCISE OF OUTSTANDING WARRANTS MAY CAUSE IMMEDIATE AND SUBSTANTIAL DILUTION TO
OUR EXISTING STOCKHOLDERS.

         The issuance of shares upon conversion of the convertible debentures
and exercise of warrants may result in substantial dilution to the interests of
other stockholders since the selling stockholders may ultimately convert and
sell the full amount issuable on conversion. Although the selling stockholders
may not convert their convertible debentures and/or exercise their warrants if
such conversion or exercise would cause them to own more than 4.99% of our
outstanding common stock, this restriction does not prevent the selling
stockholders from converting and/or exercising some of their holdings and then
converting the rest of their holdings. In this way, the selling stockholders
could sell more than this limit while never holding more than this limit. There
is no upper limit on the number of shares that may be issued which will have the
effect of further diluting the proportionate equity interest and voting power of
holders of our common stock, including the investors in this offering.

         As of September 9, 2003 we had an aggregate of $2,347,752 secured
convertible debentures, including accrued interest, issued pursuant to the
Securities Purchase Agreements entered into in June 2001, January 2002 and
September 2002 outstanding. As of September 9, 2003, warrants to purchase
5,200,000 shares of common stock issued to the purchasers of the debentures were
outstanding. These warrants are exercisable for a term of five years from the
date of issuance at a price equal to $.25 per share.

         As of September 9 2003, 1,383,749 shares of common stock were reserved
for issuance upon exercise of our outstanding warrants and options other than
those issued in connection with the convertible debentures, and an additional
195,027,871 shares of common stock were reserved for issuance upon conversion of
the debentures and exercise of the warrants. As of September 9, 2003, there were
144,946,484 shares of common stock outstanding. Of these outstanding shares,
5,215,204 shares were freely tradable without restriction under the Securities
Act of 1933, as amended, unless held by affiliates.

      IF WE WERE REQUIRED, FOR ANY REASON, TO REPAY OUR OUTSTANDING CONVERTIBLE
DEBENTURES, WE WOULD BE REQUIRED TO DEPLETE OUR WORKING CAPITAL, IF AVAILABLE OR
RAISE ADDITIONAL FUNDS. OUR FAILURE TO REPAY THE CONVERTIBLE DEBENTURES, IF
REQUIRED, COULD RESULT IN LEGAL ACTION AGAINST US, WHICH COULD REQUIRE THE SALE
OF SUBSTANTIAL ASSETS.

         In September 2002, we entered into a Securities Purchase Agreement for
the sale of an aggregate of $450,000 principal amount of convertible debentures.
In addition, we have also entered into Securities Purchase Agreements in June
2001 and January 2002 for an aggregate of $1,750,000 principal amount of
convertible debentures. The convertible debentures are due and payable, with 12%
interest, one year from the date of issuance, unless sooner converted into
shares of our common stock or unless extended by mutual agreement between the
Company and the Investors. Although under the September 2002
                                       21
<PAGE>
Securities Purchase Agreement, we currently have $300,000 convertible debentures
outstanding, the investor is obligated to purchase additional convertible
debentures in the aggregate of $150,000. In addition, any event of default as
described in the convertible debentures could require the early repayment of the
convertible debentures, including a default interest rate of 15% on the
outstanding principal balance of the debentures if the default is not cured with
the specified grace period. We anticipate that the full amount of the
convertible debentures, together with accrued interest, will be converted into
shares of our common stock, in accordance with the terms of the convertible
debentures. If we were required to repay the convertible debentures, we would be
required to use our limited working capital and raise additional funds. If we
were unable to repay the debentures when required, the debenture holders could
commence legal action against us and foreclose on all of our assets to recover
the amounts due. Any such action would require us to curtail or cease
operations.

RISK RELATING TO OUR COMMON STOCK:

      OUR STOCK COULD BE THE VICTIM OF SHORT SELLING AND, IF THIS OCCURS, THE
MARKET PRICE OF OUR STOCK COULD BE ADVERSELY AFFECTED AND, IN TURN, ADVERSELY
EFFECT OUR ABILITY RAISE ADDITIONAL CAPITAL THROUGH THE SALE OF OUR COMMON
STOCK.

It is conceivable that our stock could be subject to the practice of short
selling. Short selling, or "shorting," occurs when stock is sold which is not
owned directly by the seller; rather, the stock is "loaned" for the sale by a
broker-dealer to someone who "shorts" the stock. In most situations, this is a
short-term strategy by a seller, and based upon volume, may at times drive stock
values down. If such shorting occurs in our common stock, there could be a
negative effect on the trading price of our stock. If the trading price of our
common stock decreases, this may negatively impact our ability to raise
additional capital through the sale of our common stock.

      IF WE FAIL TO REMAIN CURRENT ON OUR REPORTING REQUIREMENTS, WE COULD BE
REMOVED FROM THE OTC BULLETIN BOARD, WHICH WOULD LIMIT THE ABILITY OF
BROKER-DEALERS TO SELL OUR SECURITIES AND THE ABILITY OF STOCKHOLDERS TO SELL
THEIR SECURITIES IN THE SECONDARY MARKET.

         Companies trading on the OTC Bulletin Board, such as us, must be
reporting issuers under Section 12 of the Securities Exchange Act of 1934, as
amended, and must be current in their reports under Section 13, in order to
maintain price quotation privileges on the OTC Bulletin Board. If we fail to
remain current on our reporting requirements, we could be removed from the OTC
Bulletin Board. As a result, the market liquidity for our securities could be
severely adversely affected by limiting the ability of broker-dealers to sell
our securities and the ability of stockholders to sell their securities in the
secondary market.

      OUR COMMON STOCK IS SUBJECT TO THE "PENNY STOCK" RULES OF THE SEC AND THE
TRADING MARKET IN OUR SECURITIES IS LIMITED, WHICH MAKES TRANSACTIONS IN OUR
STOCK CUMBERSOME AND MAY REDUCE THE VALUE OF AN INVESTMENT IN OUR STOCK.

         The Securities and Exchange Commission has adopted Rule 15g-9 which
establishes the definition of a "penny stock," for the purposes relevant to us,
as any equity security that has a market price of less than $5.00 per share or
with an exercise price of less than $5.00 per share, subject to certain
exceptions. For any transaction involving a penny stock, unless exempt, the
rules require:

o     that a broker or dealer approve a person's account for transactions in
      penny stocks; and
o     the broker or dealer receive from the investor a written agreement to the
      transaction, setting forth the identity and quantity of the penny stock to
      be purchased.

         In order to approve a person's account for transactions in penny
stocks, the broker or dealer must:

o     obtain financial information and investment experience objectives of the
      person; and
o     make a reasonable determination that the transactions in penny stocks are
      suitable for that person and the person has sufficient knowledge and
      experience in financial matters to be capable of evaluating the risks of
      transactions in penny stocks.

         The broker or dealer must also deliver, prior to any transaction in a
penny stock, a disclosure schedule prescribed by the Commission relating to the
penny stock market, which, in highlight form:

o     sets forth the basis on which the broker or dealer made the suitability
      determination; and
                                       22
<PAGE>
o     that the broker or dealer received a signed, written agreement from the
      investor prior to the transaction.

         Generally, brokers may be less willing to execute transactions in
securities subject to the "penny stock" rules. This may make it more difficult
for investors to dispose of our common stock and cause a decline in the market
value of our stock.

         Disclosure also has to be made about the risks of investing in penny
stocks in both public offerings and in secondary trading and about the
commissions payable to both the broker-dealer and the registered representative,
current quotations for the securities and the rights and remedies available to
an investor in cases of fraud in penny stock transactions. Finally, monthly
statements have to be sent disclosing recent price information for the penny
stock held in the account and information on the limited market in penny stocks.

      ANTI-TAKEOVER ACTIONS AND/OR PROVISION COULD PREVENT OR DELAY A CHANGE IN
CONTROL.

         Provisions of our certificate of incorporation and bylaws and Nevada
law may make it more difficult for a third party to acquire us, even if so doing
would be beneficial to our stockholders. These include the following:

o     Our board of directors are authorized to issue of up to 10,000,000 shares
      of preferred stock and to fix the rights, preferences, privileges and
      restrictions of those shares without any further vote or action by the
      stockholders, which may be used by the board to create voting impediments
      or otherwise delay or prevent a change in control or to modify the rights
      of holders of our common stock;
o     A prohibition on cumulative voting in the election of directors, which
      would otherwise allow less than a majority of stockholders to elect
      directors; and
o     Limitations on who may call annual and special meetings of stockholders


ITEM 2.  DESCRIPTION OF PROPERTY

         Our principal executive offices are located at 1127 Broadway Plaza,
Suite 202, Tacoma, Washington, 98402, and our telephone number is (253)
284-2000. Under our current internal cost restructuring, we have leased, for a
term of one year, new facilities, which consist of approximately 4,000 square
feet and is located in Tacoma Washington. We pay a monthly fee of $2,100 for the
use of these facilities. These facilities consolidate all of our departments,
such as, sales, customer, engineering and administrative services. We have data
center facilities located in Bellingham and Kent, Washington with a renewable
one-year term for a monthly fee of $7,400 and $3,300 respectively.

         We believe these arrangements are adequate to support our future
operations.


ITEM 3.  LEGAL PROCEEDINGS

         We are a party to a lawsuit filed in the Superior Court for the State
of Washington for Pierce County, dated May 31, 2001, by William G. Hargin,
former vice president of sales and marketing. The lawsuit alleged that we
breached a written employment contract and breached a written termination
agreement. Mr. Hargin alleged that under such contract and agreement, he was
owed $114,858.39 plus 12% interest and options to purchase 1,500 fully vested
shares of our common stock exercisable at $34.00 per share. In August 2001, we
entered into a settlement and release agreement under the terms of which we were
to pay Mr. Hargin $17,500 and issue a non-qualified stock option for 2,000
shares of common stock with an exercise price of $6.50 per share. As September
9, 2003, we have not made the cash payment and the option remain unexercised.

         We are a party to a lawsuit filed in the Superior Court of New Jersey
Hudson County, dated August 6, 2001, by PR Newswire Association, Inc., one of
our vendors. The lawsuit alleged that we breached a promise to pay for goods and
services rendered. PR Newswire alleged that under such promise it is owed
$20,760. In February 2002, PR Newswire obtained a default judgment against us in
the amount $16,500, plus reasonable attorney fees. As of September 9, 2003, the
amount of the judgment is unpaid.

         On September 6, 2001, we were served with a summons and complaint by
our former landlords, asserting:

o     a breach of a settlement agreement entered into in May 2001 to register
      5,000 shares of common stock, valued at $80,000, in partial settlement of
      its then existing lease; and
                                      23
<PAGE>
o     a default by us on two new long-term lease obligations.

         This lawsuit, dated October 4, 2001, was filed in Superior Court of
Pierce County. Terms of the first lease call for base monthly payments of
$12,046 for the period of August 1, 2001 to July 31, 2006, plus triple net
charges estimated at approximately $3,038 per month and beginning in year two,
an increase equal to the change in the annual consumer price index but not less
than annual increase of 3%. Minimum aggregate lease payments and triple net
charges approximate $954,500 over the term of the lease. Terms of the second
lease call for monthly payments, beginning in June 2001 of approximately $4,000
per month, or a total of $80,000 for the remaining term of the lease from August
1, 2001 to May 31, 2003. On October 4, 2001, our former landlords filed a
summons and complaint with local jurisdictional court for a summary judgment
motion on all claims. All claims under this motion were initially denied.
However, on May 10, 2002, the court awarded a partial summary judgment in favor
of the former landlords for approximately $170,000. We anticipate filing a
motion to request the court to vacate the partial summary judgment in light of
new evidence and/or appeal the court's decision.

         We were a party to a lawsuit, dated July 2, 2002, by Frank Codispoti,
former director of sales and marketing. The lawsuit alleges breach of contract,
wage and hour violations and violation of the Washington law against
discrimination. We have reached a settlement of the matter and have agreed to
pay Codispoti, in full settlement of his claims, $30,000 as follows: $3,000 upon
execution of the settlement agreement; monthly payments of not less than $1,500
until the balance is paid in full. As of September 9, 2003 we have paid
Codispoti $18,000.

         On December 6, 2002, a former vendor, Genesys Conferencing of MA, Inc.
filed a lawsuit alleging unpaid services in the $3,271, along with interest of
12% and attorney fees in the amount of $125.00. A judgment was filed, April 3,
2003, in favor of the vendor in the amount of $4,150. We intend to negotiate a
settlement this matter.

         On April 30, 2003, we were served with a complaint, Stephenson Electric
Co., v. Insynq, Inc., relating to an alleged Breach of the Telephone Consumer
Protection Act. This matter was settled with the plaintiffs in the matter for
the amount of $1,875.00.

         We are a party to a claim, filed May 29, 2003, by RR Donnelly, Inc. a
former vendor. The claim alleges unpaid services rendered in the amount of
$145,265. We strongly deny that we owe such amount and intend to vigorously
contest this action.

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

         In November 2002, the Company received written consents in lieu of a
meeting from stockholders representing a majority of the Company's outstanding
shares of voting stock approving the re-incorporation of the Company in Nevada
by merger with and into the Company's wholly owned subsidiary, Insynq, Inc., a
Nevada corporation, pursuant to a Plan and Agreement of Merger. The
re-incorporation, which was effective in December 2002, resulted in: the Company
being governed by the laws of the State of Nevada; the shareholders of the
Company right to receive one share of common stock of Insynq Nevada for each one
hundred shares of common stock of the Company owned; the persons serving
presently as officers and directors of the Company to serve in their respective
capacities after the re-incorporation; the outstanding shares of Series A
Convertible Preferred Stock of the Company being converted into approximately
13,314,110 shares of Insynq Nevada common stock; the Company's Certificate of
Incorporation authorizing the issuance of the 500,000,000 shares of common stock
and 10,000,000 of preferred stock; the authorization of the adoption of the 2002
Directors, Officers and Consultants Stock Option, Stock Warrant and Stock Award
Plan; and the Board of Directors, divided into three classes, shall be as nearly
equal in number as possible.

                                     PART II

ITEM 5.  MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

MARKET FOR COMMON STOCK

         Our common stock is quoted on the OTC Bulletin Board under the symbol
"ISYN". Our common stock has been quoted on the OTCBB since November of 1997.

         For the periods indicated, the following table sets forth the high and
low bid prices per share of common stock. These
                                       24
<PAGE>
prices represent inter-dealer quotations without retail markup, markdown, or
commission and may not necessarily represent actual transactions. This table
gives effect to our two for one stock forward split that occurred on August 3,
2000 and our one for one hundred reverse stock split that occurred on December
23, 2002.

                             High ($)      Low ($)
2000
May 31, 2000 ....          1,000.00        200.00

2001
August 31, 2000 .            625.00        175.00
November 30, 2000            250.00         69.00
February 29, 2001             94.00         31.00
May 31, 2001 ....             72.00          5.00

2002
August 31, 2001 .              9.00          4.50
November 30, 2001              5.00          1.30
February 28, 2002              1.30          1.00
May 31, 2002 ....              1.20          0.55

2003
August 31, 2002 .              2.00          0.80
November 30, 2002              3.00          3.00
February 28, 2003              0.07          0.05
May 31, 2003 ....              0.10          0.05


HOLDERS OF OUR COMMON STOCK

         As of September 9 2003, we had approximately 1,032 holders of our
common stock. The number of record holders was determined from the records of
our transfer agent and does not include beneficial owners of common stock whose
shares are held in the names of various security brokers, dealers, and
registered clearing agencies. The transfer agent of our common stock is Colonial
Stock Transfer Company, Inc., 66 Exchange Place, Salt Lake City, Utah 84111.

DIVIDENDS

         We have never declared or paid any cash dividends on our common stock.
We do not anticipate paying any cash dividends to stockholders in the
foreseeable future. In addition, any future determination to pay cash dividends
will be at the discretion of the Board of Directors and will be dependent upon
our financial condition, results of operations, capital requirements, and such
other factors as the Board of Directors deem relevant.

RECENT SALES OF UNREGISTERED SECURITIES

        The following sets forth information regarding all sales of our
unregistered securities during the fiscal year ended May 31, 2003. All of these
shares were exempt from registration under the Securities Act by reason of
Section 4(2) of the Securities Act, or Regulation D promulgated thereunder, as
transactions by an issuer not involving a public offering, or were exempt by
reason of the application of Regulation S. The recipients of securities in each
of these transactions represented their intentions to acquire the securities for
investment only and not with a view to or for sale in connection with any
distribution of the securities, and appropriate legends were affixed to the
share certificates and warrants issued in such transactions. All recipients had
adequate access, through their relationships with us or otherwise, to
information about us. Unless otherwise indicated, the issuances of the
securities described below were affected without the involvement of
underwriters. Where applicable, each of the disclosures has been adjusted to
account for the 100 for 1 stock split effective December 23, 2002.

         On July 8, 2002, we granted stock six of our employees an aggregate of
900,000 share of common stock each at a fair market value on date of grant. On
October 16, 2002, pursuant to an exchange agreement, these shares of common
stock were converted into 90,000 shares of Series A Convertible Preferred Stock.
On December 23, 2002, we entered into an Agreement

                                       25
<PAGE>

of Plan of Merger whereby we reincorporated in the state of Nevada and each of
the Series A Convertible Preferred stockholders received ten shares of common
stock of Insynq Nevada for each share of Series A Convertible Preferred
outstanding. As a result of the Agreement and Plan of Merger, the six employees
held 900,000 shares of common stock of Insynq Nevada.

         On July 8, 2002, an officer forgave $24,501 in deferred compensation
and the company granted 350,000 shares of common stock at a fair market value of
$1,050. On October 16, 2002, pursuant to an exchange agreement, these shares of
common stock were converted into 35,000 shares of Series A Convertible Preferred
Stock. On December 23, 2002, we entered into an Agreement of Plan of Merger
whereby we reincorporated in the state of Nevada and each of the Series A
Convertible Preferred stockholders received ten shares of common stock of Insynq
Nevada for each share of Series A Convertible Preferred outstanding. As a result
of the Agreement and Plan of Merger, the officer held 350,000 shares of common
stock of Insynq Nevada.

         In July 2002, we entered into a consulting agreement with one entity
for a term or three months. Under the terms of the agreement, in consideration
of the services undertaken by the entity, we issued monthly, through the term of
the agreement, (a) 3,000 shares of our common stock, and (b) $13,500. The fair
market value for each issuance was the first business day of the month through
the term of the agreement.

         In July 2002, we entered into consulting agreements with two entities.
Under the terms of the agreements, in consideration of the services undertaken,
we issued an aggregate of 1,600,000 shares of common stock and 500,000 class A
Warrants and 400,000 Class D Warrants under the 2002 Directors, Officers and
Consultants Stock Option, Stock Warrant and Stock Award Plan at the fair market
value between $0.01 and $0.00002 per share.

         On July 31, 2002, we entered into a consulting agreement with one
entity. Under the terms of the agreement, in consideration of the consulting
services undertaken by the entity, we issued 80,000 shares of Series A
Convertible Preferred Stock. On December 23, 2002, we entered into an Agreement
of Plan of Merger whereby we reincorporated in the state of Nevada and each of
the Series A Convertible Preferred stockholders received ten shares of common
stock of Insynq Nevada for each share of Series A Convertible Preferred
outstanding. As a result of the Agreement and Plan of Merger, the consultant
held 800,000 shares of common stock of Insynq Nevada.

         On September 27, 2002, we entered into a third securities purchase
agreement with four investors for the sale of (i) $450,000 in convertible
debentures and (ii) warrants to buy 900,000 shares of our common stock. The
investors are obligated to provide us with the funds as follows:

o     $300,000 has been disbursed to date; and
o     an aggregate of $150,000 will be disbursed at the rate of $30,000 per
      month on the final business day of each month ending in August 2003.

          The debentures bear interest at 12%, mature on one year from the date
of issuance, and are convertible into our common stock, at the investors'
option, at the lower of:

o     $0.30; or
o     40% of the average of the three lowest intraday trading prices for the
      common stock on a principal market for the 20 trading days before but not
      including the conversion date.

         The full principal amounts of the convertible debentures are due upon
default under the terms of convertible debentures. The warrants are exercisable
until five years from the date of issuance at a purchase price of $0.25 per
share. In addition, the exercise price of the warrants will be adjusted in the
event we issue common stock at a price below market, with the exception of any
securities issued as of the date of this warrant. The conversion price of the
debentures and the exercise price of the warrants may be adjusted in certain
circumstances such as if we pay a stock dividend, subdivide or combine
outstanding shares of common stock into a greater or lesser number of shares, or
take such other actions as would otherwise result in dilution of the selling
stockholder's position. The selling stockholders have contractually agreed to
restrict their ability to convert their convertible debentures or exercise their
warrants and receive shares of our common stock such that the number of shares
of common stock held by them in the aggregate and their affiliates after such
conversion or exercise does not exceed 4.9% of the then issued and outstanding
shares of common stock. We have granted the selling stockholders a security
interest in all of our assets against the convertible debentures.

                                       26
<PAGE>

         On December 24, 2002, we entered into a consulting agreement. Under the
terms of the agreement, in consideration of the services undertaken, we issued
250,000 shares of common stock. The fair market value is $0.05 per share.

         In January 2003, we entered into consulting agreements with six
entities. Under the terms of the agreements, in consideration of the services
undertaken, we issued an aggregate of 1,100,000 shares of common stock and
1,000,000 class A Warrants, 1,000,000 Class B Warrants, 250,000 Class C Warrants
and 1,900,000 Class D Warrants under the 2002 Directors, Officers and
Consultants Stock Option, Stock Warrant and Stock Award Plan at the fair market
value between $0.01 and $0.00002 per share.

         On February 1, 2003, we entered into a consulting agreement. Under the
terms of the agreement, in consideration of the services undertaken, we issued
87,500 shares of common stock under the 2002 Directors, Officers and Consultants
Stock Option, Stock Warrant and Stock Award Plan at the fair market value of
$0.06 per share and 387,500 warrants to purchase common stock at $0.40 per
share.

         In March 1, 2003, we entered into a consulting agreement. Under the
terms of the agreement, in consideration of the services undertaken, we issued
35,714 shares of common stock under the 2002 Directors, Officers and Consultants
Stock Option, Stock Warrant and Stock Award Plan at a fair market value of $0.07
per share of common stock.

         In April 2003, we entered into a consulting agreement. In August 2003,
under the terms of the agreement, in consideration of the services undertaken,
we issued 3,900,000 shares of common stock at a fair market value of $0.01 per
share of common stock.

         On July 15, 2003, we entered into a consulting agreement and under the
terms of the agreement, in consideration of the services undertaken, we issued
1,515,152 shares of common stock under the 2002 Directors, Officers and
Consultants Stock Option, Stock Warrant and Stock Award Plan at the fair market
value of $0.013 per share of common stock.

         On August 5, 2003, in settlement of a defaulted note payable, we
entered into a settlement agreement with Plazacorp Investments Ltd. In
connection with the settlement, we issued 65,000,000 shares of common stock in
consideration of the principal due at the fair market value of $0.01 per share
of common stock.

         In August 2003, we entered into three consulting agreements. Under the
terms of the agreements, in consideration of the services undertaken, we issued
22,666,666 shares of common stock at a fair market value of $0.01 and 17,354,628
options with exercise prices between $0.012 and $0.015 per share of common
stock. Also, on August 8, 2003, under the terms of the Agreements, the company
filed a Form S-8 Registration for the common stock and options.

                                       27
<PAGE>


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

         The following discussion and analysis should be read in conjunction
with the financial statements, including notes thereto, appearing in this Form
10-KSB.

         Some of the information in this Form 10-KSB contains forward-looking
statements that involve substantial risks and uncertainties. You can identify
these statements by forward-looking words such as "may," "will," "expect,"
"anticipate," "believe," "estimate" and "continue," or similar words. You should
read statements that contain these words carefully because they:

o discuss our future expectations;
o contain projections of our future results of operations or of our financial
condition; and o state other "forward-looking" information.

         We believe it is important to communicate our expectations. However,
there may be events in the future that we are not able to accurately predict or
over which we have no control. Our actual results and the timing of certain
events could differ materially from those anticipated in these forward-looking
statements as a result of certain factors, including those set forth under "Risk
Factors," "Business" and elsewhere in this Form 10-KSB. See "Risk Factors."

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

GENERAL

         Our discussion and analysis of our financial condition and results of
operations are based upon our audited financial statements, which are prepared
in conformity with accounting principles generally accepted in the United States
of America. As such, we are required to make certain estimates, judgments and
assumptions that management believes are reasonable based upon the information
available. We base these estimates on our historical experience, future
expectations and various other assumptions that we believe to be reasonable
under the circumstances, the results of which form the basis for our judgments
that may not be readily apparent from other sources. These estimates and
assumptions affect the reported amounts of assets and liabilities and the
disclosure of contingent assets and liabilities at the dates of the financial
statements and the reported amounts of revenue and expenses during the reporting
periods. These estimates and assumptions relate to estimates of collectibility
of accounts receivable, the realization of goodwill, the expected term of a
customer relationship, accruals and other factors. We evaluate these estimates
on an ongoing basis. Actual results could differ from those estimates under
different assumption or conditions, and any differences could be material.

         The financial statements have been prepared pursuant to the rules and
regulations of the Securities and Exchange Commission (SEC) and, in the opinion
of management, includes all adjustments necessary for a fair statement of the
results of operations, financial position, and cash flows for each period
presented. Our financial statements reflect the results of operations, financial
position, changes in shareholders' deficit and cash flows.

         A summary of the significant accounting policies which we believe are
the most critical to aid in fully understanding and evaluating the accompanying
financial statements include the following:

REVENUE RECOGNITION

         Our principal source of revenue is generated from application hosting,
managed software and related types of services. Application hosting and managed
services revenues are generated through a variety of contractual arrangements
directly with customers. We sell our services directly to customers through
annual service subscriptions or month-to-month subscriptions. Subscription
arrangements include monthly subscriber fees, user setup fees and a last month
deposit. New subscription service fees are prorated and invoiced during the
first month of service. Ensuing subscription revenues are invoiced at the
beginning of every month. Initial setup fees received in connection with these
arrangements are recognized in full at the fulfillment of such setup service.
Payments received in advance of the service, even if non-refundable, are
recorded as customer deposits. Generally, any prepaid amount is an advance
payment and is generally applied to the last month's service fee. Customer
discounts are recorded as a reduction of revenue.

                                       28
<PAGE>

EQUIPMENT

         Equipment is recorded at cost. The cost of maintenance and repairs of
equipment is charged to operating expense. Depreciation is determined based upon
the assets' estimated useful lives and is calculated on a straight-line basis
when the asset is placed in service. When we sell, dispose of or retire
equipment, the related gains or losses are included in operating results.

LONG-LIVED ASSETS

         Long-lived assets, including, but not limited to, equipment and
identifiable intangibles held and used by us are reviewed for impairment
whenever events or changes in circumstances indicate that the carrying amount of
the asset may not be recoverable. If such review indicates that the asset is
impaired, when the carrying amount of an asset exceeds the sum of its expected
future cash flows on an undiscounted basis, the asset's carrying amount is
written down to fair value. We believe that no impairment of the carrying
amounts of its long-lived assets existed at May 31, 2003.

CONCENTRATIONS OF CREDIT RISK

         We sell the majority of our services throughout North America. The
majority of these sales are made to customers who are billed monthly on open
account and no collateral is required, however, a majority of the transactions
are paid through credit cards or other electronic means. For the year ended May
31, 2003, approximately thirty-four percent (34%) of revenues were from seven
customers, of which, one is a related party to a director and officer of the
Company. The related party business comprised approximately four percent (4%) of
our revenues. Also see the asset purchase agreement in Note 21.

FAIR VALUE OF FINANCIAL INSTRUMENTS

         Financial instruments consist principally of cash, accounts and related
party receivables, trade and related party payables, accrued liabilities, short
and long-term debt obligations. The carrying amounts of such financial
instruments in the accompanying balance sheet approximate their fair values due
to their relatively short-term nature. It is management's opinion that the
Company is not exposed to significant currency or credit risks arising from
these financial instruments.

USE OF ESTIMATES

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

RECENT AUTHORITATIVE ACCOUNTING PRONOUNCEMENTS

         In April 2002, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 145, Rescission of FASB
Statements No. 4, 44 and 64, Amendment of FASB Statement No. 13, and Technical
Corrections. SFAS 145 rescinds the provisions of SFAS No. 4 that requires
companies to classify certain gains and losses from debt extinguishments as
extraordinary items, eliminates the provisions of SFAS No. 44 regarding
transition to the Motor Carrier Act of 1980 and amends the provisions of SFAS
No. 13 to require that certain lease modifications be treated as sale leaseback
transactions. The provisions of SFAS 145 related to classification of debt
extinguishments are effective for fiscal years beginning after May 15, 2002.

         In June 2002, the FASB issued SFAS No. 146, "Accounting for
Restructuring Costs." SFAS 146 applies to costs associated with an exit activity
(including restructuring) or with a disposal of long-lived assets. Those
activities can include eliminating or reducing product lines, terminating
employees and contracts and relocating plant facilities or personnel. Under SFAS
146, we will record a liability for a cost associated with an exit or disposal
activity when that liability is incurred and can be measured at fair value. SFAS
146 will require us to disclose information about its exit and disposal
activities, the related costs, and changes in those costs in the notes to the
interim and annual financial statements that include the period in which an exit
activity is initiated and in any subsequent period until the activity is
completed. SFAS 146 is effective prospectively for exit or disposal activities
initiated after December 31, 2002, with earlier adoption encouraged. Under SFAS
146, a company

                                       29
<PAGE>

cannot restate its previously issued financial statements and the new statement
grandfathers the accounting for liabilities that a company had previously
recorded under Emerging Issues Task Force Issue 94-3.

         The adoption of SFAS 145 and 146 did not have a material impact on our
financial position or results of operations.

         In December 2002, the FASB issued SFAS No. 148, "Accounting for
Stock-Based Compensation-Transition and Disclosure-an amendment of FASB
Statement No. 123". SFAS 148 amends FASB Statement No. 123, "Accounting for
Stock Based Compensation" and provides alternative methods for accounting for a
change by registrants to the fair value method of accounting for stock-based
compensation. Additionally, SFAS 148 amends the disclosure requirements of SFAS
123 to require disclosure in the significant accounting policy footnote of both
annual and interim financial statements of the method of accounting for
stock-based compensation and the related pro-forma disclosures when the
intrinsic value method continues to be used. The statement is effective for
fiscal years beginning after December 15, 2002, and disclosures are effective
for the first fiscal quarter beginning after December 15, 2002. Currently, we
plan to continue to account for its stock-based compensation using the intrinsic
value method. The adoption of the disclosure requirements of SFAS 148 will be
incorporated in our future quarterly SEC Form 10-QSB filings.

         In May 2003 the FASB issued SFAS No. 150, "Accounting for Certain
Financial Instruments with Characteristics of both Liabilities and Equity." The
purpose of SFAS 150 is to improve the accounting for certain financial
instruments that, under previous authoritative guidance, issuers could account
for as equity. The new Statement requires that the accounting for three specific
types of financial instruments be classified as liabilities in the statement of
financial position. The three financial instruments are: a.) those mandatorily
redeemable shares which the issuing company is obligated to buy back in exchange
for cash or other assets; b.) those instruments which include put options and
forward purchase contracts that require the issuer to buy back some of its
shares in exchange for cash or other assets; and, c.) those obligations which
can be settled with shares, the monetary value of which is fixed, tied solely or
predominantly to a variable such as a market index, or varies inversely with the
value of the issuers' shares. Statement 150 does not apply to features embedded
in a financial instrument that is not a derivative in its entirely. The
effective date of this Statement is after May 31, 2003. We do not believe the
implementation of SFAS 150 will have a material impact on our financial position
of results of operations.

OVERVIEW

         We were originally incorporated as Xcel Management, Inc. in the state
of Utah on May 22, 1980, under the name Ward's Gas & Oil, to engage in the oil
and gas business, which business was terminated a few years after operations
commenced. Xcel then changed its name to Palace Casinos, Inc. and from November
1992 until approximately 1995, it was engaged, through its wholly owned
subsidiary, in the development of a dockside gaming facility in Biloxi,
Mississippi. On December 1, 1994, Xcel and its wholly owned subsidiary each
filed voluntary petitions for bankruptcy under Chapter 11 of the federal
bankruptcy laws. On June 16, 1999, the bankruptcy court confirmed a plan of
reorganization whereby the obligations of Xcel's creditors were satisfied. On
February 18, 2000, Xcel and Insynq, Inc., a Washington company formed on August
31, 1998, closed an asset purchase transaction in which Xcel acquired
substantially all of the assets of Insynq. Subsequent to the asset purchase
transaction, Xcel continued to develop the business of Insynq. On August 3,
2000, at a special meeting of Xcel's stockholders, Xcel completed a
re-incorporation merger with its wholly owned subsidiary, Insynq, Inc., a
Delaware corporation. On July 25, 2002, the Board of Directors approved the
re-incorporation merger of the Company with its wholly owned subsidiary, Insynq,
Inc., a Nevada corporation, and a 1-for-100 reverse stock split of the Company's
currently issued and outstanding shares of common stock. Insynq, Inc.
re-incorporated in the state of Nevada upon entering into the Plan and Agreement
of Merger with its wholly owned subsidiary, Insynq, Inc., a Nevada corporation
on December 23, 2002. As a result of the re-incorporation, the surviving Company
exchanged 59,013,393 shares of common stock of the terminating entity, Insynq,
Inc. (Delaware), for 590,134 shares of common stock of the surviving entity,
Insynq, Inc. (Nevada).

         Today, as the combined and surviving entity, Insynq, Inc. (Nevada)
continues to develop the IQ Utility Service.

         We manage and host software services, Web hosting services, Web-based
local and wide area networks, and access to Internet marketing assistance and
other related equipment and services. These products and services are offered as
components or as an integrated whole, either sold directly or on a fee or
subscription basis.

         We target small and medium enterprises and the high-end segment of the
small office and home office market for the sale of hardware and hosted software
and access to internet-related services. We provide products and services to our
customer

                                       30
<PAGE>

subscriber base, which allows our customers to adopt "web-based" computing that
serves as an alternative to both traditional local wide area networks and
traditional client-server implementations. Generally, we market ourselves as an
internet utility company that can provide all of the computer software,
connectivity and internet-access needs for its customers on a cost effective
basis.

         The complete IQ Delivery System and Internet Utility Service include
managed network and application services, which can span from a customer's
keyboard to the data center. The service can also include internet-access
provided by us or by a user selected telecommunications partner/provider. The
final piece of the system is the two secured data centers. Both centers are
located in Washington State, one in the city of Bellingham, and, one in the city
of Kent. These facilities, with redundant power, bandwidth, and cooling, house
our servers, routers and other equipment.

         In fiscal 2004 (fiscal year ending May 31, 2004), we plan to focus on
increasing revenue from increased customer sales through acquisitions and
mergers, and, an intense marketing and advertising campaign beginning in the
fall of 2004. We strive to build our core values around quality and timely
customer service and the delivery of our hosted services at a competitive,
value-added price.

RESULTS OF OPERATIONS

         We incurred a net loss of $2,930,773 and $4,599,430 for the years ended
May 31, 2003 and 2002, respectively. The net losses resulted primarily from:

o     discounted or free services, as we marketed our products and services;
o     professional and consulting fees;
o     issuance of common stock, warrants and options for services;
o     contract settlements; and
o     interest expense, to include amortization of discounts on convertible
      debentures.

         The decrease in the net loss for the year ended May 31, 2003 of
$1,668,657 as compared to the year ended May 31, 2002 resulted primarily from:

o     increase in net revenues;
o     decrease in legal and consulting fees;
o     decrease in wages, related taxes and benefits;
o     decrease in co-location and rent; and
o     decrease in network and infrastructure costs.

         Revenues for the years ended May 31, 2003 and 2002 were $1,053,855 and
$889,136, respectively, representing an increase of $164,719, or approximately
18.5%. The primary sources of revenues and the changes are as follows:
<TABLE>
<CAPTION>

                                                    YEAR ENDED MAY 31, 2003     YEAR ENDED MAY 31, 2002  2003 INCREASE OVER 2002
                                                    -----------------------     -----------------------  -----------------------
Revenue                                                          Percent of                 Percent of
Source                                                 Amount       Total         Amount      Total         Amount     Percent
---------------------------------------------------------------------------------------------------------------------------------
<S>                                                 <C>             <C>       <C>             <C>       <C>              <C>
Seat subscriptions, net
of discounts ..................................     $  769,243      73.0%     $  711,595      80.0%     $   57,648       8.1%
2. Managed software and
support .......................................         96,914       9.2          79,540       9.0          17,374      21.8%
3. License rentals,
software sales, and other......................        187,698      17.8          98,001      11.0          89,697      91.5%
                                                    ----------     -----      ----------     -----      ----------      ----
Total .........................................     $1,053,855     100.0%     $  889,136     100.0%     $  164,719      18.5%
                                                    ==========     =====      ==========     =====      ==========      ====
</TABLE>


         The increase in revenues can be directly attributed to our increased
marketing efforts over the Internet, an enhanced

                                      31
<PAGE>

and improved website and the offering of more professional products. Since
fiscal 2001, net revenues have gone from approximately $396,000 in net sales to
over $1,053,000. What is important to these results is that while we have
increased our seat count by approximately 84%, we have increased revenues by
over 167% for the same period. The significant percentage increase in overall
revenues over the number of added seats indicates that we are selling more
products and value added services to our existing customers, reduced the
discounting periods, and increased pricing. While we have experienced growth in
revenue in each year, prior growth rates should not be considered as necessarily
indicative of future growth rates or operating results for the fiscal ending
2004. We are planning to trend away from our practice of providing discounts and
free offerings as experienced in the fiscal years 2003 and 2002, as we continue
to develop our sales, implement our sales and marketing strategies, increase
consumer understanding and awareness of our technology, and prove our business
model.

         Our continued growth is significantly dependent upon our ability to
generate sales relating to our subscription and managed software services. Our
main priorities relating to revenue are:

o     increase market awareness of our products and services through our
      strategic marketing plan,
o     growth in the number of customers and seats per customer,
o     continue to accomplish technological economies of scale, and
o     continue to streamline and maximize efficiencies in our system
      implementation model.

COSTS AND EXPENSES

         During fiscal 2003, we incurred direct costs totaling $786,744. This
represents a reduction of expenses of $364,105 or a 31.6% decrease over the
prior fiscal year. Approximately 54% of the reduction may be directly
attributable to the overall reduction of seven technical positions in early
fiscal 2003.

         Selling and general and administrative expenses were $2,120,450 and
$3,143,112 the years ended May 31, 2003 and 2002, respectively, and the expenses
are allocated between non-cash and cash compensation. Non-cash compensation is
generally representative of the fair value of common stock, options and warrants
issued for certain services, and the amortization of unearned compensation.
Non-cash compensation for the years ended May 31, 2003 and 2002 was $878,323 and
$1,075,459, respectively. Cash expenses for the years ended May 31, 2003 and
2002 were $1,242,127 and $2,067,653, respectively. This represents a significant
decrease, or $825,526 or 39.9%, over the same period one year ago.

         Of particular significance to this category is the reduction of the
professional and consulting fees. These specific expenses accounted for
approximately 50.2% and 56.0% of the total selling, general and administrative
expenses for the years ended May 31, 2003 and 2002, respectively. Yet there was
over a $697,000 reduction in these fees between these two comparable periods.
The decrease between these two periods accounts for over 68% of the total
selling, general and administrative reduction between these two respective
periods. The overall reduction in the category is a direct result from
management's concerted and diligent efforts to reduce and control these critical
expenses.

         Overall, we reduced total operating expenses for the year ended May 31,
2003, as compared to the year ended May 31, 2002, by over $1,543,000, or 34.6%,
and, at the same time we increased total revenues by 18.5% over the prior year's
revenues. The results herewith are strong indicators that our business and
marketing plans are working well together.

         Interest expense was $1,496,303 for the year ended May 31, 2003 as
compared to $1,459,886 for the same period ended May 31, 2002. Interest expense
is primarily comprised of: (a) accruing interest on promissory notes,
convertible debentures, and capitalized leases, and, (b) non-cash interest
resulting from the amortization of discount originating from the fair value of
beneficial conversion features and warrants in connection with convertible
debenture issuances.

         The primary classifications of interest expense are as follows:
<TABLE>
<CAPTION>

                                                                 2003              2002
                                                            -------------     -------------
<S>                                                          <C>               <C>
o amortization of discounts on convertible debentures        $  878,586        $  983,578
o accrued interest on debentures and notes ..........           429,296           269,793

                                       32
<PAGE>

o accrued interest and discount on capitalized lease             79,979           120,513
o other .............................................           108,442            86,002
                                                             ----------        ----------
                         Totals .....................        $1,496,303        $1,459,886
                                                             ==========        ==========
</TABLE>

         Accounting for non-cash interest resulted in $1,422,866 and $1,015,044
of the total reported expense for the years ended May 31, 2003 and 2002,
respectively.

LIQUIDITY AND CAPITAL RESOURCES

         Our financial statements for the year ended May 31, 2003 have been
prepared on a going concern basis, which contemplates the realization of assets
and the settlement of liabilities and commitments in the normal course of
business. For the year ended May 31, 2003, we had a net loss of $2,930,773 and
negative cash flows from operations of $513,280. We had a working capital
deficit of $7,277,476 and a stockholders' deficit of $6,803,689 at May 31, 2003.
Our working capital deficit as of May 31, 2003 may not enable us to meet certain
financial objectives as presently structured.

         We reduced the negative cash flows from operations between fiscal 2003
and fiscal 2002 by approximately $1,049,000. The decrease in our usage of cash
was the direct result of managements' continued execution of tight fiscal cash
management, increased revenues and the turnabout from a $262,000 loss in net
revenues less direct expenses in fiscal 2002 to approximately $267,000 positive
results of net revenues less direct expenses in fiscal 2003.

         We finance our operations and capital requirements primarily through
private debt and equity offerings. For the year ended May 31, 2003, we received
cash from financing activities totaling $593,926 from:

o     borrowings on our credit line - $2,887;
o     release of restricted cash held in escrow - $10,355;
o     issuances of convertible debentures - $550,000;
o     proceeds from exercise of warrants - $23,000;
o     proceeds from sale of equipment - $4,000;
o     issuance of a short term note payable - $2,887; and
o     loans from an officer/stockholder - $3,684.

         As of May 31, 2003, we had $7,386,148 in current liabilities and past
due obligations. Of the total current debt, approximately $310,000 is deemed
"current" as a trade payable, accrued expenses or taxes due. We were late in
payment of certain creditor trade payables of approximately $535,300.

         Recently, management increased its efforts to negotiate with many of
its creditors, by offering them cash payments for substantially less than the
amounts due, or request a total forgiveness of the debt. As a result of these
creditor negotiations, between June 1, 2003 and September 9, 2003 we have
settled past due obligations totaling more than $2,490,100. in June 2003, we
recently settled a past due capitalized computer equipment lease obligation
vital to the continuation of our operations. Terms of the settlement required us
to pay $35,000 in cash. The debt associated with this settlement was
approximately $868,600. Further, in August 2003, we settled the following:

o     in exchange for the issuance of 65,000,000 shares of common stock the
      holder of a promissory note in the amount of $1,501,500 including interest
      agreed to cancel such note. The note was in default. . The market value of
      the common stock at the date of settlement was $.01 per share;
o     past due trade payable and a promissory note to the same vendor totaling
      approximately $116,000 for $6,000; and,
o     an equipment lease, in default, at face value, or approximately $4,000.

         We believe that by continuing these concerted efforts to settle with
our creditors, we will be able to continue to reduce significantly our past due
creditor trade obligations. However, if we are not able to negotiate and execute
payment plans or complete cash settlements with certain of these
creditors/vendors, we could experience a severe negative impact on our business
resources and we may be forced to cease operations.
                                       33
<PAGE>
         As of May 31, 2003, we are delinquent in the payment of approximately
$503,100 of business and payroll taxes, plus an estimated $323,200 of related
assessed penalties and interest. The majority of the past due amount is for
payroll taxes, penalties and interest due to the Internal Revenue Service. In
April 2002, the Internal Revenue Service filed a Federal Tax Lien on our assets
for all past due employment taxes, penalties and accrued interest. In November
2002 we submitted an Offer In Compromise to the Internal Revenue Service seeking
relief on a portion of its overall obligation and to structure a payment plan on
the settled amount of taxes due. We were notified on April 1, 2003 that the
Offer In Compromise was denied. In June 2003, management resubmitted its second
Offer In Compromise in an effort to mitigate the same tax issues. As of
September 9, 2003 the Internal Revenue Service has only communicated with us
that it is processing the Offer. If the Internal Revenue Service and Insynq
cannot agree to a mutually agreeable and beneficial workout, the Internal
Revenue Service could take possession of our assets and we may be forced to file
for bankruptcy protection and/or to cease operations altogether.

      On August 22, 2003 we entered into an asset purchase agreement to sell a
certain portion of our customer base for $100,000. The purchaser has escrowed
the $100,000 until certain closing obligations have been met. In order to
complete the sale of this asset, we must obtain a release from the Internal
Revenue Service, who has filed a Federal Tax Lien on our assets, and the holders
of our convertible debentures. Our management intends to use the proceeds for
the purpose of negotiating a settlement and the release of this asset. The asset
(customer base) sold by Insynq is approximately 45% of the current monthly
revenue.

         As of September 9, 2003, we have workout agreements with three taxing
authorities for past due taxes. During the fiscal year ended May 31, 2003, we
completely paid off two workout arrangements with two other taxing authorities,
and, we initiated one new workout. As of September 9, 2003 total principal
balance due for the remaining four workouts is approximately $16,600. Terms of
the remaining workouts require us to pay between $150 and $2,000 per month until
each respective tax obligation is fulfilled. Two of the three taxing agencies
have either filed a lien or a warrant with the local county authorities to
protect their position during the respective workout periods.

         Additionally, two liens have been filed by two other states for past
due taxes, plus accrued interest and penalties. One lien was filed by the State
of Utah for approximately $28,000 for prior year's income taxes assessed to our
predecessor company. This amount is in dispute and amended returns to correct
this deficiency have been filed, but not yet approved or denied. The second lien
was filed by the State of California for past due payroll taxes, assessed
penalties and accrued interest. We have submitted a proposal for a long-term
workout of the tax debt. We believe the proposal is currently in review and
under consideration with the state authorities.

         There can be no assurances, however, that we will be able to agree or
commit to any proposed terms set forth by the Internal Revenue Service or
favorably negotiate terms with any of the other taxing authorities. If we are
unsuccessful in our negotiations or fail to make our workout payments timely,
the taxing authorities could take possession of some or all of our assets.
Should this occur, we likely would be forced to cease our operations.

         We were a party to a lawsuit filed by a prior employee. The lawsuit
claim is for approximately $115,000 (plus accrued interest) for unpaid wages,
severance, bonuses, benefits and expenses. The Company has settled the matter
calling for a cash payment of $17,500 and the issuance of a non-qualified stock
option for 2,000 shares of common stock with an exercise price of $6.50 per
share. As of September 9, 2003, the Company has not paid the cash settlement and
the stock options remain unexercised.

         On September 6, 2001, we were served with a summons and complaint by
our former landlords, asserting: (a.) a breach of a settlement agreement entered
into in May 2001 to register 5,000 shares of common stock, valued at $80,000, in
partial settlement of the then existing lease, and, (b.) a default by us on two
new long-term lease obligations. Terms of the first lease call for base monthly
payments of $12,046 for the period of August 1, 2001 to July 31, 2006, plus
estimated triple net charges currently at $3,038 per month and beginning in year
two, annual consumer price index with a minimum annual increase of 3%. Minimum
aggregate lease payments and triple net charges approximate $954,500 over the
term of the lease, excluding late fees, interest, legal fees and other charges.
Terms of the second lease called for monthly payments, beginning in June 2001 of
approximately $4,000 per month, or a total of $80,000 for the remaining term of
the lease from August 1, 2001 to May 31, 2003. On October 4, 2001, our former
landlords filed a summons and complaint with the Superior Court of Washington
for Pierce County for a summary judgment motion on all claims. All claims under
this motion were denied. On May 10, 2002, the Court awarded a partial summary
judgment in favor of the former landlords for approximately $170,000. We
anticipate filing a motion requesting the court to vacate the summary judgment
in light of new evidence and/or appeal the
                                      34
<PAGE>
court's decision.

         We deny the allegations under this claim and believe it is without
merit. It is the opinion of our management and our legal counsel that the
settlement agreement signed in May 2001 that required the signing of the new
leases were entered into under economic duress, based on misrepresentation and
fraud and were signed in bad faith on the part of the former landlords. As such,
it is our managements' opinion that the settlement agreement and the lease
agreement are void. We intend to continue to vigorously defend against this
lawsuit.

         We were a party to a lawsuit dated August 6, 2001, that alleged that we
had breached a promise to pay for goods and services rendered in the amount of
$20,760. In February 2002, the vendor obtained a default judgment in the amount
of $16,500, plus reasonable attorney fees. As of September 9, 2003 the amount of
the judgment is unpaid.

         On October 9, 2002, we settled an alleged grievance filed by a former
employee for $30,000. As of September 9, 2003, we owe $12,000, payable at $1,500
per month, without interest.

         A former vendor filed a lawsuit, dated December 6, 2002, alleging that
we had become indebted to the vendor in the amount of $3,271 with interest of
12% and attorney fees in the amount of $125. A judgment was filed, dated April
3, 2003, in favor of the vendor in the amount of $4,150. We intend to negotiate
a settlement this matter.

         On April 30, 2003, we were served with a complaint relating to an
alleged breach of the Telephone Consumer Protection Act. This matter was settled
with the plaintiffs in the matter for the amount of $1,875.

         We have been served with a complaint, dated May 29, 2003, from a prior
vendor alleging that a trade payable in the amount of $145,265 has not been
paid. Management disputes the amount and intends to negotiate a settlement.

         We have defaulted on a software license agreement dated September 29,
2000. Our agreement required us to purchase 10,000 licenses totaling $235,000.
We have paid a total of $1,500 toward this obligation and the term of this
agreement expired March 30, 2003. We have been in contact with the party to the
agreement in an effort to amend the agreement and change the contractual
obligation to reflect actual licenses sold. We anticipate settling this matter
within the next few months by paying for the actual licenses sold since entering
this agreement.

         As of September 9, 2003 we are not in compliance with the proper
registration and licensing of certain software applications and products
critical to support the customer base and our own internal operations.
Management has initiated negotiations with these software vendors in an effort
to purchase or lease/rent the licenses to meet the licensing requirements.

         As of May 31, 2003, we have approximately $408,000 of employee related
obligations in the form of accrued and deferred salaries and vacation benefits.
These obligations are primarily a result of applying the terms of existing
employment agreements or company personnel policies against that which we
actually owed and paid. In July 2002, an officer forgave $24,501 of deferred
compensation in consideration for 3,500 shares of common stock with a market
value of $1,050. In May 2003, we extended the employment agreements of the chief
executive officer and the chief administrative officer for another four years.
Substantially their existing basic contract terms and conditions were renewed
but with added features such as a severance and incentive package.

         As of September 9, 2003 we owe approximately $205,000 in short-term
promissory notes, loans and related accrued interest. All these obligations are
past due.

         We are obligated to four groups of investors who purchased secured
convertible debentures over three separate private financing transactions. On
March 6, 2003, we entered into an agreement with two groups of the investors to
extend the maturity dates of certain debentures that were past due, and modify
the conversion prices as described below. As of September 9, 2003, we have
recorded outstanding convertible debentures totaling $1,937,000 and accrued
interest of approximately $410,752. A summary of the transactions and balances
due as of September 9, 2003 are as follows:
<TABLE>
<CAPTION>
                                       35
<PAGE>
                                                                                                                           Warrants
                                                                                                           Total Amount   Issued in
                                                                                                             Due Per     Connection
                                          Issued                                                           Convertible      with
                                       Convertible  Unamortized   Principal    Principal      Accrued       Debenture    Convertible
 Date of Issuance  Date of Maturity*    Debenture     Discount     Redeemed    Amount Due     Interest      Issuance      Debenture
----------------- ------------------- -------------- ------------ ------------ ------------ ------------- -------------- -----------

FIRST ISSUANCE
<S>              <C>                       <C>           <C>         <C>          <C>           <C>            <C>         <C>
June 29, 2001     March 6, 2004*           $550,000      $--         $113,000     $437,000      $122,566       $572,116    1,100,000
August 10, 2001   March 6, 2004*            100,000       --          --           100,000        24,922        124,922      200,000
October 17, 2001  March 6, 2004*            150,000       --          --           150,000        37,172        187,172      300,000
November 2, 2001  March 6, 2004*            400,000       --          --           400,000        97,820        497,820      800,000
                                      -------------- ------------ ------------ ------------ ------------- -------------- -----------
                  Totals                 $1,200,000      $--         $113,000   $1,087,000      $282,480     $1,382,030    2,400,000
                                      -------------- ------------ ------------ ------------ ------------- -------------- -----------

SECOND ISSUANCE
January 24, 2001  March 6, 2004*           $300,000      $--          $--         $300,000       $64,356       $364,356    1,200,000
July 3, 2002      March 6, 2004*            250,000       --           --          250,000        36,641        286,641    1,000,000
                                      -------------- ------------ ------------ ------------ ------------- -------------- -----------
                  Totals                   $550,000      $--          $--         $550,000      $100,997       $650,997    2,200,000
                                      -------------- ------------ ------------ ------------ ------------- -------------- -----------

THIRD ISSUANCE
September 30,     September 30, 2003       $120,000      $9, 616      $--         $120,000       $13,942       $133,942      240,000
2002
November 6, 2002  November 6, 2003           30,000        5,433       --           30,000         3,083         33,083       60,000
December 6, 2002  December 6, 2003           30,000        8,014       --           30,000         2,706         32,706       60,000
January 31, 2003  January 31, 2004           60,000      25, 233       --           60,000         4,330         64,330      120,000
March 20, 2003    March 20, 2004             30,000       16,500       --           30,000         1,664         31,664       60,000
March 31, 2003    March 31, 2004             30,000       17,405       --           30,000         1,550         31,550       60,000
                                      -------------- ------------ ------------ ------------ ------------- -------------- -----------
                  Totals                   $300,000      $82,201      $--         $300,000       $27,275       $327,275      600,000
                                      -------------- ------------ ------------ ------------ ------------- -------------- -----------
Grand Total                              $2,050,000      $82,201     $113,000   $1,937,000      $410,752     $2,360,302    5,200,000
                                      ============== ============ ============ ============ ============= ============== ===========
</TABLE>
                      * Amended
                    Maturity Dates

TERMS OF THE FIRST ISSUANCE OF CONVERTIBLE DEBENTURES

         On June 29, 2001, we entered into a private financing transaction with
three investors for a total of $1,200,000, 12% secured convertible debentures.
Pursuant to the amended terms dated March 6, 2003, the debentures are
convertible into shares of common stock at the lesser of (i) $0.30 or (ii) the
average of the lowest three trading prices in the twenty-day trading period
immediately preceding the notice to convert, discounted by sixty percent (60%).
The convertible debentures carry attached warrants that allow the investors,
under the terms of the warrants, to purchase up to 2,400,000 shares of common
stock at $0.25 per share. The terms of the debentures provide for full payment
on or before one year from the date of issuance, plus accrued interest at 12%
per annum. However, these convertible debentures have been amended to provide a
maturity date of March 6, 2004 upon which these obligations are to be repaid or
converted into common stock at the investor's option.

TERMS OF THE SECOND ISSUANCE OF CONVERTIBLE DEBENTURES

         On January 24, 2002, we entered into a private financing transaction
with three investors for a total of $550,000, 12% secured convertible
debentures. Pursuant to the amended terms dated March 6, 2003, the debentures
are convertible into shares of common stock at the lesser of (i) $0.30 or (ii)
the average of the lowest three trading prices in the twenty-day trading period
immediately preceding the notice to convert, discounted by sixty percent (60%).
The convertible debentures carry attached warrants that allow the investors,
under the terms of the warrants, to purchase up to 2,200,000 shares of common
stock at $0.25 per share. The terms of the debentures provide for full payment
on or before one year from the date of issuance, plus accrued interest at 12%
per annum. However, these convertible debentures have been amended to provide a
maturity date of March 6, 2004 upon which these obligations are to be repaid or
converted into common stock at the investor's option.
                                       36
<PAGE>
TERMS OF THE THIRD ISSUANCE OF CONVERTIBLE DEBENTURES

         On September 27, 2002, we entered into a third securities purchase
agreement with four investors for the sale of (i) $450,000 in convertible
debentures and (ii) the issuance of warrants to buy 900,000 shares of its common
stock. As of May 31, 2003 the investors are obligated to provide us with the
funds as follows: (a.) $300,000 has been disbursed, and, (b.) disburse the
remaining $150,000 at the rate of $30,000 per month on the final business day of
each successive month ending September 2003. As of the date of this report, the
investors have not funded any remaining portion of the $150,000 balance due
pursuant to the terms of the agreement. The debentures bear interest at 12% per
annum, mature one year from the date of issuance, and are convertible into
common stock, at the investors' option, at the lower of:

o     $0.30 per share; or
o     40% of the average of the three lowest intraday trading prices for the
      common stock on a principal market for the 20 trading days prior to, but
      not including, the conversion date.

         The full principal amount of the convertible debentures is due upon
default under the terms of convertible debentures. In addition, we granted the
investors a security interest in substantially all of our assets and
intellectual property and registration rights. The warrants are exercisable
until five years from the date of issuance at a purchase price of $0.25 per
share. In addition, the exercise price of the warrants will be adjusted in the
event we issue common stock at a price below market, with the exception of any
securities issued as of the date of this warrant. The investors have
contractually agreed to restrict their ability to convert their convertible
debentures or exercise their exercise of warrants and receive shares of our
common stock such that the number of shares of common stock in the aggregate,
held by them and their affiliates, after such conversion or exercise does not
exceed 4.9% of the then issued and outstanding shares of common stock.

         The conversion price of the debentures and the exercise price of the
warrants may be adjusted in certain circumstances such as if we pay a stock
dividend, subdivide or combine outstanding shares of common stock into a greater
or lesser number of shares, or take such other actions as would otherwise result
in dilution of the investor's position.

         The fair market values of the warrants are estimated on the grant date
using the Black-Scholes option pricing method as required under SFAS 123. As of
the date of this report no warrant issued in conjunction with a convertible
debenture has been exercised.

         As of September 9, 2003, investors have purchased a total of $2,050,000
of convertible debentures, and have converted $113,000 of debentures and $27,993
of accrued interest has been converted into 5,430,761 shares of common stock.

         Our continuation as a going concern is dependent on our ability to
obtain additional financing, and, generate sufficient cash flow from operations
to meet our obligations on a timely basis. Our ability to raise capital in the
future will be difficult because our securities purchase agreements with our
debenture investors prohibit us from entering into any financial arrangement,
which would involve the issuance of common stock for a period of two years
without offering a right of first refusal to the debenture investors. Moreover,
our ability to raise capital would also be difficult because our debentures
issued in connection with the June 29, 2001, January 24, 2002 and September 27,
2002 private placements have floating conversion features which, when converted,
would cause purchasers of our common stock to experience a substantial dilution
of their investment.

         We currently have no material commitments for capital requirements. If
we were forced to purchase new equipment to replace the equipment we currently
lease, any new leases would constitute a material capital commitment; however,
we are currently unable to quantify such amounts. If this occurs, we will
attempt to raise the necessary finances to make such purchases, but there is no
assurance that we will be able to do so. Without the ability to quantify these
amounts, we nonetheless believe that it would have a material impact on our
business and our ability to maintain our operations.

         Since September 2000, we began the implementation of an internal cost
restructuring of our operations, both in sales and marketing, as well in our
executive management team, and other critical cost cutting measures. In June
2001, we negotiated with many of our vendors to materially reduce amounts owed
or attain more favorable long-term payment terms. Between October 2001 and June
2002, we further reduced our staffing requirements and as a result of these
measures, we have tightened the controls over our use of cash and, additionally,
have taken steps to improve the billing and collection process. Our management
forecasts the continuing effects of these changes will result in a substantial
improvement of monthly cash
                                       37
<PAGE>
flows. In addition to these changes, we have implemented a marketing program
through our recently developed accounting vertical, which has dramatically
reduced customer acquisition costs. The combination of the internal
restructuring efforts and increased operational efficiencies will allow us to
move toward profitability and to achieve our business plan and goals. We are
also pursuing opportunities to merge and/or acquire compatible companies with
which to leverage management, financial and operational resources. We believe
these changes and strategies will position us well for future opportunities.

         Effective December 21, 2002, we renewed our contract for another year
with a large U.S. telecommunication firm who will re-market, via private label,
hosted software applications and managed services, such as, MS Exchange, virus
protection, data storage and other products and services to be bundled with
broadband solutions. These bundled services or products will be delivered on a
subscription basis.

         We have recently launched our e-Accounting Center portal located at
WWW.CPAASP.COM, which has been designed to help the accounting professional
manage and expand their business. It includes resources for marketing,
promotion, professional education, and web design, as well as, step-by-step tips
for transforming a traditional accounting business into an e-Accounting
practice. In addition, we host the Intuit QuickBooks software application in our
secure data centers for CPA firms throughout the country. By centrally hosting
the application and data in our data centers, we give the CPA secure central
access to all his remote customers' data. This gives the CPA the ability to
manage more customers with fewer staff and, thereby, generating greater
profitability for the CPA firm.

         Other services include business functions such as e-commerce, sales
force automation, customer support, human resource and financial management,
messaging and collaboration, and professional services automation. We believe
that technology outsourcing, focused on these business fundamentals, will be the
primary adopters of application service providers and managed service solutions
in the next year. We are focusing all possible resources in developing our
domain expertise in these areas to gain additional leverage and build broader
service offerings that compliment our current services already being delivered
to those markets. There can be no assurances, however, that we will
substantially increase our monthly recurring revenues.

         We currently have no arrangements or commitments for accounts
receivable financing. We believe our need for additional capital going forward
will be met from private debt and equity offerings, and, increasingly, from
revenues from operations as we continue to implement our strategic plan;
however, future operations will be dependent upon our ability to secure
sufficient sources of financing and adequate vendor credit. However, there can
be no assurance that we will achieve any or all of these requirements.

         We are currently developing and refining our acquisition and expansion
strategy. If we expand more rapidly than currently anticipated, if our working
capital needs exceed our current expectations, or if we consummate acquisitions,
we will need to raise additional capital from equity or debt sources. We cannot
be sure that we will be able to obtain the additional financings to satisfy our
cash requirements or to implement our growth strategy on acceptable terms or at
all. Our ability to raise capital in the future will be difficult because our
securities purchase agreements with our debenture investors prohibit us from
entering into any financial arrangement which would involve the issuance of
common stock for a period of two years from the date this registration statement
becomes effective without offering a right of first refusal to the debenture
investors. If we cannot obtain such financings on terms acceptable to us, our
ability to fund our planned business expansion and to fund our on-going
operations will be materially adversely affected. If we incur debt, the risks
associated with our business and with owning our common stock could increase. If
we raise capital through the sale of equity securities, the percentage ownership
of our stockholders will be diluted. In addition, any new equity securities may
have rights, preferences, or privileges senior to those of our common stock.

ITEM 7.  FINANCIAL STATEMENTS

The information required by this item is included in pages F-1 through F-25
attached hereto and incorporated by reference. The index to the consolidated
financial statements can be found on page F-1.

                                       38
<PAGE>

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

         On November 19, 2001, a majority of our stockholders ratified the
selection of Grant Thornton LLP for our fiscal year ending 2002. On July 22,
2002, our board of directors decided to terminate our auditor, Grant Thornton
LLP. Weinberg & Co., P.A. was appointed to be our auditor. A majority of our
stockholders ratified the change in accountants.

         During the year ended May 31, 2000, and up to and including the time of
termination, there have been no disagreements between Grant Thornton LLP and us
on any matter of accounting principles or practices, financial statement
disclosure, or auditing scope or procedures. Grant Thornton LLP `s report on our
financial statements for the fiscal year ended May 31, 2001, indicated that
substantial doubt existed regarding our ability to continue as a going concern.

ITEM 8A. CONTROLS AND PROCEDURES

EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES

         Within the 90 days prior to the filing date of this report, we carried
out an evaluation of the effectiveness of the design and operation of its
disclosure controls and procedures pursuant to Exchange Act Rule 13a-14. This
evaluation was done under the supervision and with the participation of our
Principal Executive Officer and Principal Financial Officer. Based upon that
evaluation, they concluded that our disclosure controls and procedures are
effective in gathering, analyzing and disclosing information needed to satisfy
our disclosure obligations under the Exchange Act.

CHANGES IN INTERNAL CONTROLS

         There were no significant changes in our internal controls or in other
factors that could significantly affect those controls since the most recent
evaluation of such controls.


                                    PART III

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

         DIRECTORS AND EXECUTIVE OFFICERS

         The names of our directors and executive officers, their principal
occupations, and the year in which each of our directors and executive officers
initially joined the board of directors are set forth below.

Name                           Age              Position

John P. Gorst                  34          Chairman of the Board,
                                           Chief Executive Officer,
                                           President and Director

M. Carroll Benton              59          Chief Administrative Officer,
                                           Secretary, Treasurer and Director

David D. Selmon                46          Director

Joanie C. Mann                 42          Vice President of Strategic Alliances


JOHN P. GORST has served as our Chairman of the Board, Chief Executive Officer
and Director since February 2000, and served as our President since April 2001.
Mr. Gorst, a co-founder of Insynq-WA, was with Insynq-WA from 1998 until its
acquisition by Xcel Management, Inc. in 2000. Mr. Gorst has over twelve years
experience in founding entrepreneurial technology
                                       39
<PAGE>
ventures, specifically in the development of software and data services for
businesses. The prior experience of Mr. Gorst includes serving as a co-founder
of Microcomputer Training Professionals, Inc., a training/IS consulting business
in conjunction with Nynex Business Centers of New York, from 1989 to 1991; Vice
President and General Manager of Business Development for Relational Technology
Professionals, Inc. from 1991 to 1993; and as Vice President and General Manager
of Interactive Information Systems Corp. from 1996 to 1998.

M. CARROLL BENTON has served as our Chief Administrative Officer, Secretary,
Treasurer and Director since February 2000. Ms. Benton was a co-founder of
Insynq-WA and has been with us since its inception. Ms. Benton has worked with
banking systems and higher education institutions where she assisted in
information systems development and deployment strategies. She managed a 13
state insurance brokerage firm and has been a consultant to the small-to
medium-sized business markets via accounting system design, support, and
business practice analysis. Carroll also taught undergraduate accounting courses
at several Puget Sound colleges and universities. Formerly with a local CPA
firm, she brings us over 25 years of business and financial expertise.

DAVID D. SELMON has served as our director since February 2000. Mr. Selmon is a
certified tax professional and has practiced with David Selmon, Inc. since 1982.
In August 1999, a complaint against Mr. Selmon was filed by the National Futures
Association, or NFA, alleging that Mr. Selmon violated high standards of
commercial honor and just and equitable principals of trade in that he, along
with others, aided and abetted an individual in acting in a manner which
required such individual to be an NFA member or associated after such individual
had been barred permanently from the NFA. Mr. Selmon, without admitting or
denying the allegations raised in such complaint, agreed to withdraw from the
NFA in all capacities and to refrain from applying in the future for any status
with the NFA.

JOANIE C. MANN has served as our vice president of strategic alliances since
February 2001, and served as our vice president of operations from July 2000 to
February 2001. She brings over 18 years of experience in multi-user system
design and implementation, voice and data networking integrations. Ms. Mann also
has extensive experience in business process automation and a strong background
in business accounting principles. Previous positions held include founder of
Com-Pacific Resources, Inc., a network integration firm whose business
operations were sold to Communications World International, for whom she worked
from 1984 to 1993, manager of the Seattle-based computer telephony and data
integration division of Commworld from 1994 to 1996, and IS Management
Consultant for Interactive Information Systems from 1998 to 1999.

         There are no family relationships among any of our directors or
executive officers. See "Certain Relationships and Related Transactions" for a
description of transactions between our directors, executive officers and/or
their affiliates.

         In a consulting agreement we assumed with One Click Investments, LLC,
originally entered into on September 20, 1999, with Insynq-WA, One Click was
granted the right to appoint one person to serve on our board of directors. One
Click has not yet exercised the right to appoint a member to our board.

         In a business services agreement we assumed with Consulting & Strategy
International, LLC, originally entered into on November 18, 1999, with Insynq-
WA, CSI was granted the right to appoint two persons to serve on our board of
directors, such members not to exceed forty percent (40%) of our board, subject
to our stock becoming publicly traded. Pursuant to the purchase of Insynq-WA by
Xcel, our stock began trading publicly on February 18, 2000. CSI has not yet
exercised its right to appoint two members to our board.

         Pursuant to a consulting agreement we entered into with David D.
Selmon, Mr. Selmon will receive 35 shares of our common stock for each full
fiscal quarter he serves on our board beginning June 1, 2000. Mr. Selmon also
receives $250 for each board meeting attended. To date, Mr. Selmon has received
31,500 shares as director compensation and 2,295,614 shares in lieu of cash
payments for expenses.

SECTION 16(A) BENEFICIAL OWNERSHIP COMPLIANCE

         Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's directors and executive officers, and persons who own more than ten
percent of the Company's Common Stock, to file with the SEC the initial reports
of ownership and reports of changes in ownership of common stock. Officers,
directors and greater than ten percent stockholders are required by SEC
regulation to furnish the Company with copies of all Section 16(a) forms they
file.

         Based solely upon a review of Forms 3, 4 and 5, and amendments thereto,
furnished to the Company during fiscal year
                                       40
<PAGE>

2003, the Company's officers and directors have filed the required Forms, but
not on a timely basis as required by Section 16(a) of the Securities Exchange
Act of 1934.


ITEM 10.  EXECUTIVE COMPENSATION.

EXECUTIVE COMPENSATION

         The following table summarizes the compensation earned by or paid to
our Chief Executive Officer and the other most highly compensated executive
officers whose total salary and bonuses exceeded $100,000 for services rendered
in all capacities during the fiscal year ended May 31, 2002. We refer to these
individuals as our named executive officers.

         The total compensation for the three fiscal years ended May 31, 2003 of
John P. Gorst, our Chief Executive Officer, is set forth below in the following
Summary Compensation Table. No other person received cash compensation in excess
of $100,000 during the fiscal year ended May 31, 2003.
<TABLE>
<CAPTION>

                                                    ANNUAL COMPENSATION                   LONG-TERM AWARDS
                                                                                              SECURITIES
NAME AND PRINCIPAL                                                    OTHER ANNUAL        UNDERLYING OPTIONS         ALL OTHER
-------------------                                                   -------------       -------------------        ---------
POSITION                   YEAR      SALARY ($)      BONUS ($)     COMPENSATION ($) (3)           (#)             COMPENSATION ($)
--------                   ----      ----------      ---------     --------------------           ---             ----------------

<S>                        <C>        <C>                                                      <C>
John P. Gorst              2003       $135,361          --                  --                 200,000(2)                --
   President, Chief        2002       $112,000          --                  --                   42,196                  --
   Executive Officer       2001       $160,000          --               $ 6,876                  754                    --
</TABLE>



(1)      The compensation described in this table does not include medical,
         group life insurance or other benefits received by the named executive
         officer that are available generally to all of our salaried employees,
         and may not include certain perquisites and other personal benefits
         received by the named executive officer that do not exceed the lesser
         of $50,000 or ten percent (10%) of any such officer's salary and bonus
         disclosed in the table.

(2)      Represents options for common stock granted under our 2002 Directors,
         Officers and Consultants Stock Option, Stock Warrant and Stock Award
         Plan.

(3)      Includes non-cash compensation, in the form of common stock, for
         services performed for us. During fiscal year 2001 the executive
         officer rescinded the non-cash compensation received in fiscal year
         2000.

OPTION/SAR GRANTS IN LAST FISCAL YEAR

LONG TERM INCENTIVE AWARDS

         The following table provides information related to long-term incentive
awards granted to our named executive officer during the fiscal year ended May
31, 2003. The information in this table reflects options granted by the board of
directors under our 2002 Directors, Officers and Consultants Stock Option, Stock
Warrant and Stock Award Plan.
<TABLE>
<CAPTION>

NAME AND PRINCIPAL POSITION          FISCAL YEAR                           AWARDS
---------------------------          -----------  ----------------------------------------------------------
                                                  NUMBER OF SHARES, UNITS     PERFORMANCE OR OTHER PERIOD
                                                      OR OTHER RIGHTS         UNTIL MATURATION OR PAYOUT
                                                            (#)
                                                  -----------------------     ---------------------------
<S>                                     <C>                  <C>
John P. Gorst, President, Chief         2003                 200,000               Vested upon grant
Executive Officer and Director

</TABLE>
                                       41
<PAGE>

OPTION GRANTS IN LAST FISCAL YEAR

         The following table provides information related to options granted to
our named executive officers during the fiscal year ended May 31, 2003. The
information in this table reflects options granted by the board of directors
under our 2002 Directors, Officers and Consultants Stock Option, Stock Warrant
and Stock Award Plan.

         The following table sets forth each grant of stock options made during
the fiscal year ended May 31, 2003, to the named executive officer:

<TABLE>
<CAPTION>

                                                     % OF TOTAL
                            NUMBER OF SECURITIES   OPTIONS GRANTED
                                 UNDERLYING        IN FISCAL 2003   EXERCISE PRICE  EXPIRATION
           NAME                OPTIONS GRANTED           (1)           PER SHARE     DATE (3)
           ----                ---------------           ---           ---------     --------


<S>                                   <C>                  <C>           <C>         <C>   <C>
John P. Gorst                         200,000              41.2%         $0.05       12/24/12
</TABLE>


(1) Based on a total of 485,105 awards granted during the fiscal year ended May
31, 2003.

(2) Options may terminate before their expiration date upon death, disability,
or termination of employment.

AGGREGATE OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR END OPTION VALUES

         The following table sets forth, for our named executive officer,
information concerning the number of shares received during fiscal 2003 upon
exercise of options and the aggregate dollar amount received from such exercise,
as well as the number and value of securities underlying unexercised options
held on May 31, 2003.
<TABLE>
<CAPTION>

                                                              NUMBER OF SECURITIES
                                                                UNDERLYING OPTIONS       VALUE OF IN-THE-MONEY OPTIONS
                        SHARES ACQUIRED      VALUE              AT YEAR END (#)               AT YEAR-END ($)(2)
         NAME           ON EXERCISE (#) REALIZED ($)(1)   EXERCISABLE    UNEXERCISABLE   EXERCISABLE    UNEXERCISABLE
--------------          --------------  ---------------   -----------    ------------    -----------    -------------
<S>                          <C>               <C>             <C>            <C>             <C>             <C>
John P. Gorst                 --               --              200,000        --              $10,000         --
                                                                42,950                           --           --
</TABLE>

(1)      Based on the difference between the option exercise price and the fair
         market value of our common stock on the exercise date as determined
         pursuant to the terms of the 2000 Long Term Incentive Plan, the 2000
         Executive Long Term Incentive Plan and 2002 Directors, Officers and
         Consultants Stock Option, Stock Warrant and Stock Award Plan.

(2)      Based on the difference between the option exercise price and the
         closing sale price of $0.10 of our common stock as reported on the OTC
         Bulletin Board on May 30, 2003, the last trading day of our 2003 fiscal
         year.


EMPLOYMENT CONTRACT AND TERMINATION OF EMPLOYMENT AGREEMENTS

         In March 2000, we entered into executive employment agreements with
each of John P. Gorst and M. Carroll Benton. Our board of directors approved the
principal terms of the executive agreements on February 21, 2000, and on January
30, 2001 and May 23, 2003, approved amendments to each executive agreement.

         The executive agreement, as amended, with Mr. Gorst, pursuant to which
Mr. Gorst is employed as our chief executive officer, extends the initial term
of employment from three to four years. The fourth year provides for an annual
salary of $275,000, a cash bonus of $30,000 and an option for 500,000 shares of
common stock at the end of fiscal 2003 if our earnings before interest, taxes,
depreciation and amortization is (before bonus) "breakeven". In addition it
provides for an
                                       42
<PAGE>
automatic renewal term of three years, unless terminated by either party at
least 30 day prior to the end of the initial term and provides for termination
benefits due to non-renewal of employment agreement. In addition, the amended
agreement provides the following during the renewal term:

o        Year One - provides for an annual salary of $200,000, the payment of
         payroll taxes with regard to sales of stock up to $15,000 and a cash
         bonus of $30,000 and an option for 500,000 shares of common stock at
         the end of fiscal year 2004 if our earnings before interest, taxes,
         depreciation and amortization is (before bonus) $125,000 or more.

o        Year Two - provides for an annual salary of $225,000, the payment of
         payroll taxes with regard to sales of stock up to $15,000 and a cash
         bonus of $30,000 and an option for 500,000 shares of common stock at
         the end of fiscal year 2005 if our earnings before interest, taxes,
         depreciation and amortization is (before bonus) $250,000 or more.

o        Year Three - provides for an annual salary of $275,000, the payment of
         payroll taxes with regard to sales of stock up to $15,000 and a cash
         bonus of $30,000 and an option for 500,000 shares of common stock at
         the end of fiscal year 2006 if our earnings before interest, taxes,
         depreciation and amortization is (before bonus) $350,000 or more.

         All other provisions of the original employment agreement remain the
same.

         The executive agreement, as amended, with Ms. Benton, pursuant to which
Ms. Benton is employed as our chief administrative officer, extends the initial
term of employment from three to four years. The fourth year provides for an
annual salary of $165,000, a cash bonus of $18,000 and an option for 300,000
shares of common stock at the end of fiscal 2003 if our earnings before
interest, taxes, depreciation and amortization is (before bonus) "breakeven".
Also, it provides for an automatic renewal term of three years, unless
terminated by either party at least 30 days prior to the end of the initial term
and provides for termination benefits due to non-renewal of employment
agreement. In addition, the amended agreement provides for the following during
the renewal term: an annual salary of $140,000 during the first year; $150,000
during the second year; $160,000 during the third year. The amended agreement
also provides, (a) at the end of the first year for an option grant of 300,000
shares of common stock and a cash bonus of $18,000 if our earnings before
interest, taxes, depreciation and amortization (before bonus) is $125,000 or
more; (b) at the end of second year an option grant of 300,000 shares of common
stock and a cash bonus of $18,000 if our earnings before interest, taxes,
depreciation and amortization (before bonus) is $250,000 or more (c) and at the
end of the third year an option for 300,000 shares of common stock and a cash
bonus of $18,000 if our earnings before interest, taxes, depreciation and
amortization (before bonus) is $350,000 or more. All other provisions of the
original employment agreement remain the same.

         We entered into an employment agreement with Joanie C. Mann on February
20, 2000, providing for her employment as our vice president of operations. The
employment agreement provides for an initial employment term of three years, and
automatic one-year renewals thereafter, unless terminated by either party in
writing on or before ninety days prior to the end of a current term of the
agreement. Under the terms of the employment agreement, Ms. Mann will be paid an
annual salary of no less than $85,000 for the first year of employment. This
salary will be increased to no less than $110,000 in the second year and no less
than $125,000 in the third year. Ms. Mann has been granted options to purchase a
total of 4,500 shares of our common stock as follows: 500 options that are
currently exercisable at an exercise price of $50.00 and 4,000 options which
will vest and are exercisable at an exercise price of $100.00 as follows: 1,334
shares on February 20, 2001, and thereafter in increments of 1/24 (112) each
month beginning March 20, 2001, and continuing until 2003. The agreement
contains both non-disclosure and non-competition clauses. On September 25, 2000,
Ms. Mann executed Amendment No. 1 to her agreement in which she agreed to a
thirty percent (30%) reduction in salary until the earlier of (a) an elapse of
three months or (b) we receive $1 million in financing. Also on September 25,
2000, Ms. Mann executed Amendment No. 2 to her agreement in which she


received an increase in her base salary to $95,000 per year. In February 2001,
Ms. Mann assumed the position of vice president of strategic alliances. Under
the terms of the employment agreement, Ms. Mann's term of employment was
automatically renewed until February, 2004.

         We may enter into other employment agreements from time to time with
other executives and key employees.

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

         The following table sets forth certain information regarding beneficial
ownership of our common stock as of September 9, 2003.
                                      43
<PAGE>
o     by each person who is known by us to beneficially own more than 5% of our
      common stock;
o     by each of our officers and directors; and
o     by all of our officers and directors as a group.

<TABLE>
<CAPTION>

NAME                                                                                        NUMBER        PERCENT

<S>                                                                                         <C>                  <C>
   Plazacorp Investments, Ltd                                                               65,000,000        44.84%
   John P. Gorst (1)                                                                         5,173,749         3.56%
   M. Carroll Benton (2)                                                                     4,168,257         2.87%
   David D. Selmon (3)                                                                       2,377,184          1.6%
   Joanie C. Mann (4)                                                                          390,733           *
                                                                                        -----------------------------
All executive officers and directors as a group (4 persons)  (5)(6)                         11,575,918         8.32%
                                                                                        =============================
</TABLE>
 * Less then 1%

(1) This includes (a) 11,500 shares of common stock held by Kathleen McHenry,
(b) 3,500 shares of common stock held by Hagens Berman LLP, (c) 16,000 shares of
common stock held by Cellini Investments, Ltd to which Mr. Gorst holds a voting
proxy and as to which Mr. Gorst disclaims beneficial ownership. Also includes
242,949 shares of common stock issuable upon the exercise of outstanding stock
options that are presently exercisable or will become exercisable within 60 days
of September 9, 2003.

(2) Includes 4,465 shares of common stock held by Charles Benton, the husband of
Ms. Benton, as to which Ms. Benton disclaims beneficial ownership. Also includes
231,052 shares of common stock issuable upon the exercise of outstanding stock
options that are presently exercisable or will become exercisable within 60 days
of September 9, 2003.

(3) Includes 50,070 shares of common stock issuable upon exercise of outstanding
stock options that are presently exercisable or will become exercisable within
60 days of September 9, 2003.

(4) Includes 5,449 shares of common stock issuable upon exercise of outstanding
stock options that are presently exercisable or will be come exercisable within
60 days of September 9, 2003.

(5) Includes 529,520 shares of common stock issuable upon exercise of
outstanding stock options held by our executive officers that are presently
exercisable or will become exercisable within 60 days of May 20, 2003.

(6) Adjusted for the two-for-one stock split effected on August 3, 2000 and a
one for one hundred stock split effected December 23, 2002. On October 16, 2002,
pursuant to an exchange agreement, each of the officers and directors converted
a majority of their shares of common stock into shares of our Series A
Convertible Preferred Stock. On December 23, 2002, we entered into an Agreement
of Plan of Merger, whereby we reincorporated in the state of Nevada and each of
the Series A Convertible Preferred stock holders of our Company received ten
shares of common stock of Nevada for each share of Series A Convertible
Preferred Stock outstanding. Furthermore, each shareholder of common stock of
our Company received one share of common stock of Insynq Nevada for each 100
shares of our Company outstanding.

 ITEM 12.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

         On June 21, 2001, in exchange for the waiver of certain registration
rights by One Click Investments, LLC, John P. Gorst gifted to One Click 10,000
shares of common stock with voting rights retained by Gorst and agreed that One
Click's securities dated August 2000 and January 2001 will be included in the
next SB-2 Registration that we file and the February 2000 warrants were
re-priced at an exercise price of $25 per share of common stock with an exercise
date extending to December 31, 2004, with a cashless provision. Subsequently, in
exchange for a waiver of registration rights previously granted, One Click's
February 2000 warrants were re-priced at an exercise price of $5 per share of
common stock and One Click rescinded the stock gifted by John P. Gorst
                                      44
<PAGE>

ITEM 13.     EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits

2.1      Asset Purchase Agreement, dated as of February 18, 2000, by and between
         Xcel Management, Inc. and Insynq, Inc. (Incorporated by reference to
         Exhibit 2 to the Company's Current Report on Form 8-K, filed March 3,
         2000).

3.1      Certificate of Incorporation of Insynq, Inc. (Incorporated by reference
         to Exhibit 2 to the Company's Current Report on Form 8-K filed August
         17, 2000).

3.2      Certificate of Incorporation of Insynq, Inc. as amended by Amendment No
         1 dated November 21, 2001. (Incorporated by reference to Exhibit 3.1 to
         the Company's Amended Quarterly Report on Form 10-QSB/A filed February
         25, 2002).

3.3      By-Laws of Insynq, Inc. (Incorporated by reference to Exhibit 3 to the
         Company's Current Report on Form 8-K filed August 17, 2000).

3.4      By-Laws of Insynq, Inc. (Incorporated by referece to the Company's
         Information Statement on Form 14C filed December 10, 2002).

4.1      Form of Specimen Common Stock Certificate. (Incorporated by reference
         to Exhibit 4.1 to the Company's Annual Report on Form 10-KSB filed
         September 13, 2000).

4.2      Form of Warrant Agreement issued to Consulting & Strategy
         International, LLC on February 24, 2000, as amended by Amendment No. 1
         dated June 9, 2000, Amendment No. 2 dated July 31, 2000, Amendment No.
         3 dated August 31, 2000, Amendment No. 4 dated October 1, 2000,
         Amendment No. 5 dated October 28, 2000 and Amendment No. 6 dated
         December 1, 2000 (Incorporated by reference to Exhibit 4.2 to the
         Company's Registration Statement on Form SB-2 filed December 14, 2000).

4.3      Amendment No. 7 dated February 1, 2001 and Amendment No. 8 dated
         February 27, 2001, to Warrant Agreement issued to Consulting & Strategy
         International, LLC on February 24, 2000. (Incorporated by reference to
         Exhibit 4.2 to the Company's Quarterly Report on Form 10-QSB filed
         April 20, 2001).

4.4      Letter Agreement dated January 31, 2001 between Consulting & Strategy
         International, LLC and Insynq, Inc. (Incorporated by reference to
         Exhibit 4.4 to the Company's Annual Report on Form 10-KSB filed July
         31, 2001).

4.5      Form of Warrant Agreement issued to International Fluid Dynamics, Inc.
         on May 17, 2000. (Incorporated by reference to Exhibit 4.3 to the
         Company's Annual Report on Form 10-KSB filed September 13, 2000).

4.6      Form of Registration and Repurchase Agreement issued to International
         Fluid Dynamics, Inc. on May 17, 2000, as amended. (Incorporated by
         reference to Exhibit 4.4 to the Company's Annual Report on Form 10-KSB
         filed September 13, 2000).

4.7      Form of Warrant Agreement issued to Plazacorp Investors Limited on
         April 26, 2000. (Incorporated by reference to Exhibit 4.5 to the
         Company's Annual Report on Form 10-KSB filed September 13, 2000).

4.8      Form of Registration and Repurchase Agreement issued to Plazacorp
         Investors Limited on April 26, 2000, as amended. (Incorporated by
         reference to Exhibit 4.6 to the Company's Annual Report on Form 10-KSB
         filed September 13, 2000).

4.9      Form of Warrant Agreement issued to TCA Investments, Inc. on June 16,
         2000, as amended by Amendment No. 1 dated August 31, 2000, Extension
         dated September 5, 2000, Amendment No. 2 dated September 14, 2000,
         Amendment No. 3 dated October 1, 2000, Amendment No. 4 dated October
         28, 2000 and Amendment No. 5 dated December 1, 2000 (Incorporated by
         reference to Exhibit 4.7 to the Company's Registration Statement on
         Form SB-2 filed December 14, 2000).

4.10     Amendment No. 6 dated February 28, 2001, to Warrant Agreement issued to
         TCA Investments, Inc. on June 16, 2000 (Incorporated by reference to
         Exhibit 4.7 to the Company's Quarterly Report on Form10-QSB filed April
         20, 2001).

4.11     Form of Convertible Debenture issued to TCA Investments, Inc. on June
         16, 2000, as amended by Amendment No. 1 dated August 31, 2000,
         Extension dated September 5, 2000, Amendment No. 2 dated September 14,
         2000, Amendment No. 3 dated October 1, 2000 and Amendment No. 4 dated
         October 28, 2000. (Incorporated by reference to Exhibit to Exhibit 4.2
         to the Company's Registration Statement on Form SB-2 filed December 14,
         2000).
                                       45
<PAGE>
4.12     Form of Warrant Agreement issued to Garnier Holdings, Ltd. on July 17,
         2000, as amended by Amendment No. 1 dated September 22, 2000, Amendment
         No. 2 dated October 1, 2000, Amendment No. 3 dated October 19, 2000,
         Amendment No. 4 dated October 28, 2000 and Amendment No. 5 dated
         December 1, 2000. (Incorporated by reference to Exhibit 4.9 to the
         Company's Registration Statement on Form SB-2 filed December 14, 2001).

4.13     Amendment No. 6 dated February 27, 2001, to Warrant Agreement issued to
         Garnier Holdings, Ltd. on July 17, 2000 (Incorporated by reference to
         Exhibit 4.9 to the Company's Quarterly Report on Form10-QSB filed April
         20, 2001).

4.14     Form of Promissory Note issued to Garnier Holdings, Ltd. on July 17,
         2000, as amended by Extension No. 1 dated September 11, 2000 and
         Extension No. 2 dated October 1, 2000. (Incorporated by reference to
         Exhibit 4.10 to the Company's Quarterly Report on Form 10-QSB filed
         October 23, 2000).

4.15     Form of Warrant Agreement issued to One Click Investments, LLC on
         August 4, 2000. (Incorporated by reference to Exhibit 4.11 to the
         Company's Annual Report on Form 10-KSB filed September 13, 2000).

4.16     Form of Registration Rights Agreement issued to One Click Investments,
         LLC on August 4, 2000. (Incorporated by reference to Exhibit 4.12 to
         the Company's Annual Report on Form 10-KSB filed September 13, 2000).

4.17     Form of Warrant Agreement issued to Series A & B warrant holders.
         (Incorporated by reference to Exhibit 4.13 to the Company's Annual
         Report on Form 10-KSB filed September 13, 2000).

4.18     Form of Warrant Agreement issued to One Click Investments, LLC on
         September 20, 1999, as amended. (Incorporated by reference to Exhibit
         4.14 to the Company's Annual Report on Form 10-KSB filed September 13,
         2000).

4.19     Form of Warrant Agreement issued to Hewlett-Packard on June 1, 1999.
         (Incorporated by reference to Exhibit 4.15 to the Company's Annual
         Report on Form 10-KSB filed September 13, 2000).

4.20     Form of Registration Agreement issued to Hewlett-Packard on February
         20, 2000. (Incorporated by reference to Exhibit 4.16 to the Company's
         Amendment No. 1 to Annual Report on Form 10- KSB/A filed December 6,
         2000).

4.21     Form of Subscription Agreement between TCA Investments, Inc. and
         Insynq, Inc. dated June 16, 2000. (Incorporated by referenced to
         Exhibit 4.17 to the Company's Quarterly Report on Form 10-QSB filed
         October 23, 2000).

4.22     Form of Subscription Agreement between TCA Investments, Inc. and
         Insynq, Inc. dated September 11, 2000. (Incorporated by reference to
         Exhibit 4.17 to the Company's Quarterly Report on Form 10-QSB filed
         October 23, 2000).

 4.23     Form of Warrant Agreement issued to TCA Investments, Inc. dated
         September 11, 2000, as amended by Amendment No. 1 dated December 1,
         2000. (Incorporated by reference to Exhibit to Exhibit 4.19 to the
         Company's Registration Statement on Form SB-2 filed December 14, 2000).

4.24     Form of Convertible Debenture issued to TCA Investments, Inc. dated
         September 11, 2000, as amended by Amendment No. 1 dated October 6, 2000
         and Amendment No. 2 dated October 19, 2000. (Incorporated by reference
         to Exhibit 4.20 to the Company's Quarterly Report on Form 10- QSB filed
         October 23, 2000).

4.25     Form of Consent of Plazacorp Investors Limited to the Extension of the
         filing of the Registration Statement on Form SB-2 dated September 22,
         2000. (Incorporated by reference to Exhibit 4.21 to the Company's
         Quarterly Report on Form 10-QSB filed October 23, 2000).

4.26     Form of Consent of Plazacorp Investors Limited to the Extension of the
         filing of the Registration Statement on From SB-2 dated October 2,
         2000. (Incorporated by reference to Exhibit 4.22 to the Company's
         Quarterly Report on Form 10-QSB filed October 23, 2000).
                                      46
<PAGE>
4.27     Form of Consent of TCA Investments, Inc. to Extension of the filing of
         the Registration Statement on From SB-2 dated September 22, 2000.
         (Incorporated by reference to Exhibit 4.23 to the Company's Quarterly
         Report on Form 10-QSB filed October 23, 2000).

4.28     Form of Consent of TCA Investments, Inc. to Extension of the filing of
         the Registration Statement on Form SB-2 dated October 2, 2000.
         (Incorporated by reference to Exhibit 4.24 to the Company's Quarterly
         Report on Form 10-QSB filed October 23, 2000).

4.29     Form of Consent of International Fluid Dynamics, Inc. to Extension of
         the filing of the Registration Statement on Form SB-2 dated September
         22, 2000. (Incorporated by reference to Exhibit 4.25 to the Company's
         Quarterly Report on Form 10-QSB filed October 23, 2000).

4.30     Form of Consent of International Fluid Dynamics, Inc. to Extension of
         the filing of the Registration Statement on Form SB-2 dated October 2,
         2000. (Incorporated by reference to Exhibit 4.26 to the Company's
         Quarterly Report on Form 10-QSB filed October 23, 2000).

4.31     Registration Rights Agreement dated September 22, 2000 between Charles
         Benton and Insynq, Inc. (Incorporated by reference to Exhibit 4.27 to
         the Company's Quarterly Report on Form 10- QSB filed October 23, 2000).

4.32     Form of Promissory Note issued to International Fluid Dynamics, Inc. on
         October 20, 2000. (Incorporated by reference to Exhibit 4.28 to the
         Company's Quarterly Report on Form 10-QSB filed October 23, 2000).

4.33     Agreement dated November 1, 2000 between International Fluid Dynamics,
         Inc. and Insynq. (Incorporated by reference to Exhibit 4.29 to the
         Company's Registration Statement on Form SB- 2 filed December 14,
         2000).

4.34     Agreement dated November 1, 2000 between Travin Partners, L.L.L.P. and
         Insynq. (Incorporated by reference to Exhibit 4.30 to the Company's
         Registration Statement on Form SB-2 filed December 14, 2000).

4.35     Agreement dated November 1, 2000 between TCA Investments, Inc. and
         Insynq. (Incorporated by reference to Exhibit 4.31 to the Company's
         Registration Statement on Form SB-2 filed December 14, 2000).

4.36     Agreement dated November 1, 2000 between Plazacorp Investors Limited
         and Insynq. (Incorporated by reference to Exhibit 4.32 to the Company's
         Registration Statement on Form SB- 2 filed December 14, 2000).

4.37     Agreement dated November 1, 2000 between Garnier Holdings, Ltd. and
         Insynq. (Incorporated by reference to Exhibit 4.33 to the Company's
         Registration Statement on Form SB-2 filed December 14, 2000).

4.38     Agreement dated November 1, 2000 between International Fluid Dynamics,
         Inc. and Insynq. (Incorporated by reference to Exhibit 4.34 to the
         Company's Registration Statement on Form SB- 2 filed December 14,
         2000).

4.39     Agreement dated November 1, 2000 between Timothy Horan and Insynq.
         (Incorporated by reference to Exhibit 4.35 to the Company's
         Registration Statement on Form SB-2 filed December 14, 2000).

4.40     Agreement dated November 1, 2000 between Raymond Betz and Insynq.
         (Incorporated by reference to Exhibit 4.36 to the Company's
         Registration Statement on Form SB-2 filed December 14, 2000).

4.41     Agreement dated November 1, 2000 between Travin Partners, L.L.L.P. and
         Insynq. (Incorporated by reference to Exhibit 4.37 to the Company's
         Registration Statement on Form SB-2 filed December 14, 2000).

4.42     Form of Warrant Agreement dated December 7, 2000 between Locke Liddell
         & Sapp LLP and Insynq. (Incorporated by reference to Exhibit 4.38 to
         the Company's Registration Statement on Form SB-2 filed December 14,
         2000).

4.43     Lock-Up and Waiver Agreement dated October 17, 2000, as amended by
         Amendment No. 1 dated December 1, 2000, by Charles F. Benton.
         (Incorporated by reference to Exhibit 4.39 to the Company's
         Registration Statement on Form SB-2 filed December 14, 2000).

4.44     Lock-Up and Waiver Agreement dated October 17, 2000 by John P. Gorst.
         (Incorporated by reference to Exhibit 4.40 to the Company's
         Registration Statement on Form SB-2 filed December 14, 2000).
                                       47
<PAGE>

4.45     Lock-Up and Waiver Agreement dated October 17, 2000 by M. Carroll
         Benton. (Incorporated by reference to Exhibit 4.41 to the Company's
         Registration Statement on Form SB-2 filed December 14, 2000).

4.46     Lock-Up and Waiver Agreement dated October 15, 2000 by Vijay
         Alimchandani. (Incorporated by reference to Exhibit 4.42 to the
         Company's Registration Statement on Form SB-2 filed December 14, 2000).

4.47     Lock-Up and Waiver Agreement dated October 16, 2000 by One Click
         Investments LLC. (Incorporated by reference to Exhibit 4.43 to the
         Company's Registration Statement on Form SB- 2 filed December 14,
         2000).

4.48     Promissory Note dated December 1, 2000 between One Click Investments,
         LLC and Insynq, Inc. (Incorporated by reference to Exhibit 4.44 to the
         Company's Quarterly Report on Form 10-QSB filed April 20, 2001).

4.49     Agreement dated January 30, 2001 between One Click Investments, LLC and
         Insynq, Inc. (Incorporated by reference to Exhibit 4.45 to the
         Company's Quarterly Report on Form 10-QSB filed April 20, 2001).

4.50     Registration Agreement dated January 30, 2001 between One Click
         Investments, LLC and Insynq, Inc. (Incorporated by reference to Exhibit
         4.46 to the Company's Quarterly Report on Form 10- QSB filed April 20,
         2001).

4.51     Warrant Agreement dated February 20, 2001 between TCA Investments, Inc.
         and Insynq, Inc. (Incorporated by reference to Exhibit 4.47 to the
         Company's Quarterly Report on Form 10-QSB filed April 20, 2001).

4.52     Registration Agreement dated February 20, 2001 between TCA Investments,
         Inc. and Insynq, Inc. (Incorporated by reference to Exhibit 4.48 to the
         Company's Quarterly Report on Form 10-QSB filed April 20, 2001).

4.53     Form of Warrant Agreement dated March 5, 2001 between Patrick Birkel
         and Insynq, Inc. (Incorporated by reference to Exhibit 4.53 to the
         Company's Annual Report on Form 10-KSB filed July 31, 2001).

4.54     Warrant Agreement dated March 5, 2001 between Bransville Limited and
         Insynq, Inc. (Incorporated by reference to Exhibit 4.54 to the
         Company's Annual Report on Form 10-KSB filed July 31, 2001).

4.55     Form of Warrant Agreement dated March 22, 2001 between William R.
         Collins and Insynq, Inc. (Incorporated by reference to Exhibit 4.55 to
         the Company's Annual Report on Form 10-KSB filed July 31, 2001).

4.56     Registration Rights Agreement dated March 26, 2001 between Internet PR
         Group and Insynq, Inc. (Incorporated by reference to Exhibit 4.56 to
         the Company's Annual Report on Form 10-KSB filed July 31, 2001).

4.57     Warrant Agreement dated March 25, 2001 between Bransville Limited and
         Insynq, Inc. (Incorporated by reference to Exhibit 4.57 to the
         Company's Annual Report on Form 10-KSB filed July 31, 2001).

4.58     Form of Warrant Agreement dated April 25, 2001 between International
         Fluid Dynamics, Inc. and Insynq, Inc. (Incorporated by reference to
         Exhibit 4.58 to the Company's Annual Report on Form 10-KSB filed July
         31, 2001).

4.59     Form of Subscription Agreement dated April 25, 2001 between
         International Fluid Dynamics, Inc. and Insynq, Inc. (Incorporated by
         reference to Exhibit 4.59 to the Company's Annual Report on Form 10-KSB
         filed July 31, 2001).

4.60     Form of Registration Agreement dated April 25, 2001 between
         International Fluid Dynamics, Inc. and Insynq, Inc. (Incorporated by
         reference to Exhibit 4.60 to the Company's Annual Report on Form 10-KSB
         filed July 31, 2001).

4.61     Warrant Agreement dated April 1, 2001 between Barretto Pacific
         Corporation and Insynq, Inc. (Incorporated by reference to Exhibit 4.61
         to the Company's Annual Report on Form 10-KSB filed July 31, 2001).

4.62     Form of Warrant Agreement dated May 17, 2001 between Horizon Holdings
         I, LLC and Insynq, Inc. (Incorporated by reference to Exhibit 4.62 to
         the Company's Annual Report on Form 10-KSB filed July 31, 2001).
                                       48
<PAGE>
4.63     Form of Registration Agreement dated May 17, 2001 between Horizon
         Holdings I, LLC and Insynq, Inc. (Incorporated by reference to Exhibit
         4.63 to the Company's Annual Report on Form 10-KSB filed July 31,
         2001).

4.64     Securities Purchase Agreement dated June 29, 2001 between AJW Partners,
         LLC, New Millennium Capital Partners II, LLC, AJW/New Millennium
         Offshore, Ltd and Insynq. Inc. (Incorporated by reference to Exhibit
         4.64 to the Company's Annual Report on Form 10-KSB filed July 31,
         2001).

4.65     Form of Stock Purchase Warrant dated June 29, 2001 between AJW
         Partners, LLC and Insynq, Inc. (Incorporated by reference to Exhibit
         4.65 to the Company's Annual Report on Form 10-KSB filed July 31,
         2001).

4.66     Form of Secured Convertible Debenture dated June 29, 2001 between AJW
         Partners, LLC and Insynq, Inc. (Incorporated by reference to Exhibit
         4.66 to the Company's Annual Report on Form 10-KSB filed July 31,
         2001).

4.67     Guaranty and Pledge Agreement dated June 29, 2001 between M. Carroll
         Benton, AJW Partners, LLC, New Millennium Capital Partners II, LLC, and
         AJW/New Millennium Offshore, Ltd. (Incorporated by reference to Exhibit
         4.67 to the Company's Annual Report on Form 10-KSB filed July 31,
         2001).

4.68     Registration Rights Agreement dated June 29, 2001 between AJW Partners,
         LLC, New Millennium Capital Partners II, LLC Millennium Capital
         Partners II, LLC and Insynq, Inc. (Incorporated by reference to Exhibit
         4.68 to the Company's Annual Report on Form 10-KSB filed July 31,
         2001).

4.69     Form of Securities Purchase Agreement dated January 24 between AJW
         Partners, LLC, New Millennium Capital Partners II, LLC, AJW/New
         Millennium Offshore, LTD and Pegasus Capital Partners, LLC and Insynq,
         Inc. (Incorporated by reference to Exhibit 4.1 to the Company's Amended
         Quarterly Report on Form 10-QSB/Q filed February 25, 2002).

4.70     Form of Stock Purchase Warrant dated January 24, 2002 between AJW
         Partners, LLC, New Millennium Capital Partners II, LLC, AJW/New
         Millennium Offshore, LTD and Pegasus Capital Partners, LLC and Insynq,
         Inc. (Incorporated by reference to Exhibit 4.2 to the Company's Amended
         Quarterly Report on Form 10-QSB/A filed February 25, 2002).

4.71     Form of Secured Convertible Debenture dated January 24, 2002 AJW
         Partners, LLC, New Millennium Capital Partners II, LLC, AJW/New
         Millennium Offshore, LTD and Pegasus Capital Partners, LLC and Insynq,
         Inc. (Incorporated by reference to Exhibit 4.3 to the Company's Amended
         Quarterly Report on Form 10-QSB/A filed February 25, 2002).

4.72     Form of Registration Rights Agreement dated January 24, 2002 between
         AJW Partners, LLC, New Millennium Capital Partners II, LLC, AJW/New
         Millennium Offshore, LTD and Pegasus Capital Partners, LLC and Insynq,
         Inc. (Incorporated by reference to Exhibit 4.4 to the Company's Amended
         Quarterly Report on Form 10-QSB/A filed February 25, 2002).

4.73     Amendment No. 1 to Securities Purchase Agreement dated April 8, 2002
         between AJW Partners, LLC, New Millennium Capital Partners II, LLC,
         AJW/New Millennium Offshore, LTD and Pegasus Capital Partners, LLC and
         Insynq, Inc. (Incorporated by reference to Exhibit 4.73 to the
         Company's Amended Registration Statement on Form SB-2/A filed April 11,
         2002)

 4.74     Amendment No. 2 to Securities Purchase Agreement dated May 14, 2002
         between AJW Partners, LLC, New Millennium Capital Paartners II, LLC,
         AJW/New Millennium Offshore, LTD and Pegasus Capital Parners, LLC and
         Insynq, Inc. (Incorporated by reference to Exhibit 4.74 to the
         Company's Registration Statement on From SB-2 filed June 11, 2002).

4.75     Form of Stock Purchase Warrant dated September 27, 2002 between AJW
         Partners, LLC, New Millennium Capital Partners II, LLC and Insynq, Inc.
         (Incorporated by reference to Exhibit 4.1 to the Company's Form 10-QSB
         for the quarter ending August 31, 2002)

4.76     Form of Secured Convertible Debenture dated September 27, 2002 AJW
         Partners, LLC, New Millennium Capital Partners II, LLC and Insynq, Inc.
         (Incorporated by reference to Exhibit 4.2 to the Company's Form 10-QSB
         for the quarter ending August 31, 2002)
                                      49
<PAGE>
4.77     Form of Securities Purchase Agreement dated September 27, 2002 between
         AJW Partners, LLC, New Millennium Capital Partners II, LLC, and Insynq,
         Inc. (Incorporated by reference to Exhibit 4.3 to the Company's Form
         10-QSB for the quarter ending August 31, 2002)

4.78     Form of Registration Rights Agreement dated September 27, 2002 between
         AJW Partners, LLC, New Millennium Capital Partners II, LLC, and Insynq,
         Inc. (Incorporated by reference to Exhibit 4.4 to the Company's Form
         10-QSB for the quarter ending August 31, 2002)

4.79     Stock Purchase Warrant dated November 5, 2002 between AJW Offshore, Ltd
         and Insynq, Inc. (Incorporated by reference to Exhibit 4.1 to the
         Company's Form 10-QSB for the quarter ending November 30, 2002)

4.80     Stock Purchase Warrant dated November 5, 2002 between AJW Qualified
         Partners, LLC and Insynq, Inc. (Incorporated by reference to Exhibit
         4.2 to the Company's Form 10-QSB for the quarter ending November 30,
         2002)

4.81     Secured Convertible Debenture dated November 5, 2002 between AJW
         Offshore, Ltd. and Insynq, Inc. (Incorporated by reference to Exhibit
         4.3 to the Company's Form 10-QSB for the quarter ending November 30,
         2002)

4.82     Secured Convertible Debenture dated November 5, 2002 between AJW
         Qualified Partners, LLC and Insynq, Inc. (Incorporated by reference to
         Exhibit 4.4 to the Company's Form 10-QSB for the quarter ending
         November 30, 2002)

4.83     Stock Purchase Warrant dated December 6, 2002 between AJW Offshore, Ltd
         and Insynq, Inc. (Incorporated by reference to Exhibit 4.4 to the
         Company's Form 10-QSB for the quarter ending November 30, 2002)

4.84     Stock Purchase Warrant dated December 6, 2002 between AJW Qualified
         Partners, LLC and Insynq, Inc. (Incorporated by reference to Exhibit
         4.5 to the Company's Form 10-QSB for the quarter ending November 30,
         2002)

4.85     Stock Purchase Warrant dated December 6, 2002 between AJW Partners, LLC
         and Insynq, Inc. (Incorporated by reference to Exhibit 4.6 to the
         Company's Form 10-QSB for the quarter ending November 30, 2002)

4.86     Secured Convertible Debenture dated December 6, 2002 between AJW
         Qualified Partners, LLC and Insynq, Inc. (Incorporated by reference to
         Exhibit 4.7 to the Company's Form 10-QSB for the quarter ending
         November 30, 2002)

4.87     Secured Convertible Debenture dated December 6, 2002 between AJW
         Offshore, Ltd. and Insynq, Inc. (Incorporated by reference to Exhibit
         4.8 to the Company's Form 10-QSB for the quarter ending November 30,
         2002)

4.88     Secured Convertible Debenture dated December 6, 2002 between AJW
         Partners, LLC and Insynq, Inc. (Incorporated by reference to Exhibit
         4.9 to the Company's Form 10-QSB for the quarter ending November 30,
         2002)

4.89     Stock Purchase Warrant dated January 29, 2003 between AJW Offshore, Ltd
         and Insynq, Inc. (Incorporated by reference to Exhibit 4.89 to the
         Company's Registration Statement on Form SB-2 filed March 18, 2003)

4.90     Stock Purchase Warrant dated January 29, 2003 between AJW Qualified
         Partners, LLC and Insynq, Inc. (Incorporated by reference to Exhibit
         4.90 to the Company's Registration Statement on Form SB-2 filed March
         18, 2003)

4.91     Stock Purchase Warrant dated January 29, 2003 between AJW Partners, LLC
         and Insynq, Inc. (Incorporated by reference to Exhibit 4.91 to the
         Company's Registration Statement on Form SB-2 filed March 18, 2003)

4.92     Secured Convertible Debenture dated January 29, 2003 between AJW
         Qualified Partners, LLC and Insynq, Inc. (Incorporated by reference to
         Exhibit 4.92 to the Company's Registration Statement on Form SB-2 filed
         March 18, 2003)

4.93     Secured Convertible Debenture dated January 29, 2003 between AJW
         Offshore, Ltd. and Insynq, Inc. (Incorporated by reference to Exhibit
         4.93 to the Company's Registration Statement on Form SB-2 filed March
         18, 2003)

4.94     Secured Convertible Debenture dated January 29, 2003 between AJW
         Partners, LLC and Insynq, Inc. (Incorporated by reference to Exhibit
         4.94 to the Company's Registration Statement on Form SB-2 filed March
         18, 2003)
                                       50
<PAGE>
4.95     Letter Agreement dated March 6, 2003 amending the debentures and
         warrants issued in connection with the June 2001 and January 2002
         Securities Purchase Agreement between Insynq, Inc. and AJW Partners,
         LLC, New Millennium Partners II, LLC, AJW Offshore, Ltd and AJW
         Qualified Partners, LLC(Incorporated by reference to Exhibit 4.95 to
         the Company's Registration Statement on Form SB-2 filed March 18, 2003)

4.96     Letter Agreement dated March 6, 2003 amending the debentures and
         warrants issued in connection with the September 2002 Securities
         Purchase Agreement between Insynq, Inc. and AJW Partners, LLC, New
         Millennium Partners II, LLC, AJW Offshore, Ltd and AJW Qualified
         Partners, LLC (Incorporated by reference to Exhibit 4.96 to the
         Company's Registration Statement on Form SB-2 filed March 18, 2003)

4.97     Amendment No. 1 to Securities Purchase Agreement dated May 21, 2003 by
         and among Insynq, Inc. and AJW Partners, LLC, New Millennium Partners
         II, LLC and AJW Offshore, Ltd. (Incorporated by reference to Exhibit
         4.97 to the Company's Registration Statement on Form SB-2/A filed May
         23, 2003)

4.98     Amendment No. 2 to Securities Purchase Agreement dated May 21, 2003 by
         and among Insynq, Inc. and AJW Partners, LLC, New Millennium Partners
         II, LLC, AJW Offshore, Ltd. and AJW Qualified Partners, LLC
         (Incorporated by reference to Exhibit 4.98 to the Company's
         Registration Statement on Form SB-2/A filed May 23, 2003)

4.99     Secured Convertible Debenture dated March 18, 2002 between AJW
         Partners, LLC and Insynq. Inc. (Incorporated by reference to Exhibit
         4.15 to the Company's Quarterly Report on Form 10-QSB filed April 18,
         2003)

4.100    Secured Convertible Debenture dated March 18, 2002 between AJW
         Qualified Partners, LLC and Insynq. Inc. (Incorporated by reference to
         Exhibit 4.16 to the Company's Quarterly Report on Form 10-QSB filed
         April 18, 2003)

4.101    Secured Convertible Debenture dated March 18, 2002 between AJW
         Offshore, Ltd. and Insynq. Inc. (Incorporated by reference to Exhibit
         4.17 to the Company's Quarterly Report on Form 10-QSB filed April 18,
         2003)

4.102    Secured Convertible Debenture dated March 18, 2002 between New
         Millennium Partners II, LLC and Insynq. Inc. (Incorporated by reference
         to Exhibit 4.18 to the Company's Quarterly Report on Form 10-QSB filed
         April 18, 2003)

4.103    Stock Purchase Warrant dated March 18, 2002 between AJW Partners, LLC
         and Insynq. Inc. (Incorporated by reference to Exhibit 4.19 to the
         Company's Quarterly Report on Form 10-QSB filed April 18, 2003)

4.104    Stock Purchase Warrant dated March 18, 2002 between AJW Qualified
         Partners, LLC and Insynq. Inc. (Incorporated by reference to Exhibit
         4.20 to the Company's Quarterly Report on Form 10-QSB filed April 18,
         2003)

4.105    Stock Purchase Warrant dated March 18, 2002 between AJW Offshore, Ltd
         and Insynq. Inc. (Incorporated by reference to Exhibit 4.21 to the
         Company's Quarterly Report on Form 10-QSB filed April 18, 2003)

4.106    Stock Purchase Warrant dated March 18, 2002 between New Millennium II
         Partners, LLC and Insynq. Inc. (Incorporated by reference to Exhibit
         4.22 to the Company's Quarterly Report on Form 10-QSB filed April 18,
         2003)

4.107    Secured Convertible Debenture dated March 31, 2003 between New
         Millennium Capital Partners II, LLC and Insynq, Inc. (Incorporated by
         reference to Exhibit 4.23 to the Company's Quarterly Report on Form
         10-QSB filed April 18, 2003)

4.108    Secured Convertible Debenture dated March 31, 2003 between AJW
         Qualified Partners, LLC and Insynq, Inc. (Incorporated by reference to
         Exhibit 4.24 to the Company's Quarterly Report on Form 10-QSB filed
         April 18, 2003)

4.109    Secured Convertible Debenture dated March 31, 2003 between New
         Millennium Capital Partners II, LLC and Insynq, Inc. (Incorporated by
         reference to Exhibit 4.25 to the Company's Quarterly Report on Form
         10-QSB filed April 18, 2003)

4.110    Secured Convertible Debenture dated March 31, 2003 between AJW
         Qualified Partners, LLC and Insynq, Inc. (Incorporated by reference to
         Exhibit 4.26 to the Company's Quarterly Report on Form 10-QSB filed
         April 18, 2003)
                                      51
<PAGE>
4.111    Secured Convertible Debenture dated March 31, 2003 between New
         Millennium Capital Partners II, LLC and Insynq, Inc. (Incorporated by
         reference to Exhibit 4.23 to the Company's Quarterly Report on Form
         10-QSB filed April 18, 2003)

4.112    2003 Consulting Services Agreement with James A. Reskin and Insynq,
         Inc. (Incorporated by reference to Exhibit 4.1 to the Company's
         Registration Statement of Form S-8 filed August 8, 2003)

4.113    2003 Consulting Services Agreement with Harvey Levin and Insynq, Inc.
         (Incorporated by reference to Exhibit 4.2 to the Company's Registration
         Statement on Form S-8 filed August 8, 2003)

4.114    2003 Consulting Services Agreement with D. Scott Elliott and Insynq,
         Inc. (Incorporated by reference to Exhibit 4.3 to the Company's
         Registration Statement on Form S-8 filed August 8, 2003)

10.1     Insynq, Inc. 2000 Executive Long Term Incentive Plan. (Incorporated by
         reference to Exhibit 10.1 to the Company's Annual Report on Form 10-KSB
         filed September 13, 2000).

10.2     Insynq, Inc. 2000 Executive Long Term Incentive Plan, as amended by
         Amendment No 1 dated August 14, 2001. (Incorporated by reference to
         Exhibit 10.7 to the Company's Amended Quarterly Report on Form 10-QSB/A
         filed February 25, 2002).

10.3     Insynq, Inc. 2000 Long Term Incentive Plan, as amended by Amendment No.
         1 dated September 1, 2000. (Incorporated by reference to Exhibit 10.2
         to the Company's Quarterly Report on Form 10-QSB filed October 23,
         2000).

10.4     Insynq, Inc. 2000 Long Term Incentive Plan as amended by Amendment No 3
         dated November 21, 2001. (Incorporated by reference to Exhibit 10.6 to
         the Company's Amended Quarterly Report on Form 10-QSB/A filed February
         25, 200).

10.5     Business Services Contract with Consulting & Strategy International,
         L.L.C. dated November 18, 1999, as amended by Amendment No. 1 dated
         August 31, 2000, Amendment No. 2 dated September 14, 2000, Amendment
         No. 3 dated October 1, 2000, Amendment No. 4 dated October 28, 2000,
         Amendment dated October 31, 2000, and Amendment No. 5 dated December 1,
         2000 (Incorporated by reference to Exhibit 10.3 to the Company's
         Registration Statement on Form SB- 2 filed December 14, 2000). 10.6
         Amendment No. 6 dated February 6, 2002, to Business Services Contract
         with Consulting & Strategy International, L.L.C. dated November 18,
         1999 (Incorporated by reference to Exhibit 10.3 to the Company's
         Quarterly Report on Form 10-QSB filed April 20,2001).

10.7     Independent Marketing Consultant Agreement with Vijay Alimchandani
         dated February 20, 2000, as amended by Amendment No. 1 dated June 30,
         2000. (Incorporated by reference to Exhibit 10.4 to the Company's
         Quarterly Report on Form 10-QSB filed October 23, 2000).

10.8     Financial Public Relations Consulting Agreement with One Click
         Investments, LLC dated September 20, 1999, as amended by Amendment No.
         1 dated June 30, 2000 and Amendment No. 2 dated October 31, 2000.
         (Incorporated by reference to Exhibit 10.5 to the Company's
         Registration Statement on Form SB-2 filed December 14, 2000).

10.9     Amendment No. 3 dated January 30, 2001, to Financial Public Relations
         Consulting Agreement with One Click Investments, LLC dated September
         20, 1999 (Incorporated by reference to Exhibit 10.5 to the Company's
         Quarterly Report on Form 10-QSB filed April 20, 2001).

10.10    Form of Registration Rights Agreement upon the issuance of shares to
         investors under the bridge financing dated December 14, 1999.
         (Incorporated by reference to Exhibit 10.6 to the Company's Annual
         Report on Form 10-KSB filed September 13, 2000).

10.11    Form of Registration Rights Agreement upon the issuance of shares to
         investors under the bridge financing dated January 24, 2000.
         (Incorporated by reference to Exhibit 10.7 to the Company's Annual
         Report on Form 10-KSB filed September 13, 2000)

10.12    Engagement Letter with Rosenblum Partners, LLC dated July 7, 2000.
         (Incorporated by reference to Exhibit 10.8 to the Company's Annual
         Report on Form 10-KSB filed September 13, 2000).

10.13    Employment Agreement, dated as of February 20, 2000, between John P.
         Gorst and Xcel Management, Inc., as amended by Amendment No. 1 dated
         September 25, 2000. (Incorporated by reference to Exhibit 10.9 to the
         Company's Registration Statement on Form SB-2 filed December 14, 2000).
                                       52
<PAGE>
10.14    Amendment No. 2 to Employment Agreement dated January 30, 2001, between
         John P. Gorst and Xcel Management, Inc. (Incorporated by reference to
         Exhibit 10.9 to the Company's Quarterly Report on Form10-QSB filed
         April 20, 2001).

10.15    Employment Agreement, dated as of February 20, 2000, between M. Carroll
         Benton and Xcel Management, Inc., as amended by Amendment No. 1 dated
         September 27, 2000. (Incorporated by reference to Exhibit 10.10 the
         Company's Registration Statement on Form SB-2 filed December 14, 2000).

10.16    Amendment No. 2 dated January 30, 2001, between M. Carroll Benton and
         Xcel Management, Inc. (Incorporated by reference to Exhibit 10.10 to
         the Company's Quarterly Report on Form 10- QSB filed April 20, 2001).

10.17    Employment Agreement dated as of February 20, 2000, between James R.
         Leigh, III, and Xcel Management, Inc. (Incorporated by reference to
         Exhibit 10.11 to the Company's Annual Report on Form 10-KSB filed
         September 13, 2000).

10.18    Employment Agreement, dated as of February 20, 2000, between DJ Johnson
         and Xcel Management, Inc. (Incorporated by reference to Exhibit 10.12
         to the Company's Annual Report on Form 10-KSB filed September 13,
         2000).

10.19    Employment Agreement, dated as of February 20, 2000, between Joanie C.
         Mann and Xcel Management, Inc., as amended by Amendment No.1 dated
         September 25, 2000 and Amendment No. 2 dated September 25, 2000.
         (Incorporated by reference to Exhibit 10.13 the Company's Registration
         Statement on Form SB-2 filed December 14, 2000)

10.20    Employment Agreement, dated as of February 20, 2000, between Jim
         Zachman and Xcel Management, Inc., as amended by Amendment No. 1 dated
         September 16, 2000 and Amendment No. 2 dated September 27, 2000.
         (Incorporated by reference to Exhibit 10.14 the Company's Registration
         Statement on Form SB-2 filed December 14, 2000)

10.21    Employment Agreement, dated as of July 20, 1999, between Donald L.
         Manzano and Insynq, Inc.- Washington. (Incorporated by reference to
         Exhibit 10.15 to the Company's Annual Report on Form 10-KSB filed
         September 13, 2000).

10.22    Employment Agreement, dated as of July 20, 1999, between Carey M.
         Holladay and Insynq, Inc.- Washington. (Incorporated by reference to
         Exhibit 10.16 to the Company's Annual Report on Form 10-KSB filed
         September 13, 2000).

10.23    Employment Agreement, dated as of June 28 2000, between William G.
         Hargin and Xcel Management, Inc. (Incorporated by reference to Exhibit
         10.17 to the Company's Annual Report on Form 10-KSB filed September 13,
         2000).

10.24    Employment Agreement, dated as of June 5, 2000, between Barbara D.
         Brown and Xcel Management, Inc., as amended by Addendum No. 1 dated
         November 29, 2000. (Incorporated by reference to Exhibit 10.18 the
         Company's Registration Statement on Form SB-2 filed December 14, 2000)

10.25    Employment Agreement, dated as of June 16, 2000, between Christopher
         Todd and Xcel Management, Inc. (Incorporated by reference to Exhibit
         10.19 to the Company's Annual Report on Form 10-KSB filed September 13,
         2000).

10.26    Employment Agreement, dated as of September 1, 2000, between David
         Wolfe and Insynq, Inc., as amended by Amendment No. 1 dated September
         27, 2000, Amendment No. 1 dated October 19, 2000, Amendment No. 2 dated
         November 29, 2000 and Addendum dated December 7, 2000. (Incorporated by
         reference to Exhibit 10.20 the Company's Registration Statement on Form
         SB-2 filed December 14, 2000)

10.27    Lease Agreement dated January 3, 2000 between Howe/Horizon Holdings LLC
         and Insynq, Inc., for 1101 Broadway Plaza, Tacoma, Washington, as
         amended by Amendment No. 1 dated October 26, 2000. (Incorporated by
         reference to Exhibit 10.21 the Company's Registration Statement on Form
         SB-2 filed December 14, 2000)

10.28.   Sublease Agreement dated November 1, 1999 between Duane and Wendy
         Ashby, d/b/a Cargocare and Insynq Data Utilities for the property in
         the Seafirst Plaza Building in Tacoma, Washington, at the Northwest
         corner of South 9th and A Streets. (Incorporated by reference to
         Exhibit 10.22 to the Company's Annual Report on Form 10-KSB filed
         September 13, 2000)
                                       53
<PAGE>
10.29    Lease Termination Agreement dated April 1, 2001 between Duane and Wendy
         Ashby, d/b/a Cargocare and Insynq Data Utilities. (Incorporated by
         reference to Exhibit 10.27 to the Company's Annual Report on Form
         10-KSB filed July 31, 2001).

10.30    Lease Agreement dated March 21, 2000 between Walaire, Inc. and Insynq,
         Inc., for 3017 Douglas Boulevard, Suite 220 and 240, Roseville,
         California. (Incorporated by reference to Exhibit 10.23 to the
         Company's Annual Report on Form 10-KSB filed September 13, 2000).

10.31    Master Licensing Agreement dated May 19, 2000 between Macola, Inc. and
         Insynq, Inc. (Incorporated by reference to Exhibit 10.24 to the
         Company's Annual Report on Form 10-KSB filed September 13, 2000).

10.32    Citrix iLicense Agreement dated March 2, 2000 between Citrix and
         Insynq, Inc. (Incorporated by reference to Exhibit 10.25 to the
         Company's Annual Report on Form 10-KSB filed September 13, 2000).

10.33    Citrix iBusiness Application Service Provider Agreement dated March 2,
         2000 between Citrix and Insynq, Inc. (Incorporated by reference to
         Exhibit 10.26 to the Company's Annual Report on Form 10-KSB filed
         September 13, 2000).

10.34    Master Licensing Agreement dated March 1, 2000 between Legacy Solutions
         and Insynq, Inc. (Incorporated by reference to Exhibit 10.27 to the
         Company's Annual Report on Form 10-KSB filed September 13, 2000).

10.35    Master Licensing Agreement dated April 7, 2000 between Electronic
         Registry Systems, Inc. and Insynq, Inc. (Incorporated by reference to
         Exhibit 10.28 to the Company's Annual Report on Form 10-KSB filed
         September 13, 2000).

10.36    Master Licensing Agreement dated March 22, 2000 between Viking Software
         Services, Inc. and Insynq, Inc. (Incorporated by reference to Exhibit
         10.29 to the Company's Annual Report on Form 10-KSB filed September 13,
         2000).

10.37    Master Licensing Agreement dated June 1, 2000 between My Partner Online
         and Insynq, Inc. (Incorporated by reference to Exhibit 10.30 to the
         Company's Annual Report on Form 10-KSB filed September 13, 2000).

10.38    Amendment B to Master Licensing Agreement dated November 1, 2001
         between My Partner Online and Insynq, Inc. (Incorporated by reference
         to Exhibit 10.5 to the Company's Quarterly Report on Form 10-QSB filed
         January 16, 2002).

10.39    Master Licensing Agreement dated April 24, 2000 between Veracicom and
         Insynq, Inc. (Incorporated by reference to Exhibit 10.31 to the
         Company's Annual Report on Form 10-KSB filed September 13, 2000).

10.40    Master Licensing Agreement dated August 21, 2000 between CastaLink.com,
         Inc. and Insynq, Inc. (Incorporated by reference to Exhibit 10.32 to
         the Company's Annual Report on Form 10- KSB filed September 13, 2000).

10.41    Application Hosting Agreement dated May 12, 2000 between Remedy
         Corporation and Insynq, Inc. (Incorporated by reference to Exhibit
         10.33 to the Company's Annual Report on Form 10- KSB filed September
         13, 2000).

10.42    Novell Internet Commercial Service Provider Agreement dated July 24,
         2000 between Novell, Inc. and Insynq, Inc. (Incorporated by reference
         to Exhibit 10.34 to the Company's Annual Report on Form 10-KSB filed
         September 13, 2000).

10.43    Agreement to Provide Collaborative Management Services dated July 15,
         1999 between Horizon Holdings I, LLC, and Insynq, Inc. (Incorporated by
         reference to Exhibit 10.35 to the Company's Annual Report on Form
         10-KSB filed September 13, 2000).

10.44    Referral Partner Agreement dated July 29, 1999 between Global Crossing
         Telecommunications, Inc. and Insynq, Inc. (Incorporated by reference to
         Exhibit 10.36 to the Company's Annual Report on Form 10-KSB filed
         September 13, 2000).

10.45    Application Hosting and Delivery Agreement dated August 18, 2000
         between Donor Management, Inc. and Insynq, Inc. (Incorporated by
         reference to Exhibit 10.37 to the Company's Quarterly Report on Form
         10-QSB dated October 23, 2000).

10.46    Application Service Provider Agreement dated August 21, 2000 between
         Corel Corporation and Insynq, Inc. (Incorporated by reference to
         Exhibit 10.38 to the Company's Quarterly Report on Form 10-QSB dated
         October 23, 2000).
                                       54
<PAGE>
10.47    Application Services Agreement dated September 6, 2000 between
         Microsoft and Insynq, Inc. (Incorporated by reference to Exhibit 10.39
         to the Company's Quarterly Report on Form 10-QSB dated October 23,
         2000).

10.48    Consulting Agreement dated September 20, 2000 between David D. Selmon
         and Insynq, Inc. (Incorporated by reference to Exhibit 10.40 to the
         Company's Quarterly Report on Form 10-QSB filed October 23, 2000).

10.49    Amendment No 1 to Consulting Agreement dated September 12, 2001 between
         David D. Selmon and Insynq, Inc. (Incorporated by reference to Exhibit
         10.3 to the Company's Quarterly Report on Form 10-QSB filed January 16,
         2002).

10.50    Release Agreement dated September 22, 2000 with Charles Benton.
         (Incorporated by reference to Exhibit 10.41 to the Company's Quarterly
         Report on Form 10-QSB filed October 23, 2000).

10.51    Release Agreement dated September 22, 2000 with Charles Benton.
         (Incorporated by reference to Exhibit 10.42 to the Company's Quarterly
         Report on Form 10-QSB filed October 23, 2000).

10.52    Employment Agreement dated September 18, 2000 between Stephen C. Smith
         and Insynq, Inc. as amended by Amendment No. 1 dated December 1, 2000.
         (Incorporated by reference to Exhibit 10.43 to the Company's Quarterly
         Reported on Form 10-QSB filed October 23, 2000).

10.53    Amendment No. 2 dated July 20, 2001 to Employment Agreement between
         Stephen C. Smith and Insynq, Inc. (Incorporated by reference to Exhibit
         10.49 to the Company's Annual Report on Form 10-KSB filed July 31,
         2001).

10.54    Non-Exclusive Financial Advisory Agreement dated June 15, 2000 between
         Sunstate Equity Trading, Inc. and Xcel Management, Inc., as amended by
         Amendment No. 1 dated September 22, 2000. Incorporated by reference to
         Exhibit 10.44 to the Company's Registration Statement on Form SB-2
         filed December 14, 2000).

10.55    Independent Consulting Agreement dated September 16, 2000 between
         Steven Tebo and Insynq, Inc. (Incorporated by reference to Exhibit
         10.45 to the Company's Quarterly Report on Form 10- QSB dated October
         23, 2000).

10.56    Independent Consulting Agreement dated September 16, 2000 between
         Franklin C. Fisher and Insynq, Inc. (Incorporated by reference to
         Exhibit 10.46 to the Company's Quarterly Report on Form 10-QSB dated
         October 23, 2000).

10.57    Independent Consulting Agreement dated October 31, 2000 between Charles
         F. Benton and Insynq, Inc. (Incorporated by reference to Exhibit 10.47
         to the Company's Registration Statement on Form SB-2 filed December 14,
         2000).

10.58    Amendment No 1 to Consulting Agreement dated November 1, 2001 between
         Charles F. Benton (CFB and Associates) and Insynq, Inc. (Incorporated
         by refenrece to Exhibit 10.4 to the Company's Quarterly Report of Form
         10-QSB filed January 16, 2002).

10.59    Independent Consulting Agreement dated November 28, 2000 between My
         Partner Online, Inc. and Insynq. Inc. (Incorporated by reference to
         Exhibit 10.48 to the Company's Registration Statement on Form SB-2
         filed December 14, 2000).

10.60    Letter of Understanding dated November 11, 2000 and Agreement dated
         November 11, 2000 between Bridge 21, Inc. and Insynq, Inc.
         (Incorporated by reference to Exhibit 10.49 to the Company's
         Registration Statement on Form SB-2 filed December 14, 2000).

10.61    Contract of Engagement dated September 27, 2000 between Cardinal
         Securities, L.L.C. and Insynq, Inc. (Incorporated by reference to
         Exhibit 10.50 to the Company's Registration Statement on Form SB-2
         filed December 14, 2000).

10.62    Agreement dated November 30, 2000 between Kathleen McHenry, John P.
         Gorst and Insynq, Inc. (Incorporated by reference to Exhibit 10.51 to
         the Company's Registration Statement on Form SB-2 filed December 14,
         2000).

10.63    Voting Agreement dated November 30, 2000 between Kathleen McHenry,
         Hagens Berman LLP, John P. Gorst and Insynq, Inc. (Incorporated by
         reference to Exhibit 10.52 to the Company's Registration Statement on
         Form SB-2 filed December 14, 2000).

10.64    Registration Rights Agreement dated November 30, 2000 between Kathleen
         McHenry, Hagens Berman LLP and Insynq, Inc. (Incorporated by reference
         to Exhibit 10.53 to the Company's Registration Statement on Form SB-2
         filed December 14, 2000).
                                      55
<PAGE>
10.65    Application Service Provider Reseller Agreement dated October 27, 2000
         between Wireless Knowledge, Inc. and Insynq, Inc. (Incorporated by
         reference to Exhibit 10.54 to the Company's Registration Statement on
         Form SB-2 filed December 14, 2000).

10.66    Independent Consultant Agreement dated January 2, 2001 between One
         Click Investments, LLC and Eric Estoos and Insynq, Inc. (Incorporated
         by reference to Exhibit 10.55 to the Company's Quarterly Report on Form
         10-QSB dated April 20, 2001).

10.67    Independent Consultant Agreement dated January 2, 2001 between Michael
         duPont and Insynq, Inc. (Incorporated by reference to Exhibit 10.56 to
         the Company's Quarterly Report on Form 10- QSB dated April 20, 2001).

10.68    Non-Exclusive Financial Advisory Agreement dated January 26, 2001
         between Morgan Brewer Securities, Inc. and Insynq, Inc. (Incorporated
         by reference to Exhibit 10.57 to the Company's Quarterly Report on Form
         10-QSB dated April 20, 2001).

10.69    Business Advisory and Consulting Services Agreement dated February 19,
         2001 between Tarshish Capital Markets, LTD. and Insynq, Inc.
         (Incorporated by reference to Exhibit 10.58 to the Company's Quarterly
         Report on Form 10-QSB dated April 20, 2001).

10.70    Consulting Agreement dated March 22, 2001 between Metromedia Research
         Group LLC and Insynq, Inc., as amended dated April 9, 2001.
         (Incorporated by reference to Exhibit 10.65 to the Company's Annual
         Report on Form 10-KSB filed July 31, 2001).

10.71    Registration Rights Agreement dated March 22, 2001 between Metromedia
         Research Group, LLC and Insynq, Inc. (Incorporated by reference to
         Exhibit 10.66 to the Company's Annual Report on Form 10-KSB filed July
         31, 2001).

10.72    Consulting Agreement dated March 23, 2002 between Internet PR Group and
         Insynq, Inc. (Incorporated by reference to Exhibit 10.67 to the
         Company's Annual Report on Form 10-KSB filed July 31, 2001).

10.73    Letter Agreement dated April 1, 2001 between Barretto Pacific
         Corporation and Insynq, Inc. (Incorporated by reference to Exhibit
         10.68 to the Company's Annual Report on Form 10-KSB filed July 31,
         2001).

10.74    Consulting Agreement dated April 1, 2001 between The N.I.R. Group, LLC
         and Insynq, Inc. (Incorporated by reference to Exhibit 10.69 to the
         Company's Annual Report on Form 10-KSB filed July 31, 2001).

10.75    Consulting Agreement dated May 3, 2001 and Amendment dated May 30, 2001
         between Eugene R. Zachman and Insynq, Inc. (Incorporated by reference
         to Exhibit 10.70 to the Company's Annual Report on Form 10-KSB filed
         July 31, 2001).

10.76    Settlement Agreement dated May 17, 2001 between Howe/Horizon Holdings,
         LLC, Horizon Holdings I, LLC and Insynq, Inc. (Incorporated by
         reference to Exhibit 10.71 to the Company's Annual Report on Form
         10-KSB filed July 31, 2001).

10.77    Equipment Co-Location License Agreement dated May 16, 2001 between
         Horizon Holdings I, LLC and Insynq, Inc. (Incorporated by reference to
         Exhibit 10.72 to the Company's Annual Report on Form 10-KSB filed July
         31, 2001).

10.78    Lease Agreement dated May 10, 2001 between Howe/Horizon Holdings, LLC
         and Insynq, Inc. (Incorporated by reference to Exhibit 10.73 to the
         Company's Annual Report on Form 10-KSB filed July 31, 2001).

10.79    Consulting Agreement dated May 17, 2001 and Amendment dated May 30,
         2001 between James Zachman and Insynq, Inc. (Incorporated by reference
         to Exhibit 10.74 to the Company's Annual Report on Form 10-KSB filed
         July 31, 2001).

10.80    Agreement to Provide Professional Service dated July 10, 2001 between
         Central Software Services and Insynq, Inc. (Incorporated by reference
         to Exhibit 10.75 to the Company's Annual Report on Form 10-KSB filed
         July 31, 2001).

10.81    Consulting Agreement dated May 3, 2001 between DiabloStocks, Inc. and
         Insynq, Inc. (Incorporated by reference to Exhibit 10.76 to the
         Company's Annual Report on Form 10-KSB filed July 31, 2001).

10.82    Selling Agreement dated May 28, 2001 between Taconic Capital Partners,
         LP, Internet Solutions Partners, Inc, Salvani Investments, Inc. and
         Insynq, Inc. (Incorporated by reference to Exhibit 10.77 to the
         Company's Annual Report on Form 10-KSB filed July 31, 2001).
                                      56
<PAGE>
10.83    Acquisition Purchase Agreement dated June 1, 2001 between Omnibus
         Subscriber Computing, Inc. and Insynq, Inc. (Incorporated by reference
         to Exhibit 10.78 to the Company's Annual Report on Form 10-KSB filed
         July 31, 2001).

10.84    Settlement Agreement dated June 21, 2001 between One Click Investments,
         LLC and John P. Gorst. (Incorporated by reference to Exhibit 10.79 to
         the Company's Annual Report on Form 10- KSB filed July 31, 2001).

10.85    Settlement Agreement dated February 15, 2002 between One Click
         Investments, LLC and Insynq, Inc. (Incorporated by reference to Exhibit
         10.11 to the Company's Amended Quarterly Report on Form 10-QSB/A filed
         February 25, 2002).

10.86    Lease Agreement dated July 6, 2001 between Simon-Marten, LLC and
         Insynq, Inc. for 1127 Broadway Plaza, Suite 10, Tacoma, Washington,
         98402. (Incorporated by reference to Exhibit 10.80 to the Company's
         Amended Registration Statement on Form SB2/A filed September 19, 2001).

10.87    Settlement Agreement dated September 6, 2001 between Martin E. Darrah
         and Insynq, Inc. (Incorporated by reference to Exhibit 10.81 to the
         Company's Registration Statement on Form SB-2 filed September 19,
         2001).

10.88    Consulting Agreement dated September 1, 2001 between The N.I.R Group,
         LLC and Insynq, Inc. (Incorporated by reference to Exhibit 10.2 to the
         Company's Amended Quarterly Report on Form 10-QSB/A filed February 25,
         2002).

10.89    Consulting Agreement dated January 1, 2002 between The N.I.R. Group,
         LLC and Insynq, Inc. (Incorporated by reference to Exhibit 10.8 to the
         Company's Amended Quarterly Report on Form 10-QSB/A filed February 25,
         2002).

10.90    Services Agreement dated December 20, 2001 between Qwest Business
         Resources, Inc. and Insynq, Inc. (Incorporated by reference to Exhibit
         10.9 to the Company's Amended Quarterly Report on From 10-QSB/A filed
         February 25, 2002).

10.91    Employment Agreement dated December 1, 2001 between Donald M. Kaplan
         and Insynq, Inc. (Incorporated by reference to Exhibit 10.10 to the
         Company's Amended Quarterly Report on Form 10-QSB/A filed February 25,
         2002).

10.92    Acquisition Purchase Agreement dated June 1, 2001 between Omnibus
         Subscriber Computing, Inc. and Insynq, Inc. (Incorporated by reference
         to Exhibit 10.92 to the Company's Registration Statement on From SB-2
         filed June 11, 2002).

10.93    Managed Services Agreement dated December 1, 2001 between Omnibus
         Canada Corporation and Insynq, Inc. (Incorporated by reference to
         Exhibit 10.93 to the Company's Registration Statement on From SB-2
         filed June 11, 2002).

10.94    Amendment No. 1 to Managed Services Agreement dated December 2, 2001
         between Omnibus Canada Corporation and Insynq, Inc. (Incorporated by
         reference to Exhibit 10.94 to the Company's Registration Statement on
         From SB-2 filed June 11, 2002).

10.95    Insynq, Inc. 2002 Director, Officers and Consultants Stock Option,
         Stock Warrant and Stock Award Plan (Incorporated by reference to the
         Company's Information Statement on Form 14-C filed December 10, 2002).

10.96    Exchange Agreement dated October 16, 2002 between Kelly D. Miller and
         Insynq, Inc. (Incorporated by reference to Exhibit 10.96 to the
         Company's Registration Statement on Form SB-2 filed March 18, 2003).

10.97    Exchange Agreement dated October 16, 2002 between Delores Hall and
         Insynq, Inc. (Incorporated by reference to Exhibit 10.97 to the
         Company's Registration Statement on Form SB-2 filed March 18, 2003).

10.98    Exchange Agreement dated October 16, 2002 between William D. Schmechel
         and Insynq, Inc. (Incorporated by reference to Exhibit 10.98 to the
         Company's Registration Statement on Form SB-2 filed March 18, 2003).

10.99    Exchange Agreement dated October 16, 2002 between Robert A. Harville
         and Insynq, Inc. (Incorporated by reference to Exhibit 10.99 to the
         Company's Registration Statement on Form SB-2 filed March 18, 2003).

10.100   Exchange Agreement dated October 16, 2002 between Mark Rezansoff and
         Insynq, Inc. (Incorporated by reference to Exhibit 10.100 to the
         Company's Registration Statement on Form SB-2 filed March 18, 2003).
                                       63
<PAGE>
10.101   Exchange Agreement dated October 16, 2002 between Joanie C. Mann and
         Insynq, Inc. (Incorporated by reference to Exhibit 10.101 to the
         Company's Registration Statement on Form SB-2 filed March 18, 2003).

10.102   Exchange Agreement dated October 16, 2002 between David D. Selmon and
         Insynq, Inc. (Incorporated by reference to Exhibit 10.102 to the
         Company's Registration Statement on Form SB-2 filed March 18, 2003).

10.103   Exchange Agreement dated October 16, 2002 between International Fluid
         Dynamics and Insynq, Inc. (Incorporated by reference to Exhibit 10.103
         to the Company's Registration Statement on Form SB-2 filed March 18,
         2003).

10.104   Exchange Agreement dated October 16, 2002 between M. Carroll Benton and
         Insynq, Inc. (Incorporated by reference to Exhibit 10.104 to the
         Company's Registration Statement on Form SB-2 filed March 18, 2003).

10.105   Exchange agreement dated October 16, 2002 between John P. Gorst and
         Insynq, Inc. (Incorporated by reference to Exhibit 10.105 to the
         Company's Registration Statement on Form SB-2 filed March 18, 2003).

10.106   Business Advisory and Consulting Services Agreement dated December 18,
         2002 between Stanton, Walker & Company and Insynq, Inc. (Incorporated
         by reference to Exhibit 10.1 to the Company's Quarterly Report on Form
         10-QSB filed April 18, 2003).

10.107   Independent Consulting Agreement dated February 1, 2003 between One
         Click Investments, LLC and Insynq, Inc. (Incorporated by reference to
         Exhibit 10.2 to the Company's Quarterly Report on Form 10-QSB filed
         April 18, 2003).

10.108   Consulting Agreement dated March 1, 2003 between San Diego Torrey Hills
         Capital and Insynq, Inc. (Incorporated by reference to Exhibit 10.3 to
         the Company's Quarterly Report on Form 10-QSB filed April 18, 2003).

10.109*  Consulting Agreement dated July 15, 2003 between San Diego Torrey Hills
         Capital and Insynq, Inc.

16.1     Letter on Change in Certifying Accountant (Incorporated by reference to
         Exhibit 1 to the Company's Current Report on Form 8- K/A filed May 23,
         2000).

16.2     Letter on Change in Certifying Accountant (Incorporated by reference to
         Exhibit 1 to the Company's Current Report on Form 8-K filed July 25,
         2002.)

31.1*    Certification of the Chief Executive Officer of Insynq, Inc. Pursuant
         to Section 902 of the Sarbanes-Oxley Act of 2002.

31.2*    Certification of the Principle Accounting and Finance Offier of Insynq,
         Inc. Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1*    Certification of Chief Executive Officer of Insynq, Inc. pursuant to
         Section 906 of the Sarbanes-Oxley Act of 2002.

32.2*    Certification of the Principle Financial Officer pursuant to Section
         906 of the Sarbanes-Oxley Acto of 2002.

* Filed Herewith

(b) Reports on Form 8-K


    None
                                      58
<PAGE>




                                   SIGNATURES

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


                                       INSYNQ, INC.


                                       /s/ JOHN P. GORST
                                       John P. Gorst
                                       President and Chief Executive Officer

Date:  September 15, 2003

<TABLE>
<CAPTION>

           SIGNATURES                                  TITLE                            DATE
           ----------                                  -----                            ----
     <C>                                     <C>                                       <C>
     /s/ JOHN P. GORST                      Chief Executive Officer, President,        September 15, 2003
     -----------------                      Chief Operations Officer and
     John P. Gorst                          Director (Principal Executive
                                            Officer)

     /s/ M. CARROLL BENTON                  Chief Administrative Officer,               September 15, 2003
     ---------------------                  Secretary and Treasurer and Director
     M. Carroll Benton                      Principal Accounting Officer,
                                            Principal Financial Officer
                                            and Director

    /s/ DAVID D. SELMON                     Director                                    September 15, 2003
    -------------------
    David D. Selmon
</TABLE>


                                       59
<PAGE>



                          INDEX TO FINANCIAL STATEMENTS


Audited Financial Statements as of and for the Years Ended May 31, 2003 and 2002




Index to Financial Statements .....                    F-1

Independent Auditors' Report ......                    F-2

Balance Sheets ....................                    F-3

Statements of Operations ..........                    F-4

Statements of Stockholders' Deficit                    F-5

Statements of Cash Flows ..........                    F-7

Notes to Financial Statements .....                    F-8








                                      F-1
<PAGE>



                          INDEPENDENT AUDITORS' REPORT



Board of Directors
Insynq, Inc.


We have audited the accompanying balance sheets of Insynq, Inc. (the "Company")
as of May 31, 2003 and 2002 and the related statements of operations,
stockholders' deficit, and cash flows for the years 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 auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audits to obtain reasonable assurance about whether the financial
statements are free of material misstatements. 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 Insynq, Inc. as of May 31, 2003
and 2002 and the results of its operations and its cash flows for the years 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 3 to the
financial statements, the Company has a net loss of $2,930,773 and a negative
cash flow from operations of $513,280 for the year ended May 31, 2003, and has a
working capital deficit of $7,277,476 and a stockholders' deficit of $6,803,689
at May 31, 2003. These matters raise substantial doubt about the Company's
ability to continue as a going concern. Management's plan in regards to these
matters is also described in Note 3. The financial statements do not include any
adjustments that might result from the outcome of this uncertainty.


WEINBERG & COMPANY, P.A.

Boca Raton, Florida
August 29, 2003







                                      F-2
<PAGE>

                                  Insynq, Inc.
<TABLE>
<CAPTION>
                                 BALANCE SHEETS

                                                                              May 31, 2003     May 31, 2002
                                                                              ------------     ------------
                  ASSETS

Current assets
<S>                                                                           <C>               <C>
    Cash ................................................................     $     53,059      $      9,760
    Restricted cash .....................................................             --              10,355
    Accounts receivable, net of allowance for doubtful
      accounts of $25,000 at May 31, 2003 and 2002,
      respectively ......................................................           46,252            21,964
    Related party receivables ...........................................            9,361            42,332
                                                                              ------------      ------------
                    Total current assets ................................          108,672            84,411
                                                                              ------------      ------------
Equipment, net ..........................................................          244,962           485,617
                                                                              ------------      ------------
Other assets
    Prepaid licenses.....................................................          202,772           219,215
    Prepaid expenses.....................................................           19,500            19,500
    Intangible assets, net ..............................................             --              26,585
    Deposits ............................................................            6,553             6,345
                                                                              ------------      ------------
           Total other assets ...........................................          228,825           271,645
                                                                              ------------      ------------
           Total assets .................................................          582,459      $    841,673
                                                                              ============      ============

                                    Liabilities and Stockholders' Deficit

Current liabilities
    Accounts payable ....................................................     $    789,046      $    983,516
    Accrued liabilities .................................................        2,396,215         1,818,830
    Convertible debentures, net of unamortized discount of
       $184,085 and $458,971, respectively ..............................        1,789,865           969,479
    Related party notes payable .........................................        1,307,274         1,315,429
    Capital lease obligations ...........................................          878,704           818,840
    Deferred compensation ...............................................          159,017            61,043
    Customer deposits ...................................................           48,006            33,070
    Notes payable .......................................................           18,021            19,833
                                                                              ------------      ------------
           Total current liabilities ....................................        7,386,148         6,020,040
                                                                              ------------      ------------
Commitments and contingencies

Stockholders' deficit
    Preferred stock, $0.001 par value, 10,000,000 shares
       authorized, -0- issued and outstanding at May 31, 2003
       and 2002 respectively ............................................             --                --
    Class A common stock, $0.001 par value, 10,000,000 shares
       authorized, -0- shares issued and outstanding at
       May 31, 2003; and 50,000 issued and outstanding at
       May 31, 2002 .....................................................             --                  50
    Common stock, $0.001 par value, 500,000,000 shares
       authorized, 22,033,335 issued and outstanding as of May
       31, 2003; and 594,570 shares issued and outstanding as
       of May 31, 2002 ..................................................           22,033               595
    Additional paid-in capital ..........................................       18,807,516        17,654,731
    Notes receivable and interest - officers ............................         (105,475)          (93,604)
    Unearned compensation and services ..................................             --            (143,149)
    Accumulated deficit .................................................      (25,527,763)      (22,596,990)
                                                                              ------------      ------------
           Total stockholders' deficit ..................................       (6,803,689)       (5,178,367)
                                                                              ------------      ------------
           Total liabilities and stockholders' deficit ..................     $    582,459      $    841,673
                                                                              ============      ============
</TABLE>


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



                                      F-3
<PAGE>




                                  Insynq, Inc.

                            STATEMENTS OF OPERATIONS

                                                   For the years ended
                                                         May 31,
                                             -----------------------------
                                                  2003             2002
                                             -------------    ------------
Revenues ...............................     $ 1,053,855      $   889,136
                                             -----------      -----------
Costs and expenses
   Direct cost of services .............         786,744        1,150,849
   Selling, general and administrative
    Non-cash services and compensation..         878,323        1,075,459
    Other ..............................       1,242,127        2,067,653
   Network and infrastructure ..........           4,404           37,347
   Research and development ............            --            123,598
                                             -----------      -----------
Total costs and expenses ...............       2,911,598        4,454,906
                                             -----------      -----------
Loss from operations ...................      (1,857,743)      (3,565,770)
                                             -----------      -----------
Other income (expense)
  Gain on forgiveness and settlements of
    debts ..............................         450,088          463,767
  Interest expense
    Non-cash ...........................      (1,422,866)      (1,015,044)
    Other ..............................         (73,437)        (444,842)
  Loss from disposal of assets .........         (43,955)         (48,302)
  Other income .........................          17,140           10,761
                                             -----------      -----------
Total other (expense) ..................      (1,073,030)      (1,033,660)
                                             -----------      -----------
Net loss ...............................     $(2,930,773)     $(4,599,430)
                                             ===========      ===========

Net loss per share, basic and diluted ..     $     (0.36)     $    (10.01)
                                             ===========      ===========

Weighted average of common shares, basic
  and diluted ..........................       8,184,705          459,434
                                             ===========      ===========














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



                                      F-4
<PAGE>

                                  Insynq, Inc.

                       STATEMENTS OF STOCKHOLDERS' DEFICIT

                    For the years ended May 31, 2003 and 2002
<TABLE>
<CAPTION>
                                              Preferred Stock           Class A Common Stock                 Common Stock
                                            Shares         Amount         Shares         Amount          Shares         Amount
                                         ------------    ----------     ----------    ----------      ------------     ----------
<S>                                       <C>         <C>                 <C>        <C>                <C>         <C>
Balance, May 31, 2001 .............           --      $       --              --     $       --          335,311    $        335

Issuance of common stock for cash .           --              --              --             --            3,555               4

Issuance of common stock in
conjunction with exercise of
warrants ..........................           --              --              --             --              282               1

Issuance of common stock for non
employee compensation and record
unearned compensation .............           --              --              --             --           40,700              40

Issuance of common stock for trade
debt ..............................           --              --              --             --           32,772              33

Issuance of common stock in
conjunction with conversion of
debentures and accrued interest ...           --              --              --             --          157,233             157

Recission of common stock issued to
employees .........................           --              --              --             --           (5,400)             (5)

Issuance of class A common stock
and record notes receivable from
officers ..........................           --              --            50,000             50           --              --

Issuance of common stock in
conjunction with  exercise of
options by employees ..............           --              --              --             --           30,117              30

Amortization of unearned
compensation ......................           --              --              --             --             --              --

Allocation of discount on
convertible debentures with
warrants and beneficial conversion
features ..........................           --              --              --             --             --              --

Accrue interest on notes receivable
from officers .....................           --              --              --             --             --              --

Issuance of stock options in lieu
of payment of promissory note and
accrued liability .................           --              --              --             --             --              --

Adjustment to re-price warrants ...           --              --              --             --             --              --

Recognition of forgiveness of debts
by related parties ................           --              --              --             --             --              --

Net loss for the year ended May 31,
2002
</TABLE>


                                      F-5
<PAGE>


(Continued from table above, first column repeated)

<TABLE>
<CAPTION>
                                                         Notes and
                                                         Interest
                                       Additional       Receivable                                        Total
                                         Paid-In           From          Unearned      Accumulated     Stockholders'
                                         Capital         Officers      Compensation      Deficit         Deficit
                                       ----------       ----------     ------------    -----------     -------------
<S>                                   <C>             <C>             <C>             <C>             <C>
Balance, May 31, 2001 .............   $ 15,463,704    $       --      $   (725,717)   $(17,997,560)   $ (3,259,238)

Issuance of common stock for cash .         31,996            --              --              --            32,000

Issuance of common stock in
conjunction with exercise of
warrants ..........................          3,525            --              --              --             3,526

Issuance of common stock for non
employee compensation and record
unearned compensation .............        229,540            --          (180,000)           --            49,580

Issuance of common stock for trade
debt ..............................         86,307            --              --              --            86,340

Issuance of common stock in
conjunction with conversion of
debentures and accrued interest ...         99,386            --              --              --            99,543

Recission of common stock issued to
employees .........................        (91,795)           --              --              --           (91,800)

Issuance of class A common stock
and record notes receivable from
officers ..........................         89,950         (90,000)           --              --              --

Issuance of common stock in
conjunction with  exercise of
options by employees ..............        127,744            --              --              --           127,774

Amortization of unearned
compensation ......................           --              --           762,568            --           762,568

Allocation of discount on
convertible debentures with
warrants and beneficial conversion
features ..........................      1,442,549            --              --              --         1,442,549

Accrue interest on notes receivable
from officers .....................           --            (3,604)           --              --            (3,604)

Issuance of stock options in lieu
of payment of promissory note and
accrued liability .................         17,500            --              --              --            17,500

Adjustment to re-price warrants ...        107,803            --              --              --           107,803

Recognition of forgiveness of debts
by related parties ................         46,522            --              --              --            46,522

Net loss for the year ended May 31,
2002                                                                                    (4,599,430)     (4,599,430)
</TABLE>
                                       F-5
<PAGE>


<TABLE>
<CAPTION>

                                              Preferred Stock               Class A Common Stock                Common Stock
                                            Shares         Amount          Shares         Amount           Shares          Amount
                                      ------------ ---------- ---------- ---------- ------------ ---------- ------------ -----------

Continued
<S>                                       <C>             <C>              <C>              <C>          <C>                <C>
Balance, May 31, 2002 .............           --              --            50,000              50         594,570             595

Issuance of common stock for cash
in conjunction with exercise of
options ...........................           --              --              --              --            46,419              46

Issuance of common stock in
conjunction with exercise of
warrants ..........................           --              --              --              --         5,052,500           5,052

Issuance of preferred and common
stock for consulting and marketing
services ..........................         80,000              80            --              --         3,046,500           3,047

Issuance of common stock for
employee accrued compensation .....           --              --              --              --            12,500              12

Issuance of common stock in
conjunction with conversion of
debentures ........................           --              --              --              --            36,000              36

Issuance of common stock in
conjunction with the conversion of
class A common stock ..............           --              --           (50,000)            (50)         50,000              50

Issuance of preferred stock in
conjunction with exchange of common
stock .............................      1,251,410           1,251            --              --          (125,141)           (125)

Allocation of discount on
convertible debentures ............           --              --              --              --              --              --

Accrue interest on notes receivable
from officers .....................           --              --              --              --              --              --

Issuance of stock options and
warrants to non employees .........           --              --              --              --              --              --

Issuance of common stock in
conjunction with the exchange of ..
preferred stock ...................     (1,331,410)         (1,331)           --              --        13,314,110          13,314

Issuance of common stock for
fractional shares in conjunction
with 100 to 1 reverse split .......           --              --              --              --             5,877               6

Amortization of unearned
compensation ......................           --              --              --              --              --              --

Net loss for the year ended May 31,
2003...............................           --              --              --              --              --              --
                                      ------------    ------------    ------------    ------------    ------------    ------------
       Balance, May 31, 2003 ......           --      $       --              --      $       --        22,033,335    $     22,033
                                      ============    ============    ============    ============    ============    ============
</TABLE>


                                      F-6
<PAGE>


(Continued from table above, first column repeated)
<TABLE>
<CAPTION>

                                                         Notes and
                                                          Interest
                                       Additional        Receivable                                       Total
                                        Paid-In             From         Unearned      Accumulated     Stockholders'
                                        Capital           Officers     Compensation      Deficit         Deficit
                                       ----------        ----------    ------------    -----------     -------------
<S>                                    <C>                <C>            <C>          <C>               <C>
Balance, May 31, 2002 ............     17,654,731         (93,604)       (143,149)    (22,596,990)      (5,178,367)

Issuance of common stock for cash
in conjunction with exercise of
options ...........................          5,792            --              --              --             5,838

Issuance of common stock in
conjunction with exercise of
warrants ..........................         17,948            --              --              --            23,000

Issuance of preferred and common
stock for consulting and marketing
services ..........................        207,548            --              --              --           210,675

Issuance of common stock for
employee accrued compensation .....          3,738            --              --              --             3,750

Issuance of common stock in
conjunction with conversion of
debentures ........................          4,464            --              --              --             4,500

Issuance of common stock in
conjunction with the conversion of
class A common stock ..............           --              --              --              --              --

Issuance of preferred stock in
conjunction with exchange of common
stock .............................         (1,126)           --              --              --              --

Allocation of discount on
convertible debentures ............        603,700            --              --              --           603,700

Accrue interest on notes receivable
from officers .....................           --           (11,871)           --              --           (11,871)

Issuance of stock options and
warrants to non employees .........        322,710            --          (258,248)           --            64,462

Issuance of common stock in
conjunction with the exchange of ..
preferred stock ...................        (11,983)           --              --              --              --

Issuance of common stock for
fractional shares in conjunction
with 100 to 1 reverse split .......             (6)           --              --              --              --

Amortization of unearned
compensation ......................           --              --           401,397            --           401,397

Net loss for the year ended May 31,
2003...............................           --              --              --        (2,930,773)     (2,930,773)
                                      ------------    ------------    ------------    ------------    ------------
       Balance, May 31, 2003 ......   $ 18,807,516    $   (105,475)   $       --      $(25,527,763)   $ (6,803,689)
                                      ============    ============    ============    ============    ============
</TABLE>


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


                                      F-6
<PAGE>
                                  Insynq, Inc.

                            STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
                                                                                     For the years ended May 31,
                                                                                  -------------------------------
                                                                                         2003           2002
                                                                                  ---------------- --------------
Cash flows from operating activities
<S>                                                                                <C>             <C>
    Net loss ..................................................................    $(2,930,773)    $(4,599,430)
    Adjustments to reconcile net loss to net cash used in
      operating activities:
        Depreciation and amortization .........................................        219,285         243,422
        Bad debts .............................................................         51,866          17,992
        Amortization of unearned compensation .................................        401,397         762,568
        Issuance of stock for services and compensation .......................        220,263         162,722
        Issuance of options and warrants for services to non-employees ........         64,462            --
        Warrants and beneficial conversion features of debentures .............        878,586       1,095,132
        Capitalized interest on leased assets and notes receivable ............         37,251          85,442
        Discount on capital lease .............................................         31,468          31,467
        Gain on forgiveness and settlement of debts ...........................       (450,088)       (463,767)
        Loss on disposal of assets ............................................         43,955          48,302
        Loss on forfeited deposit .............................................           --            71,000
           Changes in assets and liabilities:
            Accounts receivable - trade .......................................        (64,826)         19,002
            Related party receivables .........................................         21,517            --
            Prepaid expenses ..................................................         16,443        (176,753)
            Accounts payable ..................................................         75,403         345,090
            Accrued liabilities ...............................................        718,099         858,533
            Customer deposits .................................................         14,936         (16,614)
            Deferred compensation .............................................        137,476         (46,132)
                                                                                   -----------     -----------
               Net cash used in operating activities ..........................       (513,280)     (1,562,024)
                                                                                   -----------     -----------
Cash flows from investing activities
      Proceeds from sale of equipment .........................................          4,000            --
                                                                                   -----------     -----------
Cash flows from financing activities
    Proceeds from convertible debentures ......................................        550,000       1,500,000
    Proceeds from related party notes payable .................................          3,684         107,487
    Payments on related party notes payable ...................................        (11,713)        (55,303)
    Payments on capital lease obligations .....................................        (20,116)        (23,137)
    Proceeds on notes payable .................................................          2,887           1,900
    Payments on notes payable .................................................         (5,313)         (5,889)
    Proceeds from issuance of common stock and exercise of options and warrants         23,000          35,526
    Payments and proceeds released from restricted cash - held in escrow ......         10,355          66,645
    Restricted cash - held in escrow ..........................................           --           (77,000)
    Deposit refunds ...........................................................          2,795            --
    Deposits ..................................................................         (3,000)         (5,345)
                                                                                   -----------     -----------
               Net cash provided by financing activities ......................        552,579       1,544,884
                                                                                   -----------     -----------
Net increase (decrease) in cash ...............................................         43,299         (17,140)
Cash at beginning of year .....................................................          9,760          26,900
                                                                                   -----------     -----------
Cash at end of year ...........................................................    $    53,059     $     9,760
                                                                                   ===========     ===========
</TABLE>




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



                                      F-7
<PAGE>




                                  Insynq, Inc.
                          Notes To Financial Statements
                                  May 31, 2003

Note 1 - Business and Background

Business
--------
Insynq, Inc. (the Company) is a Nevada corporation headquartered in Tacoma,
Washington USA. The Company is an application hosting and managed software
service provider that provides server-based computing access and services to
customers who decide to augment all or part of their information technology
requirements. Customers pay a monthly fee for their services and connect to the
Company's server farm primarily through either the Internet, wireless or DSL
connection.

Background
----------
On February 18, 2000, the Company closed an asset purchase transaction
(Acquisition) in which Xcel Management, Inc. (Xcel), a non-operating public
shell company, acquired substantially all of the assets of Company. Under
accounting principles generally accepted in the United States of America, the
Acquisition was considered to be a capital transaction in substance, rather than
a business combination. That is, the Acquisition was equivalent to the issuance
of stock by the Company for the net monetary assets of Xcel accompanied by a
recapitalization, and was accounted for as a change in capital structure.
Accordingly, the accounting for the Acquisition was identical to that resulting
from a reverse acquisition, except that no goodwill was recorded. Under reverse
takeover accounting, the post-reverse-acquisition financial statements of the
"legal acquirer" Xcel, are those of the "legal acquiree" Insynq (the accounting
acquirer).

On August 3, 2000, Xcel completed a re-incorporation as a Delaware corporation
and changed its' name to Insynq, Inc. In connection with the re-incorporation,
the stockholders unanimously voted for the adoption of a plan of
re-capitalization pursuant to which the issued and outstanding shares of the
Company's common stock, would forward split, two-for-one, so that holders of
common stock would receive two shares of the Company's $0.001 par value common
stock for each share held. The 9,915,424 shares of common stock outstanding
immediately prior to the reorganization were converted to 19,830,848 shares of
common stock, and outstanding options and warrants to purchase shares were
converted into options and warrants entitling the holders to purchase twice as
many shares upon exercise of such options and warrants.

On July 25, 2002, the Board of Directors approved a re-incorporation merger of
the Company with its wholly-owned subsidiary, Insynq, Inc., a Nevada
corporation, and effectuated a 100 to1 common stock exchange of the Company's
then issued and outstanding shares of common stock. The re-incorporation, which
was effective December 23, 2002, resulted in the exchange of 59,013,393 common
shares of the terminating entity, Insynq, Inc. - Delaware, for 590,134 common
shares of the surviving entity, Insynq, Inc. - Nevada.

All shares and per share amounts have been retroactively restated to reflect
this December 23, 2002 transaction.

Note 2 - Basis of Presentation and Summary of Significant Accounting Policies

A summary of the significant accounting policies consistently applied in the
preparation of the accompanying financial statements is as follows:



                                      F-8
<PAGE>

Revenue Recognition
-------------------

The Company's principal source of revenue is generated from application hosting,
managed software and related types of services. Application hosting and managed
services revenues are generated through a variety of contractual arrangements
directly with customers. The Company sells its services directly to customers
through annual service subscriptions or month-to-month subscriptions.
Subscription arrangements include monthly subscriber fees, user setup fees and a
last month deposit. New subscription service fees are prorated and invoiced
during the first month of service. Ensuing subscription revenues are invoiced at
the beginning of every month. Initial setup fees received in connection with
these arrangements are recognized in full at the fulfillment of such setup
service. Payments received in advance of the service, even if non-refundable,
are recorded as customer deposits. Generally, any prepaid amount is an advance
payment and is generally applied to the last month's service fee. Customer
discounts are recorded as a reduction of revenue.

Equipment
---------
Equipment is recorded at cost. The cost of maintenance and repairs of equipment
is charged to operating expense. Depreciation is determined based upon the
assets' estimated useful lives and is calculated on a straight-line basis when
the asset is placed in service. When the Company sells, disposes of or retires
equipment, the related gains or losses are included in operating results. The
following table summarizes the Company's asset classifications as of May 31:

                                 Useful Lives        2003               2002
                              ----------------   ----------------    -----------

Capitalized leased equipment       5 Years       $   581,651        $   668,959
Equipment ..................       5 Years           158,762            145,467
Software ...................       3 Years            85,178             97,443
Computer hardware ..........       5 Years            42,232             81,820
Furniture and fixtures .....       7 Years            31,941             43,990
                                                 -----------        -----------
                                                     899,764          1,037,679
      Less accumulated
      depreciation .........                        (654,802)          (552,062)
                                                 -----------        -----------
Equipment, net .............                     $   244,962        $   485,617
                                                 ===========        ===========

Accumulated depreciation on capitalized lease equipment totaled $435,716 and
$344,974 at May 31, 2003 and 2002, respectively.

Depreciation expense for the years ended May 31, 2003 and 2002 was $192,700 and
$217,422, respectively.

Intangible Assets
-----------------
Intangible assets consist of the rights to a proprietary data utility services
system acquired by the Company. The cost was amortized over sixty months. A
summary as of May 31 is as follows:

                                         2003             2002
                                      ---------        ---------
Intangible property ...........       $ 130,000        $ 130,000
  Less accumulated amortization        (130,000)        (103,415)
                                      ---------        ---------
Intangible assets, net ........       $    --          $  26,585
                                      =========        =========

Amortization for the years ended May 31, 2003 and 2002 was $26,585 and $26,000,
respectively.

Long-Lived Assets
-----------------
Long-lived assets, including, but not limited to, equipment and identifiable
intangibles held and used by the Company are reviewed for impairment whenever
events or changes in circumstances indicate that the carrying amount of the
asset may not be recoverable. If such review indicates that the asset is
impaired, when the carrying amount of an asset

                                      F-9
<PAGE>
exceeds the sum of its expected future cash flows on an undiscounted basis, the
asset's carrying amount is written down to fair value. The Company believes that
no impairment of the carrying amounts of its long-lived assets existed at May
31, 2003.


<PAGE>

Research and Development Costs
------------------------------
Research and development costs are expensed in the period incurred.

Advertising Expense
-------------------
Advertising costs are expensed in the period incurred. For the years ended May
31, 2003 and 2002, advertising costs totaled $26,373 and $33,746, respectively.

Concentrations of Credit Risk
-----------------------------
The Company sells the majority of its services throughout North America. The
majority of these sales are made to customers who are billed monthly on open
account and no collateral is required, however, a majority of the transactions
are paid through credit cards or other electronic means. For the year ended May
31, 2003, approximately thirty-four percent (34%) of revenues were from seven
customers, of which, one is a related party to a director and officer of the
Company. The related party business comprised approximately four percent (4%) of
our revenues. Also see the asset purchase agreement in Note 21.

The Company has seven vendor relationships that are critical to the day-to-day
operations. The vendors are in the software, hardware, systems and
communications industries. These vendors supply software and hardware to run the
programs and systems, and provide the means through which the Company connects
and communicates with its customers.

Fair Value of Financial Instruments
-----------------------------------
Financial instruments consist principally of cash, accounts and related party
receivables, trade and related party payables, accrued liabilities, short and
long-term debt obligations. The carrying amounts of such financial instruments
in the accompanying balance sheet approximate their fair values due to their
relatively short-term nature. It is management's opinion that the Company is not
exposed to significant currency or credit risks arising from these financial
instruments.

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

Recent Authoritative Accounting Pronouncements
----------------------------------------------
In April 2002, the Financial Accounting Standards Board (FASB) issued Statement
of Financial Accounting Standards (SFAS) No. 145, Rescission of FASB Statements
No. 4, 44 and 64, Amendment of FASB Statement No. 13, and Technical Corrections.
SFAS 145 rescinds the provisions of SFAS No. 4 that requires companies to
classify certain gains and losses from debt extinguishments as extraordinary
items, eliminates the provisions of SFAS No. 44 regarding transition to the
Motor Carrier Act of 1980 and amends the provisions of SFAS No. 13 to require
that certain lease modifications be treated as sale leaseback transactions. The
provisions of SFAS 145 related to classification of debt extinguishments are
effective for fiscal years beginning after May 15, 2002.

In June 2002, the FASB issued SFAS No. 146, "Accounting for Restructuring
Costs." SFAS 146 applies to costs associated with an exit activity (including
restructuring) or with a disposal of long-lived assets. Those activities can
include eliminating or reducing product lines, terminating employees and
contracts and relocating plant facilities or personnel. Under SFAS 146, the
Company will record a liability for a cost associated with an exit or disposal
activity
                                      F-10
<PAGE>
when that liability is incurred and can be measured at fair value. SFAS 146 will
require the Company to disclose information about its exit and disposal
activities, the related costs, and changes in those costs in the notes to the
interim and annual financial statements that include the period in which an exit
activity is initiated and in any subsequent period until the activity is
completed. SFAS 146 is effective prospectively for exit or disposal activities
initiated after December 31, 2002, with earlier adoption encouraged. Under SFAS
146, a company cannot restate its previously issued financial statements and the
new statement grandfathers the accounting for liabilities that a company had
previously recorded under Emerging Issues Task Force Issue 94-3.

The Company does not believe the adoption of SFAS 145 and 146 will have a
material impact on the Company's financial statements.

In December 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based
Compensation-Transition and Disclosure-an amendment of FASB Statement No. 123".
SFAS 148 amends FASB Statement No. 123, "Accounting for Stock Based
Compensation" and provides alternative methods for accounting for a change by
registrants to the fair value method of accounting for stock-based compensation.
Additionally, SFAS 148 amends the disclosure requirements of SFAS 123 to require
disclosure in the significant accounting policy footnote of both annual and
interim financial statements of the method of accounting for stock-based
compensation and the related pro-forma disclosures when the intrinsic value
method continues to be used. The statement is effective for fiscal years
beginning after December 15, 2002, and disclosures are effective for the first
fiscal quarter beginning after December 15, 2002. Currently, the Company plans
to continue to account for its stock-based compensation using the intrinsic
value method. The Company will incorporate the disclosure requirements of SFAS
148 in future quarterly SEC Form 10-QSB filings.

In May 2003 the FASB issued SFAS No. 150, "Accounting for Certain Financial
Instruments with Characteristics of both Liabilities and Equity." The purpose of
SFAS 150 is to improve the accounting for certain financial instruments that,
under previous authoritative guidance, issuers could account for as equity. The
new Statement requires that the accounting for three specific types of financial
instruments be classified as liabilities in the statement of financial position.
The three financial instruments are: a.) those mandatorily redeemable shares
which the issuing company is obligated to buy back in exchange for cash or other
assets; b.) those instruments which include put options and forward purchase
contracts that require the issuer to buy back some of its shares in exchange for
cash or other assets; and, c.) those obligations which can be settled with
shares, the monetary value of which is fixed, tied solely or predominantly to a
variable such as a market index, or varies inversely with the value of the
issuers' shares. Statement 150 does not apply to features embedded in a
financial instrument that is not a derivative in its entirely. The effective
date of this Statement is after May 31, 2003. The Company does not believe the
implementation of SFAS 150 will have a material impact on the Company's
financial statements.

Reclassifications
-----------------
Certain reclassifications have been made to the previously reported amounts to
conform to the Company's current year presentation.

Note 3 - Going Concern and Management's Plans

The Company's financial statements for the year ended May 31, 2003 has been
prepared on a going concern basis, which contemplates the realization of assets
and the settlement of liabilities and commitments in the normal course of
business. For the year ended May 31, 2003, the Company had a net loss of
$2,930,773 and a negative cash flow from operations of $513,280. The Company had
a working capital deficit of $7,277,476 and a stockholders' deficit of
$6,803,689 at May 31, 2003. The Company's working capital deficit as of May 31,
2003 may not enable it to meet certain financial objectives as presently
structured.

As of May 31, 2003 and August 28, 2003, the Company is not in compliance with
the proper registration and licensing of certain software applications and
products critical to support the customer base and its own internal operations.
The Company has initiated negotiations with these software vendors in an effort
to purchase or lease/rent the licenses to meet the licensing requirements.
Should the Company not reach a satisfactory agreement with these vendors, and
due to the vital and critical nature of these licenses to support its services,
sales and operations it may be forced to cease operations and/or to file
bankruptcy.
                                      F-11
<PAGE>
As of May 31, 2003, the Company was in default on three capitalized lease
obligations. However, in June and August 2003, the Company settled two of the
equipment lease obligations in default totaling approximately $872,600 for
$39,000.

As of May 31, 2003 the Company was delinquent on approximately $836,300 of its
payroll and business taxes and related penalties and interest, which is included
in accrued liabilities. The majority of the past due amount is for payroll
taxes, penalties and interest due to the Internal Revenue Service (IRS), which
in the aggregate, totals an estimated amount of approximately $746,000. The IRS
filed Federal Tax Liens in April 2003 and April 2002 on the assets of the
Company for all past due employment taxes, penalties and accrued interest. The
two liens are for the same tax periods. In October 2002, the Company submitted
an Offer In Compromise to the IRS seeking relief on a portion of its overall
obligation and to structure a payment plan on the settled amount of taxes due.
The Company was notified on April 1, 2003 that the Offer In Compromise was
denied. In June 2003, the Company submitted its second Offer In Compromise to
the IRS. Unless the Company and the IRS agree to a mutually agreeable workout,
the IRS could take possession of the Company's assets and the Company will be
forced to cease operations and/or to file for bankruptcy protection.

As of May 31, 2003, the Company was past due on six related party notes payable
with principal totaling approximately $1,307,300. Total accrued interest related
to these obligations was approximately $360,625 and is included in accrued
liabilities. On August 5, 2003 the Company settled a past due promissory note,
in the amount of $1,162,000 plus accrued interest of $339,538. The total
obligation of $1,501,538 was settled by issuing 65 million shares of restricted
common stock at $0.01, the then fair market value of the common stock.

The development and marketing of the Company's technology and products will
continue to require a commitment of substantial funds. Currently, pursuant to
Item 303(b)(1) and (3) of Regulation SB, the Company has no material capital
commitments. However, should the Company be forced to seek other equipment in
the open market, based on its inability to restructure its capital lease
obligation, the Company would attempt to raise the necessary finances. These
amounts, however, are currently not quantifiable.

The financial statements do not include any adjustments that might result from
the outcome of these uncertainties.

The Company is devoting its efforts into establishing a business in the new
emerging Managed Services Provider industry. The Company is establishing
alliances with Independent Software Vendors and Internet Service Providers to
provide access to their applications for their customers and building new
channels for marketing products to potential customers. As a result of these new
alliances and products, the Company will be able to provide additional and
enhanced services to customers. The Company is continuing to develop new
products to enable the deployment of and on going management of the Company's
services.

The Company successfully implemented cost containment strategies and continues
to devote significant efforts in the development of new products and opening new
markets. Also, the Company continues to contact vendors with past due account
balances with the intention of settling the balance due for cash at either less
than face or structure a long-term payment plan. To date, Company negotiations
to settle creditors' debts have been very favorable and well received.

However, the rate at which the Company expends its resources is variable, may be
accelerated, and will depend on many factors. The Company will need to raise
substantial capital to fund its operations and may seek such additional funding
through public or private equity or debt financing. There can be no assurance
that such additional funding, if any, will be available on acceptable terms. The
Company's continued existence as a going concern is ultimately dependent upon
its ability to secure additional funding for completing and marketing its
technology and products, and, therefore, the success of its future operations.

Note 4 - Loss Per Common Share

Basic and diluted loss per share is computed by dividing the net loss by the
weighted average number of common shares outstanding available to common
stockholders during the period. The weighted average number of common shares
outstanding for basic and diluted loss per share was 8,184,705 and 459,434 for
the years ended May 31, 2003 and 2002, respectively. Common stock equivalents
have been excluded from the computation of diluted loss per share for the
periods presented, as their effect would be anti-dilutive.
                                      F-12
<PAGE>
Note 5 - Notes Receivable - Officers

In January 2002, the Company entered into two promissory notes totaling $90,000
with two of its officers in conjunction with the exercise of non-qualified class
A common stock options. Each note bears interest at 12% per annum, payable on or
before June 2003 and is secured with shares of common stock. As of May 31, 2003
total accrued interest was approximately $15,475. On June 20, 2003 the two
promissory notes, plus accrued interest, were exchanged for a total of 760,822
shares of common stock held by the officers. The common stock was valued at
market on the date of exchange, which was $0.14 per share. The notes receivable,
plus related accrued interest, have been recorded in the Statements of
Stockholders' Deficit.

Note 6 - Notes Payable

The Company has the following notes payable:

                                                      May 31, 2003  May 31, 2002
                                                      ------------  ------------
Note payable to bank, $15,000 revolving line of
credit, bearing interest at prime plus 6.0%
and is unsecured. Prime rate of interest at
May 31, 2003 is 4.25%.............................       $12,152       $13,277

Two notes payable to vendors.  Both notes are past
due.  Interest is 18% and both are unsecured.  On
August 25, 2003, the Company settled one of the
notes payable totaling $1,719  ...................         5,869         6,556
                                                         -------       -------
                                                         $18,021       $19,833
                                                         =======       =======

Note 7 - Related Party Notes Payable

The Company has short-term promissory notes with stockholders, a corporate
officer, and a prior employee. All related party notes, plus accrued interest
are generally due within one year of issuance or on demand and consist of the
following at:
<TABLE>
<CAPTION>

                                                            May 31, 2003     May 31, 2002
                                                            ------------     ------------
<S>                                                          <C>              <C>
Note payable to stockholder, past due, originally
due November 2, 2001, plus accrued interest; bearing
interest at 10% and is unsecured.  On August 5, 2003
the Company settled this obligation by issuing 65
million shares of unregistered common stock in
satisfaction of the note and accrued interest ........       $1,162,000       $1,162,000

Various notes payable to related parties, past due,
with various due dates ranging through April 20, 2002;
bearing default interest ranging from 18% to
21%, and are unsecured ...............................          145,274          153,429
                                                             ----------       ----------
                                                             $1,307,274       $1,315,429
                                                             ==========       ==========
</TABLE>




                                      F-13
<PAGE>

Note 8- Accrued Liabilities

Accrued liabilities consist of the following at:

                                     May 31, 2003     May 31, 2002
                                     ------------     ------------
Salaries and benefits ........       $  251,138       $  264,490
Taxes
     Payroll .................          457,447          515,182
     Business ................           55,147          109,683
     Penalties and interest ..          323,163          233,296
Interest .....................          702,108          272,506
Licenses, consulting and other          607,212          423,673
                                     ----------       ----------
                                     $2,396,215       $1,818,830
                                     ==========       ==========

As of May 31, 2003 the Company was delinquent on approximately $836,000 of its
payroll and business taxes and related penalties and interest. The majority of
the past due amount is for payroll taxes, penalties and interest due to the IRS,
which in the aggregate totals an estimated amount of approximately $746,000. In
April 2002 and April 2003, the IRS filed Federal Tax Liens, on the assets of the
Company for all past due employment taxes, penalties and accrued interest. The
second lien is filed on the same taxes and for the same periods. In October, the
Company submitted an Offer In Compromise to the IRS seeking relief on a portion
of its overall obligation and to structure a payment plan on the settled amount
of taxes due. The Company was notified, on April 1, 2003, that the Offer In
Compromise was denied. The Company submitted its second Offer In Compromise June
2003. Unless the Company and the IRS agree to a mutually agreeable workout, the
IRS could take possession of the Company's assets or the Company will be forced
to cease operations and/or to file for bankruptcy protection.

The Company has workout arrangements with state and city taxing authorities to
pay its past due taxes. As of May 31, 2003, the Company owes approximately
$22,000 pursuant to these workout agreements. Terms of these workouts require
payments ranging from $150 to $2,000 per month, which includes varying rates of
interest, over remaining periods ranging from five to twenty-four months. Two of
the taxing agencies have filed either a warrant or a lien with local county
authorities to protect their position during the respective workout periods. The
following table summarizes the company's remaining obligations as of May 31,
2003 by taxing agency:

                                    Number of
                  Monthly             Months
 Entity           Payment           Remaining            Amount
 ------           -------           ---------          ----------
A ...            $ 2,000                 4.25            $ 8,500
B ...                350                23.03              8,060
C - 1                380                 7.76              2,950
C - 2                150                18.33              2,750
                 -------                                 -------
                 $ 2,880                                 $22,260
                 =======                                 =======

Additionally, two liens have been filed by two other states for past due taxes,
plus accrued penalties and interest. One lien, for approximately $28,000, is to
a state for prior years' income taxes assessed to the predecessor company of
Insynq, Inc. This amount has been disputed and amended returns to correct this
deficiency have been filed, but not yet approved. The second lien is to another
state for payroll taxes, penalties and interest totaling approximately $26,400.
The Company submitted in October 2002 a proposal for a workout settlement on
this state's payroll taxes but, to date, has not received either acceptance or
rejection of its offer.

Note 9 - Convertible Debentures

As of May 31, 2003, the Company is obligated to the investors who purchased
secured convertible debentures over three separate private financing
transactions. On March 6, 2003, the Company entered into an agreement with two
groups of the investors to extend the maturity dates of certain debentures, and,
modify the conversion prices and certain
                                      F-14
<PAGE>
other provisions of all three issuances as described below.

A summary of the transactions and balances due at May 31, 2003 is as follows:
<TABLE>
<CAPTION>
                                                                                                                          Warrants
                                                                                                           Total Amount   Issued in
                                                                                                              Due Per    Connection
                                       Issued                                                               Convertible     with
                                       Convertible    Unamortized   Principal    Principal     Accrued       Debenture   Convertible
Date of Issuance  Date of Maturity*     Debentures     Discount     Redeemed    Amount Due     Interest      Issuance    Debentures
----------------- ------------------- -------------- ------------ ------------ ------------ ------------- -------------- -----------
First Issuance
<S>              <C>                       <C>           <C>          <C>         <C>           <C>            <C>         <C>
June 29, 2001     March 6, 2004*           $550,000      $--          $76,050     $473,950      $105,382       $579,332    1,100,000
August 10, 2001   March 6, 2004*            100,000       --           --          100,000        21,218        121,218      200,000
October 17, 2001  March 6, 2004*            150,000       --           --          150,000        30,270        180,270      300,000
November 2, 2001  March 6, 2004*            400,000       --           --          400,000        83,062        483,062      800,000
                                      -------------- ------------ ------------ ------------ ------------- -------------- -----------
                  Totals                 $1,200,000      $--          $76,050   $1,123,950      $239,932     $1,363,882    2,400,000
                                      -------------- ------------ ------------ ------------ ------------- -------------- -----------
Second Issuance
January 24, 2001  March 6, 2004*           $300,000      $--          $--         $300,000       $53,554       $353,554    1,200,000
July 3, 2002      March 6, 2004*            250,000       26,884       --          250,000        28,138        278,138    1,000,000
                                      -------------- ------------ ------------ ------------ ------------- -------------- -----------
                  Totals                   $550,000      $26,884      $--         $550,000       $81,692       $631,692    2,200,000
                                      -------------- ------------ ------------ ------------ ------------- -------------- -----------
Third Issuance
September 30,     September 30, 2003       $120,000      $39,616      $--         $120,000        $9,971       $129,971      240,000
2002
November 6, 2002  November 6, 2003           30,000       12,933       --           30,000         2,102         32,102       60,000
December 6, 2002  December 6, 2003           30,000       15,514       --           30,000         1,737         31,737       60,000
January 31, 2003  January 31, 2004           60,000       40,233       --           60,000         2,423         62,423      120,000
March 20, 2003    March 20, 2004             30,000       24,000       --           30,000           725         30,725       60,000
March 31, 2003    March 31, 2004             30,000       24,905       --           30,000           615         30,615       60,000
                                      -------------- ------------ ------------ ------------ ------------- -------------- -----------
                  Totals                   $300,000     $157,201      $--         $300,000       $17,573       $317,573      600,000
                                      -------------- ------------ ------------ ------------ ------------- -------------- -----------
Grand Total                              $2,050,000     $184,085      $76,050   $1,973,950      $339,197     $2,313,147    5,200,000
                                      ============== ============ ============ ============ ============= ============== ===========
</TABLE>

                      * Amended
                    Maturity Dates

Summarized below are the net outstanding convertible debentures as of May 31,
2003:
                                                             May 31, 2003
                                                            ----------------
                    Principal amount due                 $       1,973,950
                      Less unamortized discount                   (184,085)
                                                            ----------------
                    Convertible debentures, net          $       1,789,865
                                                            ================

Terms of the First Issuance of Convertible Debentures
-----------------------------------------------------
On June 29, 2001, the Company entered into a private financing transaction with
three investors for a total of $1,200,000, 12% secured convertible debentures.
Pursuant to the amended terms dated March 6, 2003, the debentures are
convertible into shares of common stock at the lesser of (i) $0.30 or (ii) the
average of the lowest three trading prices in the twenty-day trading period
immediately preceding the notice to convert, discounted by sixty percent (60%).
The convertible debentures carry attached warrants that allow the investors,
under the terms of the warrants, to purchase up to 2,400,000 shares of common
stock at $0.25 per share. The terms of the debentures provide for full payment
on or before one year from the date of issuance, plus accrued interest at 12%
per annum. However, these
                                      F-15
<PAGE>
convertible debentures have been amended to provide a maturity date of March 6,
2004 upon which these obligations are to be repaid or converted into common
stock at the investors' option. As of May 31, 2003, principal in the amount of
$1,123,950 plus accrued interest of $239,932 is outstanding. All other terms of
the debentures remain the same In June and August 2003, pursuant to three
notices to convert, a total of $36,950 of principal due on the June 29, 2001
convertible debentures was converted into 5,237,525 shares of common stock.

Terms of the Second Issuance of Convertible Debentures
------------------------------------------------------
On January 24, 2002, the Company entered into a private financing transaction
with three investors for a total of $550,000, 12% secured convertible
debentures. Pursuant to the amended terms dated March 6, 2003, the debentures
are convertible into shares of common stock at the lesser of (i) $0.30 or (ii)
the average of the lowest three trading prices in the twenty-day trading period
immediately preceding the notice to convert, discounted by sixty percent (60%).
The convertible debentures carry attached warrants that allow the investors,
under the terms of the warrants, to purchase up to 2,200,000 shares of common
stock at $0.25 per share. The terms of the debentures provide for full payment
on or before one year from the date of issuance, plus accrued interest at 12%
per annum. However, these convertible debentures have been amended to provide a
maturity date of March 6, 2004 upon which these obligations are to be repaid or
converted into common stock at the investors' option. As of May 31, 2003,
principal in the amount of $550,000 plus accrued interest of $81,692 is
outstanding. All other terms of the debentures remain the same.

Terms of the Third Issuance of Convertible Debentures
-----------------------------------------------------
On September 27, 2002, the Company entered into a third securities purchase
agreement with four investors for the sale of (i) $450,000 in secured
convertible debentures and (ii) the issuance of warrants to buy 900,000 shares
of its common stock. As of May 31, 2003 the investors are obligated to provide
the Company with the funds as follows: (a.) $300,000 has been disbursed, and,
(b.) disburse the remaining $150,000 at the rate of $30,000 per month on the
final business day of each successive month ending September 2003. As of August
28, 2003, the investors have not funded any remaining portion of the $150,000
balance due the Company pursuant to the terms of the agreement.

The debentures bear interest at 12% per annum, mature one year from the date of
issuance, and are convertible into common stock, at the investors' option, at
the lower of:

o        $0.30 per share; or
o        40% of the average of the three lowest intraday trading prices for the
         common stock on a principal market for the 20 trading days prior to,
         but not including, the conversion date.

The full principal amount of the convertible debentures is due upon default
under the terms of the convertible debentures. In addition, the Company granted
the investors a security interest in substantially all of our assets and
intellectual property and registration rights. The warrants are exercisable
until five years from the date of issuance at a purchase price of $0.25 per
share. In addition, the exercise price of the warrants will be adjusted in the
event the Company issues common stock at a price below market. The conversion
price of the debentures and the exercise price of the warrants may be adjusted
in certain circumstances such as if we pay a stock dividend, subdivide or
combine outstanding shares of common stock into a greater or lesser number of
shares, or take such other actions as would otherwise result in dilution of the
investors' position. The Company granted the investors a security interest in
all of its assets against the convertible debentures.

As of May 31, 2003, investors have purchased a total of $2,050,000 of
convertible debentures, and have converted $76,050 of debentures and $27,993 of
accrued interest into 193,232 shares of common stock.

For the years ended May 31, 2003 and 2002, the Company recorded discounts on the
convertible debentures totaling $603,700 and $1,446,300, respectively, which are
equal to the fair value of the warrants, as determined using the Black Scholes
pricing model, and the intrinsic value of the beneficial conversion features.
The Company recognized $878,586 and $987,329 of interest expense on the
discounts for the years ended May 31, 2003 and 2002, respectively. The
unamortized discount balance at May 31, 2003 and 2002 is $184,085 and $458,971,
respectively.

As of August 28, 2003, no warrants issued in conjunction with a convertible
debenture have been exercised.

                                      F-16
<PAGE>
Note 10 - Capital Lease Obligations

As of May 31, 2003, the Company was in default on three capital lease
obligations aggregating $878,704. Accordingly, the leases have been classified
as a current obligation.

In June 2003, the Company settled an equipment lease obligation in default
amounting to $868,600 for $35,000 for an approximate gain on settlement of debt
of $833,600. In August 2003, the Company also paid off a defaulted equipment
lease obligation with an amount due of approximately $4,000.

Note 11 - Common Stock

On December 23, 2002, pursuant to a July 2002 plan of reorganization and the
re-incorporation merger with its wholly-owned subsidiary, the Company
effectuated a 100:1 common stock exchange of its then 59,013,393 shares of
common stock of Insynq, Inc. - Delaware into 590,134 shares of common stock of
Insynq, Inc. - Nevada. All historical amounts and shares have been retroactively
restated to reflect this transaction.

Note 12 - Class A Common Stock

The Board of Directors is authorized to issue of up to 100,000 shares of class A
common stock pursuant to which the holders are entitled to three votes for each
share held, on all matters submitted to stockholders, which voting power may be
used by the holders of such stock to create voting impediments or otherwise
delay or prevent a change in control or to modify the rights of holders of the
Company's common stock. On January 31, 2002, 50,000 options to purchase class A
common stock were exercised by two officers. As of May 31, 2003 and 2002, -0-
and 50,000 shares of class A common stock were issued and outstanding,
respectively. On December 23, 2002 the two officers exchanged the class A common
stock for 50,000 shares of common stock.

Note 13 - Preferred Stock

On July 25, 2002, the Board of Directors authorized the issuance of a series of
preferred stock designated Series A Convertible Preferred in the amount
2,100,000 shares with a par value of $0.001, which designation was filed and
became effective in October 2002. Each share was entitled to vote 50 times the
number of common stock, and, is convertible upon the merger, initially, at the
rate of 10 shares of common stock for each full share of convertible preferred
stock. On October 16, 2002 directors, officers, employees and one investor
executed Exchange Agreements under which they exchanged 10 shares of common
stock for one (1) share of Series A Convertible Preferred Stock. A total of
12,514,110 shares of common stock were exchanged for 1,251,410 shares of
preferred stock. Under the Plan of Merger, effective December 23, 2002, all the
preferred shares, totaling 1,331,410, were converted into 13,314,110 shares of
common stock of the Nevada corporation.

Note 14 - Incentive Plans

The Company's Board of Directors has adopted three long-term incentive plans
(Plans), describe as follows:

2000 Long Term Incentive Plan (LTIP)
-----------------------------------
On March 31, 2000, the Board of Directors adopted the 2000 Long Term Incentive
Plan. The LTIP provides for the issuance of incentive and non-qualified stock
options, stock appreciation rights and restricted stock to directors, officers
and consultants. At the adoption of the Plan, the company set aside 166,753
shares of common stock. On November 19, 2001, the stockholders approved an
amendment to the Plan, which would set aside an additional 150,000 shares of
common stock for a total of 316,753 shares of common stock, which may be issued
upon the exercise of granted options. As of May 31, 2003 the LTIP had 111,195
options available for issuance and outstanding options granted of 126,535.

2000 Executive Long Term Incentive Plan (Executive LTIP)
-------------------------------------------------------
On March 31, 2002 the Board of Directors adopted the 2000 Executive Long Term
Incentive Plan. The Executive LTIP provides for the issuance of incentive and
non-qualified stock options, appreciation rights and restricted stock to

                                      F-17
<PAGE>
executive officers of the Company. The Company set aside 540,000 shares of class
A common stock under this Plan. On December 10, 2001, the Company was authorized
by the Board of Directors to re-price all of the Executive LTIP stock options
from an exercise price of $0.50 per share to an exercise price of $0.015 per
share, which was the fair market value of the common stock on December 10, 2001.
On January 31, 2002, all outstanding non-qualified stock options granted in the
Executive LTIP, which totaled 50,000 shares, were exercised into class A common
stock in exchange for two promissory notes totaling $90,000, as described in
Note 5. In accordance with generally accepted accounting principles (GAAP),
because of the reduction of the exercise price and the consideration received by
the Company, the two non-recourse notes collateralized by the shares issued,
these transactions are accounted for as modifications of the original option
agreements requiring variable accounting and the promissory notes are recorded
as a reduction of stockholders' equity. As of May 31, 2003 the Executive LTIP
had 4,000 shares of class A common shares available for issuance and no
unexercised options.

2002 Directors, Officers and Consultants Stock Option, Stock Warrant and Stock
------------------------------------------------------------------------------
Award Plan (2002 SP)
-------------------
On July 25, 2002, the Board of Directors adopted a third incentive plan, the
2002 Directors, Officers and Consultants Stock Option, Stock Warrant and Stock
Award Plan (2002 SP). The 2002 SP provides for the issuance of incentive and
non-qualified deferred stock incentives to certain executives, directors and key
employees of the Company who contribute significantly to the long-term
performance and growth of the Company. The Company may make awards in the form
of options, warrants, restricted common, convertible preferred stock or
unrestricted common or convertible preferred stock and other awards, or any
combination thereof. The Company set aside 16,000,000 shares of common stock
under this plan at its adoption. Under the 2002 Plan, the Company granted a
total of 8,735,714 options and warrants for shares of common stock and 7,873,214
options and warrants were exercised into common stock in the fiscal year ended
May 31, 2003. As of May 31, 2003, there are 862,500 outstanding options and
warrants to purchase shares of common stock under the 2002 SP. Warrants granted
and exercised within this plan totaled 5,050,000.

The Company's Board of Directors administers the Plans and the Board may amend
or terminate the Plans if it does not cause any adverse effect on any then
outstanding options or unexercised portion thereof. All options generally have
an exercise price equal to the fair value of the underlying common stock on the
date of grant, vest immediately and expire in ten years.

The Company's stock option plan is subject to the provisions of SFAS No 123,
Accounting for Stock-Based Compensation (as amended by SFAS No.148 For
Transition and Disclosure). Under the provisions of this standard, employee and
director stock-based compensation expense is measured using the intrinsic-value
method as prescribed by Accounting Principles Board (APB) Opinion No. 25,
Accounting for Stock Issued to Employees and related Interpretations. Under APB
Opinion No. 25, compensation cost for stock options is measured as the excess,
if any, of the fair value of the underlying common stock on the date of grant
over the exercise price of the stock option.

The Company applies the provisions of SFAS No. 123 for stock-based awards to
those other than employees and directors. Stock-based compensation expense for
these awards is recognized over the related service periods. Companies choosing
the intrinsic-value method are required to disclose the pro forma impact of the
fair value method on net income. The pro forma effect on net loss and loss per
share are as follows for the years ended May 31:

                                            2003                       2002
                                           -----                       ----
Net loss as reported .....            $  (2,930,773)            $  (4,599,430)
Pro forma net loss .......            $  (3,173,407)            $  (5,212,032)

Loss per share as reported            $       (0.36)            $      (10.01)
Pro forma loss per share .            $       (0.39)            $      (11.00)

The fair value of options granted under the Company's stock option plans during
the years ended May 31, 2003 and 2002 was estimated on the date of grant, using
the Black-Scholes pricing model with the following assumptions:
                                      F-18
<PAGE>

                                                          2003      2002
                                                          ----      ----
Weighted average of expected risk-free interest rates     3.97%    4.50%
Expected years from vest date to exercise date ......     3 - 10   3 - 10
Expected stock volatility ...........................      294%     194%
Expected dividend yield .............................       0%       0%

The following table is a summary of the Company's stock option transactions as
of May 31:
<TABLE>
<CAPTION>

                                             2003                          2002
                                   ------------------------      ---------------------------
                                                  Weighted                        Weighted
                                                   Average                         Average
     Activity                        Options   Exercise Price      Options      Exercise Price
---------------------------------------------------------------------------------------------

<S>                                 <C>             <C>            <C>             <C>
Outstanding at May 31 .....         137,137         $24.00         109,125         $65.00
Options granted ...........         485,105            .06         144,841           5.20
Options exercised .........         (10,105)           .31         (90,756)          3.30
Options forfeited .........         (25,942)         40.07         (26,073)         65.60
                                   --------         ------        --------         ------
Balance at May 31 .........         586,196         $ 3.92         137,137         $24.00
                                   --------         ------        --------         ------
Options exercisable .......         583,196         $ 3.74         127,133         $24.60
                                   --------         ------        --------         ------
Options available for grant         130,535                        114,698
                                   --------                       --------
</TABLE>


The following table summarizes information about the Company's outstanding stock
options at May 31, 2003:
<TABLE>
<CAPTION>

                                         Options Outstanding                               Options Exercisable
---------------------    -----------------------------------------------------     ------------------------------------
                                                               Weighted
                                             Weighted           Average                             Weighted
      Range of                                Average          Remaining                             Average
      Exercise              Number           Exercise         Contractual         Number            Exercise
       Prices             Outstanding          Price             Life           Exercisable           Price
---------------           -----------        --------         -----------       -----------         ---------
<S>                        <C>                <C>                <C>             <C>                <C>
 $0.00 - $30.00            560,146            $  0.39            9.36            559,646            $  0.34
 30.01 -  75.00             15,826              37.68            3.05             13,326              38.30
 75.01 - 150.00              4,500             100.33            6.34              4,500             100.33
150.01 - 300.00              5,724             180.41            2.26              5,724             180.41

                           -------            -------            ----            -------            -------
                           586,196            $  3.92            9.10            583,196            $  3.74
                           =======            =======            ====            =======            =======
</TABLE>

During the year ended May 31, 2003, the Company granted 60,105 options to
non-employees, of which 10,105 options were exercised and 4,400 options expired.
Exercise prices of granted options to non-employees ranged between $0.05 and
$34.38 per share. Outstanding options granted to non-employees as of May 31,
2003 were 58,435.

At May 31, 2003, outstanding stock options awarded to Company employees totaled
527,761

During the year ended May 31, 2002, the Company granted 7,672 options to
non-employees, of which 6,917 options were exercised and 720 options expired.
Exercise prices of granted options to non-employees ranged between $1.70 and
$15.00 per share.

Note 15 - Warrants

For the year ended May 31, 2003, the Company issued 10,926,500 warrants to
purchase common stock. Warrants

                                      F-19
<PAGE>
exercised or expired during the year ended totaled 5,096,321. Outstanding
warrants to purchase common stock as of May 31, 2003 totaled 5,997,553. As of
May 31, 2003, warrant exercise prices, exclusive of warrants attached to
convertible debentures, ranged between $.07 and $375.00 per share of common
stock Warrants outstanding to purchase common stock as of May 31, 2002 totaled
167,373. . Substantially all warrants will expire on or before May 31, 2006.

During the year ended May 31, 2003, the Company recorded unearned services
totaling $258,248 for the fair value of warrants granted to consultants as a
reduction of stockholders' equity in the accompanying financial statements. Such
amount is amortized ratably over the service period.

During the year ended May 31, 2002, the Company recorded an additional $180,000
of unearned compensation for the fair value of warrants granted to a consultant
as a reduction of stockholders' equity and amortized ratably over the service
period.

Warrants issued by the Company are valued on the date of grant using the
Black-Scholes pricing model using assumptions similar to options granted.

Note 16 - Employee Retirement Plan

On May 1, 2000 the Company adopted a 401(k) retirement plan (the plan). The plan
was funded by voluntary employee contributions. In addition, the Company
provided a mandatory matching contribution up to a stipulated percentage of an
employee's contributions. Effective January 1, 2002 the Company amended the
401(k) retirement plan to discontinue the mandatory matching requirement. The
amended plan called for discretionary rights to match employee contributions. On
June 7, 2002 the Board approved the termination of the 401(k) retirement plan.
The Company's matching contributions to the 401(k) plan totaled $0.00 and $251
in 2003 and 2002, respectively.

Note 17 - Income Taxes

Deferred tax assets and liabilities are recognized based on the anticipated
future tax effects arising from the differences between the financial statement
carrying amounts of assets and liabilities and their respective tax bases of
assets and liabilities using enacted tax rates.

The following is a reconciliation of the Federal statutory income tax amount to
the provision for income taxes for the years ended May 31,
<TABLE>
<CAPTION>

                                                             2003                   2002
                                                        ------------            -----------
<S>                                                    <C>                     <C>
Tax benefit at federal statutory rate of 34%            $  (996,000)            $(1,535,000)
Permanent differences ......................                471,000                 415,000
                                                        -----------             -----------
                                                           (525,000)             (1,120,000)
Increase in valuation allowance ............                525,000               1,120,000
                                                        -----------             -----------
Provision for income taxes .................            $      --               $      --
                                                        ===========             ===========
</TABLE>

Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of the assets and liabilities for financial
reporting purposes and the amounts used for income tax purposes. Significant
components of deferred Federal income tax are as follows at May 31:
<TABLE>
<CAPTION>

                                                              2003                    2002
                                                          -----------              -----------
Deferred tax asset
<S>                                                      <C>                      <C>
Net operating loss carryforwards ............            $ 11,110,000             $ 10,714,000
Amortization ................................                  29,000                   20,000
Capitalized interest ........................                  47,000                   30,000
Accrued expenses ............................                  13,000                     --
Accrued vacation ............................                  26,000                   18,000
Allowance for doubtful accounts .............                   8,000                    8,000
                                      F-20
<PAGE>
Deferred compensation .......................                  55,000                   21,000
Employee stock options ......................                 352,000                  352,000
Warrants issued to consultants ..............                 840,000                  840,000
                                                         ------------             ------------
              Total deferred tax assets .....              12,480,000               12,003,000
                                                         ------------             ------------
       Deferred tax liability
           Depreciation .....................                  29,000                   77,000
                                                         ------------             ------------
               Total deferred tax liabilities                  29,000                   77,000
                                                         ------------             ------------

       Net deferred tax assets ..............              12,451,000               11,926,000
       Valuation allowance ..................             (12,451,000)             (11,926,000)
                                                         ------------             ------------
                                                         $         --             $        --
                                                         ============             ============
</TABLE>

The Company has recorded a valuation allowance for the full amount of the
deferred tax assets due to the uncertainty of future utilization of net
operating loss carryforwards and realization of other deferred tax assets. At
May 31, 2003, net operating loss carryforwards totaling approximately
$32,678,000, and expiring through 2023, are available to offset future taxable
income. Utilization of these carryforwards is significantly dependent on future
taxable income, and, any future tax benefit is further limited due to a change
of control in the Company's ownership as defined by the Internal Revenue Code,
Section 382.

Note 18 - Related Party Transactions

During the years ended May 31, 2003 and 2002, the Company sold $61,555 and
$74,617 of services, respectively, and received $30,000 and $60,000,
respectively, of consulting services from two entities related to a corporate
officer, director and stockholder. For the year ended May 31, 2003, the Company
wrote off billings due from the related parties totaling $16,455 to bad debts.

Note 19 - Commitments and Contingencies

Operating Leases
----------------
The Company conducts its operations utilizing leased facilities for its
corporate headquarters and for its server farm racks.

A one-year non-cancelable lease was entered into for its corporate offices
commencing on January 1, 2003. Rent is $2,100 per month for the term of the
lease.

In March 2002 the Company entered into a twenty-four month lease by which it
receives racking and bandwidth for its server farm. Terms require escalating
monthly payments starting at $3,000 per month and on the twenty-first month
payments are maximized at $7,900 through the term of the remaining lease.

In December 2002, the Company entered into a twelve-month co-location agreement
for racking and bandwidth for its second server farm. Terms require minimum
monthly payments of $3,303 through the term of the lease.

In October 2001, the Company entered into a thirty-six month equipment lease.
Originally, payments were $3,000 per month; however, in September 2002 the
monthly payment was reduced to $500 per month for the remaining term of the
lease.

The following is a schedule of approximate future minimum operating lease
payments under non-cancelable leases greater than one year as of May 31, 2003:



                                      F-21
<PAGE>


   Years ending
     May 31,                 Amount
   ------------          -----------
       2004              $   112,500
       2005                    1,500
                            --------
                         $   114,000
                            ========

For the years ended May 31, 2003 and 2002, rent expense for facilities and
racking, including a forfeited lease deposit in 2002 of $71,000, was
approximately $132,750 and $255,700, respectively.

Lawsuits
--------
On September 6, 2001, the Company was served with a summons and complaint by its
former landlords, asserting: (a.) a breach of a settlement agreement entered
into in May 2001 to register 5,000 shares of common stock, valued at $80,000, in
partial settlement of its then existing lease, and, (b.) a default by the
Company on two new long-term lease obligations. Terms of the first lease call
for base monthly payments of $12,046 for the period of August 1, 2001 to July
31, 2006, plus triple net charges estimated at approximately $3,038 per month
and beginning in year two, an increase equal to the change in the annual
consumer price index but not less than annual increase of 3%. Minimum aggregate
lease payments and triple net charges approximate $954,500 over the term of the
lease. Terms of the second lease call for monthly payments, beginning in June
2001 of approximately $4,000 per month, or a total of $80,000 for the remaining
term of the lease from August 1, 2001 to May 31, 2003. On October 4, 2001, the
Company's former landlords filed a summons and complaint with local
jurisdictional court for a summary judgment motion on all claims. All claims
under this motion were initially denied. However, on May 10, 2002, the Court
awarded a partial summary judgment in favor of the former landlords for
approximately $170,000. The Company has previously recorded approximately
$170,000 of expense related to this award.

It is the opinion of management and its legal counsel that the settlement
agreement signed in May 2001 requiring the signing of the two new leases was
entered into under economic duress, based on misrepresentation, and, was signed
in bad faith on the part of the former landlords. As such, it is management's
opinion that the settlement agreement and the two lease agreements are void.

Management believes that the ultimate outcome of this litigation will be that
the former landlords will not be successful in their assertions under their
claim(s). Any additional claim under this dispute is not recognized in the
accompanying financial statements. The Company denies the allegations under this
claim and believes this claim is without merit and intends to continuously and
vigorously defend against this lawsuit.

The Company was a party to a lawsuit dated August 6, 2001, that alleged the
Company had breached a promise to pay for goods and services rendered in the
amount of $20,760. In February 2002, the vendor obtained a default judgment in
the amount of $16,500, plus reasonable attorney fees. As of May 31, 2003 the
amount of the judgment is unpaid.

On October 9, 2002, the Company settled an alleged grievance filed by a former
employee for $30,000. As of May 31, 2003, the Company owes $16,500, payable at
$1,500 per month, without interest.

A former vendor filed a lawsuit alleging that the Company has become indebted to
the vendor in the amount of $3,271 with interest of 12% and attorney fees in the
amount of $125. A judgment was filed in favor of the vendor in the amount of
$4,150. We intend to negotiate a settlement this matter.

On April 30, 2003, the Company was served with a complaint relating to an
alleged breach of the Telephone Consumer Protection Act. This matter was settled
with the plaintiffs in the matter for the amount of $1,875.

The Company was party to a lawsuit filed by a prior employee. The lawsuit claim
is for approximately $115,000 (plus accrued interest) for unpaid wages,
severance, bonuses, benefits and expenses. The Company has settled the matter
calling for a cash payment of $17,500 and the issuance of a non-qualified stock
option for 2,000 shares of common

                                      F-22
<PAGE>

stock with an exercise price of $6.50 per share. As of May 31, 2003, the Company
has not paid the cash settlement and the stock options remain unexercised.

The Company has been served with a complaint from a prior vendor alleging that a
trade payable in the amount of $145,265 has not been paid. The Company disputes
the amount and intends to negotiate a settlement. The $145,265 is included in
accounts payable in the accompanying balance sheets.

Certain vendors of the Company have also indicated in writing that if they do
not receive satisfactory payment of amounts owed to them that they may file suit
against the Company. The amounts due the vendors are past due and are included
in accounts payable in the accompanying balance sheets.

Defaults
--------

The Company has defaulted on a Software License Agreement dated September 29,
2000. The agreement required the Company to purchase 10,000 licenses totaling
$235,000. The Company has paid a total of $1,500 toward this obligation and the
term of this agreement expired March 30, 2003. The Company has been in contact
with the party to the agreement in an effort to amend the agreement and change
the contractual obligation to reflect actual licenses sold. Management
anticipates settling this matter within the next few months by paying for the
actual licenses sold since entering this agreement. At May 31, 2003, the
remaining obligation under the agreement is included in accrued expenses and
prepaid licenses in the accompanying balance sheets.

The Company was in default on an equipment lease agreement. In April 1999, the
Company entered into a forty-five month lease, payable $21,133 per month. As of
May 31, 2003, the estimated total amount due, including accrued interest, was
approximately $868,600. In June 2003, management settled this defaulted lease
agreement. The terms of the settlement required the Company to pay $35,000.

The Company had defaulted on a Service Provider License Agreement dated
September 6, 2000. The agreement expired on October 31, 2002. The Company owed
approximately $116,000, and, as of August 25, 2003, management settled the
amount owed on the defaulted agreement, which required a payment of $6,000.

Employment Contracts
--------------------
As of May 31, 2003, the Company has two long-term employment agreements, with
each of its key officers. Each agreement calls for a base compensation,
currently ranging between $165,000 and $275,000 per year. The agreements also
contain wage escalation clauses effective on the anniversary date of the
agreement. Both employment contracts were extended in May 2003 for an additional
three years from the anniversary date, February 20, 2003. Each agreement
contains a bonus incentive clause for performance and rights to exercise vested
stock options at a predetermined price, generally granted at market value, which
range between $1.80 and $200.00 per share. Both agreements contain a severance
clause that stipulates if the executive's contract is not renewed, a severance
payment equal to twice the annual salary at the date of termination will be paid
within sixty days, plus provide other certain benefits.

A third officer has a contract at a base of $125,000 per year and was renewed on
the anniversary date, February 20, 2003, for one year. This agreement also
contains provisions for the issuance of stock options.

Note 20 - Other Disclosures

Gain on Forgiveness and Settlements of Debts
--------------------------------------------
The Company has executed complete settlements and reductions of the outstanding
obligations due certain creditors and employees. For the year ended May 31, 2003
the Company settled approximately $465,000 of obligations for approximately
$15,000 in cash and/or common stock. For the year ended May 31, 2002 the Company
settled approximately $659,800 of obligations for approximately $196,000 in cash
and/or stock.



                                      F-23
<PAGE>

Non-cash Investing and Financing
--------------------------------
Non-cash investing and financing activities included the following for the years
ended:
<TABLE>
<CAPTION>

                                                                                      May 31,
                                                                               2003             2002
                                                                              -------        ---------

<S>                                                                           <C>            <C>
Discount on convertible debentures .................................          603,700        1,446,300
Conversion of debentures  and related  accrued  interest into common
stock ..............................................................            4,500           71,550
Notes payable and accrued interest forgiven by related parties .....             --             46,522
Accrued liabilities converted into common stock ....................             --             39,840
Accounts payable converted into common stock .......................             --              8,000
Notes payable converted into warrants ..............................             --             14,000
Accrued liabilities converted into warrants ........................             --              3,500
Promissory notes receivable issued for class A common stock ........             --             90,000
</TABLE>

Supplemental Cash Flows Information
-----------------------------------
Cash paid for interest for the years ended May 31, 2003 and 2002 was $15,468 and
$31,688, respectively.

Note 21 - Subsequent Events

Convertible Debentures
----------------------
In June and August 2003, pursuant to three notices to convert, a total of
$36,950 of principal due on the convertible debentures originally issued June
29, 2001, was converted into 5,237,525 shares of common stock.

Consulting Agreements
---------------------
On July 15, 2003, the Company entered into a six-month cancelable agreement with
an independent consultant/advisor, in which the consultant will provide business
expertise, advice and negotiations in strategic corporate planning, private
financing, mergers and acquisitions and investor relations, and such other areas
as deemed necessary by company management. The agreement calls for the Company
to pay the consultant a total of $120,000, $20,000 each month over the next six
months. The company issued 1,515,152 shares of common stock to the consultant in
lieu of the initial $20,000 cash payment.

In July 2003 the Company issued 22,666,666 shares of common stock and 17,354,628
options to three consultants pursuant to the terms of their respective business
consulting agreements. As of August 28, 2003, all warrants have been exercised
and the Company holds four promissory notes totaling $236,111.

Settlements
-----------
On June 9, 2003 the Company settled a computer lease that was in default. Terms
of the settlement required a cash payment of $35,000 in consideration for a full
and complete release of the obligation. The Company had recorded approximately
$868,600 due on this of lease obligation as of May 31, 2003. In August 2003, the
Company paid off another equipment lease obligation that was in default. The
settlement was $3,940. As a result of these transactions, the Company will
record a gain on the forgiveness of debts of approximately $833,000.

In June 2003, the Company received a total of 760,822 shares of restricted
common stock from two of its officers, in exchange for the settlement of two
promissory notes and accrued interest due the Company totaling $106,515. On the
day of the settlement, the closing price of the common stock was $0.14 per
share.

On August 5, 2003, the Company reached a settlement with the holder of
approximately $1,501,538 in the form of a promissory note of $1,162,000 for 65
million shares of common stock valued at $0.01 per share of common stock, the
then fair market value, or $650,000. As a result this transaction the Company
will recognize a gain on the forgiveness

                                      F-24
<PAGE>

of debt of approximately $851,500.

In addition, the Company issued 4,900,000 shares of common stock in settlement
of $49,000 of accrued liabilities recorded in June and August 2003. The shares
were issued at the fair market value, which was $0.01.

In August the Company has reached a settlement with a software vendor to settle
its past due obligations aggregating approximately $116,000 for $6,000. The
Company will record a gain on the forgiveness of debts of approximately
$110,000.

Asset Purchase Agreement
------------------------
On August 22, 2003 the Company entered into an Asset Purchase Agreement to sell
a certain portion of its customer base for $100,000. The purchaser has escrowed
the $100,000 until certain closing obligations have been met. In order to
complete the sale of this asset, the Company must obtain a release from the IRS,
who has filed a Federal Tax Lien on the Company's assets, and the Company's
convertible debenture holders. The Company intends to use the proceeds for the
purpose of negotiating a settlement and the release of this asset. The asset
(customer base) sold by Insynq is approximately 45% of the current monthly
revenue.

Common Stock Outstanding
------------------------
As a result of certain transactions above, outstanding common stock totaled
134,808,984 shares at August 28, 2003.













                                      F-25
<PAGE>