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, 2001

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)

               DELAWARE                               74-2964608
    (State or other jurisdiction of        (IRS Employer Identification No.)
     incorporation or organization)

     1101 BROADWAY PLAZA, TACOMA, WASHINGTON                         98402
     (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
                               (Title of Class)

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:  $493,008

The aggregate market value of the Registrant's common stock, $.001 par value,
held by non-affiliates as of July 25, 2001, based on the average bid and asked
price of the common stock as reported on July 25, 2001 on the OTC Bulletin
Board, was: $2,004,933.

As of July 25, 2001, there were 36,461,006 shares of the Registrant's common
stock.

DOCUMENTS INCORPORATED BY REFERENCE: Selected portions of the Registrant's
definitive Proxy Statement for the 2001 Annual Meeting of Stockholders are
incorporated by reference into Part III hereof.

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                                 INSYNQ, INC.

                                   FORM 10-KSB
<TABLE>
                               TABLE OF CONTENTS

<S>                                                                    <C>
PART I    . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .   3
     ITEM 1.   DESCRIPTION OF BUSINESS  . . . . . . . . . . . . . . . .   3
     ITEM 2.   DESCRIPTION OF PROPERTY  . . . . . . . . . . . . . . . .  25
     ITEM 3.   LEGAL PROCEEDINGS  . . . . . . . . . . . . . . . . . . .  25
     ITEM 4.   SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS  . .  27

PART II   . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  27
     ITEM 5.   MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS  27
     ITEM 6.   MANAGEMENT'S DISCUSSION AND ANALYSIS OF
               FINANCIAL CONDITION AND RESULTS OF OPERATIONS  . . . . .  34
     ITEM 7.   FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . .  38
     ITEM 8.   CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
               ON ACCOUNTING AND FINANCIAL DISCLOSURE . . . . . . . . .  38

PART III  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  38
     ITEM 9.   DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND
               CONTROL PERSONS; COMPLIANCE WITH SECTION 16(A) OF
               THE EXCHANGE ACT . . . . . . . . . . . . . . . . . . . .  38
     ITEM 10.  EXECUTIVE COMPENSATION . . . . . . . . . . . . . . . . .  38
     ITEM 11.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
               AND MANAGEMENT . . . . . . . . . . . . . . . . . . . . .  39
     ITEM 12.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS . . . . .  39
     ITEM 13.  EXHIBITS AND REPORTS ON FORM 8-K . . . . . . . . . . . .  39
</TABLE>
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                                    PART I


ITEM 1.        DESCRIPTION OF BUSINESS

     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 "Additional Factors that may Affect Future Results." Unless specified
otherwise, as used herein, the terms "we," "us," or "our" refer to Insynq,
Inc., a Delaware corporation.

     General

          We are a provider of Internet Appliances, managed software services
(through customer premises equipment (CPE) and application hosting), Web
hosting services, and access to Internet marketing assistance and related
equipment and services. We offer these as an integrated whole, either sold
directly or on a fee or subscription basis.

     We target small and medium enterprises (SME) and the high-end segment of
the small office and home office (SOHO) market for the sale of hardware and
hosted software and access to Internet-related services.  We provide these
products and services by developing a customer subscriber base that adopts a
cost-effective, on-line solution to building and maintaining an information
technology (IT) system through the adoption of "Web-based" computing as an
alternative to both local area networks and traditional client-server
implementations.  We concentrate on SME and SOHO customers and market ourselves
as an Internet utility company that can cost-effectively provide all of the
computer software, hardware, connectivity, and Internet- access needs for those
markets.

     We currently have several independent software vendors, or ISVs, on line
using our server-based computing services and anticipate signing various
agreements with additional organizations in the next few months. In addition,
we have recently completed initial training for existing ISVs, and we expect to
further increase our subscriber base through their respective sales channels.
Key ISV relationships currently in place include Remedy Corporation, Macola
Software, and Novell, Inc.

     We believe our core competency is providing products and services related
to server-based and hosted real-time computing.

     History

     One of our predecessor companies, Xcel Management, Inc., formerly known as
"Palace Casinos, Inc." (Xcel), was inactive from the end of 1995 until the
consummation of an asset purchase transaction with another of our predecessor
companies, Insynq, Inc., a Washington corporation (Insynq-WA). During the
two-year period prior to the transaction with Insynq-WA, Xcel and its then
management worked to complete a plan of reorganization confirmed in the United
States Bankruptcy Court under Chapter 11 of the federal bankruptcy laws, and
undertook necessary steps to position Xcel to seek a new business enterprise in
which it could become involved, either through a merger or reorganization, or
an acquisition transaction. These efforts resulted in the transaction with
Insynq-WA, completed in February 2000.

     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.
(the Subsidiary), 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. Although the
original bankruptcy petition was filed in the United States Bankruptcy Court
for the District of Utah, Central Division, the supervision of Xcel's
Chapter 11 proceedings was transferred to the United States Bankruptcy Court
for the Southern District of Mississippi (the Bankruptcy Court). 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 completed in
the end of 1995, with 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 essentially ceased, except for efforts to complete a plan
of reorganization, described below.

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     In February 1999, Steve Rippon and Edward D. Bagley, Xcel's management
at the time, submitted to the Bankruptcy Court, as plan proponents, a plan of
reorganization (the Plan), which was confirmed by the Bankruptcy Court on
June 16, 1999. Under the terms of the Plan: (a) all of Xcel's priority
creditors were paid a total of $5,000; (b) unsecured creditors, holding between
$300,000 and $500,000 in claims, were issued pro rata a total of 90,000 shares
of post- bankruptcy common stock in full satisfaction of such obligations; and
(c) all of the equity holders of Xcel common stock were issued, pro rata, a
total of approximately 90,000 shares of common stock in lieu of a total of
8,794,329 shares of preferred and common stock issued and outstanding, with the
result that .0102 shares of common stock were issued for each previously
outstanding share of common 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 estate and the plan proponents, were
elected as Xcel's officers and directors, and were issued a total of 1,620,000
shares of common stock (810,000 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 1,800,000 shares of common stock,
par value $0.001 per share, 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 undertook efforts to
complete updated financial statements, to prepare and file updated periodic
reports with the Securities and Exchange Commission, and to undertake actions
to enable Xcel to seek a business opportunity for acquisition or involvement by
Xcel.  These efforts resulted in the asset purchase transaction with Insynq-WA.

     On January 26, 2000, Xcel entered into an asset purchase agreement (Asset
Purchase Agreement) with Insynq-WA.  Since September 1998, Insynq-WA was
engaged in providing hardware, software, computer Internet and related
connectivity services and products to the SME and SOHO markets. On or about
that same time, Insynq-WA engaged in a 1.41056 to 1 stock split. The terms of
the Asset Purchase Agreement were substantially completed on February 18, 2000.
Under the terms of the Asset Purchase Agreement, Xcel acquired substantially
all of the assets of Insynq-WA and assumed substantially all of the obligations
of Insynq-WA, in exchange for the issuance by Xcel of a total of 7,604,050
shares of restricted common stock of Xcel to the Insynq-WA shareholders pro
rata in a liquidating distribution. As a result of the transaction, Xcel had a
total of approximately 9,404,050 shares issued and outstanding, of which the
former Insynq-WA shareholders held 7,604,050 shares, or approximately 80.9%. In
connection with the Asset Purchase Agreement, Insynq-WA obtained approval of
the sale of its assets by its shareholders at a duly called and convened
shareholders' meeting.

     As a result of the Asset Purchase Agreement, Xcel acquired essentially all
of the assets, tangible and intangible, of Insynq-WA and became engaged in
Insynq-WA's business. These assets included computer hardware and software and
related equipment, furniture and fixtures, proprietary technology developed by
Insynq-WA, all contractual rights including 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. Xcel also assumed essentially
all of the obligations and liabilities of Insynq-WA, 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-WA. In that
regard, Xcel entered into employment contracts with certain individuals who
were executives or key employees of Insynq-WA on substantially the same terms
as the terms of employment between Insynq-WA and such individuals.

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     Prior to September 1998, the business which ultimately became Insynq-WA's
business was under development as a potential product/services line of
Interactive Information Systems Corporation (Interactive), 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 (1) certain equipment and other tangible
personal property, and (2) 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-WA in exchange for
the initial shares of common stock issued by Insynq-WA at the time of its
formation. Mr. Benton also sold the equipment and other tangible property to
the newly formed Insynq-WA in exchange for a note. Mr. Benton then sold all of
his shares of Insynq-WA common stock to M. Carroll Benton and John P. Gorst,
our Chief Executive Officer, Chairman of the Board and President.
Insynq-WA 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.

     Under the Asset Purchase Agreement, Xcel also agreed to assume all
equipment leases, leaseholder obligations covering office space utilized by
Insynq-WA, all consulting contracts, and all other contract obligations.
Finally, at the time of completion of the Insynq-WA asset acquisition,
Insynq-WA had outstanding to various shareholders a number of warrants and
options which entitled the holders to purchase shares of restricted common
stock of Insynq-WA, which warrants and options were converted into like
warrants and options to purchase shares of Xcel's common stock.

     On August 3, 2000, at a special meeting of shareholders, Xcel completed
a re-incorporation merger with its wholly owned subsidiary, Insynq, Inc.
(Insynq), a Delaware corporation, pursuant to a Plan of Merger dated
June 30, 2000. Pursuant to the Plan of Merger, each shareholder 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.

                                 The Industry

     According to an industry report issued this year by Gerard, Klauer,
Mattison and Company, "ASPs [application service providers] can improve
technology implementation time by 50% - 75%.  Additionally, migrating from a
fat client desktop to a thin client ASP can reduce fully loaded expenses per
desktop by 50% to 60%."

     Insynq further enhances the aforementioned value propositions by
delivering a customer-premises equipment solution that can provide both a
migration path to a less expensive computing model, as well as provide the
customer with a fully managed and secure outsourcing option.

     Studies indicate that within one year there will be over 850,000
information technology staff openings, which is expected to grow to over
1 million vacancies.  Insynq solves the dilemma for businesses that are having
trouble finding qualified staff to maintain their infrastructures, by providing
access to a fully managed information technology service that is affordable and
quickly scalable.

     Cahners In-Stats Research estimates that 40% to 55% of US employees online
will utilize some sort of online computing services from an ASP.  Ray
Laracuenta, Gartner Group Vice President & Research Director, stated in an
Information Week article that "by 2003 more than half of all midsize companies
will have outsourced their packaged applications."  He recommends outsourcing
accounting, payroll, enterprise resource planning, customer-relationship
management, and business-to-business Web sites. "This will let medium-sized
companies focus IT talent on more strategic e-business initiatives that can
drive revenue growth as opposed to cutting costs."

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                             The Internet Industry

     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 migrate 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 leverage the reach and efficiency of the Internet.

     Even as companies have increased their investments in Internet
infrastructure, the complexity of successfully deploying and maintaining
Internet operations continues to increase. In particular, the software
infrastructure required to deploy and maintain large-scale Internet operations
has become increasingly complex.  For example, businesses deploying large-scale
Internet operations can choose from multiple software applications with varying
levels of functionality, including transaction processing, personalization and
enterprise systems integration.  In addition, with increasing globalization,
businesses often must maintain their operations in multiple locations and
design their infrastructure to accommodate local standards, while remaining
synchronous 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 operations,
we believe that companies require a new set of infrastructure services to run
Internet operations on an automated and global basis.  A reliable, secure,
scalable 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 out
equivalent functionality on their own. In addition, businesses would be able
to access the operations 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' Internet operations across multiple locations
via centralized network operations centers.

     We provide all of these key services in an affordable and easy to deliver
package.  Corporate IT departments have a resource that they can depend on to
deliver advanced technology solutions.  The demand for these services, combined
with our ability to deliver, has fueled the exceptional growth and
opportunities that we are experiencing.

                                The Technology

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


Our Proprietary IQ Delivery System

     Our Internet Utility service and our IQ Delivery System were originally
developed by Interactive, a computer integration company located in Tacoma,
Washington.  The early stages of the IQ Delivery System was purchased by
Insynq- WA in September 1998, and was subsequently assumed by Xcel as part of
the Insynq-WA asset purchase agreement in February 2000.  The complete IQ
Delivery System includes managed network and application services, and can span
from a customer's keyboard to the data center.  We provide certain equipment,
which is kept on our customer's premises, including a simplified, diskless
workstation, or Thin Client, and multi-function router that we manage and
maintain.  The system can also include Internet-access services provided by
Global Crossing or another provider. The final piece of the system is the data
center, which is located in Tacoma, Washington.  This facility, with redundant
power, bandwidth, and cooling, houses our Hewlett-Packard server equipment and
Cisco routers. While we recommend that customers use the full IQ Delivery
System, they are free to choose which components they use.

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     In the process of developing the IQ Delivery System, we believe we
acquired valuable technological expertise.  We have created new methodologies
and produced proprietary 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. Some of our key employees
are certified as Microsoft Systems Engineers, Microsoft Certified
Professionals, Certified Netware Administrators, Certified Citrix
Administrators, Certified Netware Engineers and Certified Cisco Architects.

     To support Microsoft Corporation's Windows-based applications, the IQ
Delivery System uses proprietary Citrix Systems, Inc., independent computer
architecture, or ICA, protocol to increase end-user performance and reduce a
customer's total cost of owning and maintaining computer hardware and software.
Our technology utilizes a simple appliance at the client site that 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 Delivery System receives and transmits information in the
form of images rather than data, requiring less bandwidth than traditional
client-server configurations.  Customers may connect to the IQ Delivery System
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 scaled and 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
Internet content 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 an outsourced provider.  Using the IQ Delivery System, 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.  This is the user option recommended by us.

     The traditional workstation, utilizing a central processing unit, or CPU,
and disk resources, constitutes the second type of customer configuration.
These customers may need to use fully-equipped workstations for certain
individual seats that utilize non-Windows software applications or very
specialized, complex applications such as computer aided design, or CAD,
programs.  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 Delivery System, and can be accomplished by
using a Citrix ICA software client and a standard network interface card, or
NIC.  However, because this machine uses an operating system that Insynq does
not manage, the workstation may be more susceptible to various failures.

     Once connected to the IQ Delivery System, 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 SUITE - Customers may select from one of three (3) Office Suites as
part of the virtual desktop subscription.  Customers may also select from a
wide variety of fully supported Windows-based software. 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 at a discounted rate as part of our service.

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     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.

     DATA BACK-UP AND STORAGE - The IQ Delivery System provides daily automatic
backup of customer data on high-speed tape and logs the backups.  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 - Our IQ Delivery System generally raises the level of a
customer's computer security in several ways.  First, our servers are located
in biometrically secured rooms, with keycard access.  Second, customers
utilizing thin client technology additionally prevent 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
center, which is 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 center
generally occur in the form of indecipherable, encrypted images.

     REDUNDANCY - Our IQ Delivery System 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

     We have targeted the following businesses as our primary markets:
(1) businesses with multiple office locations, (2) businesses with a highly
mobile workforce, and (3) high-growth and startup organizations.

     We believe we are different from our competitors because we fill the real
need of enterprises, also referred to as SME and SOHO users, who require
reliable information technology, including propriety and off-the-shelf
software, hardware, and all related services at a cost-effective price. Our
challenge is to educate our target markets on the cost savings associated with
hosted Web- based computing as an alternative to traditional local area
networks and client- server implementations. We will position our product and
service offerings as the high-quality, value-added alternative to traditional
computing models.

     We will promote, market and sell our services in order to achieve our
goals through one primary method --through indirect channels involving
strategic relationships with Internet service providers, or ISPs, connectivity
companies, ISVs, managed service providers, or MSPs, and other ASPs, and
telephone and computer hardware, software resellers and reseller channels.
There is no assurance, of course, that we will be successful in accomplishing
our goal.

     While we believe that it is paramount that we remain focused on our plan,
we must have the ability inherent in small companies to adapt to 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, and expand our technical staff and sales entry points. To attain that
goal, we are aggressively pursuing opportunities to merge and/or acquire
compatible companies with which to leverage management, financial and
operational resources. We believe these strategies will position us well for
future opportunities.  There can be no assurance, however, that we will be able
to implement such strategies.


Recent Restructuring

     Until recently, we operated several satellite sales offices in central and
southern California and in Washington state, selling our hosted and managed
network services to SMEs. In September 2000, we completed our test marketing,
allowing us to focus on our strategic alliance program, which we believe has
proved to be a more beneficial method of increasing awareness and generating
market share of our products and services.

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     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 31 people - mostly in sales-related positions - in addition to
changes to our executive management team, will allow us to (1) reduce operating
costs, (2) provide operational efficiencies, and (3) focus on the development
of strategic alliances in preparation for future growth initiatives.

     As part of our corporate cost restructuring, we consolidated our sales
activities into our corporate headquarters office in Tacoma. We are planning a
redeployment of a national direct sales force in the future to augment our
strategic alliance program; however, there is no assurance that the
redeployment will occur.

     In addition to the restructuring, retroactive to September 1, we reduced
salaries and benefits for certain members of executive management and certain
other employees.  In addition, as of June 30, 2001, we have successfully
negotiated with many of our vendors to materially reduce the amounts owed or to
extend more favorable payment terms.

     We believe that the combination of the restructuring, the salary
reductions and negotiated trade payables will substantially reduce our
corporate overhead.


Our Sales and Marketing

     Our market research and test marketing efforts have resulted in our
targeting the SME market and the SOHO market.  Although specific definitions
for these market segments vary somewhat, we view the high-end SOHO market to
represent small offices with up to 10 employees, and the SME market to
represent companies that employ approximately 11 to 100 people.  We will
occasionally pursue larger opportunities.

          The report dated August 1999 produced by Cahners In-Stat-Group
entitled "Small Company Problems, Future Web-based Computing Solutions: Demand
for Application Services in the Small and SOHO Business Market" found that the
market has never been better for the ASP industry, particularly for service
providers targeting small companies. Customers' increased understanding of
technology, pressures to implement business strategies over the Internet, and
growing confidence in the Internet has set the stage for what we expect to be a
booming market.

     In relation to the SME market, Cahners In-Stat Group states the following:

     *    small companies will spend more than $7 billion on application
          services by 2004, and the majority of the spending will likely be
          part of broadband connectivity;

     *    by 2004, Cahners In-Stat estimated 3 million or more small
          companies will use application services, likely subscribing to them
          through a carrier or broadband connectivity provider; and

     *    In-Stat believes carriers will emerge as the most influential channel
          for ASPs targeting small companies, as these vendors will focus on
          re-positioning themselves as "business service providers,"
          endeavoring to surround their customers with business solutions in
          addition to high-speed connectivity.

     We believe the SME market is very dependant on reliable information
technology. Computers are used for a range of functions including accounting,
shipping, inventory, internal and external communications, and personal
productivity. Small enterprises are typically not large enough, however, to
have dedicated information technology departments like those found in larger
businesses. This, coupled with deficiencies in software automation and the
associated networks to run them, has impeded their efficiency and ability to
compete with more technically enabled competitors.

                                    -  9 -
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     As a result, many SME customers have become willing to outsource their
information technology and software application hosting to ASPs.  We believe
this outsourcing decision allows these companies to focus on their core
competencies rather than the nuisance and overhead associated with managing an
information technology infrastructure. The outsourced information technology
services and pay-as-you-go application subscription that we provide enables our
customers to enjoy the most advanced computing capabilities available, with
higher reliability, and at a lower cost than these companies are currently
experiencing.

     Our target SOHO customer is as dependent on reliable information
technology as any other business.  We believe our standard SOHO customer will
be a multi- user installation using desktop publishing, accounting, Internet,
and administration software as well as job specific software needs.  We believe
we will be able to offer an attractive proposition to the service-oriented and
security-oriented buyers for a cost-effective price.

     We target professional firms including: graphic artists, writers,
consultants, accountants, lawyers, doctors and dentists.  We also target
individuals who maintain home offices for part-time or personal use.

     We leverage existing relationships to dramatically accelerate market
penetration and reduce the cost of producing new sales.  We are currently
pursuing a three-pronged distribution approach, with plans to pursue a fourth
channel as the market matures.  The first three channels of distribution
include: telecommunication providers, direct sales, and independent software
vendors.  The fourth channel is retail.

     First, we will target telecommunication providers to tap new revenue
streams through their sales organizations.  Second, we will develop sales
through alternate channels involving a variety of companies whose core
competencies complement ours.  Several key information technology and carrier
market drivers are reshaping the direction of this segment.  The channel sales
department will leverage these changes to develop a significant value
proposition that can be used by the carrier sales channels as an enhancement
and differentiator for their core product offerings.

     Third, we will target the ISV market, which is comprised of thousands of
U.S. software companies.  In late 1999, our research revealed that a large
percentage of traditional client-server independent software vendors were in
the early stages of determining how the Web-based model of application delivery
would fit in with their respective businesses.  Many prominent independent
software vendors are seeing declines in revenue from Fortune 1000 companies as
this market saturates.  A number of these independent software vendors
conducted market research, which subsequently identified a significant
recurring revenue stream that promised not to negatively impact their
traditional revenue sources including client-server software sales and
installations.

     As a result, a growing number of ISVs are turning toward the SME market
for growth.  We differentiate ourselves by offering a complete delivery system
and offer a unique strategic alliance approach that includes both joint
marketing and joint sales efforts.


                                    - 10 -
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     Competition

     The market for Internet infrastructure services is rapidly evolving and
intensely competitive. We expect competition to persist and intensify in the
future. In addition to in-house solutions, our primary current and prospective
competitors include: providers of co-location or web site hosting and related
services; 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 providers of Internet systems integration or professional
services.

     Many of our competitors have longer operating histories, significantly
greater financial, technical, and other resources, or greater name recognition
than we do. Our competitors may be able to respond more quickly to new or
emerging technologies and changes in customer requirements. Competition could
seriously harm 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:
quality and reliability of services offered; scope of supported applications
and technology platforms; scalability of the operational environment supported;
extent to which the services offered provide a complete solution to a potential
customer's operations requirements; engineering and technical expertise and
development of automation software; rapid deployment of services; quality of
customer service and support; and price. Although we believe our services
compete favorably with respect to each of these factors, the market for our
services is new and rapidly evolving. We may not be able to maintain our
competitive position against current and potential competitors, especially
those with greater resources.

     We compete in a highly competitive market for computer services. The
principal competitive factors include technical innovation to meet dynamic
market needs, product performance and reliability, ease of installation and
use, customer service and support, marketing, and financial strength.

     There are several segments within the application-hosting industry.
Companies that are not currently focused on the SME or SOHO markets will not be
discussed in this document. We have identified the following competitors in the
SME and/or SOHO segments of the ASP market.

     Identified as a primary ASP competitor, FutureLink is backed by
$35 million in funding and is a public company. A viable contender for the
ISV market, FutureLink places higher emphasis on larger organizations with
larger seat counts.

     Breakaway Solutions is a pure ASP, providing sales and support for
vertical applications that include Vignette's e-marketing software, Silknet's
eCRM, OnDisplay's Centerstage product suite and Brio's Internet portal and
analytic tools.

     Originating in Norway, Telecomputing recently established a
U.S. headquarters in Fort Lauderdale, Florida. While being a viable contender
for the mid-market, Telecomputing does not appear to pose a present threat to
us in the SME and SOHO markets, having a higher emphasis on larger companies
with larger seat counts.

     Corio, Inc. and U.S. Internetworking also compete in the ASP market,
although their primary focus is on the middle market, a segment that we are not
specifically targeting with our marketing efforts.


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.

                                    - 11 -
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     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 (FCC) in the same manner as other
connectivity services. For example, America's Carriers Connectivity Association
has filed a petition with the FCC 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 FCC to regulate ISPs and online service
providers, or OSPs, in a manner similar to long distance telephone carriers and
to impose access fees on the ISPs and OSPs. 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 could have a material adverse effect on our business,
results of operations and financial condition.

     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.


Customer Services

     Our Customer Support Service is comprised of Customer Service
Representatives, Customer Support Representatives (the Help Desk) and is
further supplemented by Senior Technical Support Representatives consisting of
Microsoft, Citrix, Novell and Cisco Certified Engineers and Insynq Server
Technicians. The Help Desk is available via toll-free telephone lines to offer
support for any aspect of the IQ Delivery System.


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, ON-Q.net, SIMPLENETWORKS.net, CPA-ASP.com
YOURWEBPC.com, SYSTEMHELP.com, 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
CPE 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, or to develop
technologies similar to our 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.

                                    - 12 -
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     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 have not yet experienced 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.


Employees

     We currently have approximately 21 employees; (a) 9 management and
clerical, (b) approximately 6 technical people, (c) 3 Customer Support
personnel and, (d) an additional 3 marketing and sales personnel.


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 merger effected on August 3, 2000. Our
executive officers include:  John P. Gorst, chief executive officer, president
and chairman of the board, M. Carroll Benton, chief administrative officer,
secretary and treasurer, and Joanie C. Mann, vice president of strategic
alliances. In September 2000, DJ Johnson resigned his position as our chief
financial officer, and we appointed Stephen C. Smith as our interim chief
financial officer while we conduct a nationwide search for a full-time chief
financial officer. In January 2001, William G. Hargin, executive vice president
of marketing, resigned.  In April, James R. Leigh, III, president and chief
technology officer resigned from executive management to assume the position of
general manager of technical operations; while in May 2001, James A. Zachman
resigned as senior vice president to take on a consultative role with Insynq.


Need For Additional Capital

     In order to execute our long-term and short-term strategic plans and to
continue our operations, we need to continue to raise funds through public or
private debt or equity financings. Consistent with this approach, we have
entered into various non-exclusive financial advisory agreements, including,
but not limited to, an agreement with MG Securities Group, Inc., a member of
the National Association of Securities Dealers, Inc., dated May 17, 2001, to
act as placement agent for an offering of our three year convertible secured
debentures, $10,000.00 value per certificate. The offering will be for a
minimum of two million dollars ($2,000,000) and a maximum of
three million dollars ($3,000,000) of gross proceeds. The term of the agreement
is for a period of 120 days in connection with the offering, which will be a
non public offering pursuant to Regulation D under the Securities Act of 1933,
as amended (the Act).  MG Securities has agreed that it will exercise its best
efforts to find suitable purchasers of the debentures, all purchasers of which
will be "accredited investors" within the meaning of Regulation D.  The
offering is to be made to residents primarily in the states of California,
Texas and New York, and pursuant to exemptions from registration provided by
such states' securities laws. In consideration for the services rendered by MG
Securities, we agreed to pay MG Securities an aggregate of 13% of all the
securities sold and to reimburse MG Securities for its reasonable out of pocket
expense and costs.  In addition, we have agreed to issue to MG Securities up to
one million (1,000,000) warrants to purchase shares of our common stock at a
price of $0.25 per share.  The warrants will be earned pro-rata based upon the
number of debentures sold in the offering.

                                    - 13 -
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<PAGE>

     In addition, we entered into a business advisory and consulting services
agreement with Tarshish Capital Markets, Ltd., an Israel corporation, to
provide expertise in completing mergers and acquisitions, raising funds and
rendering strategic business advice, including leverage based buyouts.
Pursuant to the terms of the Tarshish agreement, we have agreed to pay to
Tarshish a 13% success fee of all cash so invested through Tarshish's efforts
and an equity success fee in the form of warrants to purchase our common stock
equal to 10% of the funds raised.  The exercise price for the warrants will be
110% of the equity as valued by the transaction.

     There can be no assurance that we will be able to raise additional capital
through any such financial advisory arrangements, including, but not limited
to, MG Securities. See "Recent Sales of Unregistered Securities" for additional
descriptions of financial advisory agreements we have entered into.


Additional Factors That May Affect Future Results

     An investment in our stock involves a high degree of risk. The following
information discusses certain significant factors that make an investment in
our common stock risky or speculative. However, the risks and uncertainties
described below are not the only ones we face. Other risks, including those not
considered material, may impair our business. If any of the risks discussed
below actually occur, our business, financial condition, operating results or
cash flows could be materially adversely affected, which could cause the
trading price of our common stock to decline.


Risks Particular to Insynq, Inc.

     WE HAVE HISTORICALLY OPERATED AT A LOSS, HAVE EXPERIENCED NEGATIVE
OPERATING CASH FLOWS, AND ANTICIPATE THAT LOSSES WILL CONTINUE.

     We have experienced net losses and negative cash flows since we began
implementing our current business plan. We expect that the ongoing
implementation of our current business plan will increase our net losses and
our negative cash flows for the foreseeable future as we continue to incur
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.

     OUR LIMITED OPERATING HISTORY MAKES EVALUATING OUR BUSINESS DIFFICULT.

     Insynq-WA commenced operations in September 1998. Accordingly, we have
only a very limited operating history upon which you can evaluate our business
and prospects. We face the risks, expenses and difficulties frequently
encountered by early-stage companies in new and rapidly evolving markets,
including on-line companies which host hardware and software applications for
other companies. Our past financial results may not be representative of our
future financial results.

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     OUR QUARTERLY RESULTS OF OPERATIONS FLUCTUATE, WHICH COULD RESULT IN A
LOWER PRICE FOR OUR COMMON STOCK.

     Our quarterly results may be affected by factors that may be beyond our
control, including, but not limited to, the following:

     *    Introduction of new products or pricing programs by our competitors;
     *    Changes in pricing for, and changes in the gross margins of, certain
          products, services, or lines of business as our business model
          continues to develop;
     *    Difficulty managing growth;
     *    Technical difficulties or systems downtime affecting our services and
          products;
     *    Variations in spending patterns by companies;
     *    Other business interruptions; Increases in necessary operating
          expenses; problems with our technology or with the
          ethnology of third parties with whom we do business;
     *    The amount and timing of costs associated with the development and
          maintenance of new hardware and software products;
     *    Economic conditions specific to the Internet or to the hardware and
          software hosting business, as well as general economic conditions;
     *    Customer acceptance of our products and business model;
     *    Costs and risks associated with potential acquisitions;
     *    Inability to acquire or lack of availability of necessary hardware or
          software components, or difficulties in manufacturing; and
     *    Inability to frame additional bandwidth to adequately service
          customer growth.

     In addition, a substantial portion of our expenses, including most product
development and selling and marketing expenses, must be incurred in advance of
revenue generation. If our actual revenue does not meet our expectations, then
our operating profit, if any, may fall short of our expectations. Further, we
may change our pricing strategy for our products due to the rapidly evolving
market for hosting hardware and software applications, and this may affect our
quarterly results. Any one or more of these factors could affect our business,
financial condition, and results of operations, and this makes the prediction
of results of operations on a quarterly basis unreliable. As a result,
period-to-period comparisons of our historical results of operations may not be
meaningful and should not be relied on as an indication of our future
performance. Also, due to these and other factors, it is possible that our
quarterly results of operations may fall below the expectations of public
market analysts and investors. This could adversely affect the trading price of
our common stock.

     WE WILL REQUIRE ADDITIONAL CAPITAL AND/OR VENDOR CREDIT IN THE FUTURE,
WHICH MAY NOT BE AVAILABLE TO US.

     In order to execute our short-term and long-term strategic plans, we need
to continue to raise funds through public or private debt or equity financing
and obtain credit from key vendors. If we raise additional funds by issuing
equity securities, our stockholders may suffer material dilution in their
holdings of our common stock. Also, adequate funds and credit may not be
available to us when we need them, or may not be available to us on favorable
terms. In this case, we may be not be able to obtain or maintain key vendor
products and services, develop or enhance our products or services, take
advantage of business opportunities, or respond to competitive pressures, any
of which could harm our business. If we are unable to raise additional capital
or maintain vendor credit, we will not be able to achieve the goals set forth
in our strategic plan and may be unable to continue to operate our business.

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

     *    Costs to develop and maintain our on-line hosting of hardware and
          software;
     *    The rate at which we expand our operations;
     *    Our ability to timely pay key vendors and improve our credit rating;
     *    The extent to which we develop and upgrade our technology;
     *    The occurrence, timing, size and success of acquisitions; and
     *    The response of competitors to our service offerings.

     We have recently negotiated with many of our vendors to materially reduce
the amounts owed or to extend more favorable payment terms. While these
negotiated terms have successfully 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.

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     WE HAVE CERTAIN CONVERTIBLE SECURITIES OUTSTANDING SOME OF WHOSE
CONVERSION RATE IS CURRENTLY INDETERMINABLE.  AS SUCH, PURCHASERS OF OUR COMMON
STOCK COULD EXPERIENCE SUBSTANTIAL DILUTION OF THEIR INVESTMENT UPON CONVERSION
OF SUCH  SECURITIES.

     Pursuant to a recent transaction, as of July 25, 2001, $550,000 principal
amount of secured convertible debentures and 2,400,000 warrants issued in
connection therewith, were issued and outstanding.  The debentures are
convertible into such number of shares of common stock as is determined by
dividing the principal amount thereof by the then current conversion price.  If
converted on July 25, 2001, the debentures would have been convertible into
approximately 15,714,285 shares of common stock, but this number of shares
could prove to be significantly greater in the event of a decrease in the
trading price of the common stock.  Purchasers of common stock could therefore
experience substantial dilution of their investment upon conversion of the
debentures. The debentures are not registered and may be sold only if
registered under the Securities Act of 1933 or sold in accordance with an
applicable exemption from registration, such as Rule 144.

     The warrants are exercisable over the next ten years at a price equal to
the lesser of $0.04 per share or a variable exercise price based upon the
trading price of the common stock at the time of exercise, which price may be
adjusted from time to time under certain antidilution provisions.  The shares
of common stock into which the debentures may be converted and issuable upon
exercise of the warrants are being registered pursuant to a registration
statement being filed with the SEC.

     In addition to the securities described above, as of July 25, 2001,
22,772,059 shares of common stock were reserved for issuance upon exercise of
our outstanding warrants and options other than those issued in connection with
the debentures, and an additional 34,997,237 shares of common stock were
reserved for issuance upon conversion of the debentures and exercise of the
warrants issued in connection with the debentures.  As of July 25, 2001, there
were 36,461,006 shares of common stock outstanding.  Of these outstanding
shares, 16,038,865 were freely tradeable without restriction under the
Securities Act unless held by affiliates.

     FUTURE DEMAND FOR ASP SERVICES IS HIGHLY UNCERTAIN.

     The market for ASP services has only recently begun to develop and is
evolving rapidly. Future demand for these services is highly uncertain. We
believe that many of our potential customers are not fully aware of the
benefits of ASP services. We must educate potential customers regarding these
benefits and convince them of our ability to provide complete and reliable
services. The market for ASP services may never become viable or grow further.
If the market for our ASP services does not grow or grows more slowly than we
currently anticipate, our business, financial condition and operating results
will be materially adversely affected.

     WE RELY ON TECHNOLOGY AND CHANNEL ALLIANCES AND ISVS TO REFER MANY OF OUR
CLIENTS TO US.

     We rely on referrals from channel alliances for a portion of our business.
Companies with whom we have strategic alliances, including Remedy and Macola,
refer their customers to us because we can provide an array of services that
complement the products and services they offer. However, these companies may
stop or substantially reduce referring business to us or they may decide to
cooperate with our competitors and thereby adversely impact or eliminate the
amount of referrals made to us. If these third party referrals cease or
materially decrease, our sales will materially decline and our business,
results of operations, and financial condition will be materially adversely
affected.

     IF WE ARE UNABLE TO OBTAIN KEY SOFTWARE APPLICATIONS AND HARDWARE
COMPONENTS FROM CERTAIN VENDORS, WE WILL BE UNABLE TO DELIVER OUR SERVICES.

     We rely on third-party suppliers, including Microsoft, Citrix, and Cisco
to provide us with key software applications and hardware components for our
infrastructure. Certain components or 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, may substantially inhibit our ability to deliver our services, and
consequently, our business, results from operations and financial condition
will be materially adversely affected.

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     SOME OF OUR ASP SERVICE CONTRACTS GUARANTEE CERTAIN SERVICE LEVELS.

     Some of our ASP contracts contain service guarantees that obligate us to
provide our hosted 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 ASP customers have the right to cancel their contracts with
us. These credits or cancellations will cost us money, damage our reputation
with our customers and prospective customers, and could materially adversely
affect our business, results of operations and financial condition.

     RAPID GROWTH IN OUR BUSINESS DUE TO AN INCREASE IN THE NUMBER OF CUSTOMERS
PURCHASING OUR PRODUCTS AND SERVICES COULD STRAIN OUR OPERATIONAL AND FINANCIAL
RESOURCES AND CAUSE US TO LOSE CUSTOMERS AND INCREASE OUR OPERATING EXPENSES.

     Any increase in the volume of users of our computer systems could strain
the capacity of our software or hardware, which could lead to slower response
times or system failures. Any future growth may require us, among other things,
to:

     *    Expand and upgrade our hardware and software systems;
     *    Expand and improve our operational and financial procedures, systems
          and controls;
     *    Improve our financial and management information systems;
     *    Expand, train and manage a larger workforce; and
     *    Improve the coordination among our product development, sales and
          marketing, financial, accounting and management personnel.

     We cannot assure you that our current level of personnel, systems, and
controls will be adequate to support future growth. Our inability to manage
growth effectively or to maintain the quality of our products and services
could cause us to lose customers and could materially increase our operating
expenses.

     IF WE DO NOT INCREASE AWARENESS OF OUR PRODUCTS AND SERVICES, OUR ABILITY
TO REACH NEW CUSTOMERS WILL BE LIMITED.

     Our future success will depend, in part, on our ability to increase
awareness of our products and services. To do so, we must succeed in our
marketing efforts, provide high-quality products and services, and increase
traffic to our Website. If our marketing efforts are unsuccessful, or if we
cannot increase our brand awareness, we may not be able to attract new
customers and increase our revenues.

     WE DEPEND HEAVILY ON OUR MANAGEMENT TEAM THAT HAS LITTLE EXPERIENCE
WORKING TOGETHER OR MANAGING A PUBLIC COMPANY.

     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 senior
management (the Executive Management Team). Loss of the services of any or
all of the Executive 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. Also, our Executive
Management Team has worked together for less than two years. The short period
of time that they have worked together, or their inability to work successfully
together, may adversely affect our ability to manage growth. Moreover, our
Executive Management Team has a limited amount of experience managing a public
company. Our Executive Management Team may not be able to manage future growth,
if any, or the demands of successfully operating a public company.

     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 CHANGE 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.

                                    - 17 -
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     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.

     Our services are highly dependent upon proprietary technology, including,
for example, our IQ Delivery System, which allows us to upgrade and manage the
customer's computing environment, both at the data center 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 have
a material adverse effect on our business, results of operations and financial
condition.

     DISRUPTIONS TO THE DATA CENTER, OR TO THE OFFSITE BACKUP STORAGE
FACILITIES OF THIRD PARTIES WITH WHOM WE DO BUSINESS, COULD MATERIALLY AFFECT
OUR BUSINESS.

     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 hardware and software hosting business strategy, including data backup
and storage, depends on the consistent performance of the data center and those
of third parties. We offer offsite back-up storage of data for all customers.
The current data center, 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 center is 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 is located at a single facility, 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 center, we could
lose customers or fail to attract new customers, and our business, results of
operations and financial condition would be materially adversely affected.

                                    - 18 -
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     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.

     Our business depends upon our ability to securely transmit confidential
information between the data center, 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, all of which
could have a material adverse effect on our financial condition and results of
operations.

     WE DEPEND ON LICENSED SOFTWARE APPLICATIONS.

     We depend on contracts with third-party software manufacturers to allow
their software applications to be hosted or run at the data center and
provided to our customers. We have entered into 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 center 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 business, operating results and financial condition
could be materially adversely affected.

     THE HARDWARE AND SOFTWARE WE USE IS COMPLEX AND MAY CONTAIN DEFECTS.

     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 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.

                                    - 19 -
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<PAGE>

     GROSS MARGINS ON CERTAIN PRODUCTS OR LINES OF BUSINESS MAY DECLINE OVER
TIME.

     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 OR ONE OR MORE OF OUR EXECUTIVES, TO ISSUE OR
TRANSFER A SIGNIFICANT AMOUNT OF OUR SHARES OF COMMON STOCK AND PERHAPS PAY
DAMAGES. THE ISSUANCE OF A SIGNIFICANT NUMBER OF SHARES OF OUR COMMON STOCK,
ESPECIALLY IF AT A LARGE DISCOUNT TO THE THEN-CURRENT MARKET PRICE, WILL DILUTE
OUR STOCKHOLDERS, AND THE PAYMENT OF DAMAGES COULD MATERIALLY ADVERSELY AFFECT
OUR FINANCIAL CONDITION, RESULTS OF OPERATIONS, AND THEREFORE, OUR ABILITY TO
ACHIEVE OUR BUSINESS PLAN.

     We were a party to a lawsuit in which the plaintiff, who is the widow of
a former principal and shareholder of Insynq-WA, sought the rescission of an
agreement pursuant to which our Chief Executive Officer purchased 2,500,000
shares from her, a decision from the court that the agreement is unenforceable,
and damages in an unspecified amount. The parties have reached a resolution.
See "Legal Proceedings".

     We were also in negotiations with our former President and Chief Operating
Officer regarding his demands for additional compensation under his employment
agreement. He alleged that he had been damaged in an amount in excess of
$3,000,000, the majority of such alleged damages stemming from his allegation
that he may be unable to obtain employment with other employers in a position
with compensation comparable to that which he alleges we would have paid him
had his employment continued with us. The parties have now reached a resolution
of the lawsuit. See "Legal Proceedings".

     On May 17, 2001, subsequent to a lawsuit filed in Pierce County, State of
Washington by our landlords of our corporate headquarters and data center, we
entered into a settlement agreement with Howe/Horizon Holdings, LLC and Horizon
Holdings I, LLC seeking restitution of delinquent rent.  The parties have now
reached a resolution of the lawsuit. See "Legal Proceedings".

     We are a party to a lawsuit, dated May 31, 2001, in which our former vice
president of sales and marketing seeks payment for various claims in the amount
of approximately $115,000.  We intend to vigorously defend against the lawsuit.
See "Legal Proceedings".

     We have received correspondence from a former acquisition target, which
appears to threaten litigation against us. The allegations against us are
vague, but appear to relate to an improper termination of the acquisition.  We
strenuously deny the allegations and will vigorously defend if proceedings are
filed. .

     Certain of our vendors have also indicated that they might file suit
against us if they do not receive satisfactory payment of their trade payables.
 .

     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 found 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.

                                    - 20 -
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     WE PLAN TO GROW, IN PART, THROUGH MERGERS WITH AND ACQUISITIONS OF OTHER
COMPANIES. HOWEVER, WE MAY NOT BE ABLE TO IDENTIFY, ACQUIRE, AND SUCCESSFULLY
INTEGRATE FUTURE ACQUISITIONS INTO OUR OWN OPERATIONS, WHICH COULD MATERIALLY
ADVERSELY AFFECT OUR GROWTH AND OUR OPERATING RESULTS.

     On June 1, 2001, we announced that we had entered into a definitive
agreement, subject to certain terms, to purchase Omnibus Subscriber Computing,
Inc., a Delaware corporation, and its wholly owned operating subsidiary based
in Toronto, Canada. For more than two years, Omnibus has operated a class A
data center from which it provides server based computing solutions to its
customers' offices in cities all across Canada. One of its customers is the
Canadian division of a Mellon Bank subsidiary. Omnibus also provided a bridging
solution to the Bank of Canada for over a year. Other customers include high
tech and real estate enterprises. Presently more than 370 subscribers are being
served. With this acquisition it is estimated that the combined companies
revenues will double, and their combined customer bases will optimize data
center usage.  There can be assurance that this acquisition will be completed.

     Our business strategy contemplates that in addition to the acquisition
mentioned above, we will seek a number of significant acquisitions within the
next few years. While we have initiated discussions with at least one
acquisition target, there is no assurance that we will complete any such
acquisitions or, if we do complete acquisitions, whether we will successfully
integrate these acquisitions into our business. In addition, there is no
assurance that if we acquire any businesses, we will achieve anticipated
revenue and earnings. Our failure to acquire suitable companies or to
successfully integrate any acquired companies into our operations could have a
material adverse effect upon our business, operating results, and financial
condition.

     MANY OF OUR INSTALLATION, TESTING AGREEMENTS, AND CONSULTING CONTRACTS
HAVE FIXED PRICES, WHICH EXPOSE US TO COST OVERRUNS.  IF WE ARE NOT ABLE TO
CONTROL COST OVERRUNS, OUR OPERATING RESULTS COULD BE MATERIALLY ADVERSELY
AFFECTED.

     We undertake certain projects on a fixed-price basis rather than billing
on a time-and-materials basis, or on a per employee or user basis. Projects
with cost overruns would cause our expenses to increase, and would materially
adversely affect our business, operating results, and financial condition.

     MANY COMPANIES USE NAMES SIMILAR IN SOUND OR SPELLING TO "INSYNQ."
INTELLECTUAL PROPERTY INFRINGEMENT CLAIMS AGAINST US FOR THE USE OF THE NAME
"INSYNQ", OR ONE SIMILAR IN SOUND OR SPELLING, 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 have a material adverse effect on our business,
financial condition, and results of operations.

     OTHERS MAY SEIZE THE MARKET OPPORTUNITY WE HAVE IDENTIFIED BECAUSE WE MAY
NOT EFFICIENTLY EXECUTE OUR STRATEGY.

                                    - 21 -
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<PAGE>

     If we fail to execute our strategy in a timely or effective manner, our
competitors may be able to seize the marketing opportunities we have
identified. Our business strategy is complex and requires that we successfully
and simultaneously complete many tasks. In order to be successful, we will need
to:

     *    Negotiate effective strategic alliances and develop economically
          attractive service offerings;
     *    Attract and retain customers;
     *    Attract and retain highly skilled employees;
     *    Integrate acquired companies into our operations; and
     *    Evolve our business to gain advantages in an increasingly competitive
          environment.

     In addition, although some of our management team has worked together for
approximately one year, there can be no assurance that we will be able to
successfully execute all elements of our strategy.

     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, and our business,
operating results and financial condition will be materially adversely
affected.

     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 EXPAND 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 and could have a
material adverse effect on our business, financial condition and results of
operations.

     RELIABILITY OF MARKET DATA

     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.

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     THIRD PARTY REPORTS AND PRESS RELEASES

     We do not make financial forecasts or projections, nor do we endorse the
financial forecasts or projections of third parties or comment on the accuracy
of third party reports. We do not participate in the preparation of the reports
or the estimates given by analysts. Analysts who issue financial reports are
not privy to non-public financial information. Any purchase of our securities
based on financial estimates provided by analysts or third parties is done
entirely at the risk of the purchaser.

     We periodically issue press releases to update stockholders on new
developments relating to Insynq and our business.  These releases may contain
certain statements of a forward-looking nature relating to future events or our
future financial performance within the meaning of Section 27A of the
Securities Act of 1933, as amended, and Section 21E of the Securities Exchange
Act of 1934, as amended, and which are intended to be covered by the safe
harbors created thereby.

     Readers are cautioned that such statements are only predictions, and
actual events or results may materially differ with those statements.  In
evaluating such statements, readers should specifically review the various risk
factors described herein, among others we identify in documents we file with
the SEC, which could cause actual results to differ materially from those
indicated by such forward-looking statements.


Risks Related to Our Industry

     THE FAILURE OF THE INTERNET TO GROW OR REMAIN A VIABLE COMMERCIAL MEDIUM
COULD HARM OUR GROWTH.

     Our success depends in large part on the maintenance of the Internet
infrastructure as a reliable network backbone 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 EXPENSES
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.

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     OUR INDUSTRY IS RAPIDLY CHANGING.

     Our industry is characterized by rapidly changing technology with
continuous improvements in both computer hardware and software. 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 decline. We must continually purchase new computer hardware and
license new computer software systems to effectively compete in our industry.
In addition, our software delivery methodologies must be able to support
changes in the 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. And moreover, we rely on software
providers to produce software that keeps pace with our customers' demands.

     We may not successfully develop or adopt new technologies, introduce new
services or enhance our existing services on a timely basis; in addition, new
technologies, services, or enhancements we use may never achieve market
acceptance. If we fail to address these developments, we will lose sales to our
competitors and our business, operating results, and financial condition will
be materially adversely affected.


Risks Related to our Common Stock

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

     Provisions of our certificate of incorporation and bylaws and Delaware 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:

     *    Our board of directors is 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;

     *    Our board of directors is authorized to issue of up to 10,000,000
          shares of class A common stock pursuant to which the holders of such
          stock are entitled to three (3) 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 our common stock;

     *    A prohibition on cumulative voting in the election of directors,
          which would otherwise allow less than a majority of stockholders to
          elect directors;

     *    Our articles of incorporation provide that Section 203 of the
          Delaware General Corporation Law, an anti-takeover law, will not
          apply to us. In general, this statute prohibits a publicly held
          Delaware corporation from engaging in a business combination with an
          interested stockholder for a period of three years after the date of
          the transaction by which that person became an interested
          stockholder, unless the business combination is approved in a
          prescribed manner. For purposes of Section 203, a business
          combination includes a merger, asset sale of other transaction
          resulting in a financial benefit to the interested stockholder, and
          an interested stockholder is a person who, together with affiliates
          and associated, owns, or within three years prior, did own, 15% or
          more of our voting stock; and

     *    Limitations on who may call annual and special meetings of
          stockholders.

     CONTROL BY OFFICERS AND DIRECTORS COULD HAVE AN ADVERSE EFFECT ON OUR
STOCKHOLDERS.

     As of July 25, 2001, our directors, executive officers, and their
affiliates beneficially owned approximately 41% of our outstanding common
stock. John P. Gorst, our chairman of the board, chief executive officer and
president, beneficially owns approximately 25.8% of our outstanding common
stock and M. Carroll Benton, our chief administrative officer, secretary and
treasurer beneficially owns approximately 16.3% of our outstanding common
stock. As a result, these stockholders, acting together and with others, have
the potential ability to control substantially all matters submitted to our
stockholders for approval, including the election and removal of directors and
any merger, consolidation, takeover or other business combination involving us,
and to control our management and affairs. This may discourage a potential
acquirer from making a tender offer or otherwise attempting to obtain control
of us, which could materially adversely affect the market price of our common
stock.

                                    - 24 -
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<PAGE>

     THE VOLATILITY OF OUR STOCK PRICE COULD ADVERSELY AFFECT OUR STOCKHOLDERS.

     There currently is a public market for our common stock, but there is no
assurance that there will always be such a market. The trading price of our
common stock is highly volatile and could be subject to wide fluctuations in
response to factors such as:

     *    Actual or anticipated variations in quarterly operating results;
     *    Announcements of technological innovations;
     *    New sales methodologies, contracts, products or services by us or our
          competitors;
     *    Changes in financial estimates by securities analysts;
     *    Announcements of significant acquisitions, strategic partnerships,
          joint ventures or capital commitments;
     *    Additions or departures of key personnel;
     *    Sales of common stock; or
     *    Other general economic or stock market conditions, many of which are
          beyond our control.

      In addition, the stock market in general, and the market for Internet-
related and technology companies in particular, have experienced extreme price
and volume fluctuations that have often been unrelated or disproportionate to
the operating performance of such companies. The trading prices of many
technology companies' stock are at or near unprecedented levels. There can be
no assurance that these trading prices and price-to-earnings predictions will
be sustained. These broad market and industry factors may materially adversely
affect the market price of our common stock, regardless of our operating
performance. Historically, following periods of volatility in the market price
of a company's securities, securities class action litigation has often been
instituted against that company. The institution of similar litigation against
us could result in substantial costs and a diversion of our management's
attention and resources, which could have a material adverse effect on our
business, financial condition, and results of operations.

     YOU SHOULD NOT EXPECT TO RECEIVE DIVIDENDS FROM US.

     We currently do not anticipate paying any cash dividends on our common
stock in the foreseeable future and we intend to retain our earnings, if any,
to finance the expansion of our business and for general corporate purposes.
Any payment of future dividends will be at the discretion of our board of
directors and will depend upon, among other things, our earnings, financial
condition, capital requirements, level of indebtedness, contractual
restrictions, and other factors that our board of directors deems relevant.


ITEM 2.        DESCRIPTION OF PROPERTY

     Our current headquarters are located in Tacoma, Washington, and consist of
approximately 7,264 square feet of office space under a recently re-negotiated
five-year lease expiring January 2006.  In addition, we lease space in the
Tacoma Technology Center under a newly negotiated twenty-four (24) month lease
expiring May 31, 2003, and may be renewed upon written notice.  Under our
current internal cost restructuring plans, we have leased, for a term of one
year, new facilities to house our customer, engineering and administrative
support services.  In addition, we have terminated our sales office facilities
located in Tacoma, WA, and are no longer continuing to lease office space in
Newport Beach, CA.  We believe that the new facilities arrangement will satisfy
our future operations.


ITEM 3.        LEGAL PROCEEDINGS

     As described under "ITEM 1. DESCRIPTION OF BUSINESS," in December 1994,
our predecessor, Xcel, and its then wholly owned subsidiary, filed voluntary
petitions under Chapter 11 of the Federal Bankruptcy Code. As a result of these
filings, all litigation against Xcel was stayed. In June 1999, Xcel's new
management submitted a plan of reorganization that was confirmed by the
Bankruptcy Court. On December 3, 1999, the Bankruptcy Court issued an order
closing the bankruptcy estate. As a result of these proceedings, Xcel was not a
party to any material pending legal proceedings.

                                    - 25 -
===============================================================================
<PAGE>

     On August 14, 2000, Kathleen McHenry (McHenry), the widow of a former
shareholder of Insynq-WA, filed a lawsuit in the Superior Court of Washington
against us, Insynq-WA, Ms. Benton, and Mr. Gorst. In May 1999, Mr. Gorst and
Ms. McHenry entered into an agreement (the McHenry Agreement) whereby Ms.
McHenry sold to Mr. Gorst 2,500,000 shares of Insynq-WA left to her after her
husband's death. The lawsuit alleged that both Mr. Gorst and Insynq-WA did not
perform under the McHenry Agreement, and sought a rescission of that agreement,
a decision from the court that the agreement was unenforceable, and damages in
an unspecified amount. The parties have now reached a resolution of the
lawsuit. Mr. Gorst has agreed to provide 1,500,000 of our shares held by him to
Ms. McHenry in exchange for a complete release by Ms. McHenry of us, Gorst,
Benton and Insynq-WA, as well as a dismissal of the lawsuit with prejudice.
Mr. Gorst is retaining the right to vote, by proxy, the 1,500,000 shares being
returned to Ms. McHenry for so long as Ms. McHenry continues to own such
shares.  Ms. McHenry's counsel is receiving 350,000 of the shares being
returned to Ms. McHenry in payment of their legal fees, and Mr. Gorst is
retaining the right to vote, by proxy, all such shares for so long as Ms.
McHenry's counsel continues to own such shares.

     On October 23, 2000, former president and chief operating officer,
Donald L. Manzano, filed a lawsuit against Insynq in the Superior Court of
California, Placer County. The lawsuit alleged that we breached a written
employment contract and an alleged oral employment contract, breached an
alleged duty of good faith and fair dealing, committed fraud and deceit, and
intentionally inflicted emotional distress upon him. Each of Mr. Manzano's
allegations related to the cessation of his employment with us in approximately
June 2000. He alleged that he had been damaged in an amount in excess of
$3,000,000, the majority of such alleged damages stemming from his allegation
that he may be unable to obtain employment with other employers in a position
with compensation comparable to that which he alleges we would have paid him
had his employment continued with us. He also sought punitive damages. The
parties have now reached a resolution of the lawsuit. We have agreed to provide
the following to Mr. Manzano in exchange for a complete release by Mr. Manzano
of Insynq, as well as a dismissal of the lawsuit with prejudice: (a) a $10,000
payment and (b) 85,000 shares of restricted common stock.

     On May 17, 2001, subsequent to a lawsuit filed in Pierce County, State of
Washington, by the landlords of our corporate headquarters and data center
seeking restitution of delinquent rent in the amounts of $28,925.23 and
$21,000.00, respectively, we entered into a settlement agreement with
Howe/Horizon Holdings, LLC and Horizon Holdings I, LLC.  We settled  (a) the
Broadway Facilities by signing a new five year from a then two year lease;
vacate suite 200 and lease suite 400; an additional security deposit in the
amount of $21,200; issued 290,000 shares of our common stock and a warrant to
purchase 800,000 shares of our common stock at an exercise price of $0.50 per;
and, (b) the Tacoma Technology Center, by signing a new two year lease with a
$1,000 a month increase with no previously contracted reciprocal management
fee; issued 210,000 shares of our common stock and a warrant to purchase
200,000 shares of our common stock at an exercise price of $0.50 per share. In
connection with this settlement, we have also agreed to grant registration
rights of (a) demand registration on or before September 17, 2001 and
(b) piggyback registration rights.

     We are a party to a lawsuit, dated May 31, 2001, in which
William G. Hargin, our former vice president of sales and marketing, seeks
payment for various claims in the amount of approximately $115,000.  We intend
to vigorously defend against the lawsuit.

     We have received correspondence from a former acquisition target which
appears to threaten litigation against us. The allegations against us are
vague, but appear to relate to an improper termination of the acquisition.  We
strenuously deny the allegations and will vigorously defend if proceedings are
filed.

     Certain of our vendors have also indicated that they might file suit
against us if they do not receive satisfactory payment of their trade payables.

                                    - 26 -
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<PAGE>

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

     None.


                                    PART II


ITEM 5.        MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS


Market for Common Stock

     Our common stock currently trades on the OTC Bulletin Board under the
symbol "ISNQ."  Until August 3, 2000, our common stock was traded on the OTC
Bulletin Board under the symbol "XCLL." The following table sets forth, for the
periods indicated, the high and low bid and ask prices for the common stock as
reported on the OTC Bulletin Board. The table gives effect to our two-for-one
stock split that occurred on August 3, 2000. The quotations reflect inter-
dealer prices, without retail mark-up, markdown or commission and may not
represent actual transactions:
<TABLE>
                                             BID                   ASK
                                      -----------------     -----------------
 FISCAL YEAR          QUARTER          HIGH       LOW        HIGH       LOW
-------------     ---------------     ------     ------     ------     ------
<S>               <C>                 <C>        <C>        <C>        <C>
Ended 5/31/00     August 31, 1999     $ 0.01       +        $ 0.5      $ 0.5
                  November 30, 1999     0.04       0.01       0.12       0.5
                  February 29, 2000     N/A        N/A        N/A        N/A
                  May 31, 2000         10.00       2.00      12.75       2.06
Ended 5/31/01     August 31, 2000       6.25       1.75       6.38       0.06
                  November 30, 2000     2.50       0.69       2.75       0.72
                  February 28, 2001     0.94       0.31       1.00       0.31
                  May 31, 2001          0.72        .01       0.81       0.08
<FN>
+    Less than $0.01.
</TABLE>

Holders of Common Stock

     As of July 25, 2001, there were approximately 974 holders of record of our
common stock.


Dividends

     We currently do not anticipate paying any cash dividends on our common
stock in the foreseeable future and we intend to retain our earnings, if any,
to finance the expansion of our business and for general corporate purposes.
Any payment of future dividends will be at the discretion of our board of
directors and will depend upon, among other things, our earnings, financial
condition, capital requirements, level of indebtedness, contractual
restrictions, and other factors that our board of directors deems relevant.


Recent Sales of Unregistered Securities

     The following sets forth information regarding all sales of our
unregistered securities during the past three years. 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 1.41056 to 1 stock split of Insynq-WA, the 1 for 2 stock
split of Xcel effective on January 24, 2000, and the 2 for 1 stock split of
Insynq-Delaware effective on August 3, 2000.

                                    - 27 -
===============================================================================
<PAGE>

1.   We assumed a business services contract dated November 18, 1999, with
     Consulting & Strategy International, LLC, or CSI, under which we granted
     to CSI options to purchase a total of 600,000 shares at a price of $1.00
     per share, and warrants to purchase up to a total of 2,000,000 shares,
     exercisable at any time after May 1, 2001 and before February 20, 2003, in
     increments of 500,000 shares, at exercise prices of $1.25, $1.50, $2.00
     and $2.25. These warrants have a "cashless" exercise provision allowing
     CSI to exercise the warrants for a reduced number of shares pursuant to a
     formula set forth in the warrants. On January 31, 2001, we entered into an
     amendment under which $80,000 of accrued services fees were abated in
     exchange for the re-pricing of the warrants to purchase 2,000,000 shares
     of common stock at an exercise price of $0.50 per share each.

2.   We assumed an equipment financing arrangement dated June 1, 1999, with
     Hewlett-Packard under which we granted to Hewlett-Packard an option to
     purchase a total of 282,112 shares of common stock at any time prior to
     June 1, 2002, at a price of $0.35 per share.

3.   We assumed a financial public relations consulting agreement dated
     September 20, 1999, with One Click Investments, L.L.C., or One Click,
     under which we issued One Click 700,000 restricted shares of common stock
     and granted One Click warrants to purchase a total of 1,500,000 shares of
     common stock, exercisable at any time after February 28, 2001, and prior
     to December 31, 2003, in one-third increments of 500,000 shares, at
     exercise prices of $2.00, $4.00 and $7.50 per share. 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 1,000,000 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, other than contemplated registration on or
     before August 1, 2001, that we shall file, and the February 2000
     warrants shall be re-priced to bear an exercise price of $0.25 per share
     of common stock with an exercise date extending to December 31, 2004 with
     a cashless provision.

4.   We assumed a Consulting Agreement dated October 28, 1999, with
     Robert J. Torres and Lowell Cooper. In consideration of consulting
     services rendered we granted options to each of Mssrs. Torres and Cooper
     entitling them to purchase a total of 218,637 shares and 134,003 shares,
     respectively, at any time prior to November 2, 2003, at an exercise price
     of $2.13 per share.

5.   We assumed the obligations under a bridge financing with CSI, dated
     December 14, 1999, pursuant to which 1,300,000 common shares were issued
     to nine investors at a price of $0.50 per share.

6.   In January of 2000, Insynq-WA completed a private offering of a total of
     1,311,821 shares of common stock at an offering price of approximately
     $0.71 per share. Each purchaser in the private offering was issued one
     Series A Warrant and one Series B Warrant for each share of common stock
     purchased by such purchaser. The Series A Warrants and Series B Warrants
     entitle the purchasers to purchase a share of common stock at any time on
     or before December 31, 2001, at a price of $1.77 and $2.84, respectively.

7.   In January 2000, Timothy Horan, as trustee on behalf of certain parties
     named below, advanced to Insynq-WA the sum of $150,000 to provide
     Insynq-WA with capital to secure the leased facility at 1101 Broadway
     Plaza, Tacoma, Washington. In consideration of this financing, and
     pursuant to an agreement, Mr. Horan, as trustee, was issued a total of
     300,000 shares of restricted common stock, as follows: 150,000 shares to
     Timothy Horan; 75,000 shares to Travin Partners, L.L.L.P. and 75,000
     shares to International Fluid Dynamics, Inc.

8.   On February 20, 2000, we entered into a consulting agreement with
     Vijay Alimchandani (VJ), under the terms of which we engaged VJ to provide
     us with general consulting services for which we granted options to VJ as
     follows: (a) 500,000 shares, exercisable at any time prior to
     February 21, 2005, at a price of $0.25 per share; and (b) 400,000 shares,
     exercisable one year from the commencement date of the contract, for a
     period of five years, at an exercise price of $0.50 per share. We also
     agreed to grant to VJ (a) an additional option, entitling him to purchase
     a total of 180,000 shares for a five-year period beginning at the end of
     24 months from the date of the agreement, if such agreement is extended by
     us, at price of $0.75 per share; and (b) bonus options of between 50,000
     to 100,000 shares to be granted at the discretion of the board of
     directors at an exercise price of not more than $1.50 per share. On
     July 10, 2001, we entered into an agreement to provide professional
     services with Central Software Services Inc. (Central Software). Under the
     terms of the agreement, a previous agreement with VJ, dated
     February 20, 2000, was cancelled in its entirety. For a term of six
     months, Central Software will provide professional services in the form of
     identifying and negotiating acquisition opportunities and other merger
     consulting as appropriate.  Under the terms of the agreement, Central
     Software will receive 2,000,000 shares of restricted common stock at
     $0.07 per share and a monthly payment of $10,000. In addition, we will
     issue an additional 500,000 shares of restricted shares of common stock
     upon the successful completion of each acquisition.

                                    - 28 -
===============================================================================
<PAGE>

9.   On or about April 6, 2000, we sold a total of 61,944 shares of common
     stock to two investors, The Perry Family Trust and John Anderson, under
     the terms of which the Perry Trust and Mr. Anderson were granted a total
     of 61,944 warrants to purchase shares of common stock at an exercise price
     of $3.25 per share.

10.  On or about April 26, 2000, we sold a total of 285,714 shares of common
     stock to Plazacorp Investors Limited, an Ontario corporation, at a price
     of $1.75 per share. In connection with this sale, Plazacorp was granted
     warrants to purchase an additional 571,428 shares of common stock,
     exercisable at any time for a five (5) year period, at a price of
     $2.75 per share with respect to 285,714 shares, and $3.75 per share with
     respect to the remaining 285,714 shares. In connection with this
     transaction, Plazacorp was granted registration rights under a
     Registration and Repurchase Agreement (the "Agreement") requiring us to
     file a registration statement by October 31, 2000 and to cause the
     registration statement to be effective on or before January 31, 2001. In
     the event we did not file a registration statement by October 31, 2000, or
     the registration statement was not declared effective by
     December 13, 2000, Plazacorp had the right, but not the obligation, to
     require us to repurchase the shares (but not shares issuable on exercise
     of the warrants), at a price of $2.50 per share. On November 1, 2000, we
     entered into an Agreement with Plazacorp under which Plazacorp agreed to
     relinquish its right to require us to repurchase the 285,714 shares at
     $2.50 in exchange for the conversion of those shares into the right to
     receive 1,428,730 shares with an agreed value of $0.50 per share.

11.  On or about May 17, 2000, we sold a total of 125,000 shares of common
     stock at a price of $2.00 per share to the following investors:
     Raymond Betz - 25,000 shares; Timothy Horan - 50,000 shares; and
     International Fluid Dynamics, Inc. (IFD) - 50,000 shares. In connection
     with this transaction, the purchasers were granted warrants to purchase an
     equivalent number of additional shares (or a total of 125,000 shares), at
     any time on or before May 17, 2005, at an exercise price of $3.00 per
     share. In connection with this transaction, the purchasers were granted
     registration rights under a Registration and Repurchase Agreement (the
     "Agreement") requiring us to file a registration statement by
     October 31, 2000, and to cause the registration statement to be effective
     on or before January 31, 2001. In the event we did not file a registration
     statement by October 31, 2000, or the registration statement was not
     declared effective by January 31, 2001, the purchasers had the right, but
     not the obligation, to require us to repurchase the shares (but not shares
     issuable on exercise of warrants), at a price of $2.86 per share. On
     November 1, 2000, we entered into an Agreement with each of Betz, Horan
     and IFD under which each agreed to relinquish the right to require us to
     repurchase their respective number of shares at $2.86 in exchange for the
     conversion of those shares into the right to receive an aggregate of
     715,000 shares with an agreed value of at $0.50 per share.

12.  On May 26, 2000, we entered into a consulting agreement with MQ Holdings,
     Inc. (MQ), under the terms of which we issued a total of 40,000 shares of
     restricted common stock to two individuals - Mark DeStefano and T J Jesky
     - for services to be rendered in assisting us in our corporate and
     securities filings, and other consulting services. Under the terms of the
     consulting agreement, we filed an S-8 registration statement for the
     registration of the shares issued on October 4, 2000.  In December 2000,
     MQ Holding, rescinded 20,000 shares of common stock with no future claims.

13.  On or about June 15, 2000, we entered into a non-exclusive financial
     advisory agreement with Sunstate Equity Trading, Inc., a Florida
     corporation, which is a member of the NASD, under the terms of which we
     have engaged Sunstate, on a non-exclusive basis, to provide financial
     advisory services and advice. In consideration of the services undertaken
     by Sunstate, we issued to Sunstate a total of 125,000 shares of restricted
     common stock. This agreement was amended on September 22, 2000, to include
     the provision of additional services by Sunstate, including, but not
     limited to, sponsoring us in conferences with various investments groups.
     In consideration of these additional services, we issued to Sunstate an
     additional 250,000 shares of restricted common stock.

                                    - 29 -
===============================================================================
<PAGE>

14.  On June 16, 2000, we entered into a private financing transaction with two
     investors, Travin Partners, L.L.L.P. (TPL) and TCA Investments, Inc.
     (TCA), under the terms of which TPL and TCA each loaned us the sum of
     $325,000 (the loans), and were sold convertible debentures and granted
     warrants, described below. The loans are payable pursuant to the terms of
     identical convertible debentures, providing for full payment on or before
     June 16, 2002 (the due date), with interest at the current Bank of America
     prime rate, plus 1/2%. All accrued interest under each Debenture is
     payable only in shares of our common stock at a price of $0.71 per share.
     In addition to the Debentures, TPL and TCA were granted warrants entitling
     each of them to purchase a total of 457,746 shares of our common stock at
     a price of $1.00 per share, at any time after November 15, 2000 and before
     June 15, 2005.  On November 1, 2000, we entered into an Agreement with
     each of TPL and TCA under which each agreed to relinquish its right to
     convert the debentures into shares of common stock at $0.71 per share in
     exchange for the conversion of those debentures into the right to receive
     an aggregate of 1,300,000 shares with an agreed value of $0.50 per share.

15.  On July 17, 2000, we entered into a private financing transaction with two
     investors, International Fluid Dynamics, Inc. (IFD) and Garnier Holdings,
     Inc. (Garnier), under the terms of which IFD and Garnier each loaned us
     the sum of $127,500 (the loans), and were granted warrants described
     below. The loans are payable pursuant to the terms of a promissory note
     (the note), providing for full payment on or before August 1, 2000 (the
     due date), with interest compounded annually at the Chase Manhattan Bank,
     N.A. rate quoted as its prime. The warrants entitle each of IFD and
     Garnier to purchase a total of 325,000 shares of our common stock at a
     price of $2.00 per share at any time after December 28, 2000 and before
     July 17, 2005. If the notes were not paid by 5:00 p.m. CST on
     August 17, 2000, the exercise price would have decreased by one-half, or
     $1.00, and on and after each additional ten (10) day period that the notes
     remain unpaid, the exercise price would have decreased by an additional
     ten percent (10%).  On November 1, 2000, we entered into an Agreement with
     each of Garnier and IFD under which each of them agreed to relinquish its
     right to payment under the promissory notes in exchange for the conversion
     of those notes into the right to receive an aggregate of 510,000 shares
     with an agreed value of $0.50 per share.  Under that same agreement, each
     of Garnier and IFD agreed to lock in the exercise price of the warrants
     under the Warrant Agreement at $0.50 per share.

16.  On August 2, 2000, we entered into a private financing transaction with
     five foreign investors under the terms of which the investors purchased an
     aggregate of 200,000 shares of our common shares at a price of $0.60 per
     share.

17.  On August 4, 2000, we sold a total of 200,000 shares of common stock to
     One Click Investments, LLC, at a price of $0.60 per share. In connection
     with this sale, One Click was granted warrants to purchase an additional
     200,000 shares of common stock, exercisable at any time for a five (5)
     year period, at a price of $2.00 per share.

18.  On August 24, 2000, we entered into a private financing transaction with
     certain foreign investors under the terms of which the investors purchased
     an aggregate of 135,000 of our common shares at a price of $0.2963 per
     share.

19.  On September 11, 2000, we entered into a private financing transaction
     with two investors, Travin Partners, L.L.L.P. (TPL) and TCA Investments,
     Inc. (TCA), under the terms of which Travin and TCA each loaned us the sum
     of $125,000 (the loans), and we issued the convertible debentures and
     granted warrants, described below. The loans were payable pursuant to the
     terms of identical convertible debentures providing for full payment on or
     before October 11, 2000 (the due date), with interest at the current Bank
     of America prime rate, plus 1/2%. All principal and accrued interest under
     each debenture was convertible into shares of our common stock at a
     conversion price of (a) $1.00 per share or (b) sixty percent (60%) of the
     average of the bid price, whichever is lower on the date of conversion. In
     addition to the debentures, TPL and TCA were granted warrants entitling
     each of them to purchase a total of 125,000 shares of our common stock at
     a price of $1.00 per share, at any time after September 11, 2000 and
     before September 11, 2005. These warrants have a "cashless" exercise
     provision allowing TPL and/or TCA to exercise the warrants for a reduced
     number of shares pursuant to a formula set forth in the warrants.  On
     November 1, 2000, we entered into an Agreement with each of TPL and TCA
     under which each agreed to relinquish its right to convert the debentures
     into shares of common stock in exchange for the conversion of those
     debentures into the right to receive an aggregate of 500,000 shares with
     an agreed value of $0.50 per share.

                                    - 30 -
===============================================================================
<PAGE>

20.  On October 20, 2000, we entered into a private financing transaction with
     three investors, International Fluid Dynamics, Inc. (IFD), Plazacorp
     Investments Limited (Plazacorp) and Travin Partners, L.L.L.P. (TPL), under
     the terms of which IFD and TPL each loaned us the sum of $125,000 and
     Plazacorp loaned us the sum of $250,000 (the loans). The loans are payable
     pursuant to the terms of a promissory note (the note), providing for full
     payment on or before November 3, 2000 (the maturity date), with interest
     payable on the maturity date of ten percent (10%) per annum based on a
     365-day year. On November 1, 2000, we entered into an Agreement with each
     of IFD, Plazacorp and TPL under which each of them agreed to relinquish
     its right to payment under the promissory notes in exchange for the
     conversion of those notes into the right to receive an aggregate of
     1,000,000 shares with an agreed value of $0.50 per share.

21.  On November 1, 2000, we entered into a private financing transaction with
     Plazacorp Investments Limited (Plazacorp) under the terms of which
     Plazacorp agreed to loan us up to $1,120,000 (the loan). The loan is
     payable pursuant to the terms of a promissory note (the note), providing
     for full payment on or before November 2, 2001 (the maturity date), with
     interest payable on the maturity date of ten percent (10%) per annum based
     on a 365-day year. Under the terms of the note, upon our written request
     Plazacorp shall advance to us up to $300,000.00 under this note in each
     calendar month during which advances can be requested thereunder (a
     monthly advance).  An advance can be requested during each of
     November 2000, December 2000 and January 2001 at any time after the 10th
     day of each month. During the term of the note and after the effective
     date of a registration statement filed with the SEC registering the shares
     of our common stock held by Plazacorp, we can request in writing, and
     Plazacorp shall pay within 10 business days of the written request, an
     advance of up to an additional $220,000.00 (an additional advance) for the
     payment of certain obligations of ours that are currently due and owing.
     Notwithstanding the foregoing, if we raise funds in a financing of either
     our debt or equity securities during the term of the note (a new
     financing), and (a) the new financing is up to, but does not exceed,
     $220,000.00, Plazacorp's obligation to advance the additional advance
     amount, if it has not already done so, shall be reduced dollar for dollar
     by the amount of the new financing, or (b) the new financing exceeds
     $220,000.00, Plazacorp shall not be obligated to advance the additional
     advance amount, if it has not already done so, and in addition, the
     obligation of Plazacorp to advance the monthly advances remaining to be
     advanced thereunder, if any, shall be reduced dollar for dollar by the
     amount of the funds raised in the new financing.

22.  On November 11, 2000, we entered into an agreement with Bridge 21, Inc., a
     Wyoming corporation, under the terms of which we have formed a
     relationship to provide seats to Bridge 21's members. In consideration of
     the relationship, we granted to Bridge 21 a total of 30,000 options to
     purchase our common stock at a price to be determined on the date of
     exercise based on certain performance goals.

23.  On December 7, 2000, for services rendered, we granted to Locke Liddell &
     Sapp LLP warrants to purchase 100,000 shares of common stock,
     exercisable at any time for a five (5) year period, at an exercise price
     of $0.50 per share.

24.  On February 19, 2001, we entered into a business advisory and consulting
     services agreement with Tarshish Capital Markets, Ltd., an Israel
     corporation, under the terms of which we have engaged Tarsish, on a best
     efforts basis, to seek funding sources for a private offering exempt from
     registration requirements.  In consideration of the services undertaken by
     Tarsish, we will compensate Tarsish in the form of a success fee equal to
     13% of funds so invested and warrants equal to 10% of the funds raised at
     an exercise price of 110% of the sales price of each transaction. In
     connection with the agreement, on March 2, 2001 4 foreign investors
     purchased 135,000 shares of restricted stock at $0.25 per share and
     March 15, 2001, two foreign investors purchased 22,000 shares of
     restricted stock at $0.20 per share. In addition we issued to Tarshish
     warrants to purchase in the amount of 13,500 shares at an exercise price
     of $0.275 per share and 2,200 shares at an exercise price of $0.22 per
     share.

                                    - 31 -
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<PAGE>

25.  On March 5, 2001, for services rendered, we granted to Americom
     Technology, Inc., specifically Patrick Berkil, Ronald Richter and
     Patrick Richter (collectively, Americom), warrants to purchase an
     aggregate of 75,000 shares of restricted common stock, exercisable at any
     time for a one year period, at an exercise price of $0.432 per share.

26.  On March 26, 2001, we entered into a consulting agreement with Internet
     PR Group under the terms of which we have engaged Internet PR Group, on a
     non-exclusive basis, to provide investor relations and related advisory
     services and advice. The agreement is for an initial term of one year, and
     may be extended for additional terms as agreed upon by the parties. In
     consideration of the services undertaken by Internet PR Group, we issued
     to Internet PR Group a total of 225,000 shares of restricted common stock
     at $0.3438 per share. In connection with this transaction, Internet PR
     Group was granted registration rights granting Internet PR Group (a) one
     demand registration right on or after November 1, 2001, and (b)
     "piggyback" registration rights.

27.  On March 22, 2001, we entered into a consulting agreement with Metromedia
     Research Group, LLC under the terms of which we have engaged Metromedia,
     on a non-exclusive basis, to provide investor relations and related
     advisory services and advice. The agreement is for an initial term of
     ninety days and must be renewed in writing by both parties. In
     consideration of the services undertaken by Metromedia, we issued a total
     200,000 shares of restricted stock at $0.3438 per share. In connection
     with this transaction, Metromedia was granted registrations rights
     granting Metromedia (a) one demand registration right on or after
     April 30, 2001, and (b) "piggyback" registration rights. On April 9, 2001
     the consulting agreement was amended to include an additional issuance of
     300,000 shares of restricted common stock, with a fair market value of
     $0.18 per share, as compensation for a designated consultant specializing
     in the small and micro-cap markets. All other provisions of the consulting
     agreement remain the same.

28.  On March 22, 2001, for services rendered, we granted to Ward and
     Associates, specifically William Collins, Stephen Ward, Cheryl Ward and
     Lucia Churches (collectively, Ward), warrants to purchase an aggregate of
     22,028 shares of restricted common stock, exercisable at any time for a
     one year period, at an exercise price of $0.50 per share.

29.  On April 1, 2001, we entered into a consulting agreement with The N.I.R.
     Group, LLC for a term of three months.  Under the terms of the agreement,
     in consideration of the services undertaken by NIR, we shall issue
     monthly, through the term of the agreement, (a) 125,000 shares of our
     common stock and (b) $25,000.  The fair market value for each issuance is
     $0.3281, $0.17 and $0.10, respectively.

30.  On April 1, 2001, we entered into a letter agreement with Barretto Pacific
     Corporation under the terms of which we have engaged Barretto, on a non-
     exclusive basis, to provide investor relations and related advisory
     services and advice. The agreement is for an initial term of one year and
     may be extended for such periods of time and upon such terms and
     conditions as may be mutually agreed upon, in writing, by the parties, and
     may be cancelled by either party giving the other party written notice
     received by the end of each three month period ending on July 1, 2001,
     October 1, 2001, and January 1, 2002. In consideration of the services
     undertaken by Barretto, we issued an initial payment of 92,000 shares of
     restricted stock with a fair market value of $0.3281 per share, and,
     subsequent payments of $27,500, whether in cash or stock equivalents,
     payable quarterly through the term of the agreement, providing the
     agreement has not been terminated by either party. In connection with this
     transaction we have granted Barretto a warrant to purchase 100,000 shares
     of restricted common stock with an exercise price of $0.30 per share, of
     which 25,000 shares vest immediately and the remainder vest quarterly,
     provided the agreement has not been terminated, and are exercisable
     through November 1, 2002.

31.  On April 4, 2001, in consideration of past consulting services rendered to
     us, we granted a warrant to Robert J. Torres entitling him to purchase a
     total of 43,360 shares of restricted common stock at any time prior to
     April 4, 2002, at an exercise price of $0.25 per share.

32.  On April 12, 2001, we granted 20,000 shares of restricted common stock to
     each of our then 27 employees located at the Broadway Plaza, Tacoma
     Washington facility. The fair market value on the date of grant was $0.17
     per share.

                                    - 32 -
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<PAGE>

33.  On or about April 25, 2001 we sold a total of 315,000 shares of common
     stock at a price of $0.07 per share to International Fluid Dynamics (IFD).
     In connection with this transaction, IFD was granted warrants to purchase
     an equivalent number of additional shares, at any time on or before the
     fifth anniversary date of the registration rate, of such securities, at an
     exercise price of $0.07 per share. In connection with this transaction,
     IFD was granted registration rights granting IFD one demand registration
     right on or after June 30, 2001.

34.  On or about May 3, 2001, we entered into a consulting agreement with
     DiabloStocks, Inc. under the terms of which we have engaged DiabloStocks,
     on a non-exclusive basis, to provide investor relations and related
     advisory services and advice. The agreement is for a term of one year. In
     consideration for the services undertaken by DiabloStocks, we issued to
     them a total of 290,000 shares of restricted common stock at $0.16 per
     share.

35.  On May 3, 2001, we entered into a consulting agreement with
     Eugene R. Zachman for a term of two years.  Under the terms of the
     agreement, and in consideration of the services undertaken by Zachman, we
     issued a stock option for 750,000 shares of common stock under our 2000
     Long Term Incentive Plan with a fair market value of $0.3438, which will
     vest upon performance.  On May 30, 2001 we amended the agreement to
     include a grant of 500,000 shares of our common stock upon the signing of
     certain contracts.  In addition, we have agreed to register the grant on
     Form S-8.

36.  On or about May 4, 2001, for services rendered, we issued to Internet
     Solutions Partners, Inc. 66,667 shares of restricted stock at $0.15 per
     share.

37.  On May 17, 2001, we entered into a settlement agreement with our landlord
     Howe/Horizon Holdings, LLC, owner of the facilities located at 1101
     Broadway Plaza, Tacoma WA and Horizon Holdings I, Inc. owner and landlord
     of the facilities located 1401 Court C, Tacoma WA. In connection with the
     settlement, we issued the following: (a) 290,000 shares of common stock
     and a warrant to purchase 800,000 shares of restricted common stock with
     an exercise price per share of $0.50 to Howe/Horizon Holdings and
     (b) 210,000 shares of restricted common stock and a warrant to purchase
     200,000 shares of common stock with an exercise price of $0.50 per share
     to Horizon Holdings I.  In connection with this transaction, we granted
     each of Howe/Horizon Holdings and Horizon Holdings I registration rights
     granting both one demand registration right on or after
     September 17, 2001.

38.  On May 17, 2001, we entered into a consulting agreement with James Zachman
     for a term of six months.  Under the terms of the agreement and in
     consideration of the services undertaken by Zachman, we will issue monthly
     payments of $4,500 and a stock option for 350,000 shares of common stock
     issued under our 2000 Long Term Incentive Plan with a fair market value of
     $0.19, which will vest upon performance.  On May 30, 2001 we amended the
     agreement to include a grant of 500,000 shares of our common stock upon
     the signing of certain contracts.  In addition, we have agreed to register
     the grant on Form S-8.

39.  On or about May 28, 2001, we entered into a selling agreement with Taconic
     Capital Partners, LP, Internet Solutions Partners, Inc, and Salvani
     Investments, Inc., specifically Joseph Salvani and Rene Jimenez, under the
     terms of which we agreed to issue an aggregate of 435,000 shares of common
     stock to the parties for entering into this agreement. In addition, if
     total sales during the campaign reach certain amounts, we will issue up to
     1.5 million additional shares as follows: (a) $750,000, we will issue an
     additional 435,000 shares; (b) $1.25 million we will issue an additional
     290,000 shares; and (c) $2 million we will issue an additional 335,000
     shares. We also agreed to file an S-8 registration statement within one
     month of signing of this agreement. The term of the selling agreement is
     for one year unless terminated with thirty (30) days written notice. On
     July 16, 2001 we terminated the selling agreement for non-performance.

40.  On June 1, 2001, we entered into an acquisition purchase agreement,
     subject to certain terms, with Omnibus Subscriber Computing, Inc. (USC)
     and its wholly owned subsidiary Omnibus Canada Corp. (OCC), whereby under
     the terms of the agreement, upon closing, we (a) will issue 2,871,280
     shares of our common stock in exchange for 100% of the issued and
     outstanding stock of USC; (b) execute a promissory note in the amount of
     $220,000; (c) execute certain employment agreements; (d) assume the
     current liabilities of USC and OCC; and, (e) execute a security agreement
     for the stock of USC.

                                    - 33 -
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<PAGE>

41.  On June 29, 2001, we entered into a private financing transaction with
     three investors, AJW Partners LLC, New Millennium Capital Partners II,
     LLC, and AJW/New Millennium Offshore, Ltd. (collectively, the Buyers),
     under the terms of which the Buyers purchased (a) 12% convertible
     debentures in the aggregate principal amount of up to $1,200,000 (together
     with any debenture(s) issued in replacement thereof or as a dividend
     thereon or otherwise with respect thereto in accordance with the terms
     thereof, convertible into shares of our common stock, $0.001 par value per
     share, and (b) warrants to purchase up to 2,400,000 shares of our common
     stock, each as described below. The terms of debentures provide for full
     payment on or before June 29, 2002, with interest of 12% per annum.  The
     terms of the warrants entitle each buyer to purchase shares of our common
     stock at a price equal to the lesser of (i) $.04 per share and (ii) the
     average of lowest three (3) trading prices during the twenty trading days
     immediately prior to exercise, at any time after June 29, 2001 and before
     June 29, 2003.


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.

     Except for the historical information contained herein, this Annual Report
contains forward-looking statements within the meaning of Section 27A of the
Securities Act and Section 21E of the Securities Exchange Act.  Words such as
"expects," "anticipates," "intends," "plans," "believes," "seeks," "estimates"
and other similar expressions or variations of such words are intended to
identify these forward-looking statements.  Additionally, statements concerning
future matters such as the development of new products, enhancements, or
technologies, possible changes in legislation and other statements regarding
matters that are not historical fact are forward-looking statements.
Forward-looking statements involve risks and uncertainties.  Actual results
could differ materially from those projected in the forward-looking statements.
Factors that could cause or contribute to such differences include, but are not
limited to, availability of financial resources adequate for short-, medium-
and long-term needs, demand for our products and services and market
acceptance, as well as those factors discussed in this "Item 2.  Management's
Discussion and Analysis of Financial Condition and Results of Operations " and
elsewhere in this Report.


Overview

     Insynq, Inc. was incorporated in the state of Washington on
August 31, 1998.  We are a development stage company that provides Internet
appliances, known as customer premise equipment (CPE), managed and hosted
software services, Web hosting services, Web-based local and wide area
networks, and access to Internet marketing assistance and related equipment and
services.  These products and services are offered a components or as an
integrated whole, either sold directly or on a fee or subscription basis.

     In late 1999, Insynq decided to seek out a combination with a public
company.  On February 18, 2000, Xcel Management, Inc. (Xcel), a publicly held
company, and Insynq closed an asset purchase transaction in which Xcel acquired
substantially all of the assets of Insynq.  Xcel continued to develop the
business of Insynq, and 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.  Today, as a combined and
surviving entity, Insynq, Inc. continues to develop and deliver application
hosting and managed software services while incorporating the CPE developed as
part of the IQ Delivery System.

     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. The products and services are
provided by developing a customer subscriber base that adopts a cost-effective,
on-line solution to building and maintaining an information technology system
through the adoption of "Web-based" computing as an alternative to both local
area networks and traditional client-server implementations. Generally, we
market our self as an Internet utility company that can cost-effectively
provide all of the computer software, hardware, connectivity and Internet-
access needs for its customers.

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<PAGE>

     We currently have several independent software vendors' products on line
using the IQ server-based computing services and anticipate signing various
agreements with additional organizations in the next few months. We expect to
increase the subscriber base through these respective sales channels.  Key
software vendor relationships currently in place include Microsoft Corporation,
Network Associates, Inc./McAfee, Remedy Corporation, Macola Software, and
Novell, Inc.

     We believe our core competency is providing products and services related
to server-based and hosted computing.  We believe we have gained credibility
in the industry with strategic relationships with companies such as
Hewlett-Packard Company, Microsoft, Inc. and Citrix Systems, Inc.  Our
management believes these companies have chosen to strategically align with us
in various capacities that combine the hardware, software, and access required
to build a successful delivery mechanism for the Internet Utility Services.

     The complete IQ Delivery System and Internet Utility Service includes
managed network and application services, and can span from a customer's
keyboard to the data center.  Insynq provides certain equipment, which is kept
on its customer's premises, including a simplified, diskless workstation or
thin client, and a multi-function router that is entirely managed and
maintained by us.  The system can also include Internet-access services
provided by a user selected telecommunications partner/provider.  The final
piece of the system is the data center, which is located in Tacoma Washington.
This facility, with redundant power, bandwidth, and cooling, houses the server
equipment and routers. While this is the recommended configuration for customer
use to take advantage of the full IQ Delivery System, customers are free to
choose which components they use.

     In the process of developing the IQ Delivery System, our management
believes we have acquired valuable technological expertise. We have created new
methodologies and produced proprietary hardware and software that is believed
to be essential to the configuration and effective management of Internet-based
networks and outside deployment of shared software applications


Results of Operations

     During the year ended May 31, 2000 (Fiscal 2000), we had limited active
operations, and therefore, we believe that a comparison of the results of
operations of Fiscal 2000 to the year ended May 31, 2001 (Fiscal 2001) has
limited value for evaluating trends and/or as a basis for predicting future
results.

     We incurred a net loss of $14,075,218 for Fiscal 2001 and a $3,778,867
loss for Fiscal 2000. The respective fiscal year losses resulted primarily
from: (1) providing discounted or free services as we test- marketed our
products and services; (2) initial network, infrastructure, and research and
development costs associated with start-up operations; (3) increases in
salaries and related benefits, reflecting headcount increases in our technical,
development, sales, marketing, finance, accounting, and administrative staff;
(4) increased professional and consulting fees; and (5) the issuance of warrant
and options for services.

     Total revenue for Fiscal 2001 was $493,008, an increase of $257,200 over
Fiscal 2000.  The primary sources of Fiscal 2001 revenue, which essentially did
not occur in Fiscal 2000, includes: (1) seat subscription revenue of $379,423,
(2) managed software and support service revenue of $76,208, and (3) hardware
and software sales revenue of $9,975.  We expect future revenue from all
sources to trend away from our practice of providing discounts and free
offerings experienced in Fiscal 2001 as we continue to develop our sales and
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: (1) increase market awareness of our
products and services through our strategic marketing plan, (2) growth in the
number of customers and seats per customer, (3) continue to accomplish
technological economies of scale, and (4) continue to streamline and maximize
efficiencies in our system implementation model.

                                    - 35 -
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<PAGE>

COSTS AND EXPENSES

     During Fiscal 2001, we recorded direct costs of services of $1,258,932, an
increase of $469,025 over the limited operations experienced in Fiscal 2000.
Network and infrastructure costs were $154,445 for Fiscal 2001, which is an
increase of $60,142 from Fiscal 2000.

     Selling, general, and administrative costs increased to $4,572,004 in
Fiscal 2001, an increase of $2,715,782 over Fiscal 2000.  The increase is a
direct result of the continuing build-out of our infrastructure, including
hiring management and support staff, the development of the sales and delivery
systems, continued increase of professional and consulting fees, and the
issuance of options and warrants. In addition, non-cash compensation and
service expense for Fiscal 2001 and 2000 was $4,242,072 and $1,116,666,
respectively, which is the fair value of common stock, options and warrants
issued for services.

     Total interest expense increased to $3,941,175 during Fiscal 2001 versus
$98,611 in Fiscal 2000. The increase was due primarily to: (1) accounting for
non-cash interest recognized on the fair value of warrants issued with notes
payable and convertible debentures, (2) interest recognized for the beneficial
conversion features on the conversion of debentures and notes payable,
(3) for the reductions in the original conversion prices offered significantly
below the fair market value of the common stock on the conversion dates, and
(4) capitalized equipment lease obligations.  Accounting for non-cash interest
resulted in $3,680,583 and $23,600 of the reported expense for Fiscal 2001 and
2000, respectively.

     Other income decreased $35,217 during the same time periods, primarily due
to trademark revenue that commenced in Fiscal 2000.


LIQUIDITY AND CAPITAL RESOURCES

     Insynq had cash and cash equivalents of $26,900 as of May 31, 2001, and
$106,806 at May 31, 2000, and a deficit in working capital of $4,111,060 and
$441,029 at the same dates, respectively.  For Fiscal year ended May 31, 2001,
Insynq used cash in its operating activities and investing activities totaling
$3,711,974 and $2,809,240, respectively.

     We finance our operations and capital requirements primarily through
private debt and equity offerings.  For the twelve months ended May 31, 2001,
we received cash totaling $2,929,887 from the issuance of notes payable and
convertible debentures, most of which were converted into common stock as of
May 31, 2001.  For the same period ending May 31, 2000, we received cash
totaling $100,000 from a stockholder advance.  During Fiscal 2001, we received
$734,320 and $2,853,402 during Fiscal 2000, from the sale of common stock and
the issuance of common stock for the exercise of options and warrants.

     In June 2001, we negotiated a private financing transaction in the amount
of $1,200,000 in the form of convertible debentures and warrants to purchase
common stock. However, 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.

     From June 1, 2001 through July 25, 2001, we raised additional funding of
$557,000 through: (a) the exercise of options, (b) a promissory note, and (c)
the issuance of convertible debentures.

     As of July 25, 2001, we are in technical default on one lease obligation.
We have initiated discussions to restructure this obligation.

                                    - 36 -
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<PAGE>

     As of May 31, 2001, we were late in payment of certain creditor trade
payables of approximately $823,000.  In June 2001, our management negotiated
either substantial reduction of amounts owed or negotiated more favorable
long-term payment plans.  These negotiations were well received by our vendors.
In addition, approximately $493,000 of business and payroll taxes are
delinquent, plus $103,000 of related assessed penalties and interest.  Again,
we have initiated contact with the respective taxing authorities to work out an
arrangement for payment plans in settlement of these tax obligations although
definitive workout agreements have not been finalized.

     Since September 2000, we began implementation of an internal cost
restructuring of our operations, both in sales and marketing, as well in
the 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. 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 effects of these changes will result in a
substantial improvement of monthly cash 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 aggressively 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.

     We have recently signed several sales and marketing agreements and our
management anticipates that revenues will take a significant upward movement
over the twelve months as a result of these and other anticipated agreements.
In particular, an agreement with an accounting affiliation of approximately
60,000 subscribers has recently been finalized. The adoption of the IQ Managed
Service Provider (MSP) solution by these and other accountants is providing
access to professional accounting organizations and their client bases. In
addition, we are currently negotiating with two large national corporations to
provide hosting and application services. We conservatively estimate that these
key agreements are expected to substantially increase monthly recurring
revenues by the end of the next twelve months. The immediate performance in
this market indicates that use of enabling technologies for accounting on-line
and business process outsourcing is gaining momentum.

     Industry analysts have indicated that technology outsourcing, focused on
business fundamentals, such as finance, accounting, customer relationship
management and sales force automation, will be the primary adopters of MSP
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.

     Industry analysts have indicated that technology outsourcing focused on
business fundamentals, such as finance, accounting, customer relationship
management and sales force automation will be the primary adopters of MSP
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.

     We cannot be sure that we will be able to obtain the additional financing
to satisfy the cash requirements or to implement the growth strategy on
acceptable terms, or at all.  If we cannot obtain such financing on acceptable
terms, the ability to fund the planned business expansion and to fund the
on-going operations will be materially adversely affected.  Presently, our
management is pursuing a variety of sources of debt and equity financing.
If debt is incurred, the financial risks associated with the business and with
owning our common stock could increase.  If enough capital is raised through
the sale of equity securities, the percentage ownership of the current
stockholders will be diluted.  In addition, any new equity securities may have
rights, preferences, or privileges senior to those of the common stock.

     Our continuation as a going concern is currently dependent on our ability
to obtain additional financing, acquire strategic business entities and
generate sufficient cash flow from our operations to meet, and in certain
cases, restructure certain obligations on a timely basis.  Based on revised
Pro Forma projections, we believe that profitability can be achieved late in
our fiscal year 2002.  We also believe the need for additional capital going
forward will be met from public and private debt and equity offerings.  In
essence, future operations will be dependent upon our ability to secure
sufficient sources of financing, continuation of adequate vendor credit and
increased sales of services.

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<PAGE>

     We currently have no arrangements or commitments for accounts or 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.

     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. 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. We are
presently pursuing a variety of sources of debt and equity financings. 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-26 attached hereto and incorporated by reference. The index to the
consolidated financial statements can be found on page F-1.


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

     In our Form 8-K filed October 13, 2000, we reported that on
October 11, 2000, we terminated G. Brad Beckstead, and engaged Grant Thornton
LLP as our accountants for the year ended May 31, 2001. Grant Thornton's
office is located at 701 Pike Street, Suite 1500, Seattle, Washington 98101

During the year ended May 31, 2000, and up to and including the present, there
have been no disagreements between Beckstead and us on any matter of accounting
principles or practices, financial statement disclosure or auditing scope or
procedures. Beckstead's report on our financial statements for the fiscal year
ended May 31, 2000, indicated there was substantial doubt regarding our ability
to continue as a going concern.


                                   PART III


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

     The information set forth under the captions "Election of Directors" and
"Executive Officers of the Company" in our definitive Proxy Statement for the
2001 Annual Meeting of Stockholders is incorporated herein by reference.


ITEM 10.       EXECUTIVE COMPENSATION.

     The information set forth under the caption "Executive Compensation and
Other Matters" in our definitive Proxy Statement for the 2001 Annual Meeting of
Stockholders is incorporated herein by reference.

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<PAGE>

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

     The information set forth under the caption "Outstanding Capital Stock and
Stock Ownership of Directors, Certain Executive Officers and Principal
Stockholders" in our definitive Proxy Statement for the 2001 Annual Meeting of
Stockholders is incorporated herein by reference.


ITEM 12.       CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

     The information set forth under the caption "Compensation and Other
Committee Interlocks and Insider Participation" in our definitive Proxy
Statement for the 2001 Annual Meeting of Stockholders is incorporated herein by
reference.


ITEM 13.       EXHIBITS AND REPORTS ON FORM 8-K
<TABLE>
     (a)  Exhibits
<CAPTION>
EXHIBIT
 NUMBER     DESCRIPTION
-------     -------------------------------------------------------------------
<S>         <C>
  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       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).

  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.

  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 4.6 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 CA 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
            Form 10-QSB filed April 20, 2001).

  4.11      Form of Convertible Debenture issued to TCA Investments, Inc. on
            June 16, 2000, as amended. 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)

  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, and
            Amendment No. 6 dated February 27, 2001  (Incorporated by reference
            to Exhibit 4.9 to the Company's Registration Statement on Form SB-2
            filed December 14, 2001 and the Company's Quarterly Report on
            Form 10-QSB filed April 20, 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
            Form 10-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).

  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)

  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.

  4.54*     Warrant Agreement dated March 5, 2001 between Bransville Limited
            and Insynq, Inc.

  4.55*     Form of Warrant Agreement dated March 22, 2001 between
            William R. Collins and Insynq, Inc.

  4.56*     Registration Rights Agreement dated March 26, 2001 between Internet
            PR Group and Insynq, Inc
 .
  4.57*     Warrant Agreement dated March 25, 2001 between Bransville Limited
            and Insynq, Inc.

  4.58*     Form of Warrant Agreement dated April 25, 2001 between
            International Fluid Dynamics, Inc. and Insynq, Inc.

  4.59*     Form of Subscription Agreement dated April 25, 2001 between
            International Fluid Dynamics, Inc. and Insynq, Inc.

  4.60*     Form of Registration Agreement dated April 25, 2001 between
            International Fluid Dynamics, Inc. and Insynq, Inc.

  4.61*     Warrant Agreement dated April 1, 2001 between Barretto Pacific
            Corporation and Insynq, Inc.

  4.62*     Form of Warrant Agreement dated May 17, 2001 between Horizon
            Holdings I, LLC and Insynq, Inc.

  4.63*     Form of Registration Agreement dated May 17, 2001 between Horizon
            Holdings I, LLC and Insynq, Inc.

  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.

  4.65*     Form of Stock Purchase Warrant dated June 29, 2001 between AJW
            Partners, LLC and Insynq, Inc.

  4.66*     Form of Secured Convertible Debenture dated June 29, 2001 between
            AJW Partners, LLC and Insynq, Inc.

  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.

  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.

 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 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).

 10.3       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).

 10.4       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).

 10.5       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).

 10.6       Financial Public Relations Consulting Agreement with One Click
            Investments, LLC dated September 20, 1999, as amended by Amendment
            No. 1 dated June 30, 2000, Amendment No. 2 dated
            October 31, 2000 and Amendment No. 3 dated
            January 30, 2001 (Incorporated by reference to Exhibit 10.5 to the
            Company's Registration Statement on Form SB-2 filed
            December 14, 2000 and the Company's Quarterly Report on Form 10-QSB
            filed April 20, 2001).

 10.7       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).

 10.8       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).

 10.9       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)

 10.10      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).

 10.11      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 and Amendment No. 2 dated
            January 30, 2001 (Incorporated by reference to Exhibit 10.9 to the
            Company's Registration Statement on Form SB-2 filed
            December 14, 2000 and the Company's Quarterly Report on Form 10-QSB
            filed April 20, 2001).

 10.12      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
            Form 10-QSB filed April 20, 2001).

 10.13      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 and Amendment No. 2 dated
            January 30, 2001 (Incorporated by reference to Exhibit 10.10 the
            Company's Registration Statement on Form SB-2 filed
            December 14, 2000 and the Company's Quarterly Report on Form 10-QSB
            filed April 20, 2001).

 10.14      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).

 10.15      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).

 10.16      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).

 10.17      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)

 10.18      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)

 10.19      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).

 10.20      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).

 10.21      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).

 10.22      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)

 10.23      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).

 10.24      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)

 10.25      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)

 10.26      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). Lease Termination Agreement
            dated April 1, 2001 filed herewith.  Termination Agreement dated
            April 1, 2001

 10.27*     Lease Termination Agreement
            dated April 1, 2001 between Duane and Wendy Ashby, d/b/a Cargocare;
            and Insynq Data Utilities.

 10.28      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).

 10.29      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).

 10.30      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).

 10.31      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).

 10.32      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).

 10.33      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).

 10.34      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).

 10.35      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).

 10.36      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).

 10.37      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).

 10.38      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).

 10.39      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).

 10.40      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).

 10.41      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).

 10.42      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).

 10.43      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).

 10.44      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).

 10.45      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
            dated October 23, 2000).

 10.46      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 dated October 23, 2000).

 10.47      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 dated October 23, 2000).

 10.48      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 file October 23, 2000).

 10.49*     Amendment No. 2 dated July 20, 2001 to Employment Agreement between
            Stephen C. Smith and Insynq, Inc.

 10.50      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)

 10.51      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).

 10.52      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).

 10.53      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)

 10.54      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)

 10.55      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)

 10.56      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)

 10.57      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)

 10.58      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).

 10.59      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).

 10.60      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).

 10.61      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).

 10.62      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).

 10.63      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).

 10.64      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).

 10.65*     Consulting Agreement dated March 22, 2001 between Metromedia
            Research Group LLC and Insynq, Inc., as amended dated
            April 9, 2001.

 10.66*     Registration Rights Agreement dated March 22, 2001 between
            Metromedia Research Group, LLC and Insynq, Inc.

 10.67*     Consulting Agreement dated March 23, 2002 between Internet PR Group
            and Insynq, Inc.
 10.68*     Letter Agreement dated April 1, 2001 between Barretto Pacific
            Corporation and Insynq, Inc

 10.69*     Consulting Agreement dated April 1, 2001 between The N.I.R. Group,
            LLC and Insynq, Inc.

 10.70*     Consulting Agreement dated May 3, 2001 and Amendment dated
            May 30, 2001 between Eugene R. Zachman and Insynq, Inc.

 10.71*     Settlement Agreement dated May 17, 2001 between Howe/Horizon
            Holdings, LLC, Horizon Holdings I, LLC and Insynq, Inc.

 10.72*     Equipment Co-Location License Agreement dated May 16, 2001 between
            Horizon Holdings I, LLC and Insynq, Inc.

 10.73*     Lease Agreement dated May 10, 2001 between Howe/Horizon Holdings,
            LLC and Insynq, Inc.

 10.74*     Consulting Agreement dated May 17, 2001 and Amendment dated
            May 30, 2001 between James Zachman and Insynq, Inc.

 10.75*     Agreement to Provide Professional Service dated July 10, 2001
            between Central Software Services and Insynq, Inc.

 10.76*     Consulting Agreement dated May 3, 2001 between DiabloStocks, Inc.
            and Insynq, Inc.

 10.77*     Selling Agreement dated May 28, 2001 between Taconic Capital
            Partners, LP, Internet Solutions Partners, Inc, Salvani
            Investments, Inc. and Insynq, Inc.

 10.78*     Acquisition Purchase Agreement dated June 1, 2001 between Omnibus
            Subscriber Computing, Inc. and Insynq, Inc.

 10.79*     Settlement Agreement dated June 21, 2001 between One Click
            Investments, LLC and John P. Gorst.

 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).

 23.1*      Consent of Grant Thornton, LLP for Financial Statements for the
            year ended May 31, 2001.

 23.2*      Consent of Brad G. Beckstead, CPA for Financial Statements for the
            year ended May 31, 2000.

 24.1*      Power of Attorney (included on the signature page of this Annual
            Report.

<FN>
*    Filed Herewith
</TABLE>
     (b)  Reports on Form 8-K

     None


                                    - 39 -
===============================================================================
<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:  July 30, 2001


                               POWER OF ATTORNEY


     Each person whose signature appears below hereby authorizes and
constitutes John P. Gorst as, his, her or its true and lawful attorney-in-fact
with full power of substitution and reconstitution, for him, her or its and in
his, her or its name, place and stead, in any and all capacities to sign and
file any and all amendments to this report with all exhibits thereto, and other
documents in connection therewith, with the Securities and Exchange Commission,
and he, she or it hereby ratifies and confirms all that said attorney-in-fact
or his substitute, may lawfully do or cause to be done by virtue hereof.


      SIGNATURES                        TITLE                       DATE
----------------------    ----------------------------------    -------------
 /s/ John P. Gorst        Chief Executive Officer, President,   July 30, 2001
 --------------------     Chief Operations Officer and
     John P. Gorst        Director (Principal Executive Officer)

 /s/ Stephen Smith        Chief Financial Officer               July 30, 2001
 --------------------     (Principal Financial and Accounting
     Stephen Smith        Officer)

 /s/ M. Carroll Benton    Chief Administrative Officer,         July 30, 2001
 --------------------     Secretary and Treasurer and
     M. Carroll Benton    Director

 /s/ David D. Selmon      Director                              July 30, 2001
 --------------------
     David D. Selmon


                                    - 40 -
===============================================================================
<PAGE>

<TABLE>
                         INDEX TO FINANCIAL STATEMENTS
  Audited Financial Statements as of and for the Years Ended May 31, 2001 and
        2000, and from Inception (August 31, 1998) through May 31, 2001


<CAPTION>
                                                                     Page
                                                                     ----
<S>                                                                <C>
Index to Financial Statements . . . . . . . . . . . . . . . . . . .  F  1

Report of Independent Certified Public Accountants  . . . . . . . .  F  2

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

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

Statement of Stockholders' Deficit  . . . . . . . . . . . . . . . .  F  5

Statements of Cash Flows  . . . . . . . . . . . . . . . . . . . . .  F 11

Notes to Financial Statements . . . . . . . . . . . . . . . . . . .  F 12

</TABLE>

                                   - F  1 -
===============================================================================
<PAGE>

              Report of Independent Certified Public Accountants



Board of Directors
Insynq, Inc.

We have audited the accompanying balance sheet of Insynq, Inc. (a development
stage company) as of May 31, 2001, and the related statements of operations,
stockholders' deficit, and cash flows for the year then ended.  These financial
statements are the responsibility of the Company's management.  Our
responsibility is to express an opinion on these financial statements based on
our audit.  The financial statements of Insynq, Inc. as of May 31, 2000 and for
the year then ended, including cumulative results of operations, statement of
stockholders' deficit and cash flows from inception (August 31, 1998)
through May 31, 2000, were audited by another auditor whose report dated
December 5, 2000, expressed an unqualified opinion with an explanatory
paragraph addressing a substantial doubt about the Company's ability to
continue as a going concern.  Our opinion, insofar as it relates to the
cumulative amounts through May 31, 2000, is based solely on the report of the
other auditor.

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

In our opinion, based on our audit and the report of the other auditors, the
financial statements referred to above present fairly, in all material
respects, the financial position of Insynq, Inc. as of May 31, 2001 and the
results of its operations and its cash flows for the year then ended and the
period from inception through May 31, 2001, 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 shown in the financial
statements, the Company incurred a net loss of $14,075,218 during the year
ended May 31, 2001 and, at that date had deficits in working capital and
stockholders' equity.  These factors, among others, as discussed in note D to
the financial statements, raise substantial doubt about the Company's ability
to continue as a going concern.  Management's plans in regard to these matters
are also described in note D.  The financial statements do not include any
adjustments that might result from the outcome of this uncertainty.

/s/GRANT THORNTON LLP

Seattle, Washington
July 26, 2001

                                   - F  2 -
===============================================================================
<PAGE>

                                 Insynq, Inc.
                         (a development stage company)
<TABLE>
                                BALANCE SHEETS

<CAPTION>
                                                             May 31,
                                                       2001           2000
                                                   ------------   ------------
<S>                                                <C>            <C>
                ASSETS
Current assets
  Cash                                             $     26,900   $    106,806
  Accounts receivable, net of allowance for
    doubtful accounts of $25,000 and $1,469
    at May 31, 2001 and 2000                             27,469         63,405
  Related party receivables                              98,990           -
  Inventories                                              -            29,512
  Prepaid expenses                                       61,962         46,098
                                                   ------------   ------------
     Total current assets                               215,321        245,821

Property and equipment, net                             756,493      1,031,675

Other assets
  Intangible assets, net                                 52,585         87,824
  Deposits                                               72,000        165,584
                                                   ------------   ------------

     Total assets                                  $  1,096,399   $  1,530,904
                                                   ============   ============


 LIABILITIES AND STOCKHOLDERS' DEFICIT

Current liabilities
  Current portion of capital lease obligations     $    692,208   $    166,869
  Notes payable                                          27,973         14,470
  Related party notes payable                         1,318,251         25,000
  Accounts payable                                    1,001,395        296,946
  Accrued liabilities                                 1,129,695        134,279
  Customer deposits                                      49,684         49,286
  Deferred compensation                                 107,175           -
                                                   ------------   ------------
     Total current liabilities                        4,326,381        686,850

Advances from stockholder                                  -           100,000

Capital lease obligations, net of current portion        29,256        442,087

Commitments and contingencies                              -              -

Put option obligation                                      -         1,071,785

Stockholders' deficit
  Preferred stock, $0.001 par value,
    10,000,000 shares authorized,
    no shares issued and outstanding                       -              -
  Class A common stock, $0.001 par value,
    10,000,000 shares authorized,
    no shares issued and outstanding                       -              -
  Common stock, $0.001 par value,
    100,000,000 shares authorized                        33,532         19,621
  Additional paid-in capital                         15,430,507      3,132,903
  Unearned compensation and services                   (725,717)          -
  Accumulated development stage deficit             (17,997,560)    (3,922,342)
                                                   ------------   ------------
     Total stockholders' deficit                     (3,259,238)      (769,818)
                                                   ------------   ------------

     Total liabilities and stockholders' deficit   $  1,096,399   $  1,530,904
                                                   ============   ============

<FN>
  The accompanying notes are an integral part of these financial statements.
</TABLE>
                                   - F  3 -
===============================================================================
<PAGE>

                                 Insynq, Inc.
                         (a development stage company)
<TABLE>
                           STATEMENTS OF OPERATIONS

<CAPTION>
                                                          Cumulative results of
                                 Year ended May 31,         operations since
                            ---------------------------         inception
                                2001           2000         (August 31, 1998)
                            ------------   ------------   --------------------
<S>                         <C>            <C>            <C>
Revenues                    $    493,008   $    235,808       $    742,432

Costs and expenses
  Direct cost of services      1,258,932        789,907          2,102,102
  Selling, general and
    administrative
    Non-cash compensation      4,242,072      1,116,666          5,363,995
    Other                      4,572,004      1,856,222          6,513,291
    Network and
      infrastructure costs       154,445         94,303            255,786
  Research and development       296,703        105,752            402,455
                            ------------   ------------       ------------
                              10,524,156      3,962,850         14,637,629
                            ------------   ------------       ------------
  Loss from operations       (10,031,148)    (3,727,042)       (13,895,197)

Other income (expense)
  Other income                    11,569         46,786             58,355
  Loss on disposal of
    equipment                   (114,464)          -              (114,464)
  Interest expense
    Non-cash                  (3,680,583)       (23,600)        (3,704,183)
    Other                       (260,592)       (75,011)          (342,071)
                            ------------   ------------       ------------
                              (4,044,070)       (51,825)        (4,102,363)
                            ------------   ------------       ------------
Net loss                    $(14,075,218)  $ (3,778,867)      $(17,997,560)
                            ============   ============       ============
Net loss per common share
  - basic and diluted       $     (0.57)   $     (0.27)       $     (1.05)
                            ============   ============       ============

<FN>
  The accompanying notes are an integral part of these financial statements.
</TABLE>
                                   - F  4 -
===============================================================================
<PAGE>

                                 Insynq, Inc.
                         (a development stage company)
<TABLE>
                      STATEMENT OF STOCKHOLDERS' DEFICIT
               Inception (August 31, 1998) through May 31, 2001

<CAPTION>
                                                                                      Accumulated
                                     Common Stock       Additional      Unearned      Development      Total
                                 --------------------     Paid-in     Compensation       Stage      Stockholders'
                                   Shares     Amount      Capital     and Services      Deficit       Deficit
                                 ----------   -------   -----------   ------------   ------------   ------------
<S>                              <C>          <C>       <C>           <C>            <C>            <C>
Issuance to founders,
  August 31, 1998                11,284,479   $11,284   $   123,716   $       -      $        257   $    135,257

Net loss, year ended
  May 31, 1999                         -         -             -              -          (143,732)      (143,732)
                                 ----------   -------   -----------   ------------   ------------   ------------
Balance, May 31, 1999            11,284,479    11,284       123,716           -          (143,475)        (8,475)

Common stock warrants issued
  for fair value of services
  rendered in 1999                     -         -          782,844           -              -           782,844

Issuance of common stock for
  services performed in 1999
  valued at $0.07 per share         700,000       700        50,050           -              -            50,750

Allocation of discount on lease
  obligation with attached
  warrants in September 1999           -         -          118,000           -              -           118,000

Issuance of common stock at
  $0.71 per share in August 1999    373,798       374       264,626           -              -           265,000

Issuance of common stock for
  services valued at $1.00 per
  share in September 1999            59,000        59        58,941           -              -            59,000

Issuance of common stock for
  services valued at $1.00 per
  share in November 1999             59,000        59        58,941           -              -            59,000

Issuance of common stock for
  services valued at $0.71 per
  share in December 1999             76,735        77        54,323           -              -            54,400

Issuance of units of common
  stock with one A warrant and
  one B  warrant at $0.71 in
  January 2000                    1,311,821     1,312       928,688           -              -           930,000

Issuance of common stock in
  reverse merger transaction with
  Xcel Management                 3,600,090     3,600        (2,359)          -              -             1,241

Issuance of common stock at $0.50
  per share in February 2000      1,300,000     1,300       648,700           -              -           650,000

<FN>
- Continued
</TABLE>
                                   - F  5 -
===============================================================================
<PAGE>

                                 Insynq, Inc.
                         (a development stage company)
<TABLE>
                STATEMENT OF STOCKHOLDERS' DEFICIT - Continued
               Inception (August 31, 1998) through May 31, 2001

<CAPTION>
                                                                                      Accumulated
                                     Common Stock       Additional      Unearned      Development      Total
                                 --------------------     Paid-in     Compensation       Stage      Stockholders'
                                   Shares     Amount      Capital     and Services      Deficit       Deficit
                                 ----------   -------   -----------   ------------   ------------   ------------
<S>                              <C>          <C>       <C>           <C>            <C>            <C>
Issuance of common stock for
  services valued at $0.71 per
  share in February 2000             43,265        43        30,629           -              -            30,672

Issuance of common stock at
  $0.50 per share in
  February 2000                     300,000       300       149,700           -              -           150,000

Issuance of common stock at
  $1.75 per share in April 2000      61,944        62       108,340           -              -           108,402

Issuance of common stock at
  $1.75 per share in April 2000
  with repurchase agreement and
  record put option obligation      285,714       286       499,714           -              -           500,000

Record put option obligation           -         -       (1,071,785)          -              -        (1,071,785)

Issuance of common stock at
  $2.00 per share in May 2000       125,000       125       249,875           -              -           250,000

Issuance of common stock for
  services valued at $2.00 per
  share in May 2000                  40,000        40        79,960           -              -            80,000

Net loss, May 31, 2000                 -         -             -              -        (3,778,867)    (3,778,867)
                                 ----------   -------   -----------   ------------   ------------   ------------
Balance, May 31, 2000            19,620,846    19,621     3,132,903           -        (3,922,342)      (769,818)

Issuance of common stock for
  services valued at $3.25 per
  share in June 2000 and record
  unearned compensation over
  service period                    250,000       250       812,250        (33,858)          -           778,642

Issuance of common stock at
  $0.60 per share in August 2000    400,000       400       239,600           -              -           240,000

Issuance of common stock at
  $0.2963 per share in
  August 2000                       135,000       135        39,865           -              -            40,000

Issuance of common stock for
  services valued at $1.32 per
  share in August 2000                3,500         3        22,932           -              -            22,935

Issuance of common stock for
  services valued at $1.32 per
  share in September 2000 and
  record unearned compensation
  over service period               250,000       250       327,250        (18,193)          -           309,307

<FN>
- Continued -
</TABLE>
                                   - F  6 -
===============================================================================
<PAGE>

                                 Insynq, Inc.
                         (a development stage company)
<TABLE>
                STATEMENT OF STOCKHOLDERS' DEFICIT - Continued
               Inception (August 31, 1998) through May 31, 2001

<CAPTION>
                                                                                      Accumulated
                                     Common Stock       Additional      Unearned      Development      Total
                                 --------------------     Paid-in     Compensation       Stage      Stockholders'
                                   Shares     Amount      Capital     and Services      Deficit       Deficit
                                 ----------   -------   -----------   ------------   ------------   ------------
<S>                              <C>          <C>       <C>           <C>            <C>            <C>
Issuance of common stock for the
  exercise of stock options at
  $0.30 per share in
  September 2000                    600,000       600       179,400           -              -           180,000

Issuance of common stock for
  exercising of warrants at
  $1.77 per share in
  September 2000                      8,000         8        14,152           -              -            14,160

Forfeiture of common stock
  issued for services               (35,264)      (35)           35           -              -              -

Issuance of common stock for
  services valued at $0.9843 per
  share in November 2000              3,500         4         3,441           -              -             3,445

Allocation of discount on
  convertible debentures with
  warrants and beneficial
  conversion feature                   -         -          900,000           -              -           900,000

Allocation of discount on notes
  payable with warrants                -         -          229,000           -              -           229,000

Issuance of common stock for
  conversion of debentures and
  accrued interest at $0.50
  per share in November 2000      1,855,796     1,856     2,313,658           -              -         2,315,514

Issuance of common stock for
  conversion of notes payable at
  $0.50 per share in
  November 2000                   1,510,000     1,510     1,885,990           -              -         1,887,500

Issuance of common stock for the
  exercise of stock options at
  $0.01 per share in
  December 2000                     500,000       500         4,500           -              -             5,000

Issuance of common stock for the
  exercise of stock options at
  $0.9675 per share
  in December 2000                   15,504        16        14,984           -              -            15,000

Issuance of common stock at
  $0.34 per share pursuant to
  settlement agreement
  in December 2000.                  85,000        85        29,138           -              -            29,223

Forfeiture of common stock issued
  for services in December 2000     (63,170)      (63)           63           -              -              -

Issuance and exercise of options
  for services at $0.4062 per
  share in January 2001 and
  record unearned compensation
  over service period               600,000       600     1,038,310       (203,100)          -           835,810

Issuance of common stock in lieu
  of payment on note payable at
  $0.3438 per share in
  January 2001                      148,488       148        50,902           -              -            51,050

<FN>
- Continued -
</TABLE>
                                   - F  7 -
===============================================================================
<PAGE>

                                 Insynq, Inc.
                         (a development stage company)
<TABLE>
                STATEMENT OF STOCKHOLDERS' DEFICIT - Continued
               Inception (August 31, 1998) through May 31, 2001

<CAPTION>
                                                                                      Accumulated
                                     Common Stock       Additional      Unearned      Development      Total
                                 --------------------     Paid-in     Compensation       Stage      Stockholders'
                                   Shares     Amount      Capital     and Services      Deficit       Deficit
                                 ----------   -------   -----------   ------------   ------------   ------------
<S>                              <C>          <C>       <C>           <C>            <C>            <C>
Issuance of common stock for
  services valued at $0.75 per
  share in February 2001              3,500         3         2,622           -              -             2,625

Issuance of common stock for the
  exercise of warrants at $0.50
  per share in February 2001        100,000       100        44,310           -              -            44,410

Issuance of common stock at $0.25
  per share in March 2001, net of
  stock issuance cost               135,000       135        29,227           -              -            29,362

Issuance of common stock at
  $0.4062 per share through the
  exercise of stock options in
  March 2001 for cash and in
  employee compensation payable      50,000        50        20,260           -              -            20,310

Issuance of common stock in lieu
  of employee compensation at
  $0.4062 per share in March 2001    25,000        25        10,130           -              -            10,155

Issuance of common stock at $0.20
  per share in March 2001, net of
  stock issuance cost                22,000        22         3,806           -              -             3,828

Issuance of common stock at
  $0.3438 per share in March 2001
  for services and record
  unearned compensation over
  service period                    425,000       425       145,690       (105,936)          -            40,179

Issuance of common stock at
  $0.3438 per share in lieu of
  accounts payable in March 2001     10,908        11         3,739           -              -             3,750

Issuance of common stock at
  $0.20 per share for the
  exercise of stock warrants
  in March 2001                     125,000       125        24,875           -              -            25,000

Issuance of common stock at
  $0.3281 per share in March 2001
  for services and record
  unearned compensation over
  service period                     92,000        92        30,093        (27,669)          -             2,516

Issuance of common stock at
  $0.3281 per share in April 2001
  for services                      125,000       125        40,888           -              -            41,013

Issuance of common stock at
  $0.18 per share in March 2001
  for services and record
  unearned compensation over
  service period                    300,000       300        53,700        (33,387)          -            20,613

Issuance of common stock in
  return of put shares during
  January 2001 through
  May 17, 2001                    1,733,016     1,733     1,070,052           -              -         1,071,785

<FN>
- Continue -
</TABLE>
                                   - F  8 -
===============================================================================
<PAGE>

                                 Insynq, Inc.
                         (a development stage company)
<TABLE>
                STATEMENT OF STOCKHOLDERS' DEFICIT - Continued
               Inception (August 31, 1998) through May 31, 2001

<CAPTION>
                                                                                      Accumulated
                                     Common Stock       Additional      Unearned      Development      Total
                                 --------------------     Paid-in     Compensation       Stage      Stockholders'
                                   Shares     Amount      Capital     and Services      Deficit       Deficit
                                 ----------   -------   -----------   ------------   ------------   ------------
<S>                              <C>          <C>       <C>           <C>            <C>            <C>
Issuance of common stock at
  $0.17 per share in lieu of
  employee compensation in
  April 2001                        540,000       540        91,260           -              -            91,800

Issuance of common stock at
  $0.07 per share for the
  exercise of stock options
  in April 2001                     315,000       315        21,735           -              -            22,050

Issuance of common stock at
  $0.07 per share in lieu of
  employee compensation in
  April 2001                         25,000        25         1,725           -              -             1,750

Issuance of common stock at
  $0.07 per share in lieu of
  employee compensation in
  April 2001 through the
  exercise of stock options         600,275       600        41,419           -              -            42,019

Issuance of common stock at
  $0.3281 per share in
  April 2001 for services           125,000       125        21,125           -              -            21,250

Issuance of common stock at
  $0.16 per share for services
  in May 2001                       290,000       290        46,110        (42,533)          -             3,867

Issuance of common stock at
  $0.50 per share in lieu of
  accounts payable in May 2001
  through the exercise of stock
  warrants                           22,028        22        10,997           -              -            11,019

Issuance of common stock at
  $0.4312 per share in lieu of
  accounts payable in May 2001
  through the exercise of stock
  warrants                           75,000        75        32,265           -              -            32,340

Issuance of common stock at
  $0.15 per share for services
  in May 2001                        66,667        67         9,933           -              -            10,000

Issuance of common stock at
  $0.07 per share for the
  exercise of stock options
  in May 2001                     1,360,000     1,360        93,840           -              -            95,200

Issuance of common stock at
  $0.0949 per share in lieu of
  employee compensation
  in May 2001                       500,000       500        46,974           -              -            47,474

<FN>
- Continued -
</TABLE>
                                   - F  9 -
===============================================================================
<PAGE>

                                 Insynq, Inc.
                         (a development stage company)
<TABLE>
                STATEMENT OF STOCKHOLDERS' DEFICIT - Continued
               Inception (August 31, 1998) through May 31, 2001

<CAPTION>
                                                                                      Accumulated
                                     Common Stock       Additional      Unearned      Development      Total
                                 --------------------     Paid-in     Compensation       Stage      Stockholders'
                                   Shares     Amount      Capital     and Services      Deficit       Deficit
                                 ----------   -------   -----------   ------------   ------------   ------------
<S>                              <C>          <C>       <C>           <C>            <C>            <C>
Issuance of common stock at
  $0.07 per share in lieu of
  employee compensation through
  the exercise of stock options
  in May 2001                       140,000       140         9,660           -              -             9,800

Issuance of common stock at
  $0.17 per share for services in
  May 2001 and record unearned
  compensation over service
  period                            435,000       435        73,515        (44,370)          -            29,580

Issuance of common stock at
  $0.12 per share for services
  in May 2001                         3,500         4           416           -              -               420

Issuance of warrants to non-
  employees for services and
  record unearned compensation
  over the service period
  during 2001                          -         -          991,952        (13,205)          -           978,747

Issuance of stock options to non-
  employees for services and
  record unearned compensation
  over service period during 2001      -         -          352,006       (203,466)          -           148,540

Issuance of stock options to
  employees with exercise price
  below fair market on date of
  grant during 2001                    -         -          867,810           -              -           867,810

Net loss for the year                  -         -             -              -       (14,075,218)   (14,075,218)
                                 ----------   -------   -----------   ------------   ------------   ------------
Balance, May 31, 2001            33,531,094   $33,532   $15,430,507   $   (725,717)  $(17,997,560)  $ (3,259,238)
                                 ==========   =======   ===========   ============   ============   ============

<FN>
  The accompanying notes are an integral part of this financial statement.
</TABLE>
                                   - F 10 -
===============================================================================
<PAGE>

                                 Insynq, Inc.
                         (a development stage company)
<TABLE>
                           STATEMENTS OF CASH FLOWS

<CAPTION>
                                                                                Cumulative cash
                                                      Year ended May 31,          cash flows
                                                 ---------------------------    since inception
                                                     2001           2000       (August 31, 1998)
                                                 ------------   ------------   -----------------
<S>                                              <C>            <C>            <C>
Increase (Decrease) in Cash
  Net loss                                       $(14,075,218)  $ (3,778,867)     $(17,997,560)
  Adjustment to reconcile net loss to
    cash used in operating activities:
    Depreciation and amortization                     279,329        195,610           484,586
    Loss on disposal of equipment                     114,464           -              114,464
    Issuance of common stock for services           2,246,975        333,822         2,586,054
    Issuance of options and warrants for services   1,127,287        782,844         1,910,131
    Issuance of options to employees
      under fair market value                         867,810           -              867,810
    Warrants issued with debt and capital leases    1,392,967         23,600         1,416,567
    Warrants and beneficial conversion
      features of debentures                        2,287,616           -            2,287,616
      Change in assets and liabilities:
        Accounts receivable and
          related party receivables                   (63,054)       (59,981)         (126,459)
        Inventories                                    29,512        (27,266)             -
        Prepaid expenses                              (14,705)        (9,726)          (73,973)
        Deposits                                       93,584       (165,583)          (72,000)
        Accounts payable                              795,282        268,247         1,092,228
        Accrued liabilities                         1,167,466         11,061         1,351,031
        Customer deposits                                 398         49,286            49,684
        Deferred compensation                         107,175           -              107,175
                                                 ------------   ------------      ------------
          Net cash used in operating activities    (3,643,112)    (2,376,953)       (6,002,646)
                                                 ------------   ------------      ------------

Cash flows from investing activities
  Purchase of equipment                               (68,862)      (397,544)         (481,776)
  Acquisition of intellectual property                   -              -               (1,548)
  Deposit on future acquisition                          -           (35,000)          (35,000)
  Cash received from Xcel acquisition                    -               257               257
                                                 ------------   ------------      ------------
          Net cash used in investing activities       (68,862)      (432,287)         (518,067)
                                                 ------------   ------------      ------------

Cash flows from financing activities
  Proceeds from notes payable and related
    party notes payable                             2,129,887           -            2,129,887
  Proceeds from issuance of common stock              734,320      2,853,402         3,587,722
  Proceeds from convertible debentures                800,000           -              800,000
  Payments on short term notes payable                (18,133)       (30,530)          (48,663)
  Payments on capital lease obligations               (14,006)        (7,327)          (21,333)
  Advances from stockholder                              -           100,000           100,000
                                                 ------------   ------------      ------------
          Net cash provided by
            financing activities                    3,632,068      2,915,545         6,547,613
                                                 ------------   ------------      ------------

Net increase (decrease) in cash                       (79,906)       106,305            26,900
Cash at beginning of period                           106,806            501              -
                                                 ------------   ------------      ------------

Cash at end of period                            $     26,900   $    106,806      $     26,900
                                                 ============   ============      ============

Supplemental non-cash investing and financing activities - see note Q

<FN>
  The accompanying notes are an integral part of these financial statements.
</TABLE>
                                   - F 11 -
===============================================================================
<PAGE>

                                 Insynq, Inc.
                         (a development stage company)

                         NOTES TO FINANCIAL STATEMENTS
                                 May 31, 2001


NOTE A - NATURE OF BUSINESS

Insynq, Inc. (the Company or Insynq) is a Delaware 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 Insynq's server farm primarily through either the Internet, wireless
or DSL connection.  During the year ended May 31, 2001, the Company's planned
principal operations began however, there has been no significant revenues
generated.  Accordingly, the Company is considered to be a development stage
company.


NOTE B - BASIS OF PRESENTATION

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 Insynq.  Under
accounting principles generally accepted in the United States of America, the
Acquisition is considered to be a capital transaction in substance, rather than
a business combination.  That is, the Acquisition is equivalent to the issuance
of stock by Insynq for the net monetary assets of Xcel accompanied by a
recapitalization, and is accounted for as a change in capital structure.
Accordingly, the accounting for the Acquisition is identical to that resulting
from a reverse acquisition, except that no goodwill is 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
of the Company in the State of Delaware, the shareholders unanimously voted for
the adoption of a plan of recapitalization 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.
Loss per share calculations includes the Company's change in capital structure
for all periods presented.


NOTE C - 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.

Revenue Recognition

The Company's principal source of revenue is generated from application
hosting, managed software and related type services.  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 applied
to the last month service fee.  Revenues are recognized over the service
period.  Revenue from the sale of computer hardware is recorded upon delivery,
or upon installation when specified under contact terms.

                                   - F 12 -
===============================================================================
<PAGE>

                                 Insynq, Inc.
                         (a development stage company)

                         NOTES TO FINANCIAL STATEMENTS
                                 May 31, 2001


NOTE C - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued

Inventories

Inventories consist of computer hardware and equipment held for resale and is
recorded at the lower of cost (first in, first out) or market.

Property and Equipment

Property and equipment is stated at cost less accumulated depreciation
and amortization.  Depreciation and amortization is calculated using the
straight-line method over the estimated useful lives of the assets ranging
between three to seven years.  Leasehold improvements are depreciated over the
lesser of the useful lives of the improvements or the term of the lease.

Intangible Assets

Intangible assets consist of the rights to a proprietary data utility services
system acquired by the Company.  The cost is being amortized over sixty months.
Accumulated amortization totaled $77,415 and $43,724 as of May 31, 2001 and
2000, respectively.

Long-Lived Assets

Long-lived assets, including, but not limited to, property and 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.  The Company believes
that no impairment of the carrying amount of its long-lived assets existed
at May 31, 2001 and 2000.

Class A Common Stock

The Board of Directors is authorized to issue of up to 10,000,000 shares of
Class A common stock pursuant to which the holders of such stock 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.  As of May 31, 2001, 5,000,000
options to purchase Class A common stock at $0.50 per share were granted to two
officers and were outstanding. (See Note M)

Loss Per Share

Basic loss per share is based on the weighted average number of common shares
outstanding during the period.  The weighted average number of common shares
outstanding was 24,808,590 and 14,050,928 for the years ended May 31, 2001 and
2000, respectively, and 17,201,296 since inception (August 31, 1998) through
May 31, 2001.  Diluted loss per share includes the effect of all potentially
dilutive common stock issuances.  Diluted loss per share is not presented
because the effect would be anti-dilutive.  At May 31, 2001 and 2000, there
were 21,447,545 and 8,572,248 shares of potentially issuable common stock,
respectively.

Research and Development Costs

Research and development costs are charged to expense in the period when
incurred.

                                   - F 13 -
===============================================================================
<PAGE>

                                 Insynq, Inc.
                         (a development stage company)

                         NOTES TO FINANCIAL STATEMENTS
                                 May 31, 2001


NOTE C - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued

Advertising Expense

Advertising costs are expensed in the period incurred.  For the years ended
May 31, 2001 and 2000, advertising costs totaled $198,726 and $97,715,
respectively.

Concentrations of Credit Risk

The Company sells the majority of its services throughout North America.  The
majority of the Company's sales are made to customers who are billed monthly on
an open account and no collateral is required.  For the year ended
May 31, 2001, approximately thirty percent (30%) of revenues were to four
customers, one of which is a related party comprising eight percent (8%) of the
total revenues.

Insynq has established four vendor relationships that are critical to the
day-to-day operations of the Company.  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, consisting principally of cash, accounts receivable,
payables, accrued liabilities, short and long-term obligations, and their
carrying amounts in the accompanying balance sheets, approximate their fair
values.  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 disclosure of contingent assets and liabilities
at the date of the financial statements and the reported amounts of revenues
and expenses during the reporting period.  Actual results could differ from
those estimates.

Reclassifications

Certain reclassifications have been made to the 2001 presentation in order to
conform to the 2000 presentation.

New Authoritative Accounting Pronouncements

In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin No. 101 (SAB 101), Revenue Recognition in Financial
Statements.  SAB 101 provides guidance on applying accounting principles
generally accepted in the United States to revenue recognition in financial
statements and is effective in the fourth quarter of all fiscal years beginning
after December 15, 1999.  During fiscal year 2001, the Company had recorded
revenues in accordance with SAB 101, so the implementation of SAB 101 did not
have an impact on the Company's operating results.

                                   - F 14 -
===============================================================================
<PAGE>

                                 Insynq, Inc.
                         (a development stage company)

                         NOTES TO FINANCIAL STATEMENTS
                                 May 31, 2001


NOTE C - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued

In April 2000, the Financial Accounting Standards Board issued
FASB Interpretation No. 44 (FIN 44), Accounting for Certain Transactions
Involving Stock Compensation, an interpretation of APB Opinion No. 25.
FIN 44 is effective for transactions occurring after July 1, 2000.  During
fiscal year 2001, the Company had been applying FIN 44.

In June 2001, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 141 (SFAS 141), Business Combinations.
SFAS 141 applies to all business combinations initiated after June 30, 2001.
The Statement also applies to all business combinations accounted for using
the purchase method for which the date of acquisition is July 1, 2001, or
later.  The adoption of SFAS 141 will not have an impact on the Company's
financial statements.

In June 2001, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS) No. 142, Goodwill and Other
Intangible Assets.  The provisions of SFAS 142 are required to be applied
starting with fiscal years beginning after December 15, 2001 with earlier
application permitted for entities with fiscal years beginning after
March 15, 2001 provided that the first interim financial statements have
previously been issued.   The statement is required to be applied at the
beginning of the entity's fiscal year and to be applied to all goodwill and
other intangible assets recognized in its financial statements to that date.
The initial application of the SFAS 142 will have no impact on the Company's
financial statements.


NOTE D - MANAGEMENT PLANS

The Company is a development stage company as defined under Statement of
Financial Accounting Standards No. 7.  The Company is devoting substantially
all of its present efforts to establishing a new business and its planned
operations have recently commenced.  However, no significant operating revenues
have been derived to date.  The Company has incurred recurring losses from
operations and has a total accumulated development stage deficit of $17,997,560
at May 31, 2001.  As discussed in Note J, the Company is in default on a
capitalized lease obligation.  The underlying leased assets are critical to the
Company's operations.  The development of the Company's technology and products
will continue to require a commitment of substantial funds.

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 additional 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 will be available on
acceptable terms, if at all.  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 the success of its future
operations.

As discussed in note R, the Company has entered into a purchase agreement with
an application and managed service provider, which management anticipates will
increase the Company's revenues and a financing agreement that will provide
additional debt and equity funds.  In addition, on June 29, 2001, the Company
negotiated a private financing transaction for $1,200,000 of 12% convertible
debentures.

                                   - F 15 -
===============================================================================
<PAGE>

                                 Insynq, Inc.
                         (a development stage company)

                         NOTES TO FINANCIAL STATEMENTS
                                 May 31, 2001


NOTE E - PROPERTY AND EQUIPMENT
<TABLE>
Property and equipment consist of the following as of May 31:
<CAPTION>
                                                2001           2000
                                             ----------     ----------
<S>                                          <C>            <C>
          Computer hardware                  $   86,820     $  144,621
          Software                               97,550        105,536
          Equipment                             149,715        217,468
          Furniture and fixtures                 43,990         86,650
          Capitalized leased equipment          668,959        587,517
          Leasehold improvements                 58,036         51,365
                                             ----------     ----------
                                              1,105,070      1,193,157
                                             ----------     ----------
          Less accumulated depreciation
               and amortization                 348,577        161,482
                                             ----------     ----------
                                             $  756,493     $1,031,675
                                             ==========     ==========
</TABLE>
Accumulated depreciation on capital lease equipment totaled $216,264 and
$83,686 as of May 31, 2001 and 2000, respectively.


NOTE F - ACCRUED LIABILITIES
<TABLE>
Accrued liabilities consist of the following as of May 31:
<CAPTION>
                                             2001           2000
                                          ----------     ----------
<S>                                       <C>            <C>
          Salaries and benefits           $  254,285     $   62,309
          Payroll taxes                      448,061         37,779
          Interest and penalties             102,565           -
          Other taxes                         45,082           -
          Interest                            50,247           -
          Consulting and other               229,455         34,191
                                          ----------     ----------
                                          $1,129,695     $  134,279
                                          ==========     ==========
</TABLE>
As of May 31, 2001, the Company was delinquent on its payroll and business
taxes.  The majority of the past due amount is for payroll taxes which are due
to the Internal Revenue Service.  The Company and the Internal Revenue Service
have informally agreed to a payment plan for the past due taxes, subject to the
Company remaining current on all future payroll tax deposits.  The Company has
been in contact with other respective taxing authorities to initiate payment
plans in settlement of their respective past due taxes.

                                   - F 16 -
===============================================================================
<PAGE>

                                 Insynq, Inc.
                         (a development stage company)

                         NOTES TO FINANCIAL STATEMENTS
                                 May 31, 2001


NOTE F - ACCRUED LIABILITIES - Continued

Additionally, two liens have been filed by two different States for past due
taxes, plus accrued penalties and interest.  One lien, for approximately
$28,000, is to a State for prior year's income taxes assessed to the
predecessor company of Insynq, Inc.  This amount is in dispute and amended
returns to correct this deficiency have been filed.


NOTE G - RELATED PARTY NOTES PAYABLE
<TABLE>
The Company has entered into short-term promissory notes with stockholders,
a corporate officer, a prior employee and two vendors.  All notes, plus accrued
interest, are due within one year of issuance and consist of the following at
May 31:
<CAPTION>
                                                  2001           2000
                                               ----------     ----------
<S>                                            <C>            <C>
     Note payable to stockholder, due
     November 2, 2001, plus accrued interest;
     bears interest at 10% per annum and is
     unsecured                                 $1,162,000     $     -

     Various notes payable to related parties,
     due on demand to dates ranging through
     April 20, 2002; bearing interest ranging
     from 10% to 12%                              146,402         25,000

     Two notes payable to related party
     vendors, installment payment of $1,692
     due monthly through August 15, 2001 and
     final payment due March 2002; bearing
     interest ranging from 10% to 12%               9,849           -
                                               ----------     ----------

                                               $1,318,251     $   25,000
                                               ==========     ==========
</TABLE>
On July 17, 2000, the Company entered into two stockholder promissory note
agreements totaling $255,000.  In addition, the stockholders were granted
warrants to purchase a total of 325,000 shares of common stock at a price of
$2.00 per share.  The Company recorded a discount on the loans totaling
$229,000 for the fair value of warrants granted.  The Company recognized
$229,000 of interest expense on the discount for the year ended May 31, 2001.
In November 2000, the loans were converted into 510,000 shares of common stock
at $0.50 per share.

In October 2000, the Company entered into three additional shareholder loans
totaling $500,000.  These notes were also converted in November 2000 into
1,000,000 shares of common stock at $0.50 per share.  As an inducement to the
holders to convert the loans, the Company agreed to convert the loans into
common stock at a price below the fair market value of the common stock at the
time of conversion.  This resulted in additional interest expense totaling
$1,132,500 for the year ended May 31, 2001.

On December 1, 2000, the Company entered into a promissory note agreement with
a stockholder for $50,000 with accrued interest of prime, plus 3%.  The
principal and accrued interest was converted to 148,488 shares of common stock
on January 30, 2001.

                                   - F 17 -
===============================================================================
<PAGE>

                                 Insynq, Inc.
                         (a development stage company)

                         NOTES TO FINANCIAL STATEMENTS
                                 May 31, 2001


NOTE H - NOTES PAYABLE

The Company has a $15,000 revolving line of credit.  As of May 31, 2001 and
2000, the balance was $13,973 and $10,200, respectively.  As of May 31, 2001,
the Company has an additional payable totaling $14,000 due on demand.


NOTE I - CONVERTIBLE DEBENTURES

On June 16, 2000, the Company entered into two loan agreements for a total of
$650,000, in the form of convertible debentures.  The principal balance of the
loans and accrued interest were convertible into common stock at $1.42 and
$0.71 per share, respectively.  In addition, the Company granted 915,492
warrants to purchase common stock at $2.00 per share.  On September 16, 2000,
the Company entered into two additional convertible debenture agreements
totaling $250,000.  The loans and accrued interest was convertible into common
stock at $1.00 per share.  In addition, the Company granted 250,000 warrants to
purchase common stock at $1.00 per share to the holders of the debentures.

The Company recorded a discount on the convertible debentures totaling
$900,000, equal to the fair value of the warrants received and the intrinsic
value of the beneficial conversion feature.  The Company has recognized
$900,000 of interest expense on the discount for the year ended May 31, 2001.
As an inducement to convert the balance of principal and related accrued
interest of the debentures, the Company reduced the original conversion share
prices to $0.50.  This resulted in an additional interest charge in the amount
of $1,387,616 for the year ended May 31, 2001.

In November 2000, the Company converted the debentures totaling $900,000, plus
accrued interest of $55,796, into common stock at $0.50.


NOTE J - CAPITAL LEASE OBLIGATIONS

The Company leases equipment under capital leases expiring in 2003.  As of
May 31, 2001, the Company's principal capital lease (for computer hardware,
printers and related infrastructure) obligation is in default; accordingly,
the entire lease obligation plus imputed interest net of the discount, is
classified as a current obligation on the accompanying financial statements.
Total net obligation due this lessor is $668,136, net of a discount of $62,933.

                                   - F 18 -
===============================================================================
<PAGE>

                                 Insynq, Inc.
                         (a development stage company)

                         NOTES TO FINANCIAL STATEMENTS
                                 May 31, 2001


NOTE J - CAPITAL LEASE OBLIGATIONS - Continued
<TABLE>
The following is a schedule by years of future minimum lease payments together
with the present value of the minimum payments under capital lease obligations,
net of discount, as of May 31, 2001:
<S>                                                      <C>
                   Years Ending May 31,
         ----------------------------------------
                           2002                          $ 828,598
                           2003                             33,040
                                                         ---------

         Future minimum lease payments                     861,638
         Less amount representing interest and discount    140,174
                                                         ---------

         Present value of minimum lease payments         $ 721,464
                                                         =========

         Current portion                                 $ 692,208
         Long-term portion                                  29,256
                                                         ---------

                                                         $ 721,464
                                                         =========
</TABLE>

NOTE K - PUT OPTION OBLIGATION

Pursuant to conversion agreements with four investors (stockholders), the
Company exchanged 1,733,016 of the investors' put shares for 1,733,016 shares
of common stock. The recorded amount of the converted put shares was $1,071,785
at May 31, 2001.


NOTE L - COMMITMENTS AND CONTINGENCIES

Operating Leases

The Company conducts a substantial portion of its operations utilizing leased
facilities for its corporate headquarters and for its server farm racks.

Effective August 1, 2001, the Company entered into two separate facility leases
for its corporate operations. The first lease is with the Company's existing
landlord and was amended pursuant to a settlement agreement between each party
on May 17, 2001.  Terms of this lease call for base rent plus charges for a
portion of the Company's share of taxes and utilities over the next sixty
months.  The second facility lease commences on August 1, 2001, and terminates
on July 31, 2002.  Rent per
month is $1,600 for the first twelve months.

A server farm racking agreement is for a term of twenty-four months,
expiring on May 31, 2003.  The first year of the agreement calls for a monthly
fee of $500 per rack, with a minimum of seven racks, or $3,500.  The second
year of the agreement calls for a minimum fee of $550 per rack or $3,850.
As of May 31, 2001, the Company has nine racks at the server farm.

                                   - F 19 -
===============================================================================
<PAGE>

                                 Insynq, Inc.
                         (a development stage company)

                         NOTES TO FINANCIAL STATEMENTS
                                 May 31, 2001


NOTE L - COMMITMENTS AND CONTINGENCIES - Continued
<TABLE>
The following is a schedule of approximate future minimum operating lease
payments as of May 31, 2001:
<CAPTION>
                   Years Ending May 31,
              ------------------------------
<S>                                              <C>
                           2002                  $  235,500
                           2003                     236,500
                           2004                     189,800
                           2005                     194,400
                           2006                     199,200
                        Thereafter                   34,000
                                                 ----------

                                                 $1,089,400
                                                 ==========
</TABLE>
For the years ended May 31, 2001 and 2000, rent expense for facilities and
racking, including forfeited lease deposits as a result of amendments to the
lease terms during 2001, were approximately $375,000 and $179,000,
respectively.

Lawsuit

The Company is party to one 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's management believes
the claim is without merit and intends to vigorously defend its position of no
liability.

Consulting Agreements

During the year ended May 31, 2001, the Company has several on-going agreements
with investor relation consultants, financial advisory, advertising and
marketing consultants, and sales persons.  Terms of these agreements range from
six months to three years and most have automatic renewable provisions.
Compensation for these agreements may be in the form of cash or cash plus
common stock or options.  Certain agreements contain provisions that are
performance based only, whereby an individual representing the Company must
consummate an acceptable transaction before the common stock or stock options
will be issued.  Short-term (six months or less) monthly cash fees for
consultants approximate $18,500 and one long-term agreement (three years) is
$10,000 per month.  In addition, a consulting group was paid its final $25,000
installment of a three-month agreement in June 2001.

On July 1, 2001, the Company entered into a six-month agreement with an
independent consultant/advisor, in which the consultant will provide expertise
in financing, mergers and acquisitions. Terms of the agreement call for the sum
total of $67,000 paid over the contract, $7,500 at effective date of the
agreement and $60,000 paid in equal installments over the next six months.
The consultant will also receive 2,000,000 shares of common stock in July 2001.
An additional 500,000 shares of common stock will be issued to the consultant
if there is an acquisition of another company or its assets.

                                   - F 20 -
===============================================================================
<PAGE>

                                 Insynq, Inc.
                         (a development stage company)

                         NOTES TO FINANCIAL STATEMENTS
                                 May 31, 2001


NOTE L - COMMITMENTS AND CONTINGENCIES - Continued

Employment Contracts

As of May 31, 2001, the Company has six employment contracts with its key
officers and employees.  Each agreement calls for a base annual compensation,
currently ranging between $96,000 and $180,000.  Five agreements contain
wage escalation clauses effective on the anniversary date of the agreement.
The agreements generally are written for three to fours years in duration.
Each agreement has an incentive clause with rights to exercise vested stock
options agreements at a predetermined price, generally granted at market value,
and range between $.50 and $2.00 per share.  A total 6,560,000 options have
been granted under these agreements.


NOTE M - STOCK OPTIONS

On September 18, 2000, the Company's Board of Directors adopted two long-term
incentive plans (Plans), described as follows:

2000 Long Term Incentive Plan (LTIP)

The LTIP provides for the issuance of incentive and non-qualified stock
options, stock appreciation rights and restricted stock to directors, officers,
employees and consultants.  At the adoption of this plan, the Company set aside
16,675,300 shares of common stock, which may be issued upon the exercise of
options granted.  As of May 31, 2001, incentive options available for issuance
are 7,946,540.

2000 Executive Long Term Incentive Plan (Executive LTIP)

The Executive LTIP provides for the issuance of incentive and non-qualified
stock options, stock appreciation rights and restricted stock to executive
officers of the Company.  The Company set aside 5,400,000 shares of Class A
common stock under this plan at its adoption.  As of May 31, 2001, two
corporate officers have been granted options to purchase a total of 5,000,000
shares of Class A common stock.

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 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.  Under the provisions of this
standard, employee and director stock-based compensation expense is measured
using either the intrinsic-value method as prescribed by Accounting Principles
Board (APB) Opinion No. 25, Accounting for Stock Issued to Employees and
related Interpretations, or the fair value method described in SFAS No. 123.
The Company has elected to account for its employee and director stock-based
awards under the provisions of APB Opinion No. 25.  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.

                                   - F 21 -
===============================================================================
<PAGE>

                                 Insynq, Inc.
                         (a development stage company)

                         NOTES TO FINANCIAL STATEMENTS
                                 May 31, 2001


NOTE M - STOCK OPTIONS - Continued

The Company is required to implement the provisions of SFAS No. 123 for
stock-based awards to those other than employees and directors.  Stock-based
compensation expense for all equity instruments is recognized on an accelerated
basis based on the related service or vesting 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:

                                            2001             2000
                                        ------------     ------------
     Net loss as reported               $(14,075,218)    $ (3,778,867)
     Pro Forma net loss                  (17,054,018)      (5,700,015)

     Loss per share as reported               (0.57)           (0.27)
     Pro Forma loss per share                 (0.69)           (0.33)

The fair value of options granted under the Company's stock option plans during
the years ended May 31, 2001 and 2000 was estimated on the date of grant, using
the Black-Scholes pricing model with the following assumptions:

     Weighted average of expected risk-free interest rates      6.50%
     Expected years from vest date to exercise date             2-10
     Expected stock volatility                                   90%
     Expected dividend yield                                      0%
<TABLE>
A summary of the Company's LTIP and Executive LTIP stock option activity is as
follows:
<CAPTION>
                   Activity                  Number of      Weighted Average
                                               Shares        Exercise Price
     -----------------------------------     ----------     ----------------
     <S>                                     <C>            <C>
     Balance at May 31, 1999                       -
     Options granted                          7,011,802           0.51
     Option exercised                              -
     Options forfeited                             -
                                             ----------
     Balance at May 31, 2000                  7,011,802           0.51
     Options granted                          8,568,760           0.41
     Options exercised                       (2,816,229)          0.11
     Options forfeited                       (1,851,802)          1.78
                                             ----------
     Balance at May 31, 2001                 10,912,531           0.65
                                             ==========
     Exercisable options at May 31, 2001      8,695,028           0.63
                                             ==========     ================
</TABLE>
                                   - F 22 -
===============================================================================
<PAGE>

                                 Insynq, Inc.
                         (a development stage company)

                         NOTES TO FINANCIAL STATEMENTS
                                 May 31, 2001


NOTE M - STOCK OPTIONS - Continued
<TABLE>
The weighted average remaining contractual life, in years, and weighted average
exercise price of options outstanding as of May 31, 2001 were as follows:
<CAPTION>
                                        Weighted
                            Weighted     Average       Options     Weighted
  Range of                   Average    Remaining    Exercisable    Average
  Exercise      Options     Exercise   Contractual   at May 31,    Exercise
   Price      Outstanding    Price        Life          2001        Price
-----------   -----------   --------   -----------   -----------   --------
<S>           <C>           <C>        <C>           <C>           <C>
0.18 - 0.19      400,000      $ 0.19        9.95         50,000     $ 0.18
0.34 - 0.71    7,794,153        0.46        8.75      6,864,153       0.47
0.81 - 1.03    1,700,000        0.97        8.95      1,040,830       0.94
1.63 - 2.31    1,018,378        1.79        4.29        740,045       1.70
</TABLE>
The weighted average fair value of the options granted during the year ended
May 31, 2001 and 2000 were $0.66 and $0.39, respectively.

During the year ended May 31, 2001, the Company recorded $1,249,476 of
additional employee compensation expense for the difference between the
exercise price of stock options and the fair value of the underlying common
stock on the date of grant.  The unearned compensation of $381,666 has been
presented as a reduction of stockholders' equity in the accompanying financial
statements and is being amortized ratably over the vesting period of the
applicable options. The Company amortized an aggregate of $867,810 of
compensation for the year ended May 31, 2001.


NOTE N - WARRANTS

Warrants shares to purchase common stock outstanding as of May 31, 2001 totaled
12,752,112.   Warrant exercise prices range between $0.13 to $3.75 per share
of common stock and substantially all warrants will expire on or before
July 17, 2005.  Since May 31, 2001, the Company has set aside an additional
2,871,280 warrants in connection with the pending acquisition of a Canadian
company and has rescinded 2,145,000 of previously issued warrants to two
consulting groups.

During the year ended May 31, 2001, the Company recorded unearned services
totaling $344,051 for the fair value of warrants granted to consultants as a
reduction of stockholders' equity in the accompanying financial statements.
Such amount is being amortized ratably over the service period.  Warrants
issued by the Company are valued on the date of grant using the Black-Scholes
valuation model using the following assumptions: weighted average risk free
interest rate of 6.5%; terms ranging from three months to five years;
volatility of 90%; and, 0% dividend yield.

                                   - F 23 -
===============================================================================
<PAGE>

                                 Insynq, Inc.
                         (a development stage company)

                         NOTES TO FINANCIAL STATEMENTS
                                 May 31, 2001


NOTE O - INCOME TAXES

The Company utilizes the liability method of accounting for income taxes as set
forth in Statement of Financial Accounting Standards (SFAS) No. 109, Accounting
for Income Taxes.  Under this method, 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.
<TABLE>
The income tax provision reconciled to the tax computed at the statutory
federal rate is as follows for the year ended May 31:
<CAPTION>
                                                    2001             2000
                                                ------------     ------------
<S>                                             <C>              <C>
Tax benefit at federal statutory rate of 34%    $ (4,785,000)    $ (1,284,000)
Permanent differences                              1,015,000            4,000
                                                ------------     ------------
                                                  (3,770,000)      (1,280,000)
Increase in valuation allowance                    3,770,000        1,280,000
                                                ------------     ------------
                                                $       -        $       -
                                                ============     ============
</TABLE>
<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:
<CAPTION>
                                                    2001             2000
                                                ------------     ------------
<S>                                             <C>              <C>
Deferred tax asset
  Net operating loss carryforwards                10,357,000        7,557,000
  Amortization                                        14,000            8,000
  Accrued vacation                                    22,000           20,000
  Allowance doubtful accounts                          8,000             -
  Deferred compensation                               36,000             -
  Employee stock options                              93,000             -
  Warrants issued to consultants                     840,000             -
                                                ------------     ------------
          Total deferred tax assets               11,370,000        7,585,000
                                                ------------     ------------

Deferred tax liability
  Depreciation                                  $     70,000     $     55,000
                                                ------------     ------------
          Total deferred tax liabilities              70,000           55,000
                                                ------------     ------------

Net deferred tax assets                           11,300,000        7,530,000
Valuation allowance                              (11,300,000)      (7,530,000)
                                                ------------     ------------
                                                $       -        $       -
                                                ============     ============
</TABLE>
                                   - F 24 -
===============================================================================
<PAGE>

                                 Insynq, Inc.
                         (a development stage company)

                         NOTES TO FINANCIAL STATEMENTS
                                 May 31, 2001


NOTE O - INCOME TAXES - Continued

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, 2001, operating loss carryforwards of approximately $30,500,000,
expiring through 2021, are available to offset future taxable income.
Utilization of these carryforwards are 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 P - RELATED PARTY TRANSACTIONS

During the year ended May 31, 2001, the Company sold $41,400 of services and
received $37,500 of consulting services from a party related to a corporate
officer, director and stockholder.


NOTE Q - NON-CASH INVESTING AND FINANCING ACTIVITIES
<TABLE>
The Company's non-cash investing and financing activities and supplemental cash
flow information were as follows for
the year ended May 31:
<CAPTION>
                                                          2001         2000
                                                       ----------   ----------
<S>                                                    <C>          <C>
Conversion of debentures and accrued interest into
  common stock                                         $2,315,514   $     -
Notes payable and interest converted to common stock    1,938,550         -
Conversion of put options into common stock             1,071,785         -
Discount for warrants granted and beneficial
  conversion features on convertible debentures           900,000         -
Discount for warrants granted with short term
  notes payable and capital leases                        229,000      118,000
Accounts payable converted to common stock                154,557         -
Equipment purchased under capital leases                   15,669         -
Purchase of assets with common stock                         -             727
Cash paid for interest                                     17,411         -
</TABLE>

NOTE R - SUBSEQUENT EVENTS

Acquisition

On June 1, 2001, the Company entered into an acquisition purchase agreement
with Omnibus Subscriber Computing, Inc. (USC) and its wholly owned subsidiary
Omnibus Canada Corp. (OCC), whereby under the terms of the agreement, upon
closing, the Company we (a) will issue 2,871,280 shares of our common stock in
exchange for 100% of the issued and outstanding stock of USC; (b) execute a
promissory note in the amount of $220,000; (c) execute certain employment
agreements; (d) assume the current liabilities of USC and OCC; and, (e) execute
a security agreement for the stock of USC.

                                   - F 25 -
===============================================================================
<PAGE>

                                 Insynq, Inc.
                         (a development stage company)

                         NOTES TO FINANCIAL STATEMENTS
                                 May 31, 2001


NOTE R - SUBSEQUENT EVENTS - Continued

Financing Agreement

On June 29, 2001, the Company entered into a private financing transaction with
three investors under which the investors initially purchased $550,000
from a total of $1,200,000 12% convertible debentures.  The debentures are
convertible into shares of common stock on an agreed-upon formula basis.  The
common stock carry attached warrants that allow the investor, under the terms
of the warrants, to purchase up to 2,400,000 shares of common stock at $0.04
per share.  Terms of the debentures provide for full payment on or before June
29, 2002 (maturity date), with accrued interest of 12% per annum.  Proceeds
from this initial transaction, net of fees, were $465,000. The Company
anticipates receiving $650,000, less certain fees, upon successful registration
of certain shares of the common stock.

                                   - F 26 -
===============================================================================
<PAGE>
<TABLE>
                               INDEX TO EXHIBITS

<CAPTION>
EXHIBIT
 NUMBER     DESCRIPTION
-------     -------------------------------------------------------------------
<S>         <C>
  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       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).

  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.

  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 4.6 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 CA 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
            Form 10-QSB filed April 20, 2001).

  4.11      Form of Convertible Debenture issued to TCA Investments, Inc. on
            June 16, 2000, as amended. 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)

  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, and
            Amendment No. 6 dated February 27, 2001  (Incorporated by reference
            to Exhibit 4.9 to the Company's Registration Statement on Form SB-2
            filed December 14, 2001 and the Company's Quarterly Report on
            Form 10-QSB filed April 20, 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
            Form 10-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).

  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)

  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.

  4.54*     Warrant Agreement dated March 5, 2001 between Bransville Limited
            and Insynq, Inc.

  4.55*     Form of Warrant Agreement dated March 22, 2001 between
            William R. Collins and Insynq, Inc.

  4.56*     Registration Rights Agreement dated March 26, 2001 between Internet
            PR Group and Insynq, Inc
 .
  4.57*     Warrant Agreement dated March 25, 2001 between Bransville Limited
            and Insynq, Inc.

  4.58*     Form of Warrant Agreement dated April 25, 2001 between
            International Fluid Dynamics, Inc. and Insynq, Inc.

  4.59*     Form of Subscription Agreement dated April 25, 2001 between
            International Fluid Dynamics, Inc. and Insynq, Inc.

  4.60*     Form of Registration Agreement dated April 25, 2001 between
            International Fluid Dynamics, Inc. and Insynq, Inc.

  4.61*     Warrant Agreement dated April 1, 2001 between Barretto Pacific
            Corporation and Insynq, Inc.

  4.62*     Form of Warrant Agreement dated May 17, 2001 between Horizon
            Holdings I, LLC and Insynq, Inc.

  4.63*     Form of Registration Agreement dated May 17, 2001 between Horizon
            Holdings I, LLC and Insynq, Inc.

  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.

  4.65*     Form of Stock Purchase Warrant dated June 29, 2001 between AJW
            Partners, LLC and Insynq, Inc.

  4.66*     Form of Secured Convertible Debenture dated June 29, 2001 between
            AJW Partners, LLC and Insynq, Inc.

  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.

  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.

 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 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).

 10.3       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).

 10.4       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).

 10.5       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).

 10.6       Financial Public Relations Consulting Agreement with One Click
            Investments, LLC dated September 20, 1999, as amended by Amendment
            No. 1 dated June 30, 2000, Amendment No. 2 dated
            October 31, 2000 and Amendment No. 3 dated
            January 30, 2001 (Incorporated by reference to Exhibit 10.5 to the
            Company's Registration Statement on Form SB-2 filed
            December 14, 2000 and the Company's Quarterly Report on Form 10-QSB
            filed April 20, 2001).

 10.7       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).

 10.8       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).

 10.9       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)

 10.10      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).

 10.11      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 and Amendment No. 2 dated
            January 30, 2001 (Incorporated by reference to Exhibit 10.9 to the
            Company's Registration Statement on Form SB-2 filed
            December 14, 2000 and the Company's Quarterly Report on Form 10-QSB
            filed April 20, 2001).

 10.12      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
            Form 10-QSB filed April 20, 2001).

 10.13      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 and Amendment No. 2 dated
            January 30, 2001 (Incorporated by reference to Exhibit 10.10 the
            Company's Registration Statement on Form SB-2 filed
            December 14, 2000 and the Company's Quarterly Report on Form 10-QSB
            filed April 20, 2001).

 10.14      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).

 10.15      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).

 10.16      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).

 10.17      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)

 10.18      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)

 10.19      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).

 10.20      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).

 10.21      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).

 10.22      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)

 10.23      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).

 10.24      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)

 10.25      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)

 10.26      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). Lease Termination Agreement
            dated April 1, 2001 filed herewith.  Termination Agreement dated
            April 1, 2001

 10.27*     Lease Termination Agreement
            dated April 1, 2001 between Duane and Wendy Ashby, d/b/a Cargocare;
            and Insynq Data Utilities.

 10.28      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).

 10.29      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).

 10.30      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).

 10.31      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).

 10.32      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).

 10.33      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).

 10.34      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).

 10.35      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).

 10.36      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).

 10.37      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).

 10.38      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).

 10.39      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).

 10.40      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).

 10.41      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).

 10.42      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).

 10.43      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).

 10.44      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).

 10.45      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
            dated October 23, 2000).

 10.46      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 dated October 23, 2000).

 10.47      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 dated October 23, 2000).

 10.48      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 file October 23, 2000).

 10.49*     Amendment No. 2 dated July 20, 2001 to Employment Agreement between
            Stephen C. Smith and Insynq, Inc.

 10.50      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)

 10.51      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).

 10.52      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).

 10.53      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)

 10.54      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)

 10.55      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)

 10.56      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)

 10.57      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)

 10.58      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).

 10.59      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).

 10.60      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).

 10.61      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).

 10.62      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).

 10.63      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).

 10.64      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).

 10.65*     Consulting Agreement dated March 22, 2001 between Metromedia
            Research Group LLC and Insynq, Inc., as amended dated
            April 9, 2001.

 10.66*     Registration Rights Agreement dated March 22, 2001 between
            Metromedia Research Group, LLC and Insynq, Inc.

 10.67*     Consulting Agreement dated March 23, 2002 between Internet PR Group
            and Insynq, Inc.
 10.68*     Letter Agreement dated April 1, 2001 between Barretto Pacific
            Corporation and Insynq, Inc

 10.69*     Consulting Agreement dated April 1, 2001 between The N.I.R. Group,
            LLC and Insynq, Inc.

 10.70*     Consulting Agreement dated May 3, 2001 and Amendment dated
            May 30, 2001 between Eugene R. Zachman and Insynq, Inc.

 10.71*     Settlement Agreement dated May 17, 2001 between Howe/Horizon
            Holdings, LLC, Horizon Holdings I, LLC and Insynq, Inc.

 10.72*     Equipment Co-Location License Agreement dated May 16, 2001 between
            Horizon Holdings I, LLC and Insynq, Inc.

 10.73*     Lease Agreement dated May 10, 2001 between Howe/Horizon Holdings,
            LLC and Insynq, Inc.

 10.74*     Consulting Agreement dated May 17, 2001 and Amendment dated
            May 30, 2001 between James Zachman and Insynq, Inc.

 10.75*     Agreement to Provide Professional Service dated July 10, 2001
            between Central Software Services and Insynq, Inc.

 10.76*     Consulting Agreement dated May 3, 2001 between DiabloStocks, Inc.
            and Insynq, Inc.

 10.77*     Selling Agreement dated May 28, 2001 between Taconic Capital
            Partners, LP, Internet Solutions Partners, Inc, Salvani
            Investments, Inc. and Insynq, Inc.

 10.78*     Acquisition Purchase Agreement dated June 1, 2001 between Omnibus
            Subscriber Computing, Inc. and Insynq, Inc.

 10.79*     Settlement Agreement dated June 21, 2001 between One Click
            Investments, LLC and John P. Gorst.

 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).

 23.1*      Consent of Grant Thornton, LLP for Financial Statements for the
            year ended May 31, 2001.

 23.2*      Consent of Brad G. Beckstead, CPA for Financial Statements for the
            year ended May 31, 2000.

 24.1*      Power of Attorney (included on the signature page of this Annual
            Report.

<FN>
*    Filed Herewith
</TABLE>