<PAGE>

                      SECURITIES AND EXCHANGE COMMISSION
                              WASHINGTON, DC 20549
                                 UNITED STATES

                                 FORM 10-KSB/A
                                AMENDMENT NO. 1

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

     FOR THE FISCAL YEAR ENDED May 31, 2000

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)

                                       1
<PAGE>

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:  $235,808.

The aggregate market value of the Registrant's common stock, $.001 par value,
held by non-affiliates as of September 7, 2000, based on the average bid and
asked price of the common stock as reported on September 7, 2000 on the OTC
Bulletin Board, was: $19,199,143.

As of September 7, 2000, there were 20,354,348 shares of the Registrant's common
stock.

DOCUMENTS INCORPORATED BY REFERENCE: Certain Exhibits under Part III below are
incorporated by reference herein.

                                       2
<PAGE>

The purpose of this amendment is to restate the financial statements presented
in the Company's Annual Report on Form 10-KSB for the fiscal year ended May 31,
2000, filed September 13, 2000 (the "Original Filing"). In the course of
preparing for the fiscal first quarter report dated August 31, 2000, the Company
discovered material errors in its financial statements as reported in its
Original Filing. There is a change in the reporting entity. The restated
financial statements present the financial position of Insynq, Inc. for the
period from inception (August 31, 1998) to May 31, 2000. The financial
statements included in the Original Filing were those of Xcel Management, Inc.
for the two years ended May 31, 2000, with the results of operations of Insynq
included from February 18, 2000 (date of merger) to May 31, 2000. The following
is a summary of the most material errors discovered by the Company:

     .  The Company is a Development Stage Company and did not report inception-
        to-date financial data as required by Statement of Financial Accounting
        Standards ("SFAS") No. 7.

     .  The Company did not properly record expenses related to common stock and
        warrants for common stock issued/granted for services in the amount of
        $891,844.

     .  The Company did not record an adjustment to equity in the amount of
        $1,071,785 to record an obligation for put options on certain common
        stock.

     .  The Company did not record interest expense of $23,600 or discounts on
        capital leases in the amount of $118,000.

     .  The Company did not record an adjustment for inventory write-downs of
        $37,997.

The Company has taken steps to correct these errors and to implement procedures
to ensure such errors do not recur.

Any Items in the Original Filing not expressly changed herein shall be as set
forth in the Original Filing.  All information in this Amendment 1 and the
Original Filing is subject to updating and supplementing as provided in the
Company's periodic reports filed with the Securities and Exchange Commission
subsequent to the date of such reports.

                                       3
<PAGE>

                             List of Items Amended

                                    PART II

 Item                                                                     Page
  6     Management's Discussion and Analysis of Financial Condition and
        Results of Operations
  7     Financial Statements
                                    PART IV
  13    Exhibits and Reports on Form 8-K

                                       4
<PAGE>

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

     The following discussion and analysis should be read in conjunction with
the financial statements and notes thereto included elsewhere in this report.
The statements contained in this report that are not historical facts,
including, without limitation, statements containing the words "believes,"
"anticipates," "estimates," "expects," "intends," "plans," "seeks," and words of
similar import, constitute "forward-looking statements." Forward-looking
statements are made based upon management's current expectations and beliefs
concerning future developments and their potential effects upon the Company. Our
actual results could differ materially from those anticipated for many reasons,
including risks faced by us described below in this report and as in the
Original Filing dated September 13, 2000.

Overview

     Insynq, Inc. was incorporated in the State of Washington on August 31,
1998, and is a development stage company that provides Internet Appliances,
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.

     In late 1999, we decided to target a combination with a public company and
on February 18, 2000, Xcel and Insynq, Inc. closed an asset purchase transaction
in which Xcel acquired substantially all of the assets of Insynq, Inc. Xcel
continued the business of Insynq, Inc. and on August 3, 2000, at a special
meeting of its shareholders, Xcel completed a re-incorporation merger with its
wholly owned subsidiary, Insynq Inc., a Delaware corporation. Today we continue
to deliver the application hosting and managed software services we founded
incorporating Internet Appliances developed as part of our IQ Delivery System.

Results of Operations

     We had limited active operations during the year ended May 31, 1999
("Fiscal 1999"), and therefore, we believe that a comparison of the results of
operations of Fiscal 1999 to the year ended May 31, 2000 ("Fiscal 2000") has
limited value for evaluating trends and as a basis for predicting future
results.

     The following is an analysis and comparison (where applicable) of our
results of operations for Fiscal 2000 and Fiscal 1999:

     We incurred a net loss of $3,778,867 for Fiscal 2000 and a net loss of
$143,475 for Fiscal 1999. The Fiscal 2000 and Fiscal 1999 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,
and (4) expenses related to stocks and warrants issued for services in Fiscal
2000.

                                       5
<PAGE>

     Total revenue for Fiscal 2000 was $235,808, an increase of $222,192 as
compared to Fiscal 1999. The primary sources of Fiscal 2000 revenue, which
essentially did not occur in Fiscal 1999, includes: seat subscription revenue of
$162,148, managed software service revenue of $39,287, and hardware and software
sales revenue of $34,373. We expect future revenue from all sources to trend
away from our practice of providing discounts and free offerings experienced in
Fiscal 2000 as we continue develop our sales and implement our sales and
marketing strategies, 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.

Costs and Expenses
------------------

     During Fiscal 2000, we recorded direct costs of services of $594,297, an
increase of $550,681 over the limited operations experienced in Fiscal 1999.
Network and infrastructure costs were $94,303 for Fiscal 2000, which is an
increase of $87,265 from Fiscal 1999.

     Selling, general, and administrative costs increased to $2,875,143 in
Fiscal 2000, an increase of $2,784,821 over Fiscal 1999, as we built out our
infrastructure, including hiring management and support staff, and started to
develop our sales and delivery systems. In Fiscal 2000 the company incurred
$105,752 in Research and Development Costs and $97,745 in Advertising expense.

     Depreciation and amortization expense increased to $195,610 in Fiscal 2000,
an increase of $185,963over Fiscal 1999, as we purchased fixed assets, including
computer equipment needed for infrastructure to support active business
operations.

     Interest expense increased to $98,611 during Fiscal 2000 versus $6,468 in
Fiscal 1999 as a result of an increase in capital lease interest expense of
$87,774 incurred on acquistion of computer equipment needed for infrastructure
to support active business operations. Other income of $46,786 was recorded in
Fiscal 2000.

Liquidity and Capital Resources
-------------------------------

     We had cash of $106,806 at May 31, 2000, and $501 at May 31, 1999, and
working capital deficits of $441,029 and $215,746 at the same dates,
respectively.

     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. If we are successful in obtaining sufficient
additional funding to execute our business plan, based on Pro Forma projections
we would expect to achieve profitability in late 2001.

                                       6
<PAGE>

     From June 1, 2000 through September 11, 2000, we raised additional funding
of $1,385,000.

     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.

Technical Defaults

     As of September 11, 2000, we are in default on certain obligations
including financial arrangements in the amount of $472,832 We have initiated
discussions to restructure these obligations. Currently, none of the obligees
has (1) formally or informally given notice of the covenant deficiencies, or (2)
imposed penalties. If the Company is not able to correct such defaults, it could
adversely impact our financial condition and ability to raise funding in the
future.


ITEM 7.  FINANCIAL STATEMENTS

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

ITEM 13.  EXHIBITS AND REPORTS ON FORM 8-K

(a)  Exhibits

--------------------------------------------------------------------------------
 EXHIBIT
 NUMBER                                     DESCRIPTION
--------------------------------------------------------------------------------

                                       7
<PAGE>

--------------------------------------------------------------------------------
2.1       Asset Purchase Agreement, dated as of February 18, 2000, by and
          between Xcel Management, Inc. and Insynq, Inc.
--------------------------------------------------------------------------------
3.1       Certificate of Incorporation of Insynq, Inc.
--------------------------------------------------------------------------------
3.2       By-Laws of Insynq, Inc.
--------------------------------------------------------------------------------
4.1/(1)/  Form of Specimen Common Stock Certificate.
--------------------------------------------------------------------------------
4.2/(1)/  Form of Warrant Agreement issued to Consulting & Strategy
          International, LLC on February 24, 2000, as amended.
--------------------------------------------------------------------------------
4.3/(1)/  Form of Warrant Agreement issued to International Fluid Dynamics, Inc.
          on July 17, 2000.
--------------------------------------------------------------------------------
4.4/(1)/  Form of Registration and Repurchase Agreement issued to International
          Fluid Dynamics, Inc. on May 17, 2000, as amended.
--------------------------------------------------------------------------------
4.5/(1)/  Form of Warrant Agreement issued to Plazacorp Investors Limited on
          April 26, 2000.
--------------------------------------------------------------------------------
4.6/(1)/  Form of Registration and Repurchase Agreement issued to Plazacorp
          Investors Limited on April 26, 2000, as amended.
--------------------------------------------------------------------------------
4.7/(1)/  Form of Warrant Agreement issued to TCA Investments, Inc. L.L.L.P. on
          June 16, 2000, as amended.
--------------------------------------------------------------------------------
4.8/(1)/  Form of Convertible Debenture issued to TCA Investments, Inc. on June
          16, 2000, as amended.
--------------------------------------------------------------------------------
4.9/(1)/  Form of Warrant Agreement issued to Garnier Holdings, Ltd. on July 17,
          2000.
--------------------------------------------------------------------------------
4.10/(1)/ Form of Promissory Note issued to Garnier Holdings, Ltd. on July 17,
          2000, as amended.
--------------------------------------------------------------------------------
4.11/(1)/ Form of Warrant Agreement issued to One Click Investments, LLC on
          August 4, 2000.
--------------------------------------------------------------------------------
4.12/(1)/ Form of Registration Rights Agreement issued to One Click Investments,
          LLC on August 4, 2000.
--------------------------------------------------------------------------------
4.13/(1)/ Form of Warrant Agreement issued to Series A & B warrant holders.
--------------------------------------------------------------------------------
4.14/(1)/ Form of Warrant Agreement issued to One Click Investments, LLC on
          September 20, 1999, as amended.
--------------------------------------------------------------------------------
4.15/(1)/ Form of Warrant Agreement issued to Hewlett-Packard on June 1, 1999.
--------------------------------------------------------------------------------
4.16*     Form of Registration Agreement issued to Hewlett-Packard on February
          20, 2000.
--------------------------------------------------------------------------------
4.17/(2)/ Form of Subscription Agreement for Convertible Debenture and Warrants
          issued to TCA Investments, Inc. on June 16, 2000.
--------------------------------------------------------------------------------
10.1/(1)/ Insynq, Inc. 2000 Executive Long Term Incentive Plan.
--------------------------------------------------------------------------------
10.2/(1)/ Insynq, Inc. 2000 Long Term Incentive Plan.
--------------------------------------------------------------------------------
10.3/(1)/ Business Services Contract with Consulting & Strategy International,
          L.L.C. dated November 18, 1999, as amended.
--------------------------------------------------------------------------------
10.4/(1)/ Independent Marketing Consultant Agreement with Vijay Alimchandani
          dated February 20, 2000.
--------------------------------------------------------------------------------
10.5/(1)/ Financial Public Relations Consulting Agreement with One Click
          Investments, LLC dated September 20, 1999, as amended.
--------------------------------------------------------------------------------

                                       8
<PAGE>

--------------------------------------------------------------------------------
10.6/(1)/  Form of Registration Rights Agreement upon the issuance of shares to
           investors under the bridge financing dated December 14, 1999.
--------------------------------------------------------------------------------
10.7/(1)/  Form of Registration Rights Agreement upon the issuance of shares to
           investors under the bridge financing dated January 24, 2000.
--------------------------------------------------------------------------------
10.8/(1)/  Engagement Letter with Rosenblum Partners, LLC dated July 7, 2000.
--------------------------------------------------------------------------------
10.9/(1)/  Employment Agreement, dated as of February 20, 2000, between John P.
           Gorst and Xcel Management, Inc.
--------------------------------------------------------------------------------
10.10/(1)/ Employment Agreement, dated as of February 20, 2000, between M.
           Carroll Benton and Xcel Management, Inc.
--------------------------------------------------------------------------------
10.11/(1)/ Employment Agreement dated as of February 20, 2000, between James R.
           Leigh, III, and Xcel Management, Inc.
--------------------------------------------------------------------------------
10.12/(1)/ Employment Agreement, dated as of February 20, 2000, between DJ
           Johnson and Xcel Management, Inc.
--------------------------------------------------------------------------------
10.13/(1)/ Employment Agreement, dated as of February 20, 2000, between Joanie
           C. Mann and Xcel Management, Inc.
--------------------------------------------------------------------------------
10.14/(1)/ Employment Agreement, dated as of February 20, 2000, between Jim
           Zachman and Xcel Management, Inc.
--------------------------------------------------------------------------------
10.15/(1)/ Employment Agreement, dated as of July 20, 1999, between Donald L.
           Manzano and Insynq, Inc.- Washington.
--------------------------------------------------------------------------------
10.16/(1)/ Employment Agreement, dated as of July 20, 1999, between Carey M.
           Holladay and Insynq, Inc.- Washington.
--------------------------------------------------------------------------------
10.17/(1)/ Employment Agreement, dated as of June 28 2000, between William G.
           Hargin and Xcel Management, Inc.
--------------------------------------------------------------------------------
10.18/(1)/ Employment Agreement, dated as of June 5, 2000, between Barbara D.
           Brown and Xcel Management, Inc.
--------------------------------------------------------------------------------
10.19/(1)/ Employment Agreement, dated as of June 16, 2000, between Christopher
           Todd and Xcel Management, Inc.
--------------------------------------------------------------------------------
10.20/(1)/ Employment Agreement, dated as of September 1, 2000, between David
           Wolfe and Insynq, Inc.
--------------------------------------------------------------------------------
10.21/(1)/ Lease Agreement dated January 3, 2000 between Howe/Horizon Holdings
           LLC and Insynq, Inc., for 1101 Broadway Plaza, Tacoma, Washington.
--------------------------------------------------------------------------------
10.22/(1)/ 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.
--------------------------------------------------------------------------------
10.23/(1)/ Lease Agreement dated March 21, 2000 between Walaire, Inc. and
           Insynq, Inc., for 3017 Douglas Boulevard, Suite 220 and 240,
           Roseville, California.
--------------------------------------------------------------------------------
10.24/(1)/ Master Licensing Agreement dated May 19, 2000 between Macola, Inc.
           and Insynq, Inc.
--------------------------------------------------------------------------------
10.25/(1)/ Citrix iLicense Agreement dated March 2, 2000 between Citrix and
           Insynq, Inc.
--------------------------------------------------------------------------------
10.26/(1)/ Citrix iBusiness Application Service Provider Agreement dated March
           2, 2000 between Citrix and Insynq, Inc.
--------------------------------------------------------------------------------
10.27/(1)/ Master Licensing Agreement dated March 1, 2000 between Legacy
           Solutions and Insynq, Inc.
--------------------------------------------------------------------------------

                                       9
<PAGE>

--------------------------------------------------------------------------------
10.28/(1)/  Master Licensing Agreement dated April 7, 2000 between Electronic
            Registry Systems, Inc. and Insynq, Inc.
--------------------------------------------------------------------------------
10.29/(1)/  Master Licensing Agreement dated March 22, 2000 between Viking
            Software Services, Inc. and Insynq, Inc.
--------------------------------------------------------------------------------
10.30/(1)/  Master Licensing Agreement dated June 1, 2000 between My Partner
            Online and Insynq, Inc.
--------------------------------------------------------------------------------
10.31/(1)/  Master Licensing Agreement dated April 24, 2000 between Veracicom
            and Insynq, Inc.
--------------------------------------------------------------------------------
10.32/(1)/  Master Licensing Agreement dated August 21, 2000 between
            CastaLink.com, Inc. and Insynq, Inc.
--------------------------------------------------------------------------------
10.33/(1)/  Application Hosting Agreement dated May 12, 2000 between Remedy
            Corporation and Insynq, Inc.
--------------------------------------------------------------------------------
10.34/(1)/  Novell Internet Commercial Service Provider Agreement dated July 24,
            2000 between Novell, Inc. and Insynq, Inc.
--------------------------------------------------------------------------------
10.35/(1)/  Agreement to Provide Collaborative Management Services dated July
            15, 1999 between Horizon Holdings I, LLC, and Insynq, Inc.
--------------------------------------------------------------------------------
10.36/(1)/  Referral Partner Agreement dated July 29, 1999 between Global
            Crossing Telecommunications, Inc. and Insynq, Inc.
--------------------------------------------------------------------------------
16.1/(1)/   Letter on Change in Certifying Accountant.
--------------------------------------------------------------------------------
23.1/(1)/   Consent of G. Brad Beckstead, CPA, dated September 11, 2000 for
            Financial Statements for the years ended May 31, 2000 and May
            31,1999.
--------------------------------------------------------------------------------
23.2*       Consent of G. Brad Beckstead, CPA, dated October 22, 2000 for
            Financial Statement for the years ended May 31, 2000 and May 31,
            1999.
--------------------------------------------------------------------------------
24.1/(1)/   Power of Attorney.
--------------------------------------------------------------------------------
27.1*       Financial Data Schedule.
--------------------------------------------------------------------------------

* Filed herewith
/(1)/ Previously filed with the Company's Annual Report in Form 10-KSB for the
      fiscal year ended May 31, 2000.
/(2)/ Previously filed with the Company's Quarterly Report on Form 10-QSB for
      the quarter ended August 31, 2000, filed October 23, 2000.
(b)   Reports on Form 8-K

          (1)  On March 3, 2000, we filed a Current Report on Form 8-K reporting
our acquisition of Insynq, Inc., a Washington corporation.

          On July 3, 2000, we filed an amendment to this Form 8-K to include the
audited financial statements for Insynq, Inc. for the year ended December 31,
1999 and December 31, 1998, and the unaudited pro forma financial statements
showing our combination with Insynq, Inc. for the nine months ended February 29,
2000.

          (2) On April 6, 2000, we filed a Current Report on Form 8-K reporting
the removal of Jones, Jensen & Company as our accountants and the approval of G.
Brad Beckstead CPA as our new accountant.

          On May 23, 2000 we filed an amendment to this Form 8-K to include the
letter from HJ & Associates, LLC (formerly Jones, Jensen & Company), as required
by Item 304(a)(3) of Regulation S-B.

                                       10
<PAGE>

     (3)  On June 29, 2000, we filed a Current Report on Form 8-K reporting the
resignation of Donald L. Manzano as our President and Chief Operating Officer.

     (4)  On August 17, 2000, we filed a Current Report on Form 8-K reporting
our re-incorporation under Delaware law.

     (5)  On September 27, 2000, we filed a Current Report on Form 8-K reporting
our reorganization of our operations both in sales and marketing; reduction of
salaries and benefits for most members of executive management and certain other
employees; our promotion of James R. Leigh, III to the position of President;
the resignation of DJ Johnson as our Chief Financial Officer; hiring of Stephen
C. Smith as the interim Chief Financial Officer; the termination of an agreement
with Tricorp Financial, Inc. and Rosenblum Partners, LLC; and, the retention of
Cardinal Capital of Atlanta, Georgia, to assist us in obtaining funding for
marketing and for additional working capital.

     (6)  On October 13,2000, we filed a Current Report on Form 8-K reporting
the removal of G. Brad Beckstead, CPA as our accountant and the approval of
Grant Thornton LLP as our new accountants.

                                       11
<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
                              Chief Executive Officer

Date:  December 6, 2000


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

  /s/ John P. Gorst        Chief Executive Officer and         December 6, 2000
-------------------        Chairman of the Board
  John P. Gorst            (Principal Executive Officer)

  /s/ Stephen C. Smith     Interim Chief Financial Officer     December 6, 2000
----------------------     (Principal Financial and
  Stephen C. Smith         Accounting Officer)


         *                 Chief Administrative Officer,       December 6, 2000
___________________        Secretary, Treasurer and Director
  M. Carroll Benton

         *                 Director                            December 6, 2000
  _______________
  David D. Selmon

* By: /s/ John P. Gorst    Attorney-in-Fact                    December 6, 2000
     ------------------
       John P. Gorst

                                       12
<PAGE>

 Index to Financial Statements of Insynq, Inc., as of and for the years ended,
                             May 31, 1999 and 2000.
<TABLE>
<CAPTION>
                                                                 Page

<S>                                                             <C>
Index to Financial Statements..................................  F-1
Report Of Independent Auditor..................................  F-2
Balance Sheets.................................................  F-3
Statements of Operations.......................................  F-5
Statements of Stockholders' Deficit............................  F-6
Statements of Cash Flows.......................................  F-7
Notes to Financial Statements..................................  F-8
</TABLE>

                                      F-1
<PAGE>

G. BRAD BECKSTEAD
-----------------
Certified Public Accountant
                                                             330 E. Warm Springs
                                                             Las Vegas, NV 89119
                                                                    702.528.1984
                                                                425.928.2877efax

                          INDEPENDENT AUDITOR'S REPORT


Board of Directors
Insynq, Inc.
(A Development Stage Company)
Tacoma, WA 98405

I have audited the Balance Sheets of Insynq, Inc. (the "Company") (A Development
Stage Company) as of May 31, 2000 and 1999, and the related Statements of
Operations, Stockholders' Deficit, and Cash Flows for the years then ended.
These financial statements are the responsibility of the Company's management.
My responsibility is to express an opinion on these financial statements based
on my audit.

I conducted my audit in accordance with generally accepted auditing standards.
Those standards require that I 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 statement presentation.  An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation.  I believe that my audit provides a reasonable basis for my
opinion.

In my opinion, the financial statements referred to above present fairly, in all
material respects, the financial position of Insynq, Inc. (A Development Stage
Company) as of May 31, 2000 and 1999, and the results of its operations, changes
in stockholders' deficit, and cash flows for the years then ended, in conformity
with generally accepted accounting principles.

The accompanying financial statements have been prepared assuming the Company
will continue as a going concern.  As discussed in Note 12 to the financial
statements, the Company has had limited operations.  This raises substantial
doubt about its ability to continue as a going concern.  Management's plans in
regard to these matters are also described in Note 12.  The financial statements
do not include any adjustments that might result from the outcome of this
uncertainty.

/s/ G. Brad Beckstead

December 5, 2000

                                      F-2
<PAGE>

                                  Insynq, Inc.
                        (formerly Xcel Management, Inc.)
                         (A Development Stage Company)
                           Balance Sheets - Restated

<TABLE>
<CAPTION>
                                                 May 31, 2000           May 31, 1999
                                               ----------------     -------------------
                ASSETS

CURRENT ASSETS:
<S>                                            <C>                    <C>
  Cash                                               $  106,806                $    501
  Accounts receivable, net of
   allowance for doubtful accounts of                    63,405                   3,424
   $1,469 at May 31, 2000
  Other receivables                                      16,912                      --
  Inventory                                              29,512                   2,246
  Prepaid expenses                                       29,186                      --
                                               ----------------     -------------------
                                                        245,821                   6,171

PROPERTY & EQUIPMENT, NET                             1,031,675                  79,001
OTHER ASSETS:
  Intellectual and other intangible
   property, net                                         87,824                 128,270
  Deposits                                              165,584                      --
                                               ----------------     -------------------

                                                     $1,530,904                $213,442
                                               ================     ===================
</TABLE>


                                 - Continued -

                                      F-3
<PAGE>

                                  Insynq, Inc.
                        (formerly Xcel Management, Inc.)
                         (A Development Stage Company)
                           Balance Sheets - Restated

<TABLE>
<CAPTION>
                                                        May 31, 2000             May 31, 1999
                                                    ------------------      -------------------

    LIABILITIES AND STOCKHOLDERS' DEFICIT

CURRENT LIABILITIES:
<S>                                                   <C>                     <C>
  Accounts payable                                         $   296,946                $  28,699
  Accrued and other liabilities                                183,565                  123,218
  Notes payable                                                 39,470                   70,000
  Current portion of capital lease obligation                  166,869                       --
                                                    ------------------      -------------------
     Total current liabilities                                 686,850                  221,917

ADVANCE FROM STOCKHOLDER                                       100,000                       --
CAPITAL LEASE OBLIGATION, NET OF CURRENT
 PORTION                                                       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 or outstanding as of May 31, 2000
   and 1999, respectively
  Common stock, $0.001 par value,
   100,000,000 shares authorized, 19,620,946
   and 11,284,479 shares issued and
   outstanding as of May 31, 2000 and 1999,
   respectively                                                 19,621                   11,284
  Additional paid-in capital                                 3,132,903                  123,716
  Accumulated development stage deficit                     (3,922,342)                (143,475)
                                                    ------------------      -------------------
     Total stockholders' deficit                              (769,818)                  (8,475)
                                                    ------------------      -------------------


                                                           $ 1,530,904                $ 213,442
                                                    ==================      ===================
</TABLE>


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

                                      F-4
<PAGE>

                                 Insynq, Inc.
                       (formerly Xcel Management, Inc.)
                         (A Development Stage Company)
                      Statements of Operations - Restated

<TABLE>
<CAPTION>
                                                                                        Cumulative results of
                                                                                           operations since
                                                       Year ended May 31,                      inception
                                            --------------------------------------
                                                    2000                 1999              (August 31, 1998)
                                            -----------------     ----------------     --------------------------
<S>                                         <C>                   <C>                  <C>
REVENUE                                           $   235,808          $    13,616                    $   249,424

COSTS AND EXPENSES:
  Direct cost of services                             594,297               43,616                        637,913
  Network and infrastructure costs                     94,303                7,038                        101,341
  Selling, general and administrative               2,875,143               90,322                      2,965,465
  Research and development                            105,752                   --                        105,752
  Advertising                                          97,745                   --                         97,745
  Depreciation and amortization                       195,610                9,647                        205,257
                                            -----------------     ----------------            -------------------
                                                    3,962,850              150,623                      4,113,473
                                            -----------------     ----------------            -------------------


  Loss from operations                             (3,727,042)            (137,007)                    (3,864,049)

OTHER INCOME (EXPENSE):
  Other income (expense)                               46,786                   --                         46,786
  Interest expense                                    (98,611)              (6,468)                      (105,079)
                                            -----------------     ----------------            -------------------
                                                      (51,825)              (6,468)                       (58,293)
                                            -----------------     ----------------            -------------------

NET LOSS                                          $(3,778,867)         $  (143,475)                   $(3,922,342)
                                            =================     ================            ===================

NET LOSS PER COMMON SHARE                              $(0.27)              $(0.01)                        $(0.31)
                                            =================     ================            ===================

WEIGHTED AVERAGE NUMBER OF COMMON
 SHARES OUTSTANDING                                14,050,928           11,284,479                     12,869,018
                                            =================     ================            ===================
</TABLE>

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

                                      F-5
<PAGE>

                                 Insynq, Inc.
                       (formerly Xcel Management, Inc.)
                         (A Development Stage Company)
                 Statement of Stockholders' Deficit - Restated

<TABLE>
<CAPTION>
                                                                                               Accumulated
                                                  Common Stock              Additional         Development            Total
                                                                              Paid-in             Stage           Stockholders'
                                              Shares          Amount          Capital            Deficit             Deficit
                                           ------------    ------------    --------------     --------------     ---------------
<S>                                        <C>             <C>             <C>                <C>                <C>
Balances at August 31, 1998                       --             $--               $--                $--                $--

Issuance of founders' shares at $0.012
  per share in August 1999                11,284,479          11,284           123,716                 --             135,000

Net loss for the year ended
 May 31, 1999                                     --              --                --           (143,475)           (143,475)
                                        ------------    ------------    --------------     --------------     ---------------

Balances at May 31, 1999                  11,284,479          11,284           123,716           (143,475)             (8,475)

Common stock warrants issued
 for services rendered                            --              --           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 warrants on
 lease obligation 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 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 common stock
 attaching one Class A warrant
 and one Class B warrant for
 each share issued at $0.71 in
 January 2000                              1,311,821           1,312           928,688                 --             930,000

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

Issuance of common stock at
 $0.50 per share in February
 2000                                      1,600,000           1,600           798,400                 --             800,000

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
 $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
 in connection with repurchase
 agreement                                   285,714             286           499,714                 --             500,000

Reclassification to 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 for the year ended
 May 31, 2000                                     --              --                --         (3,778,867)         (3,778,867)
                                        ------------    ------------    --------------     --------------     ---------------

Balances at May 31, 2000                  19,620,846         $19,621       $ 3,132,903        $(3,922,342)        $  (769,818)
                                        ============    ============    ==============     ==============     ===============
</TABLE>

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

                                      F-6
<PAGE>

                                  Insynq, Inc.
                        (formerly Xcel Management, Inc.)
                         (A Development Stage Company)
                      Statements of Cash Flows - Restated
<TABLE>
<CAPTION>
                                                                                                Cumulative cash flows
                                                                                                   since inception
                                                   May 31, 2000           May 31, 1999            (August 31, 1998)
<S>                                          <C>                      <C>                    <C>
INCREASE (DECREASE) IN CASH
 Net loss                                           $(3,778,867)             $(143,475)                $(3,922,342)
ADJUSTMENTS TO RECONCILE NET LOSS TO NET
 CASH USED IN OPERATING ACTIVITIES:
 Depreciation and amortization expense                  195,610                  9,647                     205,257
 Issuance of common stock for services                  333,822                  5,257                     339,079
 Issuance of warrants for services                      782,844                     --                     782,844
 Warrants issued with debt and capital                   23,600                     --                      23,600
  leases
CHANGE IN ASSETS AND LIABILITIES:
  Accounts receivable, net                              (59,981)                (3,424)                    (63,405)
  Other receivables                                      18,088                     --                      18,088
  Other assets                                         (164,468)                    --                    (164,468)
  Inventories                                           (27,266)                (2,246)                    (29,512)
  Prepaid expense                                       (29,186)                    --                     (29,186)
  Deposits                                             (165,583)                    --                    (165,583)
  Accounts payable                                      268,247                 28,699                     296,946
  Accrued liabilities                                    60,604                122,961                     183,565
                                             ------------------       ----------------       ---------------------
   Net cash used by operating activities             (2,376,953)                17,419                  (2,359,534)
                                             ------------------       ----------------       ---------------------

CASH FLOWS FROM INVESTING ACTIVITIES:
 Purchase of fixed assets                              (397,544)               (15,370)                   (412,914)
 Acquisition of intellectual property                        --                 (1,548)                     (1,548)
 Deposit on future acquisition                          (35,000)                    --                     (35,000)
 Cash received from Xcel acquisition                        257                     --                         257
                                             ------------------       ----------------       ---------------------
   Net cash used by investing activities               (432,287)               (16,918)                   (449,205)
                                             ------------------       ----------------       ---------------------

CASH FLOWS FROM FINANCING ACTIVITIES:
  Payments on capital leases                             (7,327)                    --                      (7,327)
  Payments on short term notes payable                  (30,530)                    --                     (30,530)
  Proceeds from issuance of common stock              2,853,402                     --                   2,853,402
  Advances from stockholder                             100,000                     --                     100,000
                                             ------------------       ----------------       ---------------------
   Net cash provided by financing
    activities                                        2,915,545                     --                   2,915,545
                                             ------------------       ----------------       ---------------------

NET INCREASE (DECREASE) IN CASH                         106,305                    501                     106,806
CASH AT BEGINNING OF PERIOD                                 501                     --
                                             ------------------       ----------------       ---------------------
CASH AT END OF PERIOD                               $   106,806              $     501                 $   106,806
                                             ==================       ================       =====================
</TABLE>

                                      F-7
<PAGE>

                                  INSYNQ, INC.
                        (FORMERLY XCEL MANGEMENT, INC.)
                         NOTES TO FINANCIAL STATEMENTS



Note 1 - Basis of Presentation
------

The Company:

On February 18, 2000, the Company closed an asset purchase transaction in which
Xcel, a shell public company, acquired substantially all of the assets of
Insynq.  Xcel continued the business of Insynq and on August 3, 2000, at a
special meeting of its shareholders, 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 (the
"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 ("Split Common Stock") for each share held. The 9,915,424 shares of common
stock outstanding immediately prior to the reorganization were converted to
approximately 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.

Insynq, Inc. ("Insynq"), provides server-based computing services, and is an
application services provider ("ASP"). Insynq's services enable software
applications to be deployed, managed, supported and upgraded from centrally
located servers, rather than on individual desktop computers. For server-based
computing customers, Insynq installs and integrates software applications on
customers' servers. For ASP customers, Insynq hosts software applications on
servers at data centers, and rents computing services to customers for a monthly
fee. ASP customers connect to facilities over the Internet, through a dedicated
telecommunications line or by wireless connection.

Basis of Presentation: The financial statements presented herein represent those
of Insynq, the surviving entity in the reverse merger transaction described
above.  The Company's operating revenue has been minimal and is insufficient to
maintain the Company as a going concern.  The Company is continuing to develop
its products and business plan.   In accordance with Statement of Financial
Accounting Standards ("SFAS") No. 7, the Company is considered a Development
Stage Company.

Note 2 - Summary of Significant Accounting Policies
------

Cash and Cash Equivalents:  Cash and cash equivalents consist of money market
accounts and other short-term investments with maturity of three months or less
when purchased. The Company maintains a cash balance in a non-interest-bearing
account that currently does not exceed federally insured limits.  For the
purpose of the statements of cash flows, all highly liquid investments with an
original maturity of three months or less are considered to be cash equivalents.

Fair Value of Financial Instruments:  Financial instruments, consisting
principally of cash, accounts receivable, payables, accrued liabilities, short-
and long-term obligations, and their carrying values in the accompanying balance
sheets, approximate their fair value. It is management's opinion that the
Company is not exposed to significant currency or credit risks arising from
these financial instruments.

                                      F-8
<PAGE>

Accounts Receivable:  The Company had established an allowance for doubtful
accounts based upon the history of account collection and prior bad debts.

Inventory:  Inventories are stated at the lower of cost (first in, first out) or
market and consists of computer hardware, parts and supplies on hand for resale.

Property and Equipment:  Equipment and hardware is stated at cost. Depreciation,
including amortization of capitalized cost of leased assets, for financial
statement purposes is calculated using straight-line and declining balance
methods over useful lives of the assets, which range from five to seven years.
The cost of maintenance and repairs is charged to income as incurred;
significant improvements are capitalized and amortized over the remaining life
of the lease.

Leasehold improvements are amortized over the shorter of the lives of the
respective leases or service lives of the improvements.

Use of Estimates:  The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect certain reported amounts and disclosures.  Actual
results could differ from those estimates.

Revenue Recognition:  The Company generates revenue from ASP services,
information technology services, outsourcing contract services, and from the
resale of computer hardware and software. Service revenue is recognized when the
service is provided, or over the term of the applicable contracts. Payments
received in advance, even if non-refundable, are recorded as customer deposits.
Revenue from the resale of computer hardware and software is recorded upon
shipment, or upon installation when required under contract terms.

Concentration of Credit Risk and Key Supplier:  The Company sells the majority
of its services and products throughout North America. Sales to the Company's
recurring customers are generally made on an open account while sales to
occasional customers may be made on a prepaid basis. The Company generally does
not require collateral. Reserves are maintained for potential credit losses.

Citrix Systems, Inc. ("Citrix") is one of the Company's key suppliers. The
Company uses Citrix software almost exclusively to connect its customers to
software applications.

Intangible Assets:  The Company capitalizes the costs associated with licenses
of major business process application software used in providing ASP services.
The licenses are amortized over three years.

Long-Lived Assets:  The Company follows SFAS No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of,"
which requires impairment losses to be recorded on long-lived assets used in
operations when indicators of impairment are present.

Long-lived assets and certain identifiable intangibles held and used by the
Company are reviewed for impairment whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be recoverable. Based upon
this review, the Company believes that no impairment of the carrying value of
its long-lived assets existed at May 31, 2000 and 1999.

Income Taxes: The Company utilizes the liability method of accounting for income
taxes as set forth in 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.

                                      F-9
<PAGE>

Stock-Based Compensation:  The Company accounts for stock-based awards to
employees in accordance with Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" and related interpretations and has
adopted the disclosure-only alternative of SFAS No. 123, "Accounting for Stock-
Based Compensation." Options granted to consultants, independent representatives
and other non-employees are accounted for using the fair value method as
prescribed by SFAS No. 123.

Loss Per Common Share:  Basic loss per share is computed by dividing the net
loss by the weighted average number of common shares outstanding during the
year. The weighted average number of shares outstanding was 14,050,928 and
11,284,479 for the fiscal years ended May 31, 2000 and May 31, 1999,
respectively, and 12,869,018 since inception August 31, 1998 through May 31,
2000.  Diluted loss per share for all period presented equaled basic loss per
share due to antidilutive effect of the potentially dilutive securities.

Reclassifications:  Certain amounts in the 1999 consolidated financial
statements have been reclassified to conform to the current year presentation.

Recent Accounting Pronouncements:

In June 1998, SFAS No. 133, "Accounting for Derivative Instruments and Hedging
Activities" was issued, which establishes new standards for recording
derivatives in interim and annual financial statements. This statement requires
recording all derivative instruments as assets or liabilities, measured at fair
value. Statement No. 133, as amended, is effective for all fiscal quarters of
all fiscal years beginning after June 15, 2000. Management does not anticipate
the adoption of the new statement will have a significant impact on the
consolidated results of operations or financial position of the Company.

Note 3 - Property and Equipment
------

Property and equipment consist of the following as of May 31:

<TABLE>
<CAPTION>
                                                               2000         1999
                                                           -----------   -----------
     <S>                                                   <C>           <C>
     Computer hardware                                      $  144,621       $50,636
     Computer software                                         105,536         8,876
     Equipment                                                 217,468        24,948
     Furniture and fixtures                                     86,650
     Capitalized lease equipment                               587,517
     Leasehold improvements                                     51,365
                                                           -----------   -----------
                                                             1,193,157        84,460
     Less accumulated depreciation and amortization            161,482         5,459
                                                           -----------   -----------
                                                            $1,031,675       $79,001
                                                           ===========   ===========
</TABLE>

Note 4 - Intellectual and Other Intangible property
------

Insynq, Inc. acquired the rights to the "Insynq Project" on August 31, 1998, in
exchange for 7,758,080 common shares of stock valued at $130,000. The Insynq
Project, consisting of tangible and intangible properties, is the development of
a proprietary data utility services system. The cost is amortized over sixty
months.

                                      F-10
<PAGE>

Note 5 - Deposits
------

Security deposits for realty leases consisted of the following at May 31, 2000:

Name of Lessor                        Refundable Date            Amount
                                    -------------------     -----------------

Walarie, Inc.                                 June 2005              $  8,209
Vantas Sacramento, LLC                       April 2003                 4,033
Howe/Horizon Holdings, LLC                 January 2009               153,342
                                                            -----------------
                                                                     $165,584
                                                            =================

Note 6 - Lease Obligations
------

The Company conducts a substantial portion of its operations utilizing leased
office facilities, which expire in 2009.  The Company also leases equipment
under capital leases expiring in 2003.

The following is a schedule by years of future minimum lease payments together
with the present value of the minimum payments under capital and operating
leases as of May 31, 2000:

                                             Capital Leases    Operating Leases
                                           -----------------  ------------------
Fiscal Year ending May 31,
2001                                                $281,556          $  447,514
2002                                                 274,692             429,169
2003                                                 241,951             424,290
2004                                                      --             412,354
2005                                                      --             305,836
2006-2009                                                 --           1,131,874
                                           -----------------  ------------------
Future minimum lease payments                        798,199          $3,151,037
                                                              ==================

Less amount representing interest                    189,243
                                           -----------------
Present value of minimum lease payments             $608,956
                                           =================


Current maturities                                  $166,869
Long-term maturities                                 442,087
                                           -----------------
                                                    $608,956
                                           =================


All of the above scheduled lease agreements were entered into during the fiscal
year ended May 31, 2000.  The rent expense for facilities and equipment was
$178,578 and $0.00 for the fiscal years ended May 31, 2000 and 1999.

Note 7 - Convertible Debentures
------

In June 2000, the Company received a $100,000 advance on a loan pursuant to an
agreement with Travin Partners, LLP ("TPL"), and TCA Investments, Inc. ("TII").
On June 16, 2000, the Company entered into an additional private financing
transaction with TPL and TII, under the terms of which TPL and TII each loaned
us the sum of $325,000 (the "loans") in exchange for convertible debentures and
warrants.

Note 8 - Income Taxes
------

The Company accounts for income taxes using the liability method as prescribed
by Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes".

The income tax provision reconciled to the tax computed at the statutory federal
rate was as follows at May 31:

                                                 2000                1999
                                           ----------------    ----------------

 Tax benefit at statutory rate             $     (1,385,590)   $        (48,782)
 Permanent differences                                4,046                  48
 Change in valuation allowance                    1,381,544              48,734
                                           ----------------    ----------------

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

The components of deferred tax assets and liabilities consist of the following
at May 31:

                                                 2000               1999
                                           ----------------    ----------------
 Deferred tax asset:
   Liabilities not timely paid             $         20,040    $              -
   Net operating loss carry forwards              1,147,482              52,299
   Other                                              4,024                   -
   Warrants issued for services                     266,167                   -
                                           ----------------    ----------------
                                                  1,437,713              52,299
 Deferred tax liability:
     Depreciation                                    (7,435)             (3,565)

 Valuation allowance                             (1,430,278)            (48,734)
                                           ----------------    ----------------

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

The Company has established a valuation allowance of $1,430,278 and $48,734 as
of May 31, 2000 and 1999, respectively, due to the uncertainty of future
utilization of net operating loss carryforwards and realization of other
deferred tax assets.  The valuation allowance was increased by approximately
$1,381,500 during the year ended May 31, 2000 based upon management's estimate
of the realizability of the net deferred tax asset.  At May 31, 2000, an
operating loss carryforward of approximately $3,375,000 expiring through 2018 is
available to offset future taxable income.  Utilization of these carryforwards
are dependent on future taxable income and could further be limited due to a
change of control in the Company's ownership as defined by the Internal Revenue
Code 382.

                                      F-11
<PAGE>

Note 9 - Stockholders' Equity
-------

The Company is authorized to issue 100,000,000 shares of $0.001 par value common
stock and 10,000,000 shares of $0.001 par value preferred stock.  The Company
has issued and outstanding 19,620,846 and 11,284,479 shares of $0.001 par value
common stock as of May 31,2000 and 1999, respectively.  There were no shares of
preferred stock issued or outstanding as of May 31, 2000 or May 31, 1999.

Note 10 - Stock Options
-------

During fiscal year 2000, the Company's Board adopted the Long Term Incentive
Plan ("LTIP") and the Executive Long Term Incentive Plan (the "Executive LTIP").

The "Executive LTIP" provides for the issuance of incentive and non-qualified
stock options, stock appreciation rights and restricted stock.  The maximum
number of options under the Executive LTIP is 5,400.000.  As of

                                      F-12
<PAGE>

May 31,2000, a total of 5,000,000 options were granted to M. Carroll Benton, the
Chief Administrative Officer, Secretary and Treasurer, and John P. Gorst, the
Chief Executive Officer, under the Executive 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.  The maximum numbers of shares, which may be issued upon the
exercise of options under the LTIP, is 16,750,300.

The company has adopted the discloser only provisions of Financial Accounting
Standard No. 123, "Accounting for Stock-Based Compensation" (SFAS 123).  The
Company applies APB Opinion No. 25, "Accounting for Stock Issued to Employees,"
and related Interpretations in accounting for its plans and generally does not
recognize compensation expense for its stock based compensation plans.  If the
Company had elected to recognize compensation expense based upon the fair value
at the grant date for awards under these plans consistent with the methodology
prescribed by SFAS 123, the Company's net loss would change to the pro forma
amounts indicated below:

                                                              2000
                                                          ------------

                         Net loss
                           As reported                    $(3,778,867)
                           Pro forma                      $ 5,700,015)
                         Net earnings (loss) per share
                           As reported                    $     (0.34)
                           Pro forma                      $     (0.51)

The fair value of option grants is estimated using the Black-Scholes option-
pricing model with the following weighted-average assumptions for the years
ended May 31:


                                                              2000
                                                          ------------

                         Expected volatility                 90%
                         Expected dividend yield             --
                         Risk-free interest rate            6.5%
                         Expected life                       10 years

A summary of the Company's stock option plan's activity is as follows:

<TABLE>
<CAPTION>
                                                      -----------------------------------------
                                                                             Weighted-Average
                                                            Shares            Exercise Price
                                                      ----------------    ---------------------
                    <S>                               <C>                 <C>
                    Outstanding at beginning of year                --                       --
                    Granted                                  7,011,802                    $0.51
                    Exercised                                       --                       --
                    Forfeited                                       --                       --
                                                      ----------------    ---------------------
                    Outstanding at end of year               7,011,802                    $0.51
                                                      ================    =====================
                    Options exercisable at end of year       4,555,482                    $0.58
                                                      ================    =====================

                    Weighted-average fair value of
                     options granted during the year                                      $0.39
                                                                          =====================
</TABLE>

The following is a summary of stock options outstanding from the 2000 Stock
Option Plan at May 31,2000

<TABLE>
<CAPTION>
                                                                            Options Outstanding
                                                    -----------------------------------------------------------------
                                                                                  Weighted-
                                                                                   Average                Number of
               Exercise                                    Number                 Remaining                Options
               Price                                     Outstanding           Contractual Life          Exercisable
                                                    -------------------    -----------------------    ---------------
               <S>                                  <C>                    <C>                        <C>
               $0.25 - $0.71                                  5,731,802           8.59 years                4,555,482
</TABLE>

                                      F-13
<PAGE>

<TABLE>
               <S>              <C>                 <C>                    <C>
               $1.00            1,280,000           8.72 years             --
</TABLE>

The Company has issued 1,100,000 stock options to consultants outside of the
2000 Stock Option Plan.  Shares totaling 500,000 were outstanding and
exercisable at May 31, 2000.  The weighted average exercise price of the shares
was $0.89 and the average remaining contractual life was 4.0 years.  None of
these options were exercised or forfeited as of May 31,2000.

Note 11 - Warrants
-------

The Company granted 4,016,766 common stock warrants as of May 31, 2000.  In
conjunction with leased computer equipment the Company granted 282,112 warrants
with an exercise price of $0.35.

In January of 2000, the Company completed a private offering, in reliance upon
applicable exemptions from the registration requirements under the Securities
Act of 1933, as amended, of a total of 1,311,821 shares of common stock at an
offering price of approximately $0.71.  Each purchaser in the private offering
was issued one Class A Warrant and one Class B Warrant entitled 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 repectively.

The Company issued warrants and options with exercise prices less than fair
market value on the date of grant. The Company valued the option and warrants
using the Black-Scholes valuation model.

Note 12 - Going Concern
--------

The Company's financial statements are prepared using the generally accepted
accounting principles applicable to a going concern, which contemplates the
realization of assets and liquidation of liabilities in the normal course of
business. Without realization of additional capital, it would be unlikely for
the Company to continue as a going concern.  Additionally the Company does not
have significant cash or other material assets, nor does it have an established
source of revenue sufficient to cover its operating costs to allow it to
continue as a going concern indefinitely.

The Company plans to continue to raise funds through public and private debt and
equity financings. Consistent with this approach, the Company has entered into
various non-exclusive financial agreements.


Note 13 - Related Party Transactions
--------

Interactive Information Systems ("Interactive") is a wholly owned company of M.
Carroll Benton, the Company's Chief Administrative Officer, Secretary and
Treasurer. John P. Gorst, Chief Executive Officer and President, was also an
employee of Interactive. During their time at Interactive, Ms. Benton and Mr.
Gorst began developing the "Insynq Project," which later developed into our
current business. On September 16, 1998, Interactive exchanged substantially all
of its assets with Charles Benton, the husband of Ms. Benton, to retire a
$200,000 debt owed by Interactive to Mr. Benton. On that same date, Mr. Benton
sold the tangible assets he had acquired to Insynq-WA of which Ms. Benton and
Mr. Gorst were principals, for a $70,000 promissory note and he contributed the
intangible assets, consisting of the "Insynq Project," to Insynq-WA for
5,500,000 shares of common stock of Insynq-WA. Mr. Benton then sold 2,500,000
shares to each of Ms. Benton and Mr. Gorst in exchange for a $65,000 note from
each of them. The shares purchased secured each such note. During the start-up
operations of Insynq-WA, the business contacts of Interactive were utilized in
the purchase of supplies and other items for Insynq-WA. As of September 30,
1999, Insynq-WA owed Interactive $117,024 related to these purchases, and on
November 12, 1999, the board of Insynq-WA approved the issuance of 118,000
shares of its common stock in full payment of this debt, after a board
determination that the shares of Insynq-WA should be valued at $1.00 per share.
From October 1, 1999 through August 18, 2000,

                                      F-14
<PAGE>

approximately $8,000 of services consisting primarily of rental allocation was
charged to the Company by Interactive. During the same time period, the Company
sold approximately $6,400 of services to Interactive.

Note 14 - Commitments
--------

On May 15, 2000, the Company entered into a financial advisory agreement with
Gerard Klauer Mattison & Co., Inc. ("GKM"), under the terms of which the Company
and its affiliates have engaged GKM, and GKM has agreed to serve, as the
Company's exclusive financial advisor concerning certain "strategic"
transactions.  Under the terms of the agreement (the "GKM Agreement"), GKM has
agreed to provide assistance to the Company in identifying and contacting
parties, which may be interested in considering a "strategic transaction," and,
as exclusive financial advisor to the Company, to assist the Company, on a best-
efforts basis, in analyzing, structuring, negotiating and effecting potential
"strategic transactions" on terms and conditions satisfactory to the Company.

The Company has recently entered into an amendment to a business services
contract between Insynq-WA and Consulting & Strategy International, LLC ("CSI"),
an unrelated third party.  Under the terms of the amended agreement, amended on
July 31, 2000, CSI has provided, and agreed to continue to provide, for the
duration of the agreement, business consulting services to the Company.  In
consideration of such services, the Company has 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
November 1, 2000 and before February 20, 2003, in increments of 500,000 shares,
at exercise prices of $1.25, $1.50, $2.00 and $2.25.  In addition, the Company
has agreed to pay to CSI a monthly retainer of $2,500, increasing to $5,000 per
month after the Company's common stock bid price in the over-the-counter market
exceeds $3.00 per share for five (5) consecutive business days; $7,500 per month
at such time as the Company's common stock bid price exceeds $4.00 per share for
five consecutive business days; and $10,000 at such time as the Company's stock
bid price exceeds $5 per share for five consecutive business days, or until such
time as the Company and any of its subsidiaries have obtained a funding
commitment from any source for $4 million or more.

The Company has entered into a consulting agreement with Vijay Alimchandani
("VJ"), dated February 20, 2000, under the terms of which the Company has
engaged VJ to provide to the Company general consulting services, including
strategic planning, the identification of possible strategic alliances with
software vendors, the evaluation and development of cooperative alliances, and
related activities. The agreement is for an initial term of twelve months, and
is automatically renewable for successive one-year terms unless terminated by
either party prior to the end of a term. The Company has agreed to reimburse VJ
for all travel and entertainment and reasonable expenses related to his
consulting services, and to pay VJ a consulting fee of $5,000 per month,
increasing to $7,000 per month as such time as the Company has secured $2
million in equity financing, and to $10,000 per months at such time as the
Company has secured an additional $10 million in equity financing. In addition,
the Company has 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 beginning date of
the contract, for a period of five years, at an exercise price of $.50 per
share. The Company has 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 the Company, at price of $.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 based on the performance of VJ, at an exercise price of
not more than $1.50 per share. The Company has granted to VJ "piggyback"
registration rights in connection with the shares under options, pursuant to
which the Company has agreed to include such shares in a Form S-8 registration
statement to register the initial 900,000 shares under option described above.

The Company has assumed the obligation of Insynq-WA under a financial public
relations consulting agreement with One Click Investments, LLC ("One Click"), a
Washington state limited liability company of

                                      F-15
<PAGE>

which Eric Estoos, a shareholder of the Company, is a principal. Under the terms
of the agreement with One Click, the Company has agreed to engage One Click to
provide various financial public relations services. The Company has agreed to
compensate One Click for its services at the rate of $8,000 per month during the
term of the agreement (through August 19, 2000, which is automatically renewable
for six additional months unless terminated by either party in writing), to
reimburse One Click for all reasonable expenses in connection with the
agreement, and to pay One Click a fee of 10% of all funding obtained by One
Click for the Company, to the extent permitted by law. The Company also 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 December 31, 2000, 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. One Click has executed a voting proxy in favor of John Gorst, Chief
Executive Officer, with respect to the restricted shares.

Note 15 - Contingencies
-------

On August 14, 2000, the widow of a former principal and shareholder of Insynq,
Inc., filed a lawsuit in the Superior Court of Washington against the Company,
Insynq, Inc., M. Carroll Benton, the Company's Chief Administrative Officer,
Secretary, and Treasurer, and Mr. John Gorst, the Company's President, Chief
Executive Officer, and Chairman of the Board.  The lawsuit alleges that the
defendants attempted to defraud her out of the shares issued to her deceased
husband during his tenure with Insynq, Inc., which she later sold to Mr. Gorst.
Management does not consider the contingency to be probable or quantifiable, and
therefore has not accrued an amount on the Company's financial statements for
the years ended May 31, 2000 and 1999.

The Company is currently in negotiations with the Company's former President and
Chief Operating Officer regarding the termination of his employment contract.
Management does not consider the contingency to be significant in order to be
accrued as a liability on the Company's financial statements for the years ended
May 31, 2000 and 1999.


Note 16 - Supplementary Cash Flow Information
-------

The following non-cash transactions have been appropriately excluded from the
statement of cash flows:

The Company has entered into an agreement with Horizon Holdings I, LLC to
provide facilities management services at its location in Tacoma, Washington at
the Tacoma Technology Center.  The agreement to provide collaborative management
services is effective July 1, 1999 for a monthly base fee of $3,000 and will
continue through December 31, 2000.  The Company will have the use of this
location for its data utility equipment in exchange for management of the
facilities.  The rental value of the office space is offset with an appropriate
charge to service income.  Future minimum rental payments over the life of the
agreement total $21,000.

The Company entered into a three-year capital lease agreement with Hewlett
Packard to acquire $780,683 in equipment.  A discount of $118,000 was recognized
in the capital lease representing the value of warrants granted Hewlett Packard
as part of the agreement.  Future minimum lease payments over the life of the
agreement total $798,199.

The Company acquired $130,000 in intangible assets representing intellectual
property from one of its founders during the fiscal year ended may 31, 2000.

The Company acquired $727 in other assets with common stock during the fiscal
year ended May 31, 2000.

                                      F-16
<PAGE>

Note 17 - Asset Purchase Agreement
-------

On January 26, 2000, the Company entered into an Asset Purchase Agreement with
Insynq, Inc.. The terms of the Asset Purchase Agreement were substantially
completed on February 18, 2000. Under the terms of the Asset Purchase Agreement,
the Company acquired substantially all of the assets of Insynq, Inc., and
assumed substantially all of the obligations of Insynq, Inc., in exchange for
the issuance by the Company of a total of 15,208,100 shares of restricted common
stock of the Company, to the Insynq, Inc. shareholders pro rata in a liquidating
distribution. As a result of the transaction, the Company had a total of
approximately 18,808,100 shares issued and outstanding, of which the former
Insynq, Inc. shareholders held 15,208,100 shares, or approximately 81%. In
connection with the Asset Purchase Agreement, Insynq, Inc. 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, the Company has acquired
essentially all of the assets, tangible and intangible, of Insynq, Inc., and has
become engaged in Insynq, Inc.'s business, described below. These assets include
computer hardware and software, related equipment, furniture and fixtures,
proprietary technology developed by Insynq, Inc., all contractual rights
including capitalized lease equipment and other leasehold rights, trade names
and trademarks and all client lists and marketing data and materials, cash and
cash equivalents, accounts receivable, inventory, work in progress and related
assets. The asset considered most valuable by Insynq, Inc. and the Company in
completing the Asset Purchase Agreement, is Insynq, Inc.'s proprietary data
utility services system that was designed to offer enhanced technological
computer processing and communication capabilities.

In addition, the Company has agreed to assume all equipment leases, leasehold
obligations covering office space utilized by Insynq, Inc., all consulting
contracts, and all other contract obligations. Finally, at the time of
completion of the Insynq, Inc. asset acquisition, Insynq, Inc. had outstanding
to various shareholders, a number of warrants and options, entitling the holders
to purchase shares up to a total of 7,358,392 shares of restricted common stock
of Insynq, Inc., which warrants and options have been converted into options and
warrants to purchase a total of approximately 7,358,392 shares of the Company's
common stock, at prices of between $0.25 to $7.50 per share. The exercise of all
or any portion of these outstanding options and warrants would have the effect
of substantially diluting the ownership of the present shareholders in the
Company.

Note 18 - Subsequent Events
-------

On or about June 15, 2000, the Company entered into a non-exclusive financial
advisory agreement with Sunstate Equity Trading, Inc. ("Sunstate"), a Florida
corporation, which is a member of the NASD, under the terms of which the Company
has engaged Sunstate, on a non-exclusive basis, to provide financial 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 Sunstate, the Company has issued to
Sunstate a total of 250,000 shares of restricted common stock, and agreed to
reimburse Sunstate for all out-of-pocket expenses incurred in providing services
under the agreement.

On or about June 16, 2000, the Company entered into a private financing
transaction with two investors, Travin Partners, L.L.L.P. ("TPL") and TCA
Investments, Inc. ("TII"), under the terms of which TPL and TII each loaned to
the Company 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 a convertible debenture (the "debenture"), 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 the Company's common stock, at a
price of $.71 per share.  The debentures are convertible in increments of no
less than $10,000, at any time after November 1, 2000 and before the close of
business on the due date, into shares of common stock of the Company, at a price
of $.71 per share, or a total of 457,746 shares each for TPL

                                      F-17
<PAGE>

and TII. In addition to the debentures, TPL and TII were granted warrants
entitling each of them to purchase a total of 457,746 shares of the Company's
common stock at a price of $1.00 per share, at any time after November 1, 2000
and before June 15, 2005. The number of shares and exercise or conversion prices
of the shares exercisable under the debentures and warrants held by TPL and TII,
are subject to usual adjustments in the event of stock dividends, merger,
consolidations, stock splits or distributions or similar events. The Company has
agreed to file, on or before September 15, 2000, a registration statement which
includes the shares issuable under conversion of the debentures and upon
exercise of the warrants held by TPL and TII (the "underlying shares"), at TPL's
and TII's request, and to cause such registration statement to become effective
as soon as practicable. In addition, the Company has agreed to include the
underlying shares, on TPL's and TII's request, in any registration filed by the
Company (exclusive of a registration relating to sales in employee benefit
plans, a Rule 145 transaction, or the sale of debt or convertible debt
instruments, or a registration statement which does not contain substantially
similar information), subject to the holder's agreement to enter into
appropriate underwriting agreement(s), and other requirements. The subscription
agreements for the purchase of the debentures and warrants held by TPL and TII
provide that, on a one-time basis on the date the Company sells additional
securities to or through an institutional investor, and only if the total market
valuation of the Company is less than $30 million, TPL and TII will each be
entitled to receive shares issuable upon conversion of debentures and upon
exercise of warrants, equal to the number of shares issuable upon such exercise
of warrants and conversion of debentures, multiplied by a number, the numerator
of which is $30 million and the denominator of which is the actual total market
valuation of the Company.

On or about July 10, 2000, the Company entered into a non-exclusive financial
consulting agreement with Union Atlantic LC and Union Atlantic Capital LC to
provide financial consulting services to the Company in the form of: (i)
evaluating the Company's capital requirements for funding growth and expansion
of the Company's operations; (ii) advising the Company as to alternative modes
and sources of financing; (iii) analyzing the impact of business decisions,
policies, and practices on the value of the Company's business and securities;
and (iv) bringing to the attention of the Company possible business
opportunities and evaluating business opportunities generally, whether or not
such opportunities are oriented by United Atlantic or others. Pursuant to the
terms of the Union Atlantic agreement, the Company has agreed to pay to Union
Atlantic a cash fee equal to ten percent (10%) of the aggregate purchase price
of the securities purchased by or through any investor or intermediary
identified to the Company by Union Atlantic. In addition, upon the closing of
each transaction contemplated in the Union Atlantic agreement, the Company has
agreed to issue to Union Atlantic through escrow a warrant entitling Union
Atlantic or its designees to purchase 50,000 shares per one million dollars
($l,000,000) raised, subject to adjustment of the Company's common stock. The
warrant will be immediately exercisable for a four (4) year period and shall
have unlimited piggyback registration rights.

On July 17, 2000, the Company entered into a private financing transaction with
two investors, International Fluid Dynamics ("IFD") and Garnier Holdings, Inc.
("Garnier"), under the terms of which IFD and Garnier each loaned the Company
the sum of $127,500, or a total of $255,000, (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 17,
2000 (the "Due Date"), with interest compounded annually at the Chase Manhattan
Bank, NA rate quoted as its prime.  The warrants entitle each of IFD and Garnier
to purchase a total of 325,000 shares of common stock at a price of $2.00 per
share at any time before July 17, 2005.  If the Notes are not paid by 5:00pm CST
on August 17, 2000, the exercise price will decrease by half, or $1.00, and on
and after each additional ten (10) day period that the Notes remain unpaid, the
exercise price will decrease by an additional ten percent (10%).  The due date
of the Notes has been extended to 5:00pm CST on October 1, 2000, without
prejudice to the Company's rights to reduce the exercise price.  Both IFD and
Garnier were granted "piggyback" registration rights with respect to the shares
underlying the warrants.

On August 2, 2000, the Company entered into a private financing transaction with
five foreign investors (the "Investors"), under the terms of which the Investors
purchased an aggregate of 200,000 shares of common

                                      F-18
<PAGE>

shares at a price of $0.60 per share pursuant to Subscription Agreement (the
"Agreements"). The Company issued these securities under an exemption provided
by Rule 903 of Regulation S under the Act.

On August 4, 2000, the Company sold a total of 200,000 shares of common stock to
One Click Investments, LLC, a Washington corporation ("One Click"), 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.  In
connection with this transaction, One Click was granted registration rights
under a Registration Rights Agreement (the "Agreement") granting One Click (a)
one demand registration right, on or after November 1, 2000, requiring the
Company to file a registration statement upon request and (b) "piggyback"
registration rights. The Company issued these securities under an exemption
provided by Rule 506 of Regulation D under the Act.

On August 11, 2000, the Company entered into an agreement for the sale of
1,100,000 shares of common stock to Tricorp Financial, Inc., a Delaware
corporation ("Tricorp"), at a price of $1.50 per share.  An additional 1,100,000
shares will be issued after the shares are registered for resale.  The shares
have not yet been paid for, but the Company has been assured that payment will
be received no later than September 15, 2000. In connection with this sale,
Tricorp was granted registrations rights obligating the Company to file or have
declared effective a registration statement registering the shares within 120
days of the date of the transaction. The Company issued these securities under
an exemption provided by Rule 506 of Regulation D under the Act. On August 24,
2000, the Company entered into a private financing transaction with certain
foreign investors (the "Investors"), under the terms of which the Investors
purchased an aggregate of 80,000 of common shares at a price of $0.50 per share
pursuant to Subscription Agreements (the "Agreements"). The Company issued these
securities under an exemption provided by Rule 903 of Regulation S under the
Act.

On September 11, 2000, the Company entered into a private financing transaction
with two investors, Travin Partners, L.L.L.P. ("TPL") and TCA Investments, Inc.
("TII"), under the terms of which TPL and TII each loaned us the sum of
$125,000, or a total of $250,000, (the "loans"), and were sold convertible
debentures and granted warrants, described below.  The loans are payable
pursuant to the terms of identical convertible debentures (each, a "Debenture"),
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 accrued
interest under each Debenture is payable only in shares of common stock at a
price of (a) $1.00 per share or (b) sixty percent (60%) of the average of the
bid price, whichever is less on the date of conversion.  The Debentures are
convertible in increments of no less than $10,000, at any time after September
11, 2000 and before the close of business on the due date  for a total of
125,000 shares each for TPL and TII.  In addition to the Debentures, TPL and TII
were granted warrants entitling each of them to purchase a total of 250,000
shares of common stock at a price of $1.00 per share, at any time after
September 11, 2000 and before September 11, 2005.  The Company agreed to file,
on or before September 25, 2000, a registration statement which includes the
shares issuable under conversion of the Debentures and upon exercise of the
warrants held by TPL and TII (the "Underlying Shares"), at TPL's and TII's
request, and to cause such registration statement to become effective as soon as
practicable.  In addition, the Company agreed to include the Underlying Shares,
on TPL's and TII's request, in any registration it files (exclusive of a
registration relating to sales in employee benefit plans, a Rule 145
transaction, or the sale of debt or convertible debt instruments, or a
registration statement which does not contain substantially similar
information), subject to the holder's agreement to enter into appropriate
underwriting agreement(s), and other requirements. The Company issued these
securities under an exemption provided by Rule 506 of Regulation D under the
Act.

On August 3, 2000, the Company held a special meeting of the shareholders and
unanimously voted to adopt the following:

a)  REINCORPORATION IN DELAWARE

                                      F-19
<PAGE>

Changing the state of incorporation of the Company from Utah to Delaware.  In
order to accomplish the re-incorporation in accordance with the laws of the
states of Utah and Delaware, the Company has merged with and into a wholly owned
subsidiary, Insynq, Inc., formed under the laws of the state of Delaware
(hereinafter "Insynq"), pursuant to the terms of a Plan of Merger.  Under the
terms of the merger, Insynq is the surviving corporation. The Certificate of
Incorporation and Bylaws of Insynq will be the governing instruments of the
surviving corporation.

Through the merger, and in connection with the recapitalization described under
"RECAPITALIZATION," the shareholders of the Company received two shares of
Insynq common stock, par value $0.001 per share, in exchange for each share of
the Company's common stock, par value $0.001 per share, held immediately prior
to the merger.

The Certificate of Incorporation of Insynq increased the authorized number of
shares of common stock (the "Common Stock") to 100,000,000 shares, par value
$0.001 per share, and 10,000,000 shares of preferred stock, par value $0.001 per
share.  In addition, the Certificate of Incorporation of Insynq also authorizes
a total of 10,000,000 shares of Class A Common Stock (the "Class A Common
Stock"), par value $0.001 per share.

Change of Company's Name

In connection with the re-incorporation, the name of the Company is changed to
"Insynq, Inc.,".  The Company believes that changing the Company's name to
"Insynq, Inc." will be more reflective of the Company's activities.

Forward Stock Split

In connection with the re-incorporation of the Company in the state of Delaware,
the company has affected a forward split in the Company's issued and outstanding
$0.001 par value common stock, increasing the number of outstanding shares to
approximately 19,830,848 shares of common stock.  The issued and outstanding
shares of the Company's common stock immediately prior to the re-incorporation
in Delaware will be effectively forward split through the merger on a two-for-
one basis. Through the merger with Insynq, the shareholders of the Company will
receive two shares of common stock, par value $0.001, of Insynq for each one
share of the Company's common stock.

b)  RECAPITALIZATION

The shareholders unanimously voted for the adoption of a plan of
recapitalization (the "Recapitalization") pursuant to which the issued and
outstanding shares of the Company's common stock, will be forward split, two-
for-one, so that holders of common stock will receive two shares of the
Company's $0.001 par value common stock ("Split Common Stock") for each share
now held.

The rights of existing shareholders will not be altered in connection with the
Recapitalization, and no shareholders will be eliminated as a result of the
Recapitalization.  The authorized number of shares of common stock will not
change, and the par value of the Company will remain at $0.001.  The
Recapitalization will have the effect of increasing the stated capital of the
Company by approximately $9,915 (which is the number of additional shares as a
result of the Recapitalization multiplied by the par value for such shares).

If the Recapitalization is approved by the shareholders, the 9,915,424 shares of
common stock outstanding immediately prior to the reorganization would be
converted to approximately 19,830,848 shares of common stock, and outstanding
options and warrants to purchase shares would be converted into options and
warrants entitling the holders to purchase twice as many shares upon exercise of
such options and warrants.

                                      F-20
<PAGE>

c)  ADOPTION OF INCENTIVE PLANS

The shareholders unanimously voted to adopt the Company's 2000 Long Term
Incentive Plan (the "Employee Plan") and its 2000 Executive Officer Long Term
Incentive Plan Option Plan (the "Executive Plan").  The two plans are
hereinafter referred to together as the "Incentive Plans."  The essential terms
of the Incentive Plans are substantially identical, except for two differences:

  1)  The Employee Plan is for executives, managers and key employees of the
Company.  The Executive Plan is for executive officers of the Company.

  2)  The Company has reserved a total of 8,337,650 shares of common stock for
issuance under the Employee Plan, and the Company has reserved a total of
2,700,000 shares of Class A Common Stock for issuance under the Executive Plan.
As described below, the Class A Common Stock carries preferred voting rights,
entitling the holder to three (3) voting shares for each share of common stock
held by a holder of Class A Common Stock.

d)  RATIFICATION OF ACCOUNTANT

The selection of G. Brad Beckstead, as independent auditor of the Company in
2000 was unanimously ratified.

                                      F-21