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



[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
    OF 1934 FOR THE FISCAL YEAR ENDED MAY 31, 2004

                                       OR

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
    ACT OF 1934 FOR THE TRANSITION PERIOD FROM _________________
    TO __________________


                         COMMISSION FILE NUMBER: 0-22814

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

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


              1127 BROADWAY PLAZA, SUITE #202
                  TACOMA, WASHINGTON                    98402-3519
         (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: None

                     COMMON STOCK, PAR VALUE $.001 PER SHARE


<PAGE>


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

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-B is not contained herein, and will not be contained, to the
best of the Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB [ ].

The Registrant's revenue for its most recent fiscal year:  $1,230,190.

The aggregate market value of the Registrant's common stock, $.001 par value,
held by non-affiliates as of September 10, 2004, on the OTC Bulletin Board, was:
$222,888.

As of September 10, 2004 there were 8,907,254 shares of the Registrant's common
stock outstanding.

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






<PAGE>


                                  INSYNQ, INC.

                                   FORM 10-KSB

                                TABLE OF CONTENTS
<TABLE>

<S>            <C>                                                                                                         <C>
PART I......................................................................................................................4

   ITEM 1.     DESCRIPTION OF BUSINESS......................................................................................4
   ITEM 2.     DESCRIPTION OF PROPERTY.....................................................................................21
   ITEM 3.     LEGAL PROCEEDINGS...........................................................................................21
   ITEM 4.     SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.........................................................21

PART II....................................................................................................................21

   ITEM 5.     MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS....................................................21
   ITEM 6.     MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.......................24
   ITEM 7.     FINANCIAL STATEMENTS........................................................................................34
   ITEM 8.     CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE........................34
   ITEM 8A.    CONTROLS AND PROCEDURES.....................................................................................34

PART III...................................................................................................................35

   ITEM 9.     DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE WITH SECTION
               16(A) OF THE EXCHANGE ACT...................................................................................35
   ITEM 10.    EXECUTIVE COMPENSATION......................................................................................36
   ITEM 11.    SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT..............................................37
   ITEM 12.    CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS..............................................................38
   ITEM 13.    EXHIBITS AND REPORTS ON FORM 8-K............................................................................39
   ITEM 14.    PRINCIPAL ACCOUNTING FEES AND SERVICES......................................................................54

SIGNATURES.................................................................................................................55

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








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                                     PART I

ITEM 1...DESCRIPTION OF BUSINESS

GENERAL

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

         We are an application service provider ("ASP") and we have been
delivering out-sourced software application hosting and managed information
technology services through our IQ Data Utility Service since 1997. We host
software applications on our servers located at two data centers, rent computing
services to our customers for a monthly fee, and perform remote management and
maintenance of our customers' servers from our network operations center. Our
customers connect to our facilities over the Internet, through a dedicated
telecommunications line or by wireless connection. Our goal is to provide our
services with the speed, simplicity and reliability of a utility service. Like a
utility company, we allow business customers to "turn on", or access, their
software applications and data instantly through any web enabled computer,
regardless of operating system. We currently have approximately 1,290 users,
which can freely access their software and data in real time from any Internet
enabled computer, anywhere in the world.

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

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

     o    quickly expand their Internet presence as business opportunities arise
          in new geographies; and

     o    efficiently incorporate new technologies into their existing business
          operations as these technologies evolve.

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

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

HISTORY

         On February 18, 2000, Insynq, Inc., a private company, merged with our
company, which was then name Xcel Management, Inc. ("Xcel"). The merger was
accompanied by a re-capitalization and was accounted for as a change in capital
structure. On August 3, 2000 Xcel completed a re-incorporation as a Delaware
corporation and changed its name to Insynq, Inc.

         On July 25, 2002, the Board of Directors approved a re-incorporation
merger of Insynq with its wholly owned subsidiary, Insynq, Inc., a Nevada
corporation. In exchange for every 100 shares of common stock held in Insynq -
Delaware
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shareholders received 1 share of common stock in Insynq - Nevada. The
re-incorporation, which was effective December 23,2002, resulted in the exchange
of 59,013,393 common shares of the terminating entity, Insynq - Delaware, for
590,134 common shares of the surviving entity, Insynq - Nevada.

         On July 16, 2004, the Board of Directors approved a 1 for 50 reverse
split of Insynq's authorized common stock. Accordingly, the date of record and
the effective date was August 2, 2004. Par value remains unchanged at $.001 per
share. The effect of the reverse split reduced the number of authorized shares
from 500,000,000 to 10,000,000 and reduced the number of outstanding and issued
shares of common stock from 445,384,987 shares to 8,907,254 shares. As a result
of the August 2, 2004 reverse split, all fractional shares will be issued one
share of common stock. In addition, the Board of Directors approved a plan to
repurchase the common stock held by shareholders with a post-split converted
number of shares totaling 9 or less at a market price of $.04 per share. Also,
our Board of Directors approved an increase in the authorized common stock from
10 million shares to 2 billion shares, which became effective September 7, 2004.

         All shares of common stock and per share amounts in the Form 10KSB, and
the accompanying financial statements and notes to financial statements have
been retroactively restated to reflect this August 2, 2004 transaction.

INDUSTRY BACKGROUND

THE INTERNET

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

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

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

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

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

         An application service provider is defined as an entity that supplies
another company with hosted applications, information technology infrastructure
and support services. Instead of buying hardware and business software from
vendors and using its own information technology staff to implement and to
maintain the system, a customer contracts with an application service provider
for hosting its software applications. Other ASP services may include system
administration, software upgrades, and day-to-day operations, such as backup,
recovery, virus protection and security. This arrangement enables customers to
focus on getting value from leased applications and free them of the need to
administer, maintain and upgrade them.

         There are many benefits available to organizations that utilize the
services of application service providers. We believe these benefits include a
solution to the scarcity of experienced information technology personnel, rapid
software application deployment, and a lower total cost of ownership. By
avoiding the time and cost of developing and implementing internal systems,
customers also save money that would otherwise be spent on continual
maintenance, updates and training, thereby raising the overall productivity of
their workforce. Finally, our customers are protected from technological
obsolescence and viruses, all the while benefiting from the most recent vendor
releases and upgrades.

THE TECHNOLOGY

         We believe that there are several key features about our technology,
which allow us to provide dependable and affordable services to our clients.

         In the process of developing the IQ Data Utility Service, we believe we
developed unique and valuable technological expertise. The IQ Data Utility
Service receives and transmits information in the form of images rather than
data, requiring less bandwidth than traditional network configurations.
Customers may connect to the IQ Data Utility Service via a variety of carriers
and connectivity technologies, including public access over the Internet with
encryption, through private connections, or other available access methods.
Properly provisioned connections, whether public or private, generally provide a
quality end-user experience. We developed these new methodologies and produced
specialty hardware and software that would become essential to the configuration
and effective management of Internet-based networks and the outside deployment
of shared software applications. Our technology allows us to manage all hosted
application processing functions. The complete IQ Data Utility Service includes
managed network and application services which is then capable of spanning from
a customer's keyboard to one of our data centers with access anytime and
anywhere in the world with an internet portal.

         We lease two secured data centers located in the State of Washington,
one in the City of Everett and one in the City of Bellingham. These centrally
managed servers also house customers' data, provide storage and backup, file and
directory security, and anti-virus protection. These facilities house our server
equipment and routers, and have redundant power, bandwidth, and cooling.

         To support Microsoft Corporation's Windows-based applications, the IQ
Data Utility Service uses proprietary Citrix Systems, Inc. independent computer
architecture software to increase end-user performance and reduce a customer's
total cost of owning and maintaining computer hardware and software.

         The ASP customer uses a web browser to run software products, anywhere
at anytime, without the need to download or install the software application.
Our goal is to be a reliable and secure on-demand computing platform for the
small office/home office ("SOHO") and small to medium enterprise ("SME")
markets.

         We provide hosting for either leased applications or customer owned
software, rent computing services to our customers for a monthly fee, and
perform remote management, support and maintenance of our customers' servers
from our network operations center. By providing these services, we make it
possible for small and medium-sized businesses to take advantage of technology
solutions that have typically been reserved for larger business enterprises.
These solutions enable our customers to benefit from reliable and secure
technology operations, which can grow or contract to accommodate changing
business needs, without undertaking the difficulty and expense associated with
acquiring, developing and maintaining the required in-house expertise and
infrastructure.

         Aside from being able to access sophisticated technologies on demand,
there are other advantages to small and
                                       6
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medium sized businesses in using the services of an ASP. These advantages
include reducing the risk of computer viruses, allowing for ongoing backup of
user data and important information, disaster recovery and security. Using an
ASP also reduces software piracy, as the software title is no longer downloaded
or installed on the user's computer.

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

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

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

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

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

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

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

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

                               OUR STRATEGIC PLAN

MARKET DRIVERS

         We believe that the information technology requirements of the small to
midsize enterprises are almost identical to those of a Fortune 1000 enterprise.
Small to medium sized enterprises have limited budgets, which rarely makes them
the direct target of sophisticated professional service providers who we
consider our direct competition. As a result, this business sector of the
economy is virtually wide open to the services of an emerging professional
application service provider like us. We have defined and committed ourselves to
this niche market because we can provide the information technology requirements
for these businesses on a cost efficient and highly effective basis.

KEY DIFFERENTIATORS

         We believe we are different from other service providers due to our
focus on the information technology needs of both the small to medium sized
enterprise and the small office home office customers for low cost, professional
services. These
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businesses require the same level of reliable information technology services as
any other large enterprise, but generally do not have the financial resources,
nor able to afford the skilled technicians, to make the required investment for
an internet and intranet computer system. We enable these customers to rent, on
an as needed basis, their information technology needs without having to commit
large amounts capital, generally in the form of debt, into a structure that
would take years to recover its investment.

CHALLENGES

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

STRATEGY

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

         We market and sell our services primarily through the Internet,
professional trade publications and in-house sales staff.

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

         In addition to expanding the scope of our services, we are also
developing services geared to the needs of particular segments of our customer
base. We will continue to review the applicability of our service offerings to
our target customers and create additional category- specific offerings based on
the size and profitability of the market segment.

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

         In addition to internally generated growth, we intend to expand our
business through strategic acquisitions within the United States and possibly
abroad. We believe an acquisition will position ourselves to immediately
penetrate targeted geographical and/or industry specific markets, broaden our
offerings of products and services, add experienced technical staff, and open
new market entry points. To attain this goal, we are aggressively pursuing
opportunities to merge with and/or acquire compatible companies. We presently do
not have any current plans to enter into such an acquisition, merger, financing
or other business combination.

SALES AND MARKETING

         Our sales and marketing efforts are focused on the small to medium size
enterprise and the small office home office market. Although specific definition
of these market segments vary somewhat, we view the high-end, small office home
office market to represent small offices with up to ten employees, and the small
to medium size enterprise market to represent companies that employ
approximately 11 to 500 people. We sell and market to these business segments
directly through our internal sales department, and utilizing referrals such as
software vendors and publishers, information technology consultants,
telecommunication carriers, other internet service providers, trade shows and
our own website.

         We have developed the e-Accounting products and services as a packaged
service offering. By targeting these small businesses we can deliver a
combination of software and marketing services designed specifically for the
small business market segments.

         The e-Accounting products and services include:

     o    E-COLLABORATE AND E-WORKPLACE - Proprietary document management and
          work flow process software
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applications.

     o    EFILESHARE - A document storage service which allows our customers
          to create a shared file system on the Internet, assign users and
          permissions, and allow users, both inside and outside of the company,
          to interact and collaborate in real-time. Automatic data backup is
          included.

     o    CONSTANT CONTACT - A web-based email marketing service. Small and
          mid-sized businesses build their email lists, create and send
          professional email newsletters and promotions, and track results with
          this self-service solution. No technical expertise is required.

     o    BIZACTIONS - A weekly email communication system that keeps our
          customers connected with their clients, prospects and referral
          sources. Customers may make announcements and access online reports
          through this service.

     o    BSYTECH - A provider of template or custom web sites for
          professional service firms and businesses that want affordable
          websites.

     o    J2 GLOBAL COMMUNICATIONS - A fax and voicemail service, third parties
          use the fax number assigned to the customer who receives the fax, or a
          notification of a voicemail message, by e-mail.

COMPETITION

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

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

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

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

     o    the quality and reliability of services offered;
     o    the scope of supported applications and technology platforms;
     o    the ability to expand or contract the operational environments
          supported;
     o    the extent to which the services offered, provide a complete and cost
          effective solution;
     o    the engineering and technical expertise and development of automation
          software;
     o    the rapid deployment of services;
     o    the quality and timeliness of customer service and support; and
     o    the price.

GOVERNMENT REGULATION

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

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

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

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

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

INTELLECTUAL PROPERTY AND PROPRIETARY RIGHTS

         We regard our service marks, trademarks, domain names, and similar
intellectual property as critical to our success. Our domain names include,
INSYNQ.com, CPA-ASP.com, ON-Q.net, SIMPLENETWORKS.net, APPLICATIONVAULT.com,
MESSAGEIQ.com, OURACCOUNTING.com, OURBOOKEEPER.com, and RAPIDNETWORKS.com, all
of which are now owned by us.

         We rely on trademark, unfair competition and copyright law, trade
secret protection and contracts such as confidentiality and license agreements
with our employees, customers, partners, and others to protect our proprietary
rights. Despite precautions, it may be possible for competitors to obtain and/or
use the proprietary information without authorization, or to develop
technologies similar to ours and independently create a similarly functioning
infrastructure. Furthermore, the protection of proprietary rights in
Internet-related industries is uncertain and still evolving. The laws of some
foreign countries do not protect proprietary rights to the same extent, as do
the laws of the United States. Protection for proprietary rights in the United
States or abroad may not be adequate.

         We intend to continue to license certain technology from third parties
such as Citrix, Microsoft, and others, for our technologies that support
business systems. The market is evolving and we may need to license additional
technologies to remain competitive. We may not be able to license these
technologies on commercially reasonable terms or at all. In addition, we may
fail to successfully integrate licensed technology into our operations.
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         Although we are not aware of any infringement or misappropriation of
our intellectual property or similar proprietary rights, it may be anticipated
that infringements and misappropriations will occur as our business grows and
there is more brand loyalty attaching to our trade names and domain names. We
intend to police against infringement or misappropriation. However, we cannot
guarantee that we will be able to enforce our rights and enjoin the alleged
infringers from their use of confusingly similar trademarks, service marks,
telephone numbers, and domain names.

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

CUSTOMER SERVICE

         Our customer support service is comprised of customer support
representatives and is further supplemented by senior technical support
representatives and server technicians, who are all Microsoft and Citrix
certified engineers. Customer support is available via toll-free telephone lines
and email, and we offer personalized, one-on-one support for any aspect of the
IQ Data Utility Service.

EMPLOYEES

         We have ten employees, described as follows:

          o    management - 4
          o    accounting - 1
          o    engineering and technical - 2
          o    customer support - 1
          o    sales and marketing -2

         We critically and continually evaluate our staffing requirements in
conjunction with our forecasted business plan and sales projections.

BOARD MEMBERS AND KEY MANAGEMENT POSITIONS

         Our board of directors consists of John P. Gorst and M. Carroll Benton.
These two  individuals  have  served  continuously  as board  members  since the
inception of Insynq.

         Our executive officers are:

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

RISK FACTORS

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

RISKS RELATING TO OUR BUSINESS:

      WE HAVE HISTORICALLY OPERATED AT A LOSS, HAVE EXPERIENCED NEGATIVE
OPERATING CASH FLOWS, AND ANTICIPATE THAT LOSSES WILL CONTINUE, AND IF LOSSES
CONTINUE WE MAY BE REQUIRED TO CEASE OR CURTAIL OUR OPERATIONS.
                                       11
<PAGE>
         We have reported a net loss and negative cash flows from operations
every year since we began doing business as Insynq, Inc. For the year ended May
31, 2004, we have incurred a net loss of $873,829. We expect to incur a net loss
and negative cash flows from operations in fiscal 2005. Our current business
plan forecasted these net losses and negative cash flows from operations for the
foreseeable future, as we will continue to incur significant operating expenses.
We may never generate sufficient revenues to achieve profitability, and if we
are unable to make a profit, we may not be able to continue to operate our
business. Even if we were profitable, we may not be able to sustain or increase
profitability on a quarterly or annual basis.

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

         In its audit report dated September 3, 2004, our auditors indicated
that there was substantial doubt as to our ability to continue as a going
concern and that our ability to continue as a going concern was dependant upon
our obtaining additional financing for our operations or reaching profitability.
There can be no assurance that we will be able to achieve either of these.

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

         As of May 31, 2004 we were delinquent on approximately $686,000 of our
payroll taxes, penalties and interest to the IRS. The IRS had filed Federal Tax
Liens on our assets. Between March and August 2004, we paid a total of $446,000
toward all delinquent taxes and a portion of the accrued interest. On August 31,
2004, we received a notice from the IRS that the Federal Tax Liens will be
withdrawn. In addition, the IRS agreed to abate all penalties and execute a
workout agreement for the remaining unpaid interest.

         As of September 10, 2004, we have two workout agreements for past due
taxes with two taxing authorities. The name of each taxing authority and their
respective principal balances due are as follows:

          o    the Economic Development Department, State of California -
               $3,900; and
          o    the City of Tacoma, Washington - $3,025.

         Terms of the two remaining workouts require us to pay $1,000 and $350,
respectively, per month until each tax obligation is fulfilled. The State of
California has filed a lien to protect their position during the respective
workout periods. During fiscal 2004 and through September 10, 2004, we paid off
three other tax workout arrangements.

         Additionally, there is a lien filed by the State of Utah for
approximately $28,000 for prior years' income taxes assessed to our predecessor
company. This amount has been disputed, amended returns to correct this
deficiency were filed, but as of the date of this report the state has not
responded to the amended returns, thereby, neither granting approval no denying
the amended returns.

      WE ARE DELINQUENT IN THE PAYMENT OF CERTAIN TRADE PAYABLES IN THE AMOUNT
OF APPROXIMATELY $562,200 AS OF SEPTEMBER 10, 2004. IF WE ARE UNABLE TO
NEGOTIATE WORKOUT ARRANGEMENTS OR TO MAKE TIMELY PAYMENTS, WE COULD EXPERIENCE A
SEVERE NEGATIVE IMPACT ON OUR BUSINESS OR OUR RESOURCES.

         As of September 10, 2004, we were late in the payment of certain
creditor trade payables in the amount of approximately $562,200. We have
initiated contact with many of our vendors and have negotiated a reduction in
amounts owed or were extended to more favorable terms. If we are unable to
negotiate payment plans with the remaining vendors, or if we are unable to
execute such negotiated payment plans with those who have accepted such plans,
we could experience a severe negative impact on our business resources.

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

         We need to raise additional funds through public or private debt or
equity financings as well as obtain credit from our vendors to be able to fully
execute our business plan. Any additional capital raised through the sale of
equity may dilute your ownership interest. We may not be able to raise
additional funds on favorable terms, or at all. If we are unable to obtain
additional funds or credit from our vendors, we will be unable to execute our
business plan and you could lose your
                                       12
<PAGE>
investment. Further, our current financing arrangements contain restrictions in
the timing and type of financing we may enter into. For example, during the
applicable lock-up period, we may not enter financing involving the issuance of
common stock at a discount to the market price, the issuance of convertible
securities that are convertible into an indeterminate number of shares of common
stock or the issuance of warrants. Also, we must provide our current investors
with the ability to participate in any future financing. The foregoing may
impede our ability to raise funding.

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

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

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

       WE HAVE GRANTED A SECURITY INTEREST IN ALL OF OUR ASSETS TO FOUR
INVESTORS IN CONNECTION WITH THE SECURITIES PURCHASE AGREEMENTS ENTERED IN JUNE
2001, JANUARY 2002, SEPTEMBER 2002 AND JUNE 2004,AND, IF WE WERE TO DEFAULT ON
THE PAYMENT OF THE CONVERTIBLE DEBENTURES, THE INVESTORS WOULD BE ENTITLED TO
TAKE POSSESSION OF ALL OF OUR ASSETS.

         In consideration of the receipt of the funding received by us in
connection with the issuance of the convertible debentures under the Securities
Purchase Agreements entered into in June 2001, January 2002, September 2002 and
June 2004 we provided the investors, AJW Offshore Ltd., AJW Partners, LLC, New
Millennium Capital Partners II, LLC and AJW Qualified Partners, LLC, a security
interest in essentially all of our assets. In the event that we were to default
on the payment of the debentures, the investors would be entitled to take
possession of all of our assets and, as a result our operations would cease.

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

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

         As of September 10, 2004 we are not in compliance with the proper
registration and licensing of certain software applications and products
critical to support the customer base and our own internal operations.
Management has initiated negotiations with these software vendors in an effort
to purchase or lease/rent the licenses to meet the licensing requirements.
Should we not be able to reach a satisfactory agreement with these vendors, and
due to the vital and critical nature of these licenses to support our services,
sales and operations we may be forced to cease operations and/or to file
bankruptcy.

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

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

      WE DEPEND HEAVILY ON OUR MANAGEMENT TEAM AND THE LOSS OF ANY OR ALL OF THE
MEMBERS OF SUCH MANAGEMENT TEAM COULD MATERIALLY ADVERSELY AFFECT OUR BUSINESS,
RESULTS OF OPERATIONS AND FINANCIAL CONDITION.
                                       13
<PAGE>
         Our success depends, to a significant extent, upon the efforts, the
abilities and the business experience of John P. Gorst, president, chairman of
the board and chief executive officer, as well as on these same attributes of
our other officers and management team. Loss of the services of any or all of
our management team could materially adversely affect our business, results of
operations and financial condition, and could cause us to fail to successfully
implement our business plan.

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

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

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

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

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

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

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

         The continued and uninterrupted performance of our computer systems,
and of the backup storage facilities of third parties with whom we do business,
is critical to our success. Any system failure that causes interruptions in our
ability to deliver our products and services to our customers, including
failures that affect our customers' abilities to access our hosted hardware,
software, and stored data, could reduce customer satisfaction and, if sustained
or repeated, would reduce the attractiveness of our services or result in
material liabilities or costs.

         Our software hosting business strategy, including data backup and
storage, depends on the consistent performance of the data centers and those of
third parties. We offer offsite back-up storage of data for all customers. The
current data centers, and those of third parties, may be vulnerable to
interruption from fire, earthquake, flood, power loss, connectivity failures,
                                       14
<PAGE>
vandalism and other malicious acts, and other events beyond our control,
including natural disasters. If the data centers are damaged in any way, a
customer whose data is stored there may lose some or all data, despite routine
backup procedures. Our operations are dependent on our ability to protect our
computer system, and customer systems, applications and data against damages,
including, but not limited to those from computer viruses, fire, earthquake,
flood, power loss, connectivity failures, vandalism and other malicious acts,
and other events beyond our control, including natural disasters. Damage to our
computer system, or to the systems, applications, or data of our customers,
could delay or prevent delivery of our products and, result in the loss of our
customers or in material liabilities. In addition, a failure of our
telecommunication providers to provide the data communications capacity in the
time frame required by us for any reason could cause interruptions in the
delivery of our products. Substantially all of our computer and communications
hardware are located at two facilities and the loss of this hardware or the data
it contains would cause severe business interruptions. In the event that we
experience significant disruptions that affect the data centers, we could lose
customers or fail to attract new customers.

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

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

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

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

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

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

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

         We are involved in the following legal proceedings:

          o    We are a party to a lawsuit, dated May 31, 2001, in which our
               vice president of sales and marketing seeks
                                       15
<PAGE>
               payment for various claims in the amount of approximately
               $115,000. We have reached a partial settlement of the matter.
          o    We are a party to a lawsuit, dated August 6, 2001, in which one
               of our vendors seeks payment for goods and services provided in
               the amount of $20,760. We have reached a partial settlement of
               the matter.
          o    We are a party to a lawsuit, dated October 4, 2001, by our former
               landlords. The allegations relate to the default by us of our
               long-term lease obligations and a settlement agreement dated May
               2001.
          o    We are a party to a complaint filed May 29, 2003, in which one of
               our vendors seek payment for services provided in the amount of
               $145,265. We intend negotiate or defend this matter.

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

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

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

         We are aware that other companies have claimed use of names similar to
"Insynq" for products or services similar to our own. We are in the process of
investigating the rights, if any, others may have to the name. We will incur
expenses if called to defend our use of the "Insynq" name. Any such litigation,
even if without merit, may be time consuming and expensive to defend. It also
could divert our management's attention and resources and require us to enter
into costly royalty or licensing agreements. In addition, if any company in our
industry is able to establish a use of the "Insynq" name that is prior to our
use, we could be liable for damages and could be forced to stop using the name
unless we are able to buy the right to use the name. If we were unable to buy
the right to use our name after we lose an infringement claim, we would have to
change our name, which may require us to spend money to build new brand
recognition and incur other costs. Third parties may assert other infringement
claims against us. Any of these events could divert management attention and
complicate our ability to do business.

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

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

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

      ALTHOUGH OUR CURRENT OPERATIONS INCLUDE OPERATING AS A TECHNOLOGY FOCUSED
COMPANY, OUR PREVIOUS BUSINESS ACTIVITIES INCLUDED GAMING, NATURAL RESOURCE
MINING, AND EXPLORATION. AS A RESULT, WE MAY BE EXPOSED TO UNKNOWN ENVIRONMENTAL
AND OTHER LIABILITIES THAT COULD REQUIRE US TO EXPEND OUR FINANCIAL RESOURCES
AND MATERIALLY ADVERSELY AFFECT OUR FINANCIAL CONDITION.
                                       16
<PAGE>
         The assets of a predecessor company were acquired by a publicly-traded
company that was engaged, prior to August 1999, in gaming, and prior to 1993, in
natural resource exploration and development, including mining, and oil and gas.
We no longer own any mining, oil and gas, or gaming-related assets. The mining,
mineral processing, and oil and gas industries are subject to extensive
governmental regulations for the protection of the environment, including
regulations relating to air and water quality, site reclamation, solid and
hazardous waste handling and disposal and the promotion of occupational safety.
We could be held responsible for any liabilities relating to our previous
involvement in gaming, mining or oil and gas exploration and development, which
liabilities would result in our spending our cash resources.

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

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

      WE DO NOT HAVE DIRECTORS' AND OFFICERS' LIABILITY INSURANCE OR OTHER TYPES
OF CASUALTY OR LIABILITY INSURANCE COVERAGE ON OUR COMPANY, OUR EMPLOYEES AND
OUR ASSETS.

         We are financially and operationally exposed to unknown and unforeseen
casualties and risks because we lack insurance coverage on our key officers and
for catastrophic events. If a key person were to die, we would have to bear the
entire expense of finding an experienced replacement. This expense is not
budgeted. There is no assurance that a new person will be paid at the same rate
as the deceased party. It could be significantly greater than its predecessor.
Should the loss of a key person occur and without key person life insurance, the
financial burden could materially adversely affect the results of operations.

         We also operate without business liability and errors and omissions
insurance. If a catastrophic event or a negligent act occurred whereby a party
was harmed or injured, we may be held liable, in which case no insurance
coverage is in place for such protection. We do not have adequate assets to be
self-insured. Therefore, if an event occurred, such as a fire to our offices, we
will have to replace the damaged property from an unknown source of funds if we
wish to stay in business. Events such as these, will materially adversely affect
our operations and our ability to be competitive and retain our existing
customer base.

RISKS RELATED TO OUR INDUSTRY:

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

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

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

         Currently, there are few laws or regulations that specifically regulate
communications or commerce on the Internet. However, laws and regulations may be
adopted that address issues such as pricing and the characteristics of products
and services. In addition, several connectivity companies have petitioned the
Federal Communications Commission to regulate Internet and on-line service
providers in a manner similar to long-distance telephone carriers and to impose
access fees on
                                       17
<PAGE>
them. This regulation, if imposed, could increase the cost of transmitting data
over the Internet. Moreover, it may take years to determine the extent to which
existing laws relating to issues such as intellectual property ownership and
infringement, libel, obscenity and personal privacy are applicable to the
Internet. Finally, state tax laws and regulations relating to the provision of
products and services over the Internet are still developing. A few states have
tried to impose taxes on products and services provided over the Internet. If
additional states try to do so, our operating costs may increase and we may not
be able to increase the price that we charge for our products to cover these
costs. Any new laws or regulations or new interpretations of existing laws and
regulations relating to the Internet could decrease the growth in the use of the
Internet, decrease the demand for traffic on our Website, increase our operating
expenses, or otherwise adversely affect our business.

RISKS RELATING TO OUR CURRENT FINANCING ARRANGEMENTS:

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

         As of September 10, 2004, we had 8,907,254 shares of common stock
issued and outstanding and convertible debentures and convertible notes payable
that may be converted into an estimated 165,582,676 shares of common stock and
outstanding warrants to purchase 158,000 shares of common stock. In addition,
the number of shares of common stock issuable upon conversion of the outstanding
convertible debentures and the notes payable will increase if the market price
of our stock declines. All of the shares, including all of the shares issuable
upon conversion of the debentures and the notes payable and upon exercise of the
warrants, may be sold without restriction. The sale of these shares may
adversely affect the market price of our common stock.

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

         Our obligation to convert our debentures and notes payable into shares
of common stock is essentially limitless. Each of our security agreements has a
variable conversion formula, which means that if the market price of our shares
is suppressed and or declines, a significant greater number of shares will be
issued for the same principal, as if the stock price was higher.

         According to our Securities Purchase Agreements, if the convertible
debentures and notes, plus accrued interest were converted, the number of shares
of our common stock would total approximately 225,537,605, based on the then
market price on September 10, 2004 of $0.03 per share. The following
illustrates the incremental number of shares required to convert our obligations
if the market price falls 25%, 50% and 75% respectively.
<TABLE>
<CAPTION>

         % Below                   Price Per              With Discounts          Number of Shares          % of Outstanding
          Market                    Share                                            Issuable                   Stock
          ------                    -----                    --------                --------                   -----
           <S>                      <C>                 <C>                        <C>                           <C>
           25%                      $.0225             $.00900 to $.01238           297,997,473                 97.10%
           50%                      $.0150             $.00600 to $.00825           446,917,209                 98.05%
           75%                      $.0075             $.00300 to $.00413           896,676,418                 99.01%
</TABLE>

         As illustrated, the number of shares of common stock issuable upon
conversion of our convertible obligations will increase if the market price of
our stock declines, which will cause dilution to our existing stockholders. In
the event that the market price of our shares substantially decreases below the
current market price, we may not have an adequate number of shares of common
stock to support the conversion of all of our convertible obligations.

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

         The convertible debentures and convertible notes payable maybe redeemed
into shares of our common stock at a discount ranging between a 45% for the
notes payable to a 60% discount for the debentures to the trading price of the
common stock prior to the conversion. The significant downward pressure on the
price of the common stock as the selling stockholder converts and sells material
amounts of common stock could encourage short sales by investors. This could
place further downward pressure on the price of the common stock. The selling
stockholder could sell common stock into the market in anticipation of covering
the short sale by converting their securities, which could cause the further
downward pressure on the stock price. In addition, not only the sale of shares
issued upon conversion or exercise of debentures, warrants and options, but
                                       18
<PAGE>
also the mere perception that these sales could occur, may adversely affect the
market price of the common stock.

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

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

         As of September 10, 2004 we owed an aggregate of $2,926,010 for our
secured convertible debentures and notes, including accrued interest, issued
pursuant to the Securities Purchase Agreements entered into in June 2001,
January 2002, September 2002 and June 25, 2004. As of September 10, 2004,
warrants to purchase 158,000 shares of common stock issued to the purchasers of
the debentures and notes were outstanding. These warrants are exercisable for
terms between five and seven years from the date of issuance at exercise prices
of $12.50 or $0.05 per share.

         As of September 10, 2004, 12,772 shares of common stock were reserved
for issuance upon exercise of our outstanding warrants and options other than
those issued in connection with the convertible obligations. An additional
446,917,209 shares of common stock were reserved for issuance upon conversion
of the debentures, notes and exercise of the warrants. As of September 10, 2004,
there were 8,907,254 shares of common stock outstanding. Of these outstanding
shares, 7,269,878 shares were freely tradable without restriction under the
Securities Act of 1933, as amended, unless held by affiliates.

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

         In any event of default as described in the convertible debentures and
convertible notes could require the early repayment of the principal balance due
to include interest. If we are unable to pay and the default is not cured within
the specified grace period the default interest rate is 15% on the outstanding
principal balance of the debentures and the notes. We anticipate that the full
amount of the debentures and the notes, together with accrued interest, will be
converted into shares of our common stock, in accordance with the terms of the
convertible debenture and the convertible notes. If we were requested to repay,
in cash, the convertible obligations, we would be required to use our limited
working capital and raise additional funds. If we were unable to repay the
obligations when required, the debenture and note holders could commence legal
action against us and foreclose on all of our assets to recover the amounts due.
Any such action would require us to curtail or cease operations.

RISKS RELATING TO OUR COMMON STOCK:

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

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

      IF WE FAIL TO REMAIN CURRENT ON OUR REPORTING REQUIREMENTS, WE COULD BE
REMOVED FROM THE OTC BULLETIN BOARD, WHICH WOULD LIMIT THE ABILITY OF
BROKER-DEALERS TO SELL OUR SECURITIES AND THE ABILITY OF STOCKHOLDERS TO SELL
THEIR SECURITIES IN THE
                                       19
<PAGE>
SECONDARY MARKET.

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

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

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

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

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

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

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

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

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

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

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

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

          o    Our board of directors are authorized to issue of up to
               10,000,000 shares of preferred stock and to fix the rights,
               preferences, privileges and restrictions of those shares without
               any further vote or action by the stockholders, which may be used
               by the board to create voting impediments or otherwise delay or
               prevent a change in control or to modify the rights of holders of
               our common stock;
          o    A prohibition on cumulative voting in the election of directors,
               which would otherwise allow less than a majority of stockholders
               to elect directors; and
          o    Limitations on who may call annual and special meetings of
               stockholders
                                       20
<PAGE>
ITEM 2.  DESCRIPTION OF PROPERTY

         Our principal executive offices are located at 1127 Broadway Plaza,
Suite 202, Tacoma, Washington, 98402-3519, and our telephone number is (253)
284-2000. We lease approximately 4,000 square feet through December 31, 2004. We
pay a monthly fee of $2,140 for the use of these facilities. These facilities
consolidate all of our departments, such as, sales, customer support,
engineering and administrative services. We also have a rental agreement for two
data center facilities that house our server farms. These facilities are located
in the cities of Everett and Bellingham, Washington with a renewable one-year
term lease with a base monthly fee of $6,825. Aptus Corp, a related party,
shares our facilities located in Tacoma, Washington.

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

ITEM 3.  LEGAL PROCEEDINGS

         We are a party to a lawsuit filed in the Superior Court for the State
of Washington for Pierce County, dated May 31, 2001, by William G. Hargin,
former vice president of sales and marketing. The lawsuit alleged that we
breached a written employment contract and breached a written termination
agreement. Mr. Hargin alleged that under such contract and agreement, he was
owed $114,858.39 plus 12% interest and options to purchase 1,500 fully vested
shares of our common stock exercisable at $34.00 per share. In August 2001, we
entered into a settlement and release agreement under the terms of which we were
to pay Mr. Hargin $17,500 and issue a non-qualified stock option for 2,000
shares of common stock with an exercise price of $6.50 per share. As September
10, 2004, we have not made the cash payment and the option remain unexercised.

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

         On September 6, 2001, we were served with a summons and complaint by
its former landlords, asserting: (a.) a breach of a settlement agreement entered
into in May 2001 to register 5,000 shares of common stock, valued at $80,000, in
partial settlement of its then existing lease, and, (b.) a default by us on two
new long-term lease obligations that if carried to term would aggregate
approximately $1,034,500 in lease payments. The Company denies the allegations
under this claim and believes this claim is without merit and intends to
continuously and vigorously defend against this lawsuit. However, a Partial
Summary Judgment was entered against us on April 2, 2002 in the amount of
$169,754. We recognized this expense in fiscal 2002.

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

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

         In July 2004 the Board of Directors authorized the issuance of
1,000,000 shares of Series "A" Non-Participating Preferred Stock, par value of
$.001 per share. The Board then issued 165,000 shares at par value to the three
of our officers. At the same Board meeting, the Board approved a one for fifty
reverse split of the common stock and approved an amendment to our Articles of
Incorporation to increase the number of authorized shares of our common stock to
2,000,000,000 par value $0.001 per share. The action had been approved by the
written consent of the shareholders together entitled to vote a majority of the
aggregate votes at any stockholders meeting. An Information Statement was first
mailed or furnished to the stockholders of record on or about August 18, 2004
and the amendment was effective on September 7, 2004.

                                     PART II

ITEM 5.  MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

MARKET FOR COMMON STOCK
                                       21
<PAGE>
         Our common stock is quoted on the OTC Bulletin Board under the symbol
"INSN". Our common stock has been quoted on the OTCBB since November of 1997.

         For the periods indicated, the following table sets forth the high and
low bid prices per share of common stock. These prices represent inter-dealer
quotations without retail markup, markdown, or commission and may not
necessarily represent actual transactions. This table gives effect to our two
for one stock forward split that occurred on August 3, 2000, our one for one
hundred stock exchange that occurred on December 23, 2002, and, our one for
fifty reverse stock split that occurred on August 2, 2004.

                                            HIGH                     LOW
        FISCAL 2003
        August 31, 2002                     100.00                  40.00
        November 30, 2002                   150.00                 150.00
        February 28, 2003                     3.50                   2.50
        May 31, 2003                          5.00                   2.50

        FISCAL 2004
        August 31, 2003                       1.00                   1.00
        November 30, 2003                     0.60                   0.50
        February 29, 2004                     0.40                   0.35
        May 31, 2004                          0.15                   0.10

        FISCAL 2005
        August 31, 2004                       0.028                  0.025

HOLDERS OF OUR COMMON STOCK

         As of September 10, 2004, we had approximately 67 record holders of our
common stock. The number of record holders was determined from the records of
our transfer agent and does not include beneficial owners of common stock whose
shares are held in the names of various security brokers, dealers, and
registered clearing agencies. The transfer agent of our common stock is Colonial
Stock Transfer Company, Inc., 66 Exchange Place, Salt Lake City, Utah 84111.

DIVIDENDS

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

RECENT SALES OF UNREGISTERED SECURITIES

         The following sets forth information regarding all sales of our
unregistered securities during the fiscal year ended May 31, 2004. All of these
shares were exempt from registration under the Securities Act by reason of
Section 4(2) of the Securities Act, or Regulation D promulgated thereunder, as
transactions by an issuer not involving a public offering, or were exempt by
reason of the application of Regulation S. The recipients of securities in each
of these transactions represented their intentions to acquire the securities for
investment only and not with a view to or for sale in connection with any
distribution of the securities, and appropriate legends were affixed to the
share certificates and warrants issued in such transactions. All recipients had
adequate access, through their relationships with us or otherwise, to
information about us. Unless otherwise indicated, the issuances of the
securities described below were affected without the involvement of
underwriters. Where applicable, each of the disclosures has been adjusted to
account for the 1 for 50 reverse split effective July 2004.

         From June 1, 2003 through May 31, 2004 we issued 3,895,618 shares of
common stock pursuant to 56 separate conversions of principal due on our
convertible debentures. Total principal redeemed on our convertible debentures
aggregated $643,399.
                                       22
<PAGE>
         On July 15, 2003, we entered into a consulting agreement and under the
terms of the agreement, in consideration of the services undertaken, we issued
30,303 shares of common stock under the 2002 Directors, Officers and Consultants
Stock Option, Stock Warrant and Stock Award Plan at the fair market value of
$0.65 per share of common stock.

         On August 5, 2003, in settlement of a defaulted note payable, we
entered into a settlement agreement with Plazacorp Investments Ltd. In
connection with the settlement, we issued 1,300,000 shares of common stock in
consideration of the principal due at the fair market value of $0.50 per share
of common stock.

         On August 5, 2003, in settlement of a $39,000 account payable for
consulting services, we issued 78,000 shares of common stock in consideration of
the amount due at the fair market value $0.50 per share of common stock.

         In August 5, 2003, we entered into three consulting agreements. Under
the terms of the agreements, in consideration of the services undertaken, we
issued 453,333 shares of common stock at a fair market value of $0.50 per share
and granted 347,093 options with exercise prices ranging between $0.60 and $0.75
per share of common stock. Also, on August 8, 2003, under the terms of theses
Agreements, we filed a Form S-8 Registration for the common stock and options.

         On August 13, 2003, we issued 20,000 shares in consideration of
services at market value of $0.50 per share.

         On September 2, 2003, we entered into three consulting agreements.
Under the terms of the agreements, in consideration of the services undertaken,
we issued 453,333 shares of common stock at a fair market value of $0.50, and we
granted 342,592 options with exercise prices between $0.37 and $0.54 per share
of common stock. All options were simultaneously exercised with the issuance.
Also, under the terms of the Agreements, we filed a Form S-8 Registration for
the common stock and options.

         On October 3, 2003, we issued a total of 28,000 shares of stock at fair
market value of $0.85 per share in consideration services rendered pursuant to a
consulting agreement.

         On October 3, 2003, we issued a total of 5,000 shares of stock at fair
market value of $0.85 per share in consideration services rendered by a board
member.

         On October 8, 2003, we issued a total of 60,000 shares of stock at fair
market value of $0.75 per share in consideration services pursuant to a
consulting agreement.

         On October 28, 2003, we issued a total of 35,000 shares of stock at
fair market value of $0.60 per share in consideration services rendered pursuant
to two separate consulting agreements.

         On November 4, 2003, we issued a total of 20,000 shares of stock at
fair market value of $0.65 per share in consideration for services rendered
under a consulting agreement.

         On November 6, 2003, we issued a total of 15,000 shares of stock at
fair market value of $0.55 per share in consideration for services rendered
under a consulting agreement.

         On December 1, 2003, we entered into three consulting agreements. Under
the terms of the agreements, in consideration of the services undertaken, we
issued 760,000 shares of common stock at a fair market value of $0.55, and we
granted 583,333 options with exercise prices between $0.375 and $0.50 per share
of common stock. All options granted were exercised simultaneously with the
issuance.

         On December 9, 2003, we issued a total of 25,000 shares of stock at
fair market value of $0.50 per share in consideration for services rendered
under two separate consulting agreements.

         On June 25, 2004, we entered into a fourth securities purchase
agreement with four investors for: (i) the sale of $900,000 in convertible notes
payable and (ii) the grant of warrants to buy 54,000 shares of our common stock.
The notes bear interest at 12%, mature two years from the date of issuance, and
are convertible into our common stock, at the investors' option, at the lower
of:
                                       23
<PAGE>
          o    $0.50; or
          o    55% of the average of the three lowest intraday trading prices
               for the common stock on a principal market for the 20 trading
               days before but not including the day of conversion.

         The full principal amounts of the convertible notes are due upon
default under the terms of the agreements. The warrants are exercisable until
seven years from the date of issuance at a purchase price of $0.50 per share. In
addition, the exercise price of the warrants will be adjusted in the event we
issue common stock at a price below market, with the exception of any securities
issued as of the date of this warrant. The conversion price of the notes and the
exercise price of the warrants may be adjusted in certain circumstances such as
if we pay a stock dividend, subdivide or combine outstanding shares of common
stock into a greater or lesser number of shares, or take such other actions as
would otherwise result in dilution of the selling stockholder's position. The
selling stockholders have contractually agreed to restrict their ability to
convert their convertible obligations or exercise their warrants and receive
shares of our common stock such that the number of shares of common stock held
by them in the aggregate and their affiliates after such conversion or exercise
does not exceed 4.99% of the then issued and outstanding shares of common stock.
We have granted our note holders a security interest in all of our assets
against the convertible notes.

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

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

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

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

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

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

GENERAL

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

         The financial statements have been prepared pursuant to the rules and
regulations of the Securities and Exchange Commission (SEC) and, in the opinion
of management, includes all adjustments necessary for a fair statement of the
results of operations, financial position, and cash flows for each period
presented. Our financial statements reflect the results of operations, financial
position, changes in shareholders' deficit and cash flows.
                                       24
<PAGE>
         A summary of the significant accounting policies which we believe are
the most critical to aid in fully understanding and evaluating the accompanying
financial statements include the following:

REVENUE RECOGNITION

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

EQUIPMENT

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

LONG-LIVED ASSETS

         Long-lived assets, including, but not limited to, equipment and
identifiable intangibles held and used by us are reviewed for impairment
whenever events or changes in circumstances indicate that the carrying amount of
the asset may not be recoverable. If such review indicates that the asset is
impaired, when the carrying amount of an asset exceeds the sum of its expected
future cash flows on an undiscounted basis, the asset's carrying amount is
written down to fair value. We believe that no impairment of the carrying
amounts of its long-lived assets existed at May 31, 2004.

CONCENTRATIONS OF CREDIT RISK

         We sell the majority of our services throughout North America. The
majority of these sales are made to customers who are billed monthly on open
account and without any collateral required. However, a significant proportion
of these transactions are paid through credit cards or other electronic means.
For the year ended May 31, 2004, approximately thirty-four percent (31%) of
revenues were from nine customers, of which, one is a related party to one of
our directors and officer of the Company. The related party business comprised
approximately seven percent (7.2%) of our revenues.

FAIR VALUE OF FINANCIAL INSTRUMENTS

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

USE OF ESTIMATES

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

COMPREHENSIVE INCOME (LOSS)

         We have no components of other comprehensive loss. Accordingly,
net loss equals comprehensive loss for the all
                                       25
<PAGE>
periods.

LOSS PER COMMON SHARE

         Basic loss per common share is computed by dividing the net loss
applicable to the common stockholders by the weighted average number of shares
of outstanding common stock during the period. Diluted loss per share is
computed by dividing the net loss by the weighted average number of common
shares including the dilutive effect of common share equivalents then
outstanding. Common stock equivalents are not included in the computation of
diluted net loss per common share because the effect would be anti-dilutive.


RECENT AUTHORITATIVE ACCOUNTING PRONOUNCEMENTS

         In April 2003, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 149, " Amendment of
Statement No. 133 on Derivative Instruments and Hedging Activities". SFAS No.
149 amends and clarifies financial accounting and reporting for derivative
instruments, including certain derivative instruments embedded in other
contracts (collectively referred to as derivatives) and for hedging activities
under SFAS No. 133, "Accounting for Derivative Instruments and Hedging
Activates". The changes in SFAS No. 149 improve financial reporting by requiring
that contracts with comparable characteristics be accounted for similarly. This
statement is effective for contracts entered into or modified after June 30,
2003 and all of its provisions should be applied prospectively. The
implementation of this SFAS No. 149 will not have a material impact on our
financial statement presentation or disclosures.

         In May 2003, the FASB issued SFAS No. 150, "Accounting For Certain
Financial Instruments with Characteristics of both Liabilities and Equity". SFAS
No. 150 changes the accounting for certain financial instruments with
characteristics of both liabilities and equity that, under previous
pronouncements, issuers could account for as equity. The new accounting guidance
contained in SFAS No. 150 requires that those instruments be classified as
liabilities in the balance sheet. SFAS No. 150 affects the issuer's accounting
for three types of freestanding financial instruments. One type is a mandatorily
redeemable share, which the issuing company is obligated to buy back in exchange
for cash or other assets. A second type includes put options and forward
purchase contracts, which involves instruments that do or may require the issuer
to buy back some of its shares in exchange for cash or other assets. The third
type of instrument under this Statement is an obligation that can be settled
with shares, the monetary value of which is fixed, tied solely or predominantly
to a variable such as a market index, or varies inversely with the value of the
issuers' shares. SFAS No. 150 does not apply to features embedded in a financial
instrument that is not a derivative in its entirety. Most of the provisions of
Statement 150 are consistent with the existing definition of liabilities in FASB
Concepts Statement No. 6, "Elements of Financial Statements". The remaining
provisions of this Statement are consistent with the FASB's proposal to revise
that definition to encompass certain obligations that a reporting entity can or
must settle by issuing its own shares. This Statement shall be effective for
financial instruments entered into or modified after May 31, 2003 and otherwise
shall be effective at the beginning of the first interim period beginning after
June 15, 2003, except for mandatorily redeemable financial instruments of a
non-public entity, as to which the effective date is for fiscal periods
beginning after December 15, 2004. The implementation of the provisions of SFAS
No. 150 is not expected to have a significant effect on our financial statement
presentation or disclosures.

         In January 2003, (as revised in December 2003) the FASB issued
Interpretation No. 46, "Consolidation of Variable Interest Entities", an
interpretation of Accounting Research Bulletin ("ARB") No. 51, "Consolidated
Financial Statements". Interpretation No. 46 addresses consolidation by business
enterprises of variable interest entities, which have one or both of the
following characteristics: (i) the equity investment at risk is not sufficient
to permit the entity to finance its activities without additional subordinated
support from other parties, which is provided through other interests that will
absorb some or all of the expected losses of the entity; (ii) the equity
investors lack one or more of the following essential characteristics of a
controlling financial interest: the direct or indirect ability to make decisions
about the entities activities through voting rights or similar rights; or the
obligation to absorb the expected losses of the entity if they occur, which
makes it possible for the entity to finance its activities; the right to receive
the expected residual returns of the entity if they occur, which is the
compensation for the risk of absorbing the expected losses. Interpretation No.
46, as revised, also requires expanded disclosures by the primary beneficiary
(as defined) of a variable interest entity and by an enterprise that holds a
significant variable interest in a variable interest entity but is not the
primary beneficiary. Interpretation No. 46, as revised, applies to small
business issuers no later than the end of the first reporting period that ends
after December 15, 2004. This effective date includes those entities to which
Interpretation 46 had previously been applied. However, prior to the required
application of Interpretation No. 46, a public entity that is a small business
issuer shall apply Interpretation 46 or this Interpretation to those entities
that are considered to be
                                       26
<PAGE>
special-purpose entities no later than as of the end of the first reporting
period that ends after December 15, 2003 Interpretation No. 46 may be applied
prospectively with a cumulative-effect adjustment as of the date on which it is
first applied or by restating previously issued financial statements for one or
more years with a cumulative-effect adjustment as of the beginning of the first
year restated. The implementation of the provisions of Interpretation No. 46 is
not expected to have a significant effect, if any, on our financial statement
presentation or disclosures.

         In March 2004, the U.S. Securities and Exchange Commission's Office of
the Chief Accountant and the Division of Corporate Finance released Staff
Accounting Bulletin ("SAB") No. 105, "Loan Commitments Accounted for as
Derivative Instruments". This bulletin contains specific guidance on the inputs
to a valuation-recognition model to measure loan commitments accounted for at
fair value, and requires that fair-value measurement include only differences
between the guaranteed interest rate in the loan commitment and market interest
rate, excluding any expected future cash flows related to the customer
relationship or loan servicing. In addition, SAB No. 105 requires the disclosure
of the accounting policy for loan commitments, including methods and assumptions
used to estimate the fair value of loan commitments, and any associated hedging
strategies. SAB No. 105 is effective for derivative instruments entered into
subsequent to March 31, 2004 and should be applied to existing instruments as
appropriate. We havenot yet completed our evaluation of SAB No. 105, but does
not anticipate a material impact, if any, on the financial statements.

OVERVIEW

         On February 18, 2000, we merged with Xcel Management, Inc. (Xcel), a
non-reporting public shell company. The merger was accompanied by a
re-capitalization and was accounted for as a change in capital structure. On
August 3, 2000 Xcel completed a re-incorporation as a Delaware corporation and
changed its name to Insynq, Inc.

         On July 25, 2002, our Board of Directors approved a re-incorporation
merger of the Company with its wholly owned subsidiary, Insynq, Inc., a Nevada
corporation, and effectuated a 100 to 1 common stock exchange our then issued
and outstanding shares of common stock. The re-incorporation, which was
effective December 23, 2002, resulted in the exchange of 59,013,393 common
shares of the terminating entity, Insynq, Inc. - Delaware, for 590,134 common
shares of the surviving entity, Insynq, Inc. - Nevada.

         On July 16 2004, our Board of Directors approved a 50 for 1 reverse
split of our authorized common stock. Accordingly, the date of record
and the effective date was August 2, 2004. Par value remains unchanged at $.001
per share. The effect of the reverse split reduced the number of authorized
shares from 500,000,000 to 10,000,000 and reduced the number of outstanding and
issued shares of common stock from 445,384,987 shares to 8,907,700 shares at May
31, 2004. As a result of the reverse split, all fractional shares will be issued
one share of common stock. Our Board of Directors also approved a plan to
repurchase the common stock held by shareholders with a post-split converted
number of shares totaling 9 or less at a market price of $.04 per share.

         In addition, effective August 2, 2004, by unanimous vote of the
stockholders, our Board approved to increase the number of authorized shares of
common stock from 10 million to 2 billion shares.

SERIES A NON-PARTICIPATING PREFERRED STOCK

         Our Board approved in its July 16, 2004 meeting, the authorization of
1,000,000 shares of Series A Non-Participating Preferred Stock, par value at
$0.001 per share, with each share having 1,000 votes on all matters upon which
the shareholders are entitled to vote. Our Board then issued 165,000 shares of
this stock in equal amounts to its three corporate officers.

VOTING RIGHTS

         As a result of the reverse split on August 2, 2004 and the July 16,
2004 issuance of the 165,000 shares of Series A Non-Participating Preferred
Stock, three corporate officers hold approximately 95% of the voting rights of
any item coming to a vote before the shareholders.

         All shares of common stock and per share amounts in the Form 10KSB, and
the accompanying financial statements and notes to financial statements have
been retroactively restated to reflect this August 2, 2004 transaction.

OUR BUSINESS
                                       27
<PAGE>
         We manage and host software services, Web hosting services, Web-based
local and wide area networks, and access to Internet marketing assistance and
other related equipment and services. These products and services are offered as
components or as an integrated whole, either sold directly or on a fee or
subscription basis.

         We target small and medium enterprises and the high-end segment of the
small office and home office market for the sale of hardware and hosted software
and access to internet-related services. We provide products and services to our
customer subscriber base, which allows our customers to adopt "web-based"
computing that serves as an alternative to both traditional local wide area
networks and traditional client-server implementations. Generally, we market
ourselves as an Internet utility company that can provide all of the computer
software, connectivity and internet-access needs for its customers on a cost
effective basis.

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

RESULTS OF OPERATIONS

         We incurred a net loss of $873,829,and $2,930,773 for the years ended
May 31, 2004 and 2003, respectively. Our net losses resulted primarily from:

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

         We reduced our fiscal 2004 loss by approximately $2,057,000 as compared
to fiscal 2003 results. Our fiscal 2004 decrease resulted primarily from
settlements of certain debts totaling over $2.7 million for approximately
$704,000 in stock and cash. For fiscal 2003, we settled approximately $465,000
debts for cash and/or stock totaling $15,000. Had we not settled these debts
over the past two fiscal years, we would have reported a net loss of
approximately $2.9 million in fiscal 2004 and approximately $3.4 million in
fiscal 2003.

         Revenues for the years ended May 31, 2004 and 2003 were $ 1,230,190 and
$1,053,855, respectively, representing a fiscal 2004 increase of $ 176,335 or
16.7%. This increase in revenues compares favorably to the increase reported in
fiscal 2003 of $164,719, or approximately 18.5%. The primary sources of revenues
and the changes are as follows:

<TABLE>
<CAPTION>


                                    YEAR ENDED MAY 31, 2004        YEAR ENDED MAY 31, 2003          2004 INCREASE OVER 2003
                                    -----------------------        -----------------------          -----------------------
Revenue                                         Percent of                      Percent of
Source                              Amount         Total         Amount           Total             Amount        Percent
---------------------------- --- -------------- ------------ --- ------------ --------------- --- ----------- ----------------
<S>                          <C>                   <C>       <C>                  <C>         <C>                  <C>
1. Seat subscriptions, net
of discounts                 $         787,865     64.0%     $       710,402      67.4%       $       77,463       10.9%
2. Applications, managed
software and support                   442,325      36.0             343,453       32.6               98,872       28.8%
                                 -------------- ------------ --- ------------ --------------- --- ----------- ----------------

Total                        $       1,230,190    100.0%     $     1,053,855     100.0%       $      176,335       16.7%
                                 ============== ============ ================ =============== =============== ================
</TABLE>
                                       28
<PAGE>
<TABLE>
<CAPTION>

                                    YEAR ENDED MAY 31, 2003        YEAR ENDED MAY 31, 2002          2003 INCREASE OVER 2002
                                    -----------------------        -----------------------          -----------------------
Revenue                                        Percent of                       Percent of
Source                              Amount        Total         Amount             Total            Amount        Percent
---------------------------- --- ------------- ------------ --- ------------- ---------------- --- ---------- ----------------
<S>                          <C>                  <C>       <C>                    <C>         <C>                 <C>
1. Seat subscriptions, net
of discounts                 $        710,402     67.4%     $     653,842          73.5%       $      56,560        8.7%
2. Applications, managed
software and support                  343,453     32.6            235,294           26.5             108,159       46.0%
                                 ------------- ------------ --- ------------- ---------------- --- ---------- ----------------

Total                        $      1,053,855    100.0%     $     889,136         100.0%       $     164,719       18.5%
                                 ============= ============ ================= ================ ============== ================
</TABLE>

         The increase in revenues can be directly attributed to our increased
marketing efforts over the Internet, an enhanced and an improved website and the
offering of more professional products. Over the past four fiscal years, our net
revenues have gone from approximately $396,000 in fiscal 2001 to over $1.2
million through fiscal 2004. We have increased our seat count by approximately
108% and we have increased revenues by over 200% over the same four-year period.
The significant increase in overall revenues as compared to the increase number
of added seats indicates that we are selling more products and value added
services to our customers, reducing discounts and the discounted periods, all
the while pricing our products more competitively and favorably. We are
continually striving to:

          o    develop and add new products,
          o    implement our sales and marketing strategies,
          o    increase consumer understanding and awareness of our technology,
               and
          o    prove our business model.

         While we have experienced growth in revenue in each year, prior growth
rates should not be considered, nor relied upon, as necessarily indicative of
future growth rates or operating results for the fiscal year ending 2005.

         As a business practice, we do not advocate, nor promote the use of
discounts to attract potential and maintain relations with existing customers.
Discounts have been offered and will continue to be offered if it means we will
attract and keep a valued or credit worthy customer. There are many criteria to
meet before we can justify discounting our pricing structure for a customer.
Discounts taken in fiscal 2004 and 2003 were 6.98% and 9.52% of gross revenues,
and were offered both to new and existing customers. Our plan over the next two
years, is to continue the trend away from offering and providing discounts of
any type. We will, however, consider pricing adjustments, like a discount, to a
customer, if the business model and pricing structure means a mutually
long-term, profitable business relationship whereby we both benefit. Our target
percentage for discounts in fiscal 2005 is approximately 5.5% of our projected
annual gross revenues totaling $1.5 million.

         Our continued growth is virtually dependent upon our ability to
generate sales relating to our subscriptions and managed software services. The
main priorities relating to our revenues are:

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

         In fiscal 2005, we would like to consummate an acquisition of a
like-kind company, or acquire a customer base similar to that which complements
our strategies and business plan. With such type acquisitions, we believe we can
cross-sell our current products and leverage ourselves with mass-marketing and
sales campaigns, and at the same time diversify our revenue base to protect us
from certain industry uncontrollable economic factors.

COSTS AND EXPENSES

         During fiscal 2004, we incurred direct costs totaling $822,497. This
represents a slight increase of expenses of $31,349 or approximately a 4%
increase over the prior fiscal year. The overall slight net increase can be
directly related to
                                       29
<PAGE>
higher engineer wages and burden, additional licensing fees, higher co-location
basic costs and greater utilization of services and a small reduction in
depreciation.

         Selling and general and administrative expenses were $2,755,151 and
$2,120,450 for the years ended May 31, 2004 and 2003, respectively, and these
expenses are allocated between non-cash and cash compensation. Non-cash
compensation is generally representative of the fair value of common stock,
options and warrants issued for certain services, and the amortization of
unearned compensation. Non-cash compensation for the years ended May 31, 2004
and 2003 was $1,843,843 and $878,323, respectively. Cash expenses for the years
ended May 31, 2004 and 2003 were $911,308 and $1,242,127, respectively. This
represents a significant decrease, or $330,819 or 26.6%, over the same period
one year ago.

         Of particular significance to this category is the increase of the
professional and consulting fees. These specific expenses accounted for
approximately 65.3% and 50.2% of the total selling, general and administrative
expenses for the years ended May 31, 2004 and 2003, respectively. In fiscal
2004, the professional and consulting fees aggregated $1,799,658 of which
$1,669,734 (92.7%) was in the form of non-cash compensation. Although this
category reported an overall increase in costs over the prior year, the increase
was clearly representative of non-cash compensation. Cash compensation actually
dropped by 26.6% over the fiscal 2003, which was well within the parameters as
set by management for the year.

         Total operating expenses for the year ended May 31, 2004, as compared
to the year ended May 31, 2003 increased $666,050 or 22.9%. This overall net
increase is primarily attributable to increased consulting fees. Our consulting
fees for fiscal 2004 were $1,677,984 as compared to $785,185 for fiscal 2003, an
increase of $892,799.

         Interest expense was $549,668 for the year ended May 31, 2004 as
compared to $1,496,303 for the same period ended May 31, 2003. Interest expense
is primarily comprised of: (a) interest on promissory notes, convertible
debentures, and capitalized leases, and, (b) non-cash interest resulting from
the amortization of discount originating from the fair value of beneficial
conversion features and warrants in connection with the issuances of convertible
debentures.

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

                                                                    2004              2003
                                                               -------------     -------------
<S>       <C>                                               <C>                 <C>
 o        amortization of discounts on convertible
               debentures                                   $       184,085  $        878,586
 o        interest on debentures and notes                          330,336           429,296
 o        other                                                      35,247           108,442
 o        interest and discount on capitalized lease                   --              79,979
                                                               -------------     -------------
                          Totals                            $       549,668  $      1,496,303
                                                               =============     =============
</table>
         Accounting for non-cash interest resulted in $545,785 and $1,422,866 of
the total reported expense for the years ended May 31, 2004 and 2003,
respectively.

LIQUIDITY AND CAPITAL RESOURCES

         Our financial statements for the year ended May 31, 2004 have been
prepared on a going concern basis, which contemplates the realization of assets
and the settlement of liabilities and commitments in the normal course of
business. For the year ended May 31, 2004, we had a net loss of $873,829 and
negative cash flows from operations of $496,287. We had a working capital
deficit of $4,398,102 and a stockholders' deficit of $4,071,124 at May 31, 2004.
In addition, on June 25, 2004 we extended the maturity dates of the convertible
debentures to June 25, 2006, and borrowed another $900,000 in the form of
two-year callable secured convertible notes payable. Our working capital deficit
as of May 31, 2004 and as of September 10, 2004 may not enable us to meet
certain financial objectives as presently structured.

         We reduced the negative cash flows from operations between fiscal 2004
and fiscal 2003 by approximately $17,000. We believe we have tightened our use
of cash whereby we are incurring only the very basic, ordinary and necessary
expenses to operate our business. Spending is at an absolute minimum. Over a
year ago we had reduced our negative cash flows from operations by over
$1,079,000. The decrease in our usage of cash is the direct result of
managements' continued execution of tight fiscal cash management plan, yet all
the while increasing revenues.
                                       30
<PAGE>
         We finance our operations and capital requirements primarily through
private debt and equity offerings. For the year ended May 31, 2004, we received
cash from financing activities totaling $614,116 from:

          o    proceeds from the exercise of options (notes receivable) -
               $606,499;
          o    borrowings on our credit line - $6,325; and
          o    refund of a deposit - $1,292;

         As of May 31, 2004, we had $4,614,177 in current liabilities and past
due obligations. Of the total current debt, approximately $166,400 is deemed a
"current" trade payable, accrued expense or taxes due. We were late in payment
of certain creditor trade payables of approximately $569,000.

         Our debt structure is complex. We have 12% secured convertible
debentures and recently, on June 25, 2004, borrowed an additional $900,000 in
the form of four 12% callable secured convertible notes. The following discusses
in more detail these securities:

CONVERTIBLE DEBENTURES

         Between June 2001 and March 2003, we issued a total of $2,050,000 of
secured convertible debentures over three separate private financing
transactions from several investor groups. Terms of each of the three private
financing transactions are essentially the same: The debentures are convertible
into shares of common stock at the lesser of (i) $15.00 per share and (ii) the
average of the lowest three intraday trading prices in the twenty-day trading
period immediately preceding the notice to convert, discounted by sixty percent
(60%). Originally, each debenture was due one year from the date of its
issuance, or if applicable, its amended date, March 6, 2003, plus accrued
interest at 12% per annum. As of May 31, 2004 all debentures were in default
because the respective maturity dates of each issuance had expired. If the
debentures are in default, the rate of interest increases from 12% to 15% per
annum. Terms of all debentures were amended on June 25, 2004, to extend the
maturity dates of each outstanding issuance for an additional two years until
June 25, 2006.

         Warrants were also granted to the investors in conjunction with the
convertible debenture transactions. Investors may exercise each warrant at
$12.50 per share. A total of 104,000 warrants have been issued with an
expiration period until June 25, 2009. As of September 10, 2004, no warrant
granted to these investors has been exercised.

         Summarized below are the net outstanding convertible debentures at:
<TABLE>
<CAPTION>

                                                  May 31, 2004           May 31, 2003
                                               -------------------       --------------
<S>                                         <C>                       <C>
     Total debentures issued                $           2,050,000     $      2,050,000
         Less: total principal redeemed                 (719,449)             (76,050)
                                               -------------------       --------------
     Principal amount due                               1,330,551           1,973,950
         Less: total unamortized discount                   (-0-)            (184,085)
                                               -------------------       --------------
         Convertible debentures, net        $           1,330,551     $     1,789,865
                                               ===================       ==============
</table>
         The following table illustrates transactions related to the convertible
debentures for the years ended May 31, 2004 and 2003:
<TABLE>
<CAPTION>

                                                    Principal              Accrued            Total
                                                                          Interest
                                                   --------------        ------------      -------------
<S>                                             <C>                   <C>                     <C>
     Balances, at May 31, 2002                  $      1,428,450      $       77,882         $1,506,332
     Add: Issuances and accrued interest                 550,000             261,315            811,315
     Less: Redemptions                                   (4,500)                  --            (4,500)
                                                   --------------        ------------      -------------
     Balances at May 31, 2003                          1,973,950             339,197          2,313,147
     Add: accrued interest                                    --             273,252            273,252
     Less: Redemptions                                 (643,399)                  --          (643,399)
                                                   --------------        ------------      -------------
     Balances, at May 31, 2004                  $      1,330,551     $       612,449         $1,943,000
                                                   ==============        ============      =============
</table>
                                       31
<PAGE>
         CALLABLE SECURED CONVERTIBLE NOTES PAYABLE

         On June 25, 2004 we borrowed a total of $900,000 from the same entities
who hold our convertible debentures. Terms of these notes require us to pay 12%
interest on the principal balance and each note plus accrued interest is due
June 25, 2006. In conjunction with the issuance of the notes, we granted the
note holders a total of 54,000 warrants at an exercise price of $.05 per share.
The exercise period of these warrants is until June 25, 2011.

         We have granted the above investors and note holders a security
interest in all our assets.

         During these past two years, management negotiated with many of our
creditors by offering them cash payments for substantially less than the amounts
due, or request a total forgiveness of the debt. As a result of these creditor
negotiations, we settled past due obligations totaling more than $3.1 million.
In fiscal 2004, of significance we settled (a.) a past due capitalized computer
equipment lease obligation of approximately $868,600 for $35,000 in cash; (b.) a
promissory note and its accrued interest totaling approximately $1,501,500 for
1.3 million shares of common stock; (c.) a promissory note and a related trade
payable totaling $116,500 for $6,000 cash; and, (d.) an equipment lease for
$4,000. Other obligations were settled individually that did not bear the impact
as those mentioned previously, but nonetheless, are equally as important to the
overall success of our endeavors to settle our past due debts.

         As of May 31, 2004 we were delinquent on approximately $686,000 of our
payroll taxes, penalties and interest to the IRS. The IRS had filed Federal Tax
Liens on our assets. Between March and August 2004, we paid a total of $446,000
toward all delinquent taxes and a portion of the accrued interest. On August 31,
2004, we received a notice from the IRS that the Federal Tax Liens will be
withdrawn. In addition, the IRS agreed to abate all penalties and execute a
workout agreement for the remaining unpaid interest.

         As September 10, 2004 we owe approximately $6,925 under two workout
agreements with two taxing authorities for past due taxes. Terms of each workout
require us to pay $350 per month for the next 9 months and $1,000 for the next
five months, respectively. One taxing authority has filed a lien on our assets.

         Additionally, a lien was filed by the State of Utah several years ago
for approximately $28,000 for prior year's income taxes assessed to our
predecessor company. This amount was disputed and amended returns to correct
this deficiency were filed. We have not been notified by the State of Utah of
any action on their part if the filings were approved as filed or denied or not
processed. We will attempt to reach a favorable resolution of this matter in
fiscal 2005. However, there can be no assurance, that we will be able to reach a
favorable resolution. If we are not successful, the taxing authorities in Utah
could take possession of certain assets, with a value equal to the debt. Should
this occur, we likely would be forced to cease or significantly curtail our
operations.

         On September 6, 2001, we were served with a summons and complaint by
our former landlords, asserting: (a.) a breach of a settlement agreement entered
into in May 2001 to register 100 shares of common stock, valued at $80,000, in
partial settlement of its then existing lease, and, (b.) a default by us on two
new long-term lease obligations that if carried to term would aggregate
approximately $1,034,500 in lease payments. We deny the allegations under this
claim and believe this claim is without merit and intend to continuously and
vigorously defend against this lawsuit. However, a Partial Summary Judgment was
entered against us on April 2, 2002 in the amount of $169,754. We recognized
this expense in fiscal 2002.

         We are also subject to other legal proceedings and business disputes
involving ordinary and routine claims. The ultimate legal and financial
liability with respect to such matters cannot be estimated with certainty and
requires the use of estimates in recording liabilities for potential litigation
settlements. Estimates for losses from litigation are made after consultation
with outside counsel. If estimates of potential losses increase or the related
facts and circumstances change in the future, we may be required to record
either more or less litigation related expense. It is our opinion that none of
the open matters at May 31, 2004 and as of September 10, 2004 will have a
material adverse effect on the our financial condition or operations.

         We have defaulted on a software license agreement dated in September
2000. The agreement required us to purchase 10,000 licenses totaling $235,000.
We have paid a total of $1,500 toward this obligation and the term of this
agreement expired in March 2003. At May 31, 2004, the remaining obligation under
the agreement is included in accrued expenses and prepaid licenses in the
accompanying balance sheets. We are in negotiations in an effort to settle this
obligation.
                                       32
<PAGE>
         As of May 31, 2004, we have two long-term employment agreements, with
each of its key officers. Each agreement calls for a base compensation,
currently ranging between $165,000 and $275,000 per year. The agreements also
contain wage escalation clauses effective on the anniversary date of the
agreement. Both employment contracts were extended in May 2003 for an additional
three years from the anniversary date, February 20, 2003. Each agreement
contains: (a.) a bonus incentive clause for performance, and, (b.) the right to
exercise vested stock options at a predetermined price, generally granted at
market value, which range between $90.00 and $10,00.00 per share. Both
agreements contain a severance clause that stipulates if the executive's
contract is not renewed, a severance payment equal to twice the annual salary at
the date of termination will be paid within sixty days, plus provide other
certain benefits.

         A third officer has an annually renewable contract stipulating a salary
base of $96,800 per year and was automatically renewed on the anniversary date,
February 20, 2004, for another year.

         As of September 10, 2004 we are not in compliance with the proper
registration and licensing of certain software applications and products
critical to support the customer base and our own internal operations.
Management has initiated negotiations with these software vendors in an effort
to purchase or lease/rent the licenses to meet the licensing requirements.

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

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

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

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

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

         Other services include business functions such as e-commerce, sales
force automation, customer support, human resource and financial management,
messaging and collaboration, and professional services automation. We believe
that technology outsourcing, focused on these business fundamentals, will be the
primary adopters of application service providers and managed service solutions
in the next year. We are focusing all possible resources in developing our
domain expertise in these areas to gain additional leverage and build broader
service offerings that complement our current services already being delivered
to those markets. There can be no assurances, however, that we will
substantially increase our monthly recurring revenues.
                                       33
<PAGE>
         We currently have no arrangements or commitments for accounts
receivable financing. We believe our need for additional capital going forward
will be met from private debt and equity offerings, and, increasingly, from
revenues from operations as we continue to implement our strategic plan;
however, future operations will be dependent upon our ability to secure
sufficient sources of financing and adequate vendor credit. However, there can
be no assurance that we will achieve any or all of these requirements.

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

ITEM 7.  FINANCIAL STATEMENTS

The information required by this item is included in pages F-1 through F-24
attached hereto and incorporated by reference. The index to the consolidated
financial statements can be found on page F-1.

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

         On July 22, 2002, our board of directors decided to terminate our
auditor, Grant Thornton LLP. Weinberg & Co., P.A. was appointed to be our
auditor.

         For the years ended May 31, 2003 and May 31, 2004, there have been no
disagreements between Weinberg & Co., P.A. and us on any matter of accounting
principles or practices, financial statement disclosure, or auditing scope or
procedures. Weinberg & Co., P.A.'s report on our financial statements for the
fiscal years ended May 31, 2003 and May 31, 2004, indicated that substantial
doubt existed regarding our ability to continue as a going concern.

ITEM 8A. CONTROLS AND PROCEDURES

EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES

         As of May 31, 2004 we carried out an evaluation, under the supervision
and with the participation of our management, including our Chief Executive
Officer and President, our Chief Administrative Officer and Secretary and our
Chief Financial Officer, of the effectiveness of the design and operation of our
disclosure controls and procedures pursuant to Rule 13a-15 under the Securities
Exchange Act of 1934, as amended (the "Exchange Act"). Based upon this
evaluation, our Chief Executive Officer and our Chief Financial Officer
concluded that, as of the Evaluation Date, our disclosure controls and
procedures were effective under Rule 13a-15.


CHANGES IN INTERNAL CONTROLS

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

ITEM 8B.  OTHER INFORMATION

None.
                                       34
<PAGE>
                                    PART III

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

         DIRECTORS AND EXECUTIVE OFFICERS

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


<TABLE>
<CAPTION>

                      NAME                      AGE          POSITION
                      <S>                      <C>           <C>
                      John P. Gorst             35           Chairman of the Board, Chief Executive
                                                             Officer, President and Director

                      M. Carroll Benton         60           Chief Administrative Officer,
                                                             Secretary, Treasurer and Director

                      Joanie C. Mann            43           Vice President of Strategic Alliances
</table>

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

M. CARROLL BENTON has served as our Chief Administrative Officer, Secretary,
Treasurer and Director since February 2000. Ms. Benton was a co-founder of
Insynq-WA and has been with us since its inception. Ms. Benton has worked with
banking systems and higher education institutions where she assisted in
information systems development and deployment strategies. She managed a 13
state insurance brokerage firm and has been a consultant to the small-to
medium-sized business markets via accounting system design, support, and
business practice analysis. Carroll also taught undergraduate accounting courses
at several Puget Sound colleges and universities. Formerly with a local CPA
firm, she brings us over 32 years of business and financial expertise.

JOANIE C. MANN has served as our vice president of strategic alliances since
February 2001, and served as our vice president of operations from July 2000 to
February 2001. She brings over 20 years of experience in multi-user system
design and implementation, voice and data networking integrations. Ms. Mann also
has extensive experience in business process automation and a strong background
in business accounting principles. Previous positions held include founder of
Com-Pacific Resources, Inc., a network integration firm whose business
operations were sold to Communications World International, for whom she worked
from 1984 to 1993, manager of the Seattle-based computer telephony and data
integration division of Commworld from 1994 to 1996, and IS Management
Consultant for Interactive Information Systems from 1998 to 1999.

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

SECTION 16(A) BENEFICIAL OWNERSHIP COMPLIANCE

         Section 16(a) of the Securities Exchange Act of 1934 requires our
directors and executive officers, and persons who own more than ten percent of
the Company's Common Stock, to file with the SEC the initial reports of
ownership and reports of changes in ownership of common stock. Officers,
directors and greater than ten percent stockholders are required by SEC
regulation to furnish us with copies of all Section 16(a) forms they file.
                                       35
<PAGE>
         Based solely upon a review of Forms 3, 4 and 5, and amendments thereto,
furnished to us during fiscal year 2004, our officers and directors have filed
the required Forms, but not on a timely basis as required by Section 16(a) of
the Securities Exchange Act of 1934.

ITEM 10. EXECUTIVE COMPENSATION.

EXECUTIVE COMPENSATION

         The following table summarizes the compensation earned by or paid to
our Chief Executive Officer and the other most highly compensated executive
officers whose total salary and bonuses exceeded $100,000 for services rendered
in all capacities during the fiscal year ended May 31, 2004. We refer to these
individuals as our named executive officers.


<TABLE>
<CAPTION>

                                                    ANNUAL COMPENSATION                   LONG-TERM AWARDS
                                                                                              SECURITIES
NAME AND PRINCIPAL                                                    OTHER ANNUAL        UNDERLYING OPTIONS         ALL OTHER
-------------------                                                   -------------       -------------------        ---------
POSITION                   YEAR      SALARY ($)      BONUS ($)       COMPENSATION ($)             (#)             COMPENSATION ($)
--------                   ----      ----------      ---------       ----------------             ---             ----------------
<S>                        <C>        <C>             <C>                 <C>                  <C>                    <C>
John P. Gorst              2004       $211,673           --                 --                     --                  --
   President, Chief
   Executive Officer       2003       $135,361           --                 --                  4,000(2)               --

                           2002       $112,000           --                 --                    844                  --


M. Carroll Benton          2004       $109,700           --                 --                     --                  --
   Secretary and
   Treasurer Chief
   Administrative Officer  2003       $84,901            --                 --                  4,000(2)               --

                           2002       $67,500            --                 --                    614                  --

Joanie C. Mann             2004       $108,400           --                 --                     --                  --
   Vice President of
   Strategic Alliances     2003        98,660            --                 --                     --                  --

                           2002       $99,458            --                 --                     --                  --
</table>

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

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

OPTION/SAR GRANTS IN LAST FISCAL YEAR

LONG TERM INCENTIVE AWARDS

         We did not award options to our executive officers during fiscal 2004
under any of our three incentive plans.

OPTION GRANTS IN LAST FISCAL YEAR

         We did not award options to our executive officers during fiscal 2004
under any of our three incentive plans.
                                       36
<PAGE>
AGGREGATE OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR END OPTION VALUES

         We did not award options to our executive officers during fiscal 2004
under any of our three incentive plans.

EMPLOYMENT CONTRACT AND TERMINATION OF EMPLOYMENT AGREEMENTS

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

         The executive agreement, as amended, with Mr. Gorst, pursuant to which
Mr. Gorst is employed as our chief executive officer, extended the initial term
of employment from three to four years. The fourth year provided for an annual
salary of $275,000, a cash bonus of $30,000 and an option for 10,000 shares of
common stock at the end of fiscal 2004 if our earnings before interest, taxes,
depreciation and amortization was (before bonus) "breakeven". We did not achieve
breakeven, therefore, the options were not granted. In addition it provides for
an automatic renewal term of three years, unless terminated by either party at
least 30 day prior to the end of the initial term and provides for termination
benefits due to non-renewal of employment agreement. In addition, the amended
agreement provides the following during the renewal term:

     o    Year One - provides for an annual salary of $200,000, the payment of
          payroll taxes with regard to sales of stock up to $15,000 and a cash
          bonus of $30,000 and an option for 10,000 shares of common stock at
          the end of fiscal year 2004 if our earnings before interest, taxes,
          depreciation and amortization is (before bonus) $125,000 or more.

     o    Year Two - provides for an annual salary of $225,000, the payment of
          payroll taxes with regard to sales of stock up to $15,000 and a cash
          bonus of $30,000 and an option for 10,000 shares of common stock at
          the end of fiscal year 2005 if our earnings before interest, taxes,
          depreciation and amortization is (before bonus) $250,000 or more.

     o    Year Three - provides for an annual salary of $275,000, the payment of
          payroll taxes with regard to sales of stock up to $15,000 and a cash
          bonus of $30,000 and an option for 10,000 shares of common stock at
          the end of fiscal year 2006 if our earnings before interest, taxes,
          depreciation and amortization is (before bonus) $350,000 or more.

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

         The executive agreement, as amended, with Ms. Benton, pursuant to which
Ms. Benton is employed as our chief administrative officer, extended the initial
term of employment from three to four years. The fourth year provided for an
annual salary of $165,000, a cash bonus of $18,000 and an option for 6,000
shares of common stock at the end of fiscal 2004 if our earnings before
interest, taxes, depreciation and amortization was (before bonus) "breakeven".
We did not achieve breakeven, therefore, the options were not granted. It also
provides for an automatic renewal term of three years, unless terminated by
either party at least 30 days prior to the end of the initial term and provides
for termination benefits due to non-renewal of employment agreement. In
addition, the amended agreement provides for the following during the renewal
term: an annual salary of $140,000 during the first year; $150,000 during the
second year; and $160,000 during the third year. The amended agreement also
provides, (a) at the end of the first year for an option grant of 6,000 shares
of common stock and a cash bonus of $18,000 if our earnings before interest,
taxes, depreciation and amortization (before bonus) is $125,000 or more; (b) at
the end of second year an option grant of 6,000 shares of common stock and a
cash bonus of $18,000 if our earnings before interest, taxes, depreciation and
amortization (before bonus) is $250,000 or more (c) and at the end of the third
year an option for 6,000 shares of common stock and a cash bonus of $18,000 if
our earnings before interest, taxes, depreciation and amortization (before
bonus) is $350,000 or more. All other provisions of the original employment
agreement remain the same.

         Under her employment agreement, Ms. Joanie C. Mann, vice president of
strategic alliances, term of employment was automatically renewed until
February 20, 2004. Ms Mann is now under a year-to-year agreement and is
compensated at $96,800 annually.

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

ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
                                       37
<PAGE>
         The following table sets forth certain information regarding beneficial
ownership of our common stock as of September 10, 2004.

     o    by each person who is known by us to beneficially own more than 5% of
          our common stock;
     o    by each of our officers and directors; and
     o    by all of our officers and directors as a group.


<TABLE>
<CAPTION>

NAME                                                                              NUMBER        PERCENT

<S>                                                                                <C>              <C>
   Plazacorp Investments, Ltd                                                      1,300,000        14.59%
   John P. Gorst (1)                                                                 103,775         1.16%
   M. Carroll Benton (2)                                                              83,365         *
   Joanie C. Mann (3)                                                                 10,898         *
                                                                              -----------------------------
All executive officers and directors as a group (3 persons)  (4)(5)                  198,038         2.22%
                                                                              =============================
</TABLE>

         * Less then 1%

(1) This includes (a) 230 shares of common stock held by Kathleen McHenry, (b)
70 shares of common stock held by Hagens Berman LLP, (c) 320 shares of common
stock held by Cellini Investments, Ltd to which Mr. Gorst holds a voting proxy
and as to which Mr. Gorst disclaims beneficial ownership. Also includes 4,859
shares of common stock issuable upon the exercise of outstanding stock options
that are presently exercisable or will become exercisable within 60 days of
September 10, 2004.

(2) Includes 89 shares of common stock held by Charles Benton, the husband of
Ms. Benton, as to which Ms. Benton disclaims beneficial ownership. Also includes
4,621 shares of common stock issuable upon the exercise of outstanding stock
options that are presently exercisable or will become exercisable within 60 days
of September 10, 2004.

(3) Includes 109 shares of common stock issuable upon exercise of outstanding
stock options that are presently exercisable or will be come exercisable within
60 days of September 10, 2004.

(4) Includes 10,590 shares of common stock issuable upon exercise of outstanding
stock options held by our executive officers that are presently exercisable or
will become exercisable within 60 days of September 10, 2004.

         (5) Adjusted for the two-for-one stock split effected on August 3,
2000, a one for one hundred stock split effected December 23, 2002, and one for
fifty reverse split on August 2, 2004. On October 16, 2002, pursuant to an
exchange agreement, each of the officers and directors converted a majority of
their shares of common stock into shares of our Series A Convertible Preferred
Stock. On December 23, 2002, we entered into an Agreement of Plan of Merger,
whereby we reincorporated in the state of Nevada and each of the Series A
Convertible Preferred stock holders received ten shares of common stock of
Nevada for each share of Series A Convertible Preferred Stock outstanding.
Furthermore, each shareholder of common stock received one share of common stock
of Insynq Nevada for each 100 shares of Insynq Delaware outstanding.

ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

         As of May 31, 2004, the Company has extended $83,343 net credit to
three business entities that are directly related to one or more of our
officers/stockholders The following discusses the activities and balances due:

     o    Two of the businesses are related to M. Carroll Benton, a corporate
          officer, stockholder and director. Insynq provides these two
          businesses monthly application hosting services, and other management
          services to include co-sharing of selected expenses for promotional
          materials, marketing, advertising and seminars. At May 31, 2004, the
          balance due from these two companies aggregated $57,268, and an
          allowance for past due collections of $25,000 was set up on these
          accounts.

          During the years ended May 31, 2004 and 2003, the Company billed these
          related businesses a total of $137,702 and $61,555, respectively. In
          fiscal 2004, inclusive of the total related entity billings,
          approximately $50,745 was billed under mutual short-term agreement to
          co-share certain marketing and advertising expenses incurred by
          Insynq.
                                        38
<PAGE>
     o    The third business is partially owned by two of our officers, John P.
          Gorst and M. Carroll Benton and three other stockholders of Insynq.
          For the year ended May 31, 2004, Insynq paid $104,158 for certain
          expenses on behalf of this business and received reimbursements
          totaling $53,083. The balance due Insynq at May 31, 2004 is $51,075.

ITEM 13. EXHIBITS
(a)      Exhibits

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

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

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

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

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

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

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

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

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

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

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

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

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

4.9      Form of Warrant Agreement issued to TCA Investments, Inc. on June 16,
         2000, as amended by Amendment No. 1 dated August 31, 2000, Extension
         dated September 5, 2000, Amendment No. 2 dated September 14, 2000,
         Amendment No. 3 dated October 1, 2000, Amendment No. 4 dated October
         28, 2000 and Amendment No. 5 dated December 1, 2000 (Incorporated by
         reference to Exhibit 4.7 to the Company's Registration Statement on
         Form SB-2 filed December 14, 2000).
                                       39
<PAGE>
4.10     Amendment No. 6 dated February 28, 2001, to Warrant Agreement issued to
         TCA Investments, Inc. on June 16, 2000 (Incorporated by reference to
         Exhibit 4.7 to the Company's Quarterly Report on Form10-QSB filed April
         20, 2001).

4.11     Form of Convertible Debenture issued to TCA Investments, Inc. on June
         16, 2000, as amended by Amendment No. 1 dated August 31, 2000,
         Extension dated September 5, 2000, Amendment No. 2 dated September 14,
         2000, Amendment No. 3 dated October 1, 2000 and Amendment No. 4 dated
         October 28, 2000. (Incorporated by reference to Exhibit to Exhibit 4.2
         to the Company's Registration Statement on Form SB-2 filed December 14,
         2000).

4.12     Form of Warrant Agreement issued to Garnier Holdings, Ltd. on July 17,
         2000, as amended by Amendment No. 1 dated September 22, 2000, Amendment
         No. 2 dated October 1, 2000, Amendment No. 3 dated October 19, 2000,
         Amendment No. 4 dated October 28, 2000 and Amendment No. 5 dated
         December 1, 2000. (Incorporated by reference to Exhibit 4.9 to the
         Company's Registration Statement on Form SB-2 filed December 14, 2001).

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

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

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

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

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

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

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

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

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

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

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

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

4.25     Form of Consent of Plazacorp Investors Limited to the Extension of the
         filing of the Registration Statement on Form SB-2 dated September 22,
         2000. (Incorporated by
                                       40
<PAGE>
         reference to Exhibit 4.21 to the Company's Quarterly Report on Form
         10-QSB filed October 23, 2000).

4.26     Form of Consent of Plazacorp Investors Limited to the Extension of the
         filing of the Registration Statement on From SB-2 dated October 2,
         2000. (Incorporated by reference to Exhibit 4.22 to the Company's
         Quarterly Report on Form 10-QSB filed October 23, 2000).

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

4.43     Lock-Up and Waiver Agreement dated October 17, 2000, as amended by
         Amendment No.
                                       41
<PAGE>
         1 dated December 1, 2000, by Charles F. Benton. (Incorporated by
         reference to Exhibit 4.39 to the Company's Registration Statement on
         Form SB-2 filed December 14, 2000).

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

4.61     Warrant Agreement dated April 1, 2001 between Barretto Pacific
         Corporation and Insynq, Inc. (Incorporated by reference to Exhibit 4.61
         to the Company's Annual Report on Form
                                       42
<PAGE>
         10-KSB filed July 31, 2001).

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

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

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

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

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

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

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

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

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

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

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

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

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

4.75     Form of Stock Purchase Warrant dated September 27, 2002 between AJW
         Partners, LLC, New Millennium Capital Partners II, LLC and Insynq, Inc.
         (Incorporated by reference to
                                       43
<PAGE>
         Exhibit 4.1 to the Company's Form 10-QSB for the quarter ending August
         31, 2002)

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

4.93     Secured Convertible Debenture dated January 29, 2003 between AJW
         Offshore, Ltd. and
                                      44
<PAGE>
         Insynq, Inc. (Incorporated by reference to Exhibit 4.93 to the
         Company's Registration Statement on Form SB-2 filed March 18, 2003)

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

4.109    Secured Convertible Debenture dated March 31, 2003 between New
         Millennium Capital Partners II, LLC and Insynq, Inc. (Incorporated by
         reference to Exhibit 4.25 to the
                                       45
<PAGE>
         Company's Quarterly Report on Form 10-QSB filed April 18, 2003)

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

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



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

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

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

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

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

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

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

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

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

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

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

10.13    Employment Agreement, dated as of February 20, 2000, between John P.
         Gorst and Xcel Management, Inc., as amended by Amendment No. 1 dated
         September 25, 2000. (Incorporated by reference to Exhibit 10.9 to the
         Company's Registration Statement on Form SB-2 filed December 14, 2000).

10.14    Amendment No. 2 to Employment Agreement dated January 30, 2001, between
         John P. Gorst and Xcel Management, Inc. (Incorporated by reference to
         Exhibit 10.9 to the Company's Quarterly Report on Form10-QSB filed
         April 20, 2001).
                                       46
<PAGE>
10.15    Employment Agreement, dated as of February 20, 2000, between M. Carroll
         Benton and Xcel Management, Inc., as amended by Amendment No. 1 dated
         September 27, 2000. (Incorporated by reference to Exhibit 10.10 the
         Company's Registration Statement on Form SB-2 filed December 14, 2000).

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

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

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

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

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

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

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

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

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

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

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

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

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

10.29    Lease Termination Agreement dated April 1, 2001 between Duane and Wendy
         Ashby, d/b/a Cargocare and Insynq Data Utilities. (Incorporated by
         reference to Exhibit 10.27 to the Company's Annual Report on Form
         10-KSB filed July 31, 2001).

10.30    Lease Agreement dated March 21, 2000 between Walaire, Inc. and Insynq,
         Inc., for 3017
                                       47
<PAGE>
         Douglas Boulevard, Suite 220 and 240, Roseville, California.
         (Incorporated by reference to Exhibit 10.23 to the Company's Annual
         Report on Form 10-KSB filed September 13, 2000).

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

10.46    Application Service Provider Agreement dated August 21, 2000 between
         Corel Corporation and Insynq, Inc. (Incorporated by reference to
         Exhibit 10.38 to the Company's Quarterly Report on Form 10-QSB dated
         October 23, 2000).

10.47    Application Services Agreement dated September 6, 2000 between
         Microsoft and Insynq, Inc. (Incorporated by reference to Exhibit 10.39
         to the Company's Quarterly Report on Form 10-QSB dated October 23,
         2000).

10.48    Consulting Agreement dated September 20, 2000 between David D. Selmon
         and Insynq,
                                       48
<PAGE>
         Inc. (Incorporated by reference to Exhibit 10.40 to the Company's
         Quarterly Report on Form 10-QSB filed October 23, 2000).

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

10.64    Registration Rights Agreement dated November 30, 2000 between Kathleen
         McHenry, Hagens Berman LLP and Insynq, Inc. (Incorporated by reference
         to Exhibit 10.53 to the Company's Registration Statement on Form SB-2
         filed December 14, 2000).

10.65    Application Service Provider Reseller Agreement dated October 27, 2000
         between Wireless Knowledge, Inc. and Insynq, Inc. (Incorporated by
         reference to Exhibit 10.54 to the Company's Registration Statement on
         Form SB-2 filed December 14, 2000).
                                     49
<PAGE>
10.66    Independent Consultant Agreement dated January 2, 2001 between One
         Click Investments, LLC and Eric Estoos and Insynq, Inc. (Incorporated
         by reference to Exhibit 10.55 to the Company's Quarterly Report on Form
         10-QSB dated April 20, 2001).

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

10.82    Selling Agreement dated May 28, 2001 between Taconic Capital Partners,
         LP, Internet Solutions Partners, Inc, Salvani Investments, Inc. and
         Insynq, Inc. (Incorporated by reference to Exhibit 10.77 to the
         Company's Annual Report on Form 10-KSB filed July 31, 2001).

10.83    Acquisition Purchase Agreement dated June 1, 2001 between Omnibus
         Subscriber Computing, Inc. and Insynq, Inc. (Incorporated by reference
         to Exhibit 10.78 to the Company's Annual Report on Form 10-KSB filed
         July 31, 2001).
                                      50
<PAGE>
10.84    Settlement Agreement dated June 21, 2001 between One Click Investments,
         LLC and John P. Gorst. (Incorporated by reference to Exhibit 10.79 to
         the Company's Annual Report on Form 10- KSB filed July 31, 2001).

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

10.101   Exchange Agreement dated October 16, 2002 between Joanie C. Mann and
         Insynq, Inc. (Incorporated by reference to Exhibit 10.101 to the
         Company's Registration Statement on Form SB-2 filed March 18, 2003).
                                       51
<PAGE>
10.102   Exchange Agreement dated October 16, 2002 between David D. Selmon and
         Insynq, Inc. (Incorporated by reference to Exhibit 10.102 to the
         Company's Registration Statement on Form SB-2 filed March 18, 2003).

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

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

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

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

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

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

10.109   Consulting Agreement dated July 15, 2003 between San Diego Torrey Hills
         Capital and Insynq, Inc. (Incorporated by reference to Exhxibit 10.109
         to the Company's Annual Report on Form 10-KSB filed September 15, 2003)

10.110   2003 Consulting Services Agreement with James A. Reskin and Insynq,
         Inc. (Incorporated by reference to Exhibit 4.1 to the Company's
         Registration Statement of Form S-8 filed August 8, 2003)

10.111   2003 Consulting Services Agreement with Harvey Levin and Insynq, Inc.
         (Incorporated by reference to Exhibit 4.2 to the Company's Registration
         Statement on Form S-8 filed August 8, 2003)

10.112   2003 Consulting Services Agreement with D. Scott Elliott and Insynq,
         Inc. (Incorporated by reference to Exhibit 4.3 to the Company's
         Registration Statement on Form S-8 filed August 8, 2003)

10.113   Consulting Agreement dated dated December 1, 2003 between Harvy Levin
         and Insynq, Inc. (Incorporated by reference to Exhxibit 10.01
         to the Company's Quarterly Report on Form 10-QSB filed April 14, 2004)

10.114   Consulting Agreement dated dated December 1, 2003 between D. Scott
         Elliott and Insynq, Inc. (Incorporated by reference to Exhxibit 10.02
         to the Company's Quarterly Report on Form 10-QSB filed April 14, 2004)

10.115   Consulting Agreement dated dated December 1, 2003 between James A.
         Reskin and Insynq, Inc. (Incorporated by reference to Exhxibit 10.03
         to the Company's Quarterly Report on Form 10-QSB filed April 14, 2004)

10.116*  Promissory Note and Security Agreement dated September 2, 2003 between
         James A. Reskin and Insynq, Inc.

10.117*  Promissory Note and Security Agreement dated September 2, 2003 between
         Harvey Levin and Insynq, Inc.

10.118*  Consulting Services Agreement dated September 2, 2003 between D. Scott
         Elliott and Insynq, Inc.

10.119*  Consulting Services Agreement dated September 2, 2003 between Harvey
         Levin and Insynq, Inc.

10.120*  Consulting Services Agreement dated September 2, 2003 between James A.
         Reskin and Insynq, Inc.

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

16.2     Letter on Change in Certifying Accountant (Incorporated by reference to
         Exhibit 1 to the
                                       52
<PAGE>
         Company's Current Report on Form 8-K filed July 25, 2002.)

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

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

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

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

* Filed Herewith




                                       53
<PAGE>

ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES

Audit Fee

         The aggregate fees billed for each of the last two fiscal years for
profession services rendered by the principal accountant for our audit of annual
financial statements and review of financial statements included in our Form
10-KSB and 10-QSB or services that are normally provided by the accountant in
connection with statutory and regulatory filings or engagements for those fiscal
years were:

         2003              $81,103
         2002              $14,634

All Other Fees

         The aggregate fees billed in each of the last two fiscal years for the
products and services provided by the principal accountant, other than the
services reported in paragraph (1) were:

         2003              $4,348
         2002              $4,703



                                       54
<PAGE>




                                   SIGNATURES

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


                                  INSYNQ, INC.


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

Date:  September 14, 2004

<TABLE>
<CAPTION>

                SIGNATURES                                  TITLE                            DATE
                ----------                                  -----                            ----
     <S>                                    <C>                                           <C>
     /S/ JOHN P. GORST                      Chief Executive Officer, President,           September 14, 2004
     -----------------
     John P. Gorst                          Chief Operations Officer and
                                            Director (Principal Executive
                                            Officer)
     /S/ M. CARROLL BENTON                  Chief Administrative Officer,                 September 14, 2004
     ---------------------
     M. Carroll Benton                      Secretary and Treasurer and Director
</table>





                                       55
<PAGE>





                          INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>


                      Audited Financial Statements as of and for the Years Ended May 31, 2004 and 2003

     <S>                                                                                                    <C>
     Index to Financial Statements                                                                          F-1

     Independent Auditors' Report                                                                           F-2

     Balance Sheets                                                                                         F-3

     Statements of Operations                                                                               F-4

     Statements of Stockholders' Deficit                                                                    F-5

     Statements of Cash Flows                                                                               F-7

     Notes to Financial Statements                                                                          F-8
</table>









                                      F-1
<PAGE>



                          INDEPENDENT AUDITORS' REPORT



Board of Directors
Insynq, Inc.


We have audited the accompanying balance sheets of Insynq, Inc. (the "Company")
as of May 31, 2004 and 2003 and the related statements of operations,
stockholders' deficit, and cash flows for the years then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

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

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Insynq, Inc. as of May 31, 2004
and 2003 and the results of its operations and its cash flows for the years then
ended in conformity with accounting principles generally accepted in the United
States of America.

The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 3 to the
financial statements, the Company has a net loss of $873,829 and a negative cash
flow from operations of $496,287 for the year ended May 31, 2004 and has a
working capital deficiency of $4,398,102 and a stockholders' defict of
$4,071,124 at May 31, 2004. These matters raise substantial doubt about the
Company's ability to continue as a going concern. Management's plan in regards
to these matters is also described in Note 3. The financial statements do not
include any adjustments that might result from the outcome of this uncertainty.


WEINBERG & COMPANY, P.A.

Boca Raton, Florida
September 3, 2004




                                      F-2
<PAGE>




                                  Insynq, Inc.
                                 Balance Sheets
<TABLE>
<CAPTION>

                                                                     May 31, 2004               May 31, 2003
                                                                 ---------------------      ---------------------
                                     Assets

Current assets
<S>                                                                <C>                       <C>
    Cash                                                           $           80,359        $           53,059
    Accounts receivable, net of allowance for
       doubtful accounts of $25,000 at May 31, 2004 and 2003                   52,373                    46,252
    Related party receivables, net of allowance for
       doubtful accounts of $25,000 at May 31, 2004                            83,343                     9,361
                                                                 ---------------------      ---------------------
                    Total current assets                                      216,075                   108,672
                                                                 ---------------------      ---------------------

Equipment, net                                                                115,263                   244,962
                                                                 ---------------------      ---------------------

Other assets
    Prepaid licenses                                                          202,772                   202,772
    Deposits and other                                                          8,943                    26,053
                                                                 ---------------------      ---------------------
           Total other assets                                                 211,715                   228,825
                                                                 ---------------------      ---------------------

           Total assets                                             $         543,053        $          582,459
                                                                 =====================      =====================

                                    Liabilities and Stockholders' Deficit

Current liabilities
    Accounts payable                                               $          583,073         $         789,046
    Accrued liabilities                                                     2,250,585                 2,396,215
    Convertible debentures, net of unamortized discount of
       $-0- and $184,085 at May 31, 2004 and 2003, respectively             1,330,551                 1,789,865
    Related party notes payable                                               116,500                 1,307,274
    Capital lease obligations                                                   1,519                   878,704
    Accrued compensation                                                      287,934                   159,017
    Customer deposits                                                          34,679                    48,006
    Notes payable                                                               9,336                    18,021
                                                                 ---------------------      ---------------------
           Total current liabilities                                        4,614,177                 7,386,148
                                                                 ---------------------      ---------------------

Commitments and contingencies

Stockholders' deficit
    Preferred stock, $0.001 par value, 10,000,000 shares
       authorized, -0- shares issued and outstanding at May 31,
       2004 and 2003, respectively                                              --                        --
    Class A common stock, $0.001 par value, 10,000,000 shares
       authorized, -0- shares issued and outstanding at May
       31, 2004 and 2003, respectively                                          --                        --
    Common stock, $0.001 par value, 10,000,000 shares
       authorized, 8,907,700 and 440,667 shares issued and
       outstanding at May 31, 2004 and 2003, respectively                       8,908                        441
    Additional paid-in capital                                             22,321,560                 18,829,108
    Notes receivable and interest - stockholders and officers                      --                  (105,475)
    Accumulated deficit                                                  (26,401,592)               (25,527,763)
                                                                 ---------------------      ---------------------
           Total stockholders' deficit                                    (4,071,124)                (6,803,689)
                                                                 ---------------------      ---------------------
           Total liabilities and stockholders' deficit             $          543,053         $         582,459
                                                                 =====================      ====================
</TABLE>


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


                                      F-3
<PAGE>



                                  INSYNQ, INC.
                            STATEMENTS OF OPERATIONS



<TABLE>
<CAPTION>

                                                                     For the years ended May 31,
                                                                 ------------------------------------
                                                                      2004                  2003
                                                                 ---------------        -------------


<S>                                                            <C>                    <C>
Revenues                                                       $      1,230,190       $    1,053,855
                                                                 ---------------        -------------
Costs and expenses
   Direct cost of services                                              822,497              791,148
   Selling, general and administrative
    Non-cash compensation                                             1,843,843              878,323
    Other                                                               911,308            1,242,127
                                                                 ---------------        -------------
Total costs and expenses                                              3,577,648            2,911,598
                                                                 ---------------        -------------

Loss from operations                                                 (2,347,458)          (1,857,743)
                                                                 ---------------        -------------
Other income (expense)
  Gain on forgiveness and settlements of debts                        2,011,867              450,088
  Interest expense
    Non-cash                                                           (545,785)          (1,422,866)
    Other                                                                (3,883)             (73,437)
  Other income                                                           11,430               17,140
  Loss from disposal of assets                                               --              (43,955)
                                                                 ---------------        -------------
Total other income (expense)                                          1,473,629           (1,073,030)
                                                                 ---------------        -------------

Net loss                                                       $       (873,829)       $  (2,930,773)
                                                                 ===============        =============


Net loss per share:
   Basic and diluted                                           $          (0.17)       $      (17.90)
                                                                 ===============        =============

Weighted average of common shares:
   Basic and diluted                                                  5,130,632              163,694
                                                                 ===============        =============
</table>









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


                                      F-4
<PAGE>




                                  Insynq, Inc.
                       Statements of Stockholders' Deficit
                    For the years ended May 31, 2004 and 2003



<TABLE>
<CAPTION>


                                          Preferred Stock      Class A Common Stock       Common Stock
                                        Shares      Amount     Shares     Amount      Shares      Amount
                                      ------------ ---------- ---------- ---------- ------------ ----------
<S>                                       <C>      <C>          <C>        <C>         <C>        <C>
Balance, May 31, 2002 .............           --     $--        50,000    $    50      11,891     $   12

Issuance of common stock for cash
in conjunction with exercise of
options ...........................           --      --          --          --          928          1

Issuance of common stock in
conjunction with exercise of
warrants ..........................           --      --          --          --      101,050        101

Issuance of preferred and common
stock for consulting and marketing
services ..........................         80,000      80        --          --       60,930         61

Issuance of common stock for
employee accrued compensation .....           --      --          --          --          250         --

Issuance of common stock in
conjunction with conversion of
debentures ........................           --      --          --          --          720          1

Issuance of common stock in
conjunction with the conversion of
class A common stock ..............           --      --       (50,000)       (50)      1,000          1

Issuance of preferred stock in
conjunction with exchange of common
stock .............................      1,251,410   1,251        --          --       (2,502)        (2)

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

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

Issuance of stock options and
warrants to non-employees and
record unearned compensation ......           --      --          --          --          --          --

Issuance of common stock in
conjunction with the exchange of
preferred stock ...................     (1,331,410) (1,331)       --          --      266,282        266

Issuance of common stock for
fractional shares in conjunction
with 100 to 1 exchange ............           --      --          --          --          118         --
</TABLE>

<PAGE>
<TABLE>
<CAPTION>

                                      F-5
<PAGE>

(Continued from table above, first column repeated)

                                         Additional          Notes
                                          Paid In         and Interest
                                          Captial           Receivable                                    Total
                                                              From       Unearned     Accumulated      Stockholders'
                                                            Officers    Compensation     Deficit         Deficit
                                      ---------------  --------------  -------------- ------------    --------------
<S>                                   <C>             <C>             <C>             <C>             <C>
Balance, May 31, 2002 .............   $ 17,655,314    $    (93,604)   $   (143,149)   $(22,596,990)   $ (5,178,367)

Issuance of common stock for cash
in conjunction with exercise of
options ...........................          5,837            --              --              --             5,838

Issuance of common stock in
conjunction with exercise of
warrants ..........................         22,899            --              --              --            23,000

Issuance of preferred and common
stock for consulting and marketing
services ..........................        210,534            --              --              --           210,675

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

Issuance of common stock in
conjunction with conversion of
debentures ........................          4,499            --              --              --             4,500

Issuance of common stock in
conjunction with the conversion of
class A common stock ..............             49            --              --              --              --

Issuance of preferred stock in
conjunction with exchange of common
stock .............................         (1,249)           --              --              --              --

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

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

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

Issuance of common stock in
conjunction with the exchange of
preferred stock ...................          1,065            --              --              --               --

Issuance of common stock for
fractional shares in conjunction
with 100 to 1 exchange ............           --              --              --              --               --
</TABLE>



                                      F-5
<PAGE>

<TABLE>
<CAPTION>

                                          Preferred Stock      Class A Common Stock       Common Stock
                                        Shares      Amount     Shares     Amount      Shares      Amount
                                      ------------ ---------- ---------- ---------- ------------ ----------
Continued -
<S>                                     <C>         <C>       <C>        <C>      <C>                <C>
Amortization of unearned
compensation ......................      --           --         --           --       --              --

Net loss for the year ended May
31, 2003                                 --           --         --           --       --              --
                                        ---------   -------  ---------   -------- ----------         ---------
Balance at May 31, 2003 ...........      --     $     --         --          $--     440,667         $   441

Issuance of common stock in
conjunction with the exercise of
options and record stockholders'
notes receivable ..................      --           --         --          --    1,268,518           1,268

Issuance of common stock for
non-employee compensation and
record unearned compensation ......      --           --         --          --    1,938,113           1,938

Issuance of common stock for trade
debt ..............................      --           --         --          --       80,000              80

Issuance of common stock in
conjunction with conversion of
debentures ........................      --           --         --          --    3,895,618           3,896

Issuance of common stock for
settlement of related party debt
and accrued interest ..............      --           --         --          --    1,300,000           1,300

Satisfaction of officers' notes
receivable and accrued interest
receivable in exchange for common
stock .............................      --           --         --          --      (15,216)            (15)

Issuance of options for
non-employee compensation and
record unearned compensation ......      --           --         --          --          --              --

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

Principal received on stockholders'
notes receivable ..................      --           --         --          --          --              --

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

Net loss for the year ended
May 31, 2004 ......................      --           --         --          --          --              --

-----------------------------------     ---------   -------  ---------   -------- ----------         ---------
      Balance at May 31, 2004 .....      --          $--         --     $    --    8,907,700         $ 8,908
                                        =========   =======  =========   ======== ==========         =========
</TABLE>
<TABLE>
<CAPTION>

                                      F-6
<PAGE>

(Continued from table above, first column repeated)

                                         Additional          Notes
                                          Paid In         and Interest
                                          Captial           Receivable                                    Total
                                                              From       Unearned     Accumulated      Stockholders'
                                                            Officers    Compensation     Deficit         Deficit
                                      ---------------  --------------  -------------- ------------    --------------
<S>                                   <C>              <C>             <C>            <C>              <C>
Amortization of unearned
compensation ......................           --              --           401,397            --           401,397

Net loss for the year ended May 31,
2003                                          --              --              --        (2,930,773)     (2,930,773)
                                      ------------    ------------    ------------    ------------    ------------
Balance at May 31, 2003 ...........   $ 18,829,108    $   (105,475)            $--    $(25,527,763)   $ (6,803,689)

Issuance of common stock in
conjunction with the exercise of
options and record stockholders'
notes receivable ..................        594,843        (596,111)           --              --               --

Issuance of common stock for
non-employee compensation and
record unearned compensation ......      1,272,406            --        (1,054,916)           --           219,428

Issuance of common stock for trade
debt ..............................         41,720            --              --              --            41,800

Issuance of common stock in
conjunction with conversion of
debentures ........................        639,503            --              --              --           643,399

Issuance of common stock for
settlement of related party debt
and accrued interest ..............        648,700            --              --              --           650,000

Satisfaction of officers' notes
receivable and accrued interest
receivable in exchange for common
stock .............................       (106,500)        106,515            --              --              --

Issuance of options for
non-employee compensation and
record unearned compensation ......        391,392            --          (391,392)           --              --

Amortization of unearned
compensation ......................           --              --         1,446,308            --         1,446,308

Principal received on stockholders'
notes receivable ..................         10,388         596,111            --              --           606,499

Accrue interest on officers' notes
receivable ........................           --            (1,040)           --              --            (1,040)

Net loss for the year ended
May 31, 2004 ......................           --              --              --          (873,829)       (873,829)
-----------------------------------   ------------    ------------    ------------    ------------    ------------
      Balance at May 31, 2004 .....   $ 22,321,560    $       --      $       --      $(26,401,592)   $ (4,071,124)
                                      ============    ============    ============    ============    ============
</TABLE>





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


                                      F-6
<PAGE>




                                  Insynq, Inc.
                            Statements of Cash Flows


<TABLE>
<CAPTION>

                                                                                        For the years ended May 31,
                                                                                  ---------------- -- -- ---------------
                                                                                       2004                   2003
                                                                                  ----------------    -- ---------------
Cash flows from operating activities
<S>                                                                                  <C>               <C>
    Net loss                                                                         $   (873,829)     $     (2,930,773)
    Adjustments to reconcile net loss to net cash used in operating activities:
        Depreciation and amortization                                                     158,877               219,285
        Bad debts                                                                          53,674                51,866
        Amortization of unearned compensation                                           1,446,308               401,397
        Issuance of stock for services and compensation                                   219,428               220,263
        Issuance of options and warrants for services to non-employees                         --                64,462
        Amortization of discounts related to convertible debentures                       184,085               878,586
        Capitalized interest on notes receivable and leased assets                        (7,253)                37,251
        Gain on forgiveness and settlement of debts                                   (2,011,867)             (450,088)
        Write down of asset for impairment                                                19,500                    --
        Discount on capital lease                                                              --                31,468
        Loss on disposal of assets                                                             --                43,955
           Changes in operating assets and liabilities:
            Accounts receivable - trade                                                  (28,583)               (64,826)
            Related party receivables                                                    (98,981)                21,517
            Other assets                                                                    (180)                16,443
            Accounts payable                                                              (6,248)                75,403
            Accrued liabilities                                                          303,466                718,099
            Accrued compensation                                                         158,643                137,476
            Customer deposits                                                            (13,327)                14,936
                                                                                  ----------------       ---------------
               Net cash used in operating activities                                    (496,287)             (513,280)
                                                                                  ----------------       ---------------
Cash flows from Investing activities
     Purchase of equipment                                                               (29,178)                    --
     Proceeds from sale of equipment                                                           --                 4,000
                                                                                  ----------------       ---------------
               Net cash (used in) provided by investing activities                       (29,178)                 4,000
                                                                                  ----------------       ---------------
Cash flows from financing activities
    Principal received on stockholders' notes receivable from options exercised           596,111                    --
    Additional funds from stockholders' notes receivable                                   10,388                    --
    Payments on capital lease obligations                                                 (43,558)              (20,116)
    Proceeds from notes payable                                                             6,325                 2,887
    Payments on notes payable                                                             (14,291)               (5,313)
    Deposits                                                                               (2,210)                 (205)
    Payments on related party notes payable                                                    --               (11,713)
    Proceeds from issuance of common stock and exercise of options and warrants                --                23,000
    Proceeds from related party notes payable                                                  --                 3,684
    Proceeds from convertible debentures                                                       --               550,000
    Proceeds released from restricted cash - held in escrow                                    --                10,355
                                                                                  ----------------       ---------------
               Net cash provided by financing activities                                  552,765               552,579
                                                                                  ----------------       ---------------
Net increase in cash                                                                       27,300                43,299

Cash at beginning of the year                                                              53,059                 9,760
                                                                                  ----------------       ---------------
Cash at end of the year                                                           $        80,359         $      53,059
                                                                                  =================       ===============
</TABLE>



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


                                      F-7
<PAGE>



                                  Insynq, Inc.
                          NOTES TO FINANCIAL STATEMENTS
                                  May 31, 2004

Note 1 - Business and Background

BUSINESS

Insynq, Inc. (the Company) is a Nevada corporation headquartered in Tacoma,
Washington USA. The Company is an application hosting and managed software
service provider that provides server-based computing access and services to
customers who have decided to outsource all or part of their information
technology requirements. Customers pay a monthly fee for services and connect to
the Company's server farm through a broadband internet-enabled workstation.

BACKGROUND

On July 25, 2002, the Board of Directors approved a re-incorporation merger of
the Company with its wholly owned subsidiary, Insynq, Inc., a Nevada
corporation, and effectuated a 100 to 1 common stock exchange of the Company's
currently issued and outstanding shares of common stock. The re-incorporation,
which was effective December 23, 2002, resulted in the exchange of 59,013,393
common shares of the terminating entity, Insynq, Inc. - Delaware, for 590,134
common shares of the surviving entity, Insynq, Inc. - Nevada.

On July 16, 2004, the Board of Directors approved a 1 for 50 reverse split of
the Company's authorized common stock. The date of record and the effective date
was August 2, 2004. Par value remained unchanged at $.001 per share. The effect
of the reverse split reduced the number of authorized shares from 500,000,000 to
10,000,000 and reduced the number of outstanding and issued shares of common
stock from 445,384,987 shares to 8,907,700 shares.

All shares of common stock and per share amounts in the accompanying financial
statements and notes to financial statements have been retroactively restated to
reflect this transaction.


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


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

REVENUE RECOGNITION

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

USE OF ESTIMATES

The preparation of financial statements in conformity with accounting principles
generally accepted in the United
                                      F-8
<PAGE>
States of America requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosures of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.

RECLASSIFICATIONS

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

EQUIPMENT

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

                                            Useful Lives           2004                   2003
                                           ----------------   ----------------    -------------

<S>                                            <C>          <C>                <C>
      Capitalized leased equipment             5 Years      $         613,848  $       613,848
      Equipment                                5 Years                126,565          126,565
      Software                                 3 Years                 85,178           85,178
      Computer hardware                        5 Years                 71,409           42,232
      Furniture and fixtures                   7 Years                 31,941           31,941
                                                              ----------------    -------------
                                                                      928,941          899,764
            Less accumulated
            depreciation                                             (813,678)        (654,802)
                                                              ----------------    -------------
      Equipment, net                                        $         115,263       $  244,962
                                                              ================    =============
</TABLE>

Accumulated depreciation on capitalized lease equipment totaled $555,672 and
$435,716 at May 31, 2004 and 2003, respectively.

Depreciation expense for the years ended May 31, 2004 and 2003 was $158,877 and
$192,700, respectively.

Long-Term Assets

Long-term assets of the Company are reviewed annually as to whether their
carrying value has become impaired, pursuant to the guideline established in
Statement of Financial Accounting Standards No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets". The Company also re-evaluates the
periods of amortization to determine whether subsequent events and circumstances
warrant revised estimates of useful lives.

INTANGIBLE ASSETS

Intangible assets consist of the rights to a proprietary data utility services
system acquired by the Company. The cost of $130,000 was amortized over sixty
months. As of May 31, 2004 and 2003, the cost was fully amortized. Amortization
for the years ended May 31, 2004 and 2003 was $-0- and $26,585, respectively.

ADVERTISING EXPENSE

Advertising costs are expensed in the period incurred. For the years ended May
31, 2004 and 2003, advertising costs totaled $45,906 and $26,435, respectively.

CONCENTRATIONS OF CREDIT RISK

The Company sells the majority of its services throughout North America. The
majority of the Company's sales are made to customers who are billed monthly on
account and no collateral is required. For the year ended May 31, 2004,
approximately thirty-one percent (31%) or $ 412,800 of revenues was from nine
customers, of which, one is related to a director and officer of the Company.
The related party business comprised approximately 7.2% of the
                                      F-9
<PAGE>
Company's revenues.

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

FAIR VALUE OF FINANCIAL INSTRUMENTS

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

LOSS PER COMMON SHARE

Basic loss per common share is computed by dividing the net loss applicable to
the common stockholders by the weighted average number of shares of outstanding
common stock during the period. Diluted loss per share is computed by dividing
the net loss by the weighted average number of common shares including the
dilutive effect of common share equivalents then outstanding. Common stock
equivalents are not included in the computation of diluted net loss per common
share because the effect would be anti-dilutive.

The Company applies the provisions of SFAS No. 123 for stock-based awards to
those entities other than employees. Stock-based compensation expense for these
awards is calculated over related service or vesting periods. Companies choosing
the intrinsic-value method are required to disclose the pro-forma impact of the
fair value method on net income or net loss. Had the Company determined
compensation expense based on the fair value at the grant date for its stock
options under SFAS No. 123, the pro-forma effect on the net loss per share would
have been increased to the pro-forma amounts as indicated below for the years
ended May 31:

                                               2004                  2003
                                           --------------      -----------------
           Net loss as reported              $873,829              $2,930,773

           Pro-forma net loss                $873,829              $3,173,407

           Loss per share as reported           $0.17                 $17.90

           Pro-forma loss per share             $0.17                 $19.39

COMPREHENSIVE INCOME (LOSS)

The Company has no components of other comprehensive loss. Accordingly, net loss
equals comprehensive loss for all periods.
                                      F-10
<PAGE>
RECENT AUTHORITATIVE ACCOUNTING PRONOUNCEMENTS

In April 2003, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 149, " Amendment of
Statement No. 133 on Derivative Instruments and Hedging Activities". SFAS No.
149 amends and clarifies financial accounting and reporting for derivative
instruments, including certain derivative instruments embedded in other
contracts (collectively referred to as derivatives) and for hedging activities
under SFAS No. 133, "Accounting for Derivative Instruments and Hedging
Activites". The changes in SFAS No. 149 improve financial reporting by requiring
that contracts with comparable characteristics be accounted for similarly. This
statement is effective for contracts entered into or modified after June 30,
2003 and all of its provisions should be applied prospectively. The
implementation of this SFAS No. 149 will not have a material impact on the
Company's financial statement presentation or disclosures.

In May 2003, the FASB issued SFAS No. 150, "Accounting For Certain Financial
Instruments with Characteristics of both Liabilities and Equity". SFAS No. 150
changes the accounting for certain financial instruments with characteristics of
both liabilities and equity that, under previous pronouncements, issuers could
account for as equity. The new accounting guidance contained in SFAS No. 150
requires that those instruments be classified as liabilities in the balance
sheet. SFAS No. 150 affects the issuer's accounting for three types of
freestanding financial instruments. One type is a mandatorily redeemable share,
which the issuing company is obligated to buy back in exchange for cash or other
assets. A second type includes put options and forward purchase contracts, which
involves instruments that do or may require the issuer to buy back some of its
shares in exchange for cash or other assets. The third type of instrument under
this Statement is an obligation that can be settled with shares, the monetary
value of which is fixed, tied solely or predominantly to a variable such as a
market index, or varies inversely with the value of the issuers' shares. SFAS
No. 150 does not apply to features embedded in a financial instrument that is
not a derivative in its entirety. Most of the provisions of Statement 150 are
consistent with the existing definition of liabilities in FASB Concepts
Statement No. 6, "Elements of Financial Statements". The remaining provisions of
this Statement are consistent with the FASB's proposal to revise that definition
to encompass certain obligations that a reporting entity can or must settle by
issuing its own shares. This Statement shall be effective for financial
instruments entered into or modified after May 31, 2003 and otherwise shall be
effective at the beginning of the first interim period beginning after June 15,
2003, except for mandatorily redeemable financial instruments of a non-public
entity, as to which the effective date is for fiscal periods beginning after
December 15, 2004. The implementation of the provisions of SFAS No. 150 is not
expected to have a significant effect on the Company's financial statement
presentation or disclosures.

In January 2003, (as revised in December 2003) the FASB issued Interpretation
No. 46, "Consolidation of Variable Interest Entities", an interpretation of
Accounting Research Bulletin ("ARB") No. 51, "Consolidated Financial
Statements". Interpretation No. 46 addresses consolidation by business
enterprises of variable interest entities, which have one or both of the
following characteristics: (i) the equity investment at risk is not sufficient
to permit the entity to finance its activities without additional subordinated
support from other parties, which is provided through other interests that will
absorb some or all of the expected losses of the entity; (ii) the equity
investors lack one or more of the following essential characteristics of a
controlling financial interest: the direct or indirect ability to make decisions
about the entities activities through voting rights or similar rights; or the
obligation to absorb the expected losses of the entity if they occur, which
makes it possible for the entity to finance its activities; the right to receive
the expected residual returns of the entity if they occur, which is the
compensation for the risk of absorbing the expected losses. Interpretation No.
46, as revised, also requires expanded disclosures by the primary beneficiary
(as defined) of a variable interest entity and by an enterprise that holds a
significant variable interest in a variable interest entity but is not the
primary beneficiary. Interpretation No. 46, as revised, applies to small
business issuers no later than the end of the first reporting period that ends
after December 15, 2004. This effective date includes those entities to which
Interpretation 46 had previously been applied. However, prior to the required
application of Interpretation No. 46, a public entity that is a small business
issuer shall apply Interpretation 46 or this Interpretation to those entities
that are considered to be special-purpose entities no later than as of the end
of the first reporting period that ends after December 15, 2003 Interpretation
No. 46 may be applied prospectively with a cumulative-effect adjustment as of
the date on which it is first applied or by restating previously issued
financial statements for one or more years with a cumulative-effect adjustment
as of the beginning of the first year restated. The implementation of the
provisions of Interpretation No. 46 is not expected to have a significant
effect, if any, on the Company's financial statement presentation or
disclosures.

                                      F-11
<PAGE>

In March 2004, the U.S. Securities and Exchange Commission's Office of the Chief
Accountant and the Division of Corporate Finance released Staff Accounting
Bulletin ("SAB") No. 105, "Loan Commitments Accounted for as Derivative
Instruments". This bulletin contains specific guidance on the inputs to a
valuation-recognition model to measure loan commitments accounted for at fair
value, and requires that fair-value measurement include only differences between
the guaranteed interest rate in the loan commitment and market interest rate,
excluding any expected future cash flows related to the customer relationship or
loan servicing. In addition, SAB No. 105 requires the disclosure of the
accounting policy for loan commitments, including methods and assumptions used
to estimate the fair value of loan commitments, and any associated hedging
strategies. SAB No. 105 is effective for derivative instruments entered into
subsequent to March 31, 2004 and should be applied to existing instruments as
appropriate. The Company has not yet completed its evaluation of SAB No. 105,
but does not anticipate a material impact, if any, on the financial statements.

Note 3 - Going Concern and Management's Plans

The Company's financial statements as of and for the years ended May 31, 2004
have been prepared on a going concern basis, which contemplates the realization
of assets and the settlement of liabilities and commitments in the normal course
of business. For the year ended May 31, 2004, the Company had a net loss of
$873,829 and a negative cash flow from operations of $496,287. The Company had a
working capital deficit of $4,398,102 and a stockholders' deficit of $4,071,124
at May 31, 2004. The Company's working capital deficit as of May 31, 2004 may
not enable it to meet certain financial objectives as presently structured.

As of May 31, 2004 and through September 10, the Company is not in compliance
with the proper registration and licensing of certain software applications and
products critical to support the customer base and its own internal operations.
The Company has initiated negotiations with these software vendors in an effort
to remedy this deficiency by either offering to purchase or lease/rent the
licenses to meet the licensing requirements. Should the Company not reach a
satisfactory agreement with these vendors, and due to the vital and critical
nature of these licenses to support its services, sales and operations it may be
forced to cease operations and/or to file bankruptcy.

As of May 31, 2004 the Company was delinquent on approximately $725,000 of prior
years' payroll and business taxes and related penalties and interest, which is
included in accrued liabilities. (See Note 6.)

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

Note 4 - Related Party Receivables

As of May 31, 2004, the Company has extended $83,343, net to three business
entities that are directly related to one or more officers/stockholders of the
Company. The following discusses the activities and balances due:

     o    Two of the businesses are related to a corporate officer, stockholder
          and director. The Company provides these two businesses monthly
          application hosting services, and other management services to include
          co-sharing of selected expenses for promotional materials, marketing,
          advertising and seminars. At May 31,
                                      F-12
<PAGE>
          2004, the balance due from these two companies aggregated $57,268, and
          an allowance for doubtful accounts of $25,000 was established on these
          accounts.

          During the years ended May 31, 2004 and 2003, the Company billed these
          related businesses a total of $137,702 and $61,555, respectively. In
          fiscal 2004, inclusive of the total related entity billings,
          approximately $50,745 was billed under mutual short-term agreement to
          co-share certain marketing and advertising expenses incurred by
          Insynq.

     o    The third business is partially owned by two officers and four
          stockholders of the Company. For the year ended May 31, 2004, the
          Company paid $104,158 for certain expenses on behalf of this business
          and received reimbursements totaling $53,083. The balance due the
          Company at May 31, 2004 is $51,075.

Note 5 - Notes Receivable - Stockholders and Officers

STOCKHOLDERS

Between August 5, 2003, and December 1, 2003, the Company executed six
consulting agreements that granted a total of 1,268,518 options to purchase
shares of common stock within thirty to ninety days of each respective
agreement. The fair value of these options was estimated at $391,392 on the
grant dates, using the Black-Scholes option pricing model and amortized to
consulting expense over the terms of the each respective agreement. Amortization
for the year ended May 31, 2004 was $391,392. The options were exercised into
1,268,518 shares of common stock on August 5, 2003, September 24, 2003 and
December 1, 2003. Upon exercise of the respective options, the following secured
promissory notes receivable, aggregating $636,111, with interest accruing at 8%
were executed:

                             Date of Issuance               Amount
                      --------------------------------      ----------
                      August 5, 2003                   $     236,111
                      September 24, 2003                     150,000
                      December 1, 2003                       250,000
                                                            ----------
                           Total                       $     636,111
                                                            ==========

In March 2004, the Company wrote down the December 1, 2003 note receivable by
$40,000 because this portion of the total amount was deemed not collectible.
Accordingly, the Company recognized a loss of $40,000 and recorded it as a
reduction to stockholders' notes receivable and paid in capital. For the year
ended May 31, 2004, total notes receivable recognized, net of the uncollectible
amount of $40,000, was $596,111. In fiscal 2004, the Company received in cash, a
total of $596,111.

The notes receivable, related accrued interest and related repayments have been
recorded in the Statements of Stockholders' Deficit.

OFFICERS

In January 2002, the Company entered into two promissory notes totaling $90,000
with two of its officers in conjunction with the exercise of non-qualified class
A common stock options. Each note recognized interest at 12%, payable on or
before June 2003 and was secured with shares of common stock. The notes
receivable, plus related accrued interest of $16,515, had been recorded in the
Statements of Stockholders' Deficit. On June 18, 2003 the two promissory notes
and accrued interest, amounting to $106,515, were exchanged for a total of
15,216 shares of common stock held by the officers, which were cancelled upon
receipt. The common stock was valued at market, based on the closing price of
the Company's common stock, on the date of the exchange agreement, which was
$7.00 per share.

Note 6 - Accrued Liabilities

Accrued liabilities consist of the following at:
<TABLE>
<CAPTION>

                                                May 31, 2004             May 31, 2003
                                             --------------------     -------------------

<S>                                       <C>                      <C>
     Salaries and benefits                $       176,453          $       251,138
     Taxes
          Payroll                                 338,176                  457,447
          Business                                 38,499                   55,147
          Penalties and interest                  357,875                  323,163
     Interest                                     671,508                  702,108
     Licenses, consulting and other               668,074                  607,212
                                             --------------------     -------------------
                                          $     2,250,585          $     2,396,215
                                             ====================     ===================
</table>
As of May 31, 2004 the Company was delinquent on approximately $725,000 of its
payroll and business taxes and related penalties and interest. The majority of
the past due amount is for payroll taxes, penalties and interest due to the IRS,
which in the aggregate totals an estimated amount of approximately $686,000. The
IRS had filed Federal Tax Liens on the assets of the Company. Between March and
August 2004, the Company paid a total of $446,000 toward all delinquent taxes
and a portion of the accrued interest. On August 31, 2004, the Company received
a notice from the IRS that the Federal Tax Liens will be withdrawn. In addition,
the IRS agreed to abate all penalties and execute a workout agreement for the
remaining unpaid interest.

The Company has three remaining workout arrangements, with certain state and
city taxing authorities, to pay its past due taxes. As of May 31, 2004, the
Company owes approximately $11,700 pursuant to these workout agreements.
Generally, each taxing authority, with which a workout has been consummated, has
filed a lien or a warrant with local county authorities on the assets of the
Company to protect their position during the respective workout periods. The
following table summarizes the company's remaining obligations per respective
taxing agency as of May 31, 2004: F-14
<PAGE>
                                              Number of            Approximate
           Taxing             Monthly          Payments           Principal Due
         Authority            Payment         Remaining
        -------------        ----------      -------------       ---------------
             A*           $        500            2            $            600*
             B            $        350            12                       4,100
             C            $      1,000            7                        7,000
                                                                 ---------------
                                                               $          11,700
                                                                 ===============

*In June 2004, the liability to taxing authority "A" was paid in full.

In addition, a lien for approximately $28,000 has been filed by a state for
prior years' income taxes assessed to the predecessor company of Insynq, Inc.
This lien and the amount was disputed; amended returns to correct this
deficiency were filed timely; but as of September 3, 2004, the state has
not responded to the amended returns, thereby, neither granting approval or nor
denying the amended returns.

Note 7 - Related Party Notes Payable

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

                                      F-13
<PAGE>

<TABLE>
<CAPTION>

                                                                       May 31, 2004            May 31, 2003
                                                                    -------------------     -------------------
    <S>                                                         <C>                     <C>
     Note payable to stockholder due November 2, 2001,
     plus accrued interest; bearing interest at 10% and
     is unsecured.  On August 5, 2003 the Company settled
     this obligation by issuing 1.3 million shares of
     common stock in satisfaction of the note and accrued
     interest. (See Note 16.)                                   $           --         $       1,162,000

     Four unsecured notes payable to related parties, all past
     due bearing default interest ranging from 10% to 21%.               116,500                 145,274
                                                                    -------------------     -------------------
                                                                $        116,500        $      1,307,274
                                                                    ===================     ===================
</TABLE>


Note 8 - Secured Convertible Debentures

Between June 2001 and March 2003, the Company issued a total of $2,050,000 of
secured convertible debentures, under three separate private financing
transactions with several investor groups. Terms of each of the three private
financing transactions, are essentially the same: the debentures are convertible
into shares of common stock at the lesser of (i) $15 per share and (ii) the
average of the lowest three intraday trading prices in the twenty-day trading
period immediately preceding the notice to convert, discounted by sixty percent
(60%). Originally, each debenture was due one year from the date of its
issuance, or if applicable, its amended date, March 6, 2003, plus accrued
interest at 12%. As of May 31, 2004 all debentures were in default because the
respective maturity dates of each issuance had expired. Default rate of interest
is 15%. However, pursuant to an amendment dated June 25, 2004, the due date for
all debentures has been extended for additional two years to June 25, 2006. (See
Note 17.)

Warrants were also granted to the investors in conjunction with the convertible
debenture transactions. Investors may exercise each warrant at $12.50 per share.
A total of 104,000 warrants have been issued with an amended expiration period
until June 25, 2009. As of July 31, 2004, no warrant has been exercised in
conjunction with the convertible debentures.

Summarized below are the net outstanding convertible debentures at:

                                             May 31, 2004           May 31, 2003
                                        -------------------       --------------
 Total debentures issued              $          2,050,000     $      2,050,000
     Less: total principal redeemed               (719,449)             (76,050)
                                        -------------------       --------------
 Principal amount due                            1,330,551            1,973,950
     Less: total unamortized discount                 (-0-)            (184,085)
                                        -------------------       --------------
     Convertible debentures, net        $        1,330,551     $      1,789,865
                                        ===================       ==============

The following table illustrates transactions related to the convertible
debentures for the years ended May 31, 2004 and 2003:
<TABLE>
<CAPTION>

                                                             Principal              Accrued            Total
                                                                                   Interest
                                                            --------------        ------------      -------------
<S>                                                      <C>                   <C>                     <C>
              Balances, at May 31, 2002                  $      1,428,450      $       77,882       $   1,506,332
              Add: Issuances and accrued interest                 550,000             261,315             811,315
              Less: Redemptions                                    (4,500)                 --              (4,500)
                                                            --------------        ------------      -------------
              Balances at May 31, 2003                          1,973,950             339,197           2,313,147
              Add: accrued interest                                    --             273,252             273,252
              Less: Redemptions                                  (643,399)                 --            (643,399)
                                                            --------------        ------------      -------------
              Balances, at May 31, 2004                  $      1,330,551     $       612,449       $   1,943,000
                                                            ==============        ============      ==============
</TABLE>

The Company has granted the investors a security interest in all assets.

For the years ended May 31, 2004 and 2003, the Company recognized as interest
expense, discounts on the convertible debentures totaling $184,085 and $878,586,
respectively, which are equal to the fair value of the warrants, as determined
using the Black-Scholes pricing model, and the intrinsic value of the beneficial
conversion features.

Accrued interest is included in accrued expenses in the accompanying balance
sheets.

Note 9 - Capital Lease Obligations

In June 2003, the Company settled an $868,600 equipment lease obligation that
was in default for $35,000. The Company recognized a gain on the settlement of
this debt of approximately $833,600. (See Note 16.)

Note 10 - Preferred Stock

On July 25, 2002, the Board of Directors authorized the issuance of a series of
preferred stock designated Series A Convertible Preferred in the amount
2,100,000 shares with a par value of $0.001, which designation was filed and
became effective in October 2002. Each share was entitled to vote 50 times the
number of common stock, and, is convertible upon the merger (See Note 1),
initially, at the rate of 10 shares of common stock for each full share of
convertible preferred stock. On October 16, 2002 directors, officers, employees
and one investor executed Exchange Agreements under which they exchanged 10
shares of common stock for one (1) share of Series A Convertible Preferred
Stock. A total of 2,502 shares of common stock were exchanged for 1,251,410
shares of preferred stock. Under the Plan of Merger, effective December 23,
2002, all the preferred shares, totaling 1,331,410, were converted into 266,282
shares of common stock of the Nevada corporation.

Note 11 - Class A Common Stock

The Board of Directors is authorized to issue of up to 10,000,000 shares of
Class A common stock. Holders are entitled to three votes
for each share held.

Note 12 - Incentive Plans

As of May 31, 2004, the Company's Board of Directors has adopted three long-term
incentive plans (Plans), described as follows:

2000 LONG TERM INCENTIVE PLAN (LTIP)

The LTIP provides for the issuance of incentive and non-qualified stock options,
stock appreciation rights and restricted stock to directors, officers and
consultants. At the adoption of the Plan, the Company set aside 3,335 shares of
common stock. On November 19, 2001, the stockholders approved an amendment to
the Plan, which would set aside an additional 3,000 shares of common stock for a
total of 6,335 shares of common stock, which may be issued upon the exercise of
granted options. As of May 31, 2004 the LTIP had 2,808 options available for
issuance and 1,946 unexercised, fully vested and granted options.
                                      F-15
<PAGE>
2000 EXECUTIVE LONG TERM INCENTIVE PLAN (EXECUTIVE LTIP).

The Executive LTIP provides for the issuance of incentive and non-qualified
stock options, appreciation rights and restricted stock to executive officers of
the Company. The Company originally set aside 54,000 shares of Class A common
stock under this Plan, of which 50,000 shares were granted in fiscal 2000 and
exercised in fiscal 2002. As of May 31, 2004 the Executive LTIP had 4,000 shares
of Class A common shares available for issuance and no unexercised options.

2002 DIRECTORS, OFFICERS AND CONSULTANTS STOCK OPTION, STOCK WARRANT AND STOCK
AWARD PLAN (2002 SP)

On July 25, 2002, the Board of Directors adopted a third incentive plan, the
2002 Directors, Officers and Consultants Stock Option, Stock Warrant and Stock
Award Plan (2002 SP). The 2002 SP provides for the issuance of incentive and
non-qualified deferred stock incentives to certain executives, directors and key
employees of the Company who contribute significantly to the long-term
performance and growth of the Company. The Company may make awards in the form
of options, warrants, restricted common, convertible preferred stock or
unrestricted common or convertible preferred stock and other awards, or any
combination thereof. The Company originally set aside 320,000 shares of common
stock under this plan at its adoption and, in fiscal 2004, set aside an
additional 1,780,000 shares. A summary of the 2002 Plan is as follows:
<TABLE>
<CAPTION>

                                                         Net Transactions for
                                           Plan           Years Ended May 31,
                                                      ---------------------------
         Security Transactions            Summary          2004          2003
  ------------------------------------ -------------- --------------- ------------
<S>                                        <C>             <C>            <C>
  Shares authorized                        2,100,000       1,780,000      320,000
                                       -------------- --------------- ------------
  Stock subscribed                           120,000         120,000           --
  Warrants granted, unexercised                6,000              --        6,000
  Options granted, unexercised                 9,500              --        9,500
  Stock issued                                85,214          27,000       58,214
  Options exercised                        1,583,530       1,583,530           --
  Warrants exercised                         101,000              --      101,000
                                       -------------- --------------- ------------
                                           1,905,244       1,730,530      174,714
  Warrants cancelled                           6,000           6,000           --
                                       -------------- --------------- ------------
                                           1,899,244       1,724,530      174,714
                                       -------------- --------------- ------------
  Net shares available for issuance          200,756          55,470      145,286
                                       ============== =============== ============
</TABLE>

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

During the year ended May 31, 2004, the Company recorded unearned service
expense totaling $391,392 for the fair value of options granted to consultants
as a reduction of stockholders' equity in the accompanying financial statements.
Such amount was amortized ratably over the service periods. The fair value of
options granted under the Company's stock option plans during the years ended
May 31, 2004 and 2003 was estimated on the date of grant, using the
Black-Scholes pricing model with the following assumptions:
<TABLE>
<CAPTION>
                                                                       2004               2003
                                                                  ---------------     --------------
<S>                                                                   <C>                 <C>
         Weighted average of expected risk-free interest rates        3.85%               3.97%
         Expected years from vest date to exercise date               3 - 10             3 - 10
         Expected stock volatility                                     207%               252%
         Expected dividend yield                                        0%                 0%
</TABLE>
                                      F-16
<PAGE>
The following table is a summary of Insynq's stock option transactions as of May
31:
<TABLE>
<CAPTION>

                                                             2004                                2003
                                               ----------------------------------   --------------------------------
                                                                                                       Weighted
                                                                Weighted Average                        Average
                 Activity                        Options         Exercise Price       Options       Exercise Price
-------------------------------------------    -------------    -----------------   ------------    ----------------

<S>                                                  <C>        <C>                    <C>           <C>
Outstanding at May 31                                11,724     $   196.00             2,743         $ 1,200.00
Options granted                                   1,583,530            .50             9,702               3.00
Options exercised                                (1,583,530)           .50              (202)             15.50
Options forfeited                                      (277)      2,824.00              (519)          2,003.50
                                               -------------    -----------------   ------------    ----------------
Balance at May 31                                    11,447         132.50            11,724             196.00
Options exercisable                                  11,447         132.50            11,664             187.00
Options available for grant                         203,644                            2,611
</TABLE>

The following table summarizes information about the Company's outstanding stock
options at May 31, 2004:
<TABLE>
<CAPTION>

                                               Options Outstanding                           Options Exercisable
                                --------------------------------------------------     --------------------------------
                                                                       Weighted
                                                   Weighted             Average                             Weighted
         Range of                                   Average            Remaining                             Average
         Exercise                  Number          Exercise           Contractual         Number            Exercise
          Prices                Outstanding          Price               Life           Exercisable           Price
---------------------------     -------------     ------------        ------------     --------------      ------------
<S>                                   <C>            <C>                     <C>              <C>             <C>
       $  0.00 - $1,500           11,153         $  16.50                8.40             11,153            $  16.50
       1,500.01 - 3,750              135         1,805.50                4.43                135            1,805.50
       3,750.01 - 7,500               90         5,016.50                5.34                 90            5,016.50
      7,500.01 - 15,000               69         9,234.00                2.23                 69            9,234.00
                                -------------     ------------        ------------     --------------      ------------
                                  11,447           132.50                8.29             11,447              132.50
                                =============                                          ==============
</TABLE>

During the year ended May 31, 2004, the Company granted 1,583,530 options to
non-employees, all of which were exercised and 277 options expired. Outstanding
and unexercised options granted to non-employees at May 31, 2004 totaled 1,241.
Exercise prices of granted options during fiscal 2004 to non-employees ranged
between $0.375 and $2.35 per share.

During the year ended May 31, 2003, the Company granted 1,202 options to
non-employees, of which 202 options were exercised and 88 options expired.
Exercise prices of granted options to non-employees for fiscal 2003 ranged
between $2.50 and $1,719.00 per share. In fiscal 2003 the Company granted 8,500
options to certain employees.

At May 31, 2004 and 2003, outstanding and unexercised stock options awarded to
Company employees totaled 10,206, with exercise prices ranging between $2.50 and
$11,550.00 per share.

Note 13 - Warrants

For the year ended May 31, 2004, the Company did not issue warrants to purchase
common stock. Warrants that expired or were cancelled during the fiscal year
totaled 12,876. Outstanding warrants to purchase common stock as of May 31, 2004
totaled 105,325. As of May 31, 2004, warrant exercise prices, exclusive of the
104,000 warrants issued in conjunction with the convertible debentures, ranged
between $3.50 and $18,750 per share of common
                                      F-17
<PAGE>
stock. Substantially all warrants will expire on or before May 31, 2009.

During the year ended May 31, 2003, the Company recorded unearned service
expense totaling $258,248 for the fair value of warrants granted to consultants
as a reduction of stockholders' equity in the accompanying financial statements.
Such amount was amortized ratably over the service periods. Warrants issued by
the Company are valued on the date of grant using the Black-Scholes pricing
model using assumptions similar to options granted.

Note 14 - Income Taxes

Deferred tax assets and liabilities are recognized based on the anticipated
future tax effects arising from the differences between the financial statement
carrying amounts of assets and liabilities and their respective tax bases of
assets and liabilities using enacted tax rates.

The following is a reconciliation of the Federal statutory income tax amount to
the provision for income taxes for the years ended May 31:
<TABLE>
<CAPTION>

                                                                            2004                      2003
                                                                      -----------------        -------------------
<S>                                                               <C>                      <C>
      Tax benefit at federal statutory rate of 34%                $          (297,000)     $            (996,000)
      Permanent differences                                                   280,000                    471,000
                                                                      -----------------        -------------------
                                                                              (17,000)                  (525,000)
      Increase in valuation allowance                                          17,000                    525,000
                                                                      -----------------        -------------------
      Provision for income taxes                                  $          --            $             --
                                                                      =================        ===================
</TABLE>

Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of the assets and liabilities for financial
reporting purposes and the amounts used for income tax purposes. Significant
components of deferred Federal income tax are as follows at May 31:
<TABLE>
<CAPTION>

                                                                           2004              2003
                                                                       --------------    --------------
       Deferred tax asset
<S>                                                                 <C>               <C>
       Net operating loss carryforwards                             $     11,112,000  $     11,110,000
       Amortization                                                           26,000            29,000
       Capitalized interest                                                       --            47,000
       Accrued expenses                                                       13,000            39,000
       Allowance for doubtful accounts                                        17,000             8,000
       Deferred compensation                                                  98,000            55,000
       Employee stock options                                                352,000           352,000
       Warrants and options issued to consultants                            840,000           840,000
                                                                       --------------    --------------
                     Total deferred tax assets                            12,458,000        12,480,000
                                                                       --------------    --------------

       Deferred tax liability
           Depreciation                                                        3,000            29,000
                                                                       --------------    --------------
               Total deferred tax liabilities                                  3,000            29,000
                                                                       --------------    --------------

       Net deferred tax assets                                            12,455,000        12,451,000
       Valuation allowance                                              (12,455,000)      (12,451,000)
                                                                       --------------    --------------
                                                                     $      --        $       --
                                                                       ==============    ==============
</TABLE>

The Company has recorded a valuation allowance for the full amount of the
deferred tax assets due to the uncertainty of future utilization of net
operating loss carryforwards and realization of other deferred tax assets. At
May 31, 2004, net operating loss carryforwards totaling approximately
$36,600,000, expiring through 2024, are available to offset future taxable
income.
                                      F-18
<PAGE>
Note 15 - Contingencies and Commitments

OPERATING LEASES

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

     o    Office Facility - A two-year non-cancelable lease was entered into for
          its corporate office commencing on January 1, 2003. Base rent is
          $2,100 per month for the term of the lease, plus a consumer price
          index adjustment on the first anniversary date of the agreement.

     o    Racking and Bandwidth - The Company has a one year rental agreement by
          which it receives racking and bandwidth for its server farm expiring
          September 17, 2004. In February 2004, terms of the original agreement
          amended the monthly base rental payment to $6,575.

     o    Equipment - In October 2001, the Company entered into a three year
          equipment lease. Originally, payments were $3,000 per month. However,
          in September 2002, the lease was amended to reduce the monthly payment
          to $500 for the remaining term of the lease.

All current lease agreements will expire by December 31, 2004. The future
minimum operating lease payments under these non-cancelable lease agreements are
approximately $43,500.

For the years ended May 31, 2004 and 2003, rent expense for facilities,
equipment and racking was approximately $149,700 and $132,500, respectively.

LAWSUITS

On September 6, 2001, the Company was served with a summons and complaint by its
former landlords, asserting: (a.) a breach of a settlement agreement entered
into in May 2001 to register 5,000 shares of common stock, valued at $80,000, in
partial settlement of its then existing lease, and, (b.) a default by the
Company on two new long-term lease obligations that if carried to term would
aggregate approximately $1,034,500 in lease payments. The Company denies the
allegations under this claim and believes this claim is without merit and
intends to continuously and vigorously defend against this lawsuit. However, a
Partial Summary Judgment was entered against the Company on April 2, 2002 in the
amount of $169,754. The Company recognized this expense in fiscal 2002.

The Company is also subject to other legal proceedings and business disputes
involving ordinary and routine claims. The ultimate legal and financial
liability with respect to such matters cannot be estimated with certainty and
requires the use of estimates in recording liabilities for potential litigation
settlements. Estimates for losses from litigation are made after consultation
with outside counsel. If estimates of potential losses increase or the related
facts and circumstances change in the future, the Company may be required to
record either more or less litigation related expense. It is management's
opinion that none of the open matters at May 31, 2004 will have a material
adverse effect on the Company's financial condition or operations.

DEFAULTS

The Company has defaulted on a software license agreement dated September 29,
2000. The agreement required the Company to purchase 10,000 licenses and
services and support totaling $235,000. Through May 31, 2004, the Company
amortized $31,228 of the contract amount. The Company has paid a total of $1,500
toward this obligation and the term of this agreement expired March 30, 2003. At
May 31, 2004, the remaining obligation under the agreement of $202,772 is
included in accrued expenses and prepaid licenses in the accompanying balance
sheets.

EMPLOYMENT CONTRACTS

As of May 31, 2004, the Company has two long-term employment agreements, with
each of its key officers. Each agreement calls for a base compensation,
currently ranging between $165,000 and $275,000 per year. The
                                      F-19
<PAGE>
agreements also contain wage escalation clauses effective on the anniversary
date of the agreement. Both employment contracts were extended in May 2003 for
an additional three years from the anniversary date, February 20, 2003. Each
agreement contains: (a.) a bonus incentive clause for performance, and, (b.) the
right to exercise vested stock options at a predetermined price, generally
granted at market value, which range between $90 and $1,000 per share. Both
agreements contain a severance clause that stipulates if the executive's
contract is not renewed, a severance payment equal to twice the annual salary at
the date of termination will be paid within sixty days, plus provide other
certain benefits. Amounts due to the key officers under the employment contracts
are included in accrued compensation in the accompanying balance sheets at May
31, 2004 and 2003.

A third officer has an annually renewable contract stipulating a salary base of
$96,800 per year and was automatically renewed on the anniversary date, February
20, 2004, for one year.

Note 16 - Other Disclosures

GAIN ON FORGIVENESS AND SETTLEMENTS OF DEBTS

The Company has executed settlements and reductions of certain outstanding
obligations due several creditors and employees. For the year ended May 31, 2004
the Company settled approximately $2,715,900 of term debt and trade obligations
and leases for approximately $54,000 in cash and 1,300,000 shares of common
stock valued at market of $.50 per share for $650,000, based on the then closing
market price of the Company's common stock. Gain recognized on the settlements
of these obligations was approximately $2,011,900.

For the year ended May 31, 2003 the Company settled approximately $465,000 of
obligations for approximately $15,000 in cash and/or stock, for a recognized
gain of approximately $450,000.

NON-CASH INVESTING AND FINANCING

Non-cash investing and financing activities included the following for the years
ended:
<TABLE>
<CAPTION>

                                                                                    May 31,
                                                                             2004             2003
                                                                         -------------    --------------

<S>                                                                         <C>                 <C>
Conversion of debentures into common stock                                 $643,399            $4,500
Notes receivable issued for options exercised                               636,111                --
Principal written down on notes receivable                                   40,000                --
Promissory notes and interest receivable due from officers
  exchanged for common stock held by officers                               106,515                --
Accrued liabilities and accounts payable converted into common stock         41,800                --
Reclassify note payable to accrued liability                                  4,000                --
Discount on convertible debentures                                               --           603,700
</TABLE>

SUPPLEMENTAL CASH FLOWS INFORMATION

Cash paid for interest for the years ended May 31, 2004 and 2003 was $3,883 and
$15,468, respectively.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES FOR THE YEARS ENDED ARE:

                                                              May 31,
                                                      2004               2003
                                         --------------------------------------

Salaries and benefits                       $       658,014   $        680,924
Rent                                                 30,500             27,983
Consulting                                        1,677,984            785,185
Legal, accounting and professional                  121,674            279,404
                                      F-20
<PAGE>
Telephone and utilities                              29,794             23,934
Taxes                                                77,627             60,289
Administration, supplies and repairs                 30,833             29,599
Travel and entertainment                             18,607             22,512
Insurance                                             1,574              5,840
Settlements                                           3,253             78,752
Marketing, advertising and other                    105,291            126,028
                                                ------------       ------------
         Total                              $     2,755,151   $      2,120,450
                                                ============       ============
Non-cash compensation                       $     1,843,843   $        878,323
Other                                               911,308          1,242,127
                                                ------------       ------------
         Total                              $     2,755,151   $      2,120,450
                                                ============       ============

Note 17 - Subsequent Events

CALLABLE SECURED CONVERTIBLE NOTES PAYABLE

On June 25, 2004, the Company borrowed $900,000 from four investor groups, also
holders of the convertible debentures, pursuant to terms under four callable
secured convertible notes payable. Each note bear interest at 12% and
matures two years from the date issuance.

In conjunction with the issuance of the four callable secured convertible notes
payable, the company granted a total of 54,000 warrants to the note holders to
purchase common stock at an exercise price of $0.05 per share through June 25,
2011.

CONVERTIBLE DEBENTURES

On June 25, 2004, the Company negotiated an extended maturity date with the
investors holding the convertible debentures, which were in default at May 31,
2004, and, as well, the extended the exercise periods of the warrants. The
maturity date of each debenture was extended until June 25, 2006. The exercise
period of the warrants was extended until June 25, 2009.

COMMON STOCK

On July 16, 2004, the Board of Directors approved a 50 for 1 reverse split of
the Company's authorized common stock. Accordingly, the date of record and the
effective date was August 2, 2004. The effect of the reverse split reduced the
number of authorized shares from 500,000,000 to 10,000,000. Par value will
remain at $.001 per share.

On August 2, 2004, by unanimous vote of the stockholders, the Board of Directors
approved the increase of the number of authorized shares of common stock from 10
million to 2 billion shares.

SERIES A NON-PARTICIPATING PREFERRED STOCK

The Board approved in its July 16, 2004 meeting, the authorization of 1,000,000
shares of Series A Non-Participating Preferred Stock, par value at $0.001 per
share, with each share having 1,000 votes on all matters upon which the
shareholders are entitled to vote. The Board then issued 165,000 shares of this
stock in equal amounts to its three corporate officers.

VOTING RIGHTS

As a result of the reverse split on August 2, 2004 and the issuance of the
165,000 shares of Series A Non-Participating Preferred Stock, three corporate
officers hold approximately 95% of the voting rights of any item coming to a
vote before the shareholders of the Company.

PAYMENT AND SETTLEMENT OF DELINQUENT IRS TAXES, PENALTIES AND INTEREST

                                      F-21
<PAGE>

On August 31, 2004, the Internal Revenue Service executed a Conditional
Commitment to Withdraw Notice of Federal Tax Lien because the Company has paid
the entire tax deficiency pertaining to the lien periods. In addition, the IRS
has agreed to abate all penalties assessed and execute a workout schedule for
the accrued interest. (See Notes 3 and 6.)