IEXALT INC, 10QSB, 2001-01-16

IEXALT INC
10QSB, 2001-01-16
COMPUTER PROGRAMMING, DATA PROCESSING, ETC.

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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-QSB

[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT
OF 1934

FOR THE QUARTERLY PERIOD ENDED NOVEMBER 30, 2000

[ ] 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: 000-09322

iEXALT, INC.

NEVADA 75-1667097
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)

4301 WINDFERN DRIVE
HOUSTON, TEXAS 77041
(Address of principal executive offices)

(281) 600-4000
(Registrant's telephone number, including area code)

Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or 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 [XX] NO[ ]

State the number of shares outstanding of each of the issuer's classes of common
equity as of the latest practicable date:

December 21, 2000: 33,840,282 Shares.

Transitional Small Business Disclosure Format (check one): YES [ ] NO [XX]

1
<PAGE>
iEXALT, INC.

Table of Contents

PAGE

Part I - Financial Information

Item 1. Condensed Consolidated Financial Statements 3

Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 18

Part II - Other Information

Item 2. Changes in Securities 24

Item 6. Exhibits and Reports on Form 8-K 25

Signatures 26

2
<PAGE>
Part I - Item 1. Condensed Consolidated Financial Statements.

iEXALT, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
(Unaudited)

ASSETS

NOVEMBER 30, AUGUST 31,
2000 2000
------------ ------------

CURRENT ASSETS
Cash and cash equivalents ................... $ 424,626 $ 278,164
Accounts receivable, trade, net of allowance
for doubtful accounts ....................... 726,653 665,180
Accounts receivable, affiliate .............. 53,942 86,384
Inventory, prepaid expenses and other current
assets ...................................... 378,378 265,758
------------ ------------

TOTAL CURRENT ASSETS ........................ 1,583,599 1,295,486
------------ ------------

PROPERTY AND EQUIPMENT, net .................... 838,716 717,025
------------ ------------

OTHER ASSETS
Goodwill and other intangible assets, net ... 5,913,377 2,462,244
Other assets ................................ 582,012 272,853
------------ ------------

$ 8,917,704 $ 4,747,608
============ ============

LIABILITIES AND SHAREHOLDERS' EQUITY

CURRENT LIABILITIES

Short-term borrowings ....................... $ 720,066 $ 241,678
Notes payable to shareholders ............... 600,000 557,000
Current maturities of long-term debt ........ 660,890 613,037
Current maturities of obligations under
capital lease ............................... 54,231 8,235
Accounts payable, trade ..................... 912,355 622,007
Accounts payable, affiliate ................. 34,869 20,633
Deferred revenue ............................ 467,385 323,035
Other accrued liabilities ................... 613,633 509,326
------------ ------------

TOTAL CURRENT LIABILITIES ................... 4,063,429 2,894,951
------------ ------------

LONG-TERM DEBT ................................. 84,217 90,050
OBLIGATIONS UNDER CAPITAL LEASE ................ 79,144 8,024

SHAREHOLDERS' EQUITY
Preferred stock, $.001 par value, 20,000,000
shares authorized, no shares issued and
outstanding ................................. -- --
Common stock, $.001 par value, 100,000,000
shares authorized, 33,770,282 and 28,646,876
shares , issued and outstanding, respectively 33,771 28,647
Paid-in capital ............................. 15,482,307 9,810,457
Receivable from shareholder ................. (9,239) (9,239)
Retained deficit ............................ (10,815,925) (8,075,282)
------------ ------------

TOTAL SHAREHOLDERS' EQUITY .................. 4,690,914 1,754,583
------------ ------------
$ 8,917,704 $ 4,747,608
============ ============
See accompanying notes

3
<PAGE>
iEXALT, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)

THREE MONTHS ENDED NOVEMBER 30,
------------ ------------
2000 1999
------------ ------------

REVENUES ................................... $ 2,446,989 $ 453,655
COST OF SALES AND SERVICES ................. 1,711,579 344,225
------------ ------------
GROSS PROFIT ............................... 735,410 109,430

SELLING, GENERAL, AND ADMINISTRATIVE ....... 3,205,037 604,368
DEPRECIATION AND AMORTIZATION .............. 83,165 12,110
LOSS ON DISPOSAL OF ASSETS ................. 153,262 --
------------ ------------

LOSS FROM OPERATIONS ....................... (2,706,054) (507,048)

OTHER INCOME (EXPENSES)
Interest income ..................... 2,977 4,889
Interest expense .................... (37,566) (774)
------------ ------------

LOSS BEFORE INCOME TAXES ................... (2,740,643) (502,933)
INCOME TAXES ............................... -- --
------------ ------------

NET LOSS ................................... $ (2,740,643) $ (502,933)
============ ============

BASIC LOSS PER SHARE ....................... $ (0.09) $ (0.02)
============ ============

WEIGHTED AVERAGE NUMBER OF SHARES
OUTSTANDING ............................. 31,071,507 21,613,610
============ ============

See accompanying notes.

4
<PAGE>
iEXALT, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
(Unaudited)

<TABLE>
<CAPTION>
COMMON
STOCK RECEIVABLE TOTAL
--------------------------- PAID-IN FROM RETAINED SHAREHOLDERS'
SHARES AMOUNT CAPITAL SHAREHOLDER DEFICIT EQUITY
------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE - August 31, 2000 .......... 28,646,876 $ 28,647 $ 9,810,457 $ (9,239) $ (8,075,282) $ 1,754,583

Issuance of stock for acquisitions 2,925,500 2,926 3,267,607 -- -- 3,270,533

Issuance of stock for dispositions 275,000 275 188,912 -- -- 189,187

Issuance of stock for cash ....... 879,906 880 559,120 -- -- 560,000

Issuance of stock for services ... 443,000 443 343,913 -- -- 344,356

Exercise of Options .............. 600,000 600 11,400 -- -- 12,000

Issue stock options/warrants ..... -- -- 1,300,898 -- -- 1,300,898

Net loss ......................... -- -- -- -- (2,740,643) (2,740,643)

------------ ------------ ------------ ------------ ------------ ------------
BALANCE - November 30, 2000 ........ 33,770,282 $ 33,771 $ 15,482,307 $ (9,239) $(10,815,925) $ 4,690,914
============ ============ ============ ============ ============ ============
</TABLE>

See accompanying notes.

5
<PAGE>
iEXALT, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)

THREE MONTHS ENDED NOVEMBER 30,
----------- -----------
2000 1999
----------- -----------

CASH FLOWS FROM OPERATING ACTIVITES:
Net loss .................................... $(2,740,643) $ (502,933)
Adjustments to reconcile net loss to net cash
used by operating activities:
Depreciation and amortization ............... 83,165 12,110
Loss on disposition of assets ............... 153,262 --
Non-cash expense of issuing stock
options/warrants ........................... 1,300,898 --
Compensation and other expense for common
shares issued for services ................. 344,356 30,000
Changes in assets and liabilities, net of
effects of acquisitions:
Accounts receivable ....................... 12,931 12,828
Inventory, prepaid expenses and other
current assets ........................... (103,284) (29,193)
Other assets .............................. (90,364) (87,868)
Accounts payable .......................... 115,744 212,412
Deferred revenue .......................... (80,138) --
Other accrued expenses .................... (71,602) (116,972)
----------- -----------

Net cash used by operating activities ....... (1,075,675) (469,616)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net (cash paid) liabilities assumed for
acquisitions ............................... 123,775 454,312
Purchases of property and equipment ......... (29,282) (161,129)
----------- -----------

Net cash provided by investing activities ... 94,493 293,183
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock ...... 560,000 265,397
Proceeds from exercise of options ........... 12,000 --
Proceeds from borrowings from shareholders .. 55,000 --
Repayments of borrowings from shareholders .. (12,000) --
Proceeds from issuance of debt .............. 564,609 --
Payments of capital lease obligations ....... (7,764) --
Repayments of debt .......................... (44,201) (16,513)
----------- -----------

Net cash provided by financing activities ... 1,127,644 248,884
----------- -----------

NET INCREASE IN CASH AND CASH EQUIVALENTS ......... 146,462 72,451
BEGINNING OF PERIOD ............................... 278,164 657
----------- -----------

CASH AND CASH EQUIVALENTS, END OF PERIOD .......... $ 424,626 $ 73,108
=========== ===========

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest ............... $ 23,249 $ 774
=========== ===========

See accompanying notes.

6
<PAGE>
iEXALT, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

NOTE A SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

ORGANIZATION, BUSINESS AND BASIS OF PRESENTATIONS - iExalt, Inc.,
("iExalt" or "Company"), was originally incorporated as Louisiana
Northern Gas, Inc. a Nevada corporation on April 23, 1979. The name of
the Company was changed to Sunbelt Exploration, Inc. on December 21,
1979. From 1989 until September 1, 1999, the Company had very limited
operations.

On September 1, 1999, the Company consummated a merger (hereinafter
referred to as the "Merger") with iExalt, Inc., a Texas corporation
incorporated on January 7, 1999, ("iExalt-Texas") whereby the
shareholders of iExalt-Texas acquired an approximate 89% ownership
interest in the Company. The Merger has been accounted for as a
reverse takeover with the Company being the surviving legal entity and
iExalt-Texas being the acquiror for accounting purposes. Concurrent
with the Merger, the Company changed its name from Sunbelt
Exploration, Inc. to iExalt, Inc.

The Company blends the Internet and traditional media to provide
products and services to Christian families, businesses, schools and
other organizations. The Company currently operates as a nationwide
filtered Internet Service Provider, publishes Christian electronic
books and reference materials, a Christian events magazine, and a
Christian newspaper, produces a radio program in 48 markets five
nights per week, operates a Christian music news website and one of
the largest speakers bureaus dedicated to Christian speakers. In
addition, the Company sells tickets for Christian events, owns and
markets its own business-to-business Internet content management
products. The Company provides psychiatric counseling services for
senior citizens in 5 states. Healthcare revenues are earned from the
implementation and management of geriatric psychiatric programs for
hospitals and other health facilities. The Company also operates a
Christian inpatient mental health management company.

PRINCIPLES OF CONSOLIDATION - The consolidated financial statements
include the accounts of the Company and its wholly owned subsidiaries.
All significant intercompany balances and transactions have been
eliminated.

INTERIM RESULTS - The accompanying unaudited condensed consolidated
financial statements of the Company and its subsidiaries reflect, in
the opinion of management, all adjustments necessary to present fairly
the Company's consolidated financial position at November 30, 2000 and
the Company's consolidated results of operations and cash flows for
the three-month periods ended November 30, 2000 and 1999. Operating
results for the three-month periods are not necessarily indicative of
the results that may be expected for an entire year.

These consolidated financial statements and the notes thereto should
be read in conjunction with the Company's Annual Report on Form 10-KSB
for the year ended August 31, 2000, including the financial statements
and notes thereto.

CASH AND CASH EQUIVALENTS - The Company considers all highly liquid
debt instruments having maturities of three months or less at the date
of purchase to be cash equivalents.

7
<PAGE>
iEXALT, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

NOTE A SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

PROPERTY AND EQUIPMENT - Property and equipment is carried at original
cost or adjusted net realizable value, as applicable. Maintenance and
repair costs are charged to expense as incurred. When assets are sold
or retired, the remaining costs and related accumulated depreciation
are removed from the accounts and any resulting gain or loss is
included in income.

For financial reporting purposes depreciation of property and
equipment is provided using the straight-line method based upon the
expected useful lives of each class of assets. Estimated useful lives
of assets were as follows: Furniture and fixtures - five to seven
years; computers and software - three to five years; automobiles -
three to five years; and leasehold improvements - over the estimated
useful life or the remaining life of the lease, whichever is shorter.

FINANCIAL INSTRUMENTS - FAIR VALUE - The carrying values of the
Company's financial instruments, which include cash and cash
equivalents, accounts receivable, accounts payable and accrued
liabilities, royalties and debt, approximate their respective fair
values because of short lives and the use of market interest rates.

CREDIT RISK - The Company maintains its cash and cash equivalents with
high credit quality institutions and limits the credit exposure to any
one institution. The Company's accounts receivable arise from sales to
customers and the Company periodically evaluates its credit exposure
with its customers. Included in accounts receivable at August 31, 2000
is $326,338 due from one customer of PremierCare, a subsidiary of the
Company. The Company has fully reserved this receivable since the
payment has been disputed for more than twelve months, however,
management is vigorously pursuing collection of this balance.

GOODWILL AND OTHER INTANGIBLES - Goodwill represents the cost in
excess of fair value of the assets of businesses acquired and is being
amortized using the straight-line method over 20 years. Other
intangible assets represent costs allocated to covenants not to
compete and other intangibles acquired in business acquisitions. Other
intangible assets are being amortized using the straight-line method
over their estimated useful lives, which range from two to five years.

STOCK BASED COMPENSATION - Under SFAS No. 123, "Accounting for
Stock-Based Compensation," the Company has elected the method that
requires disclosure of stock-based compensation. Because of this
election, the Company accounts for its employee stock-based
compensation plan under Accounting Principles Board ("APB") Opinion
No. 25 and the related interpretations. Accordingly, deferred
compensation is recorded for stock-based compensation grants to
employees based on the excess of the estimated fair value of the
common stock on the measurement date over the exercise price. The
deferred compensation is amortized over the vesting period of each
unit of stock-based compensation. If the exercise price of the
stock-based compensation grant is equal to or greater than the
estimated fair value of the Company's stock on the date of grant, no
compensation expense is recorded. Additionally, for stock-based
compensation grants to consultants, the Company recognizes as
compensation expense the estimated fair value of such grants as
calculated pursuant to SFAS No. 123, recognized over the related
service period.

IMPAIRMENT OF LONG LIVED ASSETS - In September 2000, management made
the decision to dispose of two acquisitions and terminate a funding
arrangement with another potential acquisition. The carrying values of
goodwill and intangible assets of the related dispositions were not
recovered. Therefore, an impairment loss of $3,451,407 was recognized
during the fourth quarter, 2000 on these assets. Management believes
there is no other impairment of goodwill and other intangibles.

8
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iEXALT, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

NOTE A SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

REVENUE RECOGNITION - The Company generally recognizes revenue on
services as they are performed and on products when they are sold net
of sales returns. Speaker revenues are recognized when the speech or
event occurs. The Company grants refunds and returns on electronic
publishing products if the software and publications sold are returned
within thirty days. Revenue from ticket operations is recognized as
tickets are sold. Although iExalt collects ticket receipts
representing the full ticket price on behalf of its clients, the
Company only records as revenue the convenience charges and handling
fees included in the ticket price.

In December 1999, the Securities and Exchange Commission ("SEC")
issued Staff Accounting Bulletin No. 101, "Revenue Recognition in
Financial Statements" ("SAB 101"), which clarifies certain existing
accounting principles for the timing of revenue recognition and its
classification in the financial statements. The SEC delayed the
required implementation date of SAB 101 by issuing Staff Accounting
Bulletins No. 101A, "Amendment: Revenue Recognition in Financial
Statements" and 101B, "Second Amendment: Revenue Recognition in
Financial Statement" in March and June 2000, respectively. As a
result, the SAB 101 will become effective for the Company in the
fourth quarter of fiscal year end August 31, 2001. The Company
believes the adoption of SAB 101 will not be material to the earnings
and financial position of the Company.

MANAGEMENT'S ESTIMATES - The preparation of financial statements in
conformity with generally accepted accounting principles 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.
While it is believed that such estimates are reasonable, actual
results could differ from those estimates.

CONDITIONS AFFECTING ONGOING OPERATIONS - The Company is currently
dependent upon external financing to continue its current level of
operations. The Company hopes to obtain additional debt and equity
financing from various sources in order to finance its operations and
to continue to grow through merger and acquisition opportunities. In
the event the Company is unable to obtain additional debt and equity
financing, the Company may not be able to continue its current level
of operations. If the Company is unable to continue its current level
of operations, the value of the Company's assets could experience a
significant decline in value from the net book values reflected in the
accompanying consolidated balance sheet.

The Company's continuation as a going concern is dependent upon its
ability to generate sufficient cash flow to meet its obligations on a
timely basis, to comply with the terms of its financing agreements, to
obtain additional financing or refinancing as may be required, and
ultimately to attain profitability. Accordingly, management believes
that period-to-period comparisons of results of operations should not
be relied upon as an indication of future results of operations.

NOTE B ACQUISITIONS AND DISPOSITIONS

During September 2000, the Company re-evaluated its business mix and
projected cash flows and made decisions to dispose of First Choice and
the Company's filtering software and related technology. First Choice
was sold to a company owned by a former member of the Board of
Directors in exchange for the assumption of future liabilities. As a
part of the transaction, the Company made a payment to First Choice of
$25,000 during October and issued 25,000 shares of the Company's
common stock to an employee for past services rendered. The filtering
software and related technology was sold to a former employee of the
Company. The Company issued 150,000 shares of the Company's common
stock with piggyback registration rights to the former employee in
exchange for a note receivable of $84,359, the total of existing
liabilities related to the filtering

9
<PAGE>
iEXALT, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

NOTE B ACQUISITIONS AND DISPOSITIONS (continued)

technology at the closing. The note will be repaid upon sale of the
stock or six months, whichever occurs first. The Company retained the
right to use and market the filtering technology to the Christian
market. The Company had also made the decision to cancel its
acquisition efforts related to a start-up internet company. The
Company had been funding the start-up under a management and funding
agreement since April, 2000. Under the Termination Agreement, the
Company issued 100,000 shares of the Company's common stock with
piggyback registration rights, retained a 49% interest in the start-up
and received a note receivable for the total funds advanced of
$368,112. An impairment loss of the total of all funds advanced and
the related acquisition costs incurred was recorded due to the low
probability of collecting the note receivable or realizing future
income from the equity interest. Related impairment costs recorded
during fiscal year 2000 totaled $3,451,407 and an additional $240,813
loss was recognized from operations and losses on disposal of fixed
assets on the dispositions during the three months ended November 30,
2000.

On September 29, 2000 the Company acquired a seven percent indirect
interest in Sonora Behavioral Hospital, a 30-plus bed psychiatric
hospital in Arizona. The Company exchanged 150,000 shares of its
common stock for the interest in Integral Behavioral Health Services,
Inc., the 100% owner and operator of Sonora. This acquisition has been
accounted for under the cost method.

On October 3, 2000, the Company acquired all the stock of
ListenFirst.com ("ListenFirst"), a Christian music news website for
60,000 shares of the Company's common stock. If certain revenue or
profit levels are reached over the next three years, a maximum of
50,000 additional shares will be issued for the acquisition. The
transaction was accounted for as a purchase and goodwill was recorded
in the amount of $60,084.

On October 18, 2000, the assets of Northwest Christian Journal
("NWCJ"), a monthly Christian newspaper in the Seattle area, were
acquired for 37,500 shares of the Company's common stock and cash
proceeds of $7,500. The transaction was accounted for as a purchase
and goodwill was recorded in the amount of $41,250. On October 29,
2000, the assets of the Christian Blue Pages, LLC ("Blue Pages") which
produces a directory of Christian businesses in four editions in
Southern California, were acquired in exchange for 60,000 shares of
the Company's common stock and a percentage of the first year's
advertising revenues. The transaction was accounted for as a purchase
and goodwill was recorded in the amount of $112,182. Both of these
acquisitions were added to the operations of Christian Times, a
subsidiary of the Company.

All the outstanding stock of Clean Web, Inc. ("Clean Web"), a national
filtered ISP with approximately 6,000 users, was acquired on October
24, 2000 for 2,313,000 shares of the Company's common stock. The
transaction was accounted for as a purchase and goodwill was recorded
in the amount of $2,236,680. The Company is combining the operations
of Clean Web and its filtered ISP, but will continue to market its
services under both names.

Effective November 1, 2000, the Company acquired all the assets of
Rapha ("Rapha"), a Christian inpatient mental health management
company. Under the terms of the acquisition agreement, the Company
issued 200,000 shares of common stock at closing. If on October 29,
2002, the average price of the Company's stock for the 20 preceding
days does not equal or exceed $5.00 per share, the company will issue
additional common stock such that, the total shares multiplied by the
average price determined above is equal to $1 million. The transaction
was accounted for as a purchase and goodwill was recorded in the
amount of $1,000,000.

On November 21, 2000, in exchange for 30,000 shares of the Company's
common stock, the Company acquired all of the speaker contracts and
speaking engagements related to the Christian market from Alive
Communications ("Alive"). The transaction was accounted for as a
purchase and

10
<PAGE>
iEXALT, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

NOTE B ACQUISITIONS AND DISPOSITIONS (continued)

goodwill was recorded in the amount of $10,969. Alive is a leading
provider of speakers to the Christian community and the business will
be combined with ChristianSpeakers.com, a subsidiary of the Company.

The following unaudited pro forma combined results of operations of
the Company for the three months ended November 30, 2000 and 1999
assume significant acquisitions had occurred as of the beginning of
the respective periods.

PRO FORMA
THREE MONTHS ENDED
----------------------------
NOVEMBER 30, NOVEMBER 30,
2000 1999
------------ ------------

Revenues ................... $ 2,657,960 $ 1,923,718

Loss from operations ....... $ (2,881,608) $ (1,133,322)

Net loss ................... $ (2,920,412) $ (1,175,157)

Earnings/(loss) per share .. $ (0.09) $ (0.04)

ProForma Weighted Average
Number of Shares Outstanding 32,418,639 28,216,265

The pro forma adjustments reflect the amortization of goodwill from
the beginning of the respective periods for each of the acquired
companies that were significant. The pro forma financial information
is not necessarily indicative of the combined results that would have
occurred had the acquisitions taken place at the beginning of the
period, nor is it necessarily indicative of results that may occur in
the future.

In June 2000, the Company entered into a funding agreement with an
internet company under which iExalt advances funds and directs the
management of the company pending completion of the definitive
acquisition agreement. Funds advanced under this agreement were
$271,838 and were included in Other Assets at November 30, 2000. If
the acquisition is not completed, iExalt will be entitled to repayment
of the advances with interest and a fifty percent ownership interest
in the internet company. This acquisition has not been completed as of
the date of this 10-QSB filing.

NOTE C PROPERTY AND EQUIPMENT

Property and equipment as of November 30, 2000 consisted of the
following:

Computer equipment and software ........ $ 480,278
Furniture, fixtures and office equipment 252,476
Automobiles ............................ 186,091
Leasehold improvements ................. 55,815
---------
974,660
Less accumulated depreciation ......... (135,944)
---------

$ 838,716
=========

11
<PAGE>
iEXALT, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

NOTE D SHORT-TERM BORROWINGS

Short-term borrowings at November 30, 2000 consisted of the following:

Revolving line of credit with bank, $150,000
interest at prime payable monthly, due
December 18, 2000, guaranteed by
shareholder and secured by Company assets

Convertible debentures, interest at 500,000
prime plus one half, due January 15, 2001

Other unsecured revolving lines of credit 70,066
in the form of credit cards, interest
ranging from 9.9% to 20.8%, payable
monthly
--------
$720,066
========

In August 1999, the Company negotiated a $50,000 revolving line of
credit with a bank. The credit line was increased to $150,000 in
December 1999. The line is secured by certain assets of the Company,
is guaranteed by a shareholder, and matured in late December 2000. The
Company continues to service the debt with interest payments and is in
discussion regarding a renewal of the credit line with the bank. In
October, 2000, the shareholder/guarantor of the line indicated that he
will not renew his guarantee.

On September 20, 2000, the Company agreed to issue $500,000 in
convertible debentures. The debentures bear interest at prime plus one
half and are convertible into common stock at the lesser of $0.17 per
share or fifty percent of the current market price. Originally,
principal and interest were due on October 20, 2000 but the due date
was extended to January 15, 2001. As additional consideration, the
Company issued a five-year warrant to purchase 1 million shares at
$1.13 per share to the holders of the convertible debentures. The
Company incurred non-cash expense of the Company's common stock of
$619,125 for the fair value of the warrants under SFAS No. 123. If the
debentures were converted at fifty percent of the market price of the
Company's shares as of January 12, 2001, then approximately 5,555,556
shares would be issued.

NOTE E NOTES PAYABLE TO SHAREHOLDERS

Notes payable to shareholders consist of the following at November 30,
2000:

Non-interest bearing note payable to
shareholder, due on demand secured
by all assets of NetXpress ....... $350,000

Unsecured notes payable to
shareholder, 8% interest,
due on demand .................... 195,000

Unsecured notes payable to
shareholder, 11.75%
interest, due on March 16, 2001 .. 55,000
--------
$600,000
========

12
<PAGE>
iEXALT, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

NOTE E NOTES PAYABLE TO SHAREHOLDERS (continued)

In connection with the acquisition of NetXpress, the Company assumed a
$350,000 note payable to a shareholder of the Company. Under the terms
of this note, the balance became payable on demand when the Company's
net assets exceeded $5,000,000. During the third quarter of 2000, the
Company reached this benchmark. As of November 2000, the shareholder
has made demand for payment through his attorney and the Company is
attempting to negotiate the payment terms.

During August 2000, two shareholders loaned the Company $195,000 and
$12,000, respectively under two separate demand notes each with an 8%
interest rate. The $12,000 demand note was repaid in November 2000.
Demand for payment of the $195,000 has been made through an attorney
and the company is currently attempting to negotiate payment terms.

During September 2000, a shareholder loaned the Company $55,000 under
a promissory note with an 11.75% interest rate due on or before March
16, 2001. The note was repaid in December 2000.

NOTE F LONG-TERM DEBT

Long-term debt at November 30, 2000 consisted of the following:

Note payable to bank, interest at
prime payable quarterly, due June
30, 2001, unsecured, guaranteed by
shareholder ...................... $550,000

Vehicle notes payable, interest
ranging from 1.9% to 14.25%,
maturing June 2001 to June 2004,
secured by vehicles .............. 119,779

Notes payable on various insurance
policies ......................... 72,828

Other unsecured note payable,
interest at 8%, due on demand .... 2,500
--------
745,107

Less: current maturities .......... 660,890
--------
$ 84,217
========

In November 2000, the Company agreed to terms for issuing convertible
debentures for $1,200,000 and the establishment of an 18-month equity
line of $3,000,000. In December the terms were modified to issue
$600,000 in convertible debentures and a $3,400,000 equity line. The
agreement is with Thomson Kernaghan & Co. Limited and provides for two
year debentures carrying a 10% accumulating interest rate and is
convertible into common shares at 75% of the average closing bid price
for the 10 trading days before the closing date or the conversion
date, whichever price is less. Upon closing, the Company will issue
five-year warrants to purchase 1,250,000 shares of its common stock
with an exercise price equal to 110% of the average closing bid price
for the three trading days preceding closing. In addition, the
agreement requires the Company to file a registration statement with
the Securities and Exchange Commission within thirty days of closing.
Definitive agreements were signed and effective December 11, 2000 and
the proposed transaction has been announced. To date, however,
approximately eighty-five percent of the $600,000 in committed funds
has been received and accordingly the transaction has not effectively
closed. The Company is currently working on the registration statement
to the Securities and Exchange Commission, as required.

13
<PAGE>
iEXALT, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

NOTE G SHAREHOLDERS' EQUITY

First Choice was sold to a company owned by a former member of the
Board of Directors in exchange for the assumption of future
liabilities. As a part of the transaction, the Company made a payment
to First Choice of $25,000 during October and issued 25,000 shares of
the Company's common stock to an employee for past services rendered.

The filtering software and related technology was sold to a former
employee of the Company. The Company issued 150,000 shares of the
Company's common stock with piggyback registration rights to the
former employee in exchange for a note receivable of $84,359, the
total of existing liabilities related to the filtering technology at
the closing.

A funding agreement related to the acquisition of a start-up internet
company that the Company had signed in April, 2000 was terminated. The
Company issued 100,000 shares of the Company's common stock with
piggyback registration rights, retained a 49% interest in the
start-up, and received a note for the total funds advanced of
$368,112. These assets were fully impaired at August 31, 2000 due to
the low probability of collecting the note receivable or realizing
future income from the equity interest.

On September 16, 2000, the Company issued 300,000 shares of its common
stock valued at $274,212 to SunState Equity Inc., for consulting
services related to corporate financing activities, market acceptance
of the Company's business and securities, recommendations relating to
specific business operations and investments, advice relating to
financial planning, and advice regarding future finances involving
securities of the Company.

On September 25, 2000, the Company granted a one-year option to
purchase 600,000 shares of the Company's common stock at an exercise
price of $0.02 per share to CSI for consulting services provided as
part of the Company's reorganization and restructuring. These options
were exercised on October 10, 2000 for $12,000. The Company incurred
non-cash expense of $681,773 for the fair value of the options under
SFAS No. 123.

On September 29, 2000, the Company acquired a seven percent indirect
interest in Sonora Behavioral Hospital, a 30-plus bed psychiatric
hospital in Arizona. The Company exchanged 150,000 shares of its
common stock for the interest in Integral Behavioral Health Services,
Inc., to the 100% owner and operator of Sonora.

On October 17, 2000, the Company sold 879,906 shares of common stock
to an accredited investor for $560,000.

On October 18, 2000, the assets of Northwest Christian Journal
("NWCJ"), a monthly Christian newspaper in the Seattle area, were
acquired for 37,500 shares of the Company's common stock and cash
proceeds of $7,500. On October 29, 2000, the assets of the Christian
Blue Pages, LLC ("Blue Pages") which produces a directory of Christian
businesses in four editions in Southern California, were acquired in
exchange for 60,000 shares of the Company's common stock and a
percentage of the first year's advertising revenues.

14
<PAGE>
iEXALT, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

NOTE G SHAREHOLDERS' EQUITY (Continued)

Effective November 1, 2000, the Company acquired all the assets of
Rapha ("Rapha"), a Christian inpatient mental health management
company. Under the terms of the acquisition agreement, the Company
issued 200,000 shares of common stock at closing. If on October 29,
2002, the average price of the Company's stock for the 20 preceding
days does not equal or exceed $5.00 per share, the company will issue
additional common stock such that the total shares multiplied by the
average price determined above is equal to $1 million.

On November 21, 2000, in exchange for 75,000 shares of the Company's
common stock, the Company concluded a strategic relationship agreement
with Shepherd Productions, Inc. in which two websites were purchased
and commitments for future collaborative efforts were formalized such
as the development of radio and internet related programs.

On November 29, 2000, in exchange for 75,000 shares of the Company's
common stock, the Company concluded a strategic relationship agreement
with Dawson McAllister in which the Company's products and services
will be marketed through radio and internet related communications.

On November 2, 2000 a signing bonus of 50,000 shares of the Company's
common stock was provided per an agreement of employment and
non-competition with Christopher Clem, Vice President - Marketing.

NOTE H INCOME TAXES

The Company has had losses since inception and, therefore, has not
been subject to federal income taxes. As of November 30, 2000 the
Company had an accumulated taxable net operating loss ("NOL")
carryforward for income tax purposes of approximately $10.6 million,
resulting in a deferred tax asset of $3.7 million. These carryforwards
begin to expire in 2019. Because U.S. tax laws limit the time during
which NOL and tax credit carryforwards may be applied against future
taxable income and tax liabilities, the Company may not be able to
take full advantage of its NOL and tax credits for federal income tax
purposes. A valuation allowance has been established to fully offset
the deferred tax assets.

NOTE I BUSINESS SEGMENTS

The Company's operations are grouped into three business segments
based on types of service and delivery media: internet and technology
applications, print publications, and healthcare services. Internet
and technology applications consist of the filtered ISP and portal,
Electronic Publishing, ChristianSpeakers.com, ListenFirst.com, and
Life Perspectives. Print publications consist of Christian Happenings
and Christian Times and healthcare services consist of the counseling
programs of PremierCare and Rapha.

15
<PAGE>
iEXALT, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

NOTE I BUSINESS SEGMENTS (continued)

The Company's reportable segment information for the three months
ended November 30, 2000 and 1999 was as follows:

<TABLE>
<CAPTION>
THREE MONTHS INTERNET & PRINT HEALTHCARE CORPORATE/ REPORTABLE
ENDED NOVEMBER TECHNOLOGY PUBLICATIONS SERVICES OTHER SEGMENTS
---------------- ------------ ------------ ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Revenues:
2000 $ 1,123,228 $ 472,556 $ 851,205 $ -- $ 2,446,989
1999 $ 326,831 $ 126,824 $ -- $ -- $ 453,655

Gross Profit:
2000 $ 256,305 $ 169,849 $ 309,256 $ -- $ 735,410
1999 $ 50,153 $ 59,277 $ -- $ -- $ 109,430

(Loss)/Income
from operations:
2000 $ (393,300) $ (28,505) $ 49,616 $(2,333,865) $(2,706,054)
1999 $ (124,344) $ (8,927) $ -- $ (373,777) $ (507,048)

Depreciation/Amort:
2000 $ 33,928 $ 21,128 $ 22,425 $ 5,684 $ 83,165
1999 $ 4,935 $ 1,700 $ -- $ 5,475 $ 12,110

Assets:
2000 $ 4,158,204 $ 1,416,747 $ 2,441,262 $ 901,491 $ 8,917,704
1999 $ 576,752 $ 457,898 $ -- $ 177,737 $ 1,212,387
</TABLE>

The following table reconciles reportable segment gross profit to the
Company's consolidated loss before income taxes for the three months
ended November 30, 2000 and 1999:

NOVEMBER 30, NOVEMBER 30,
2000 1999
----------- -----------
Gross profit of reportable
segments ................ $ 735,410 $ 109,430
Other expenses ......... 3,441,464 616,478
----------- -----------
Loss from operations ..... 2,706,054) (507,048)
----------- -----------
Other Income/(Expense)
Interest income ........ 2,977 4,889
Interest expense ....... (37,566) (774)
----------- -----------
Loss before income taxes . $(2,740,643) $ (502,933)
=========== ===========

16
<PAGE>
iEXALT, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

NOTE J SUBSEQUENT EVENTS

In November 2000, the Company agreed to terms for issuing convertible
debentures for $1,200,000 and the establishment of an 18-month equity
line of $3,000,000. Subsequently the terms were modified to issue
$600,000 in convertible debentures and a $3,400,000 equity line. The
agreement is with Thomson Kernaghan & Co. Limited and provides for two
year debentures carrying a 10% accumulating interest rate and
convertible into common shares at 75% of the average closing bid price
for the 10 trading days before the closing date or the conversion
date, whichever price is less. Upon closing, the Company will issue
five-year warrants to purchase 1,250,000 shares of its common stock
with an exercise price equal to 110% of the average closing bid price
for the three trading days preceding closing. In addition, the
agreement requires the Company to file a registration statement with
the Securities and Exchange Commission within thirty days of closing.
Definitive agreements were signed and effective December 11, 2000 and
the proposed transaction has been announced. To date, however,
approximately eighty-five percent of the $600,000 in committed funds
has been received and accordingly the transaction has not effectively
closed. The Company is currently working on the registration statement
to the Securities and Exchange Commission, as required.

Subsequent to November 30, 2000, the Company entered into a lease
agreement for office space to be utilized by the CleanWeb internet
service provider personnel in Houston. The lease agreement specifies a
term of 36 months beginning February 1, 2001.The total Base Rental
includes approximately 3,042 square feet in rentable area and the for
a cost of $125,482 over the life of the lease.

Subsequent to November 30, 2000, the Company, in exchange for 20,000
shares of the Company's common stock, the Company concluded a
strategic relationship agreement with Wes Holloman in which a youth
newsletter will be supported in conjunction with iExalt staff.

Subsequent to November 30, 2000, the Company, in exchange for 50,000
shares of the Company's common stock, acquired Gilmore Marketing, Inc.
which is in the business of providing development, management, and
marketing services.

Subsequent to November 30, 2000, the Company resolved to issue 100,000
shares of its common stock to a shareholder with piggyback
registration rights in connection with any registration statement to
be filed.

Subsequent to November 30, 2000, the Company entered into an agreement
for legal services with Christian & Smith, Attorneys & Counselors At
Law, under which Christian & Smith will undertake to represent the
Company with regard to certain transactional, litigation, and related
matters.

17
<PAGE>
Part I- Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.

The following discussion should be read together with our financial
statements, which are included earlier this Form 10-QSB. The following
discussion contains certain forward-looking statements regarding our
expectations for our business and our capital resources. These expectations are
subject to various uncertainties and risks that may cause actual results to
differ significantly from these forward-looking statements.

General

iExalt, Inc., ("iExalt" or "Company"), was originally incorporated as
Louisiana Northern Gas, Inc. a Nevada corporation on April 23, 1979. The name of
the Company was changed to Sunbelt Exploration, Inc. on December 21, 1979. From
1989 until September 1, 1999, the Company had very limited operations.

On September 1, 1999, the Company consummated a merger (hereinafter
referred to as the "Merger") with iExalt, Inc., a Texas corporation incorporated
on January 7, 1999, ("iExalt-Texas") whereby the shareholders of iExalt-Texas
acquired an approximate 89% ownership interest in the Company. The Merger has
been accounted for as a reverse takeover with the Company being the surviving
legal entity and iExalt-Texas being the acquiror for accounting purposes.
Concurrent with the Merger, the Company changed its name from Sunbelt
Exploration, Inc. to iExalt, Inc.

The Company blends the Internet and traditional media to provide products
and services to Christian families, businesses, schools and other organizations.
The Company currently operates as a nationwide filtered Internet Service
Provider, publishes Christian electronic books and reference materials, a
Christian events magazine, a Christian newspaper, produces a radio program in 48
markets five nights per week, and operates a Christian music news website and
one of the largest speakers bureaus dedicated to Christian speakers. In
addition, the Company sells tickets for Christian events, owns and markets its
own business-to-business Internet content management products. The Company
provides psychiatric counseling services for senior citizens in 5 states.
Healthcare revenues are earned from the implementation and management of
geriatric psychiatric programs for hospitals and other health facilities. The
Company also operates a Christian inpatient mental health management company.

iExalt is a company formed to meet the needs of the Christian community.
Our mission is to develop and deliver products, services and Internet solutions
to support families, businesses and other organizations that share Christian
principles and values. We are developing and acquiring proprietary products and
services to perform our mission.

On September 13, 2000, the Chairman of the Board and Chief Executive
Officer Jack I. Tompkins, Board member Jim P. Wise, and the Chief Operating
Officer Kirwin Drouet resigned. Both the Board of Directors and the resigning
directors and officers stated that the resignations resulted from philosophical
management differences and were unrelated to operating performance or accounting
issues. Donald W. Sapaugh, who was the President of iExalt, was elected as our
Chairman and Chief Executive Officer.

In late September, 2000, we re-evaluated our business mix and projected
cash flows which resulted in the disposition of two businesses and the decision
to terminate our acquisition efforts on a third business. After disappointing
early results, we divested all of our interest in First Choice to the management
of that subsidiary for their assumption of future liabilities. And, in order to
remain focused on our mission, we divested ourselves of our filtering software
and related technologies to the management of that function for their assumption
of future liabilities, while retaining the rights to use the filtering software
in our ISP business and to market it in the Christian market. Our management
believed that the effort to take this technology to other markets would have
diverted too much of our capital and management attention away from our central
mission. We terminated the acquisition of a start-up Internet company with which
we had signed a funding agreement in April 2000, because of our perception of
delays in business prospects necessary for it to reach positive cash flow. The
value of the goodwill and intangible assets on our books as of August 31, 2000,
relating to First Choice and the prospective acquisition were fully impaired and
written down to zero within the year then ended. The carrying value of the
filtering and related software was reduced to the value of future cost savings
that we estimate will be realized by having our own filtering technology rather
than having to license it as is generally the case with other filtered ISP. In
addition to writing off the associated assets and paying expenses through the
time of disposition, we have made a supplemental payment of $25,000 to First
Choice and have issued 150,000 shares of our common stock to the filtering
software acquirer and 100,000 shares to the terminated acquisition target. We
acquired a note receivable from the filtering

18
<PAGE>
software acquirer of $84,359 and a note receivable from the terminated
acquisition target of $368,112 Also, as a result of the funding agreement, we
retained a 49% interest in the acquisition target as the note was not repaid by
the agreed upon date of January 1, 2001. These assets were fully impaired at
August 31, 2000 due to the low probability of collecting the note receivable or
realizing future income from the equity interest.

On September 16, 2000, the Company issued 300,000 shares of common stock
to a financial advisor for consulting services.

On September 29, 2000, we acquired an indirect seven percent interest in
Sonora Behavioral Health Hospital, LLC, a 30+ bed psychiatric hospital in
Arizona. Management believes this acquisition provides us with an opportunity to
expand our counseling activities. Our interest is held through Integral
Behavioral Health Service, Inc., in which we acquired a seven percent interest
in exchange for 150,000 shares of our common stock.

On October 3, 2000, we acquired all of the stock of ListenFirst.com, Inc.,
which operates a music news website, for 60,000 shares of our common stock. If
certain revenue and profit levels are reached over the next three years, a
maximum of 50,000 additional shares of common stock will be issued. This
acquisition provides us with another element to our mix of Internet websites
oriented to the Christian market. Management also believes it provides potential
synergies with radio programs and Christian events.

On October 17, 2000, the Company sold 879,906 shares of common stock to an
accredited investor for $560,000.

On October 18, 2000, we acquired substantially all of the assets of
Northwest Christian Journal for 37,500 shares of our common stock plus $7,500.
Northwest Christian Journal is a monthly Christian newspaper with a circulation
of about 20,000 published in the Seattle area. The newspaper is being renamed
Northwest Christian Times and is now operated by our Christian Times subsidiary.

On October 24, 2000, we acquired all of the outstanding stock of CleanWeb,
Inc., another filtered ISP, for 2,313,000 shares. iExalt is combining the
operations of iExalt.net and CleanWeb, but will continue to market under both
names. With the addition, we have over 7,000 subscribers to our filtered ISP
services.

On October 29, 2000, we acquired all of the assets of Christian Blue
Pages, LLC in exchange for 60,000 shares of our common stock and 25%-50% of the
first year's advertising revenues. Christian Blue Pages produces a "yellow
pages" of Christian businesses in four editions in southern California. Its
operations are now conducted through our Christian Times subsidiary.

Effective November 1, 2000, we acquired the assets of Rapha from PsyCare
America, LLC, expanding our counseling services to Christian inpatient mental
health management. Under the terms of the acquisition, we issued 200,000 shares
of common stock; if the average price of our common stock for the twenty trading
days preceding October 29, 2002, is less than $5.00 per share, we will issue
additional shares so that the total shares issued when multiplied by the average
price described above equals $1.0 million. Our chairman, chief executive
officer, and president had been president of Rapha Treatment Centers from 1987
to 1996, prior to its sale to PsyCare America, LLC.

On November 2, 2000 a signing bonus of 50,000 shares of the Company's
common stock was provided per an agreement of employment and non-competition.

On November 21, 2000, in exchange for 30,000 shares of our common stock,
we acquired from Alive Communications all of its speaker contracts and speaking
engagements relating to the Christian market. Alive is a leading provider of
speakers to the Christian community. Their business will be combined with
ChristianSpeakers.com.

On November 21, 2000, in exchange for 75,000 shares of the Company's
common stock, the Company concluded a strategic relationship agreement with
Shepherd Productions, Inc. in which two websites were purchased and commitments
for future collaborative efforts were formalized such as the development of
radio and internet related programs.

19
<PAGE>
On November 29, 2000, in exchange for 75,000 shares of the Company's
common stock, the Company concluded a strategic relationship agreement with
Dawson McAllister in which the Company's products and services will be marketed
through radio and internet related communications.

In addition, in June 2000, we entered into a funding agreement with an
Internet company under which we are advancing funds and directing their
management, pending the completion of a definitive acquisition agreement. Under
the funding agreement, if the acquisition is not consummated, we will be
entitled to repayment of the advances with interest plus a fifty percent
ownership interest in the company. As of this filing, the acquisition is still
anticipated but has not been consummated.

Our operating units are grouped into three business segments: (1) Internet
& Technology Applications, (2) Print Publications, and (3) Healthcare Services.
At August 31, 2000, Internet & Technology Applications consisted of our ISP
(iExalt.net), Electronic Publishing, our filtering technology, our portal
(iExalt.com), ChristianSpeakers.com, iExaltFamily.com, and the Life Perspectives
radio program. Since August 31, within this business segment, we have disposed
of iExaltFamily.com and the filtering software (outside of its use in the
Christian market) and we have added ListenFirst.com, contracts from Alive
Communications, and CleanWeb. Print Publications consisted of Christian
Happenings and Christian Times at August 31, 2000. Since August 31, 2000 we
added Northwest Christian Journal and Christian Blue Pages. Healthcare Services
consisted of PremierCare at August 31, 2000 and, since that time, we added our
interest in Sonora Behavioral Health Hospital and Rapha.

Results of Operations

As of November 30, 2000, Internet & Technology Applications consists of
the ISP (iExalt.net and CleanWeb), Electronic Publishing, filtering technology,
the portal (iExalt.com), ListenFirst.com, ChristianSpeakers.com, and the Life
Perspectives radio program; Print Publications consists of Christian Happenings
and Christian Times; and, Healthcare Services consists of PremierCare and Rapha.

Several of our products and services have a significant seasonality to
their revenues. In particular, Electronic Publishing is expected to have about
50% of its annual sales in the five months of September through January; the
five months April through August are usually the weakest, generating about 33%
of annual sales. ChristianSpeakers, which recognizes revenues when speaking
events occur, recognizes peak monthly revenues in March, April, May, September,
and October and troughs in November, December, July and August which may be 50%
or less than in the peak months. Christian Happenings also experiences weak
revenue in the months preceding the year-end holidays and the summer vacation
season, when there are fewer events. Christian Times revenues in the quarter
ending May 31 are about 15% above and for the quarter ending November 30 about
15% below the average for the year. ChristianSpeakers maintains a backlog of
business which may contract for speaking engagements up to a year (or more)
ahead of the actual engagement. Revenues are not recognized until the engagement
occurs.

Our net loss for the three months ending November 30, 2000 was $2,740,643.
However, this loss includes significant non-cash expenses totaling $1,881,681
associated with businesses that we disposed of in September, 2000, depreciation,
amortization, common stock shares issued for services provided, and stock
options and warrants that were granted for services. Excluding these non-cash
expenses, the loss for the three months ended November 30, 2000 was $858,962.

REVENUES

Internet & Technology Applications generate revenues from product sales,
speaker fees, subscriptions, user fees, and advertising. Revenues for Print
Publications consist of advertising and ticket service fees. Healthcare Services
revenues are revenues earned from hospitals for providing services in accordance
with our contracts. Total revenues were $2,446,989 for the three months ended
November 30, 2000 compared with $453,655 for the three months ended November 30,
1999. Our revenues by segment for the two periods are shown below.

20
<PAGE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED NOVEMBER 30,
---------------------------------------------------
2000 1999
------------------------ ------------------------
AMOUNT PERCENT AMOUNT PERCENT
REVENUES ------------------------ ------------------------

<S> <C> <C> <C> <C>
Internet & Technology Applications $1,123,228 46% $ 326,831 72%
Print Publications ............... 472,556 19% 126,824 28%
Healthcare Services .............. 851,205 35% -- - %
</TABLE>

COST OF SALES AND SERVICES

The Cost of Sales and Services was $1,711,579 for the three months ended
November 30, 2000 compared with $344,225 for the three months ended November 30,
1999. Our Cost of Sales and Services by segment for the two periods are shown
below.

<TABLE>
<CAPTION>
THREE MONTHS ENDED NOVEMBER 30,
--------------------------------------------
2000 1999
--------------------- ---------------------
AMOUNT PERCENT AMOUNT PERCENT
COST OF SALES AND SERVICES --------------------- ---------------------

<S> <C> <C> <C> <C>
Internet & Technology Applications $866,923 51% $276,678 81%
Print Publications ............... 302,707 18% 67,547 19%
Healthcare Services .............. 541,949 31% -- - %
</TABLE>

Cost of Sales and Services for Internet & Technology Applications include
royalties, direct labor, payments to speakers, Internet connectivity, and
communications costs. Cost of Sales and Services for Print Publications consist
of printing, shipping, delivery, credit card fees and direct labor. Healthcare
Services Cost of Sales and Services are primarily direct personnel costs.

SELLING, GENERAL AND ADMINISTRATIVE

Selling, General and Administrative costs were $3,205,037 for the three
months ended November 30, 2000 compared with $604,368 for the three months ended
November 30, 1999. Included in the three months ended November 30, 2000 are
significant non-cash expenses totaling $1,645,254 related to stock options and
warrants that were granted for services and common stock shares issued for
services provided. Excluding these non-cash expenses, the total Selling, General
and Administrative costs were $1,559,783 for the three months ended November 30,
2000. Selling, General and Administrative costs by segment for the two periods
are shown below.

<TABLE>
<CAPTION>
THREE MONTHS ENDED NOVEMBER 30,
----------------------------------------------------
2000 1999
------------------------ -------------------------
AMOUNT PERCENT AMOUNT PERCENT
SELLING, GENERAL AND ADMINISTRATIVE ------------------------ -------------------------

<S> <C> <C> <C> <C>
Internet & Technology Applications $ 615,677 19% $ 169,562 28%
Print Publications ............... 177,226 6% 66,504 11%
Healthcare Services .............. 237,215 7% -- - %
Corporate overhead ............... 2,174,919 68% 368,302 61%
</TABLE>

Selling, General and Administrative costs for Internet & Technology
Applications include primarily personnel and advertising costs. Selling, General
and Administrative costs for Print Publications consist of personnel and
communication services. Healthcare Selling, General and Administrative costs are
primarily personnel, travel and transportation. Corporate overhead costs are
mostly personnel, professional fees, and non-cash losses.

21
<PAGE>
Liquidity and Capital Resources

As of November 30, 2000, iExalt had $1,583,599 in current assets,
$4,063,429 in current liabilities and a retained deficit of $10,815,925. We had
a net loss of $2,740,643 for the three months ended November 30, 2000. Net cash
used by operating activities for the period was $1,075,675.

In August 1999, the Company negotiated a $50,000 revolving line of credit
with a bank. The credit line was increased to $150,000 in December 1999. The
line is secured by certain assets of the Company, is guaranteed by a
shareholder, and matured in late December 2000. The Company continues to service
the debt with interest payments and is in discussion regarding a renewal of the
credit line with the bank. In October, 2000, the shareholder/guarantor of the
line has indicated that he will not renew his guarantee.

In July 2000, we borrowed $550,000 from a bank under a term loan that is
due on June 30, 2001. The term loan is guaranteed by certain shareholders. The
guarantor of our line of credit has indicated that he will not renew his
guarantee on the line or term loan. The Company is considering alternatives to
secure, replace, or repay the term loan.

In August 2000, shareholders loaned funds to iExalt on demand notes
totaling $207,000 and an additional $55,000 was loaned by a shareholder in
September 2000. One of the shareholder loans made in August for $12,000 was
repaid in November. A shareholder loan of $350,000 was assumed in May 1999 with
the acquisition of NetXpress. Demand for payment has been made by a shareholder
on notes totaling $545,000 and the company is currently negotiating to arrange
payment.

On September 20, 2000, we agreed to issue $500,000 in convertible
debentures with interest 1/2% above prime, and convertible into common stock at
the lesser of $0.17 per share or 50% of the current market price and to grant
five-year warrants to purchase 1,000,000 shares at an exercise price of $1.13
per share. The debentures and warrants were granted one-half to Travin Partners
LLLP and one-half to TCA Investments, Inc. The original due date of October 20,
2000, for the debentures has been extended to January 15, 2001. If the
debentures are converted at fifty percent of the closing price as of January 12,
2001 of $0.18, approximately 5,555,556 shares would be issued.

On September 25, 2000, we granted options to the principals of Consulting
and Strategy International Inc. to purchase 600,000 shares at an option price of
$0.02 as compensation for extra services since August 2000. The underlying
shares were registered on our Form S-8 filed with the Commission on October 6,
2000, and we received $12,000 to exercise the options on October 10, 2000.

On October 17, 2000, we sold 879,906 unregistered shares of common stock
to an accredited investor for $560,000.

In November 2000, the Company agreed to terms for issuing convertible
debentures for $1,200,000 and the establishment of an 18-month equity line of
$3,000,000. In December the terms were modified to issue $600,000 in convertible
debentures and a $3,400,000 equity line. The agreement is with Thomson Kernaghan
& Co. Limited and provides for two year debentures carrying a 10% accumulating
interest rate and convertible into common shares at 75% of the average closing
bid price for the 10 trading days before the closing date or the conversion
date, whichever price is less. Upon closing, the Company will issue five-year
warrants to purchase 1,250,000 shares of its common stock with an exercise price
equal to 110% of the average closing bid price for the three trading days
preceding closing. In addition, the agreement requires the Company to file a
registration statement with the Securities and Exchange Commission within thirty
days of closing. Definitive agreements were signed and effective December 11,
2000 and the proposed transaction has been announced. To date, however,
approximately eighty-five percent of the commitment of $600,000 has been
received and accordingly the transaction has not effectively closed. The Company
is currently working on the registration statement to the Securities and
Exchange Commission, as required.

On September 16, 2000, we issued 300,000 shares valued at $274,212 to
Sunstate Equity Trading, Inc., a Florida corporation, as compensation for
consulting services as a financial advisor to the company.

Our working capital requirements and cash flow provided by operating
activities can vary from quarter to quarter, depending on revenues, operating
expenses, capital expenditures and other factors. Our on-going business

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will require substantial working capital. We anticipate that we will need to
raise substantial additional capital in order to succeed and to continue in
business. Since inception, we have experienced negative cash flow from
operations and will continue to experience negative cash flow for some time into
the future. Improvements are anticipated that could produce breakeven cash flow
from operating activities by summer, 2001. Nonetheless, it is not expected that
the internal source of liquidity will improve until significant net cash is
provided by operating activities, and until such time, we intend to rely upon
external sources for liquidity. Our sources of external and internal financing
are limited.

We have not entered into any arrangements with any other financial
institutions or third parties to provide additional financing, other than as
described above. If we are unable to obtain additional financing or raise
adequate working capital in the amounts desired and on acceptable terms, we will
be required to significantly reduce the scope of our presently anticipated
activities or may fail as a going concern.

Our financial statements are prepared using principles applicable to a
going concern, which contemplates the realization of assets and liquidation of
liabilities in the normal course of business. However, we do not have
significant cash or other material liquid assets, nor do we have an established
source of revenues sufficient to cover our operating costs and to allow us to
continue as a going concern. We may in the future experience significant
fluctuations in our results of operations. Such fluctuations may result in
volatility in the price and/or value of our common stock. Shortfalls in revenues
may adversely and disproportionately affect our results of operations because a
high percentage of our operating expenses are relatively fixed. Accordingly, we
believe that period-to-period comparisons of results of operations should not be
relied upon as an indication of future results of operations.

We will be required to obtain additional financing or capital to attain
profitable operations, and that capital may have provisions that could suppress
future stock prices or cause significant dilution to current shareholders. Our
internally generated cash flows from operations have historically been and
continue to be insufficient for our cash needs. It is not expected that the
internal source of liquidity will improve until significant net cash is provided
by operating activities which may not be achieved in the near term, and until
such time, we will rely upon external sources for liquidity. We believe that net
proceeds of future anticipated securities offerings, and giving effect to
revenues, which are projected to be realized from operations, should be
sufficient to fund ongoing operations and our business plan. However, our
anticipated offerings may not be undertaken, and if undertaken, may not be
successful or the proceeds derived from such offerings may not, in fact, be
sufficient to fund operations and meet the needs of our business plans or our
revenues may not be realized as projected. Our current working capital may not
be sufficient to cover cash requirements for the balance of the current fiscal
year or to bring the Company to a positive cash flow position.

FORWARD LOOKING INFORMATION

This report on Form 10-QSB includes "forward-looking statements" within
the meaning of SECTION 27A of the Securities Act of 1933 and SECTION 21E of the
Securities Exchange Act of 1934. These forward-looking statements may relate to
such matters as anticipated financial performance, future revenues or earnings,
business prospects, projected ventures, new products and services, anticipated
market performance and similar matters. The Private Securities Litigation Reform
Act of 1995 provides a safe harbor for forward-looking statements. To comply
with the terms of the safe harbor, we caution readers that a variety of factors
could cause our actual results to differ materially from the anticipated results
or other matters expressed in our forward-looking statements. These risks and
uncertainties, many of which are beyond our control, include (i) the sufficiency
of our existing capital resources and our ability to raise additional capital to
fund cash requirements for future operations, (ii) uncertainties involved in the
rate of growth and acceptance of the Internet, (iii) adoption by the Christian
community of electronic technology for gathering information, facilitating
e-commerce transactions, and providing new products, websites, and services,
(iv) volatility of the stock market, particularly within the technology sector,
and the ability to use our capital stock as a currency for acquisitions, and (v)
general economic conditions. Although we believe that the expectations reflected
in these forward-looking statements are reasonable, the expectations reflected
in these forward-looking statements may prove to have been incorrect.

We cannot guarantee any future results, levels of activity, performance or
achievements. Except as required by law, we undertake no obligation to update
any of the forward-looking statements in this Form 10-QSB after the date of this
report.

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Part II - Item 2. Changes in Securities.

The following transactions involving unregistered securities occurred
during the three months ended November 30, 2000, in transactions in which the
Company relied on the exemption from registration available under SECTION 4(2)
of the Securities Act of 1933, as amended.

First Choice was sold to a company owned by a former member of the Board
of Directors in exchange for the assumption of future liabilities. As a part of
the transaction, the Company made a payment to First Choice of $25,000 during
October and issued 25,000 shares of the Company's common stock to an employee
for past services rendered.

The filtering software and related technology was sold to a former
employee of the Company. The Company issued 150,000 shares of the Company's
common stock with piggyback registration rights to the former employee in
exchange for a note receivable of $84,359, the total of existing liabilities
related to the filtering technology at the closing.

The Company made the decision to cancel its acquisition efforts related to
a start-up internet company. The Company had been funding the start-up under a
management and funding agreement since April, 2000. Under the Termination
Agreement, the Company issued 100,000 shares of the Company's common stock with
piggyback registration rights, retained a 49% interest in the start-up and
received a note receivable for the total funds advanced of $368,112.

On September 16, 2000, the Company issued 300,000 shares of common stock
valued at $274,212 to SunState Equity Inc., for consulting services related to
corporate financing activities, market acceptance of the Company's business and
securities, recommendations relating to specific business operations and
investments, advice relating to financial planning, and advice regarding future
finances involving securities of the Company.

On September 25, 2000, the Company granted a one-year option to purchase
600,000 shares of the Company's common stock at an exercise price of $0.02 per
share to CSI for consulting services provided as part of the Company's
reorganization and restructuring. These options were exercised on October 10,
2000 for $12,000. The Company incurred non-cash expense of $681,773 for the fair
value of the options under SFAS No. 123.

On September 29, 2000 the Company acquired a seven percent indirect
interest in Sonora Behavioral Hospital, a 30-plus bed psychiatric hospital in
Arizona. The Company exchanged 150,000 shares of its common stock for the
interest in Integral Behavioral Health Services, Inc., the 100% owner and
operator of Sonora.

On October 3, 2000, the Company acquired all the stock of ListenFirst.com
("ListenFirst"), a Christian music news website for 60,000 shares of the
Company's common stock. If certain revenue or profit levels are reached over the
next three years, a maximum of 50,000 additional shares will be issued for the
acquisition.

On October 17, 2000, the Company sold 879,906 shares of common stock to an
accredited investor for $560,000.

On October 29, 2000, the assets of the Christian Blue Pages, LLC ("Blue
Pages") which produces a directory of Christian businesses in four editions in
Southern California, were acquired in exchange for 60,000 shares of the
Company's common stock and a percentage of the first year's advertising
revenues.

Effective November 1, 2000, the Company acquired all the assets of Rapha
("Rapha"), a Christian inpatient mental health management company. Under the
terms of the acquisition agreement, the Company issued 200,000 shares of common
stock at closing. If on October 29, 2002, the average price of the Company's
stock for the 20 preceding days does not equal or exceed $5.00 per share, the
company will issue additional common stock such that the total shares multiplied
by the average price determined above is equal to $1 million.

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On November 21, 2000, in exchange for 30,000 shares of the Company's
common stock, the Company acquired all of the speaker contracts and speaking
engagements related to the Christian market from Alive Communications ("Alive").

On November 21, 2000, in exchange for 75,000 shares of the Company's
common stock, the Company concluded a strategic relationship agreement with
Shepherd Productions, Inc. in which two websites were purchased and commitments
for future collaborative efforts were formalized such as the development of
radio and internet related programs.

On November 29, 2000, in exchange for 75,000 shares of the Company's
common stock, the Company concluded a strategic relationship agreement with
Dawson McAllister in which the Company products and services will be marketed
through radio and internet related communications.

On November 2, 2000 a signing bonus of 50,000 shares of the Company's
common stock was provided per an agreement of employment and non-competition to
Christopher Clem - Vice President Marketing.

Part II - Item 6. Exhibits and Reports on Form 8-K

(a) Exhibits

EXHIBIT DESCRIPTION OF EXHIBIT

3.1 Restated Articles of Incorporation of the Company (filed as
Exhibit 3.1 to the Company's Quarterly Report on Form 10-QSB
for the quarter ending February 29, 2000, as filed with the
Commission on April 14, 2000, is incorporated herein by
reference).

3.2 Amended Bylaws of the Company as adopted on April 24, 1979
(filed as Exhibit 3.2 to the Company's Quarterly Report on Form
10-QSB for the quarter ending February 29, 2000, as filed with
the Commission on April 14, 2000, is incorporated herein by
reference).

4.1 Investor's Rights Agreement, dated October 24, 2000 by and
among iExalt, Inc., certain shareholders of iExalt, and Ted L.
Parker (filed as Exhibit 4.1 to the Company's Current Report on
Form 8-K, as filed with the Commission on November 8, 2000, is
incorporated herein by reference).

4.2 Convertible Debenture issued to TCA Investments, Inc. on
September 20, 2000 (filed as Exhibit 4.4 to the Company's
Annual Report on Form 10-KSB for the year ended August 31,
2000, is incorporated herein by reference).

4.3 Convertible Debenture issued to Travin Partners LLLP on
September 20, 2000 (filed as Exhibit 4.5 to the Company's
Annual Report on Form 10-KSB for the year ended August 31,
2000, is incorporated herein by reference).

4.4 Warrants issued to TCA Investments, Inc. on September 20, 2000
(filed as Exhibit 4.6 to the Company's Annual Report on Form
10-KSB for the year ended August 31, 2000, is incorporated
herein by reference).

4.5 Warrants issued to Travin Partners LLLP September 20, 2000
(filed as Exhibit 4.7 to the Company's Annual Report on Form
10-KSB for the year ended August 31, 2000, is incorporated
herein by reference).

4.6 Letter Agreement between iExalt, , Inc. and Consulting &
Strategy International LLC dated September 25, 2000 (filed as
Exhibit 4.1 to the Company's Form S-8 as filed with the
Commission on October 6, 2000, is incorporated herein by
reference).

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10.1 Exchange Agreement among the Company, iExalt, Inc.-Texas, and
the Shareholders of iExalt, Inc.-Texas dated August 12, 1999
(filed as Exhibit 1.1 to the Company's Current Report on Form
8-K, as filed with the Commission on September 14, 1999, is
incorporated herein by reference).

10.2 Company's Directors' Stock Option Plan (filed as Exhibit 2.1 to
the Company's Current Report on Form 8-K, as filed with the
Commission on September 14, 1999, is incorporated herein by
reference).

10.3 Stock Purchase Agreement, dated September 27, 2000, between
iExalt, Inc. and iExalt Financial Services, Inc. (filed as
Exhibit 2.1 to the Company's Current Report on Form 8-K, as
filed with the Commission on October 12, 2000, is incorporated
herein by reference).

10.4 Stock Exchange Agreement, dated October 24, 2000, between
iExalt, Inc. and Ted L. Parker, the sole shareholder of
Cleanweb, Inc. (filed as Exhibit 2.1 to the Company's Current
Report on Form 8-K, as filed with the Commission on November 8,
2000, is incorporated herein by reference).

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(b) Reports on Form 8-K and Form 8-K/A filed during the three months ended
November 30, 2000:

Form 8-K filed on September 19, 2000, reporting the change in
management effective September 13, 2000 and the press releases related
to that announcement.

Form 8-K/A filed on September 25, 2000 reporting (i) the acquisition by
iExalt of PremierCare LLC, and (ii) the financial statements and pro
forma financial information of the acquired company related to the
acquisition.

Form 8-K/A-2 filed on October 6, 2000 reporting the consent of the
Independent Certified Public Accountants with regard to the financial
statements of PremierCare, LLC included within the Form 8K/A filed with
the Securities and Exchange Commission on September 25, 2000.

Form 8-K filed on October 12, 2000, reporting the change in management
effective September 13, 2000 and the press releases related to that
announcement.

Form 8-K filed on October 12, 2000, reporting the disposition of First
Choice Marketing, Inc., the sale of assets of nXp Technologies, Inc.,
and the related filtering technology of the Company.

Form 8-K filed on November 8, 2000, reporting the acquisition of
CleanWeb, Inc., a Texas corporation which provides premium filtered
Internet access nationwide.

SIGNATURES

In accordance with the requirements Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.

iEXALT, INC.
January 15, 2001

By: /s/ CHRIS L. SISK
------------------
Chris L. Sisk, Executive Vice
President/Primary Financial Officer