SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-~~QSB~~Q

QUARTERLY REPORT UNDER SECTION 13 OR 15(Dd)

OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE QUARTERLY PERIOD ENDED ~~MARCH~~JUNE 31 30, ~~2005~~2006

Commission File Number 001-31718

Q COMM INTERNATIONAL, INC.

(Exact name of registrant as specified in its charter)

Utah	87-0674277
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

510 East Technology Avenue, Building C, Orem, Utah 84097

(Address, including zip code, of principal executive office)

(801) 226-4222

(Registrant’s telephone number, including area code)

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 whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. ~~(as~~See ~~defined~~definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act). (Check one):

~~Yes~~ Large accelerated filer |~~___~~__| No Accelerated filer |__| Non-accelerated filer | X |

~~Number of~~Indicate ~~shares~~ by ~~outstanding~~check ofmark ~~each~~whether of the ~~issuer's~~registrant ~~classes~~is ofa ~~common~~shell ~~stock,~~company (as ofdefined ~~the~~in Rule ~~latest~~ 12b-2 ~~practicable date: As~~ of ~~May 23, 2005, 5,485,794 shares of~~ the ~~issuer’s common~~Exchange ~~stock were outstanding~~Act).

Yes

|__|

| X |

Number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date: As of May 7, 2006 6,914,795 shares of the issuer’s common stock were outstanding.

Q COMM INTERNATIONAL, INC.

QUARTERLY REPORT ON FORM 10-Q

~~March 31~~June 30, ~~2005~~ 2006

TABLE OF CONTENTS

			PAGE
PART I	FINANCIAL INFORMATION
	Item 1.	Financial Statements	3
		Unaudited Condensed Consolidated Balance Sheet as of March 31, 2005 and December 31, 2004	3
		Unaudited Condensed Consolidated Balance Sheets as of June 30, 2006 and December 31, 2005	3
		Unaudited Condensed Consolidated Statements of Operations and Comprehensive Loss for the three months ended March 31, 2005 and 2004	4
		Unaudited Condensed Consolidated Statements of Operations and Comprehensive Loss for the Three and Six Months Ended June 30, 2006 and 2005	4
		Unaudited Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2005 and 2004	5
		Unaudited Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2006 and 2005	5
		Notes to Unaudited Condensed Consolidated Financial Statements	6
	Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	1513
	Item 4.	Controls and Procedures	25
	Item 3.	Quantitative and Qualitative Disclosures About Market Risk	22
	Item 4.	Controls and Procedures	22
PART II	OTHER INFORMATION
	Item 1.	Legal Proceedings	2623
	Item 6.	Exhibits and Reports on Form 8-K	26
	Item 1A.	Risk Factors	23
SIGNATURES			28
	Item 5.	Other Information	23
	Item 6.	Exhibits and Reports on Form 8-K	23

Table of Contents

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

Q COMM INTERNATIONAL, INC. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS

	March 31, 2005			December 31, 2004
	June 30,			December 31,
	2006			2005
ASSETS
Current Assets:
Cash and cash equivalents	$	~~777~~1,~~852~~629,999		$	13,~~698~~806,~~052~~904
Trade accounts receivable, net		~~998~~1,~~887~~062,252			~~895~~638,~~388~~725
Other receivable, net		-			61,434
Inventory, net		1,596,341			1,456,937
Inventory, net		918,586			1,081,637
Equipment held for resale		-			610,000
Prepaid expenses		~~846~~50,~~849~~648			~~156~~46,~~375~~550
Total Current Assets		34,~~542~~339,~~174~~240			36,~~892~~559,~~886~~116
Property and Equipment, net		4739,~~924,671~~148			41,~~382~~321,~~953~~564
Other Assets:
Restricted cash		~~524~~326,~~928~~912			~~510~~532,~~692~~875
Capitalized software development costs, net		~~866~~100,~~803~~374			1283,~~052,344~~762
Goodwill		144,580			144,580
Intangible assets, net		113,188			24,000
Deposits		~~149~~79,~~740~~917			~~149~~162,~~719~~432
Definite-lived intangible assets, net		152,328			166,667
Total Other Assets		620,391			1,003,069
Total Other Assets		1,838,379			2,024,002
Total Assets	$	5,698,779		$	8,883,749
Total Assets	$	10,305,224		$	10,299,841
LIABILITIES AND STOCKHOLDERS’ EQUITY
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable	$	1616,~~247,017~~120		$	1909,~~525,634~~231
Accrued expenses		~~385~~558,~~362~~516			~~281~~463,~~302~~974
Notes payable - related party		500,000			-
Capital lease obligations - current portion		87,056			390,906
Capital lease obligations - current portion		492,410			490,374
Total Current Liabilities	$	1,261,692		$	1,764,111
Total Current Liabilities		2,624,789			2,297,310
Long Term Liabilities:
Capital Lease Obligations, net of current portion		261,446			382,745
Related party obligation, net of unamortized discount of $145,965 and $223,216, respectively		468,035			390,784
Total Liabilities		2,886,235			2,680,055
Capital lease obligations, net of current portion		33,859			32,297
Commitments and Contingencies (Note 7)		-			-
Total Long term Liabilities		501,894			423,081
Stockholders' Equity:
Total Liabilities		1,763,586			2,187,192
Common stock, $.001 par value; 50,000,000 shares authorized, 5,087,794 and 4,859,044 shares outstanding, respectively		5,088			4,859
Commitments and Contingencies (notes 6, 7, 8, and 11)
Additional paid-in capital		28,448,313			27,333,779
Stockholders’ Equity:
Accumulated deficit		(21,071,806	)		(19,775,223	)
Common stock, $0.001 par value; 50,000,000 shares authorized, 6,914,795 shares outstanding		6,915			6,915
Accumulated other comprehensive income		48,162			67,139
Additional paid-in capital		35,476,198			35,038,139
Stock subscription receivable		(10,768	)		(10,768	)
Accumulated deficit		(31,590,387	)		(28,389,476	)
Total Stockholders' Equity		7,418,989			7,619,786
Accumulated other comprehensive income		53,235			51,747
Total Liabilities and Stockholders' Equity	$	10,305,224		$	10,299,841
Receivable from shareholder		(10,768	)		(10,768	)
Total Stockholders’ Equity		3,935,193			6,696,557
Total Liabilities and Stockholders’ Equity	$	5,698,779		$	8,883,749

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

Table of Contents

Q COMM INTERNATIONAL, INC. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

	For the Three Months Ended March 31,
	For the Three Months Ended						For the Six Months Ended
	2005			2004
	June 30,						June 30,
Revenues	$	15,303,892		$	8,487,830
	2006			2005			2006			2005
Expenses:
SALES AND REVENUE
Cost of goods sold		11,901,712			6,174,528
Prepaid PIN sales	$	12,009,522		$	12,634,887		$	24,051,724		$	20,569,749
Commissions and fees		2,927,946			2,024,907
Prepaid PIN fees		411,159			387,044			781,944			672,705
Selling		227,365			142,697
Product sales		51,605			4,315			885,949			26,380
General and administrative		1,046,258			782,639
Processing and other fees		155,885			296,447			307,814			531,118
Depreciation and amortization (1)		483,535			399,191
Total sales and revenue	$	12,628,171		$	13,322,692		$	26,027,431		$	21,799,952
Total Expenses		16,586,816			9,523,962
COST OF SALES AND REVENUE
Loss from Operations		(1,282,924	)		(1,036,132	)
Cost of prepaid PIN sales and fees		10,501,205			12,533,184			21,240,955			19,406,429
Other Income (Expense):
Cost of product sales		82,269			3,315			887,369			20,265
Interest income		6,740			13,948
Distribution commissions and fees		1,715,326			2,335,209			3,521,107			4,167,303
Interest and other expense		(20,399	)		(324,315	)
Total cost of sales and revenue		12,298,800			14,871,708			25,649,431			23,593,997
Total Other (Expense), net		(13,659	)		(310,367	)
Gross Profit (Loss)		329,371			(1,549,016	)		378,000			(1,794,045	)
Loss before Income Tax Provision		(1,296,583	)		(1,346,499	)
OPERATING EXPENSES
Income Tax Provision		-			-
Selling		378,270			232,626			730,866			459,991
Net Loss	$	(1,296,583	)	$	(1,346,499	)
General and administrative		1,078,749			1,457,948			2,253,657			2,540,206
Basic and Diluted Net Loss per Common Share	$	(.26	)	$	(.34	)
Non-cash compensation related to operations		210,044			-			438,059			-
Basic and Diluted Weighted Average Common Shares Outstanding		4,978,000			3,995,000
Depreciation and amortization		36,919			39,557			85,808			88,834
Other Comprehensive Loss:
Total operating expenses		1,703,982			1,730,131			3,508,390			3,089,031
Net Loss	$	(1,296,583	)	$	(1,346,499	)
Loss from operations		(1,374,611	)		(3,279,147	)		(3,130,390	)		(4,847,076	)
Foreign currency translation adjustment		(18,977	)		-
OTHER INCOME (EXPENSE)
Other Comprehensive Loss	$	(1,315,560	)	$	(1,346,499	)
Interest income		2,591			4,184			7,502			10,924
Interest and other expense		(26,379	)		(22,035	)		(78,023	)		(42,434	)
Total Other Income Expense, net		(23,788	)		(17,851	)		(70,521	)		(31,510	)
Net Loss	$	(1,398,399	)	$	(3,296,998	)	$	(3,200,911	)	$	(4,878,586	)
Basic and Diluted Net Loss per Common Share	$	(0.20	)	$	(0.61	)	$	(0.46	)	$	(0.94	)
Basic and Diluted Weighted Average Common Shares Outstanding		6,914,795			5,448,827			6,914,795			5,214,812
OTHER COMPREHENSIVE LOSS
Net loss	$	(1,398,399	)	$	(3,296,998	)	$	(3,200,911	)	$	(4,878,586	)
Foreign currency translation adjustment, net of tax		422			(48,164	)		1,488			(67,141	)
Comprehensive Loss	$	(1,397,977	)	$	(3,345,162	)	$	(3,199,423	)	$	(4,945,727	)

(1) Includes $434,258 and $382,815 of depreciation on terminals and amortization of capitalized software development applicable to cost of goods sold for periods ended March 31, 2005 and March 31, 2004, respectively.

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

Table of Contents

Q COMM INTERNATIONAL, INC. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

	For the Three Months Ended March 31,
	For the Six Months Ended
	2005			2004
	June 30,
Cash Flows from Operating Activities:
	2006			2005
Net loss	$	(1,296,583	)	$	(1,346,499	)
CASH FLOWS FROM OPERATING ACTIVITIES
Adjustments to reconcile net loss to net cash used by operating activities:
Net loss	$	(3,200,911	)	$	(4,878,586	)
Loss on sale or disposal of property and equipment		22,308			-
Adjustments to reconcile net loss to net cash used in operating activities:
Provision for doubtful accounts		50,000			30,000
Depreciation and amortization		907,019			952,237
Depreciation and amortization		483,535			399,191
Amortization of discount on debentures and notes		77,251			-
Amortization of discount on debentures and notes		-			300,947
Provision for doubtful accounts		274,473			159,108
Change in assets and liabilities:
Impairment and write-off of terminals		-			1,266,704
Receivables		(93,195	)		(86,690	)
Loss from PIN and handset inventory adjustments		-			535,005
Inventory		161,385			(584,612	)
Non-cash compensation related to options		438,059			-
Prepaid expenses		(690,474	)		-
Change in operating assets and liabilities
Other assets		(66	)		2,737
Accounts receivable		(698,000	)		(232,515	)
Accounts payable		(275,862	)		224,781
Inventory		(139,404	)		(1,074,689	)
Accrued expense		103,994			72,405
Deposit on handsets		-			285,005
Contingent liabilities		-			(70,000	)
Prepaid expenses		(4,099	)		117,576
Net Cash Used by Operating Activities		(1,534,958	)		(1,057,740	)
Accounts payable		(293,111	)		(708,971	)
Cash Flows from Investing Activities:
Accrued liabilities		94,543			395,722
Changes in restricted cash		(14,236	)		1,450,583
Other assets		82,515			2,739
Purchase of property and equipment		(814,857	)		(511,557	)
Net Cash Used in Operating Activities		(2,461,665	)		(3,180,665	)
Capitalized software development costs		(26,874	)		(82,187	)
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of intangible assets		(6,494	)		-
Change in restricted cash		205,963			(36,970	)
Net Cash Provided (Used) by Investing Activities		(862,461	)		856,839
Purchase of Intangible assets		(117,395	)		(6,494	)
Cash Flows from Financing Activities:
Purchase of property and equipment		(93,408	)		(799,064	)
Issuance of common stock		1,114,763			-
Proceeds from terminals held for sale		610,000			-
Cash received from subscription receivable		-			16,152
Capitalized software development costs		(19,600	)		(51,374	)
Proceeds from issuance of related party notes payable		500,000			-
Net Cash Used in Investing Activities		(585,560	)		(893,902	)
Payments on convertible notes payable		-			(1,230,000	)
CASH FLOWS FROM FINANCING ACTIVITIES
Principal payments on capital lease obligations		(119,263	)		(7,013	)
Proceeds from issuance of common stock		-			4,407,653
Net Cash Provided (Used) by Financing Activities		1,495,500			(1,220,861	)
Proceeds from issuance of related party notes payable and warrants		-			614,000
Net Decrease in Cash		(901,919	)		(1,421,762	)
Payments on capital lease obligations		(302,288	)		(242,041	)
Effect of Foreign Exchange Rates on Cash		(18,281	)		-
Net Cash Provided by (used in) Financing Activities		(302,288	)		4,779,612
Cash and Cash Equivalents, Beginning of Period		1,698,052			5,524,774
Net change in cash and cash equivalents		(2,178,393	)		705,045
Cash and Cash Equivalents, End of Period	$	777,852		$	4,103,012
Effect of foreign-exchange-rate changes on cash		1,488			(18,976	)
Cash and cash equivalents, beginning of year		3,806,904			773,052
Cash and cash equivalents, end of year	$	1,629,999		$	1,459,121
Supplemental Disclosures of Cash Flow Information:
Cash paid during the period for:
Interest	$	19107,~~106~~076		$	9219,~~047~~106

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

Table of Contents

Q COMM INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

~~Nature~~Basis of ~~Business~~ Presentation - The ~~Company's~~ accompanying ~~business~~unaudited ~~involves~~condensed ~~purchasing~~consolidated ~~and~~financial ~~reselling~~statements ~~prepaid~~have ~~telecommunication~~been ~~and~~ prepared ~~other~~in ~~products~~accordance ~~through~~with aGenerally ~~proprietary~~Accepted ~~electronic~~Accounting ~~point-of-sale~~Principles ~~activation~~in the ~~system~~ United ~~known~~States asof ~~Qxpress~~America. ~~The~~However, ~~Company~~certain ~~provides~~information ~~its~~or ~~products~~footnote todisclosures normally ~~end~~included ~~users~~in financial statements prepared in accordance with generally ~~throughout~~ accepted ~~the~~accounting ~~United~~principles ~~States~~have asbeen ~~well~~condensed asor ~~Canada,~~omitted ~~France,~~pursuant ~~Australia~~to the rules and regulations of the ~~Bahamas~~ Securities and Exchange Commission. ~~The~~In ~~Company~~the ~~has~~opinion of ~~not~~management, ~~paid~~the ~~any~~financial ~~dividends~~statements ~~and~~include ~~any~~all ~~dividends~~normal recurring adjustments that ~~may~~are ~~be paid~~necessary infor the ~~future~~fair ~~will~~presentation ~~depend~~of ~~upon~~ the ~~financial~~results ~~requirements~~ of the ~~Company~~interim ~~and~~ periods ~~other~~presented. ~~relevant~~Interim ~~factors.~~results ~~The~~are ~~Company~~not isnecessarily ~~headquartered~~indicative inof ~~Orem,~~results for the ~~Utah~~fiscal year. InThese ~~July 2004,~~financial statements should be read in conjunction with the Company’s ~~acquired~~audited ~~Point~~financial destatements ~~Vente~~for ~~(PDV),~~the ayear ~~company~~ended ~~located~~December in31, ~~Quebec~~2005, ~~Canada,~~ as ~~through~~set ~~the~~forth ~~acquisition~~in ofthe ~~100%~~Company’s ofAnnual ~~its~~Report ~~stock.~~on ~~Approximately~~Form ~~95%~~10-K, offiled with the ~~Company’s~~ Securities ~~revenues~~and ~~are~~Exchange ~~generated~~Commission inon ~~the~~March ~~United~~31, ~~States~~2006.

~~Unaudited~~Nature ~~Condensed~~ of ~~Consolidated Financial Statements~~ Business - The ~~accompanying~~ Company’s ~~financial~~business ~~statements~~involves ~~have~~purchasing ~~been~~and ~~prepared~~reselling byprepaid ~~the~~telecommunication and ~~Company~~other ~~without audit.~~products In(PINs) ~~the~~through ~~opinion~~a proprietary electronic point-of-sale activation ~~management,~~system ~~all~~known ~~adjustments~~as ~~(which~~Q ~~include~~Xpress. ~~only~~The ~~normal recurring~~Company ~~adjustments)~~provides ~~necessary~~its products to ~~present~~end users ~~fairly~~throughout the ~~financial~~United ~~position~~States as well as Canada, France, and the Bahamas. ~~results~~ The ofCompany ~~operations~~is ~~and~~headquartered ~~cash~~in ~~flows~~Orem, asUtah. ofDuring 2004, the ~~balance~~Company ~~sheet~~acquired Point ~~dates~~de Vente (PDV), ~~and~~a ~~for periods~~company ~~presented~~located in Quebec, ~~have~~Canada ~~been~~through ~~made~~the acquisition of 100% of its stock.

Certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. generally accepted accounting principles have been condensed or omitted. These condensed financial statements should be read in conjunction with the financial statements and notes thereto included in the Company's December 31, 2004 Form 10-KSB. The results of operations for the period ended March 31, 2005 are not necessarily indicative of the operating results for the full year.

Consolidation - The consolidated financial statements include the accounts of Q Comm International, Inc. and its wholly owned subsidiaries, Q Comm, Inc. and PDV. All intercompany balances and transactions have been eliminated in consolidation.

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

Key estimates in the accompanying consolidated financial statements include, among others, allowances for doubtful accounts ~~receivable~~, allowances for obsolete inventory, impairments of long-lived tangible and intangible assets, and accruals for litigation and contingencies.

~~Cash~~Definite-life ~~Equivalents~~ intangible assets - ~~For~~ ~~purposes~~ Definite-life intangible assets consists of ~~financial~~the ~~reporting~~purchase of Sun Communication on February 13, ~~the~~2006. The Company ~~considers~~accounts ~~all~~for ~~highly~~definite-life ~~liquid~~intangible ~~debt~~assets ~~investments~~ in accordance ~~purchased~~ with anprovisions ~~original~~of ~~maturity~~Statement of ~~three~~Financial ~~months~~Accounting orStandards ~~less~~“SFAS” No. 142, “Goodwill and Other Intangible Assets”. Intangible assets acquired in a purchase business combination and determined to have an indefinite useful life are not amortized, but instead are tested for impairment at least annually in accordance with the provisions of SFAS No. 142. Impairment losses arising from this impairment test, if any, are included in operating expenses in the period of impairment. SFAS No. 142 requires that definite intangible assets with estimable useful lives be amortized over their respective estimated ~~cash~~ useful ~~equivalents~~lives, and reviewed for impairment in accordance with SFAS No. 144, Accounting for Impairment or Disposal of Long-Lived Assets. Definite-life intangible assets are being amortized over a straight-line basis.

~~Receivables~~Net Loss Per Common Share - The ~~Accounts~~ Company ~~receivable~~computes ~~consist~~net ofloss ~~trade~~per ~~receivables~~common ~~arising~~share in ~~the~~accordance ~~normal~~with ~~course~~Statement of ~~business~~ Financial ~~and~~Accounting ~~other~~Standards ~~receivables~~No.128, At“Earnings ~~March~~Per 31Share,” ~~2005,~~which requires the Company to present basic earnings per share and ~~December~~dilutive ~~31,~~earnings ~~2004,~~per ~~the~~share ~~Company~~ when the ~~established~~effect anof ~~allowance~~options ~~for~~and ~~doubtful~~warrants ~~accounts~~is dilutive. Because the Company incurred losses of $~~269~~1,~~175~~398,399 and $~~336~~3,~~931~~296, ~~respectively,~~998 ~~which~~for ~~reflects~~ the ~~Company's~~three ~~best~~months ~~estimate~~ended ofJune ~~probable~~30, ~~losses for~~2006 ~~uncollectible~~ and 2005, ~~accounts.~~respectively, ~~The~~and ~~Company~~$3,200,911 ~~determines~~and ~~the~~$4,878,586 ~~allowance~~for ~~based~~the onsix ~~the~~months ~~status~~ended June 30, 2006 and ~~age~~2005, ofrespectively, the ~~accounts~~effect of options, ~~historical~~warrants ~~experience~~and convertible notes, totaling 2,846,993 and ~~other~~2,523,243 ~~currently~~equivalent ~~available~~shares, respectively, have ~~evidence.~~ been ~~Amounts~~excluded ~~written~~from ~~off~~the asnet ~~bad~~loss ~~debt~~per ~~expense~~common ~~for~~share ~~the~~computation ~~periods~~because ~~presented~~its ~~were~~impact ~~insignificant~~ would be antidilutive.

~~The~~Realization of ~~other~~assets - The ~~receivable~~ accompanying ~~consists~~consolidated offinancial anstatements ~~amount~~have ~~that~~been ~~became~~prepared ~~due~~in ~~from~~conformity with aaccounting ~~provider~~principles ofgenerally ~~product~~accepted in the United States of America, ~~2004~~ which contemplates continuation of the Company ~~distributes~~as a going concern. ~~The~~However, the Company ~~product~~sustained ~~was~~losses ~~faulty~~of $1,398,399 and ~~was~~$3,296,998 ~~returned~~for to the three months ~~distributor.~~ ended June ~~However~~30, ~~the~~2006 ~~distributor~~and ~~has~~2005, ~~not~~respectively, ~~reimbursed~~and ~~the~~sustained ~~Company~~losses of $3,200,911 and $4,878,586 for the ~~product~~ tosix ~~date~~months ended June 30, 2006 and 2005, respectively. ~~While~~As of June 30, 2006, the ~~distributor~~Company ~~remains~~has ~~committed~~an toaccumulated ~~reimburse~~deficit ~~the~~of $31,590,387. The Company used, rather than provided, cash in its operations in the amounts of $2,461,665 for the ~~amount~~six ~~owed~~months ofended ~~approximately~~June 30, 2006. At June 30, 2006, the Company had $1,~~000~~629,~~000~~999 of cash, ~~there~~$3,130,746 isof noworking ~~assurance that~~capital ~~this~~and ~~will~~$3,935,193 ~~take~~of stockholders’ ~~place~~equity. ~~Accordingly,~~If the Company ~~has~~continues ~~recorded~~to anincur ~~allowance~~losses or if operations ~~for~~ continue ~~the~~to ~~total~~use ~~amount~~cash ofat ~~this~~rates ~~receivable~~similar asto ofthe ~~March~~six 31months ended June 30, ~~2005~~2006, the Company ~~and~~may ~~December~~not 31have sufficient cash, working capital or net assets to sustain ~~2004~~ its operations. These conditions raise substantial doubt about the Company’s ability to continue as a going concern.

~~Inventory~~In view of -the matters described in the preceding paragraph, the recoverability of ~~Inventory~~ a major ~~consists~~portion of ~~prepaid~~the ~~telecommunication~~recorded-asset ~~products~~amounts ~~acquired~~shown byin the ~~Company~~accompanying ~~and~~ consolidated balance sheets is ~~carried~~dependent atupon the ~~lower~~following: continued operations of ~~cost~~the orCompany, ~~market~~raising ~~value~~additional ~~using~~capital ~~the~~from ~~first-in~~investors, ~~first-out~~ and succeeding ~~method~~in its future operations. ~~Inventory~~The isfinancial ~~carried~~statements ~~net~~do ofnot include anany ~~allowance~~adjustments ~~for~~relating ~~obsolescence~~to the recoverability and classification of ~~$375,000.~~ recorded-asset ~~Inventory~~amounts ~~which~~or ~~has~~amounts ~~been~~and ~~paid~~classification ~~for~~of ~~but~~liabilities ~~not~~that ~~received~~might be asnecessary ofshould the ~~balance sheet~~Company ~~date~~be isunable ~~reflected~~to continue as a ~~prepaid~~going ~~expense~~concern.

~~Depreciation -~~Unless ~~Depreciation~~ the ofCompany ~~property~~can ~~and~~significantly ~~equipment~~increase isthe ~~provided~~number ~~using~~of ~~the~~terminals ~~straight-line~~in use, it will ~~method~~ continue ~~over~~to incur losses for the ~~estimated~~foreseeable ~~useful~~future. ~~lives~~The Company plans to allocate a significant amount of working capital to sales and marketing in an attempt to increase the ~~assets~~number of ~~three~~terminals in use as well as developing new products and services with higher profit margins. The Company also plans on raising additional capital in 2006 to ~~five~~meet ~~years~~its operating needs. There is no assurance that these plans will be successful.

Table of Contents

QStock ~~COMM~~ Options - ~~INTERNATIONAL~~The Company has stock option plans that provide for stock-based employee compensation, ~~INC~~including the granting of stock options, to certain key employees. The ~~AND~~plans ~~SUBSIDIARIES~~are more fully described in Note 9. Prior to January 1, 2006, the Company applied APB Opinion No. 25, “Accounting for Stock Issued to Employees”, and related Interpretations in accounting for awards made under the Company’s stock-based compensation plans. Under this method, compensation expense was recorded on the date of grant only if the current market price of the underlying stock exceeded the exercise price.

~~NOTES~~During TO the ~~UNAUDITED~~periods ~~CONDENSED~~presented ~~CONSOLIDATED~~in ~~FINANCIAL~~the ~~STATEMENTS~~accompanying financial statements, the Company has granted options under its 2000, 2003 and 2004 defined stock options plans. The Company has adopted the provisions of SFAS No. 123R using the modified-prospective transition method and the disclosures that follow are based on applying SFAS No. 123R. Under this transition method, compensation expense recognized during the three and six months ended June 30, 2006 included: (a) compensation expense for all share-based awards granted prior to, but not yet vested as of January 1, 2006, and (b) compensation expense for all share-based awards granted on or after January 1, 2006. Accordingly, for the three and six month periods ended June 30, 2006, compensation cost of $210,044 and $438,059, respectively, has been recognized for grants of options to employees and directors in the accompanying statements of operations for the three and six month periods ended June 30, 2006. In accordance with the modified-prospective transition method, the Company’s financial statements for the prior year have not been restated to reflect, and do not include, the impact of SFAS 123R. Had compensation cost for the Company's stock option plans and agreements been determined based on the fair value at the grant date for awards in 2005 consistent with the provisions of SFAS No. 123R, the Company's net loss and basic net loss per common share would have been increased to the pro forma amounts indicated below:

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

	For the Three Months Ended June 30, 2005			For the Six Months Ended June 30, 2005

Net loss, as reported	$	(3,296,998	)	$	(4,878,586	)
Plus stock-based employee compensation expense included in reported net loss, net of related tax effects		-			-
Less stock-based employee compensation expense determined under fair value based method for all awards, net of related tax effects		(166,888	)		(350,331	)

Pro forma net loss	$	( 3,463,886	)	$	(5,228,917	)

Basic net loss per common share, as reported	$	(0.61	)	$	(0.94	)
Pro forma net loss per common share	$	(0.64	)	$	(0.96	)

~~Intangible~~Reclassifications ~~Assets~~ - ~~The~~ ~~Company~~ Certain ~~accounts~~reclassifications ~~for~~to ~~intangible assets under~~ the ~~provisions~~2005 ofamounts ~~Statement~~have ~~of Financial~~been ~~Accounting~~made ~~Standards~~to ~~No.~~conform ~~142, "Goodwill and Other Intangible Assets"~~to ~~(SFAS~~ the 2006 Nopresentation. ~~142). The Company does not record amortization on goodwill.~~

~~The~~Recently ~~Company~~ Enacted ~~capitalizes software development costs incurred to develop certain of the Company's products and services in accordance with Statement of Position 98-1, "~~Accounting for the Costs of Computer Software Developed or Obtained for Internal Use" (SOP 98-1). Costs are capitalized only after the technological feasibility of the project has been established. In accordance with SFAS No. 142, the Company has recorded its software development costs as a definite-lived intangible asset and is amortizing these costs over the three-year estimated useful life of the software. Standards

~~Impairment~~In of February ~~Long-lived~~2006, ~~Assets -~~the ~~In accordance~~FASB ~~with~~issued SFAS No. ~~144,~~ “155, Accounting for ~~the~~Certain ~~Impairment~~Hybrid orFinancial ~~Disposal~~Instruments — an amendment of ~~Long-Lived Assets,” long-lived assets, such as~~FASB ~~property~~ Statements ~~and~~No. 133 ~~equipment,~~ and ~~purchased intangibles subject to amortization, are~~140. ~~reviewed~~ SFAS No. 155 ~~for~~resolves ~~impairment~~issues ~~whenever~~addressed ~~events or changes~~ in ~~circumstances indicate~~SFAS No. 133 ~~that~~ Implementation ~~the~~Issue ~~carrying amount of an asset may not be recoverable~~No. ~~Recoverability~~D1, ofApplication ~~assets to be held and used is measured by a comparison~~ of ~~the~~Statement 133 ~~carrying amount of an asset or asset group~~ to ~~estimated~~Beneficial ~~undiscounted~~Interests ~~future~~in ~~cash~~Securitized ~~flows expected to~~Financial be Assets. SFAS No. 155 will ~~generated~~become byeffective ~~the~~for ~~asset. If~~ the ~~carrying~~Company’s ~~amount~~fiscal ofyear anafter ~~asset or asset group~~September 15, ~~exceeds~~ 2006. ~~its~~The ~~estimated~~impact ~~future~~of ~~undiscounted~~SFAS ~~cash~~No. ~~flows,~~155 anwill ~~impairment~~depend ~~charge~~on ~~is recognized for~~ the ~~amount~~nature byand ~~which~~extent ~~the carrying amount~~ of ~~the~~any new derivative ~~asset~~instruments ~~exceeds~~entered ~~the fair~~into ~~value~~after of the ~~asset.~~effective date.

~~Fair~~NOTE ~~Value~~ 2 ~~of Financial Instruments~~ - ~~The~~ ~~carrying~~ PROPERTY ~~values~~AND ~~reported~~EQUIPMENT in the accompanying condensed consolidated financial statements for accounts receivable, other receivable and accounts payable approximate fair values because of the immediate or short-term maturities of these financial instruments. The carrying values of capital lease and notes payable obligations also approximate their fair value.

~~Revenue Recognition -~~ The ~~Company~~ following uses two models to generate revenues: the broker model and the service bureau model. Under the broker model, which has been and continues to be the dominant alternative, the Company sells its prepaid products through retail locations. Revenue is ~~recognized~~a atsummary ~~the time products are sold. Sales~~ of ~~the Company's~~property ~~products are generally made directly to end-users. There is no right of return for products sold~~ and ~~the~~equipment: Company is not obligated for further performance after the sale. These sales transactions are accounted for at "gross" since the Company meets the requirements specified by Securities and Exchange Commission Staff Accounting Bulletin No. 104 (SAB 104) and Emerging Issues Task Force No. 99-19 (EITF 99-19). For period ended March 31, 2005 the Company derived approximately 55% of its revenue through unconsigned PIN purchases and 44% through PINs purchased on consignment. In cases where the Company does not own the product sold and another entity retains such risk and reward of product ownership or where certain other requirements of SAB 104 or EITF 99-19 are not met, the Company records revenues on a "net" basis.

The Company uses the service bureau model primarily with international customers. In this model, the Company licenses its proprietary software and sells its point-of-sale terminals. The customer is responsible for operation of the system and providing services to its retail stores. The Company’s service bureau contracts separately identify pricing for software licensing, purchases of terminals, future technical support billed at hourly rates, and ongoing fees based on either transaction volume or revenues processed through the system. Each of these deliverables has value to the customer on a standalone basis and comprises a separate unit of accounting, as defined in EITF 00-21. Revenues for each of these elements are based on the value of the services, software or terminals sold as determined by vendor specific objective evidence. Such revenue represented 0.3% and 1.8% of revenues for the periods ended March 31, 2005 and 2004, respectively.

	June 30,			December 31,
	2006			2005

Point of sale terminals and related items - in service	$	2,294,702		$	1,821,225
Office and computer equipment		591,236			488,665

Total cost of depreciable equipment		2,885,938			2,309,800
Accumulated depreciation and amortization		(2,225,910	)		(1,134,947	)

Property and equipment in service, net		660,028			1,174,943
Point of sale terminals and related items - not placed in service		79,160			146,621

Total	$	739,188		$	1,321,564

The Company also generates revenue from the sale or rental of terminals, minimum performance fees and sales of other products. These sales are recorded net of sales discounts and allowances when billed.

Cost of Goods Sold - Cost of goods sold consists primarily of the costs of the prepaid telecommunication and other miscellaneous products sold at retail and terminals sold to customers. The full cost of the product, as well as all direct costs associated with the sale of the product, is recorded at the time of sale. Cost of goods sold does not include commissions and fees paid to brokers and other intermediaries and transaction processing fees paid to a third party. Those costs are recorded separately in operating expenses. For periods ended March 31, 2005 and March 31, 2004 there was $434,258 and $382,815 respectively, of cost of goods sold related to depreciation on terminals and amortization of capitalized software development costs. Such amounts are included in depreciation and amortization expense in the accompanying unaudited consolidated statements of operations and comprehensive loss.

Table of Contents

QPoint ~~COMM~~ of sale ~~INTERNATIONAL,~~terminals ~~INC~~that are held by the Company as property and equipment will either be sold to customers or placed in service with the Company retaining ownership. ~~AND~~The ~~SUBSIDIARIES~~Company begins depreciating the terminals that it owns at the time they are shipped to the broker or retailer. Depreciation expense for the three months ended June 30, 2006, and 2005 was $322,452 and $216,741, respectively, and depreciation expense for the six months ended June 30, 2006, and 2005 was $665,645 and $442,457, respectively.

~~NOTES~~NOTE TO 3 ~~UNAUDITED~~- DEFINITE-LIFE ~~CONDENSED~~INTANGIBLE ~~CONSOLIDATED FINANCIAL STATEMENTS~~ASSETS

~~NOTE~~On 1 February 16, 2006, the Company acquired certain assets from Sun Communications, including approximately 350 merchant locations and terminals for $150,000 in cash. In addition, the Company is obligated to pay an earn-out provision ~~SUMMARY~~totaling OFup ~~SIGNIFICANT~~to ~~ACCOUNTING~~$50,000 ~~POLICIES~~based ~~(Continued)~~on acceptance of certain performance criteria. The earn-out provision provides for a $15,000 prepayment that was made to Sun Communications on August 10, 2006 and the remainder, if earned, is due February 2007. As of June 30, 2006 the purchase price was allocated as follows:

Net Loss Per Common Share - The Company computes net loss per common share in accordance with Statement of Financial Accounting Standards No. 128, "Earnings Per Share," which requires the Company to present basic earnings per share and dilutive earnings per share when the effect of options/warrants and convertible notes is dilutive. Because the Company incurred losses for the three months ended March 31, 2005 and 2004, the effect of options/warrants and convertible notes totaling 2,611,243 and 2,377,076 equivalent shares, respectively, has been excluded from the net loss per common share computation since its impact would be antidilutive.

Terminal equipment	$	14,605
Customer locations		135,395

Total	$	150,000

~~Income~~Definite ~~Taxes~~ life ~~- The Company~~intangible ~~accounts~~assets ~~for~~consist ~~income taxes in accordance with Statement~~ of ~~Financial Accounting~~the ~~Standards~~following ~~No.~~as 109, "Accounting for Income Taxes." This statement requires an asset and liability approach for accounting for income taxes. The Company had available at March 31, 2005, net operating loss carry forwards of ~~approximately~~ ~~$16,950,000,~~June ~~which may be applied against future taxable income~~30, ~~if any, and which expire in various years through 2024.~~ 2006:

Advertising - Advertising costs are expensed as incurred. Advertising costs totaled $18,860 and $5,561 for the periods ended March 31, 2005 and 2004, respectively.


Customer locations	$	135,395
Less: accumulated depreciation		(28,207	)

Total	$	107,188

~~Restricted~~The ~~Cash -~~ costs ~~Restricted cash~~ of ~~$524,928~~these atassets ~~March~~are ~~31,~~being ~~2005~~amortized ~~and~~over ~~$510,692~~their atremaining ~~December~~lives ~~31,~~of ~~2004,~~two years. is Amortization ~~maintained~~expense tofor ~~support~~the ~~letters~~three ofmonths ~~credit~~ended ~~covering~~June ~~capital~~30, ~~lease~~2006 ~~arrangements~~ and 2005 amounted to ~~secure~~$16,924 aand ~~bank~~$0, ~~account~~respectively, ~~used~~and amortization expense for ~~processing~~the ~~automated~~six ~~clearinghouse~~months ~~transactions.~~ ended InJune ~~order~~30, to2006 ~~secure~~and ~~the~~2005 ~~bank~~amounted ~~account~~to $28,207 ~~the~~and ~~Company~~$0, ~~must~~respectively. ~~maintain a~~The ~~balance~~ Company ofestimates 2%amortization ofexpense ~~the~~will ~~previous~~be ~~month’s~~as ~~total~~follows ~~transactions~~for ~~processed~~the ~~through~~years ~~the~~ended ~~account.~~ December 31,

Stock Options - In December 2003, the Financial Accounting Standards Board (FASB) issued SFAS No. 148, "Accounting for Stock-Based Compensation -- Transition and Disclosure, an amendment of FASB Statement No. 123". This Statement amends SFAS No. 123 to provide alternative methods of transition for a voluntary change to the fair value method of accounting for stock-based employee compensation. In addition, SFAS No. 148 amends the disclosure requirements of SFAS No. 123 to require prominent disclosures in both annual and interim financial statements.

2006	$	62,056
2007		67,698
2008		5,641

Total	$	135,395

~~The~~NOTE ~~Company~~ 4 ~~has stock option plans that provide for stock~~-~~based employee~~ ~~compensation,~~ CAPITALIZED ~~including~~SOFTWARE ~~the~~DEVELOPMENT granting of stock options, to certain key employees. The plans are more fully described in Note 9. The Company accounts for grants to employees and directors under its stock option plans in accordance with the recognition and measurement principles of APB Opinion No. 25, "Accounting for Stock Issued to Employees", and related Interpretations. Under this method, compensation expense is recorded on the date of grant only if the current market price of the underlying stock exceeded the exercise price. COSTS

~~During~~Information ~~the~~ related years presented in the accompanying financial statements, the Company has granted options under its 2000, 2003 and 2004 defined stock options plans. The Company has adopted the disclosure-only provisions of SFAS No. 123. Accordingly, no compensation cost has been recognized for grants of options to ~~employees~~capitalized ~~and directors~~software indevelopment ~~the~~costs ~~accompanying~~is ~~statements~~as of operations. Had compensation cost for the Company's stock option plans and agreements been determined based on the fair value at the grant date for awards in 2005 and 2004 consistent with the provisions of SFAS No. 123, the Company's net loss and basic net loss per common share would have been reduced to the pro forma amounts indicated belowfollows:

Capitalized software development costs, net, December 31, 2005	$	283,762

Capitalized software development costs, June 30, 2006		2,649,360
Accumulated amortization		(2,548,986	)

Capitalized software development costs, net, June 30, 2006	$	100,374

Of the balance of capitalized software development costs at June 30, 2006, approximately $1,200,000 was paid to a third-party software development company and other outside entities. The remaining costs represent capitalized internal costs, which are primarily employee salaries and benefits, and related capitalized interest of approximately $100,000 that was recorded during the time the project was under development.

The Company regularly tests capitalized software development costs for impairment in accordance with SFAS No.142. The Company uses the estimated future cash flows related to its capitalized software development costs and has determined that these costs were not impaired as of June 30, 2006. The Company amortizes capitalized software costs over a three-year period. During the three months ended June 30, 2006 and 2005, the Company recorded amortization expense of $0 and $212,415, respectively, and for the six months ended June 30, 2006 and 2005, the Company recorded amortization expense of $202,988 and $424,525, respectively.

Table of Contents

QNOTE ~~COMM~~ 5 ~~INTERNATIONAL, INC. AND SUBSIDIARIES~~- ACQUISITION

~~NOTES~~On TO February 16, ~~UNAUDITED~~2006, ~~CONDENSED~~the ~~CONSOLIDATED~~Company ~~FINANCIAL~~acquired ~~STATEMENTS~~certain assets from Sun Communications, including approximately 350 merchant locations and terminals. These assets were purchased for $150,000 in cash paid on February 16, 2005. In addition, the Company is obligated to pay an earn-out provision totaling up to $50,000 based on acceptance of certain performance criteria. The earn-out provision provides for a $15,000 prepayment that was made to Sun Communications on August 10, 2006 and the remainder, if earned, is due February 2007.

NOTE 1 6 - RELATED ~~SUMMARY~~PARTY ~~OF SIGNIFICANT ACCOUNTING POLICIES (Continued)~~OBLIGATIONS

	For the Three Months Ended March 31,
	2005			2004
Net loss, as reported	$	(1,296,583	)	$	(1,346,499	)
Plus stock-based employee compensation expense included in reported net loss, net of related tax effects		-			-
Less stock-based employee compensation expense determined under fair value based method for all awards, net of related tax effects		(183,443	)		(161,785	)
Pro forma net loss	$	(1,480,026	)	$	(1,508,284	)
Basic net loss per common share, as reported	$	(.26	)	$	(.34	)
Pro forma net loss per common share	$	(.30	)	$	(.38	)

In July 2005, the Company received $614,000 in cash from a major shareholder, who at the time was the Company’s Chairman of the Board of Directors, and entered into a written agreement, dated July 11, 2005, setting forth the terms of the debt financing. This debt arrangement is evidenced by a note bearing interest at an annual rate of 5% and is payable in full on or before July 7, 2007. The Company issued to this shareholder/director a warrant to purchase 230,000 shares of common stock that is exercisable for a period of five years at a price of $3.51 per share. The proceeds from the debt financing were allocated to the financial instruments issued, based upon their fair values, and resulted in an allocation of $315,240 to the note and $298,760 to the warrants.

~~Translation~~The of $298,760 ~~Foreign~~fair ~~Currencies~~value -of ~~The Company~~the ~~transacts~~warrant ~~business~~was inrecorded ~~Canadian~~as ~~dollars~~a ~~through~~discount ~~its~~against ~~wholly~~the ~~owned~~note. ~~subsidiary,~~ For ~~Point~~the dethree ~~Vente.~~months ~~The~~ended ~~foreign~~June ~~subsidiary~~30, ~~uses~~2006, ~~its~~the ~~local~~Company ~~currency~~recorded asrelated party ~~the~~ interest ~~functional~~expense ~~currency.~~of ~~Consequently~~$46,087 ~~assets~~on ~~and liabilities of~~ the ~~foreign subsidiary~~note, ~~have~~which ~~been~~includes ~~translated~~$38,412 related to the amortization ~~U.S.~~of ~~dollars~~the ~~using~~discount ~~period-end exchange rates. Income~~ and ~~expense~~$7,675 ~~items~~in ~~have~~accrued ~~been~~interest ~~translated~~expense. atFor the six months ~~average~~ended ~~rate~~June of30, ~~exchange during~~2006, the ~~period.~~Company ~~Any~~recorded ~~adjustment~~related ~~resulting~~party ~~from~~interest ~~translating the financial~~expense ~~statements~~ of $92,601 on the ~~foreign~~note, ~~subsidiary~~which isincludes ~~reflected~~$77,251 asrelated ~~accumulated~~to ~~other~~the amortization ~~comprehensive~~ of the ~~income~~discount ~~which~~and is$15,350 ain ~~component~~accrued ofinterest ~~stockholders’ equity~~expense.

NOTE 2 7 - LEASE ~~PROPERTY AND EQUIPMENT~~ OBLIGATIONS

~~The~~Certain ~~following~~ computer isequipment aand ~~summary~~point of sale terminals are leased under capital lease arrangements and are presented in the accompanying consolidated balance sheet as property and equipment:. At June 30, 2006, the total carrying cost of equipment that is held under capital leases and the related accumulated amortization was $132,111.

	March 31, 2005			December 31, 2004
Point of sale terminals and related items - in service	$	3,188,132		$	2,987,184
Office and computer equipment		371,820			341,140
Total cost of depreciable equipment		3,559,952			3,328,324
Accumulated depreciation and amortization		(1,520,606	)		(1,280,770	)
Property and equipment in service, net		2,039,346			2,047,554
Point of sale terminals and related items - not placed in service		2,604,569			2,054,643
Parts deposits held by manufacturers		280,756			280,756
Total	$	4,924,671		$	4,382,953

As of June 30, 2006, total future minimum lease payments for capital leases, including interest and other costs, are as follows:

Point of sale terminals held by the Company in property and equipment will either be sold to customers or placed in service with the Company retaining ownership. The Company begins depreciating terminals it owns at the time they are shipped to the broker or retailer. Depreciation expense for the periods ended March 31, 2005 and March 31, 2004 was $250,287 and $181,927, respectively.

Year Ending December 31:
2006	$	90,477
2007		10,630
2008		10,630
2009		10,630
2010		9,744

Total		132,111
Less interest and other costs		(11,196	)

Present value of future minimum lease payments		120,915
Less current portion		(87,056	)

Long-term portion	$	33,859

The Company has one capital lease arrangement which requires the Company to maintain a letter of credit equal to 50% of the original lease amount during the term of the lease. The Company secured the letter of credit with a restricted cash account at a financial institution, totaling approximately $189,000 at June 30, 2006.

The Company is committed under non-cancelable operating leases for office space and office equipment. Rent expense paid for the three months ended June 30, 2006 and 2005 was approximately $69,219 and $31,589, respectively. Rent expense paid for the six months ended June 30, 2006 and 2005 was approximately $112,827 and $56,730, respectively. The Company’s future minimum rental payments under operating leases at June 30, 2006 are as follows:

Year Ending December 31:
2006	$	111,082
2007		206,958
2008		219,716
2009		29,855
Total	$	567,611

Table of Contents

Q NOTE ~~COMM~~ 8 ~~INTERNATIONAL,~~- LITIGATION ~~INC.~~ AND ~~SUBSIDIARIES~~CONTINGENCIES

~~NOTES~~Q TO Comm ~~UNAUDITED~~International, ~~CONDENSED~~Inc. v. ~~CONSOLIDATED~~The ~~FINANCIAL~~Phone ~~STATEMENTS~~Store of Missouri, LLC and Kevin Montgomery. In April 2005, the Company filed an action against a PIN provider, due to approximately $1 million in deactivated PINs that the Company received in the fourth quarter of 2004. Subsequent to June 30, 2005, the Company determined that this obligation was approximately $1.5 million and includes, in addition to deactivated PINs, losses resulting from handsets paid for by the Company that were to be sold by the PIN provider. The PIN provider agreed to sell the handsets in order to reimburse the Company for both the handset purchase price and the PIN losses. However, the PIN provider did not reimburse the Company. The Company is proactively taking the appropriate legal action to recover the amount due. However, there is no assurance of repayment, and management recorded an allowance against the full amount of the receivable in the fourth quarter of 2004.

NOTE 3 9 - STOCK ~~GOODWILL~~OPTIONS AND ~~DEFINITE-LIVED~~WARRANTS ~~INTANGIBLE ASSETS~~

~~Goodwill~~Stock ~~consisted~~ Options of- The Company is authorized to issue stock options under three existing stock option plans approved by stockholders. The 2000 plan (133,333 shares), the ~~following~~2003 atplan (100,000 shares) and the 2004 plan (500,000 shares) allow for up to 733,333 shares to be issued under substantially similar terms. The fair value of each of the Company’s stock option awards is estimated on the date of ~~March~~grant 31using a Black-Scholes option-pricing model that uses the assumptions noted in the table below. The fair value of the Company’s stock Option awards is expensed on a graded vesting straight-line basis over the vesting period of the options, which is ~~2005~~generally between zero to three years. Expected volatility is based on an average of historical volatility of the Company’s stock. The risk-free interest rate for periods within the contractual life of the stock option award is based on the yield curve of a zero-coupon U.S. Treasury bond on the date the award is granted with a maturity equal to the expected term of the award. the Company uses historical data to estimate forfeitures within its valuation model. The expected term of awards granted is derived from historical experience under the Company’s stock-based compensation plans and ~~December~~represents ~~31,~~the period of time that ~~2004:~~ awards granted are expected to be outstanding.

Goodwill related to acquisition in 2000	$	224,561
Less accumulated amortization recorded prior to adoption of SFAS No. 142		(79,981	)
Net goodwill	$	144,580

The significant weighted average assumptions relating to the valuation of the Company’s Stock Options for the six months ended June 30, 2006, and 2005, were as follows:

In accordance with SFAS No. 142, goodwill is no longer amortized.

	For the Six Months Ended June 30,
	2006	2005
Dividend yield	0%	0%
Expected life	10 years	10 years
Expected volatility	86%	113%
Risk-free interest rate	4.6%	4.3%

~~The~~A ~~Company purchased approximately 300 customer accounts in August 2004. The cost~~ summary of the ~~accounts~~status ~~acquired~~of isoptions ~~categorized~~granted asat aJune ~~definite-life~~30, ~~intangible~~2006, ~~asset~~ and is ~~being~~changes ~~amortized~~during ~~over~~the ~~two years on a straight-line basis. Information related~~six to months ~~purchased~~then ~~intangible~~ended ~~assets~~are ~~at March 31, 2005 and December 31, 2004 is~~ as follows:

	March 31, 2005			December 31, 2004
	For the Six Months Ended June 30, 2006
Purchase price of accounts	$	206,494		$	200,000
	Shares			Weighted Average Exercise Price			Weighted Average Remaining Contractual Term		Aggregate Intrinsic Value
Less accumulated amortization		(54,166	)		(33,333	)
Outstanding at beginning of period		637,334		$	4.72			7.7 years
Net intangible assets	$	152,328		$	166,667
Granted		145,000			2.22
Exercised		-			-
Forfeited		(45,875	)		4.29
Expired		(37,125	)		5.64
Outstanding at end of period		699,334		$	4.18			7.6 years	$	0
Vested and expected to vest in the future		685,334		$	4.18			7.6 years	$	0
Exercisable at end of period		331,417		$	4.98			7.0 years	$	0
Weighted average fair value of options granted		145,000			1.92

~~Amortization~~The ~~expense~~ Company ~~for~~had 465,003 non vested options at the beginning of the period ~~ended~~with a weighted ~~March~~average ~~31,~~grant ~~2005~~date ~~was~~fair value of $~~20,833~~3.56. ~~There~~At ~~was~~June no30, 2006 the Company ~~amortization~~ had 367,916 non vested options with a weighted average grant date fair value of $2.99 resulting in unrecognized compensation expense ~~for~~$586,930 ~~the~~which is expected to be expensed over a weighted-average period ~~ended~~of ~~March~~0.8 ~~31,~~years ~~2004~~which is expected to vest and be expensed.

~~NOTE~~The 4 total intrinsic -value ~~CAPITALIZED~~of ~~SOFTWARE~~options ~~DEVELOPMENT~~exercised ~~COSTS~~during the six months ended June 30, 2006 and 2005 was $0 and $21,800, respectively. Intrinsic value is measured using the fair market value at the date of exercise (for shares exercised) or at June 30, 2006 and 2005 (for outstanding options), less the applicable exercise price.

~~Information~~During ~~related~~ the tosix ~~capitalized~~month ~~software~~periods ~~development~~ended ~~costs~~June at30, ~~March~~2006 ~~31,~~and 2005, ~~and~~the ~~December~~Company received $0 31 and $589,763, ~~2004~~respectively, upon isthe exercise of awards. The Company realized no tax benefit due to the exercise of options as ~~follows:~~the Company had a loss for the period and historical net operating loss carryforwards.

	For the three months ended March 31, 2005			For the year ended December 31, 2004
Capitalized software development costs, beginning of period	$	2,548,986		$	2,262,249
Additional costs capitalized during the period		26,874			286,737
Capitalized software development costs, end of period		2,575,860			2,548,986
Accumulated amortization		(1,709,057	)		(1,496,642	)
Capitalized software development costs, net	$	866,803		$	1,052,344

Included within capitalized software development costs at March 31, 2005 is approximately $1,100,000 paid to third-party software development companies and other outside entities. The remaining costs are internal costs, which are primarily employee salaries and benefits, and related capitalized interest of approximately $100,000 recorded during the time the project was under development.

The Company regularly tests capitalized software development costs for impairment in accordance with SFAS No. 142. The Company uses the estimated future undiscounted cash flows related to its capitalized software development costs and has determined that these costs were not impaired. The Company amortizes capitalized software development costs over a three-year period. During the periods ended March 31, 2005 and 2004, the Company recorded amortization expense of $212,415 and $217,264, respectively.

Table of Contents

QWarrants ~~COMM~~ - ~~INTERNATIONAL,~~The Company ~~INC~~has issued warrants to non-employees under various agreements expiring through November 2008. ~~AND~~A ~~SUBSIDIARIES~~summary of the status of warrants granted at June 30, 2006, and changes during the period then ended is as follows:

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

	For the Six Months Ended June 30, 2006
	Shares			Weighted Average Exercise Price
Outstanding at beginning of period		2,148,659		$	8.61
Granted		-			-
Exercised		-			-
Forfeited		-			-
Expired		(1,000	)		6.00

Outstanding at end of period		2,147,659		$	8.61

Exercisable at end of period		2,147,659		$	8.61

~~NOTE~~A 5 summary of -the ~~RELATED~~status ~~PARTY~~of ~~OBLIGATION~~warrants outstanding at June 30, 2006 is presented below:

The Company received $500,000 on March 25, 2005 in debt financing from a member of the board of directors. The unsecured loan was scheduled to mature on June 24, 2005 and carried a simple annual interest rate of 5 percent. In April 2005, the note was repaid and $972 in interest expense was recorded.

	Options Outstanding			Options Exercisable
Range of Exercise Prices	Number Outstanding	Weighted Average Remaining Contractual Life	Weighted Average Exercise Price	Number Exercisable	Weighted Average Exercise Price
$3.51	230,000	0.59 years	$ 3.51	230,000	$ 3.51
5.25 - 7.80	358,095	1.45 years	6.82	358,095	6.82
9.75	1,544,231	1.96 years	9.75	1,544,231	9.75
11.25 - 13.50	15,333	1.19 years	12.03	15,333	12.03
$3.51 - $ 13.50	2,147,659		$ 8.61	2,147,659	$ 8.61

~~NOTE~~At 6 June 30, -2005, ~~LEASE~~the ~~OBLIGATIONS~~Company had 1,265,000 outstanding warrants to purchase shares of common stock at $9.75 per share that were publicly traded.

~~Certain~~A ~~computer equipment and point of sale terminals are leased under capital lease~~ summary ~~arrangements and are presented in the accompanying condensed consolidated balance sheets as property and equipment. At March 31, 2005 and December 31, 2004, the total carrying cost~~ of ~~equipment~~all ~~held~~stock ~~under~~options ~~capital lease agreements was $970,000,~~ and ~~the~~warrants ~~related~~outstanding ~~accumulated~~at ~~amortization~~June ~~was approximately $41~~30,~~000 and~~ ~~$40,000,~~2006 ~~respectively.~~is presented below:

Total future minimum lease payments for capital leases, including interest and other costs, are as follows:

	Compensatory		Non-Compensatory		Total
Stock options issued to employees and board members under stock option plans		686,000		-		686,000
Stock options issued to employees outside stock option plans		13,334		-		13,334

Total		699,334		-		699,334
Warrants issued to non-employees		330,000		1,817,659		2,147,659

Total options and warrants outstanding		1,029,334		1,817,659		2,846,993

2005	$	412,582
2006		397,502
Total		810,084
Less interest and other costs		(56,228	)
Present value of future minimum lease payments		753,856
Less current portion		(492,410	)
Long-term portion	$	261,446

NOTE 10 - CONCENTRATION OF REVENUES

~~Two~~The ~~capital lease arrangements require the~~ Company's toconcentration ~~maintain letters~~ of ~~credit equal~~revenue toby ~~50%~~broker, ofproduct ~~the~~and ~~original~~MVNO ~~lease~~for ~~amounts during~~ the ~~term of the lease. The~~three ~~Company secures the letters of credit with a restricted cash account at a~~ and ~~financial~~ six ~~institution~~months ~~totaling~~ended ~~approximately~~June ~~$440~~30,~~000~~ at2006 ~~March~~and ~~31,~~ 2005 ~~and December 31, 2004.~~included:

The Company is committed under non-cancelable operating leases for office space and office equipment. Rent expense paid for the periods ended March 31, 2005 and 2004 was $30,799 and $9,239, respectively. The Company's future minimum rental payments under operating leases amount to approximately $115,000 annually through 2008.

	For the Three Months Ended June 30, 2006				For the Six Months Ended June 30, 2006
	2006		2005		2006		2005
Top Broker		8.4%		11.4%		9.2%		8.7%
Wireless Products		94.7%		95.7%		93.0%		94.4%
Top MVNO(1)		32.6%		39.1%		32.8%		36.6%

~~NOTE~~(1) 7 “MVNO” -is ~~LITIGATION~~defined ~~AND~~as ~~CONTINGENCIES~~a “Mobile Virtual Network Operator”.

In March 2005, the Company filed an action against a PIN provider, due to approximately $1 million in deactivated PINs received in the fourth quarter of 2004. The supplier has accepted responsibility for the deactivated PINs, however there is no assurance of repayment, and management recorded an allowance against the full amount of the receivable in the fourth quarter of 2004 (see Note 1, “Receivables”).

On January 23, 2004, a complaint was filed against the Company claiming that it had breached an Asset Purchase Agreement between the Company and the plaintiff dated October 31, 2000. The plaintiff asserts that the Company owes $4,000,000 in consideration for assets purchased and earn-out fees for referral services. In February 2004, the Company filed a motion to dismiss the case on the grounds that under the agreement in question the proper venue for this case was the federal or state courts in Orem, Utah. In April 2004, the California court issued a tentative ruling granting the Company’s motion for dismissal. The proceedings were stayed pending the outcome of the matter in the state of Utah. In July 2004, the plaintiff filed substantially the same suit against the Company in the United States District Court in the State of Utah. Management believes the Company appropriately exercised its right of rescission specified in the agreement and returned the items to the seller, and that no amounts are due under the contract. The Company plans to vigorously contest the claim. Management believes that the ultimate outcome of this matter, if any, will not have a material adverse affect on the Company’s financial position, results of operations, or liquidity.

Table of Contents

QNOTE ~~COMM~~ 11 ~~INTERNATIONAL,~~- EMPLOYMENT ~~INC. AND SUBSIDIARIES~~AGREEMENTS

~~NOTES~~The TO Company ~~UNAUDITED~~has ~~CONDENSED~~an ~~CONSOLIDATED~~employment ~~FINANCIAL~~agreement ~~STATEMENTS~~with its President/CEO, which expires on December 31, 2006. The agreement may be extended for successive one-year periods. If the Company terminates the agreement without cause, or if the President/CEO terminates the agreement for good reason, the President/CEO is entitled to receive the greater of one year’s salary, plus any target cash bonus he would be eligible to receive during that year or payment through the expiration date of the agreement. In addition, any stock options would vest immediately. The President/CEO was also granted an option to purchase 150,000 shares of common stock at the $3.59 market price per share on the date of grant in January 2005. Subsequent to the employment agreement, the President/CEO was granted an option to purchase an additional 20,000 shares of common stock at the $3.30 market price per share on the date of grant in August 2005, and an additional 30,000 shares of common stock at the $2.22 market price per share on the date of grant in February 2006.

~~NOTE~~The 8 Company hired a new Chief Financial Officer on May 31, 2005. On August 18, 2005, the Company entered into an employment agreement with its Chief Financial Officer, which expires on December 6, 2006. The agreement may be extended for successive one-year ~~CAPITAL~~periods. ~~STOCK~~If the Company terminates the agreement without cause, or if the CFO terminates the agreement for good reason, the CFO is entitled to receive the greater of one year’s salary, plus any target cash bonus he would be eligible to receive during that year or payment through the expiration date of the agreement. In addition, any stock options would vest immediately. The CFO was granted an option to purchase 60,000 shares of common stock at the $3.30 market price per share on the date of grant in August 2005, and an additional 40,000 shares of common stock at the $2.22 market price per share on the date of grant in February 2006.

~~A summary~~NOTE of 12 ~~common stock transactions for the three months ended March 31, 2005 and 2004,~~- is BUSINESS asSEGMENT ~~follows:~~ INFORMATION

~~Period~~The ~~Ended~~ Company predominately operates in the United States and Canada. During the three months ended March 31, 2006, the Company sold a total of 4,100 terminals to a customer in the United Arab Emirates. The Company currently has service bureau revenues from customers in the United Arab Emirates, France and the Bahamas, which has historically represented less then 1% of revenue. The following table represents the Company’s revenue by geographic segment for the three and six months ended June 30, 2006 and 2005.

The Company sold 128,750 shares of unrestricted common stock at $4.58 to $4.65 per share through the exercise of stock options for an aggregate of $589,763 in cash.

	For the Three Months Ended June 30, 2006				For the Six Months Ended June 30, 2006
	2006		2005		2006		2005
United States	$	10,802,403	$	12,201,331	$	22,300,871	$	19,745,330
Canada		1,792,930		1,085,185		2,994,073		1,980,402
Other		32,838		36,176		732,487		74,220
Total	$	12,628,171	$	13,322,692	$	26,027,431	$	21,799,952

The Company sold 100,000 shares of restricted common stock at $5.25 per share through the exercise of warrants for an aggregate of $525,000 in cash.

Period Ended March 31, 2004

None.

NOTE 9 - STOCK OPTIONS AND WARRANTS

The Company is authorized to issue stock options under three existing stock option plans approved by stockholders. The 2000 plan (133,333 shares), 2003 plan (100,000 shares) and 2004 plan (500,000 shares) allow for up to 733,333 shares to be issued under substantially similar terms. A summary of the status of options granted at March 31, 2005 and December 31, 2004, and changes during the periods then ended are as follows:

	For the Three Months Ended March 31, 2005					For the Year Ended December 31, 2004
	Shares			Weighted Average Exercise Price		Shares			Weighted Average Exercise Price
Outstanding at beginning of period		532,667		$	5.95		304,250		$	10.00
Granted		217,000			3.93		502,500			4.65
Exercised		(128,750	)		4.58		-			-
Forfeited		(54,167	)		6.19		(274,083	)		8.16
Expired		-			-		-			-
Outstanding at end of period		566,750			5.46		532,667			5.95
Exercisable at end of period		136,498			8.53		296,998			6.68
Weighted average fair value of options granted		217,000			3.69		502,500			4.65

Table of Contents

QItem ~~COMM~~ 2. ~~INTERNATIONAL,~~Management's ~~INC.~~Discussion and ~~AND~~Analysis ~~SUBSIDIARIES~~of Financial Condition and Results of Operations

~~NOTES~~Pursuant TO to ~~UNAUDITED~~the ~~CONDENSED~~“safe ~~CONSOLIDATED~~harbor” ~~FINANCIAL~~provisions ~~STATEMENTS~~of the Private Securities Litigation Reform Act of 1995, readers of this report are advised that this document contains both statements of historical facts and forward-looking statements. Forward looking statements are subject to risks and uncertainties, which could cause our actual results to differ materially from those indicated by the forward-looking statements because of the risk factors that are identified in the Company’s most recent annual and quarterly report, as filed with the Securities and Exchange Commission . Examples of forward-looking statements include, but are not limited to, the following: (i) projections of revenues, income or loss, earnings per share, capital expenditures, dividends, capital structure and other financial items; (ii) statements regarding our plans and objectives including product enhancements, or estimates or predictions of actions by customers, suppliers, competitors or regulatory authorities; (iii) statements of future economic performance; and (iv) statements of assumptions underlying other statements.

~~NOTE 9 - STOCK OPTIONS AND WARRANTS (Continued)~~Overview

The ~~fair~~ ~~value~~ following ofis ~~each~~a ~~option~~discussion ~~granted~~of iscertain ~~estimated~~factors onaffecting ~~the~~our ~~date~~results ~~granted~~of operations, ~~using~~liquidity ~~the Black-Scholes~~and ~~option~~capital ~~pricing~~resources. ~~model~~You ~~with~~should read the following ~~weighted-average~~ ~~assumptions~~ discussion ~~used for grants during the three months ended March 31, 2005~~ and ~~the year~~analysis ~~ended~~in ~~December~~conjunction ~~31,~~with ~~2004:~~our ~~expected~~consolidated ~~dividend yields of zero, expected life of~~financial 10 statements ~~years, expected volatility of 113%~~ and ~~124%,~~related ~~respectively~~notes, ~~and~~which ~~risk-free interest~~are ~~rates~~included ~~of 4~~herein.~~3%.~~

AQ Comm’s business ~~summary~~consists of the purchase and resale of a wide variety many types of prepaid telecommunication and other prepaid products and services using a proprietary electronic point-of-sale system called Q Xpress. Q Comm also supports VeriFone terminals, and in the ~~status~~future, plans to support other third party commercially available terminals for merchant processing. The Q Xpress system includes either the Q Xpress 200 terminals, or one of ~~stock~~a ~~options~~variety ~~outstanding~~of third-party atmerchant ~~March~~processing 31terminals, ~~2005~~a is24x7 ~~presented~~data center, and a ~~below:~~ comprehensive transaction processing platform that manages, operates and maintains the system, and that enables the terminals to communicate with the data center.

	Options Outstanding						Options Exercisable
Range of Exercise Prices	Number Outstanding		Weighted Average Remaining Contractual Life		Weighted Average Exercise Price		Number Exercisable		Weighted Average Exercise Price
$ 3.59 - $ 4.92		414,583		9.5 years	$	4.22		40,164	$	4.65
6.50		110,000		8.7 years		6.50		55,000		6.50
15.00		42,167		1.4 years		15.00		41,334		15.00
$ 3.59 - $ 15.00		566,750		8.7 years		5.46		136,498		8.53

We intend to expand our historical business while expanding our product line to include a broad range of other prepaid and financial products and services, and to provide transaction processing and information management services to other vendors of prepaid products, both in the United States and abroad. We are currently evaluating handset distribution and PIN wholesaling businesses. Both of these represent incremental opportunities to increase sales revenue with higher margins while continuing to expand our distribution network and add new brokers.

AtThe Q Xpress ~~March~~system is designed to replace the traditional distribution system for ~~31,~~ prepaid ~~2005~~products, which consists of vouchers and hard cards that must be purchased by the ~~Company~~retail ~~had~~merchant ~~outstanding~~and ~~warrants~~that toare ~~purchase~~subject ~~1,944,493~~to ~~shares~~a number of potential ~~common~~ problems, ~~stock (~~including 1loss,~~265~~ theft,~~000~~ ~~publicly~~inventory ~~traded~~financing ~~warrants)~~and ~~that~~management ~~were~~issues. The Q ~~issued~~Xpress ~~to non-employees~~system ~~under~~can ~~various~~support ~~agreements~~the ~~with~~sale ~~exercise~~of ~~prices~~a ~~ranging~~broad range of prepaid products in electronic format from ~~$5.25~~a single terminal placed in convenience stores and other to retail ~~$24~~establishments.75 ~~per~~Using ~~share~~a ~~and~~terminal, a ~~weighted~~retail ~~average~~merchant ~~exercise~~can ~~price~~sell ofwireless telephone ~~$9.14~~time, ~~per~~traditional ~~share~~long distance service or other telephone products, ~~expiring~~ add ~~between~~value ~~April~~to ~~2005~~a prepaid debit card, make electronic bill payments, and ~~November~~sell other prepaid ~~2008~~products. ~~The~~In ~~warrants~~general, ~~were~~the ~~valued~~prepaid onproducts are sold in the ~~date~~ form of personal ~~issue~~identification ~~using~~numbers, or “PINs,” that the ~~Black-Scholes~~customer ~~pricing~~can ~~model~~use ~~and~~to ~~the~~add time ~~following~~to a prepaid cellular handset, make long distance calls or add funds to ~~assumptions:~~ a debit ~~exercise~~card ~~price~~by calling the provider of the ~~warrant~~product ~~stated~~and inproviding the ~~agreements, $6~~PIN.00 The ~~underlying~~ consumer ~~stock~~pays ~~price,~~for ~~140%~~the ~~volatility,~~product ~~five~~or ~~year~~service ~~expected~~by ~~life,~~paying ~~2.9%~~the ~~risk~~retail ~~free~~establishment ~~interest~~ in which ~~rate~~the ~~and~~terminal ~~expected~~is ~~dividend~~located. ~~yield~~The ofterminal ~~zero.~~records ~~During~~ the ~~period~~transaction ~~ended~~and ~~March~~sends ~~31,~~ the ~~2005,~~relevant noinformation ~~warrants~~to ~~were~~our ~~issued~~data orcenter ~~expired,~~where it is processed and ~~100~~accounting and transaction records are generated. Revenue from these purchases is divided among the retail merchant,~~000~~ ~~warrants~~the broker that placed the terminal with anthe retail ~~exercise~~ merchant, ~~price~~the provider of ~~$5.25~~the ~~were~~prepaid ~~exercised~~product, and Q Comm.

AOur system ~~summary~~is designed to accommodate transactions involving virtually any prepaid product that can be delivered electronically. Within the prepaid transaction market, our initial focus has been on the telecommunications market. As a distributor of ~~all~~prepaid ~~stock~~products ~~options~~in this market, we purchase PINs from national and ~~warrants~~regional ~~outstanding~~telecommunication atcarriers ~~March~~and 31distribute these through our established network of retail outlets, ~~2005~~such as convenience stores, wireless product stores, check cashing stores, grocery stores and discount stores. The prepaid transaction market is ~~presented~~rapidly expanding into various types of ~~below:~~ non-telecommunications products, such as gift and loyalty cards, prepaid debit cards, bill payment and money transfer. In addition to distributing traditional telecommunication products, our system is currently used to provide many of these products as well.

	Compensatory		Non-Compensatory		Total
Stock options issued to employees and board members under stock option plans		521,416		-		521,416
Stock options issued to employees outside stock option plans		45,334		-		45,334
Total		566,750		-		566,750
Warrants issued to non-employees		355,833		1,588,660		1,944,493
Total options and warrants outstanding		922,583		1,588,660		2,511,243

In the first quarter of 2004, we announced that we had modified our software to run on a VeriFone 3700 series terminal. We began beta testing in March 2004 and announced the commercial launch in the second quarter of 2004. This terminal is capable of providing both our prepaid application, which calls into our data center and functions much the same as our Q Xpress 200 terminal, and standard debit/credit card processing through the merchant’s processor for such transactions. The ability to offer our prepaid solution to the market through this alternative hardware option provides us with an opportunity to expand our market share. While the VeriFone terminal does not offer as many options as our Q Xpress terminal for selling prepaid products, it is an excellent solution for customers who prefer to have only one terminal in their retail establishment. In 2006, we plan to further expand the devices through which we distribute prepaid products, such as additional debit/credit terminal models, and PC based point-of-sale systems. We believe that expanding the number of devices that can connect to our data center and sell prepaid products will provide access to additional customers and increased revenue in the future.

~~NOTE~~Sources of ~~10 - CONCENTRATION OF REVENUES~~Revenue

~~For the~~Our ~~periods~~ principal ~~ended~~source ~~March~~of ~~31,~~revenue ~~2005~~has ~~and~~been ~~2004,~~ the ~~Company~~resale ~~had~~of ~~one~~prepaid ~~customer that~~telecommunication ~~accounted~~ products, ~~for~~including ~~36%~~wireless, ~~and~~long ~~46%~~distance ofand ~~revenues,~~other ~~respectively.~~products ~~The~~that ~~Company’s~~we ~~prepaid~~purchase ~~wireless~~ directly ~~products~~from ~~accounted~~carriers ~~for~~or ~~89%~~indirectly ~~and~~from ~~90%~~distributors ofwho ~~total~~purchase ~~revenues~~these products ~~for~~from the ~~periods ended March 31, 2005 and 2004, respectively~~carriers.

Table of Contents

QOur ~~COMM~~ standard ~~INTERNATIONAL~~business model is referred to as our broker model. In this model, we provide ~~INC~~a full range of products and services to our customers, including our product library, PIN management, transaction processing, and customer service to the retail locations. ~~AND~~Revenue ~~SUBSIDIARIES~~is recognized on a “gross” basis for our prepaid products and a “net” basis for all consigned products. Commissions and fees paid to brokers and retailers are recorded as distribution commission and fees.

~~NOTES~~Beginning TO in ~~UNAUDITED~~2003, ~~CONDENSED~~we ~~CONSOLIDATED~~began ~~FINANCIAL~~offering ~~STATEMENTS~~our service-bureau business model. Under this model, our customers license our data center software and purchase Q Xpress terminals from us. These customers are responsible for functions such as inventory management, product ownership, report generation, and ACH funds transfer. Our agreements with these customers also provide ongoing fees for software maintenance and transactions processed through their system. On an on-going basis, we expect service bureau to be a diminishing portion of our business as a percentage of total revenue.

~~NOTE~~In 2003, we began generating revenues from customers in Canada, France, the Bahamas, and Australia. In early 2006 we established a service bureau in the United Arab Emirates. Historically, revenues from international operations have, on average, accounted for less than 10% of annual revenues. For the three months ended June 30, 2006 international operations accounted for 14.5% of total revenue. The increase in international revenues was attributable to growth in Canadian operations, which for the three months ended June 30, 2006 accounted for 14.2% of total revenues. For the six months ended June 30, 2006, international sales accounted for 14.3% of total revenue. Canadian operations accounted for 11.5% of total -revenue, ~~EMPLOYMENT~~the ~~AGREEMENTS~~4,100 terminals sold to a service bureau in the United Arab Emirates accounted for 2.5% of total revenue, and sales from other international service bureaus accounted for 0.4% of total revenue. Given that prepaid wireless is much more widely accepted in Europe, Asia and Latin America than it is in North America, we will continue to explore new international opportunities.

The ~~Company had an employment agreement with its Chief Financial Officer (CFO),~~ table ~~which~~ below ~~was~~sets ~~scheduled~~forth ~~to expire on December 31, 2005. If~~ the ~~Company~~revenues ~~terminated the~~we ~~agreement~~derived ~~without~~from ~~cause,~~our orprincipal ifproducts ~~the CFO terminated the agreement for good~~and ~~reason,~~ services ~~the~~and ~~CFO was entitled to receive~~ the ~~lesser~~percentage of ~~one~~total ~~year’s~~revenues ~~salary~~represented ~~or payment~~by ~~through~~this ~~the expiration date of the agreement~~amount. ~~In addition, any stock~~The ~~options~~ discussion ~~would~~that ~~vest~~follows ~~immediately.~~focuses ~~The~~on ~~agreement was terminated during 2004. The Company and~~ the ~~CFO~~sources ~~have~~of anrevenue ~~arrangement~~ that ~~provides~~we ~~the~~believe ~~CFO the continuation~~are ~~of his base wages,~~ the ~~right~~most important to ~~retain~~our ~~existing~~present ~~stock option agreements~~ and ~~a retention~~future ~~bonus~~results ifof ~~he remains employed by the Company through May 31, 2005~~operations.

The Company has an employment agreement with its President/CEO, which expires on December 31, 2006. The agreement may be extended for successive one-year periods. If the Company terminates the agreement without cause, or if the President/CEO terminates the agreement for good reason, the President/CEO is entitled to receive the greater of one year’s salary plus any target cash bonus he would be eligible to receive during that year or payment through the expiration date of the agreement. In addition, any stock options would vest immediately. The President/CEO was also granted an option to purchase 150,000 shares of common stock at the $3.59 market price per share on the date of grant in January 2005.

	For the Three Months Ended				For the Three Months Ended
	June 30, 2006				June 30, 2005
	Amount		Percentage		Amount		Percentage
Prepaid Wireless	$	12,005,616		95.1%	$	12,756,349		95.7%
Terminals Sales		38,490		0.3%		-		0.0%
Prepaid Long Distance		329,938		2.6%		181,904		1.4%
Fees		126,728		1.0%		177,755		1.3%
Service Bureau		29,156		0.2%		86,069		0.6%
Prepaid Debit Card		12,489		0.1%		33,025		0.2%
Bill Pay		24,259		0.2%		14,949		0.1%
Other Revenue		61,495		0.5%		72,641		0.5%
Total	$	12,628,171		100.0%	$	13,322,692		100.0%

NOTE 12 - RECENTLY ENACTED ACCOUNTING STANDARDS

	For the Six Months Ended				For the Six Months Ended
	June 30, 2006				June 30, 2005
	Amount		Percentage		Amount		Percentage
Prepaid Wireless	$	24,216,840		93.0%	$	20,578,606		94.4%
Terminals Sales		759,613		2.9%		26,380		0.1%
Prepaid Long Distance		497,214		1.9%		253,585		1.2%
Fees		258,447		1.0%		268,740		1.2%
Service Bureau		49,366		0.2%		137,355		0.6%
Prepaid Debit Card		32,304		0.1%		70,580		0.3%
Bill Pay		42,387		0.2%		14,949		0.1%
Other Revenue		171,260		0.7%		449,757		2.1%
Total	$	26,027,431		100.0%	$	21,799,952		100.0%

~~The~~Prepaid ~~Emerging~~ wireless. ~~Issues~~Prepaid wireless ~~Task~~continues ~~Force~~to ~~has~~be ~~issued~~our ~~EITF~~largest ~~03-1,~~source ~~“The Meaning~~ of ~~Other-Than-Temporary~~ ~~Impairment and Its Application to Certain Investments~~revenue.” The prepaid wireless ~~issue~~ industry is projected to ~~determine~~continue ~~the~~to ~~meaning~~grow ofand ~~other-than-temporary~~we ~~impairment~~anticipate ~~and~~that ~~its~~it will ~~application~~ continue to ~~debt~~be ~~and~~our ~~equity~~largest ~~securities~~revenue source. ~~The~~Our ~~Company~~prepaid ~~does~~wireless ~~not~~products ~~expect this~~include ~~statement~~ many tomajor ~~have~~national acarriers ~~material~~and ~~impact~~many onsmaller ~~its~~regional ~~financial~~carriers. ~~position,~~We ~~results of~~frequently ~~operations~~ add ornew ~~liquidity~~wireless products as the demand arises.

InTerminal ~~December 2004, the Financial Accounting Standards Board (FASB) issued SFAS No~~ sales. ~~153,~~ ~~“Exchanges of Nonmonetary Assets—an amendment to APB Opinion No. 29.” This~~Terminal ~~statement~~ Sales ~~requires~~includes ~~exchanges of similar productive assets to now be accounted for at fair value,~~ the ~~basic~~sale ~~principle for nonmonetary transactions, unless the exchange lacks commercial substance. The Company does not expect the adoption~~ of ~~SFAS~~ ~~No.~~proprietary ~~153~~and tothird ~~have~~party aterminal ~~material impact on its financial position, results of operations or liquidity.~~

InPrepaid ~~December~~ long ~~2004, the FASB issued two Staff Positions that provide accounting guidance for the effects of the American Jobs Creation Act of 2004 that was signed into law on October 22, 2004~~distance. ~~SFAS 109-1, “Application of FASB Statement~~Prepaid ~~No.~~ long ~~109,~~distance ~~‘Accounting~~revenue ~~for~~continues ~~Income Taxes,’~~ to ~~the Tax Deduction on Qualified Production Activities Provided by the American Jobs Creation Act of 2004” states the manufacturers’ deduction provided for under this legislation should~~ be ~~accounted~~ ~~for as~~ a ~~special~~focus ~~deduction instead~~ of athe ~~tax rate change~~Company. ~~SFAS~~Our ~~109-2,~~marketing ~~“Accounting~~ analysis ~~and~~suggests ~~Disclosure~~that ~~Guidance~~we ~~for~~can ~~the~~increase ~~Foreign~~prepaid ~~Earnings~~long ~~Repatriation Provision~~distance ~~within~~revenues ~~the~~by improving ~~American~~our ~~Jobs~~product ~~Creation~~offering ~~Act~~and ofby ~~2004”,~~providing ~~allows~~informative ~~additional~~and ~~time~~attractive ~~to evaluate the effects~~ point of ~~the~~sale ~~legislation~~advertising ~~for~~materials ~~repatriation of foreign earnings. The Company does not expect these statements~~ to ~~have~~our abrokers ~~material~~and ~~impact on its financial position, results of operations or liquidity~~merchants.

In December 2004, the FASB issued SFAS No. 123R, “Share-Based Payments”. SFAS No. 123R is a revision of SFAS No. 123, “Accounting for Stock Based Compensation”, and supersedes APB 25. Among other items, SFAS No. 123R eliminates the use of APB 25 and the intrinsic value method of accounting, and requires companies to recognize the cost of employee services received in exchange for awards of equity instruments, based on the grant date fair value of those awards, in the financial statements. The effective date of SFAS No. 123R is the first reporting period beginning after June 15, 2005, which is the third quarter of the Company’s year ending December 31, 2005. The Company has not yet determined the model it will use to measure the fair value of awards of equity instruments to employees upon the adoption of SFAS No. 123R. The impact of SFAS No. 123R on the Company’s results of operations cannot be predicted at this time because it will depend on the number of equity awards granted in the future, as well as the model and assumptions used to value the awards.

NOTE 13 - SUBSEQUENT EVENT

Subsequent to March 31, 2005, the Company issued 400,000 shares of unrestricted common stock at $5.00 per share through a private placement for an aggregate of $2,000,000 in cash.

In April 2005 a $500,000 related party note was repaid.

Table of Contents

~~Item~~Fees. Fee revenue 2is earned on terminal rentals and performance fees. ~~Management's~~Performance ~~Discussion~~fees include fees charged when weekly rentals from a terminal fall below the agreed-upon minimum level and ~~Analysis~~other ofmiscellaneous ~~Financial~~fees. We are seeing increased ~~Condition~~ pricing pressures and ~~Results~~discounting with fees due to competitive factors. We anticipate that competition will continue to force lower fee revenue as a percentage of ~~Operations~~revenue in the future.

~~Pursuant~~Bill ~~to the "safe harbor" provisions of the Private Securities Litigation Reform Act~~ pay. ~~of 1995~~ Bill Pay, ~~readers~~or of“walk-in ~~this~~payment ~~report~~services,” ~~are~~is ~~advised~~a ~~that~~new ~~this~~product ~~document~~category ~~contains~~for ~~both statements~~the ~~of historical facts and forward-looking statements. Forward-looking~~Company ~~statements are subject to risks~~ and ~~uncertainties,~~represents ~~which~~a ~~could~~growing ~~cause~~segment of our ~~actual results~~business. toQ ~~differ~~Comm ~~materially~~receives ~~from~~a ~~those indicated by the forward-looking~~transaction ~~statements.~~ fee ~~Examples~~for ofeach ~~forward~~walk-~~looking~~in ~~statements~~bill ~~include,~~payment ~~but~~processed ~~are~~through ~~not~~its ~~limited~~system. By to offering ~~(i)~~walk-in ~~projections~~bill ofpay ~~revenues,~~services ~~income~~through orour ~~loss~~network, ~~earnings~~we ~~per~~provide ~~share, capital~~retailers ~~expenditures,~~ with ~~dividends,~~a ~~capital~~growing ~~structure~~revenue ~~and~~source ~~other financial items, (ii) statements regarding our plans~~ and ~~objectives~~a ~~including~~means ~~product enhancements, or estimates or predictions~~ of ~~actions~~attracting bymore ~~customers,~~store ~~suppliers~~traffic, ~~competitors or~~ ~~regulatory~~ repeat ~~authorities,~~customers ~~(iii) statements of future economic performance,~~ and ~~(iv)~~ ~~statements~~increasing ofcustomer ~~assumptions underlying other statements~~loyalty. ~~Readers are cautioned that the actual results could differ materially from the anticipated results as expressed in these forward-looking statements due to one or more of the following risk factors.~~

~~RISK~~Prepaid ~~FACTORS~~ debit cards. Prepaid debit cards represent a growing segment of our business. This product allows a user to load funds onto a stored value card that will then function the same as a typical debit card. We generate revenues by receiving a share of the load fee charged to the consumer. We currently offer two products that bear the MasterCard logo. We believe that the convenience of a stored value card for the cash-based consumer and increased market awareness of this product will result in increased revenues to us in the future.

~~You~~Service ~~should~~ bureau. ~~carefully~~We first began ~~consider~~setting ~~the~~up ~~risks~~service-bureau ~~described~~customers ~~below,~~in ~~our~~2003 ~~financial~~and ~~statements~~we acquired our ~~and~~ service-bureau ~~the~~customer ~~notes~~in toCanada ~~those~~in ~~statements,~~July ~~before~~2004. ~~you~~The ~~purchase~~overall ~~any~~service-bureau revenue model is diminishing as a percentage of total revenue, but provides higher margins than our traditional broker model since there are few direct ~~securities~~ costs to offset against the fee revenues.

~~The~~ Other ~~Securities~~ revenue. Other revenue includes thermal card, point of purchase materials, gift and ~~Exchange~~loyalty card ~~Commission~~sales, ~~(“SEC”)~~wireless isphone ~~currently~~features, ~~reviewing~~home ~~the~~dial ~~Company’s~~tone, wholesale products and ~~2004~~ prepaid ~~10-KSB~~internet ~~filing~~sales.

WeAnalysis received a comment letter from the SEC on May 5, 2005 requesting clarification on several matters including the rationale for reporting revenue on a gross versus net basis. The Company has responded to the SEC and is awaiting a follow-on response from the SEC, the outcome of ~~which could affect the method by which we recognize revenue and prompt an amended filing of the 2004 Form 10-KSB and this Form 10-Q.~~ Margins

WeHistorically, our results of operations have nobeen ~~history~~characterized by low-margin products. Under our broker model, we record the entire value of ~~profitable~~the ~~operations~~transaction as revenues. Our cost ~~Continuing~~of ~~losses~~prepaid ~~could~~PIN ~~exhaust~~sales ~~our~~and fees include the amount we pay for the product. ~~capital~~ Our ~~resources~~cost of prepaid PIN sales and ~~force~~fees usdo tonot ~~discontinue~~include ~~operations~~the fees and commissions we pay the broker and the retailer who participated in the sale. Several of these key measures describing costs and margins are shown in the table below for the three and six months ended June 30, 2006 and June 30, 2005.

From the date on which we became a C corporation in 1998 through March 31, 2005, we incurred cumulative losses of $21.1 million. For each of the periods ended March 31, 2005 and March 31, 2004 net losses were $1.3 million. Unless we can significantly increase the number of terminals in use, we will continue to incur losses for the foreseeable future. Our working capital may not be sufficient to sustain us until we reach profitability.

	Three Months Ended					Six Months Ended
	June 30,					June 30,
	2006		2005			2006		2005
Total sales and revenue	$	12,628,171	$	13,322,692		$	26,027,431	$	21,799,952

Cost of prepaid PIN sales and fees		10,501,205		12,533,184			21,240,955		19,406,429
Percentage of revenue		83.2%		94.1%			81.6%		89.0%

Cost of product sales	$	82,269	$	3,315		$	887,369	$	20,265
Percentage of revenue		0.7%		0.0%			3.4%		0.1%

Distribution commissions and fees	$	1,715,326	$	2,335,209		$	3,521,107	$	4,167,303
Percentage of revenue		13.6%		17.5%			13.5%		19.1%

Gross Profit (Loss)	$	329,371	$	(1,549,016	)	$	378,000	$	(1,794,045	)
Percentage of revenue		2.6%		(11.6)%			1.5%		(8.2)%

Terminal depreciation and software amortization	$	322,452	$	429,156		$	868,633	$	866,982
Percentage of revenue		2.6%		3.2%			3.3%		4.0%

Specific costs		-		250,000			-		530,005
Percentage of revenue		0.0%		1.9%			0.0%		2.4%

Adjusted gross profit excluding terminal depreciation and amortization, and specific costs	$	651,823	$	(869,860	)	$	1,246,633	$	(397,058	)
Percentage of revenue		5.2%		(6.5)%			4.8%		(1.8)%

IfThe we increase ~~cannot~~in ~~raise~~gross ~~capital~~profit atfrom athe ~~time~~three ~~when~~months weended ~~need~~June 30, 2006 to dothe comparable soperiod in 2005 was primarily driven by the following: (i) $1,266,704 in weterminal ~~may~~impairment ~~not~~and befixed ~~able~~asset towrite-down charges incurred during the ~~adequately~~ three months ended June 30, 2005; (ii) a PIN inventory write-down of approximately $250,000 incurred for the three months ended June 30, 2005; (iii) an increase in the sale of higher margin consigned products, which represented 3.3% and ~~timely~~2.7% ~~respond~~of torevenue ~~competitive~~for ~~developments~~the three months ended June 30, 2006 and 2005, respectively; (iv) reduced distribution commissions and fees; and (v) improved PIN purchase rates. Alternatively, our gross profit percentage was negatively impacted by the reduction of our higher-margin fees and service bureau sales.

In the future, we may need to raise additional capital to meet the capital requirements of our business or to take advantage of expansion or acquisition opportunities. If we are unable to do so, we may not be able to increase our revenues or achieve profitability. Even if we are able to secure additional capital by selling equity or equity-linked securities, these securities could dilute the ownership percentage of our existing stockholders. The securities that we might sell could also have rights, preferences or privileges senior to those of our common stock. We cannot assure you that we will be able to obtain additional financing when needed on acceptable terms or at all. In April 2005, we raised $2,000,000 through the issuance of 400,000 shares of unrestricted common stock at $5.00 per share. We also have a guaranteed commitment for up to $0.9 million from a member of the board of directors to finance current operations, if necessary. If we are unable to obtain additional financing on terms satisfactory to us when needed, our operations could be substantially curtailed and the price of our common stock could decline significantly.

Our margins have historically been low, which makes it difficult to achieve profitability.

Our margins, after taking into account the cost of the products sold through the Qxpress system and the fees and commissions payable to distributors, brokers and retailers, depreciation on terminals and software amortization costs were approximately 0.3% in the first quarter 2005 and (1.1)% for the comparable period in 2004. Our contribution margins, after taking into account the cost of the products sold through the Qxpress system and the fees and commissions payable to distributors, brokers and retailers, and excluding depreciation on terminals and software amortization costs were approximately 3.1% in the first quarter 2005 and 3.4% for the comparable period in 2004. As a consequence, for us to be profitable to any meaningful extent, we must do one or more of the following:

· increase the number of revenue generating terminals;

· add new products with higher profit margins to our portfolio; or

· develop new revenue models.

· increase our revenue per terminal

Table of Contents

~~In order~~The to increase ~~our~~in ~~revenue~~gross profit from ~~our~~the ~~historical~~six ~~business,~~months weended ~~must~~June ~~increase~~30, 2006 to the ~~number~~ comparable ofperiod ~~terminals~~ in ~~use.~~2005 Inwas ~~order~~primarily todriven ~~expand~~by ~~our~~the ~~product~~following; ~~line~~(i) $1,266,704 in weterminal ~~must~~impairment ~~enter into~~and ~~relationships~~fixed ~~with~~asset write-down charges incurred during the three ~~suppliers~~months ofending ~~these~~June ~~products~~30, ~~establish~~2005; ~~new~~(ii) ~~sales~~a $280,005 charge incurred in the period ~~channels~~ ended March 31, 2005 for 9,000 handsets a vendor took possession of or ~~expand~~sold and did ~~existing~~not ~~channels~~reimburse the Company; (iii) a PIN inventory write-down of approximately $250,000 incurred for the three months ended June 30, 2005, (iv) reduced distribution commissions and ~~develop~~fees; ~~processing~~and ~~applications~~(v) toimproved PIN purchase rates. ~~handle~~ Alternatively, our gross profit percentage was impacted by the ~~new~~reduction of our higher-margin consigned product sales. Consigned products represented 3.0% ~~Finally,~~and ~~new~~3.5% of net revenue ~~models~~for ~~must~~the besix ~~accepted~~months ended June 30, 2006 and 2005, respectively. Our gross profit percentage was negatively impacted by the ~~market~~ reduction ~~and~~of ~~may~~our ~~have~~higher-margin ~~ancillary~~fees ~~adverse~~and ~~consequences,~~service ~~such~~bureau assales. ~~recognizing~~Because ~~revenue~~of our on thin margins, a ~~"net"~~minor ~~basis~~change ~~rather~~in ~~than~~the price that we pay for products has a substantial ~~"gross"~~effect ~~basis~~on asour net income or loss if we doare ~~now.~~not Weable ~~cannot~~(or, ~~assure~~in ~~you~~the ~~that~~ case of weprice ~~will~~decreases, beare ~~able~~not required) to ~~achieve~~pass ~~any~~the ofdifference ~~the~~on ~~above~~to ~~goals~~our customers.

The ~~future~~ resale ~~success~~ of ~~our~~prepaid ~~business~~telecommunication ~~will~~products ~~require~~has historically been a ~~substantial~~commodity market ~~marketing~~with ~~effort~~most price increases or decreases being passed through the distribution chain to the end user. The amount of margin available to each participant in the distribution chain can be affected by various factors, such as the service provided, the risk assumed by the participant, and the volume and payment terms on which the participant can purchase product. Historically, we have purchased product from a reseller at a markup from the supplier price. As our ~~part~~business expands, ~~including~~we ~~expending~~believe ~~significant~~that ~~amounts~~there may be opportunities to increase margins by purchasing a greater percentage of ~~capital~~our ~~that~~products ~~could~~directly from the ~~otherwise~~ carrier beand ~~used~~by purchasing in greater volume. However, the telecommunications business in general, and the wireless business in particular, are changing rapidly and it is difficult to ~~purchase~~anticipate orpotential ~~develop~~changes ~~new~~that ~~products~~may occur in the distribution chain. Thus, there is no assurance that we will be successful in realizing these opportunities.

~~Our~~Substantially ~~future~~ all ~~success~~of ~~depends~~our onrevenues ~~our~~are ~~ability~~collected tothrough ~~successfully~~automated ~~market~~clearinghouse, ~~our~~or ~~point-~~ACH, transactions initiated by us within 72 hours of- the sale of the product. In ~~activation~~ an ACH ~~system~~transaction, asfunds are electronically transferred from the ~~preferred~~merchants’ accounts ~~distribution~~to ~~method~~our accounts. ~~This~~In ~~will~~most ~~require~~cases, usour tobrokers are responsible for any ~~allocate~~ unpaid aACH ~~significant~~transactions ~~amount~~from retailers, which reduces the risk of ~~our~~bad ~~working~~debt expense ~~capital~~from toour product sales ~~and~~through ~~marketing~~terminals. ~~This~~ ~~will~~We ~~reduce~~generate ~~the~~receivables ~~amount~~from sales of ~~working~~terminals ~~capital~~and ~~available~~from tolicense ~~develop~~fees ~~new products~~ and consulting services. ~~There~~provided isto assist noservice-bureau ~~assurance~~customers ~~that~~in ~~our~~setting ~~marketing~~up ~~efforts~~and ~~will~~operating ~~be successful~~data centers.

~~Most~~Operating ~~of our revenue growth is derived from a single class of product -- prepaid wireless -- which makes us particularly vulnerable to changes in consumer preferences and market saturation.~~ Metrics

~~Although~~We we monitor ~~currently~~our ~~offer~~business and measure our performance in a ~~variety~~number of ~~prepaid~~ways. ~~products,~~Several of these ~~89%~~key ofmeasures, including our adjusted average monthly revenue per U.S. active terminal, are shown in the table below for the last four quarters. We ~~period~~ note that our average monthly revenue per active terminal increased to $45 for the three months ended ~~March~~June 3130, ~~2005~~2006, ~~was~~from ~~generated~~$38 ~~from~~for ~~sales~~the ofthree ~~prepaid~~months ~~wireless~~ended ~~products~~ March 31, 2006. For ~~The~~the ~~market~~three ~~for~~months ~~prepaid~~ended ~~wireless~~June ~~has~~30, ~~experienced~~2006, ~~substantial~~our contribution ~~growth~~margin inwas $623,715, an increase of $131,965 compared with the ~~past~~ three ~~years~~months ended March 31, 2006. ~~Our~~This ~~revenues~~increase ~~have~~is ~~grown~~attributable asto ~~this~~improved PIN purchase ~~market~~rates, product ~~has~~mix ~~developed~~impacts, reduced distribution commissions and fees, ~~expanded~~and an increase in the ~~United~~sale ~~States~~of consigned products. WeFor ~~cannot~~the ~~assure~~three ~~you~~months ended ~~that~~June ~~this~~30, ~~market~~2006, ~~will~~we ~~continue~~realized to382 ~~grow~~net terminal deactivations. This decrease If was itprimarily ~~does~~driven ~~not~~by ~~and~~two wefactors: do(i) ~~not~~terminals ~~develop~~were ~~new~~activated ~~products~~with one large customer in the three months ended March 31, ~~our~~2006 that ~~rate~~have a low transaction volume; and, (ii) a number of ~~revenue~~terminals ~~growth~~related to this ~~could~~ customer ~~decline~~were ~~rapidly,~~categorized ~~resulting~~as in“inactive” ~~higher~~during ~~net~~the ~~losses~~three months ended June 30, 2006.

~~Most~~We of plan to improve our ~~business~~contribution ismargin ~~placed~~ through athe ~~small~~following: ~~number~~(i) improving our economies of ~~brokers.~~scale ~~The~~by ~~loss~~increasing the sales of ~~any~~prepaid ~~one~~PIN products and fee sales; (ii) increasing sales of ~~these~~higher-margin ~~accounts~~financial ~~could~~services ~~reduce~~products; (iii) increasing sales of PINs by establishing more direct relationships with carriers; (iv) improving the terms of pricing agreements with MVNOs and brokers; and (v) expanding our ~~revenues~~product suite to potentially include distributing handsets. In addition, the Company is currently evaluating handset distribution and wholesaling PIN businesses which would further improve our contribution margin.

A small number of brokers account for a large percentage of our revenue. One aspect of our growth strategy is to increase the breadth of our account base. However, a high level of customer concentration could continue for the foreseeable future. For periods ended March 31, 2005, our three largest customers accounted for approximately 50% of revenues. We cannot assure you that the level of sales to these brokers will be sustained from year to year and there is a risk that these principal brokers may not continue to sell our products in the future. To the extent that any significant broker reduces its reliance on us, terminates its relationship with us, or defaults on payments, our revenues in the relevant fiscal period could decline substantially, which would result in lower net profits or a greater net loss.

Broker Model:	For the Three Months Ended June 30, 2006			For the Three Months Ended March 31, 2006		For the Three Months Ended December 30, 2005			For the Three Months Ended September 30, 2005
	(in dollars, except for terminal figures)
Net active terminals (1)		(382	)		1,007		(69	)		536

Total active terminals		4,434			4,816		3,809			3,878
Average active terminals (2)		4,625			4,313		3,844			3,610

Average monthly revenue per unit (ARPU) calculation:
Total sales and revenue less product sales and service bureau revenue		12,547,410			12,544,706		11,677,055			12,055,181
Less cost of prepaid PIN sales and fees, and distribution commissions and fees, excluding depreciation and amortization allocable to cost of sales, specific charges, and contribution margin derived from business outside the United States		11,923,695			12,052,956		11,232,221			11,481,198
Total contribution margin		623,715			491,750		444,834			573,983

Average monthly revenue per active terminal		45			38		39			53

~~The industry~~(1) inA ~~which~~terminal weis ~~operate~~defined isas ~~highly~~active ~~competitive,~~when ~~has~~it ~~low~~logs ~~barriers~~into tothe ~~entry~~ Q Control system for the first time from a U.S. retail site and is defined as "inactive" if the terminal has ~~rapidly~~not ~~changing~~completed ~~technology.~~a ~~Increased~~transaction ~~competition~~over ~~could~~a ~~result~~120 ~~in margin~~day ~~erosion,~~training ~~which~~period. ~~would~~"Inactive" ~~make~~terminals ~~profitability~~are ~~even~~not ~~more~~included ~~difficult~~in ~~to achieve~~the definition of active terminals.

~~The market~~(2) ~~for~~Average ~~prepaid~~activat ~~transaction~~terminals ~~processing and information management services is becoming increasingly competitive and is highly fragmented. This market~~ includes ~~companies~~ ~~that~~the ~~provide~~average ~~either point-~~of~~-sale~~ activation terminals only, such as HyperCom and VeriFone, or information management services only, such as Blackstone, PreSolutions and DebiSys, as well as companies that provide integrated solutions, such as LDC Direct. In addition to companies that are focused solely on the ~~prepaid~~total ~~transactions~~activated ~~market,~~terminals weat ~~also face competition from companies, such as First Data Corporation, that provide transaction processing and information management services to~~ the ~~postpaid~~end ~~market.~~of ~~We could also face competition from e-commerce solution providers. Finally, we may in~~ the ~~future face~~current ~~competition~~and ~~from~~prior ~~suppliers, such as telecommunication companies who may decide to provide electronic solutions directly to brokers and merchants~~quarter.

The industry in which we compete is characterized by low barriers to entry, rapidly changing technology, evolving industry standards, frequent new product and service introductions, and changing customer demands. Some of our competitors have substantially greater financial resources and/or pre-existing market share that may enable them to establish a stronger competitive position than we have, in part through better marketing opportunities. Current competitors or new market entrants could introduce products with features that may render our system obsolete or uncompetitive. To be competitive and serve our customers effectively, we must respond on a timely and cost-efficient basis to changes in technology, industry standards, and procedures and customer preferences. The cost to modify our products, services or infrastructure in order to adapt to these changes could be substantial and we cannot assure you that we will have the financial resources to fund these expenses. Increased competition could result in reduced margins, as well as a loss of market share and brand recognition.____________________________

We depend on brokers and other intermediaries to distribute our point-of-sale terminals. Our relationships with these brokers are usually short-term, nonexclusive arrangements, which can be terminated at will. As a result, we cannot prevent them from selling competitive products or discontinuing their relationship with us.

Table of Contents

~~We rely~~As on of ~~independent~~June ~~brokers~~30, ~~distributors~~2006, ~~wholesalers~~the ~~and~~Company ~~other~~had ~~intermediaries~~approximately ~~to distribute our point-of-sale activation system to retail merchants. Currently~~5, we ~~distribute~~000 ~~through approximately 70 brokers. In order for us to achieve a~~active ~~meaningful~~ terminals ~~level~~in ofthe ~~market~~United ~~penetration,~~States weand ~~must significantly increase this number~~Canada. Of ~~Until~~these ~~now~~5,000 ~~our relationships with our brokers have generally been on a~~active ~~short-term~~ terminals, ~~non-exclusive~~approximately ~~basis~~3,900 ~~allowing~~terminals ~~them~~in tothe ~~reduce~~United orStates ~~cancel their business with us without penalty~~ and ~~with little or short notice. The prepaid products~~Canada ~~that~~ completed ~~we sell are widely available from~~ a ~~number~~transaction ofover ~~sources.~~the Weprior ~~are~~thirty ~~not~~day ~~able to offer exclusive products or price advantages to our brokers. Rather~~period, ~~we rely on~~representing ~~the~~ approximately ~~quality~~78% of ~~our~~the ~~Qxpress~~total ~~system~~5,000 toactive ~~induce brokers to contract with us~~terminals. Of Ifthese we3,900 do terminals, as ~~not~~of ~~continue~~June to30, ~~offer~~2006, ~~performance~~approximately ~~and service advantages~~3,400 ~~our~~terminals ~~brokers~~in ~~may~~the ~~not~~United ~~aggressively~~ States ~~market~~completed ~~our~~a ~~system~~transaction toover ~~their~~the ~~retail~~prior ~~networks~~thirty ~~or may terminate their relationship with us. We cannot assure you that we will continue to derive revenue~~days, atup ~~current~~9% ~~levels, or at all,~~ from ~~our existing brokers, or that we~~the ~~will~~ start of bethe ~~able~~period toended ~~successfully~~June ~~establish~~30, ~~relationships with new brokers~~2006.

WeOur ~~have~~ broker nomodel ~~control~~revenues ~~over~~depend on the ~~prices~~following ~~suppliers~~factors: ~~charge~~(i) number usof terminals ~~for~~in ~~their~~service; ~~products~~(ii) average ~~and~~gross wesales per terminal; ~~may~~ (iii) margin ~~not~~on ~~always~~product besales; ~~able~~and to(iv) fees ~~pass~~and ~~through~~other ~~price~~ancillary charges. ~~increases~~The tofirst ~~our~~factor ~~customers.~~is Asshown ain the data on units shipped, exchanged, ~~result~~ canceled, ~~price~~and ~~increases~~net ~~could~~units ~~have~~placed. aThe ~~negative~~other ~~impact~~factors onare ~~our~~captured ~~margins~~in ~~and~~the ~~profitability.~~ measurement of average revenue per terminal (referred to as “ARPU”).

~~We depend~~Our on strategy ~~suppliers~~with average revenue per terminal is to ~~provide~~focus usour ~~with~~sales ~~prepaid~~efforts ~~products~~on quality ~~that~~brokers weand ~~can~~retail ~~resell.~~chains Wewith ~~have~~established noprepaid sales histories, ~~control~~ maintain ~~over~~or better the ~~prices~~pricing ~~they~~in ~~charge~~our ~~us.~~contracts ~~Depending~~with onnew ~~the~~brokers, ~~competitive~~gain better ~~environment~~ discounts from suppliers by securing direct relationships and buying larger quantities, ~~increases~~and incontinue ~~the~~to ~~costs~~charge ofrental ~~our~~and ~~products~~minimum ~~may~~performance ~~reduce~~fees ~~our~~on all ~~margins~~ terminals placed.

IfCritical we Accounting doPolicies ~~not protect our proprietary technology~~ and intellectual property rights against infringement or misappropriation, and defend against third parties assertions that we have infringed on their intellectual party rights, we may lose our competitive position in the markets in which we operate.Estimates

WeThe ~~believe~~ discussion ~~that~~and analysis of our ~~proprietary~~financial ~~software~~condition and ~~hardware~~results ~~provides~~of usoperations are based ~~with~~on ~~a competitive~~our ~~advantage.~~financial ~~While~~statements wethat have ~~filed~~been ~~patent~~prepared ~~applications~~according ~~relating~~ to U.S. ~~various~~ generally ~~features~~accepted ofaccounting ~~the~~principles. ~~Qxpress~~In ~~200~~preparing ~~terminal~~these ~~and proprietary technology~~financial statements, we ~~cannot~~ ~~assure~~are ~~you~~required to make estimates and judgments that ~~these~~affect ~~applications~~the reported ~~will~~amounts beof ~~approved~~assets, orliabilities, ~~that~~revenues ~~even~~and ifexpenses and related ~~approved,~~ disclosures ~~they~~of ~~will~~contingent ~~provide~~assets usand ~~with~~liabilities. ~~meaningful~~We ~~protection~~evaluate these estimates on an on-going basis. ~~Other~~We ~~than~~base ~~our~~these ~~patent~~estimates on historical experience and on ~~applications~~ various ~~described~~other ~~above,~~assumptions that we ~~rely~~believe onare ~~trade~~reasonable ~~secret~~under ~~laws~~the circumstances, ~~and~~the ~~common~~results ~~law~~of which form the basis for making judgments about ~~principles~~ the tocarrying ~~protect~~values ~~our~~of ~~proprietary~~assets ~~rights~~and liabilities. ~~For~~Actual ~~example,~~results wemay ~~have~~differ ~~not~~from ~~registered~~ these estimates under different assumptions or ~~applied~~conditions. toWe ~~register~~consider ~~either~~the following ~~"Qxpress"~~accounting orpolicies ~~"Qxpress~~to ~~200"~~be orthe ~~any~~most ~~other trademarks,~~important ~~trade~~to ~~names,~~the ~~service~~portrayal ~~marks,~~of our financial ~~service~~position ~~names~~and orresults ~~copyrights~~of operations, and that werequire ~~may~~the most ~~own~~ subjective ~~or use~~judgment.

~~Despite~~Revenue ~~our~~ recognition. ~~efforts~~We use two tomodels ~~protect our rights, unauthorized parties may attempt~~ to ~~copy aspects~~generate ofrevenues: ~~our~~the ~~point-of-sale~~broker ~~terminals~~model orand the ~~source~~service-bureau ~~code to our software or to obtain or use information that we regard as proprietary~~model. ~~The scope of any~~ ~~proprietary~~ Under ~~rights~~the ~~that~~broker wemodel, ~~may~~which ~~have~~has isbeen ~~uncertain~~ and iscontinues ~~not sufficient~~ to ~~prevent~~ ~~others~~be ~~from~~the ~~developing and selling competing products and services,~~dominant ~~which~~ alternative, ~~could~~we ~~have~~sell aour ~~material~~prepaid ~~adverse~~products ~~effect~~through onthird-party ~~our~~retail ~~business~~locations. ~~In addition, third~~ ~~parties~~ Revenue ~~may~~is ~~assert~~recognized ~~infringement~~at ~~claims~~the ~~against~~time usproducts orare ~~claim~~sold. ~~that~~Sales weof ~~have~~products ~~violated~~are ~~their~~ generally ~~intellectual~~made ~~property~~directly ~~rights~~to end-users. ~~While~~There weis ~~know of~~ no ~~basis~~right ~~for any claims~~ of ~~this~~ ~~type,~~return ~~the~~for ~~existence of and ownership of intellectual property can be~~products ~~difficult~~ sold ~~to verify~~ and wethe ~~have~~Company is not ~~made~~obligated anfor ~~exhaustive~~further ~~search~~performance ofafter ~~all~~the ~~patent filings~~sale. These Ifsales ~~any~~transactions, ofcategorized ~~our~~as ~~proprietary~~“prepaid ~~rights~~PIN ~~are~~sales” ~~misappropriated~~on orthe ~~we are forced~~consolidated to statements ~~defend~~of ~~our~~operations ~~intellectual~~and ~~property~~comprehensive ~~rights~~loss, weare ~~may~~accounted ~~have~~for toat ~~incur substantial~~“gross” ~~costs.~~since Wethe ~~may~~Company ~~not~~meets ~~have~~ the ~~financial~~requirements ~~resources~~specified toby ~~prosecute~~Securities ~~any~~and ~~infringement~~Exchange ~~claims~~ Commission weStaff ~~may~~Accounting ~~have~~Bulletin ~~or defend any infringement claims that are brought against us~~No. ~~Even~~104 if(SAB we104) ~~do,~~and ~~defending~~Emerging ~~or prosecuting our proprietary rights will divert~~Issues ~~valuable~~ Task Force ~~working~~Issue ~~capital~~No. ~~and~~99-19 ~~management's~~(EITF ~~attention from business and operational issues~~99-19).

~~Significant~~In ~~rapid~~ cases where ~~growth~~the ~~could~~Company ~~strain~~does ~~our~~not ~~internal~~own ~~resources,~~the ~~which~~product ~~could~~sold ~~lead~~and toanother aentity ~~lower~~retains ~~quality~~ such risk ofand ~~customer~~reward ~~service,~~of ~~reporting~~product ~~problems~~ownership ~~and~~or ~~delays~~where incertain ~~meeting~~other ~~important~~requirements of ~~deadlines.~~ SAB 104 Ifor weEITF do99-19 are not ~~upgrade~~met, ~~our~~the ~~internal~~Company ~~systems~~records ~~and~~revenues ~~controls~~on wea ~~may~~“net” ~~not~~basis. Revenue berecorded on a “net” basis is categorized as “prepaid PIN fees” on the ~~able~~ consolidated tostatements ~~manage~~of ~~this~~operations ~~growth~~and ~~properly~~comprehensive loss.

~~Any~~We ~~significant~~ use the ~~revenue~~service-bureau ~~growth~~model ~~will~~primarily ~~strain~~with international ~~our~~customers ~~existing financial~~ and ~~operating~~is a ~~resources.~~ diminishing ~~For~~part ~~example,~~of ~~the~~our ~~accounting~~business. ~~system~~In wethis ~~currently~~model, ~~use~~the isCompany licenses ~~limited in~~ its ~~financial~~ proprietary ~~reporting and we may need to purchase new accounting~~ software and ~~to hire~~sells ~~additional~~its ~~qualified~~point-of-sale ~~people for our accounting department as we grow~~terminals. The ~~Company~~ iscustomer ~~planning to upgrade the accounting systems and~~ is ~~actively recruiting~~ responsible for ~~additional~~operation ~~qualified~~of ~~accounting personnel. Expanding our operations will increase~~ the ~~demands~~system ~~on our senior management~~ and ~~our~~providing services ~~customer~~to ~~service~~its ~~departments~~ retail stores. We ~~will~~receive ~~need~~an toongoing ~~continually~~transaction ~~improve~~fee ~~our~~for ~~management,~~all ~~operational, financial~~sales ~~and other departments to manage our growth properly and any failure to~~through ~~do so may lead to inefficiencies and/or redundancies and may impair our ability~~ the to system, ~~provide~~which ~~accurate~~is ~~and~~recorded ~~timely~~on ~~information~~a ~~and~~“net” ~~reports to our stockholders~~basis.

~~The~~Cost ~~market~~ of ~~price~~prepaid PIN sales and fees. Cost of prepaid ~~our~~sales ~~common~~and ~~stock~~fees consists primarily ~~has~~of ~~been~~the ~~volatile~~costs of the prepaid telecommunication and ~~may~~other ~~continue~~miscellaneous products sold at retail and terminals sold to ~~fluctuate~~customers, depreciation on ~~significantly~~ terminals ~~because~~in use and amortization expense on capitalized software. The full cost of ~~various~~the ~~factors~~product, ~~some~~as ofwell ~~which~~as ~~are~~all ~~beyond~~direct ~~our~~costs associated with the sale of the ~~control~~ product, is recorded at the time of sale.

~~Our stock~~During ~~price~~ January ~~has~~2005, ~~been~~a ~~extremely~~vendor ~~volatile,~~sold ~~fluctuating~~or ~~over~~took ~~the~~possession ~~last~~of ~~two~~approximately ~~years~~9,000 ~~between~~handsets ~~$2.00~~ without ~~and~~reimbursing ~~$14~~the Company.~~85.~~ We expensed ~~These~~these ~~fluctuations~~missing ~~have~~handsets in ~~been~~the ~~unrelated~~first toquarter ~~or disproportionately~~of ~~affected~~2005 byand ~~our~~recorded ~~operating~~a ~~performance.~~receivable ~~The~~from ~~market~~the ~~price~~vendor, ofand ~~our~~ recorded ~~common~~a ~~stock~~reserve ~~could~~totaling ~~continue~~$285,000 toduring ~~fluctuate~~the ~~significantly~~three inmonths ~~response~~ended toJune a30, ~~variety~~ 2005. ofWe ~~factors,~~are ~~some~~pursuing oflitigation ~~which~~against ~~may~~this bevendor ~~beyond~~(see ~~our~~Item ~~control. These factors may~~3—“Legal ~~include~~ Proceedings” ~~one~~for ora more ofdetailed ~~the following:~~discussion).

·Cost of ~~Quarterly~~product ~~operating~~sales. Cost ~~results~~of product ~~falling~~sales ~~below~~includes orthe ~~exceeding~~cost ~~expectations~~of interminals ~~any given period;~~sold.

·Distribution commissions ~~Changes~~and infees. ~~economic~~Distribution commissions ~~conditions~~and ~~generally~~fees orinclude infees ~~the~~paid ~~telecommunications~~to orbrokers ~~banking~~and ~~industries;~~other intermediaries and transaction processing fees paid to a third party.

·Software development ~~Market~~costs. ~~fluctuations~~We capitalize ~~relating~~software development costs incurred to ~~markets~~develop ~~generally~~certain orof ~~market~~the Company’s ~~sectors~~products ~~that~~and ~~include~~services ~~our~~in ~~competitors~~accordance with Statement of Position 98-1, “Accounting ~~which~~for ~~may~~the Costs of Computer Software Developed or ~~may~~Obtained ~~not~~for Internal beUse” ~~based~~(SOP on98-1). ~~earnings~~Costs orare ~~other~~capitalized ~~announcements~~only byafter usthe ortechnological feasibility ~~our~~of ~~competitors;~~the project has been established. In accordance with SFAS No. 142, the Company has recorded its software development costs as a definite-lived intangible asset and is amortizing this asset over its three-year estimated useful life.

·Stock options ~~Fluctuations~~and inwarrants. ~~our~~In December ~~revenue~~2003, ~~which~~the ~~may~~Financial orAccounting ~~may~~Standards ~~not~~Board be(FASB) ~~related~~issued SFAS No. 148, “Accounting for Stock-Based Compensation -- Transition and Disclosure, an amendment of FASB Statement No. 123”. This Statement amends SFAS No. 123 to provide ~~changes~~alternative methods of transition for a voluntary change to the fair value method of accounting for stock-based employee compensation. In addition, SFAS No. 148 amends the disclosure requirements of SFAS No. 123 to require prominent disclosures in both annual and interim financial statements. We have adopted the ~~way~~disclosure-only werequirements ~~conduct~~of ~~our~~Statement ~~business;~~of Financial Accounting Standards No. 123, “Accounting for Stock-Based Compensation,” as provided by Statement of Financial Accounting Standards No. 148, “Accounting for Stock-Based Compensation -- Transition and Disclosure -- an amendment to FASB Statement No. 123.” As a result, no compensation costs are recognized for stock options granted to employees, officers and directors. Options and warrants granted to non-employees are recorded as an expense on the date of grant based on the then estimated fair value of the option or warrant.

· Announcements by our competitors of new technological innovations, service offerings, contracts, acquisitions or strategic relationships;

· Departures of key personnel; and

· Changes in business or regulatory conditions.

Table of Contents

~~In the~~Our ~~past,~~ stock option ~~following~~plans ~~periods~~provide offor ~~market~~stock-based ~~volatility~~employee compensation, ~~stockholders~~including ~~have instituted~~the ~~securities~~ granting ~~class~~of ~~action~~stock ~~litigation.~~options, ~~While~~to wecertain ~~have~~key ~~not~~employees. ~~been~~The ~~involved~~Company inaccounts for ~~securities~~ grants ~~litigation~~ to ~~date,~~employees ifand wedirectors ~~were~~under toits bestock ~~involved~~option plans in ~~securities~~accordance ~~litigation,~~ with wethe ~~could~~recognition ~~incur~~and ameasurement ~~substantial~~principles ~~cost~~of ~~and~~APB ~~experience~~Opinion ~~diversion~~No. of25, ~~resources~~“Accounting ~~and~~for ~~the~~Stock ~~attention~~Issued ofto ~~management~~Employees”, ~~away~~and ~~from~~related ~~our business~~Interpretations. ~~We cannot~~Under ~~predict~~ this ~~the~~method, ~~future~~compensation ~~performance~~expense ofis ~~the~~recorded ~~capital~~on ~~markets~~the indate ~~general~~of ~~and~~grant ~~stocks~~only inif ~~our~~ the current market ~~sector~~price inof ~~particular, and we cannot assure you that~~ the ~~price~~underlying ~~for our common~~ stock ~~will~~exceeded ~~not drop significantly in~~ the ~~future~~exercise price.

~~The~~Income ~~existence~~ taxes. At June 30, 2006, we had an accumulated net operating loss for federal and state corporate income tax purposes of ~~outstanding~~approximately ~~options,~~$24.1 ~~warrants~~million. Because our ability to use this net operating loss depends on our ability to earn future taxable income, and ~~convertible~~because ~~securities~~management has determined that the deferred tax assets may not be realized, we have established a valuation allowance equal ~~preclude~~ to the usnet deferred tax asset. The amount of and ultimate realization of the benefits from ~~obtaining~~these ~~additional~~deferred ~~equity~~tax ~~financing~~assets for income tax purposes depend, in part, on applicable tax laws in effect, our future earnings, and other future events, the effects of which cannot be determined. Our ability to use our accumulated net operating loss against future taxable income, if any, may cause our future reported earnings, if any, to be greater than they would be if fully taxable.

~~The~~Results ~~existence~~ of outstanding options, warrants and convertible securities could make it more difficult to obtain or increase the cost of additional equity financing. The holders of these options and warrants have the opportunity to profit from a rise in the value or market price of our common stock and to exercise them at a time when we could obtain equity capital on more favorable terms than those contained in these securities.Operations

WeThe ~~have~~ following table sets forth statement of operations data as a ~~limited~~percentage ~~number~~of revenues for the periods presented. The trends suggested by this table may not be indicative of ~~stockholders~~future ~~and~~operating results. As noted earlier, these percentages may change substantially as a result of our ~~stock~~implementation isof ~~thinly~~different sales ~~traded~~ models and other factors.

As of March 31, 2005, there were approximately 320 stockholders of record and our average daily share volume for the three months ended March 31, 2005 was approximately 12,000 shares. The relatively low number of stockholders and trading volume may create significant volatility in our share price or other adverse market conditions that negatively affect stockholders.

	For the Three Months Ended		For the Six Months Ended
	June 30,		June 30,
	2006	2005	2006	2005
Revenue	100.0%	100.0%	100.0%	100.0%
Cost of prepaid PIN sales and fees	83.2%	94.1%	81.6%	89.0%
Cost of product sales	0.7%	0.0%	3.4%	0.1%
Distribution commissions and fees	13.6%	17.5%	13.5%	19.1%
Selling expenses	3.0%	1.7%	2.8%	2.1%
General and administrative expenses	8.5%	10.9%	8.7%	11.7%
Stock based compensation	1.7%	0.0%	1.7%	0.0%
Depreciation and amortization	0.3%	0.3%	0.3%	0.4%

Loss from operations	(10.9)%	(24.6)%	(12.0)%	(22.2)%
Other Income (expenses) - net	(0.2)%	(0.1)%	(0.3)%	(0.1)%

Net loss	(11.1)%	(24.7)%	(12.3)%	(22.4)%

Overview

The following is a discussion of certain factors affecting our results of operations, liquidity and capital resources. You should read the following discussion and analysis in conjunction with our condensed consolidated financial statements and related notes that are included herein.

Our business consists of the purchase and resale of prepaid telecommunication and other products through our proprietary electronic point-of-sale system, Qxpress. The key components of the Qxpress system include the Qxpress 200 terminals, our data center, the software that runs the terminals and the data center and the communication protocols that connect the terminals to the data center. The Qxpress system was introduced in September 2002. Prior to that date, we used third party equipment and software. We expect to experience substantial growth in our historical business while expanding our product line to include a broad range of other prepaid products and to provide transaction processing and information management services to other vendors of prepaid products, both in the United States and abroad.

Historically, revenues from international operations have accounted for 1% to 4% of annual revenues. In 2003, we began generating revenues from customers in Canada, France, the Bahamas and Australia. We expect that revenues from international operations will grow over the next few years and will represent a more meaningful portion of our overall revenues, particularly as prepaid wireless is much more common and accepted in Europe, Asia and Latin America than it is in North America.

The Qxpress system is designed to replace the traditional distribution system for prepaid products, which consists of vouchers and hard cards that must be purchased by the retail merchant and that are subject to a number of problems, including loss, theft and inventory financing and management issues. The new Qxpress system can support the sale of a broad range of prepaid products in electronic format from a single terminal placed in convenience stores and other retail establishments. Using a Qxpress terminal, a retail merchant can sell wireless telephone time, traditional long distance service or other telephone products, add credit to a prepaid debit card, add wireless time to a customer’s account by electronic bill payment and sell other prepaid products. In general, the prepaid product is sold in the form of a personal identification number, or "PIN," that the customer can use to add time to a prepaid cellular handset, make long distance calls or add funds to a debit card by calling the provider of the product and providing the PIN. The consumer pays for the product by paying the retail establishment in which the terminal is located. The terminal records the transaction and sends the relevant information to our data center where it is processed and accounting and transaction records are generated. Revenue from these purchases is split among the retail merchant, the broker that placed the terminal with the retail merchant, the provider of the prepaid product and us.

Our system is designed to accommodate transactions involving virtually any prepaid product that can be delivered electronically. Within the prepaid transaction market, our initial focus has been on the telecommunications market. As a distributor of prepaid products in this market, we purchase PINs from national and regional telecommunication carriers and distribute these through our established networks of retail outlets, such as convenience stores, wireless product stores, check cashing stores, grocery stores and discount stores. The prepaid transaction market is rapidly expanding into various types of non-telecommunications products, such as gift and loyalty cards, prepaid debit cards, bill payment and money transfer. In addition to distributing traditional telecommunication products, our system is currently used to provide many of these products as well.

Table of Contents

~~During~~The ~~2004,~~ following wetable ~~announced~~presents ~~that we have also modified~~ our ~~software~~statements ~~to run on a VeriFone 3700 series terminal. This terminal is capable~~ of ~~providing~~operations, ~~both~~showing ~~our~~dollar ~~prepaid~~and ~~application,~~ percentage ~~which~~changes ~~calls~~from ~~into~~three ~~our data center~~ and ~~functions~~six ~~much~~months ~~the~~ended ~~same as our Qxpress 200 terminal~~June, ~~and~~30 ~~standard~~2006 ~~debit/credit card processing through the merchant’s processor for such transactions. The ability~~ to ~~offer our prepaid solution to~~ the ~~market through this alternative hardware option provides us with~~ an comparable ~~opportunity~~periods to expand our market share. While the VeriFone terminal does not offer as many options as our Qxpress terminal for selling prepaid products, it is an excellent solution for customers who prefer to have only one terminal in ~~their~~ ~~retail establishment. In~~ 2005~~, we plan to further expand the devices through which we distribute prepaid products, such as additional debit/credit terminal models~~. We believe that expanding the number and type of devices that can connect to our data center and sell our prepaid products will provide access to additional customers and increased revenues to us in the future.

During the period ended March 31, 2005, we announced we were developing our flexible prepaid application to run on Ingenico’s multi-application terminals including the Elite series, the i5300 terminal, and the upcoming 5100 platform for delivery of our products and services.

	For the Three Months Ended											For the Six Months Ended
	June 30,						Increase (Decrease)					June 30,						Increase (Decrease)
	2006			2005			$			%		2006			2005			$			%
Total Sales and Revenues	$	12,628,171		$	13,322,692		$	(694,521	)		(5.2)%	$	26,027,431		$	21,799,952		$	4,227,479			19.4%

Cost of Sales and Revenue:
Cost of prepaid PIN sales and fees		10,501,205			12,533,184			(2,031,979	)		(16.2)%		21,240,955			19,406,429			1,834,526			9.5%
Cost of product sales		82,269			3,315			78,954			2381.7%		887,369			20,265			867,104			4278.8%
Distribution commissions and fees		1,715,326			2,335,209			(619,883	)		(26.5)%		3,521,107			4,167,303			(646,196	)		(15.5)%
Total Cost of Sales and Revenue		12,298,800			14,871,708			(2,572,908	)		(17.3)%		25,649,431			23,593,997			2,055,434			8.7%
Gross Profit (Loss)		329,371			(1,549,016	)		1,878,387			(121.3)%		378,000			(1,794,045	)		2,172,045			(121.1)%
Operating Expenses:
Selling		378,270			232,626			145,644			62.6%		730,866			459,991			270,875			58.9%
General and administrative		1,078,749			1,457,948			(379,199	)		(26.0)%		2,253,657			2,540,206			(286,549	)		(11.3)%
Non-cash compensation related to operations		210,044			-			210,044			-		438,059			-			438,059			-
Depreciation and amortization		36,919			39,557			(2,638	)		(6.7)%		85,808			88,834			(3,026	)		(3.4)%
Total operating expenses		1,703,982			1,730,131			(26,149	)		(1.5)%		3,508,390			3,089,031			419,359			13.6%
Loss from operations		(1,374,611	)		(3,279,147	)		1,904,536			(58.1)%		(3,130,390	)		(4,847,076	)		1,752,686			(36.2)%

Total Other Expense, net		(23,788	)		(17,851	)		(5,937	)		33.3%		(70,521	)		(31,510	)		(39,011	)		123.8%

Net Loss	$	(1,398,399	)	$	(3,296,998	)	$	1,910,473			(57.9)%	$	(3,200,911	)	$	(4,878,586	)	$	1,791,697			(36.7)%

Basic and Diluted Net Loss per Common Share	$	(0.20	)	$	(0.61	)	$	0.40			(66.6)%	$	(0.46	)	$	(0.94	)	$	0.47			(50.5)%
Basic and Diluted Weighted Average Common Shares Outstanding		6,914,795			5,448,827			1,465,968			26.9%		6,914,795			5,214,812			1,699,983			32.6%

Other Comprehensive Income (Loss):
Net loss	$	(1,398,399	)	$	(3,296,998	)	$	1,898,599			(57.6)%	$	(3,200,911	)	$	(4,878,586	)	$	1,677,675			(34.4)%
Foreign currency translation adjustment		422			(48,164	)		17,911			(37.2)%		1,488			(67,141	)		17,911			(26.7)%

Comprehensive Loss	$	(1,397,977	)	$	(3,345,162	)	$	1,947,185			(58.2)%	$	(3,199,423	)	$	(4,945,727	)	$	1,746,304			(35.3)%

~~Sources~~Three of and ~~Revenue~~Six Months Ended June 30, 2006 and 2005

Sales and revenues. Our ~~principal~~ sales ~~source~~and ofrevenues ~~revenue~~decreased ~~has~~by ~~been~~approximately $695,000 for the ~~resale~~three months ended June 30, 2006 relative to the comparable period in 2005 primarily due to reduced sales of prepaid ~~telecommunication~~ wireless products. Wireless products continue to be our dominant growth category, ~~including~~accounting ~~wireless~~for 95.1% and 95.7% of revenue for the three months ended June 30, ~~long~~2006 ~~distance~~and 2005, respectively. Sales and revenues from other prepaid products, ~~that~~including wefees ~~purchase~~and prepaid debit cards for the three ~~directly~~ months ~~from~~ended ~~carriers~~June or30, ~~indirectly~~2006, ~~from~~relative ~~distributors~~to ~~who~~the ~~purchase~~comparable ~~these~~period in 2005. ~~products~~ Alternatively, ~~from~~sales and revenue for prepaid long distance, and bill pay increased for the ~~carriers.~~three months ended June 30, 2006, relative to the comparable period in 2005.

Our ~~standard~~ sales and ~~business~~revenues ~~model~~increased isby ~~referred~~approximately $4,228,000 for the six months ended June 30, 2006, relative to asthe ~~our~~comparable ~~broker~~period ~~model~~in 2005. InThis ~~this~~increase ~~model,~~is weprimarily ~~provide~~ attributable ato ~~full~~an ~~range~~increase in the number of ~~products~~terminals in the field. Sales and revenues ~~services~~from toprepaid ~~our~~wireless ~~customers,~~products ~~including~~increased ~~our product~~by ~~library~~approximately $3,638,000 for ~~PIN~~the ~~management,~~six ~~transaction~~months ~~processing,~~ended ~~and~~June ~~customer~~30, ~~service~~2006, relative to the ~~retail~~comparable ~~locations~~period in 2005. WeTerminal ~~recognize~~sales ~~revenues~~increased atby approximately $734,000 for the ~~gross~~six ~~sales~~months ended ~~price~~June of30, 2006, relative to the ~~products~~ ~~and~~comparable ~~record~~period ~~cost~~in of2005. ~~goods~~This ~~sold~~increase is attributable ~~for~~to the ~~cost~~sale of 4,100 terminals to a service bureau customer in the United ~~products~~Arab ~~sold~~Emirates in February and March of 2006. Sales and revenues from ~~Commissions~~ other prepaid products, including long distance and bill pay, increased for the six months ended June 30, 2006. Alternatively, service bureau, fees, ~~paid~~prepaid debit tocard ~~brokers~~sales, and ~~retailers~~other ~~are~~revenue ~~recorded~~decreased asfor ~~operating~~the six months ended June ~~expense.~~ 30, 2006, relative to the comparable period in 2005.

~~Beginning~~We in expect the ~~2003,~~following wefactors ~~began~~to ~~offering~~positively ~~our~~impact ~~service~~revenues ~~bureau~~for ~~business~~the ~~model.~~remainder ~~Under~~of ~~this model,~~2006: ~~our~~ (i) a ~~customers~~continuing ~~license~~increase in our ~~data~~installed ~~center~~base ~~software~~of ~~and purchase Qxpress~~ terminals; (ii) the ~~from~~ addition ~~us.~~of ~~These~~new ~~customers~~means ~~are~~of ~~responsible~~product ~~for~~distribution, ~~functions~~ such as ~~inventory~~debit/credit card ~~management,~~ terminals ~~product~~and ~~ownership,~~PC-based ~~report~~delivery ~~generation,~~of ~~and~~product; ~~ACH~~(iii) the ~~funds~~addition ~~transfer.~~of ~~Our~~new ~~agreements~~ products ~~with~~to ~~these~~our ~~customers~~library, ~~also~~such ~~provide~~as ~~ongoing~~gift/loyalty ~~fees~~cards ~~for software maintenance~~ and ~~transactions~~bill ~~processed~~pay, ~~through~~and ~~their system. Because we do not~~new ~~provide~~ vendors orof ~~control~~existing ~~the~~ products; ~~sold,~~and we(iv) the doanticipated ~~not~~continuing ~~meet~~growth of the ~~requirements~~prepaid towireless ~~record these sales at “gross~~market.” ~~Transaction~~While ~~processing,~~we ~~license~~believe ~~and~~that ~~maintenance~~these ~~fees~~factors ~~are~~will result ~~all~~ in further ~~recorded~~revenue ongrowth ain ~~“net”~~2006, ~~basis.~~there ~~Sales~~is ofno ~~terminals~~assurance ~~are~~that ~~recorded~~they ~~at the sales price and a corresponding cost of sale is recognized~~will.

~~The table~~Cost ~~below~~ of ~~illustrates~~prepaid ~~the~~PIN ~~revenues~~sales weand ~~derived~~fees. ~~from~~Our ~~our~~cost ~~principal~~of ~~products~~prepaid PIN sales and fees ~~services~~ (including terminal depreciation and amortization) for the three months ended June 30, 2006, as a percentage of ~~total~~ revenues, ~~represented~~was by83.2%, ~~this~~compared ~~amount.~~to ~~The~~94.1% ~~discussion~~ relative ~~that~~to ~~follows~~the ~~focuses~~comparable onperiod in 2005. This decrease was primarily attributable to the ~~sources~~following: of(i) ~~revenue~~$1,266,704 ~~that~~in weterminal ~~believe~~impairment ~~are~~and fixed asset write-down charges incurred during the ~~most~~three ~~important~~months toended ~~our~~June ~~present~~30, ~~and~~2005; (ii) ~~future~~a ~~results~~PIN inventory write-down of ~~operations~~approximately $250,000 incurred for the three months ended June 30, 2005; and (iii) improved PIN purchase rates.

	For the Three Months Ended March 31,
	2005					2004
	Amount		Percentage			Amount		Percentage
Wireless	$	13,657,118		89.2	%	$	7,449,894		87.8	%
Debit Card		732,141		4.8			236,779		2.8
Long Distance		295,112		1.9			167,105		2.0
Wholesale Products		225,890		1.5			14,645		0.2
Fees		90,985		0.6			146,959		1.7
Wireless Phone Features		76,268		0.5			32,740		0.4
Service Bureau		51,286		0.3			156,997		1.8
Home Dial Tone		38,810		0.3			48,292		0.6
Terminal Sales		22,065		0.2			1,700		0.0
Gift Card		26,380		0.2			28,841		0.3
Other		87,837		0.5			203,878		2.4
Totals	$	15,303,892		100.0	%	$	8,487,830		100.0	%

Prepaid wireless continues to be our largest source of revenue. The prepaid wireless industry is projected to continue to grow and we anticipate that it will continue to be our largest revenue source. Our prepaid wireless products include many major national carriers and many smaller regional carriers. We frequently add new wireless products as the demand arises.

Table of Contents

~~Prepaid~~Our ~~debit~~ cost of ~~card~~prepaid isPIN asales ~~relatively~~and ~~new~~fees ~~product~~(including terminal depreciation and amortization) for the ~~prepaid~~six ~~industry~~months ~~and~~ended ~~is represents~~June a30, ~~growing~~2006 ~~segment~~as a percentage of ~~our~~revenues, ~~business~~was 81.6%, ~~This~~compared ~~product~~to ~~allows~~89.0%, arelative ~~user~~ to ~~load funds~~the ~~onto~~comparable aperiod ~~stored~~in ~~value~~2005. ~~card~~This decrease ~~that~~was ~~will~~primarily ~~then~~attributable ~~function~~to the ~~same~~following: as(i) a$1,266,704 ~~typical~~in terminal ~~debit~~ impairment ~~card.~~and Wefixed ~~generate~~asset ~~revenues~~write-down bycharges ~~receiving~~incurred during the six months ended June 30, 2005; (ii) a ~~share~~$280,005 ofcharge ~~the~~incurred ~~load~~in ~~fee~~the ~~charged~~three tomonths ~~the~~ ended March ~~consumer.~~31, We2005 ~~currently~~for ~~offer~~9,000 ~~two~~Nokia ~~products~~3300 handsets that ~~bear~~a ~~the~~vendor ~~MasterCard~~took ~~logo.~~possession of Weor ~~believe~~ sold ~~the~~but ~~convenience~~for ofwhich athe ~~stored~~vendor ~~value~~did ~~card~~not ~~for~~pay the ~~cash-based~~Company; ~~consumer~~(iii) ~~and increased~~a ~~market~~PIN ~~awareness~~inventory write-down of ~~this~~approximately ~~product~~$250,000 ~~will~~incurred ~~result~~for inthe ~~increased~~six ~~revenues~~months toended June us 30, 2005; inand ~~the~~(iv) ~~future~~improved PIN purchase rates.

~~Prepaid~~Cost ~~long~~ of ~~distance~~product ~~revenue~~sales. Our cost ~~continues~~of toproduct besales afor ~~focus~~the ofthree ~~the~~months ~~Company.~~ended ~~Our~~June ~~marketing analysis~~30, ~~suggests~~2006, ~~that~~as wea ~~can~~percentage of ~~increase~~revenues, ~~prepaid~~was ~~long~~0.7%, ~~distance~~compared ~~revenues~~to ~~by improving~~0.0%, ~~our~~relative ~~product~~to ~~offering~~the ~~and~~comparable byperiod in 2005. ~~providing~~The ~~informative~~decrease ~~and~~was ~~attractive~~attributable ~~point of~~to ~~sale~~reduced ~~advertising~~terminal ~~materials~~sales toduring ~~our~~the three months ~~brokers~~ended ~~and~~June ~~merchants.~~30, 2005.

~~Wholesale~~Our ~~products~~ cost of ~~are~~product ~~items~~sales ~~such~~for asthe ~~PINs~~six ~~(such~~months asended ~~wireless~~June ~~phone~~30, ~~long~~2006, ~~distance~~as ~~phone~~a ~~and debit~~percentage ~~card PINs) that we purchase and take ownership~~ of revenues, ~~and~~was ~~later sell to other distributors outside our customer network~~3.4%, Wecompared ~~are able~~ to ~~use our supplier relationships to provide certain products to distributors who do not have such access~~0. ~~Margins for these product sales in our industry are typically~~ 1% ~~over cost. For periods ended March 31~~, ~~2005~~relative ~~and~~to ~~March~~the ~~31,~~comparable ~~2004~~period ~~these revenue~~in ~~represented 1~~ 2005.~~5% and 0.2% of total revenue, respectively. These revenues are all~~ ~~cash~~ This ~~based~~increase ~~and~~was weprimarily doattributable ~~not~~to ~~incur costs for these product sales besides~~ the ~~cost~~sale of ~~the~~ ~~product.~~approximately ~~These~~4,100 terminals ~~transactions~~to ~~are~~a ~~recorded~~service atbureau ~~gross.~~customer Wein dothe ~~not~~United ~~emphasize~~Arab ~~this source of revenue but respond to opportunities that present themselves~~Emirates.

~~Fee~~Distribution ~~revenue~~ commissions isand ~~earned~~fees. These expenses onare ~~terminal~~principally ~~rentals~~commissions ~~and~~paid ~~performance~~to ~~fees.~~retailers ~~Performance~~and ~~fees~~brokers for product ~~include~~ sales ~~fees~~through ~~charged~~the ~~when~~Q ~~weekly~~Xpress ~~rentals~~terminals ~~from~~and are a ~~terminal~~fixed ~~fall~~percentage ~~below~~of the product ~~agreed-upon~~ sales ~~minimum~~price. ~~level~~Commissions and ~~other~~fees ~~miscellaneous~~for ~~fees~~the three months ended June 30, 2006 as a percentage of revenues were 13.6%, Wecompared ~~are~~to ~~seeing~~17.5% ~~increased~~relative to the comparable ~~pricing~~ period ~~pressures~~in 2005. Commissions and ~~discounting~~fees ~~with~~for ~~fees~~the six months ended June 30, ~~terminal~~2006 as ~~rental~~a percentage of revenue were 13.5%, ~~and~~compared ~~terminal~~to ~~sales due~~19.1%, relative to ~~competitive~~the comparable ~~factors~~period in 2005. WeThis ~~anticipate~~decrease ~~competition~~is ~~will~~primarily ~~continue~~attributable to ~~force~~a shift ~~lower~~ in our ~~fee~~sales ~~revenue~~strategy infrom ~~the~~brokered ~~future~~sales to direct sales.

~~Wireless~~Margin. ~~phone~~ After ~~features~~subtracting ~~include~~the ~~custom~~cost ~~ring~~of ~~tones~~prepaid ~~that~~PIN ~~are~~sales ~~downloaded~~and fees, the cost of product sales, and distribution commissions and fees paid to athe ~~wireless~~brokers and ~~handset~~ retailers from revenue, we had margins (including terminal depreciation and software ~~email/text~~amortization ~~messaging~~expenses) ~~capabilities.~~of Weapproximately ~~expect~~(10.9)% ~~these~~for ~~custom~~the ~~features~~three months ended June 30, 2006 and approximately (24.6)%, relative to ~~continue~~the comparable period in 2005. This decrease is primarily attributable to ~~provide~~the anfollowing: (i) $1,266,704 ~~increased~~in ~~source~~terminal impairment and fixed asset write-down charges incurred during the three months ended June 30, 2005; (ii) a PIN inventory write-down of approximately ~~revenues~~$250,000 incurred for the three months ended June 30, 2005 (iii) an increase in the sale of higher margin consigned products, which represented approximately 3.3% and 2.7% of revenue for the three months ended June 30, 2006 and 2005, respectively; (iv) reduced distribution commissions and fees; and (v) improved PIN purchase rates. Alternatively, our margin percentage was negatively impacted by the reduction of our higher-margin fees and service bureau sales.

~~We first~~After ~~began~~ subtracting ~~setting~~cost upof ~~service~~prepaid ~~bureau~~PIN ~~customers~~sales inand ~~2003.~~fees, ~~While~~cost weof ~~make~~product ~~this~~sales, ~~business~~and ~~model~~ distribution ~~available~~commissions and fees paid to ~~all~~the ~~our~~brokers ~~customers~~and retailers from revenue, we ~~expect~~had ~~the~~margins ~~majority~~(including ofterminal ~~revenues~~depreciation ~~from~~and software ~~service~~ amortization ~~bureau~~expenses) ~~customers~~of ~~will~~approximately be(12.0)% ~~from~~for ~~customers~~the ~~outside~~six months ended June 30, 2006 and approximately (22.2)% relative to the ~~United~~comparable ~~States~~period ~~since~~in 2005. ~~that~~ This increase is primarily attributable to the ~~only~~following: ~~business~~(i) ~~model~~$1,266,704 wein terminal ~~offer~~impairment ~~them.~~and ~~This~~fixed ~~revenue~~asset ~~model~~write-down ~~will~~charges ~~provide~~incurred during the ~~higher~~ three months ~~margins~~ended ~~than~~June ~~our~~30, ~~traditional~~2005; ~~broker~~(ii) ~~model~~a ~~since~~$280,005 ~~there~~charge ~~are~~incurred ~~few~~in ~~direct~~the three months ~~costs~~ ended toMarch ~~offset~~31, ~~against~~2005 ~~the~~for ~~fee~~9,000 ~~revenues.~~handsets Wea ~~acquired~~vendor ~~our~~took ~~service~~possession ~~bureau customer~~of inor ~~Canada~~sold and did innot ~~July~~pay ~~2004,~~the ~~which~~Company; ~~contributed~~(iii) toa ~~the~~PIN ~~decline~~inventory inwrite-down ~~service~~of approximately ~~bureau~~ $250,000 ~~revenues.~~incurred ~~For~~for the ~~period~~three months ended ~~March~~June 3130, 2005; (iv) reduced distribution fees; and ~~2004,~~(v) ~~this~~improved ~~source~~PIN ofpurchase rates. Alternatively, our ~~revenue~~ margin ~~decreased~~percentage towas ~~0.3%~~negatively impacted by the reduction of ~~total~~our ~~revenue~~higher-margin consigned ~~from~~product ~~1.8%~~sales, ~~respectively~~service bureau sales and fees.

~~Historically,~~Selling ~~our~~ expenses. Selling expenses ~~results~~increased ~~of operations have been characterized~~ by ~~relatively~~approximately ~~high revenues but relatively low profits. Under our broker model~~$146,000 weduring ~~book~~ the ~~entire~~three ~~value~~months ofended ~~the transaction as revenues. Our cost of sales includes the amount we pay for~~ June ~~the~~ 30, ~~product;~~2006, itrelative ~~does~~to ~~not include~~ the ~~fees~~comparable ~~and~~period ~~commissions we pay the broker and the retailer who participated~~ in ~~the sale~~2005. ~~After~~This ~~subtracting~~increase ~~the~~is ~~commissions and~~primarily ~~fees~~ attributable ~~paid~~ to ~~the~~an ~~brokers~~increase ~~and retailers (which vary substantially directly with revenues~~ in ~~our~~salaries ~~historical sales model)~~ and ~~depreciation~~benefits onexpenses ~~terminals~~of ~~and amortized software development costs, our margins were~~ approximately ~~0.3% for~~ ~~the period ended March 31~~ $154,000 ~~2005~~ and ~~(1.1)%~~an ~~for~~increase ~~the comparable period~~ in ~~2004. The~~tradeshow ~~contribution margin excluding depreciation on terminals~~ and ~~amortized software~~conference ~~development~~expenses ~~costs~~of ~~were~~ approximately ~~3.1% for the period ended March~~ 31 $12,000, ~~2005~~which ~~and~~expenses ~~3.4%~~are ~~for~~offset ~~the comparable period~~ in ~~2004. The change~~part ~~in margins is primarily driven~~ by ~~the~~a ~~increase~~reduction in ~~lower~~advertising ~~margin wireless~~expense ~~products and lower fees. In addition, because~~ of ~~these~~approximately ~~relatively small margins~~$11, a000 ~~minor change in the price that we pay for products would have~~ and a ~~substantial effect~~reduction onof ~~our~~approximately ~~margins and profit if we were not able to (or~~$9,000 in ~~the case of~~other ~~price~~ sales ~~decreases,~~and ~~were~~marketing ~~not required to) pass the difference on to our customers~~expenses.

~~The~~Selling ~~resale~~ expenses ofincreased prepaid telecommunication products has historically been a commodity market with most price increases or decreases being passed through the distribution chain to the end user. However, the amount of margin available to each participant in the distribution chain can be affected by ~~various~~approximately ~~factors~~$271, ~~such~~000 asduring the ~~functions~~six ~~provided~~months ~~and~~ended ~~risk assumed by the participant and the~~June ~~volume~~ 30, ~~and~~2006 ~~payment~~over ~~terms~~relative onto ~~which~~ the ~~participant~~comparable ~~can~~period ~~purchase~~in ~~product~~2005. ~~Historically,~~ ~~our~~This ~~ability~~increase ~~to purchase products at attractive rates has been~~is ~~negatively~~ primarily ~~impacted~~attributable ~~by our inability~~ to ~~purchase in volume and our status as~~ an ~~uncertain~~ ~~credit,~~increase ~~which,~~ in ~~some~~salaries ~~cases,~~and ~~has~~benefits ~~resulted~~expenses ~~in our inability to~~of ~~purchase~~ approximately ~~product directly from the supplier. In those cases~~$301, ~~we have purchased product from a reseller at a markup from the supplier price. We believe that~~000, ~~as our~~which ~~business~~expenses ~~expands~~are ~~and~~offset ~~our financial condition becomes more stable, there may be opportunities to increase margins~~ in ~~our~~part ~~historical business~~ by ~~purchasing~~ a ~~greater~~ ~~percentage~~reduction ~~of our product directly from the carrier and by purchasing~~ in ~~greater~~ advertising ~~volume.~~expenses ~~However,~~of ~~the~~approximately ~~telecommunications business in general~~$21,000 and ~~the wireless~~a ~~business~~reduction in ~~particular,~~other ~~are changing rapidly~~ sales and ~~it is not possible to~~ ~~anticipate~~ marketing ~~potential~~expenses ~~changes~~of ~~that~~approximately ~~may occur in the distribution chain~~$9,000. ~~There is no assurance that we will be successful in realizing these opportunities.~~

General and administrative. General and administrative expenses for the three months ended June 30, 2006 decreased by approximately $379,000, relative to the comparable period in 2005. This decrease is primarily attributable to the following: (i) $175,000 in settlement costs related to the Dial-Thru International litigation for the three months ended June 30, 2005; (ii) a decrease of approximately $85,000 in legal expenses; (iii) a decrease of approximately $49,000 in accounting fees; (iv) a decrease of approximately $44,000 in bad debt expense; (v) a decrease of approximately $39,000 in salaries and benefits expenses; (vi) a decrease of approximately $35,000 in recruiting fees; and (vii) a decrease of approximately $6,000 in other expenses. These decreases were offset in part by an increase of approximately $31,000 in rent expense an approximately $23,000 in travel related expenses.

General and administrative expenses for the six months ended June 30, 2006 decreased by approximately $287,000, relative to the comparable period in 2005. The decrease is primarily attributable to the following: (i) $175,000 in settlement costs related to the Dial-Thru International litigation for the three months ended June 30, 2005 (ii) a decrease of approximately $22,000 in legal expenses; (iii) a decrease of approximately $54,000 in accounting fees; (iv) a decrease of approximately $29,000 in bad debt expense; (v) a decrease of approximately $65,000 in salaries and benefits expenses; (vi) a decrease of approximately $31,000 in recruiting fees; (vii) a decrease of approximately $12,000 in board-related expenses; (viii) a decrease of approximately $10,000 in other expenses. These decreases were offset in part by an increase of approximately $51,000 in rent expense, approximately $33,000 in phone-related expenses, and approximately $27,000 in travel-related expenses.

Table of Contents

~~Substantially~~Stock-based ~~all~~ compensation. Stock-based ofcompensation ~~our~~expense ~~revenues~~for ~~are~~the ~~collected~~three ~~through~~months ~~automated~~ended ~~clearinghouse~~June 30, or2006 increased ~~ACH~~$210, ~~transactions~~044, ~~initiated~~relative byto usthe ~~within~~comparable 72period ~~hours~~in of2005. ~~the~~Stock-based compensation ~~sale~~expense offor the ~~product.~~six Inmonths ~~an ACH~~ended ~~transaction~~June 30, ~~funds~~2006 ~~are~~increased ~~electronically~~$438,059 relative ~~transferred~~to ~~from~~ the ~~merchants' accounts~~comparable toperiod ~~our~~in ~~accounts~~2005. AsThe aCompany ~~result,~~has weadopted ~~have~~the provisions ~~virtually~~of noSFAS ~~receivables~~No. ~~from retailers~~123(R) ~~and~~using wethe domodified-prospective ~~not~~transition ~~have~~method based ~~expenses~~on ~~associated~~SFAS ~~with~~No. ~~billing~~123(R). ~~and~~Under ~~collection.~~this ~~In most~~transition ~~cases~~method, ~~the~~compensation ~~brokers~~expense recognized ~~through~~during ~~whom~~the wethree ~~distribute~~months ~~our~~ended ~~system~~June ~~are~~30, ~~responsible~~2006 included: (i) ~~for~~ compensation ~~any~~expense ~~unpaid~~for ~~ACH~~all ~~transactions~~share-based ~~from~~awards ~~retailers~~granted soprior weto, ~~experience~~but ~~relatively~~not yet ~~little~~ vested ~~bad~~as ~~debt~~of June 30, 2006, and (ii) compensation expense ~~from~~for ~~our~~all ~~product~~share-based awards ~~sales~~granted ~~through~~on ~~terminals~~or after June 30, 2006. WeAccordingly, ~~generate~~compensation costs of ~~receivables~~ $210,044 ~~from~~and ~~sales~~$438,059 has been recognized for grants of ~~terminals~~options to employees and directors ~~from~~in ~~license~~the ~~fees~~accompanying statements of operations for the three and ~~consulting~~six ~~services~~ months ~~provided~~ended toJune ~~assist~~30, ~~service~~2006, ~~bureau~~respectively, ~~customers~~and inno ~~setting~~related upexpenses ~~and~~was ~~operating~~recognized ~~data~~ in ~~centers.~~the statement of operations for the comparable period in 2005.

~~Operating~~Depreciation ~~Metrics~~ and amortization. Depreciation and amortization expenses were approximately $322,452 and $429,156, for the three months ended June 30, 2006 and 2005, respectively. Depreciation and amortization expenses were approximately $665,645 and $866,982, for the six months ended June 30, 2006 and 2005, respectively. These decreases are primarily attributable to lower amortization of capitalized software development costs and to higher depreciation expense from an increase in the number of terminals in service. We expect depreciation expense to increase as the number of terminals in service increases. We do not anticipate additional capitalized software development expense until Lipman and Ingenico terminals are deployed in the Q Xpress system.

WeOther ~~monitor~~ income ~~our~~and ~~business~~expense-net. This category consists primarily of interest income and ~~measure~~expense ~~performance~~on a related party note and capital lease obligations. For the three months ended June 30, 2006 and 2005, other income and expense-net was $24,000 and $18,000, respectively. For the six months ended June 30, 2006 and 2005, other income and expense-net was $71,000 and $32,000, respectively. These increases were primarily attributable to interest expense related to a warrant to purchase 230,000 shares of common stock that was issued to a majority shareholder, who at the time was the Company’s Chairman of the Board of Directors, in conjunction with a ~~number~~$614,000 loan that a major shareholder, who at that time was the Company's Chairman of the ~~ways~~Board of Directors, made to the Company on July 11, 2005. ~~Several~~The warrant was treated as a discount on the note and amortized over the two-year term of the loan. Also, for the three months ended June 30, 2006, the Company ~~these~~ recognized ~~key~~approximately ~~measures~~$38,000 ~~are~~in ~~shown~~interest expense related the value of the warrant, approximately $8,000 in interest earned related to a $614,000 loan, and approximately $6,000 in interest expense primarily related to lease obligations. For the ~~table~~six ~~below~~months ~~along~~ended ~~with~~June 30, 2006, the ~~results~~Company ~~for~~recognized approximately $77,000 in interest expense related the value of the warrant, approximately ~~periods~~ $15,000 ~~ended~~in ~~March~~interest 31earned related to a $614,000 ~~2005~~loan, and ~~2004~~approximately $15,000 in interest expense primarily related to lease obligations.

	For the Quarter Ended March 31, 2005	For the Quarter Ended December 31, 2004	For the Quarter Ended September 30, 2004	For the Quarter Ended June 30, 2004	For the Quarter Ended March 31, 2004
Broker Model
Net activations (1)	396	450	288	70	175
Terminal acquired (2)		200
Total activated terminals	2,721	2,325	1,675	1,387	1,317
Average activated terminals	2,523	1,734	1,531	1,352	1,230
Average monthly net revenue per activated terminal (3)	59	68	75	69	73
Service Bureau Model
Net terminals placed	266	(200)	50	-	453
Total terminals in service	1,578	1,312	1,512	1,462	1,462
Total activated terminals	978	712	912	962	662
Average monthly net revenue per activated terminal (4)	17	14	11	11	6

Income tax expense. At June 30, 2006, we had operating loss carryforwards of approximately $24.1 million that may be applied against future taxable income, if any, through 2025. The net operating loss carryforwards and other items resulted in net deferred tax assets of approximately $10.5 million. The amount of and ultimate realization of the benefits from these deferred tax assets for income tax purposes depends, in part, on applicable tax laws in effect, our future earnings, if any, and other future events, the effects of which cannot be determined at this time. As a result of the uncertainty surrounding the realization of the deferred tax assets, we established a valuation allowance that is equal to the value of net deferred tax assets, and no income tax benefit from our operating loss has been recognized for any of the periods presented.

~~(1) A~~Liquidity ~~terminal~~ and isCapital ~~defined as activated when it generates its first revenue at retail site.~~Resources

~~(2)~~Cash and Incash equivalents. As ~~July~~ of June ~~2004~~30, we2006, ~~acquired~~our balance of cash and cash equivalents was $1,629,999 and the balance of our ~~service~~restricted ~~bureau~~cash ~~customer~~was $326,912. ~~Point~~Restricted decash ~~Vente~~is maintained to support letters of credit covering capital lease arrangements and to secure a bank account that is used for processing automated clearinghouse transactions. In order to secure the bank account, the Company must maintain a balance of 2% of the previous month’s total transactions that have been processed through the account.

~~(3)~~As ~~Includes gross revenues less cost~~ of June ~~goods~~30, ~~sold~~2006, ~~and~~we ~~commissions~~had ~~paid~~working tocapital ~~brokers and~~of ~~retailers~~approximately ~~and~~$3,130,746 ~~excludes~~million ~~depreciation~~ and a current ~~amortization~~ratio ~~allocable~~of 3.6 to ~~cost of goods sold~~1.

~~(4)~~Financing ~~Excludes~~ activity ~~one-time~~cash ~~revenues~~flows. Historically, we have financed our working capital requirements from ~~terminal~~the ~~sales~~sale of equity, convertible ~~installation~~debentures ~~fees~~and notes, and ~~license~~short-term and long term ~~fees~~ borrowings.

The ~~exact~~ ~~timing~~ Company ofdoes ~~earnings~~not ~~before~~have ~~interest,~~the ~~taxes,~~necessary ~~depreciation~~capital ~~and~~to ~~amortization (EBITDA)~~continue ~~break~~its ~~even~~operations ~~depends~~as planned. onIn ~~many~~this ~~items~~regard, ~~including~~our ~~how~~independent ~~aggressively~~auditors wehave ~~add~~stated ~~to our~~in ~~sales~~their ~~organization,~~auditor’s report ~~which~~for ~~increases~~the ~~our~~year ~~short-term~~ended ~~burn rate~~December 31, 2005 that our ~~actual sales~~recurring ~~results,~~losses ~~the~~raise substantial ~~pace~~doubt ofabout our ~~growth~~ability ~~and~~to ~~the~~continue ~~relative~~as ~~numbers~~a ofgoing inconcern ~~service~~(see Item ~~broker~~ 8 “Financial ~~terminals~~Statements and inSupplementary ~~service~~Data” ~~bureau~~for ~~terminals.~~a ~~Based~~more ondetailed ~~our current sales~~discussion). ~~organization~~ Accordingly, ~~growth~~the Company plans, weto ~~believe~~raise ~~our~~additional ~~cash~~funds ~~flow~~in ~~break~~2006. ~~even~~These additional ~~point~~funds ~~will~~may ~~likely~~ be atin ~~approximately~~the 6form of equity,~~000-7~~ debt or convertible securities,~~000~~ or ~~broker~~a ~~units.~~combination of these. There is no assurance that ~~this break~~the ~~even~~Company ~~point~~ will successfully beraise ~~realized~~additional ~~as forecasted given changes in economic and competitive factors~~funds.

~~Our~~Recently ~~broker~~ Enacted ~~model~~Accounting revenues depend on the following factors: i) number of terminals in service, ii) average gross sales per terminal, iii) net margin on product sales, and iv) fees and other ancillary charges. The first factor is shown in the data on units shipped, exchanged, canceled and net units placed. The other factors are captured in the measurement of average revenue per terminal (referred to as “ARPU”).Standards

~~During~~For ~~2004, we had~~ a discussion ~~higher rate~~ of ~~returned~~recently ~~units~~enacted ~~than~~accounting ~~anticipated~~standards, ~~which~~see ~~was~~Note ~~due~~1—“Summary toof ~~the~~ Significant ~~bankruptcy~~Accounting ofPolicies” ato ~~significant broker. We anticipate that~~ the ~~rate~~Consolidated ofFinancial ~~canceled~~Statements, set ~~units~~ forth ~~will be lower as a percentage of total units shipped~~ in ~~2005~~Item 1.

Regarding units in service, our goal for 2005 is to activate substantially more terminals. Our strategy to achieve this includes increasing our sales force in order for us to gain more market exposure and we plan to hire new sales personnel over the course of the year. We anticipate that our selling expenses will outpace revenues in the near term, but that the longOff-~~term benefits of the additional~~Balance ~~sales~~ Sheet ~~personnel will outweigh the costs. There is no assurance however that we will be successful in this strategy.~~ Items

On February 16, 2006, the Company acquired certain assets from Sun Communications, including approximately 350 merchant locations and terminals. These assets were purchased for $150,000 in cash paid on February 16, 2005. In addition, the Company is obligated, pursuant to an earn-out provision in the purchase agreement, to pay additional amounts totaling up to $50,000 if certain performance criteria are met. The earn-out provision provides for a $15,000 prepayment made to Sun Communications on August 10, 2006 and the remainder, if earned, due February 2007.

Excluding normal operating leases and the potential obligations related to Sun Communications discussed directly above, the Company has no off-balance sheet obligations.

Table of Contents

AsItem ~~discussed above, we plan to develop other distribution methods for distributing products using our back-end data center~~ 3. AsQuantitative weand ~~add~~Qualitative ~~customers~~Disclosures ~~who~~About ~~use~~Market distribution methods other than our Qxpress terminal (e.g. electronic cash registers), our focus will shift from terminals in service to total retail locations regardless of the method of product distribution. Risk

~~Our~~Not strategy with average revenue per terminal is to focus our sales efforts on quality brokers and retail chains with established prepaid sales histories, maintain or better the pricing in our contracts with new brokers, gain better discounts from suppliers by securing direct relationships and buying larger quantities, and continue to charge rental and minimum performance fees on all terminals placed applicable. We show ARPU for terminals outstanding during the year and for terminals excluding those shipped within the last 60 days because our experience shows that it generally takes 60-90 days for a terminal to ramp up to full revenue potential.

WeItem ~~evaluate our service bureau model in different ways~~ 4. ~~While~~Controls ~~we measure ARPU for these customers, the revenues from software licensing~~ and ~~profits from terminal~~ sales are likely to be more significant than the transaction fees from sales of products. The total net profit on a per-customer basis is the measure we focus on rather than transaction fees per unit. As our service bureau customers continue to grow we will have more meaningful data of this nature to report. Our strategy with respect to service bureau revenues is to selectively choose opportunities that will bring us the most net revenues. There is no assurance that we will be successful in this strategy. Procedures

~~Critical~~Disclosure ~~Accounting~~ Controls ~~Policies~~ and ~~Estimates~~ Procedures

~~The discussion~~· ~~and~~Our ~~analysis~~Disclosure ofControls ~~our financial condition~~ and ~~results~~Procedures ofAre ~~operations~~Effective. ~~are based~~Pursuant ~~on our financial statements that have been prepared according~~ to ~~U.S. generally~~Rule ~~accepted~~13a-15(b) ~~accounting~~under ~~principles.~~the InExchange ~~preparing these financial statements~~Act, weour ~~are~~management is required to ~~make~~evaluate ~~estimates~~the ~~and~~effectiveness ~~judgments~~of ~~that~~our ~~affect~~disclosure ~~the reported~~controls ~~amounts~~and ~~of assets~~procedures, ~~liabilities,~~as ~~revenues~~defined ~~and~~in ~~expenses~~Rule ~~and~~13a-15(e), ~~related disclosures~~as of ~~contingent~~the ~~assets~~end ~~and~~of ~~liabilities.~~each Wefiscal ~~evaluate~~quarter. ~~these~~Such ~~estimates~~evaluation ~~on an~~must ~~on-going~~include ~~basis.~~the Weparticipation ~~base~~of ~~these~~our ~~estimates~~principal onexecutive ~~historical~~officer ~~experience~~ and ~~on various~~our ~~other~~principal ~~assumptions~~financial ~~that~~officer. weAccordingly, ~~believe~~as ~~are~~of ~~reasonable~~June ~~under~~30, ~~the circumstances~~2006, the ~~results~~end of ~~which~~our ~~form~~second ~~the~~fiscal ~~basis~~quarter, ~~for~~our ~~making~~management ~~judgments~~has ~~about the~~completed ~~carrying~~an ~~values~~evaluation of ~~assets~~the effectiveness and ~~liabilities.~~the ~~Actual~~design ~~results~~and ~~may~~operation ~~differ~~of ~~from these~~our ~~estimates~~disclosure ~~under~~controls ~~different~~and ~~assumptions or conditions~~procedures. WeBased ~~consider~~upon ~~the following~~this ~~accounting~~evaluation ~~policies~~our tomanagement be(including ~~the~~our ~~most~~CEO ~~important~~and toCFO) ~~the~~has ~~portrayal~~concluded ofthat our ~~financial~~ ~~condition~~disclosure controls and ~~that~~procedures ~~require~~were ~~the~~effective ~~most~~as ~~subjective~~of ~~judgment.~~June 30, 2006.

~~Revenue~~Internal ~~recognition~~ Controls Over Financial Reporting

~~We record~~ Change ~~revenue~~ in atOur ~~the~~Internal ~~time~~Control ofover ~~product~~Financial ~~sale~~Reporting orin ~~when~~the ~~services~~Three ~~are~~Months ~~provided. Under our~~Ended ~~broker model~~ June 30, ~~sales of our prepaid products are generally made directly to end-users~~2006. ~~There is no right of return for products sold and we are not~~the ~~obligated~~ Company ~~for~~has ~~further~~taken ~~performance after~~ the ~~sale.~~following ~~These~~actions ~~sales~~to ~~transactions~~remedy ~~are accounted for at “gross” since they meet~~ the ~~requirements~~following ~~specified by~~internal ~~Securities~~ control ~~and~~ issues: ~~Exchange Commission Staff Accounting Bulletin No. 104 (SAB 104) and Emerging Issues Task Force No. 99-19 (EITF 99-19).~~

· We ~~provide~~ ~~certain~~previously ~~products~~identified ~~and~~a ~~services~~“significant ~~which~~deficiency” do(as ~~not~~defined ~~include~~by the ~~sale~~PCAOB) ofin aour ~~PIN~~ability to summarize timely and adequately our financial data in our financial statements, including ~~bill~~the ~~payment~~timely ~~applications,~~and ~~PIN-less~~adequate ~~transactions~~preparation ~~for~~of ~~certain~~the ~~debit cards~~supporting schedules thereto and ~~money~~the ~~transfer~~timely reconciliation of general ledger accounts. InWe ~~these~~have ~~cases~~taken westeps doto ~~not~~remedy ~~meet~~this “significant deficiency” during the ~~requirements~~three ~~for gross~~months ~~revenue~~ended ~~reporting~~June ~~under~~30, ~~applicable~~2006 by: (i) hiring additional accounting ~~standards.~~personnel; In(ii) ~~these~~further ~~cases~~training ~~we record~~our accounting personnel; (iii) refining the ~~fee~~processes and procedures through which we ~~receive~~conduct asour ~~revenue~~review, onprepare aour ~~net~~financial ~~basis.~~statements We(including ~~charge~~the ~~various~~schedules ~~types~~thereto), ~~of fees~~and ~~related~~prepare toour general ledger accounts; and (iv) upgrading our accounting software. Management understands that the ~~use~~remedies in place have been implemented only recently and further testing of the ~~terminal~~effectiveness orof ~~other~~these ~~services provided~~remedies, ~~such~~as well as ~~rental~~ ~~fees~~additional process improvements, ~~minimum~~will ~~performance~~be ~~fees~~necessary ~~and~~to ~~activation~~ensure ~~fees.~~that ~~Fees~~similar ~~are~~“significant ~~recognized when~~deficiencies” ~~billed~~do not reoccur in the future.

~~Under~~· ~~our service~~We ~~bureau~~previously ~~model,~~identified ~~software~~a ~~license,~~“material ~~transaction~~weakness” ~~processing~~(as ~~and~~defined ~~maintenance fees~~by ~~are~~the ~~all~~PCAOB) ~~recorded~~in onour aability ~~net~~to ~~basis~~track ~~when~~our ~~earned.~~terminals ~~Our~~in ~~service~~the ~~bureau~~hands ~~contracts separately~~of ~~identify~~our ~~pricing~~brokers ~~for~~and ~~software~~customers. ~~licensing,~~We ~~purchases~~have oftaken ~~terminals, future~~steps ~~technical~~to ~~support~~remedy ~~billed~~this at“material ~~hourly~~weakness” ~~rates~~during the three months ended June 30, ~~and~~2006 ~~ongoing~~by: ~~fees~~(i) ~~based~~tasking ~~on either~~a ~~transaction~~senior ~~volume~~staff ormember ~~revenues~~with ~~processed~~tracking ~~through~~terminals in the ~~system.~~hands ~~Each~~ of ~~these~~ ~~deliverables~~our ~~has~~brokers ~~value~~and tomerchants; (ii) electronically tracking the ~~customer~~serial onnumbers aof ~~standalone~~all ~~basis~~in- and ~~comprises a~~out-bound ~~separate~~terminals; ~~unit~~(iii) ofutilizing ~~accounting,~~certain asoperations ~~defined~~and sales personnel in ~~EITF~~tracking ~~00-21.~~terminals ~~Revenues~~in ~~for~~the ~~each~~hands of ~~these~~ ~~elements~~our ~~are~~brokers ~~based~~and onmerchants; and (iv) more carefully monitoring out-bound terminals to reduce the ~~value~~number of inventoried terminals sent to broker locations. Management understands that the ~~services~~remedies in place have been implemented only recently, ~~software~~and orfurther ~~terminals sold~~testing of the effectiveness of these remedies, as ~~determined~~well byas ~~vendor~~additional ~~specific~~process ~~objective~~improvements, ~~evidence~~will be necessary to ensure that similar “material weaknesses” do not reoccur in the future.

~~Cost~~Other than the completion of ~~goods~~the ~~sold~~items outlined directly above, there has been no change in our internal control over financial reporting, as defined in Rule 13a-15(f), during the three months ended June 30, 2006 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

Cost of goods sold primarily represents the cost of the personal identification number, or PIN, or other product sold. The cost of a PIN is set by the carrier and is expressed in terms of a percentage discount from the denomination value. This discount ranges from 12% to 25% for cellular and home dial tone products and 40% to 50% for long distance products. We do not have minimum purchase contracts or exclusivity agreements with any carrier. Historically, price increases are passed on to customers in the form of lower broker and merchant commissions, which are recognized as operating expenses under the caption "commissions and fees" on our statement of operations. Cost of goods sold fluctuate due to changes in the mix of our products and discount rates offered by carriers. As already noted, we expect to experience greater fluctuations in revenues and margins as we introduce our service bureau revenue model.

Table of Contents

Software development costs

We have invested a considerable amount of capital in our proprietary Qxpress 200 terminal and data center. We account for this investment in accordance with Statement of Position 98-1, “Accounting for the Costs of Computer Software Developed or Obtained for Internal Use” and Statement of Financial Accounting Standards No. 142, “Goodwill and Other Intangible Assets.” Costs incurred before we established the technological feasibility of the project were recorded as research and development expenses. Once technological feasibility was established, costs incurred to develop the data center software and the embedded software in the terminal were capitalized. These costs include salaries paid to software engineers employed by us and fees paid to third parties for software development. Since the new system was placed in service, maintenance costs and nominal upgrades have been expensed while costs of new software projects under development have been capitalized upon reaching technological feasibility. Capitalized costs are amortized over the estimated useful life of the software, which is three years. We periodically evaluate the recoverability of our capitalized software development costs based on the expected future cash flows from this asset and record an impairment charge should the asset carrying value exceed the fair value.

Impairment of long-lived assets

In accordance with Statement of Financial Accounting Standards No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets,” long-lived assets, such as property and equipment, and purchased intangibles subject to amortization, are reviewed periodically for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset or asset group to estimated undiscounted future cash flows expected to be generated by the asset. If the carrying amount of an asset or asset group exceeds its estimated future cash flows, an impairment charge is recognized for the amount by which the carrying amount of the asset exceeds the fair value of the asset.

Stock options and warrants

We have adopted the disclosure-only requirements of Statement of Financial Accounting Standards No. 123, “Accounting for Stock-Based Compensation,” as provided by Statement of Financial Accounting Standards No. 148, “Accounting for Stock-Based Compensation -- Transition and Disclosure -- an amendment to FASB Statement No. 123.” As a result, no compensation costs are recognized for stock options granted to employees, officers and directors. Options and warrants granted to non-employees are recorded as an expense on the date of grant based on the then estimated fair value of the option or warrant.

Results of Operations

The following table sets forth the, statement of operations data as a percentage of revenues. These results may not be indicative of future operating results. As noted earlier, these percentages can be expected to change substantially as a result of our implementation of different sales models and other factors.

	Three months ended March 31,
	2005			2004
Revenues		100.0	%		100.0	%
Expenses:
Cost of goods sold		77.8			72.7
Commissions and fees		18.7			23.9
Selling		1.5			1.7
General and administrative		6.8			8.9
Depreciation and amortization (1)		3.2			4.7
Loss from operations		(8.4	)		(11.9	)
Total other expense - net		(0.1	)		(3.6	)
Net loss		(8.5	)%		(15.5	)%

(1) Includes cost of goods sold related to depreciation on terminals and amortization of software development. For periods ended March 31, 2005 and March 31, 2004, these costs total 2.8% and 4.5% of revenue, respectively.

Table of Contents

The following table presents our statements of operations, showing dollar and percentage changes from 2005 to 2004.

	Three months ended March 31,						Increase (Decrease)
	2005			2004			$			%
Revenues	$	15,303,892		$	8,487,830		$	6,816,062			80.3	%
Expenses:
Cost of goods sold		11,901,712			6,174,528			5,727,184			92.8
Commissions and fees		2,927,946			2,024,907			903,039			44.6
Selling expenses		227,365			142,697			84,668			59.3
General and administrative expenses		1,046,258			782,639			263,619			33.7
Depreciation and amortization (1)		483,535			399,191			84,344			21.1
Total expenses		16,586,816			9,523,962			7,062,854			74.2
Loss from operations		(1,282,924	)		(1,036,132	)		246,792			23.8
Total other expense - net		(13,659	)		(310,367	)		(296,708	)		(95.6	)
Net loss	$	(1,296,583	)	$	(1,346,499	)	$	(49,916	)		(3.7	)%

(1) Includes $434,258 and $382,815 of cost of goods sold related to depreciation on terminals and amortization of software development, for periods ended March 31, 2005 and March 31, 2004, respectively)

Three months ended March 31, 2005 compared to three months ended March 31, 2004

Revenues. Our revenues increase for the three months ended March 31, 2005, over the comparable period of 2004 was driven by an increased number of terminals in the field. Most revenue categories experienced increases between periods, with the largest increases coming from wireless ($6.2 million) and prepaid debit card ($0.5 million). We expect the following factors to positively impact revenues in 2005: i) our installed base of terminals at the beginning of 2005, many of which have been recently installed and therefore only marginally contributed to revenues in the first quarter of 2005; ii) the advantages we are able to offer the market with our proprietary system as previously described; iii) the addition of new means of product distribution, such as debit/credit card terminals and PC-based delivery of product; iv) the addition of new products to our library, such as gift/loyalty cards and bill pay; and v) the continued growth of the prepaid wireless market. There is no assurance that these factors will positively affect revenues in 2005.

Cost of goods sold. Our cost of goods sold (including terminal depreciation and software development amortization expense) for the period ended March 31, 2005 as percentage of revenues was 80.1% compared to 77.2% for the period ended March 31, 2004. Excluding terminal depreciation and software development amortization expense, cost of good sold for the three months ended March 31, 2005 as percentage of revenues was 77.7% compared to 72.7% for the three months ended March 31, 2004. This increase in cost of sales was a result of, i) an increase in the mix of lower margin wireless products; and ii) lower fees. Changes in cost of goods sold as a percentage of revenues are also attributable to our mix of product sales. In the future, we expect our cost of goods sold will fluctuate as a percent of revenue as changes occur in our product mix, level of fees charged and discount rates offered by carriers. Cost of goods sold will also be influenced by the relative growth experienced in our two business models, the traditional broker model and the service bureau model.

Commissions and fees. These expenses are principally commissions paid to retailers and brokers for product sales through the Qxpress terminals and are a fixed percentage of the product sales price. Commissions and fees for the three months ended March 31, 2005 as percentage of revenues was 19.1% compared to 23.9% for the three months ended March 31, 2004. Commissions and fees for the period ended March 31, 2005 increased in terms of absolute dollars but decreased as a percent of revenue. This percentage decrease was a result of a shift in product mix toward lower margin wireless products and correspondingly lower commission payments to brokers. Our contracts with brokers generally protect us from any price decreases from carriers. Historically, a component of commissions and fees is a transaction processing fee paid to LDC for transactions processed through the LDC terminals. Since we were able to transfer all remaining customers to our new Qxpress system during 2004 the Company had no LCD transactions fees for the three months ended March 31, 2005.

Selling. Selling expenses for the three months ended March 31, 2005 increased by approximately $85,000 compared to the comparable period in 2004. Components of this increase are increased expenses for base salaries of $46,000 which resulted from adding five additional sales personnel, an increase of approximately $31,000 in sales commissions from a commission plan instituted in 2005 and approximately $7,000 in additional travel related expenses. We may continue to experience increases in selling costs from additional sales staff and increased advertising and marketing program expenses in 2005.

Table of Contents

General and administrative. General and administrative expenses increased during the three months ended March 31, 2005 compared to the comparable period in 2004 and as a percentage of revenues. General and administrative increased by $264,000 for the three months ended March 31, 2005 compared to the comparable period in 2004. This increase is due to additional staffing and related higher gross salaries of $123,000, external accounting fees of $118,000, an increase in benefit costs of $24,000, an increase in board related expenses of $21,000, an increase in rent expense of $20,000, and an increase in phone expense of $14,000.

The increases were offset, in part, by a decrease of approximately $47,000 in investor relations expenses, and a decrease of approximately $9,000 in legal fees. The Company will be making the necessary investment in 2005 to comply with SOX requirements and make additional investments in its internal systems and corporate infrastructure. As revenue increases, we expect general and administrative expenses to decrease as a percentage of revenue. However, in the immediate future, we expect to incur costs in advance of the business growth that they are intended to support.

Depreciation and amortization. Depreciation and amortization expenses for the three months ended March 31, 2005 increased by approximately $84,000 compared to the comparable period in 2004. These increases are attributable primarily to higher amortization of software development costs for three months ended March 31, 2005 and to higher depreciation expenses from an increased number of terminals in service. As we continue to amortize capitalized software development costs and we increase the number of terminals in service, we expect depreciation and amortization expenses to increase.

Total other expense - net. Other income and expense consists primarily of interest income and expense. Net other expense for the three months ended March 31, 2005 and 2004 was approximately $14,000 and $310,000, respectively. This decrease represents lower interest expense related to debentures sold in 2003 that were repaid in full on March 31, 2004. Most of the interest expense, $300,000 for three months ended March 31, 2004, was in the form of amortization of discount on these debt instrument.

Liquidity and Capital Resources

Historically, we have financed our working capital requirements through cash flows from operating activities, the sale of common stock, proceeds from short-term borrowings, and proceeds from the sale of convertible debentures and notes.

As of March 31, 2005, we had working capital of approximately $917,000 and a current ratio of 1.3 to 1.

As of March 31 2005, we own approximately 6,200 Qxpress terminals available for placement. This inventory will provide us the means to grow substantially in 2005 without the associated capital costs. We anticipate that our inventory of PINs, which was $1.4 million (includes $0.9 million in PIN inventory and $0.5 million in deposits made on PINs which were not yet received) at March 31, 2005, will continue to grow as our business expands. Due to the short order time required for these products, we are able to keep our inventory in the range of 13 days’ sales. Our future capital requirements will depend both on the rate of growth of our business and the mix of revenue models that we employ. Models that require us to maintain a large inventory of prepaid products or to continue to own terminals and/or to invest in transaction processing facilities will require relatively large amounts of capital. The capital requirements of our service bureau model are substantially less.

Subsequent to March 31, 2005, we issued 400,000 shares of unrestricted common stock at $5.00 per share through a private placement. We expect to raise additional funds in 2005, through the sale of equity, debt or convertible securities. We have a guaranteed commitment for up to $0.9 million in additional funding from a member of the board of directors if additional cash is required. We will continue to monitor capital requirements and we anticipate that we will require additional working capital to support growth during 2005.

Item 4. Control and Procedures

Disclosure Controls and Procedures

We maintain disclosure controls and procedures designed to ensure that financial information required to be disclosed in our reports filed under the Securities Exchange Act of 1934, as amended (the Exchange Act), is recorded, processed, summarized, and reported within the required time periods, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow for timely decisions regarding disclosure. In designing and evaluating the disclosure controls and procedures, we recognize that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and we necessarily were required to apply our judgment in evaluating the cost-benefit relationship of possible controls and procedures.

At the end of the period covered by this Quarterly Report on Form 10-Q, our Chief Executive Officer and Chief Financial Officer conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(c) under the Securities Exchange Act of 1934, as Amended). Based on the foregoing, the Chief Executive Officer and Chief Financial Officer have concluded that the disclosure controls and procedures were not effective due to certain material weaknesses in the Company’s internal controls over financial reporting.

Table of Contents

Changes in Internal Control Over Financial Reporting

During the quarter ended March 31, 2005, we put into effect certain changes in our internal controls over financial reporting, including disclosure controls and procedures, to address the deficiencies noted in our Form 10-KSB for the year ended December 31, 2004. These changes included timely reconciliation of balance sheet accounts and improved controls over our PIN inventory. Our remediation efforts are ongoing as we continue to address areas requiring improvement.

PART II - OTHER INFORMATION

Item 1. Legal Proceedings

As of ~~March~~ of 31May 22, ~~2005~~2006, we are not a party to any legal proceedings, except as set forth below.

InQ ~~January~~ Comm ~~2004~~International, ~~Dial-Thru~~Inc. v. ~~International~~The ~~Corporation~~Phone ~~filed~~Store aof ~~lawsuit~~Missouri, ~~against~~LLC usand inKevin ~~the~~Montgomery. In April ~~Superior~~2005, ~~Court of~~ the ~~State~~Company offiled ~~California,~~an ~~County~~action ofagainst ~~Los~~a ~~Angeles~~PIN provider, ~~claiming~~due to ~~damages~~ approximately of $41 million ~~as a result of our breach of an agreement that was signed~~ in deactivated ~~October~~PINs ~~2000. It is our position~~ that ~~claim~~the isCompany ~~without~~received ~~merit as we properly~~in ~~exercised a contractual right to terminate~~ the ~~agreement.~~fourth Inquarter ~~February~~of 2004,. Subsequent ~~we filed a motion~~ to ~~dismiss~~June ~~the~~30, ~~case~~2005, on the ~~grounds~~Company determined that ~~under~~this obligation was ~~the~~approximately ~~agreement~~$1.5 inmillion and ~~question~~ includes, ~~the~~in ~~proper~~addition ~~venue~~to ~~for~~deactivated ~~this~~PINs, ~~case~~losses ~~was~~resulting ~~the federal or state courts in Orem,~~from handsets ~~Utah.~~ paid Infor ~~April~~by ~~2004,~~ the ~~California~~Company ~~court~~that ~~issued~~were to abe ~~tentative~~sold ~~ruling~~by ~~granting~~the ~~our~~PIN ~~motion for dismissal~~ provider. The ~~proceedings~~PIN ~~were~~provider agreed ~~stayed~~to ~~pending~~sell the handsets ~~outcome~~in order ofto reimburse the ~~matter~~ inCompany for both the ~~state~~handset ofpurchase price ~~Utah.~~and Inthe ~~July~~PIN ~~2004~~losses. However, ~~Dial-Thru~~the ~~filed~~PIN ~~substantially~~provider did ~~the~~not ~~same~~ reimburse the ~~suit~~Company. The ~~against~~Company usis inproactively taking the appropriate ~~United~~legal ~~States~~action ~~District~~to ~~Court~~recover in the ~~State~~amount ~~of Utah~~due. We However, ~~will~~there ~~vigorously~~is no ~~contest~~assurance ~~the~~of ~~claim. At this point~~repayment, weand domanagement ~~not~~recorded ~~believe~~an ~~that~~allowance against the ~~eventual~~ full amount ~~outcome~~ of the ~~matter~~receivable ~~will~~in ~~have~~the afourth ~~material~~quarter ~~adverse impact on our financial position, results~~ of ~~operations or liquidity~~2004.

~~In March~~Item ~~2005, we filed an action against The Phone Store for $1~~ 1A.0 ~~million~~Risk ~~in deactivated PIN inventory received from the Phone Store. We filed the compliant in the Fourth Judicial District Court.~~Factors

In addition to the other information in this report, you should carefully consider the risk factors discussed in Part I, “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2005, which we hereby incorporate herein by reference. There have been no material changes to such risk factors since the date of that report.

Item 5. Other Information.

The Company's Board of Directors has approved two forms of Stock Option Grant, which arefiled herewith as exhibits, under the 2004 Stock Option Plan.

Item 6. Exhibits and Reports on Form 8-K

(a) Exhibits:

Exhibit No.	Description
3.1(i)	Articles of Incorporation (1)
3.1(ii)	Amendment to Articles of Incorporation (2)
3.2	Amended and Restated Bylaws (2)
4.1	Specimen Stock Certificate (2)
4.2	Form of warrant agreement, including form of warrant (2)
4.3	Form of unit certificate (2)
4.4	Form of representative's warrant (2)
10.1	2000 Stock Option Plan (2)
10.2	2003 Stock Option Plan (2)
10.3	Securities Purchase Agreement, dated February 10, 2003 (2)
10.4	Form of 12% Secured Convertible Debentures due March 31, 2004 (2)
10.5	Form of Stock Purchase Warrant (2)
10.6	Form of Lock-Up Agreement executed by all officers, directors and 5% shareholders (2)
10.7	Form of Lock-Up Agreements for 12% Secured Convertible Debenture holders (2)
10.8	Employment Agreement between Q Comm International, Inc. and Paul C. Hickey (2)
10.9	Employment Agreement between Q Comm International, Inc. and Terry D. Kramer (3)
10.10	Employment Agreement between Q Comm International, Inc. and Michael K. Openshaw (3)
10.10	Employment Agreement between Q Comm International, Inc. and Michael D. Keough*
10.10	Securities Purchase Agreement, dated May 20, 2003 (2)
10.11	Form of 12% Unsecured Promissory Note, due August 31, 2004, dated May 20, 2003 (2)
10.12	Form of Stock Purchase Warrant, dated May 20, 2003 (2)
10.13	Service Agreements between Q Comm International, Inc. and each of Cellcards of Illinois, Iowa Wireless and Hargray Wireless (2)
10.14	Agreement between Q Comm International, Inc. and PreCash Corporation (2)
10.15	WGR Ltd. Agreement (2)
10.16	Marceco Ltd. Agreement (2)
10.17	Success Concepts Enterprises Inc. Agreement (2)
10.18	510 East Technology Avenue Lease (3)
10.19#	Agreement between Q Comm International, Inc. and Cricket Communications, Inc.
14	Code of Ethics (2)
21	Subsidiary schedule (3)

Exhibit No.

Description

263.1(i) Articles of Incorporation (1)

3.1(ii)

Amendment to Articles of Incorporation (2)

3.2	Amended and Restated Bylaws (2)

4.1	Specimen Stock Certificate (2)

4.2	Form of warrant agreement, including form of warrant (2)

4.3	Form of unit certificate (2)

4.4	Form of representative’s warrant (2)

10.1	2000 Stock Option Plan (2)*

10.2	2003 Stock Option Plan (2)*

10.3	Securities Purchase Agreement, dated February 10, 2003 (2)

10.4	Form of 12% Secured Convertible Debentures due June 30, 2004 (2)

10.5	Form of Stock Purchase Warrant (2)

10.6	Form of Lock-Up Agreement executed by all officers, directors, and 5% shareholders (2)

10.7	Form of Lock-Up Agreements for 12% Secured Convertible Debenture holders (2)

10.11

Employment Agreement between Q Comm International, Inc. and Michael D. Keough(4)*

10.12

Employment Agreement between Q Comm International, Inc. and Mark W. Robinson(5)*

10.13

Securities Purchase Agreement, dated May 20, 2003 (2)

Table of Contents

31.1	Chief Executive Officer Certification pursuant to section 302 of the Sarbanes-Oxley Act of 2002*
31.2	Chief Financial Officer Certification pursuant to section 302 of the Sarbanes-Oxley Act of 2002*
32.1	Chief Executive Officer Certification pursuant to section 906 of the Sarbanes-Oxley Act of 2002*
32.2	Chief Financial Officer Certification pursuant to section 906 of the Sarbanes-Oxley Act of 2002*

10.15

Form of Stock Purchase Warrant, dated May 20, 2003 (2)

~~_____________________________________~~10.16 Service Agreements between Q Comm International, Inc. and each of Cellcards of Illinois, Iowa Wireless and Hargray Wireless (2)

* Included10.17 asAgreement anbetween ~~exhibit~~Q ~~herein~~Comm International, Inc. and PreCash Corporation (2)

~~(1) Previously filed on February 24, 2000, as an exhibit to Form~~ 10~~-SB,~~.18 ~~and~~WGR onLtd. ~~March 20,~~Agreement ~~2000, as an exhibit in the Company's Current Report on Form 8-K and incorporated herein by reference.~~(2)

~~(2) Previously~~10.19 ~~filed~~Marceco asLtd. anAgreement ~~exhibit to the Company’s Registration Statement on Form SB-2~~ (~~File No. 333-104232~~2) ~~and incorporated herein by reference.~~

~~(3) Previously filed as an exhibit to Form~~ 10~~-KSB~~.20 onSuccess ~~March~~Concepts ~~31,~~Enterprises ~~2003~~Inc. ~~and~~Agreement ~~incorporated herein by reference.~~(2)

10.21

510 East Technology Avenue Lease (3)

10.22#

Agreement between Q Comm International, Inc. and Cricket Communications, Inc. (4)

10.23

2004 Stock Option Plan (7)*

10.24

9350 South 150 East, Suite 840, Sandy, Utah Lease (8)

10.25

Standard Form of Stock Option Grant for Incentive Stock Options under the 2004 Stock Option Plan **

10.26

Standard Form of Stock Option Grant for Non-Qualified Stock Options under the 2004 Stock Option Plan **

14	Code of Ethics (2)

16	Letter from Tanner LC to the Securities and Exchange Commission, dated October 11, 2005 regarding change in certifying accountant (6)

21	Subsidiary schedule (3)

31.1	Chief Executive Officer Certification pursuant to section 302 of the Sarbanes-Oxley Act of 2002**

31.2	Chief Financial Officer Certification pursuant to section 302 of the Sarbanes-Oxley Act of 2002**

32.1	Chief Executive Officer Certification pursuant to section 906 of the Sarbanes-Oxley Act of 2002**

32.2	Chief Financial Officer Certification pursuant to section 906 of the Sarbanes-Oxley Act of 2002**

________________________

* Denotes a management contract or a compensatory plan or arrangement.

** Included as an exhibit herein.

(1)	Previously filed on February 24, 2000, as an exhibit to Form 10-SB, and on March 20, 2000, as an exhibit in the Company’s Current Report on Form 8-K and incorporated herein by reference.

(2)	Previously filed as an exhibit to the Company’s Registration Statement on Form SB-2 (File No.333-104232) and incorporated herein by reference.

(3)	Previously filed as an exhibit to Form 10-KSB on June 30, 2003 and incorporated herein by reference.

(4)	Previously filed as an exhibit to Form 10-KSB on April 12, 2005 and incorporated herein by reference.

(5)	Previously filed as an exhibit to Form 10-KSB/A on August 10, 2005 and incorporated herein by reference.

(6)	Previously filed on October 11, 2005, as an exhibit in the Company’s Current Report on Form 8-K and incorporated herein by reference.

(7)	Previously filed on May 3, 2004, as Appendix C to Schedule 14a and incorporated herein by reference.

(8)	Previously filed as an exhibit for Form 10-K on March 31, 2006 and incorporated herein by reference.

Application has been made to the Securities and Exchange Commission to seek confidential treatment of certain portions of this exhibit under Rule 406 of the Securities Act of 1933 or Rule 24(b)-2 under the Securities Exchange Act of 1934. Omitted material for which confidential treatment has been requested has been filed separately with the Securities and Exchange Commission.

~~(b) Reports on Form 8-K~~24

On January 10, 2005, we filed a Current Report on Form 8-K under Item 5.02 regarding the sale of unregistered securities.

On March 17, 2005, we filed a Current Report on Form 8-K under Item 1.01 regarding the execution of a material contract with Leap/Cricket.

Table of Contents

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this ~~report~~Quarterly Report on Form 10-Q for the three and six months ended June 30, 2006, to be signed on its behalf by the undersigned, thereunto duly authorized, on August 14, 2006.

Q Comm International, Inc.

By:	/s/ Mark W. Robinson
	Mark W. Robinson
	Chief Financial Officer
	(Principal Financial and Accounting Officer)
Date:	June 2, 2005

By:	/s/ Mark W. Robinson

	Mark W. Robinson
	Chief Financial Officer, Secretary and Treasurer

Filing Compare · Q COMM INTERNATIONAL INC