SECURITIES AND EXCHANGE COMMISSION

Washington, D.C., 20549

FORM 6-K

Report of Foreign Issuer

Submission For the monthmonths of MayMarch & April 2006.

QI Systems Inc. (SEC File No: 0-30948)

(Translation of registrant's name into English)

Unit 101, 3820 Jacombs Road, Richmond, British Columbia, CANADA, V6V 1Y6

(Address of principal executive office)

[Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or Form 40-F. Form 20-F X Form 40-F ____]

[Indicate by check mark whether the registrant by furnishing the information contained in this Form is also thereby furnishing the information to the Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934. Yes ____ No _X___]

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

QI Systems Inc.

(Registrant)

Date: ~~May~~July 2414, 2006 By:* Steven R. Garman (Signature)*

Steven R. Garman

President & CEO

QI ~~System~~Systems Inc.

*Print name and title under the signature of the signing officer

QuarterlyNews FinancialReleases: StatementsJune 2006

QI ~~SYSTEMS~~Systems ~~INC.~~Reduces Float by 750,000 Shares; Cancels Stock Escrow Account and Voids 750,000 Shares of Common Stock

~~CONSOLIDATED~~ June ~~FINANCIAL~~7, ~~STATEMENTS~~2006--QI Systems Inc. (OTCBB:QIIIF), a leading developer and integrator of contact and contactless card payment, access-control and tracking solutions, today announced that effective immediately pursuant to subsection 8(c) of an Escrow Agreement dated March 14, 1995, QI Systems has cancelled a founder's escrowed stock account established with the formation of the Company.

~~THREE~~ The ~~AND~~Escrow ~~NINE~~Agreement ~~MONTHS~~provided ~~ENDED~~that ~~MARCH~~any 31shares not released from escrow within five years from the date of acceptance of the agreement shall be cancelled. The date referred to in subsection 8(c) was subsequently extended to April 26, 2006, by consent of the stock exchange on which the Company was formerly listed (TSX Venture Exchange). As April 26, 2006 has now passed, the Company has formally cancelled the Escrow Agreement.

~~NOT~~ The ~~AUDITED~~account, ORheld ~~REVIEWED~~by BYthe ~~EXTERNAL~~Company's ~~AUDITORS~~stock transfer agent Signature Stock Transfer, contained 750,000 shares of common stock for seven individuals. These shares will be returned to QI Systems' stock treasury and the Company's issue will be reduced by 750,000 shares.

"It has been a long-term goal of management to streamline our capital structure," stated Steve Garman, QI ~~SYSTEMS~~Systems ~~INC~~Chief Executive Officer. "We are pleased that QI Systems has been able to effect this change to reduce our float and we hope to be able to implement other short-term capital enhancements to increase shareholder value."

~~Consolidated~~ QI ~~Balance~~Systems ~~Sheets~~Inc. designs and sells card payment solutions for various industries. Products and core competencies include smart cards and stored value systems, security protocols, data communications, software design and hardware manufacture.

As Matters atdiscussed ~~March~~in ~~31,~~this ~~2006~~press release may include “forward-looking statements’ which are subject to certain risks and ~~June~~uncertainties. ~~30,~~Consider ~~2005~~all risk factors carefully when evaluating forward looking statements as actual results may differ materially from those expressed herein. QI Systems is protected from litigation regarding forward looking statements and undertakes no obligation to publicly update such forward-looking statements.

~~Expressed~~ The inOTCBB USExchange ~~Dollars~~ does not accept responsibility for the adequacy of this news release and has not investigated the validity of these claims.

~~Unaudited~~ Contacts QI Systems Inc. Steven Garman, 817-485-8111 sgarman@qisystems.ca or Investor Relations: Equity Performance Group Bethany Tomich, 617-723-1465 bethany@equityperfgp.com

	March 31, 2006	June 30, 2005
	($)	($)
ASSETS
Current
Cash	101,293	59,950
Receivables	285,363	40,784
Share subscriptions receivable	10,088	6,635
Prepaid expenses	66,833	410,545
Inventory	193,966	192,237
	657,544	710,151
Property, plant and equipment	33,221	9,106
	690,766	719,257
LIABILITIES
Current
Payables and accruals	352,944	808,094
Shareholder loans	1,284	21,392
Deposits received	258	16,578
	354,486	846,064
SHAREHOLDERS’ DEFICIENCY
Share capital	13,217,275	11,225,477
Share capital subscribed	100,000	692,333
Value allocated to stock options	310,488	260,318
Deficit	(13,337,888)	(12,218,019)
Cumulative translation adjustment	46,405	(86,916)
	336,280	(126,807)
	690,766	719,257
On behalf of the Board of Directors:
	“Steven R. Garman”	“Matthew Yugovich”
	Steven R. Garman,Director	Matthew Yugovich,Director

QI Systems and SmartCentric Technologies Sign Development and Supplier Contract to Provide Payment Solutions for a Variety of Devices to the Campus Market

June 12, 2006--QI Systems Inc. (OTCBB: QIIIF) and SmartCentric Technologies International Ltd, leading developers and integrators of contact and contactless card payment solutions, today announced that they have signed a multi-phase development and supplier contract. The ~~accompanying~~agreement ~~notes~~will ~~are~~combine anSmartCentric's ~~integral~~SmartCity ~~part~~products for multi-application and payment solutions with a wide variety of ~~these~~QI ~~consolidated~~System's ~~financial~~unattended ~~statements~~devices, including, but not limited to, laundry equipment, vending machines, printers, copiers and parking equipment, using both contact and contactless cards.

The unique partnership between QI ~~SYSTEMS~~Systems ~~INC~~and SmartCentric will provide university and corporate campuses with new opportunities for expanded use of the SmartCentric SmartCity multi-application family of smart card solutions, which can be used both on-campus and off and will allow for remote data collection and hot-listing of lost or stolen cards. These solutions include Off-Campus Merchant programs, parking and transportation and are part of the full suite of SmartCity solutions which includes Secure IT access, logical access, Web Revalue of cards, and Digital Certificates.

~~Consolidated~~ President ~~Statements~~and Chief Executive Officer of ~~Operations~~QI Systems Inc., Steven R. Garman, comments, "QI Systems has a history of enabling unattended devices on campus to make one-card payment and ~~Deficit~~tracking solutions a reality. Additionally, QI Systems has a high level of expertise working with a variety of companies in the proprietary stored value space. The agreement with SmartCentric provides the Company with a unique opportunity to work on global projects with a corporation that has been a pioneer in both industries."

~~For~~ Stephen ~~the~~B. ~~three~~Riegel, ~~and~~QI ~~nine~~Systems' ~~months~~Vice ~~ended~~President ~~March~~of 31Business Development added, ~~2006~~"We are pleased to be working with a quality organization such as SmartCentric and ~~March~~share 31their ongoing vision of excellence and spirit of innovation and leadership. As SmartCentric moves forward with their next generation of card ID and payment solutions, ~~2005~~QI Systems looks forward to supporting their efforts and providing them with quality products."

~~Expressed~~ Kieran Timmins, CEO of SmartCentric comments, "The QI Systems partnership enables us to accelerate our plans to provide our customers with a real choice of card platforms for e-payments including contact and contactless. We anticipate that the first major product deployment will be delivered in USearly ~~Dollars~~2007. The partnership also allows us to solve the issue of transaction collection and hot-listing of lost or stolen cards by providing collection methods using TCP/IP and/or WiFi."

~~Unaudited~~ Chris Rizzetto, Director of Sales for SmartCentric in North America adds, "This partnership will be sure to offer immediate benefits to our current and prospective customers."

	Three months ended		Nine months ended
	March 31, 2006	March 31, 2005	March 31, 2006	March 31, 2005
	$	$	$	$
Revenues	256,487	96,208	379,453	367,729
Cost of goods sold	85,518	45,790	138,982	176,631
	170,969	50,418	240,471	191,098
Expenses
Administration	162,146	93,493	531,353	276,649
Amortization	1,683	1,296	4,028	3,793
Development costs	45,025	57,485	125,460	201,350
Financing costs and interest	594	586	2,005	1,968
Investor relations	138,699	-	406,766	-
Sales and marketing	28,984	56,565	97,662	167,992
Stock-based compensation	468	24,434	49,731	24,434
Professional fees	104,457	(592)	181,871	26,026
	482,056	233,267	1,398,876	702,212
Operating loss	(311,087)	(182,849)	(1,158,405)	(511,114)
Interest income	3,952	675	3,952	1,850
Gain on settlement of debt	(8,094)	277	34,584	22,444
Net loss	(315,229)	(181,897)	(1,119,869)	(486,820)
Deficit, beginning of period	(13,022,659)	(11,540,763)	(12,218,019)	(11,235,840)
Deficit, end of period	(13,337,888)	(11,722,660)	(13,337,888)	(11,722,660)
Loss per share – basic and diluted	(0.01)	(0.01)	(0.03)	(0.02)

About QI Systems:

~~The~~ QI ~~accompanying~~Systems ~~notes~~Inc. ~~are~~develops anand ~~integral~~markets ~~part~~innovative contact and contactless chip-based card payment and tracking solutions for a number of ~~these~~industries ~~consolidated~~as ~~financial~~well ~~statements~~as national, state and local government agencies. QI's products and core competencies include smart-card and stored-value systems, security protocols, data communication software design and hardware manufacture.

For more information about QI ~~SYSTEMS~~Systems ~~INC~~Inc., visit www.qisystems.ca.

~~Consolidated~~ About ~~Statements~~SmartCentric ofTechnologies ~~Cash~~International ~~Flow~~Limited:

~~For~~ SmartCentric ~~the~~Technologies ~~three~~International is a specialist technology company focused on secure payments and ~~nine~~transactions ~~months~~and ~~ended~~multi-application ~~March~~smart 31card systems. SmartCentric's flagship product, ~~2006~~SmartCity(R), was originally developed by the SmartCentric team in the early 1990's and ~~March~~has 31evolved into a trusted worldwide card solution. SmartCity(R) is a Multi-Application Smart Card based system which has many wide-ranging uses, ~~2005~~such as stored value, loyalty, gift cards, logical access, physical access, biometrics, car parking and ticketing. SmartCity(R) is based on international standards and is teamed with best of breed industry partners to deliver leading edge technology and first class client friendly solutions.

~~Expressed~~ SmartCity(R) has been used in USover ~~Dollars~~90 sites worldwide with over 5 million cards issued in diverse sites such as colleges, government offices, military establishments, banks, cities, towns, shopping areas, and stadiums.

~~Unaudited~~ For further information please visit us on www.smartcentric.com

	For the three months ended		For the nine months ended
	March 31, 2006	March 31, 2005	March 31, 2006	March 31, 2005
	($)	($)	($)	($)
Cash flows related to operating activities
Net loss for the period	(315,229)	(181,897)	(1,119,869)	(486,820)
Adjustments to reconcile net loss used in operations
Stock-based compensation	468	24,434	49,731	24,434
Employment incentive paid with shares	-	-	37,500	-
Investor relations	108,750	-	331,083	-
Gain on settlement of debt	8,094	(277)	(34,584)	(22,444)
Amortization	1,683	1,296	4,028	3,793
	(196,234)	(156,444)	(732,111)	(481,037)
Changes in non-cash working capital items
Receivables	(204,587)	21,847	(244,580)	4,575
Share subscriptions receivable	12,736	-	(3,453)	-
Prepaid expenses	(189,866)	3,936	12,629	(1,371)
Inventory	(2,093)	23,008	(1,729)	(4,583)
Payables and accruals	9,606	136,517	(420,566)	159,673
Deposits received	(26,141)	(2,116)	(16,320)	(12,631)
	(596,579)	26,748	(1,406,130)	(335,374)
Cash flows related to investing activities	(10,463)	-	(28,144)	-
Cash flows related to financing activities
Proceeds from (repayment of) shareholder loans	-	6,762	(20,109)	13,591
Proceeds from issuance of capital, net of issue costs	16,029	-	1,008,203	275,000
Proceeds from exercise of stock option warrants	47,536	-	254,202	17,200
Proceeds from share capital subscribed	100,000	-	100,000	87,300
	163,565	6,762	1,342,296	393,091
Effect of foreign currency translation on cash	193,985	2,283	133,321	(9,948)
Net increase (decrease) in cash	(249,492)	35,793	41,343	47,769
Cash and cash equivalents (cash deficiency), beginning of period	350,785	24,134	59,950	12,158
Cash and cash equivalents, end of period	101,293	59,927	101,293	59,927

Matters discussed in this press release are "forward-looking statements" and are subject to certain risks and uncertainties. Consider all risk factors carefully when evaluating forward-looking statements, as actual results may differ materially from current expectations. QI Systems and SmartCentric Technologies International Ltd undertake no obligation to publicly update such forward-looking statements.

Contacts QI Systems Inc. Corporate & Media Contact:
Steven R. Garman, 817-485-8111
or
Investor Relations Contacts:
Equity Performance Group
Bethany Tomich, 617-723-1465
Bethany@equityperfgp.com

~~The~~ SmartCentric ~~accompanying~~Technologies ~~notes~~International ~~are~~Limited Worldwide: Kieran anJ ~~integral~~Timmins, ~~part~~+353 of1 ~~these~~854 ~~consolidated~~0501 kieran.timmins@smartcentric.com or North ~~financial~~America: Chris ~~statements~~Rizzetto, 561-228-1826 chris.rizzetto@smartcentric.com or Europe: Denise Sweeney, +353 87 823 5551 denise.sweeney@smartcentric.com

QI ~~SYSTEMS~~Systems ~~INC.~~Issues Performance Update to Shareholders

~~Notes~~June to27, 2006--QI Systems Inc. (OTCBB:QIIIF), a leading developer and integrator of contact and contactless payment systems and products, announced today that the ~~Consolidated~~Company's ~~Financial~~CEO, ~~Statements~~Steve Garman, has issued a corporate update to shareholders:

~~March~~ To ~~31,~~Our ~~2006~~Shareholders:

~~Expressed~~ Over the past several months profound changes have occurred at QI Systems which have led to the recent revitalization of your Company. With the help of a very supportive Board of Directors and an outstanding management team, QI Systems has become a viable contender in USthe ~~Dollars~~global multi-billion dollar, programmable card payment and systems business. Management at QI Systems is entirely focused on expanding sales and gaining profitability by growing distribution channels and strategically diversifying our business across several industry segments. Over time, we believe our strategy will pay off, providing robust, balanced and steady growth.

~~Unaudited~~ Our investments in key hires, marketing programs, product innovation and business development are starting to show results. Third quarter 2006 Revenues were up 252% sequentially over the second quarter 2006 to $256,487 as announced in our recently reported third quarter financial results. Gross profit increased 239% to $170,969 in the third quarter of 2006, with the gross margin rising to 66.7%. The increased margin reflects greater buying efficiencies and better sales terms on large orders realized during the period in addition to improved operational procedures.

1 We are continuing to successfully brand our contact chip-based card payment and tracking solutions while capitalizing on global business opportunities. ~~BASIS~~We OFare ~~PRESENTATION~~aggressively moving to address the high market demand for contactless technology and see this area as a significant revenue opportunity for QI Systems in the near term. Our ability to collaborate with strong partners to deliver best-of-breed technology systems has been impressive and is highlighted as follows:

~~The~~ -- ~~accompanying~~PARCXSMART(R) ~~unaudited~~TECHNOLOGIES ~~consolidated~~- ~~financial~~On ~~statements~~December ~~have~~15, ~~been~~2005, ~~prepared~~QI inSystems ~~accordance~~announced ~~with~~the ~~Canadian~~integration ~~generally~~of ~~accepted~~and ~~accounting~~enhanced ~~principles~~support for ~~interim~~the ~~financial~~Parcxmart ~~information~~Technologies ~~and~~Inc., dosmart ~~not~~card ~~include~~payment ~~all~~program ~~information~~already ~~and~~integrated ~~footnote~~in ~~disclosures~~the ~~required~~QI ~~for~~Hybrid anline ~~annual~~of ~~set~~card ofpayment ~~financial~~terminals ~~statements~~designed for use in the parking industry. The Parcxmart card scheme will also be accepted in unattended devices supported by QI Systems such as kiosks, vending machines and laundry washers and dryers.

In -- ~~the~~PARCXSMART ~~opinion~~PARTNERSHIP ofEXPANDS ~~management~~- On March 21, ~~all~~2006, ~~adjustments~~Parcxmart ~~necessary~~announced ~~for~~the ~~fair~~United ~~presentation~~States' first installation of ~~the~~a ~~Company’s~~true ~~financial~~one ~~position,~~card ~~results~~solution offor ~~operations~~on-street parking, small-dollar transactions, and ~~cash~~chip-based ~~flows~~loyalty asapplications atin ~~March~~New 31Haven, ~~2006~~Connecticut. The New Haven installation incorporates QI Systems' proprietary card payment and tracking technology for ~~other~~smart ~~periods~~card ~~presented,~~solutions. ~~have~~The ~~been~~first ~~included.~~system installation is now in revenue service in the City of New Haven, Connecticut.

~~Interim~~ -- ~~results~~CARDLOGIX ~~are~~- ~~not~~On ~~necessarily~~April ~~indicative~~20, of2006, QI Systems and CardLogix announced the ~~results~~launch toof bea ~~expected~~reloadable stored value card scheme for parking payment in the ~~fiscal~~City ~~year~~of asSanta aMonica, ~~whole~~California. QI Systems along with CardLogix have developed a smart card-based solution for the payment of parking fees at meters throughout the city, which collects on 6,400 spaces.

~~These~~ -- ~~unaudited~~SMARTCENTRIC ~~consolidated~~TECHNOLOGIES ~~financial~~INTERNATIONAL, ~~statements~~INC. ~~should~~- beOn ~~read~~June in12, ~~conjunction~~2006, ~~with~~QI ~~the~~Systems ~~consolidated~~and ~~financial~~SmartCentric ~~statements~~Technologies announced that they signed a multi-phase development and ~~notes~~supplier ~~thereto~~contract. ~~included~~The inagreement ~~the~~will ~~Company’~~combine SmartCentric's ~~audited~~SmartCity ~~financial~~products ~~statements~~ for ~~the~~multi-application ~~fiscal~~and ~~year~~payment ~~ended~~solutions ~~June~~with 30a wide variety of QI System's unattended devices, ~~2005~~including, but not limited to, laundry equipment, vending machines, printers, copiers and parking equipment, using both contact and contactless cards.

2 Two previously announced projects continue to be active but have developed more slowly than anticipated. ~~SIGNIFICANT~~While ~~ACCOUNTING~~the ~~POLICIES~~Company still believes that these initiatives are viable in the long term, the potential of the Caribbean development project and the Persian Gulf proposal have yet to be realized.

~~These~~ In ~~interim~~addition to delivering improvements to our operating and financial ~~statements~~performance, ~~follow~~management ~~the~~is ~~same~~focused ~~accounting~~on ~~policies~~engendering ~~used~~shareholder infriendly actions which we believe will lead to the ~~most~~future ~~recent~~realization ~~annual~~of ~~financial~~shareholder ~~statements~~value. Recent examples are as follows:

3 -- On June 7, 2006, QI Systems announced a reduction of the Company's public float by 750,000 shares. ~~COMPARATIVE~~QI ~~FIGURES~~Systems cancelled several "founders'" escrowed stock certificates established with the formation of the Company. This action was allowed by certain provisions in the terms of an escrow agreement.

~~Certain~~ -- ~~comparative~~On ~~figures~~June ~~have~~22, ~~been~~2006, ~~reclassified~~QI Systems Inc. announced that it has strengthened its balance sheet through a recently completed private equity placement, with total proceeds to ~~conform~~the Company of $280,000. The offering consisted of 1,400,000 units at $0.20 per unit, with each unit consisting of one share of QI common stock and one warrant to acquire one share of QI common stock at an exercise price of $0.40. The warrant for this placement expires two years from the ~~basis~~issue date of ~~presentation~~the ~~adopted~~unit. inAll of the ~~current~~common ~~period~~shares issued under this private placement are subject to regulatory hold periods.

QI -- ~~Systems~~On ~~Inc~~June 23, 2006, our shareholders overwhelmingly approved management's proposed domicile change to become a United States company, incorporated in the State of Delaware. With 43% of outstanding shares voting, management's change of domicile proposal received a 99.9% favorable vote. We believe this change improves our ability to meet future equity and debt financing needs; enhances the marketability of our capital stock by raising our profile in the capital market; and provides greater opportunities to propose and win business within the United States.

~~Management~~ As ~~Discussion~~we continue to deliver our contact and ~~Analysis~~contactless solutions across multiple platforms, we anticipate continued future growth. We are also working to secure our intellectual property rights for the future through patents and exclusive licenses. QI Systems will continue to work with industry leading engineers to develop and improve our new product line of smart card solutions to support contactless technology for the security, parking and vending industries. Our existing relationships with leaders in the parking industry will enable us to expand our presence in this fast growing market. This will also allow us to develop new strategic partnerships with high level companies in the parking market and in our other core markets, which we believe in turn will drive future revenue growth.

~~For~~ I believe the ~~Quarter~~actions ~~and~~we ~~Nine~~have ~~months~~taken ~~Ended~~in ~~March~~fiscal ~~31,~~ 2006 will significantly benefit our shareholders as our operating goals continue to be realized in the future.

~~All~~ Steve ~~figures~~Garman, ~~expressed in US Dollars except where noted~~CEO

~~May~~ About ~~19,~~QI ~~2006~~Systems:

~~Note~~ QI toSystems ~~Readers~~Inc. -designs ~~Financial~~and ~~results~~sells card payment solutions for ~~the~~various ~~three~~industries. Products and ~~nine~~core ~~months~~competencies ~~ended~~include ~~March~~smart 31cards and stored value systems, ~~2006~~security ~~have~~protocols, ~~not~~data communications, software design and hardware manufacture. QI Systems develops and integrates contact and contactless payment systems and products across verticals. Products have been ~~reviewed~~installed byin the ~~Company’s~~U.S., ~~Auditors~~Canada, Venezuela, the United Kingdom and Norway.

~~The~~ For ~~Company’s~~more ~~financial~~information ~~statements~~please ~~have~~visit been prepared in accordance with Canadian Generally Accepted Accounting Principles and the same accounting principles used for the June 30, 2005 consolidated financial statements have been used for preparing the March 31, 2006 quarter resultswww. ~~The Company’s reporting currency is the US Dollar~~qisystems. ~~Other currencies are referenced~~ca.

~~Overall~~ Safe ~~Performance~~Harbor:

~~The~~ Matters ~~Company~~discussed ~~operates~~in asthis apress ~~designer,~~release ~~developer~~may ~~and~~include ~~marketer~~"forward-looking ofstatements" ~~hardware~~which ~~and~~are ~~software~~subject ~~for~~to ~~smart~~certain ~~cards~~risks and ~~contactless payment cards~~uncertainties. ~~The~~Consider ~~Company~~all isrisk afactors ~~leading~~carefully ~~supplier~~when ofevaluating ~~smart~~forward-looking ~~card~~statements ~~systems~~as ~~for~~actual ~~various~~results ~~vertical~~may ~~markets~~differ ~~including~~materially ~~vending~~from ~~machines,~~those ~~parking~~expressed ~~meters, photocopiers, laundry machines and water operators~~herein. QI’s ~~products~~Systems ~~have~~is ~~been~~protected ~~installed~~from inlitigation ~~Canada,~~regarding ~~the~~forward-looking ~~United~~statements ~~States~~and ofundertakes ~~America,~~no ~~Venezuela,~~obligation ~~the~~to ~~United~~publicly ~~Kingdom~~update ~~and~~such ~~Norway~~forward-looking statements.

In Contacts QI ~~the~~Systems ~~quarter~~Inc. Steven ~~ended March 31~~Garman, ~~2006~~817-485-8111 sgarman@qisystems.ca or Investor ~~the~~Relations: Equity ~~Company~~Performance ~~achieved~~Group Bethany ~~sales of $256~~Tomich,~~487~~ ~~which is an increase of $183,720 or 252% compared to sales in the preceding quarter~~617-723-1465 bethany@equityperfgp. The increase in sales was due primarily to a large order being completed and shipped to the Company’s largest client who operates in the parking industry. Sales to clients operating in the newspaper vending industry were the next largest segment of customers. com

The Company incurred a net loss of $315,229 in the quarter ended March 31, 2006, compared to a net loss $391,252 in the quarter ended December 31, 2005 and has incurred losses in past periods. Losses were funded by working capital and the exercise of stock purchase warrants and a private placement offering which started at the end of the quarter. Financing activity during the quarter ended March 31, 2006 related to the exercise of warrants and options which netted cash of $47,536 to the Company. During the period the Company received $130,000 from investors in the private placement initiated at the end of the quarter. Cash at hand at March 31, 2006 was $101,293 compared to $350,785 held at December 31, 2005. The Company expects to be able to fund working capital deficiencies in future periods with existing cash flow and the issuance of equity.

Results of Operations

For the three months ended March 31, 2006

Revenues during the three months ended March 31, 2006 were $256,487 derived from the sale of smart card systems and ancillary products to the Company’s client base, fundamentally within the parking industry. Quarterly sales of the Company’s products increased 252% with respect to sales achieved in the preceding quarter ended December 31, 2005. Sales continue to be concentrated in a few clients. Compared to the quarter ended March 31, 2005 (“the comparative quarter”), sales increased by 167%, or $160,279. The increase in sales is the result of a large order being completed and shipped to the Company’s largest client who operates in the parking industry.

Cost of sales during the period was $85,518, which represents 33% of sales, a margin improvement from total cost of sales of $45,790 (48% of sales) in the comparative quarter. Gross Margins were $170,969 or 67% of sales (comparative quarter: 52% of sales).

The Company’s expenses in the quarter are categorized as Administration, Amortization, Corporate Finance, Development Costs, Financing Costs and Interest, Investor Relations, Sales and Marketing and Professional Fees.

During the third quarter of fiscal 2006, Administration expenses were $162,146, down from $194,755 in the preceding quarter and up from $93,493 in the comparative period. The major Administration expenses are salaries and benefits paid to employees performing administrative duties of $108,485 and $19,601 of rent expense.

Development costs in the quarter ended March 31, 2006 were $45,025 (comparative period: $57,485) of which the most significant expense is for salaries and benefits paid to employees involved in the development of the Company’s products of $42,893 in the quarter. The reduction in cost results from a R&D reorganization that resulted in certain positions being eliminated. In the same period, as a cost savings initiative, the Company did not incur the same level of development consulting fees. The Company anticipates that development costs may increase in Q4 of fiscal 2006 or in early fiscal 2007 to accommodate the Company’s projected increased commercial activity and its concentrated efforts in developing its contactless payment technology.

During the quarter the Company incurred investor relations expense of $138,699, substantially most of which refers to the amortization over one year of the cost attributed to shares committed for issuance to an investor relations provider. Other costs are for consulting services provided to the Company with regards to investor relations. In the comparative quarter, the Company did not incur any investor relations or corporate finance expenses.

Sales and marketing expense in the quarter ended March 31, 2006 was $28,984 (comparative period: $56,565) which consists fundamentally of salaries, benefits and consulting fees. The reduction in sales expenses results from the departure in early fiscal 2006 of the Company’s former VP of Sales and Marketing. In April 2006, the Company hired a new Vice President of Business Development who assumes these responsibilities. These activities were previously absorbed by the Company’s CEO and CFO/COO, who are charged to General and Administrative expenses.

Professional fees of $104,457 during the quarter ended March 31, 2006 were incurred for legal fees incurred in connection with regulatory and compliance work, particularly in relation to the Company’s anticipated change of domicile into the United States of America. This represents an increase of $105,049 from the comparative period which essentially had no Professional Fees.

QI recorded an operating loss of $311,087 in the quarter ended March 31, 2006, compared to an operating loss of $182,849 in the comparative period due to the increase in expenses outlined above. In the quarter ended March 31, 2006, QI posted a net loss of $315,229, or $0.01 per share, compared to a net loss of $181,897 or $0.01 in the comparative period.

As anticipated, the Company incurred investing activities of $10,463 for purchase of various computer equipment and to purchase furniture and fixtures for the new headquarters in Colleyville, Texas. QI did not have any investing activities in the comparative quarter. QI will face the need to incur further capital expenditures in fiscal 2006 and early fiscal 2007 to purchase equipment to supports the development of its contactless payment devices and to properly outfit new employees.

In the period, the Company received $47,536 from the exercise of stock purchase warrants and options (see Liquidity) and $130,000 from the proceeds of a private placement started at the end of the third quarter.

At March 31, 2006 the Company’s cash position was $101,293, with working capital of $303,057.

For the nine months ended March 31, 2006

Revenues during the nine months ended March 31, 2006 were $379,453 compared to sales of $367,729 in the nine months ended December 31, 2004 (“the nine month comparative period”). Sales were essentially flat, due to similar volumes year over year from a major client in the parking industry.

Cost of sales during the period went down to $138,982, or 37% of sales, compared to $176,631, or 48% of sales, in the nine month comparative period.

During the nine months ended March 31, 2006 Administration expenses were $531,353 compared to $276,649 for the comparative period. This increase results primarily from the hiring of a full time CFO/COO in fiscal 2006 and from increased selling activity performed by the Executive staff since it has not replaced the VP of Sales and Marketing who resigned in the first quarter.

Development costs in the nine months ended March 31, 2006 were $125,460 compared to $201,350 following a reorganization that eliminated certain development positions.

During the nine-month period ended March 31, 2006 the Company incurred investor relations costs of $406,766 from the amortization of the cost of shares issued to an IR provider late in fiscal 2005, and from additional consulting fees in the field of investor relations. In the comparative nine month period, the Company did not incur any investor relations, fundamentally because of limited capital raising activities.

Sales and marketing expense in the nine months ended March 31, 2006 was $97,662 compared to $167,992 in the comparative nine month period, a difference of $70,330 that is explained by the elimination of the salary paid to the former VP of Sales and Marketing, whose responsibilities have been absorbed by senior administrative officers, as shown by the increase in Administrative Expenses.

Professional fees of $181,871 include legal fees incurred in the nine months ended March 31, 2006 in connection with regulatory and compliance work, most of which is related to the impending change of domicile of the Company to the United States of America. In the comparative nine month period, professional fees of $26,026 were incurred for legal fees.

QI recorded an operating loss of $1,158,405 in the nine months ended March 31, 2006, compared to an operating loss of $511,114 in the comparative nine month period. The Company recorded a Gain on Settlement of Debt of $34,584 mostly in connection with settlement of an outstanding major creditor. In the comparative nine month period the Company posted a gain on settlement of debt of $22,444. In the nine months ended March 31, 2006, QI posted a net loss of $1,119,869, or $0.03 per share, compared to a net loss of $486,820 or $0.02 per share in the comparative nine month period.

Summary of Quarterly Results

	Qtr ended	Qtr ended	Qtr ended	Qtr ended
	March 31, 2006	Dec. 31, 2005	Sept. 30, 2005	June 30, 2005
Total revenues	$256,457	$72,767	$50,199	$22,382
(Net loss)	(315,229)	(391,252)	(413,388)	(495,358)
(Loss) per share, basic and diluted	(0.01)	(0.01)	(0.01)	(0.02)

	Qtr ended	Qtr ended	Qtr ended	Qtr ended
	March 31, 2005	Dec. 31, 2004	Sept. 30, 2004	June 30, 2004
Total revenues	$96,208	$120,152	$151,369	$146,744
(Net loss)	(181,897)	(192,308)	(112,616)	(441,490)
(Loss) per share, basic and diluted	(0.01)	(0.01)	(0.01)	(0.03)

Liquidity

QI has incurred operating losses in the reporting period and in past periods. Its ability to continue operating as a going concern is contingent on the Company being able to rely on equity or debt financing to cover operating deficits until such time as its operations become cash neutral or cash positive.

At March 31, 2006 the Company’s cash position was $101,293, with working capital of $303,057.

During the quarter ended March 31, 2006:

? The Company received $43,636 from the exercise of 145,454 stock warrants at an exercise price of $0.30.

? The Company received $3,900 from the exercise of 26,000 stock options at an exercise price of $0.15.

? The Company received $130,000 for a private placement offering at $0.20 per unit. Each unit contains one share of common stock and a warrant to purchase one share at $0.40 within two years.

? The Company extended the exercise period for 61 days, until June 1, 2006, for 2,581,817 warrants with an exercise price of $0.30 originally scheduled to expire on April 1, 2006.

As disclosed in Results of Operations, QI posted a net loss in the quarter of $315,229. Losses in subsequent periods will be reduced or eliminated if the Company is able to secure sales streams that are still not fully in place at the date of this report. Even if it achieves decreasing quarterly losses in subsequent periods, the Company may face the need to raise additional funding in the capital markets or through short or long-term debt in the near future, until it can achieve positive cash flows from operations.

The company has no long term debt and is not subject to debt covenants. It does not anticipate it will incur any default or arrears on payment of leases.

Capital Resources

The Company is not currently committed to further capital expenditures for the purchase of property, plant and equipment.

At March 31, 2006, the Company had outstanding 15,407,620 share purchase warrants (with exercise prices ranging from $0.25 to $0.30) and 1,050,000 share purchase options (with exercise prices ranging from $0.15 to $0.50).

Critical Accounting Estimates

Changes in Accounting Policies Including Initial Adoption

There were no changes to the Company’s critical accounting estimates or accounting policies during the quarter ended March 31, 2006.

Other MD&A Requirements

As of May 17, 2006 the Company has 39,715,756 common shares outstanding.

Additional information is available on SEDAR at www.sedar.com.

This Management Discussion and Analysis may contain forward-looking statements that involve risks and uncertainties. When used in this document, the words “believe,” “anticipates,” “expects” and similar expressions are intended to identify such forward-looking statements. The Company’s actual results may differ significantly from the results discussed in the forward-looking statements. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof. The Company undertakes no obligation to publicly release the results of any revisions to these forward-looking statements that may be made to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events.

Form 52-109F2 Certification of Interim Filings

May 23, 2006

I, Robert I. McLean Jr., Chief Financial Officer of QI Systems Inc., certify that:

1. I have reviewed the interim filings (as this term is defined in Multilateral Instrument 52-109 Certification of Disclosure in Issuers’ Annual and Interim Filings) of QI Systems Inc. (the issuer) for the period ending March 31, 2006.

2. Based on my knowledge, the interim filings do not contain any untrue statement of a material fact or omit to state a material fact required to be stated or that is necessary to make a statement not misleading in light of the circumstances under which it was made, with respect to the period covered by the interim filings;

3. Based on my knowledge, the interim financial statements together with the other financial information included in the interim filings fairly present in all material respects the financial condition, results of operations and cash flows of the issuer, as of the date and for the periods presented in the interim filings;

4. The issuer’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures for the issuer, and we have:

(a) designed such disclosure controls and procedures, or caused them to be designed under our supervision, to provide reasonable assurance that material information relating to the issuer, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which the interim filings are being prepared.

May 23, 2006

“Robert I. McLean Jr.

”__________________________

Robert I. McLean Jr.

Chief Financial Officer

Form 52-109F2 Certification of Interim Filings

May 23, 2006

I, Steve Garman, Chief Executive Officer of QI Systems Inc., certify that:

4. The issuer’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures for the issuer, and we have:

May 23, 2006

“Steve Garman

”__________________________

Steve Garman

Chief Executive Officer

Filing Compare · QI SYSTEMS INC