SECURITIES AND EXCHANGE COMMISSION

                             Washington, D.C. 20549

                                   FORM 10-QSB

          [ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
                         SECURITIES EXCHANGE ACT OF 1934
                For the quarterly period ended September 30, 2004

                                       OR

              [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
                     OF THE SECURITIES EXCHANGE ACT OF 1934
       For the transition period from .................to.................

                        Commission File Number 001-31718

                           Q COMM INTERNATIONAL, INC.
                 (Name of small business issuer in its charter)

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

            510 East Technology Avenue, Building C, Orem, Utah 84097
            --------------------------------------------------------
                     (Address of principal executive office)

                    Issuer's telephone number: (801) 226-4222

Check whether the issuer:  (1) filed all reports required to be filed by Section
13 or 15(d) of the  Exchange  Act during the past 12 months (or for such shorter
period  that the issuer was  required  to file such  reports),  and (2) has been
subject to such filing requirements for the past 90 days.

                                 Yes |X| No |_|

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

As  of  November  10,  2004,   there  were  4,759,044  shares  of  common  stock
outstanding.

Transitional Small Business Disclosure Format. Yes |_| No |X|



<PAGE>


                           Q COMM INTERNATIONAL, INC.
                               FORM 10-QSB REPORT

                               September 30, 2004

                                TABLE OF CONTENTS

PART I - FINANCIAL INFORMATION

     Item 1. Interim condensed financial statements (unaudited)

             Unaudited Condensed Consolidated Balance Sheets,
             September 30, 2004 and December 31, 2003                      1

             Unaudited Condensed Consolidated Statements of
             Operations, for the three and nine months ended
             September 30, 2004 and 2003                                   2

             Unaudited Condensed Consolidated Statements of
             Cash Flows, for the nine months ended
             September 30, 2004 and 2003                                   3

             Notes to Unaudited Condensed Consolidated
             Financial Statements                                          5

     Item 2. Management's Discussion and Analysis or Plan of
             Operation                                                    12

     Item 3. Controls and Procedures                                      22

PART II - OTHER INFORMATION

     Item 1. Legal Proceedings                                            22

     Item 2. Recent issuances of unregistered securities                  22

     Item 6. Exhibits and Reports on Form 8-K                             23

SIGNATURES                                                                24


<PAGE>


Item 1.  Interim condensed financial statements (unaudited)

                   Q COMM INTERNATIONAL, INC. AND SUBSIDIARIES
                      CONDENSED CONSOLIDATED BALANCE SHEET

                                                   September 30,    December 31,
                                                       2004             2003
                                                   ------------    -------------
                                     ASSETS
Current Assets:
  Cash in bank                                     $  3,558,310    $  5,524,774
  Restricted cash                                          --         1,450,583
  Accounts receivable, net                            1,127,823         444,009
  Inventory                                           1,765,232         717,116
  Note receivable                                          --           150,000
  Prepaid expenses                                       23,638            --
                                                   ------------    ------------
     Total Current Assets                             6,475,003       8,286,482
                                                   ------------    ------------
Property & Equipment, net                             3,807,858       2,867,389

Other Assets:
  Capitalized software development costs, net         1,231,657       1,561,325
  Goodwill, net                                         761,042         144,580
  Long-term investments                                 195,256            --
  Deposits                                               99,080          33,815
                                                   ------------    ------------
     Total Other Assets                               2,287,035       1,739,720
                                                   ------------    ------------
     Total Assets                                  $ 12,569,896    $ 12,893,591
                                                   ------------    ------------

                      LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
  Accounts payable                                 $  1,498,416    $    788,856
  Accrued expenses                                      272,368         141,295
  Unearned revenue                                         --            80,000
  Convertible notes and debentures
   (net of $300,947 discount at
    December 31, 2003)                                     --           929,053
  Capital lease obligations - current portion            31,099          29,766
  Related party obligations - current portion            67,111          65,485
  Contingent liabilities                                   --            70,000
                                                   ------------    ------------
     Total Current Liabilities                        1,868,994       2,104,455
                                                   ------------    ------------
Long-term Obligations:
  Capital lease obligations                               5,390          30,610
  Related party obligations                             177,822         228,776
                                                   ------------    ------------
     Total Long-term Obligations                        183,212         259,386
                                                   ------------    ------------
     Total Liabilities                                2,052,206       2,363,841
                                                   ------------    ------------
Stockholders' Equity:
  Common stock, $.001 par value, 50,000,000
     shares authorized, 4,759,044 and 3,995,250
     shares issued and outstanding                        4,759           3,995
  Capital in excess of par value                     26,858,879      23,812,400
  Retained deficit                                  (16,337,445)    (13,227,420)
  Foreign currency translation adjustment                23,033            --
                                                   ------------    ------------
                                                     10,549,226      10,588,975
  Less stock subscription receivable                    (21,536)        (59,225)
                                                   ------------    ------------
     Total Stockholders' Equity                      10,527,690      10,529,750
                                                   ------------    ------------
     Total Liabilities and Stockholders' Equity    $ 12,569,896    $ 12,893,591
                                                   ------------    ------------

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


                                      -1-
<PAGE>

<TABLE>
<CAPTION>

                             Q COMM INTERNATIONAL, INC. AND SUBSIDIARIES
                           CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS


                                            For the Three Months            For the Nine Months
                                             Ended September 30,            Ended September 30,
                                        ----------------------------    ----------------------------
                                            2004            2003            2004            2003
                                        ------------    ------------    ------------    ------------
<S>                                     <C>             <C>             <C>             <C>
Revenues                                $ 10,978,936    $  6,767,516    $ 28,337,224    $ 18,445,391

Cost of Goods Sold                         8,156,533       5,011,059      20,757,060      13,746,935
                                        ------------    ------------    ------------    ------------
Gross Profit                               2,822,403       1,756,457       7,580,164       4,698,456
                                        ------------    ------------    ------------    ------------
Operating Expenses:
  Commissions and fees                     2,372,451       1,593,930       6,477,342       4,262,012
  Selling expenses                           228,272         157,210         527,720         332,273
  General and administrative expenses        652,055         398,621       2,077,681       1,288,857
  Depreciation and amortization              455,036         190,754       1,271,786         541,792
  Non-cash compensation                         --            21,666            --            64,998
                                        ------------    ------------    ------------    ------------
    Total Operating Expenses               3,707,814       2,362,181      10,354,529       6,489,932
                                        ------------    ------------    ------------    ------------
Loss from Operations                        (885,411)       (605,724)     (2,774,364)     (1,791,476)
                                        ------------    ------------    ------------    ------------

Other Income (Expense):
  Interest income                             10,343          20,440          27,328          20,536
  Interest and other expense                 (15,519)       (943,615)       (349,943)     (1,676,775)
  Loss on disposal of assets                    --              --           (23,046)           --
                                        ------------    ------------    ------------    ------------
    Total Other Income (Expense)              (5,176)       (923,175)       (345,661)     (1,656,239)
                                        ------------    ------------    ------------    ------------
Loss before Income Taxes                    (890,587)     (1,528,899)     (3,120,025)     (3,447,715)

Income Tax Expense                              --              --              --              --
                                        ------------    ------------    ------------    ------------


Net Loss                                $   (890,587)   $ (1,528,899)   $ (3,120,025)   $ (3,447,715)
                                        ------------    ------------    ------------    ------------


Basic Loss per Share                    $       (.19)   $       (.39)   $       (.74)   $      (1.53)
                                        ------------    ------------    ------------    ------------
</TABLE>





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


                                        -2-
<PAGE>


                   Q COMM INTERNATIONAL, INC. AND SUBSIDIARIES
                 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

                                                         For the Nine Months
                                                         Ended September 30,
                                                   -----------------------------
                                                       2004             2003
                                                   -------------   -------------
Cash Flows from Operating Activities:
 Net loss                                          $ (3,120,025)   $ (3,447,715)
 Adjustments to reconcile net loss to
  net cash used by operating activities:
   Loss on disposal of property and equipment            23,046          11,818
   Provision for doubtful accounts                       30,000            --
   Depreciation and amortization                      1,271,786         541,792
   Amortization of discount on debentures and notes     300,947       1,436,941
   Non-cash compensation                                   --            64,998
   Recognition of unearned revenue                      (80,000)           --
   Change in assets and liabilities:
 Increase in accounts receivable                       (548,487)       (330,454)
 Increase in inventory                               (1,174,588)       (395,893)
 Increase in prepaid expenses                           (19,220)           --
 Increase in other assets                               (65,265)         (2,513)
 Increase (decrease) in accounts payable                 72,465        (519,554)
 Increase in accrued liabilities                        105,679         188,383
 Decrease in contingent liabilities                     (70,000)           --
                                                   ------------    ------------
     Net Cash Used by Operating Activities           (3,273,662)     (2,452,197)
                                                   ------------    ------------
Cash Flows from Investing Activities:
 (Increase) decrease in restricted cash               1,450,583      (1,620,583)
 Cash received from note receivable                     150,000            --
 Proceeds from sale of property and equipment            55,680
 Purchase of property and equipment                  (1,578,767)     (1,575,645)
 Capitalized software development costs                (322,124)       (524,326)
 Increase in long-term investments                     (195,256)           --
                                                   ------------    ------------
     Net Cash Used by Investing Activities             (439,884)     (3,720,554)
                                                   ------------    ------------
Cash Flows from Financing Activities:
 Issuance of common stock                             3,000,000      16,465,000
 Cash received from subscription receivable              37,689          43,073
 Payment of stock offering costs                        (10,425)     (2,740,069)
 Proceeds from notes and debentures                        --         2,700,000
 Payments on notes and debentures                    (1,230,000)       (542,597)
 Proceeds from capital leases                              --            66,992
 Payments on capital lease obligations                  (23,887)        (18,884)
 Payments on related party obligations                  (49,328)       (150,000)
 Decrease in bank overdraft                                --          (521,442)
                                                   ------------    ------------
     Net Cash Provided by Financing Activities        1,724,049      15,302,073
                                                   ------------    ------------
 Increase in foreign currency
  translation adjustment                                 23,033            --

Net Increase (Decrease) in Cash                      (1,966,464)      9,129,322

Cash and Cash Equivalents, Beginning of Period        5,524,774         115,609
                                                   ------------    ------------
Cash and Cash Equivalents, End of Period           $  3,558,310    $  9,244,931
                                                   ------------    ------------
Supplemental Disclosures of Cash Flow Information:
   Cash paid during the period for:
   Interest expense                                $    164,101    $     87,996
   Income taxes                                    $        200    $       --


                                      -3-
<PAGE>


                   Q COMM INTERNATIONAL, INC. AND SUBSIDIARIES
                 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                                   (Continued)

Supplemental Schedule of Non-cash Investing and Financing Activities:


                    For the period ended September 30, 2004:

The Company  amortized  discount on debt in the amount of $300,947  and recorded
the amount as interest expense.

The Company issued $7,668 of common stock to an officer for payment of a stock
bonus.

The Company acquired a subsidiary for $50,000 of common stock. Assets and
liabilities aquired were:

        Current assets                             $  362,731
        Property, equipment and other                  63,028
        Goodwill                                      616,462
        Current liabilities                           992,221


                    For the period ended September 30, 2003:

The  Company  issued  169,231  shares of common  stock and  warrants to purchase
169,231  shares  of  common  stock in  connection  with the sale of  convertible
debentures. The stock and warrants were valued at an aggregate of $1,500,000. Of
this amount,  $826,056 was amortized to interest  expense  during the period and
$674,944 was unamortized.

The Company issued 24,242 shares of common stock in connection  with the sale of
a convertible note. The common stock was valued at $145,454. The note was repaid
during the period and the amount was amortized to interest expense.

The  Company  issued  warrants  to purchase  238,095  shares of common  stock in
connection with a note payable. The warrants were valued at $1,000,000.  Of this
amount,  $466,431  was  amortized  to  interest  expense  during  the period and
$533,569 was unamortized.










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


                                      -4-
<PAGE>


                   Q COMM INTERNATIONAL, INC. AND SUBSIDIARIES
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

   Nature of Business - The Company's business involves purchasing and reselling
   prepaid telecommunication and other products through a proprietary electronic
   point-of-sale  activation  system known as Qxpress.  The Company provides its
   products to end users throughout the United States as well as Canada, France,
   Australia  and the Bahamas.  The Company has not paid any  dividends  and any
   dividends  that may be paid in the  future  will  depend  upon the  financial
   requirements  of the Company and other relevant  factors.  Substantially  all
   operations are conducted through the Company's wholly owned  subsidiaries,  Q
   Comm, Inc., and Point de Vente, a Canadian company acquired in July 2004 (see
   Note 2). The Company is headquartered in Orem, Utah.

   Unaudited  Condensed  Financial  Statements  -  The  accompanying   financial
   statements have been prepared by the Company without audit. In the opinion of
   management, all adjustments (which include only normal recurring adjustments)
   necessary to present fairly the financial position, results of operations and
   cash flows at September 30, 2004 and for all the periods  presented have been
   made.

   Certain information and footnote  disclosures  normally included in financial
   statements   prepared  in  accordance  with  generally  accepted   accounting
   principles  in the United  States of America 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,
   2003 audited financial statements.  The results of operations for the periods
   ended  September  30,  2004 and 2003 are not  necessarily  indicative  of the
   operating results for the full year.

   Consolidation - All intercompany balances and transactions between the parent
   and subsidiary have been eliminated in consolidation.

   Accounting  Estimates - The preparation of financial statements in conformity
   with generally accepted accounting principles in the United States of America
   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 period. Actual
   results could differ from those estimated by management.

   Cash and Cash  Equivalents  - For purposes of the financial  statements,  the
   Company  considers  all highly  liquid  debt  investments  purchased  with an
   original maturity of three months or less to be cash equivalents.

   Accounts  Receivable  - Accounts  receivable  consists  of trade  receivables
   arising in the normal course of business.  At September 30, 2004 and December
   31, 2003, the Company has  established an allowance for doubtful  accounts of
   $113,000  and  $30,000,  respectively,  which  reflects  the  Company's  best
   estimate of probable losses in the accounts receivable  balance.  The Company
   determines  the  allowance  based  on the  status  and  age of the  accounts,
   historical  experience,  and  other  currently  available  evidence.  Amounts
   written off as bad debt for the years presented are insignificant.

   Inventory - Inventory consists of prepaid telecommunication  products sold by
   the  Company  and is  carried  at the  lower of cost or  market  value on the
   first-in, first-out method.

   Depreciation  -  Depreciation  of property  and  equipment is provided on the
   straight-line  method over the estimated  useful lives of the assets of three
   to five years.

   Intangible Assets - Under the provisions of Statement of Financial Accounting
   Standards No. 142, "Goodwill and Other Intangible Assets" (SFAS No. 142), the
   Company has classified its goodwill as an  indefinite-life  intangible  asset
   and accordingly has stopped recording amortization.

   The  Company  capitalizes  software  development  costs  incurred  to develop
   certain of the Company's  products and services in accordance  with Statement
   of  Financial  Accounting  Standards  No.  86,  "Accounting  for the Costs of
   Computer  Software to Be Sold,  Leased,  or  Otherwise  Marketed".  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-life  intangible asset is amortizing
   these costs over the estimated useful life of the software of three years.

   The Company regularly reviews the carrying value of intangible assets. At the
   time a  determination  is made that  capitalized  amounts are not recoverable
   based on the  estimated  cash  flows to be  generated  from  the  asset,  the
   difference  between the carrying amount and the estimated value based on cash
   flows are written off (see Notes 4 and 5).


                                      -5-
<PAGE>


                   Q COMM INTERNATIONAL, INC. AND SUBSIDIARIES
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

   Revenue  Recognition - The Company 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 at the time
   products  are  sold.  Sales of the  Company's  products  are  generally  made
   directly to end-users.  There is no right of return for products sold and the
   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. 101 - Revenue Recognition in Financial  Statements (SAB 101) and
   Emerging  Issues  Task Force No.  99-19 (EITF  99-19).  In the event of sales
   where the Company  does not have  ownership  of the product  sold and another
   entity has such risk and reward of product  ownership  and/or  where  certain
   other  requirements of SAB 101 or EITF 99-19 are not met, the Company records
   revenues on a "net" basis.

   In 2003 the Company  introduced the service bureau model to be used 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 receives an ongoing transaction fee for all sales through
   the system,  which is recorded on a "net" basis.  Software license revenue is
   recorded at the time the  installation  is complete and the customer  accepts
   the product.

   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.

   Cost of  Goods  Sold - The cost of goods  sold is  primarily  the cost of the
   prepaid  telecommunication and other miscellaneous products sold at retail as
   well as the  cost  of  terminals  sold to  customers.  The  full  cost of the
   product, as well as all direct costs associated with the sale of the product,
   are  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.

   Loss Per  Share - The  Company  computes  loss per 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 (see Note 13).

   Income  Taxes - The Company  accounts  for income  taxes in  accordance  with
   Statement of Financial  Accounting  Standards No. 109, "Accounting for Income
   Taxes."  This  statement   requires  an  asset  and  liability  approach  for
   accounting for income taxes.

   Stock Options - In December 2002, 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" (SFAS
   148).  This  Statement  amends  SFAS 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  148  amends  the
   disclosure  requirements of SFAS 123 to require prominent disclosures in both
   annual  and  interim   financial   statements.   Certain  of  the  disclosure
   modifications  are required  for fiscal years ending after  December 15, 2002
   and are included in the notes to these consolidated financial statements.

   The Company has stock  option  plans that  provide for  stock-based  employee
   compensation,  including  the  granting  of stock  options,  to  certain  key
   employees.  The  plans  are more  fully  described  in Note 12.  The  Company
   accounts for the stock options 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.

   During the periods presented in the accompanying  financial  statements,  the
   Company  has  granted  options  under the 2000,  2003 and 2004 Stock  Options
   Plans. The Company has adopted the disclosure-only provisions of Statement of
   Financial   Accounting   Standards  No.  123,   "Accounting  for  Stock-Based
   Compensation."  Accordingly, no compensation cost under SFAS No. 123 has been
   recognized for the stock option plans or other agreements in the accompanying
   statements 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 2004 and 2003 consistent with the provisions of SFAS
   No.  123,  the  Company's  net loss and basic loss per share  would have been
   reduced to the pro forma amounts indicated below:


                                      -6-
<PAGE>


                   Q COMM INTERNATIONAL, INC. AND SUBSIDIARIES
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
<TABLE>
<CAPTION>

                                        For the Three Months            For the Nine Months
                                         Ended September 30,            Ended September 30,
                                   ----------------------------    -------------------------------
                                        2004           2003            2004               2003
                                   -------------  -------------    -------------     -------------
<S>                                <C>            <C>              <C>               <C>
Net Loss              As reported  $   (890,587)  $ (1,528,899)    $ (3,120,025)     $ (3,447,715)
                      Pro forma    $ (1,009,218)  $ (1,401,788)    $ (3,285,633)     $ (2,429,769)

Basic loss per share  As reported  $       (.19)  $      (.39)     $       (.74)     $      (1.53)
                      Pro forma    $       (.22)  $      (.96)     $       (.78)     $      (1.79)
</TABLE>

   Recently  Enacted  Accounting  Standards - Statement of Financial  Accounting
   Standards SFAS No. 149, "Amendment of Statement 133 on Derivative Instruments
   and Hedging Activities",  and SFAS No. 150, "Accounting for Certain Financial
   Instruments  with  Characteristics  of both  Liabilities  and  Equity",  were
   recently  issued.  SFAS No, 149 and 150 have no current  applicability to the
   Company  or their  effect  on the  financial  statements  would not have been
   significant.

   Reverse  Stock  Split - All  references  to the number of  shares,  price per
   share, and earnings per share have been  retroactively  adjusted to reflect a
   1-for-15 reverse stock split that was effective June 4, 2003.

NOTE 2 - ACQUISITION

   The Company acquired Point de Vente, a Canadian company located in Quebec, in
   July 2004 for common stock valued at $50,000.  The  acquisition was accounted
   for as a purchase.  The following  represents  the assets and  liabilities of
   Point de Vente at the date of purchase  and the  allocation  of the  purchase
   price.  The  Company is in the  process of  obtaining  valuations  of certain
   intangible assets;  therefore the allocation of the purchase price is subject
   to adjustment.

     Current assets                             $  362,731
     Property, equipment and other                  63,028
     Goodwill                                      616,462
                                                 ---------
     Total assets acquired                       1,042,221
     Current liabilities                          (992,221)
                                                 ---------
     Purchase price paid in common stock       $    50,000
                                                 ---------

NOTE 3 - PROPERTY & EQUIPMENT

   The following is a summary of property and equipment:
                                               September 30,    December 31,
                                                   2004             2003
                                               -----------      ------------
     Point of sale terminals - shipped         $ 2,163,907      $ 1,121,331
     Computer equipment and other                  358,149          258,428
                                               -----------      -----------
     Total cost                                  2,522,056        1,379,759
     Accumulated depreciation                   (1,144,623)        (583,935)
                                               -----------      -----------
     Property & equipment, net                   1,377,433          795,824
     Point of sale terminals - in inventory      1,833,175        2,057,475
     Parts deposits                                597,250           14,090
                                               -----------      -----------
     Total                                     $ 3,807,858      $ 2,867,389
                                               -----------      -----------

   Depreciation  expense for the three months ended  September 30, 2004 and 2003
   was  $237,771  and  $69,839  respectively,  and for  the  nine  months  ended
   September 30, 2004 and 2003 was $619,993 and $179,047, respectively.

   Point of sale  terminals  in  inventory  will either be sold to  customers or
   placed in service with the Company  retaining  ownership.  The Company begins
   depreciating terminals on which it retains ownership at the time the terminal
   is shipped.


                                      -7-
<PAGE>


                   Q COMM INTERNATIONAL, INC. AND SUBSIDIARIES
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 4 - GOODWILL

   At September 30, 2004, the Company had $144,580 in goodwill  remaining from a
   purchase  acquisition  in 2000  classified as an  indefinite-life  intangible
   asset.  In accordance  with SFAS No. 142, the Company has tested its goodwill
   for  impairment  during the periods ended  September  30, 2004 and 2003.  The
   Company  used  the  quoted  market  price  of its  common  stock  to test the
   remaining  goodwill for impairment and determined that the Company's goodwill
   was not impaired.  Accordingly,  there was no amortization  expense  recorded
   during the periods ended September 30, 2004 and 2003.

   At September 30, 2004,  the Company had $616,462 in goodwill  resulting  from
   the  purchase  of a  subsidiary  in July 2004 (see Note 2). The  Company  has
   classified this as an indefinite-life asset. The Company used the anticipated
   cash  flows from the  subsidiary  to test the  goodwill  for  impairment  and
   determined that the Company's goodwill was not impaired.  Accordingly,  there
   was no  amortization  expense  recorded during the period ended September 30,
   2004.

NOTE 5 - CAPITALIZED SOFTWARE DEVELOPMENT

   Information related to capitalized software development costs during the nine
   months ended September 30, 2004 is as follows:

     Capitalized software, beginning of period              $2,266,002
     Capitalized during the period                             318,372
                                                            ----------
     Capitalized software, end of period                     2,584,374
     Accumulated amortization                               (1,352,717)
                                                            ----------
     Capitalized software, net                              $1,231,657
                                                            ----------

   Of the balance at September 30, 2004,  approximately $1,050,000 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.

   During the periods ended  September 30, 2004 and 2003, the Company tested its
   capitalized  software  development costs in accordance with SFAS No. 142. The
   Company  used the  estimated  future  cash flows  related to its  capitalized
   software  development costs and determined that such costs were not impaired.
   The Company has classified its capitalized  software  development  costs as a
   definite-life  intangible  asset.  Amortization  expense for the three months
   ended  September 30, 2004 and 2003 was $217,264 and  $120,915,  respectively,
   and for the nine months  ended  September  30, 2004 and 2003 was $651,792 and
   $362,745, respectively.

NOTE 6 - NOTE RECEIVABLE

   During 2003, the Company  loaned  $150,000 to an unrelated  third party.  The
   note was due the  earlier  of  December  31,  2004 or the  date on which  the
   borrower  received  gross  proceeds of at least $750,000 from the sale of its
   debt or equity securities. Interest on the note was 10%, payable monthly. The
   Company had the option to convert the note, in whole or in part,  into common
   stock of the borrower at anytime before the due date at a conversion price of
   $.15 per share.  The note was repaid in full  during  the nine  months  ended
   September 30, 2004.

NOTE 7 - RELATED PARTY OBLIGATIONS

   The Company has a note  payable to an officer of the Company in the amount of
   $244,933.  The note is due the  earlier of  December  31,  2007,  a change in
   control of the  Company or a sale or  liquidation  of the  Company's  assets.
   Interest on the note is at 10% and is calculated on the  outstanding  amount.
   Monthly  principal and interest payments in the amount of $7,382 are required
   in order to fully  amortize  the  remaining  principal  amount of the note by
   December 31, 2007. During the three months ended September 30, 2004 and 2003,
   the  Company  recorded  interest  expense  on this  obligation  of $6,517 and
   $10,267,  respectively,  and during the nine months ended  September 30, 2004
   and 2003, the Company recorded interest expense on this obligation of $19,552
   and $30,801, respectively.


                                      -8-
<PAGE>


                   Q COMM INTERNATIONAL, INC. AND SUBSIDIARIES
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 8 - LONG-TERM DEBT

   From  February  through  April  2003,  the  Company  issued  (a) 12%  secured
   convertible  debentures due March 31, 2004 in the aggregate  principal amount
   of $1.5  million,  (b)  169,231  shares of  restricted  common  stock and (c)
   warrants to purchase  169,231 shares of common stock. The total amount raised
   by the Company from the sale of these securities was $1.5 million.

   The 169,231 restricted common shares were valued at $1,015,386,  or $6.00 per
   share,  the value of similar  restricted  common  shares  sold for cash.  The
   169,231  warrants  were valued at $845,562  using the  Black-Scholes  pricing
   model and the following assumptions:  $14.63 exercise price, $6.00 underlying
   stock  price,  140%  volatility,  five  year  expected  life,  2.9% risk free
   interest rate and expected  dividend  yield of zero.  The value of the shares
   and  warrants  were  reduced  on a  pro-rata  basis  to the $1.5  million  in
   debentures and recorded as a discount  against the  debentures.  The discount
   was amortized as interest expense over the term of the debentures. Debentures
   having an aggregate principal amount of $270,000 were prepaid during the year
   ended December 31, 2003  according the holders'  rights for  prepayment.  The
   remaining  principal amount of the debentures and accrued interest thereon in
   the aggregate  amount of $1,317,439  were repaid on the due date of March 31,
   2004 and the  remaining  unamortized  discount  of $300,947  was  recorded as
   interest expense.

NOTE 9 - LEASES

   During 2001,  the Company  entered  into a capital  lease for the purchase of
   certain  computer  equipment.  The lease  requires  monthly  payments of $820
   through September 2005 and has an outstanding principal balance of $8,561 and
   $14,000 at September 30, 2004 and December 31, 2003, respectively.  The lease
   is  collateralized  by equipment with a remaining book value of approximately
   $10,000 at those dates.  Depreciation  expense of $15,855 was  recognized  on
   this equipment during each of the periods ended September 30, 2004 and 2003.

   In  January  2003,  the  Company  entered  into a capital  lease for  certain
   equipment.  The lease requires  monthly  payments of $2,842 through  November
   2005 and has an  outstanding  principal  balance  of $27,928  and  $46,376 at
   September  30,  2004  and  December  31,  2003,  respectively.  The  lease is
   collateralized  by  equipment  with a remaining  book value of  approximately
   $40,000 at those dates. Depreciation expense of $9,750 was recognized on this
   equipment during the each of the periods ended September 30, 2004 and 2003.

   In December 2003, the Company entered into a five-year lease for office space
   under an operating lease agreement  requiring monthly payments of $6,856. The
   lease is cancelable after three years with 120-written  notice. The Company's
   future minimum rental under this operating lease amounts to $185,112.

NOTE 10 - LITIGATION AND CONTINGENCIES

   The  Company  was party to a suit from a bank  claiming  damages of  $175,477
   related to a merchant  credit card  account.  Management  disputed the bank's
   claim.  During the period ended  September  30, 2004,  the parties  reached a
   settlement wherein the Company paid $70,000 in satisfaction of the claim.

   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, we 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 our motion for dismissal.
   The proceedings were stayed pending the outcome of the matter in the state of
   Utah. In July 2004, Dial-Thru filed substantially the same suit against us in
   the United States  District Court in the State of Utah.  Management  believes
   the Company  appropriately  exercised its right of recission 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 payments  required by this matter, if any, will
   not be material to the financial statements.

   In January  2002,  the  Company  filed an action  against an  individual  for
   non-payment  of funds owed for the  purchase of common stock in the amount of
   $135,000.  The Company has been awarded  summary  judgment in this matter and
   expects to receive the remaining  outstanding  amount,  which was $21,536 and
   $59,255 at September  30, 2004 and December  31,  2003,  respectively.  These
   amounts  are  reflected  in the  accompanying  balance  sheet as an offset to
   stockholders' equity.


                                      -9-
<PAGE>


                   Q COMM INTERNATIONAL, INC. AND SUBSIDIARIES
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 11 - CAPITAL STOCK

   A summary of common stock  transactions  for the periods ended  September 30,
   2004 and 2003 is as follows:

                         Period Ended September 30, 2004

   The Company sold 750,000 shares of restricted common stock at $4.00 per share
   through a private  placement for $3,000,000  cash.  Offering costs of $10,425
   were incurred on the sale.

   The  Company  issued  12,127  shares of  common  stock in the  purchase  of a
   subsidiary (see Note 2). The shares were valued at $50,000.

   The Company  issued  1,667  shares of  restricted  common stock to an officer
   pursuant  to a stock  bonus plan  issued in  December  2002.  The shares were
   valued at $7,668.

                         Period Ended September 30, 2003

   The Company  sold  1,100,000  units in an  underwritten  public  offering for
   $14,300,000  in cash, or $13.00 per unit.  Underwriter  discount and offering
   costs of  $2,417,644  were  recognized  on the sale.  During  July 2003,  the
   underwriter exercised its overallotment option and sold an additional 165,000
   units for  $2,145,000  in cash.  Underwriter  discount and offering  costs of
   $261,473 were  recognized on the sale. In total,  the Company sold  1,265,000
   units,  realizing gross proceeds of $16,445,000 and recognizing $2,679,117 of
   offering costs.

   The Company sold 3,333 shares of  restricted  common stock at $6.00 per share
   through a private placement for $20,000 in cash.

   The Company  issued 24,242  shares of  restricted  common stock in connection
   with a convertible note in the amount of $200,000.  The shares were valued at
   $6.00 per share, or $145,454.

   The Company issued 169,231 shares of restricted  common stock and warrants to
   purchase 169,231 shares of restricted  common stock in connection the sale of
   $1,500,000  of  debentures.  The shares of common stock and the warrants were
   valued at an aggregate of $1,500,000.

NOTE 12 - STOCK OPTIONS AND WARRANTS

   At  September  30,  2004,  the Company  had  outstanding  579,667  options to
   employees under various agreements with exercise prices ranging from $4.12 to
   $15.00 per share and a weighted  average  exercise  price of $6.57 per share,
   expiring  between  May 2005 and June  2014.  Of the  options  outstanding  at
   September 30, 2004, 220,709 options with a weighted average exercise price of
   $ 7.58 were vested and  exercisable.  During the nine months ending September
   30, 2004,  414,500  options were granted with  exercise  prices  ranging from
   $4.12 to $6.50 per share and a weighted  average  exercise price of $4.66 per
   share, 150,999 options were forfeited and none were exercised.

   At September 30, 2004,  the Company had  outstanding  options and warrants to
   purchase  2,119,493  shares of common  stock  (including  1,265,000  publicly
   traded warrants) that were issued to non-employees  under various  agreements
   with  exercise  prices  ranging from $4.58 to $24.75 per share and a weighted
   average  exercise  price of $8.98,  expiring  between July 2004 and September
   2009.  2,044,493 of the options and  warrants  issued to  non-employees  were
   vested at September  30, 2004.  During the nine months  ended  September  30,
   2004, 75,000 options were issued, 3,333 expired and none were exercised.  The
   75,000 shares issued were to board members for future  services.  The options
   vest over a three-year period beginning on the one-year  anniversary date the
   director  joined the board.  None of the options  were vested as of September
   30, 2004. The estimated value of the options under the Black-Scholes  pricing
   model on the date of issuance was $243,643,  which will be expensed in future
   periods as the options vest.


                                      -10-
<PAGE>


                   Q COMM INTERNATIONAL, INC. AND SUBSIDIARIES
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 13 - LOSS PER SHARE

   The following  data show the amounts used in computing loss per share and the
   weighted average number of shares of common stock outstanding for the periods
   presented:

<TABLE>
<CAPTION>
                                                     For the Three Months        For the Nine Months
                                                     Ended September 30,         Ended September 30,
                                                   -----------------------    -------------------------
                                                      2004         2003           2004          2003
                                                   ---------   -----------    -----------   -----------
<S>                                                <C>         <C>            <C>           <C>
     Loss from continuing operations available
       to common shareholders (numerator)          $(890,587)  $(1,528,899)   $(3,120,025)  $(3,447,715)

     Weighted average number of common
      shares outstanding during the year used
      in per share calculations (denominator)      4,622,672     3,945,033      4,204,391     2,251,630
</TABLE>

   Because the Company  incurred losses for the periods ended September 30, 2004
   and 2003,  the effect of  options/warrants  and  convertible  notes  totaling
   2,399,160 and 2,142,332  equivalent shares,  respectively,  has been excluded
   from the loss per share computation since its impact would be antidilutive.

NOTE 14 - SUBSEQUENT EVENTS

   During  November  2004,  the  Company  closed  on two  capital  leases in the
   aggregate  amount of  approximately  $880,000.  The leases  were used for the
   purchase of  terminals.  The leases are secured by standby  letters of credit
   for  50% of  the  lease  balance.  The  letters  of  credit  are  secured  by
   certificates of deposit with a financial  institution.  The lease terms range
   from 20-24 months and have effective interest rates of 8-10%.







                                      -11-
<PAGE>


Item 2. Management's Discussion and Analysis or Plan of Operations

         This  Management's  Discussion and Analysis of Financial  Condition and
Results  of  Operations  ("MD&A")  and other  parts of this  Form  10-Q  contain
forward-looking  statements  within the meaning of Section 27A of the Securities
Act of 1933, as amended (the "Securities Act") and Section 21E of the Securities
Exchange  Act of 1934,  as amended (the  "Exchange  Act").  In some cases,  such
forward-looking  statements  may be  identified  by the  use of  words  such  as
"estimate," "believe," "project," "anticipate" and similar expressions, together
with other  discussion  of future  trends or results,  are  intended to identify
forward-looking statements. Such statements,  which include our statements about
the level of  anticipated  expenses  during 2004 and our liquidity  position are
subject to certain risks and uncertainties, including those discussed below that
could cause actual  results to differ  materially  from those  projected.  These
forward-looking  statements speak only as of the date hereof and we disclaim any
obligation to update them. All of these forward-looking  statements are based on
estimates and assumptions made by our management,  which although believed to be
reasonable, are inherently uncertain and difficult to predict.  Therefore, undue
reliance  should not be placed upon such  estimates.  There can be no  assurance
that the  benefits  anticipated  in  these  forward-looking  statements  will be
achieved.  The following important factors,  among others, could cause us not to
achieve the benefits  contemplated  herein,  or  otherwise  cause our results of
operations  to be  adversely  affected  in  future  periods:  (i)  continued  or
increased competitive pressures from existing competitors and new entrants; (ii)
unanticipated costs related to our growth and operating  strategies;  (iii) loss
or retirement of key members of  management;  (iv) increase in interest rates of
our cost of  borrowing,  or a default  under any material  debt  agreement;  (v)
adverse state or federal  legislation  or regulation  that increases the cost of
compliance,  or  adverse  findings  by a  regulator  with  respect  to  existing
operations;  (vi) loss of customers;  (vii)  inability to achieve  future sales;
(viii)  the  unavailability  of  sufficient  funds  for  operations  or  capital
expenditures;  and (ix) inability to introduce new products as planned.  Many of
such factors are beyond our control. Please refer to our SEC Form 10-KSB for the
fiscal year ended December 31, 2003 for additional cautionary statements.

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 consolidated condensed 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 and VeriFone  3750  terminals,  our data center and 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  continue  to grow 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
less than 1% of annual  revenues.  In 2003,  we began  generating  revenues from
customers  in Canada,  France,  the  Bahamas  and  Australia.  In July 2004,  we
acquired our Canadian customer and began recognizing revenues from this business
under our  traditional  broker  model.  (See further  discussion of our business
models under "Sources of Revenue" below.) During the nine months ended September
30,  2004,  international  revenues  were  1.5%  of  total  revenues.   However,
considering  the  acquisition   just  completed  in  Canada  and  the  increased
acceptance  of  prepaid in areas  outside  North  America,  we  anticipate  that
international  revenues will  increase as a percentage of our total  revenues in
the future.

         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 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 an appropriately enabled Qxpress terminal, a retail
merchant  can sell  wireless  telephone  time,  long  distance  service or other
telephone products,  add credit to a prepaid credit card, add wireless time to a
customer's  account by electronic bill payment,  sell other prepaid  products or
process debit/credit card transactions.  The prepaid product is sold in the form
of a personal  identification number, or "PIN," that the customer can use to add
telephone  time or credit card credit by calling the  provider of the product or
to transfer  cash by providing the PIN to the  recipient.  The consumer pays for
the product by paying the retail establishment in which the terminal is located.
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.
National  telecommunication  carriers,  such  as  Verizon,  Cingular,  AT&T  and
T-Mobile,  as well as  regional  carriers,  such as Iowa  Wireless  and  Hargray
Wireless,  sell their  prepaid  wireless  services  either  directly  or through
distributors who purchase these products at rates significantly lower than those
that could be obtained  by  individual  consumers  and small  businesses.  These


                                      -12-
<PAGE>


distributors  often purchase prepaid  telecommunication  products from different
carriers,  then resell these products in smaller quantities to their established
networks of retail outlets,  such as convenience  stores,  check cashing stores,
newsstands, grocery stores and discount stores. Qxpress can also be used to sell
and reload  prepaid  credit cards and to pay  wireless  phone bills for selected
carriers that do not offer PIN-based prepaid programs.

         In the first  quarter of 2004 we  announced  that we had  expanded  our
Qxpress system to also include the VeriFone 3750 terminal. We began beta testing
in March 2004 and announced the commercial launch in June 2004. This terminal is
capable of  providing  both our prepaid  application,  which calls into our data
center,  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.  In 2004, we plan to further expand the
devices  through  which  we  distribute  prepaid  products,  such as  additional
debit/credit  terminal  models,  ATMs,  electronic cash register  systems and PC
based  point-of-sale  systems.  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.

Sources of Revenue

         Our  principal  source  of  revenue  has been  the  resale  of  prepaid
telecommunication products, including wireless, long distance and other products
that we purchase  directly  from carriers or indirectly  from  distributors  who
purchase these products from the carriers.

         Our standard business model is referred to as our broker model. In this
model,  we provide 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.  We recognize  revenues at the gross
sales price of the  products,  cost of goods sold  representing  the cost of the
products and commission expenses paid to brokers and retailers.

         Beginning in 2003, we began offering our service bureau business model.
Under this model,  our customers  license our data center  software and purchase
Qxpress 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. Because we
do not provide or control the products sold, we do not meet the  requirements to
record these sales at "gross." Transaction processing,  license, and maintenance
fees are all recorded on a "net" basis.  Sales of terminals  are recorded at the
sales price and a corresponding cost of sale is recognized.

         The table below  illustrates the revenues we derived from our principal
products and services and the percentage of total  revenues  represented by this
amount.  The discussion  that follows  focuses on the sources of revenue that we
believe are the most important to our present and future results of operations.

<TABLE>
<CAPTION>

                         Three months ended September 30,                     Nine months ended September 30,
                 ------------------------------------------------   ------------------------------------------------
                         2004                      2003                      2004                     2003
                 ----------------------- ------------------------   ----------------------  ------------------------
                    Amount   Percentage     Amount     Percentage      Amount   Percentage    Amount      Percentage
                 ----------- ----------  -----------   ----------   ----------- ----------  -----------   ----------
<S>              <C>         <C>         <C>           <C>          <C>         <C>         <C>           <C>
Wireless         $ 9,576,495    87.2%    $ 6,259,174      92.5%     $24,607,771    86.8%    $17,402,810      94.4%
Other products       415,125     3.8          42,669       0.6        1,125,727     4.0          97,885       0.5
Credit card          424,435     3.9          91,051       1.4        1,018,528     3.6         139,442       0.7
Long distance        251,673     2.3         181,004       2.7          615,160     2.2         359,056       2.0
Fees                 121,385     1.1         137,373       2.0          412,669     1.5         205,221       1.1
Service bureau        47,819     0.4            --         --           316,681     1.1          73,800       0.4
Miscellaneous        142,004     1.3          56,245       0.8          240,688     0.8         167,177       0.9
                 -----------   ------    -----------     ------     -----------   ------    -----------     ------
       Totals    $10,978,936   100.0%    $ 6,767,516     100.0%     $28,337,224   100.0%    $18,445,391     100.0%
                 -----------   ------    -----------     ------     -----------   ------    -----------     ------
</TABLE>

         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.  During
2004 we have added a number of private label wireless  products  offered through
Mobile Virtual Network Operators  (MVNOs).  These products include Boost Mobile,
Tracfone,  Omni  Wireless,  Page Plus, O Mobile,  Platinum Tel and Locus Mobile.
Revenues from such products were approximately $830,000 during the third quarter
of 2004.  While these  products  generally  offer better  margins,  the wireless
market is highly  competitive and historically  MVNOs have a higher failure rate
than national wireless carriers.  We will continue to evaluate new MVNO products
and selectively add products with proven market demand.


                                      -13-
<PAGE>


         Other products include items such as prepaid internet,  home dial tone,
custom ring tones and email that are downloaded to cellular phones,  gift cards,
blank cards used by  retailers,  fees from bill pay  applications,  and PINs and
cellular phones that we sell to other distributors outside our customer network.

         Prepaid  credit  card is a  relatively  new  product  for  the  prepaid
industry. 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 $4.95 to $9.95 load fee  charged to the  consumer.  We
currently  offer two products that bear the  MasterCard  logo and are evaluating
other  products.  We  believe  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.

         Prepaid long  distance  revenue is a focus of ours in 2004.  We believe
that our revenues  from this source  should grow both in terms of gross  dollars
and as a percentage  of total  revenues in the future.  Our  marketing  analysis
suggests that we can increase  prepaid long  distance  revenues by improving our
product  offering  and by providing  informative  and  attractive  point of sale
advertising materials to our brokers and merchants.  In April 2004, we announced
our new long distance program and began promotion to our broker network.

         We offer the  brokers  through  whom we deploy the  Qxpress  system the
option either to buy the Qxpress 200 terminals at a fixed price or to lease them
under a rental program.  With limited exceptions,  the VeriFone terminal is only
offered for sale in our broker program.  The sale of the terminal will result in
the immediate  recognition of revenue, the immediate recovery of capital for the
terminal and gross profit from the sale. The rental program has the advantage of
ongoing  rental  income over the life of the contract and higher  margins due to
the premium we are able to charge under this  alternative.  Our ability to offer
the rental option over the long-term  depends on the  availability of capital to
fund the cost of the terminals. Substantially all of the terminals in our broker
model are  currently  under the rental  program,  although  we  anticipate  that
broker-owned terminals will significantly increase in the future. Other types of
fee income include  performance fees that are charged when weekly rentals from a
terminal fall below the agreed-upon  minimum level and other miscellaneous fees.
Our fee  income  will  continue  to  increase  as we deploy  more units into the
market.

         We first began setting up service  bureau  customers in 2003. We expect
the majority of revenues from service  bureau  customers  will be from customers
outside the United States since that is the only business  model we have offered
them  to  date.  This  revenue  model  will  provide  higher  margins  than  our
traditional  broker model since there are few direct costs to offset against the
fee revenues.  However,  we anticipate  significantly  lower average revenue per
unit for these  customers  since they are  performing  many of the  services  we
provide to our  broker  customers.  Accordingly,  even if gross  profit  remains
relatively  stable,  or increases at a relatively  constant  rate from period to
period,  revenues and gross profit margins may experience substantial volatility
based on changes in the  percentage of our business  undertaken on a service fee
basis compared to the percentage undertaken as a product reseller. We anticipate
this source of revenue to increase in 2004 and beyond.  We established our first
service bureau customer in Canada in early 2003. In late 2003, we set up service
bureaus for new  customers in France,  Australia,  and the Bahamas.  Most of the
revenue we have recorded from our service bureaus in 2003 and 2004 was for sales
of  terminals  and for license  fees.  In July 2004,  we acquired  our  Canadian
service  bureau  customer.  Revenues  from this  source  began to be reported as
broker revenue beginning in the third quarter.

         Historically,  our results of  operations  have been  characterized  by
relatively  high revenues but  relatively  low gross  profits.  Under our broker
model,  we book the entire value of the  transaction  as  revenues.  Our cost of
sales  includes the amount we pay for the product;  it does not include the fees
and commissions we pay the broker and the retailer who participated in the sale.
Our gross  profit  margin was  approximately  25.7% for the three  months  ended
September  30, 2004 and 26.0% for the  comparable  period in 2003.  For the nine
months  ended  September  30, 2004 and 2003,  our profit  margins were 26.7% and
25.5%, respectively. However, after further subtracting the commissions and fees
paid to the  brokers  and  retailers  (which vary  substantially  directly  with
revenues in our historical sales model), our margins were approximately 4.1% for
the three months ended September 30, 2004 and 2.4% for the comparable  period in
2003.  For the nine months ended  September 30, 2004 and 2003, our margins after
commissions  and fees were  3.9% and 2.4%,  respectively.  The  increase  in our
margin after  commissions and fees for the three and nine-month  periods in 2004
is  attributable  to  increased  rental and other fees charged in 2004 and to an
increase in sales of higher  margin  products,  such as MVNO  products  and long
distance. Fees do not have a direct cost associated with them and therefore have
a dollar-for-dollar  impact on the margin after commissions and fees. Because of
these  relatively  small  margins,  a minor  change in the price that we pay for
products  would have a  substantial  effect on our margins and profit if we were
not able to (or, in the case of price decreases,  were not required to) pass the
difference on to our customers.

         The resale of 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
factors,  such as the functions provided and risk assumed by the participant and
the volume and payment  terms on which the  participant  can  purchase  product.
Historically,  our ability to purchase  products  at  attractive  rates has been
negatively  impacted by our inability to purchase in volume and our status as an
uncertain  credit,  which,  in some  cases,  has  resulted in our  inability  to
purchase product  directly from the supplier.  In those cases, we have purchased
product  from a  reseller  at a markup  from the  supplier  price.  We will seek
opportunities  to increase  margins by  purchasing a greater  percentage  of our


                                      -14-
<PAGE>


product directly from the carrier and by purchasing in greater volume.  However,
the  telecommunications  business  in  general,  and the  wireless  business  in
particular,  are changing rapidly and it is not possible to anticipate potential
changes that may occur in the distribution chain.

         Substantially  all of our  revenues  are  collected  through  automated
clearinghouse,  or ACH, transactions initiated by us within 72 hours of the sale
of the product. In an ACH transaction, funds are electronically transferred from
the  merchants'  accounts to our  accounts.  As a result,  we have  virtually no
receivables  from retailers and we do not have expenses  associated with billing
and  collection.   The  brokers  through  whom  we  distribute  our  system  are
responsible  for any unpaid ACH  transactions  from  retailers so we  experience
relatively  little  bad debt  expense.  We  generate  receivables  from sales of
terminals  and from  license  fees and  consulting  services  provided to assist
service bureau customers in setting up and operating data centers.

Operating Metrics

         We monitor our  business and measure  performance  in a number of ways.
Several  of these  key  measures  are shown in the table  below  along  with the
results for our last two quarters.  These are historical  amounts and should not
be used as a projection  for future  results.  The results for the quarter ended
September   30,  2004   exclude  our   Canadian   subsidiary   for  purposes  of
comparability.

<TABLE>
<CAPTION>

                                                         For the     For the    For the     For the
                                                         Quarter     Quarter    Quarter     Quarter
                                                          Ended       Ended      Ended       Ended
                                                      September 30,  June 30,   March 31,  December 31,
                                                          2004        2004       2004        2003
                                                          ----        ----       ----        ----
<S>                                                      <C>         <C>        <C>         <C>
Broker Model - Shipments
Gross Qxpress terminal shipments                            989       1,627      1,478         889
Company returns of inactive terminals                      -384        -184       -300           -
                                                         ------      ------     ------      -------
      Net Qxpress terminals shipped                         605       1,443      1,178         889
Qxpress terminals canceled                                 -226        -379       -123        -172
                                                         ------      ------     ------      -------
Net Qxpress terminals shipped                               379       1,064      1,055         717
      Ending Qxpress terminals in field                   4,341       3,962      2,898       1,843
LDC terminals in field                                       53         183        248         280
                                                         ------      ------     ------      -------
Total terminals in field (1)                              4,394       4,145      3,146       2,123
Average monthly net revenue per terminal (3)             $   25      $   24     $   34      $   39
Average monthly net revenue per terminal for
      terminals in service more than 90 days (2) (3)     $   29      $   33     $   45      $   46
Acquisition cost per broker units shipped                $  169      $  126     $   89      $   61
Cash cost per unit in field (excluding acquisition)      $    5      $    6     $    8      $   10

Broker Model - Activated Units
New activations (4)                                         514         449        298         416
Qxpress terminals canceled                                 -226        -379       -123        -172
                                                         ------      ------     ------      -------
    Net activations                                         288          70        175         244
Total activated terminals                                 1,675       1,387      1,317       1,142
Average activated terminals                               1,531       1,352      1,230       1,020
Average monthly net revenue per terminal                 $   75      $   69     $   73      $   85
Average monthly net revenue per terminal for
      terminals in service more than 90 days (2)
Acquisition cost per broker terminals activated          $  324      $  388     $  368      $  253
Cash cost per unit in service (excluding acquisition)    $   14      $   18     $   20      $   19

Service Bureau Model
Terminals shipped                                            50           -        453         625
Terminals canceled                                            -           -          -           -
    Net terminals placed                                     50           -        453         625
Total terminals in service                                1,512       1,462      1,462       1,009
Total activated terminals                                   862         862        662         409
Average monthly net revenue per terminal (5)             $    7      $    6     $    4      $    4
Average monthly net revenue per terminal for
    terminals in service more than 90 days (5)           $    7      $    8     $    8      $    9
Average monthly net revenue per activated terminal       $   11      $   11     $    6      $   10
</TABLE>


                                      -15-
<PAGE>


         (1) Terminals in service  include  terminals  that have been shipped to
         brokers or merchants.
         (2)  Calculated by excluding  terminals  shipped within 90 days and the
         net revenue associated with those terminals.
         (3) Includes  gross  revenues  less cost of goods sold and  commissions
         paid to brokers and retailers.
         (4) Activation is defined as the date on which a terminal generates its
         first revenue at the retail site.
         (5) Excludes one-time revenues from terminal sales,  installation fees,
         and license fees.

         Beginning  the third  quarter of 2004, we added the metric of activated
units in order to  differentiate  between  revenue-producing  units and  shipped
units.  This is due to longer  lead times for some  brokers to put into  service
units they have in their  inventory.  We continue to pull back broker  terminals
where the broker does not have a viable plan for activation in the near future.

         The  exact  level  of cash  flow  break  even  depends  on many  items,
including how aggressively we add to our sales organization, which increases our
short-term  burn rate,  our actual sales  results,  the pace of our growth,  the
relative  numbers of broker terminals in service and service bureau terminals in
service,  and how quickly  terminals  are  installed  and become  fully  revenue
producing after shipment.  Based on our current sales organization growth plans,
we believe our cash flow break even point will likely be at approximately  7,000
activated broker units under the rental program plus  approximately  1,000-2,000
units  owned by  brokers  where we  receive  no rental  fees.  Additionally,  we
anticipate our break even to include 1,000-2,000  installed service bureau units
in service.  These break even points  assume  terminals  that have achieved full
revenue  potential,  which typically  occurs in 90-120 days. Given the differing
economics of these business  models,  different  combinations of in service unit
numbers will yield different cash flow break-even points.

         Our broker model 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").

          During the second  quarter of 2004,  we had a higher  rate of returned
units  than  anticipated,  which  was due to our  decision  to pull  back  under
performing or  non-performing  terminals from a particular  broker.  This broker
filed for  bankruptcy  during the second  quarter  and we are in the  process of
transitioning as many performing  locations as possible to be serviced  directly
by us. A  deduction  from our  activated  terminal  count  has been made for any
remaining  terminals that are  non-performing  but still in active status at the
end of the third quarter.

         Our  strategy  to  increase  the  number of units in  service  includes
significantly  increasing  our sales  force in order for us to gain more  market
exposure.  During 2004, we have hired a new vice  president of sales and six new
sales  personnel.  We  anticipate  that our selling  expenses will increase more
rapidly than revenues in the near term,  but expect that the long-term  benefits
of the additional sales personnel will outweigh the costs.

         As discussed above, we plan to develop other  distribution  methods for
distributing  products  using our back-end data center.  As we add customers who
use 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.  We anticipate that
ARPU for locations that do not involve a Qxpress  terminal will fall between the
broker model and service bureau model currently experienced.

         Our strategy  with  average  revenue per terminal is to focus our sales
efforts on quality  brokers and retail  chains with  established  prepaid  sales
history,  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 to continue to charge rental and minimum performance fees
on all  terminals  placed.  We show  average  revenue per  terminal  for average
terminals  outstanding during the year and for average terminals excluding those
shipped  within the last 90 days since our  experience  shows that it  generally
takes 90-120 days for a terminal to ramp up to full revenue potential.

         We evaluate  our  service  bureau  model in  different  ways.  While 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.

Critical Accounting Policies and Estimates

         The discussion  and analysis of our financial  condition and results of
operations  are  based on our  financial  statements  that  have  been  prepared
according to accounting  principles  generally  accepted in the United States of
America.  In  preparing  these  financial  statements,  we are  required to make


                                      -16-
<PAGE>


estimates and judgments that affect the reported amounts of assets, liabilities,
revenues,  and  expenses  and  related  disclosures  of  contingent  assets  and
liabilities.  We evaluate these  estimates on an on-going  basis.  We base these
estimates on  historical  experience  and on various other  assumptions  that we
believe are reasonable  under the  circumstances,  the results of which form the
basis for making  judgments about the carrying values of assets and liabilities.
Actual results may differ from these estimates  under  different  assumptions or
conditions.  We  consider  the  following  accounting  policies  to be the  most
important to the portrayal of our financial  condition and that require the most
subjective judgment.

         Revenue recognition

         We record  revenue at the time of  product  sale or when  services  are
provided.  Under our broker model,  sales of our prepaid  products are generally
made directly to end-users. There is no right of return for products sold and we
are  not  obligated  for  further   performance  after  the  sale.  These  sales
transactions  are  accounted  for at "gross"  since  they meet the  requirements
specified by Securities and Exchange  Commission Staff  Accounting  Bulletin No.
101 -- Revenue Recognition in Financial Statements (SAB 101) and Emerging Issues
Task Force No. 99-19 (EITF 99-19).  Revenues generated from other sources,  such
as from the sale or rental of terminals,  minimum  performance fees and software
license fees are recorded  when earned,  net of any sales  discounts.  Under our
service bureau model, software license,  transaction processing, and maintenance
fees are all recorded on a net basis when earned.

         Cost of goods sold

         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 and resulting  gross  profits  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.

         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 Financial  Accounting Standards No. 86, "Accounting
for the Costs of Computer Software to Be Sold,  Leased,  or Otherwise  Marketed"
and Statement of 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.  Once the new system was placed
in service,  maintenance costs are expensed while costs of new software projects
under  development  are  capitalized.  Capitalized  costs are amortized over the
estimated  useful life of the software of three years. We periodically  evaluate
the  recoverability of our capitalized  software  development costs based on the
expected future cash flows from this 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  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.  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 security in question.

         Income taxes

         At September 30, 2004,  we had an  accumulated  net operating  loss for
federal and state corporate income tax purposes of approximately  $14.7 million.
Because our  ability to use this net  operating  loss  depends on our ability to
earn future taxable income,  we have established a valuation  allowance equal to
the net  deferred  tax asset.  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,  and other future
events,  the  effects of which  cannot be  determined.  However,  our ability to
offset our  accumulated  net operating  loss against  future  taxable income may
cause our future  reported  earnings and  profitability  to be greater than they
would be if fully taxable.


                                      -17-
<PAGE>


Results of Operations

         The following table sets forth for the periods  presented  statement of
operations data as a percentage of revenues.  The trends suggested by this table
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            Nine Months
                                    Ended September 30,    Ended September 30,
                                    -------------------    -------------------
                                     2004         2003       2004        2003
                                    ------       ------     ------     ------
Revenues                            100.0%       100.0%     100.0%     100.0%
Cost of goods sold                   74.3         74.0       73.3       74.5
                                    ------       ------     ------     ------
Gross profit                         25.7         26.0       26.7       23.5
Commissions and fees..               21.6         23.6       22.8       23.1
Selling expenses                      2.1          2.4        1.9        1.8
General and administrative expenses   6.0          5.9        7.3        7.0
Depreciation and amortization         4.1          2.8        4.5        2.9
Non-cash compensation                 0.0          0.3        0.0        0.4
                                    ------       ------     ------     ------
Loss from operations                 (8.1)        (9.0)      (9.8)      (9.7)
Other income (expense) - net         (0.0)       (13.6)      (1.2)      (9.0)
                                    ------       ------     ------     ------
Net Loss                             (8.1)       (22.6)     (11.0)     (18.7)
                                    ------       ------     ------     ------


Three months ended September 30, 2004 and 2003

The following  table  presents our statement of  operations  showing  dollar and
percentage changes from 2003 to 2004.

<TABLE>
<CAPTION>

                                     Three Months Ended September 30,     Increase (Decrease)
                                     --------------------------------     -------------------
                                           2004            2003             $             %
                                           ----            ----       ------------    -------
<S>                                  <C>             <C>             <C>             <C>
Revenues                              $ 10,978,936    $  6,767,516    $  4,211,470      62.2%
Cost of goods sold                       8,156,533       5,011,059       3,145,474      62.8
                                      ------------    ------------    ------------     -----
Gross profit                             2,822,403       1,756,457       1,065,946      60.7
Commissions and fees                     2,372,451       1,593,939         778,521      48.8
Selling expenses                           228,272         157,210          71,062      45.2
General and administrative expenses        652,055         398,621         253,434      63.6
Depreciation and amortization              455,036         190,754         264,282     138.5
Non-cash compensation                         --            21,666         (21,666)   (100.0)
                                      ------------    ------------    ------------     -----
Total operating expense                  3,707,814       2,362,181       1,345,633      57.0
                                      ------------    ------------    ------------     -----
Loss from operations                      (885,411)       (605,724)       (279,687)    (46.2)
Other income (expense) - net                (5,176)       (923,175)        917,999      99.4
                                      ------------    ------------    ------------     -----
Net loss                              $   (890,587)   $ (1,528,899)   $    638,312      41.7%
                                      ------------    ------------    ------------     -----
</TABLE>

         Revenues.  Our 2004 revenues  increased  over the 2003 amount due to an
increase in the number of terminals in service and to increasing  our sources of
revenues.  Our third  quarter  revenues  were the  highest  in our  history  and
represent  nearly a 24% increase  from the second  quarter of 2004,  in which we
reported  our previous  high.  In the third  quarter of 2004 we also  recognized
approximately  $1.12 million in revenue from our Canadian subsidiary acquired in
July 2004.  This revenue  accounts for 16.5% of the quarterly  revenue  increase
over the third quarter of 2003 and 12.6% of the increase over the second quarter
of 2004. We expect the following  factors to positively  impact  revenues in the
remainder of 2004 and into 2005: i) continuing to increase our installed base of
terminals;  2) our expanded  sales  force,  which has been fully  staffed  since
August  2004;  iii) the  advantages  we are able to offer  the  market  with our
proprietary system as previously described; and iv) the addition of new means of
product  distribution,  such as  debit/credit  card  terminals,  electronic cash
registers, etc.

         Cost of goods sold.  Our cost of goods sold for the three  months ended
September 30, 2004 as percentage of revenues was 74.3%  compared to 74.0% in the
comparable  period in 2003.  Changes  in cost of goods sold as a  percentage  of
revenues are  attributable to our mix of sales.  Traditional  wireless  products
generally carry lower discounts than long distance and other products, while the
newer products offered through MVNOs carry higher discounts.  In 2004,  wireless
revenues represented 87.2% of revenues compared to 92.5% in 2003. In the future,
we expect our gross margin to  fluctuate  as our product mix and discount  rates
offered by carriers change. Gross margin will also be influenced by the relative
growth  experienced in our two business models, the traditional broker model and
the service bureau model.


                                      -18-
<PAGE>


         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 September 30, 2004 were higher than the comparable  period in
2003 due to the increase in  revenues.  Also, a portion of the change in cost of
goods sold as a percentage  of revenues was passed on to brokers and  retailers.
Our contracts with brokers  generally  protect us from any price  decreases from
carriers.  A component of commissions  and fees is a transaction  processing fee
paid to LDC for  transactions  processed  through the LDC terminals.  These fees
were  approximately  $2,400 in 2004 compared to $42,000 in 2003. These fees have
been  consistently in the range of 1% of gross revenues  processed  through that
system. Substantially all our customers had been transitioned to the Qxpress 200
or VeriFone terminals by the end of the quarter.

         Selling expenses. Selling expenses for the three months ended September
30, 2004 increased by approximately $71,000 when compared to 2003. This increase
is a result of adding six new sales  personnel  in 2004 and to a new  commission
program  introduced  in  January  2004.  Sales  staff are  eligible  to  receive
commission pay based on the number of terminals activated in a month compared to
the individual's quota and on the plan level the terminals were placed under. We
expect selling  expenses to remain  significantly  higher  throughout  2004 when
compared  to 2003 due to these  additions  to our sales  force  and to  possible
further additions to our sales force in the future.

         General  and  administrative.   General  and  administrative   expenses
increased by approximately $250,000 during the third quarter of 2004 compared to
the same period in 2003. As a percentage of revenues, such expenses were 5.8% of
revenues 2004 and 5.9% of revenues in 2003.  The increase can be attributed to a
number  of  factors.  Our  general  and  administrative  salaries  and  benefits
increased by $85,000 for the three months ended September 30, 2004 when compared
to 2003.  This  increase is due to a combination  of $15,000  higher base salary
costs in 2004,  an accrual of $10,000  toward a team bonus program which will be
paid according to our performance  during 2004, an increase in employee  benefit
costs of $25,000 and to $35,000 less in salaries  eligible to be  capitalized as
software  development  costs  in 2004  compared  to  2003.  While  we are  still
developing new  applications for our system and some of the salaries of software
engineers are capitalized,  we expect that the amount of capitalized salaries in
2004 will be less than those  capitalized in 2003.  Other items  contributing to
the increase in general and administrative expenses are Board of Directors' fees
and expenses and  Directors  and Officers  insurance  ($40,000),  an increase in
professional  services  such  as  legal,  accounting,   investor  relations  and
consulting fees ($75,000) and an increase in rent and office costs ($20,000). In
order to  support  expanded  operations,  we  expect  to  increase  general  and
administrative  expense.  As gross  profit  increases,  we  expect  general  and
administrative  expenses to decrease as a percentage  of gross  profit,  thereby
significantly improving operating margins.

         Depreciation and amortization.  Depreciation and amortization  expenses
for the three  months  ended  September  30,  2004  increased  by  approximately
$265,000 when compared to 2003.  In 2004, we recorded  $238,000 in  depreciation
expense and  $217,000 in  amortization  of  capitalized  software.  In 2003,  we
recorded  $70,000 in  depreciation  expense  and  $121,000  in  amortization  of
capitalized  software.  These  increases are  attributable  to a higher based of
capitalized  software  and to an  increased  number of Qxpress 200  terminals in
service.  We also  determined  in the fourth  quarter of 2003 to decrease in the
expected  useful  life of our point of sale  terminals  from five years to three
years,  causing  higher  depreciation  expenses  in the  third  quarter  of 2004
compared  to the same period in 2003.  As we continue to increase  significantly
the number of Qxpress 200 terminals in service, we expect depreciation  expenses
to increase in the future.

         Other  expense - net.  Other income and expense  consists  primarily of
interest income,  interest  expense and a loss on disposal of assets.  Net other
expense for the three months ended  September  30, 2004 and 2003 were $5,000 and
$925,000,  respectively.  The decrease in net other expense represents  interest
expense  related to notes we issued and debentures we sold in 2003. Most of this
interest expense,  $825,000 for the three months ended September 30, 2003, is in
the form of  amortization  of discount on these debt  instruments  and therefore
does not represent an amount paid in cash.  Since the debentures  were repaid in
full on March 31, 2004, the discount on debt was fully amortized as of that date
and there was no comparable  expense for the third  quarter of 2004.  Presently,
our debt  consists  of a $245,000  note to our former CEO and $35,000 in capital
leases.  Based on this relatively low level of debt, we expect interest expenses
to be significantly less in 2004 compared to 2003.

         Income  tax  expense.  At  September  30,  2004 we had  operating  loss
carryforwards of approximately  $14.7 million that may be applied against future
taxable  income in years through 2023.  The loss  carryforwards  and other items
result in net deferred tax asset of  approximately  $4.7 million.  The amount of
and ultimate realization of the benefits from this deferred tax asset for income
tax purposes  depends,  in part,  on applicable  tax laws in effect,  our future
earnings, and other future events, the effects of which cannot be determined. As
a result of the  uncertainty  surrounding  the  realization  of the deferred tax
asset,  at  year-end  we  established  a  valuation  allowance  equal to the net
deferred  tax asset and no income tax benefit from our  operating  loss has been
recognized for any of the periods presented.


                                      -19-
<PAGE>


         Nine months ended September 30, 2004 and 2003

         The following table presents our statement of operations showing dollar
and percentage changes from 2003 to 2004.

<TABLE>
<CAPTION>
                                 Nine Months Ended September 30,     Increase (Decrease)
                                 -------------------------------     -------------------
                                       2004            2003              $           %
                                   ------------    ------------    ------------    -----
<S>                               <C>             <C>             <C>             <C>
Revenues                           $ 28,337,224    $ 18,445,391    $  9,891,833     53.6%
Cost of goods sold                   20,757,060      13,746,935       7,010,125     51.0
                                   ------------    ------------    ------------    -----
Gross profit                          7,580,164       4,698,456       2,881,708     61.3
Commissions and fees                  6,477,342       4,262,012       2,215,330     52.0
Selling expenses                        527,720         332,273         195,447     58.8
General and administrative expenses   2,077,681       1,288,857         788,824     61.2
Depreciation and amortization         1,271,786         541,792         729,994    134.7
Non-cash compensation                      --            64,998         (64,998)  (100.0)
                                   ------------    ------------    ------------    -----
Total operating expense              10,354,529       6,489,932       3,864,597     59.5
Loss from operations                 (2,557,101)     (1,791,476)       (765,625)   (42.7)
                                   ------------    ------------    ------------    -----
Other income (expense) - net           (345,661)     (1,656,239)      1,310,578     79.1
                                   ------------    ------------    ------------    -----
Net loss                           $ (3,120,026)   $ (3,447,715)   $    327,689      9.5%
                                   ------------    ------------    ------------    -----
</TABLE>

         Revenues.  Our 2004 revenues  increased  over the 2003 amount due to an
increase in the number of terminals in service and to increasing  our sources of
revenues.  The increase of $9,891,833  includes  approximately  $1.12 million in
revenue  from our  Canadian  subsidiary  acquired  in July  2004.  This  revenue
accounts for 6.0% of the year to date revenue  increase  over 2003.  The revenue
increase from our core business is approximately $8.8 million, or 47.6%, for the
first nine months of 2004 compared to 2003.

         Cost of goods sold.  Our cost of goods sold for the nine  months  ended
September 30, 2004 as percentage of revenues was 73.3%  compared to 74.5% in the
comparable  period in 2003.  Changes  in cost of goods sold as a  percentage  of
revenues are  attributable  to our mix of sales.  As  previously  mentioned,  we
increased our sales from MVNO wireless  products,  which  generally carry higher
discounts than traditional wireless products.

         Commissions  and fees.  Commissions  and fees for the nine months ended
September  30, 2004 were higher  than the  comparable  period in 2003 due to the
increase in  revenues.  A component  of  commissions  and fees is a  transaction
processing fee paid to LDC for transactions processed through the LDC terminals.
These fees were  approximately  $20,000 in 2004  compared  to  $130,000 in 2003.
These fees have been consistently in the range of 1% of gross revenues processed
through that system.  Substantially  all our customers had been  transitioned to
the Qxpress 200 or VeriFone terminals by the end of the quarter.

         Selling expenses.  Selling expenses for the nine months ended September
30, 2004  increased  by  approximately  $195,000  when  compared  to 2003.  This
increase  is a result of adding  six new  sales  personnel  in 2004 and to a new
commission  program introduced in January 2004. Selling expenses as a percentage
of revenue were relatively flat,  representing  1.9% of revenue in 2004 compared
to 1.8% of revenue in 2003.

         General  and  administrative.   General  and  administrative   expenses
increased  by  approximately  $790,000  during  the  first  nine  months of 2004
compared to the same period in 2003. As a percentage of revenues,  such expenses
were 7.3% of revenues  2004 and 7.0% of revenues in 2003.  The  increase  can be
attributed to a number of factors.  Our general and administrative  salaries and
benefits increased by $350,000 for the nine months ended September 30, 2004 when
compared to 2003.  This  increase  is due to the  combination  of  approximately
$25,000  higher  base  salary  costs in 2004  compared  to 2003,  an  accrual of
$160,000  toward  a team  bonus  program  which  will be paid  according  to our
performance during 2004, an increase in employee benefit costs of $80,000 and to
$85,000  less in salaries  eligible to be  capitalized  as software  development
costs in 2004  compared to 2003.  Other items  contributing  to the  increase in
general and  administrative  expenses are Board of Directors'  fees and expenses
and Directors and Officers  insurance  ($110,000),  an increase in  professional
services  such as legal,  accounting,  investor  relations and  consulting  fees
($200,000)  and an  increase  in  office  related  expenses,  such as  rent  and
telephone ($60,000).

         Depreciation and amortization.  Depreciation and amortization  expenses
for the nine months ended September 30, 2004 increased by approximately $513,000
when compared to 2003. During the nine months ended September 30, 2004, $620,000
of the expense was  depreciation  and $650,000 was  amortization  of capitalized
software.  For the  comparable  2003 period,  depreciation  expense  amounted to
$180,000 and amortization of capitalized software was $363,000.  These increases
are  attributable to a higher based of capitalized  software and to an increased
number of Qxpress 200  terminals in service.  We also  determined  in the fourth
quarter of 2003 to  decrease  in the  expected  useful life of our point of sale
terminals from five years to three years,  causing higher depreciation  expenses
in the first nine months of 2004 compared to the same period in 2003.


                                      -20-
<PAGE>


         Other  expense - net.  Other income and expense  consists  primarily of
interest income,  interest  expense and a loss on disposal of assets.  Net other
expense for the nine months ended  September 30, 2004 and 2003 were $345,000 and
$1,656,000,  respectively.  Most of this expense is interest  expense related to
notes we issued and debentures we sold in 2003. Of the interest expense amounts,
$300,000  for the first nine months of 2004 and  $1,440,000  for the  comparable
period  in 2003  is in the  form of  amortization  of  discount  on  these  debt
instruments and therefore does not represent an amount paid in cash.

Liquidity and Capital Resources

         Historically, we have financed our working capital requirements through
cash  flow  from  operations,  the  sale of  equity,  proceeds  from  short-term
borrowings, and proceeds from the sale of convertible debentures and notes.

         In 2003 we entered  into a number of financing  transactions,  the most
significant of which was a registered  public  offering.  The offering closed in
June 2003 and was for 1,265,000 units including the overallotment  option,  each
unit  consisting  of two shares of common  stock and one common  stock  purchase
warrant.  The units were priced at $13.00  each,  yielding us gross  proceeds of
$16.445  million.  Net proceeds to us after  underwriter  discount and estimated
offering costs were approximately $13.6 million.

         Before  completing  this  offering,  we raised a total of $2.7  million
through the sale of (a) a $200,000  unsecured  convertible note due February 28,
2004 and bearing interest at 12%; (b) $1.5 million aggregate principal amount of
secured  convertible  debentures  due  June  30,  2004;  and  (c)  an  unsecured
promissory  note in the original  principal  amount of $1,000,000 due August 31,
2004 bearing interest at 12%.

         We used  these  funds  to  repay  and  cash  collateralize  debt in the
aggregate amount of $3.59 million, decrease current liabilities by $1.1 million,
fund  purchases of capital  equipment and software  development in the amount of
$3.09 million, fund an increase in inventory and accounts receivable of $974,000
and fund our operations.

         In the third  quarter  of 2004,  we raised  $3  million  in cash from a
private placement of our stock to existing investors. We sold a total of 750,000
shares at $4.00 per share. The investors have registration  rights for the stock
after 180 days.  This  additional  capital  will be used to fund the cost of new
terminals.  As of  September  30,  2004,  we have paid for  approximately  4,000
terminals  that are  available  for  orders in  coming  months.  This  supply of
terminals in  inventory  will at least  partially  defray  capital  expenditures
required in the future.

         In November  2004, we drew on  approximately  $880,000 in capital lease
funding that had been  secured  earlier in the year.  The leases  required a 50%
letter  of credit  supporting  balance,  which we  cash-secured  at a  financial
institution.

         As of September 30, 2004, we had working capital of approximately  $4.6
million and a working capital ratio of 3.5 to 1.

         Existing  commitments  for cash in 2004 include  another  6,500 Qxpress
terminals in the amount of $1.5 million (a portion of which may be deferred into
2005),  total  payments of $63,000  toward our capital and operating  leases and
payments  on a note  payable  to our former  CEO in the  amount of  $22,000.  We
anticipate that our inventory of PINs,  which was $1.74 million at September 30,
2004, will remain relatively constant.  Due to the short order time required for
these  products,  we are able to keep  our  inventory  in the  range of 10 day's
sales. We are also exploring  adding features to our system to aid in minimizing
PIN inventory required for terminals.  Our future capital requirements will also
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 a  pure  service  bureau  model  are,  in  comparison,
substantially less.

         At this time we believe our available  resources are sufficient to fund
our operations and capital requirements through the next 12 months.

Recent Accounting Pronouncements

         Statement of Financial Accounting Standards SFAS No. 149, "Amendment of
Statement 133 on Derivative  Instruments and Hedging  Activities",  and SFAS No.
150, "Accounting for Certain Financial  Instruments with Characteristics of both
Liabilities  and Equity",  were  recently  issued.  SFAS No, 149 and 150 have no
current  applicability  to us or their effect on the financial  statements would
not have been significant.


                                      -21-
<PAGE>


Item 3. Controls and Procedures

         Our   management,   including  our  CEO  and  CFO,  has  evaluated  the
effectiveness  of our  "disclosure  controls and  procedures"  (the controls and
other  procedures for  recording,  processing,  summarizing,  and reporting on a
timely basis the  information  required to be disclosed in the periodic  reports
that we file with the U.S. Securities and Exchange  Commission) as of the end of
the second  quarter.  Based on that  evaluation,  and subject to the limitations
noted  below,  our  management   concluded  that  our  disclosure  controls  and
procedures are effective to ensure that material  information  about the Company
is made  known to  management  by others in our  company  on a timely  basis for
preparation of our periodic  reports.  While we believe our disclosure  controls
and procedures are effective,  we note that controls and  procedures,  no matter
how well  conceived and  operated,  can provide only  reasonable,  not absolute,
assurance  that the objectives of the controls and procedures are met. There are
inherent   limitations,    including   the   possibility   that   judgments   in
decision-making  can be faulty,  that  breakdowns  can occur because of a simple
error or mistake, or that a person may circumvent the controls. Also, because of
the inherent limitations in a cost-effective  control system,  misstatements due
to error or fraud may occur and not be detected.

         There  has  been no  change  in our  internal  control  over  financial
reporting  that occurred  during the second fiscal  quarter that has  materially
affected,  or is reasonably  likely to materially  affect,  our internal control
over financial reporting.


PART II

Item 1. Legal Proceedings

         As of November 10, 2004,  we are not a party to any legal  proceedings,
except as set forth below.

         In  January  2002,  we  filed  a  lawsuit  against  an  individual  for
non-payment of funds owed relating to the purchase of common stock. We have been
awarded summary  judgment in the amount of $135,000,  of which $21,500  remained
uncollected at September 30, 2004.

         In January 2004,  Dial-Thru  International  Corporation filed a lawsuit
against  us in the  Superior  court of the  State of  California,  County of Los
Angeles,  claiming  damages  of $4  million  as a  result  of our  breach  of an
agreement  that was signed in October  2000.  It is our  position  that claim is
without  merit as we properly  exercised a  contractual  right to terminate  the
agreement. In February 2004 we 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 our motion for dismissal.  The  proceedings
were  stayed  pending  the  outcome of the matter in the state of Utah.  In July
2004,  Dial-Thru  filed  substantially  the same suit  against  us in the United
States  District  Court in the State of Utah.  We will  vigorously  contest  the
claim. At this point, we do not believe that the eventual  outcome of the matter
will result in a material amount due from us.

Item 2. Changes in Securities and Use of Proceeds

Recent Sales of Unregistered Securities.


         During  July and  August  2004,  we  entered  into a private  placement
transaction  with four  existing  shareholders  of the Company in the  aggregate
amount of  $3,000.000.  Pursuant to the  private  placement,  we issued  750,000
shares of common stock at $4.00 per share.  All such shares were issued for cash
and were issued in reliance upon certain  exemptions from registration under the
Securities Act of 1933. The gross  offering  proceeds  received from the sale of
such shares was $3,000,000,  and the Company paid no  underwriting  discounts or
commissions. We also agreed to file a registration statement covering resales of
the shares of common stock by these existing shareholders at a later date.

         On July 8, 2004, we completed the acquisition of the assets of Point De
Vente Inc, a distributor of prepaid wireless products based in Montreal, Quebec,
Canada. We delivered 12,127 shares of common stock valued at $4.12 per share. We
also  assumed  the net  liabilities  of the Point De Vente  Inc.  and  agreed to
provide a cash infusion of approximately $400,000 for working capital.

         On July 16, 2004 we issued 1,667 shares of  restricted  common stock to
an officer  pursuant to a stock bonus plan issued in December  2002.  The shares
were valued at $7,668.


                                      -22-
<PAGE>


Item 6. Exhibits and Reports on Form 8-K

a. Exhibits:

Exhibit No.           Description
-----------           -----------

  10.19#              Agreement  between Q Comm  International,  Inc.,  and
                      Posa Tech, Inc.

  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.

# 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:

We filed the  following  Form 8-K's during the three months ended  September 30,
2004.

     1.   On August 27, 2004, we filed a current  report on Form 8-K,  reporting
          under  Item  1.01,  our  acquisition  of a certain  number of  Qxpress
          merchant accounts from Posa Tech, Inc.

     2.   On September 7, 2004, we filed a current report on Form 8-K, reporting
          under  Item 5.02,  the  appointment  of Harry  Hargens to our Board of
          Directors.

     3.   On  September  10,  2004,  we  filed a  current  report  on Form  8-K,
          reporting  under Item 4.01 and 9, announcing that we were changing our
          auditors  from  Prichett,  Siler & Hardy  P.C.  to Tanner + Co.  (This
          filing was amended by current  report on Form 8-K/A filed on September
          28, 2004).







                                      -23-
<PAGE>


                                   SIGNATURES

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


                                           Q Comm International, Inc.
                                           (Registrant)

Date   November 11, 2004                   /s/Terry D. Kramer
       -----------------                   ------------------
                                           Terry D. Kramer
                                           Chief Executive Officer

Date   November 11, 2004                   /s/ Michael K. Openshaw
       ------------------                  -----------------------
                                           Michael K. Openshaw
                                           Chief Financial Officer
                                           (Principal Accounting Officer)


















                                      -24-