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 June 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 July 27, 2004, there were 4,609,044 shares of common stock outstanding.

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


<PAGE>


                           Q COMM INTERNATIONAL, INC.
                               FORM 10-QSB REPORT

                                  June 30, 2004

                                TABLE OF CONTENTS

                                                                         PAGE
PART I - FINANCIAL INFORMATION

     Item 1. Interim condensed financial statements (unaudited)

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

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

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

             Notes to Unaudited Condensed Consolidated
             Financial Statements                                          5

     Item 2. Management's Discussion and Analysis or Plan of
             Operation                                                    13

     Item 3. Controls and Procedures                                      22

PART II - OTHER INFORMATION

     Item 1. Legal Proceedings                                            22

     Item 2. Recent issuances of unregistered securities                  23

     Item 4. Submission of Matters to a Vote of Security Holders          23

     Item 6. Exhibits and Reports on Form 8-K                             24

SIGNATURES                                                                25








                                      -2-
<PAGE>


Item 1. Interim condensed financial statements (unaudited)

<TABLE>
<CAPTION>

                                  Q COMM INTERNATIONAL, INC. AND SUBSIDIARY

                                     CONDENSED CONSOLIDATED BALANCE SHEET

                                                                                  June 30,       December 31,
                                                                                    2004             2003
                                                                                -----------      -----------
<S>                                                                            <C>              <C>
                                                    ASSETS
    Current Assets:
      Cash in bank                                                             $  2,397,253     $  5,524,774
      Restricted cash                                                                    -         1,450,583
      Accounts receivable, net                                                      549,720          444,009
      Inventory                                                                   1,740,730          717,116
      Note receivable                                                                    -           150,000
                                                                                -----------      -----------
         Total Current Assets                                                     4,687,703        8,286,482
                                                                                -----------      -----------
    Property & Equipment, net                                                     3,784,518        2,867,389

    Other Assets:
      Capitalized software development costs, net                                 1,377,959        1,561,325
      Goodwill, net                                                                 144,580          144,580
      Deposits                                                                       70,636           33,815
                                                                                -----------      -----------
         Total Other Assets                                                       1,593,175        1,739,720
                                                                                -----------      -----------
         Total Assets                                                          $ 10,065,396     $ 12,893,591
                                                                                -----------      -----------

                                     LIABILITIES AND STOCKHOLDERS' EQUITY
    Current Liabilities:
      Accounts payable                                                         $  1,147,575     $    788,856
      Accrued expenses                                                              281,987          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                                    32,332           29,766
      Related party obligations - current portion                                    65,461           65,485
      Contingent liabilities                                                             -            70,000
                                                                                -----------      -----------
         Total Current Liabilities                                                1,527,355        2,104,455
                                                                                -----------      -----------
    Long-term Obligations:
      Capital lease obligations                                                      15,578           30,610
      Related party obligations                                                     195,231          228,776
                                                                                -----------      -----------
         Total Long-term Obligations                                                210,809          259,386
                                                                                -----------      -----------
         Total Liabilities                                                        1,738,164        2,363,841
                                                                                -----------      -----------
    Stockholders' Equity:
      Common stock, $.001 par value, 50,000,000 shares
         authorized, 3,995,250 shares issued and outstanding                          3,995            3,995
      Capital in excess of par value                                             23,812,400       23,812,400
      Retained deficit                                                          (15,456,858)     (13,227,420)
                                                                                -----------      -----------
                                                                                  8,359,537       10,588,975
      Less stock subscription receivable                                            (32,305)         (59,225)
                                                                                -----------      -----------
         Total Stockholders' Equity                                               8,327,232       10,529,750
                                                                                -----------      -----------
         Total Liabilities and Stockholders' Equity                            $ 10,065,396     $ 12,893,591
                                                                                -----------      -----------


The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
</TABLE>


                                                     -3-
<PAGE>


<TABLE>
<CAPTION>
                                 Q COMM INTERNATIONAL, INC. AND SUBSIDIARY

                              CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS


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

<S>                                       <C>                                <C>
                                               2004            2003              2004              2003
                                           -----------     -----------       ------------     ------------

   Revenues                                $ 8,870,458     $ 5,930,836       $ 17,358,288     $ 11,677,875

   Cost of Goods Sold                        6,425,999       4,427,377         12,600,527        8,735,876
                                           -----------     -----------       ------------     ------------
   Gross Profit                              2,444,459       1,503,459          4,757,761        2,941,999
                                           -----------     -----------       ------------     ------------
   Operating Expenses:
     Commissions and fees                    2,079,983       1,369,569          4,104,890        2,668,082
     Selling expenses                          156,751          81,257            299,448          175,063
     General and administrative expenses       642,987         379,553          1,425,626          890,236
     Depreciation and amortization             417,559         191,871            816,750          351,038
     Non-cash compensation                          -           21,666                 -            43,332
                                           -----------     -----------       ------------      -----------
       Total Operating Expenses              3,297,280       2,043,916          6,646,714        4,127,751
                                           -----------     -----------       ------------      -----------
   Loss from Operations                       (852,821)       (540,457)        (1,888,953)      (1,185,752)
                                           -----------     -----------       ------------      -----------

   Other Income (Expense):
     Interest income                             3,037              -              16,985               96
     Interest and other expense                (10,109)       (605,855)          (334,424)        (733,160)
     Loss on disposal of assets                (23,046)             -             (23,046)               -
                                           -----------     -----------       ------------      -----------
       Total Other Income (Expense)            (30,118)       (605,855)          (340,485)        (733,064)
                                           -----------     -----------       ------------      -----------
   Loss before Income Taxes                   (882,939)     (1,146,312)        (2,229,438)      (1,918,816)

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

   Net Loss                                $  (882,939)    $(1,146,312)      $ (2,229,438)    $ (1,918,816)
                                           -----------     -----------       ------------      -----------

   Basic Loss per Common Share             $      (.22)    $      (.79)      $       (.56)    $      (1.38)
                                           -----------     -----------       ------------      -----------








The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
</TABLE>
                                                    -4-
<PAGE>


<TABLE>
<CAPTION>
                             Q COMM INTERNATIONAL, INC. AND SUBSIDIARY

                          CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

                                                                          For the Six Months
                                                                            Ended June 30,
                                                                   -------------------------------
                                                                       2004              2003
                                                                    ----------         ----------
<S>                                                               <C>                <C>
   Cash Flows from Operating Activities:
     Net loss                                                     $ (2,229,438)      $ (1,918,816)
     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                                816,750            351,038
          Amortization of discount on debentures and notes             300,947            611,354
          Non-cash compensation                                            -               43,332
          Recognition of unearned revenue                              (80,000)                -
          Change in assets and liabilities:
     Increase in accounts receivable                                  (135,711)          (178,068)
     Increase in inventory                                          (1,023,614)          (232,912)
     Increase in other assets                                          (36,821)            (7,700)
     Increase in accounts payable                                      358,719            318,796
     Increase in accrued liabilities                                   140,692            111,358
     Decrease in contingent liabilities                                (70,000)                -
                                                                     ---------         ----------
            Net Cash Used by Operating Activities                   (1,905,430)          (889,800)
                                                                     ---------         ----------
   Cash Flows from Investing Activities:
     (Increase) decrease in restricted cash                          1,450,583         (1,725,000)
     Cash from note receivable                                         150,000                 -
     Purchase of property and equipment                             (1,322,397)          (769,200)
     Capitalized software development costs                           (251,162)          (388,589)
                                                                    ----------        -----------
            Net Cash Provided (Used) by Investing Activities            27,024         (2,882,789)
                                                                    ----------        -----------
   Cash Flows from Financing Activities:
     Issuance of common stock                                               -          14,320,000
     Cash received from subscription receivable                         26,920             32,305
     Payment of stock offering costs                                        -          (2,380,528)
     Proceeds from notes and debentures                                     -           2,700,000
     Payments on convertible notes payable                          (1,230,000)           (21,130)
     Proceeds from capital leases                                           -              66,992
     Payments on capital lease obligations                             (12,466)           (12,492)
     Increase in (payments on) related party obligations               (33,569)            20,535
     Decrease in bank overdraft                                             -            (342,260)
                                                                    ----------         ----------
            Net Cash Provided (Used) by Financing Activities        (1,249,115)        14,383,422
                                                                    ----------         ----------
   Net Increase (Decrease) in Cash                                  (3,127,521)        10,610,833

   Cash and Cash Equivalents, Beginning of Period                    5,524,774            115,609
                                                                    ----------         ----------
   Cash and Cash Equivalents, End of Period                       $  2,397,253       $ 10,726,442
                                                                    ----------         ----------
   Supplemental Disclosures of Cash Flow Information:
       Cash paid during the period for:
       Interest expense                                           $    140,551       $     21,608
       Income taxes                                               $        200       $        100
</TABLE>


                                                -5-
<PAGE>


                    Q COMM INTERNATIONAL, INC. AND SUBSIDIARY

                 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                                   (Continued)

Supplemental Schedule of Non-cash Investing and Financing Activities:

                       For the period ended June 30, 2004:

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

                       For the period ended June 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,  $414,495 was amortized to interest  expense  during the period and
$1,085,505 is 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.  Of this amount,
$55,516  was  amortized  to  interest  expense  during the period and $89,938 is
unamortized.

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,  $141,343  was  amortized  to  interest  expense  during  the period and
$858,657 is unamortized.










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


                                      -6-
<PAGE>


                    Q COMM INTERNATIONAL, INC. AND SUBSIDIARY

              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 subsidiary, Q Comm, Inc. 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 June  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 June 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 June 30, 2004 and December 31,
     2003,  the Company has  established  an allowance for doubtful  accounts of
     $60,000 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 3, 4 and 13).


                                      -7-
<PAGE>


                    Q COMM INTERNATIONAL, INC. AND SUBSIDIARY

              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.

     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 11.  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:

<TABLE>
<CAPTION>
                                              For the Three Months              For the Six Months
                                                 Ended June 30,                   Ended June 30,
                                         ----------------------------      ----------------------------
                                             2004            2003              2004             2003
                                         ------------    ------------      ------------    ------------
<S>                                     <C>              <C>               <C>             <C>
Net Loss              As reported        $   (882,939)   $ (1,146,312)     $ (2,229,438)   $ (1,918,816)
                      Pro forma          $ (1,400,056)   $ (1,401,788)     $ (2,908,340)   $ (2,429,769)

Basic loss per share  As reported        $       (.22)   $       (.79)     $       (.56)   $      (1.38)
                      Pro forma          $       (.35)   $       (.96)     $       (.73)   $      (1.79)
</TABLE>


                                      -8-
<PAGE>


                    Q COMM INTERNATIONAL, INC. AND SUBSIDIARY

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

     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 12).

     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.

     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 - PROPERTY & EQUIPMENT

     The following is a summary of property and equipment:

                                                   June 30,         December 31,
                                                     2004               2003
                                                  ----------         ----------
      Point of sale terminals - in service        $1,978,225         $1,121,331
      Point of sale terminals - in inventory       2,435,392          2,071,565
      Computer equipment and other                   337,058            258,428
                                                  ----------         ----------
      Total cost                                   4,750,675          3,451,324
      Accumulated depreciation                      (966,157)          (583,935)
                                                  ----------         ----------
      Property & equipment, net                   $3,784,518         $2,867,389
                                                  ----------         ----------

     Depreciation  expense for the three months ended June 30, 2004 and 2003 was
     $200,295  and $70,956  respectively,  and for the six months ended June 30,
     2004 and 2003 was $382,222 and $109,208, 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 placed in service.

NOTE 3 - GOODWILL

     At June 30,  2004,  the Company had $144,580 in goodwill  remaining  from a
     purchase acquisition 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 June 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 June 30, 2004 and 2003. See Note 13.

NOTE 4 - CAPITALIZED SOFTWARE DEVELOPMENT

     Information related to capitalized  software  development costs at June 30,
     2004 is as follows:

        Capitalized software, beginning of period           $2,266,002
        Capitalized during the period                          247,409
                                                            ----------
        Capitalized software, end of period                  2,513,411
        Accumulated amortization                            (1,135,452)
                                                            ----------
        Capitalized software, net                           $1,377,959
                                                            ----------


                                      -9-
<PAGE>


                    Q COMM INTERNATIONAL, INC. AND SUBSIDIARY

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 4 - CAPITALIZED SOFTWARE DEVELOPMENT (Continued)

     Of the balance at June 30,  2004,  approximately  $1,025,000  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 June 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  June 30,  2004 and 2003 was  $217,264  and  $120,915,
     respectively,  and for the six  months  ended  June  30,  2004 and 2003 was
     $434,528 and $241,830, respectively.

NOTE 5 - 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 six months
     ended June 30, 2004.

NOTE 6 - RELATED PARTY OBLIGATIONS

     The Company  has a note  payable to an officer of the Company in the amount
     of $260,692.  At December 31,  2003,  the Company owed accrued  interest of
     $33,569 on the note. On June 30, 2004,  the accrued  interest of $46,604 on
     the note was paid.  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.  Beginning July 31, 2004 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 June 30, 2004 and 2003, the Company recorded interest expense on this
     obligation of $6,517 and $10,267,  respectively,  and during the six months
     ended June 30, 2004 and 2003, the Company recorded interest expense on this
     obligation of $13,035 and $20,535, respectively.

NOTE 7 - 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 8 - 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 $10,453
     and $14,000 at June 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 $10,570 was recognized on
     this equipment during each of the periods ended June 30, 2004 and 2003.


                                      -10-
<PAGE>


                    Q COMM INTERNATIONAL, INC. AND SUBSIDIARY

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 8 - LEASES (Continued)

     In January  2003,  the  Company  entered  into a capital  lease for certain
     equipment.  The lease requires  monthly  payments of $2,842 through January
     2006 and has an  outstanding  principal  balance of $37,457  and $46,376 at
     June  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 $6,500 was  recognized on
     this equipment during the each of the periods ended June 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
     $205,680.

NOTE 9 - 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  June 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.

     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 $32,305 and
     $59,255 at June 30, 2004 and December 31, 2003, respectively. These amounts
     are  reflected  in  the   accompanying   balance  sheet  as  an  offset  to
     stockholders' equity.

NOTE 10 - CAPITAL STOCK

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

                           Period Ended June 30, 2004

     None (see Note 13).

                           Period Ended June 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.


                                      -11-
<PAGE>


                    Q COMM INTERNATIONAL, INC. AND SUBSIDIARY

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 11 - STOCK OPTIONS AND WARRANTS

     At June 30, 2004, the Company had outstanding  611,667 options to employees
     under various  agreements with exercise prices ranging from $4.58 to $16.50
     per  share  and a  weighted  average  exercise  price of $5.95  per  share,
     expiring between May 2005 and June 2014. Of the options outstanding at June
     30, 2004,  275,875 options with a weighted average exercise price of $10.23
     were vested and  exercisable.  During the six months  ending June 30, 2004,
     384,500  options were granted with  exercise  prices  ranging from $4.58 to
     $6.50 per share and a weighted  average  exercise price of $4.70 per share,
     1,667 options were forfeited and none were exercised.

     At June 30,  2004,  the Company  had  outstanding  options and  warrants to
     purchase  2,109,493  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 $27.00  per share,  expiring
     between July 2004 and June 2009. All of the options and warrants  issued to
     non-employees  were vested at June 30,  2004.  During the six months  ended
     June 30, 2004,  60,000  options were  issued,  3,333  expired and none were
     exercised.  The  60,000  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 June 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.

NOTE 12 - 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 Six Months
                                                               Ended June 30,                     Ended June 30,
                                                        -------------------------         ----------------------------
                                                           2004            2003              2004              2003
                                                        ---------       ----------        ----------        ----------
<S>                                                    <C>             <C>               <C>               <C>
       Loss from continuing operations available
        to common shareholders (numerator)             $ (882,939)     $(1,146,312)      $(2,229,438)      $(1,918,816)

       Weighted average number of common
        shares outstanding during the year used
        in per share calculations (denominator)         3,995,250        1,459,070         3,995,250         1,390,895
</TABLE>

     Because the Company incurred losses for the periods ended June 30, 2004 and
     2003,  the  effect  of  options/warrants  and  convertible  notes  totaling
     2,721,160 and 2,283,656 equivalent shares, respectively,  has been excluded
     from the loss per share computation since its impact would be antidilutive.

NOTE 13 - SUBSEQUENT EVENTS

     On July 9, 2004, we entered into a private placement  transaction with four
     existing shareholders of the Company in the amount of $2,400.000.  Pursuant
     to the private placement, we issued 600,000 shares of common stock at $4.00
     per  share.  The gross  offering  proceeds  received  from the sale of such
     shares was $2,400,000,  and the Company paid no  underwriting  discounts or
     commissions.

     In July 2004,  the Company  completed an  acquisition  of Point de Vente, a
     distributor  of prepaid  services  located in Quebec,  Canada.  The Company
     issued  12,127  shares of  restricted  common  stock with a market value of
     $50,000  in  exchange  for all of the  outstanding  stock  of the  Canadian
     company.  The Company also entered into an  employment  agreement  with the
     previous owner of the Canadian  company that provides for one year's salary
     and 30,000 stock options which vest from 2005 to 2007. The Canadian company
     had assets of  approximately  $500,000  and  liabilities  of  approximately
     $900,000 on the date of acquisition.

     In July 2004, the Company issued 1,667 shares of restricted common stock to
     an officer of the Company pursuant to a stock bonus agreement.


                                      -12-
<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  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 experience  substantial growth in our historical business while expanding our
product line to include a broad range of other  prepaid  products and to provide
transaction  processing and information  management services to other vendors of
prepaid products, both in the United States and abroad.

     Historically,  revenues from  international  operations  have accounted for
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 will begin  recognizing  revenues  from this
business  under our  traditional  broker model.  (See further  discussion of our
business  models under "Sources of Revenue"  below.) During the six months ended
June 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


                                      -13-
<PAGE>


that could be obtained  by  individual  consumers  and small  businesses.  These
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 have also  modified our
software to run on a 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 June 30,                           Six months ended June 30,
                          ----------------------------------------------      -----------------------------------------------
                                  2004                      2003                      2004                      2003
                          ---------------------   ----------------------      ---------------------    ----------------------
                            Amount   Percentage     Amount    Percentage         Amount  Percentage      Amount    Percentage
                          ---------  ----------   ---------   ----------      ---------- ----------    ----------  ----------
   <S>                    <C>        <C>          <C>         <C>             <C>        <C>           <C>         <C>
    Wireless             $7,581,383     85.5%    $5,686,909      95.9%       $15,031,276    86.6%     $11,108,757     95.1%
    Other products          396,876      4.5         35,483       0.6            710,602     4.1           55,710      0.5
    Credit card             357,314      4.0         30,760       0.5            594,093     3.4           48,392      0.4
    Long distance           196,382      2.2         94,241       1.3            363,487     2.1          178,052      1.5
    Fees                    144,325      1.6         42,729       0.7            302,858     1.7           67,848      0.6
    Service bureau          111,865      1.3         29,090       0.5            257,288     1.5           40,190      0.4
    Miscellaneous            82,313      0.9         31,624       0.5             98,684     0.6          178,926      1.5
                          ---------    -----      ---------     -----         ----------   -----       ----------   ------
           Totals        $8,870,458    100.0%    $5,930,836     100.0%       $17,358,288   100.0%     $11,677,875   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.

     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.


                                      -14-
<PAGE>


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.  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.  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 will begin 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  27.6% for the three months ended June
30, 2004 and 25.3% for the  comparable  period in 2003. For the six months ended
June 30, 2004 and 2003, our profit  margins were 72.6% and 74.8%,  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  4.2% for the three months ended
June 30,  2004 and 2.2% for the  comparable  period in 2003.  For the six months
ended June 30, 2004 and 2003, our margins after  commissions  and fees were 3.8%
and 2.4%, respectively.  In the second quarter of 2004, we recognized $80,000 in
software  license  fees for  service  bureau  customers  located  in France  and
Australia. These fees were paid in 2003 but were deferred until the requirements
for revenue  recognition  were met. The effects of this revenue were to increase
our margin by approximately  1.0% for the three-month period ended June 30, 2004
and .46% for the six-month period.  The remaining increase of approximately 1.0%
in our margin after  commissions and fees for the three and six-month periods in
2004 is  attributable  to increased  rental and other fees charged in 2004. Such
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
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


                                      -15-
<PAGE>


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
virtually no 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.

<TABLE>
<CAPTION>
                                                         For the          For the            For the
                                                      Quarter Ended    Quarter Ended      Quarter Ended
   Broker Model                                       June 30, 2004    March 31, 2004    December 31, 2003
   ------------                                       -------------    --------------    -----------------
   <S>                                                <C>              <C>               <C>
    Gross Qxpress terminal shipments                      1,627            1,478                 889
    Company cancellation of inactive terminals             (184)            (300)                 -
    Net Qxpress terminals shipped                         1,443            1,178                 889
    Qxpress terminals canceled                             (379)            (123)               (172)
                                                           -----            -----               -----
    Net Qxpress terminals placed                          1,064            1,055                 717
    Ending Qxpress terminals in service                   3,962            2,898               1,843
    LDC terminals in service                                183              248                 280
                                                            ---              ---                 ---
    Total terminals in service (1)                        4,145            3,146               2,123

    Average monthly net revenue per terminal                $24(3)           $34(3)              $39(4)
    Average monthly net revenue per terminal for
      terminals in service more than 90 days (2)            $33(3)           $45(3)              $46(4)

    Acquisition cost per broker units shipped              $126              $89                 $61
    Acquisition cost per total units shipped               $126              $69                 $34
    Cash cost per unit in service (excluding acquisition)    $6               $8                 $10

   Service Bureau Model
   --------------------
    Terminals shipped                                         -              453                 625
    Terminals canceled                                        -               -                   -
    Net terminals placed                                      -              453                 625
    Total terminals in service                            1,462            1,462               1,009

    Average monthly net revenue per terminal (4)             $6               $4                  $4
    Average monthly net revenue per terminal for
      terminals in service more than 90 days (4)             $8               $8                  $9

    Blended average monthly net revenue per terminal        $22              $26                 $38

     (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) Excludes one-time revenues from terminal sales, installation fees, and license fees.
</TABLE>


     The exact timing 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
9,000-10,000  installed broker units plus 4,000-5,000  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 two models,  different combinations of these two in
service unit numbers will yield different cash flow break-even points.

     The VeriFone 3750 terminal adds another element to the break even analysis.
We anticipate that the majority of the VeriFone  terminals will be sold, meaning
we do not have the  capital  cost but will  also not  receive  rental  fees.  We
believe  the  monthly  net  revenues  for the  VeriFone  will be in the range of
$15-$20 per terminal.  When factoring a certain percentage of Verifone terminals
into  the  breakeven   analysis,   we  could  see  another  breakeven  point  at
approximately  9,000  broker  units in service  for our Qxpress  product,  2,000


                                      -16-
<PAGE>



VeriFone  units in  service  and 3,000  service  bureau  units in  service.  The
breakeven points again would likely be met after at least 90 days in service.

     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.

     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 five new
sales  personnel.  We  anticipate  adding more sales  personnel  in the next six
months.  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
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.


                                      -17-
<PAGE>


     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 June 30, 2004, we had an accumulated  net operating loss for federal and
state corporate income tax purposes of approximately $13.8 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.

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             Six Months
                                          Ended June 30,         Ended June 30,
                                        ---------------         ---------------
                                        2004       2003         2004       2003
                                        ----       ----         ----       ----
   Revenues                            100.0%     100.0%       100.0%     100.0%
   Cost of goods sold                   72.4       74.7         72.6       74.8
                                        ----       ----         ----       ----
   Gross profit                         27.6       25.3         27.4       25.2
   Commissions and fees                 23.4       23.1         23.6       22.8
   Selling expenses                      1.8        1.4          1.7        1.5
   General and administrative expenses   7.2        6.4          8.2        7.6
   Depreciation and amortization         4.7        3.2          4.7        3.0
   Non-cash compensation                 0.0        0.3          0.0        0.4
                                         ---        ---          ---        ---
   Loss from operations                 (9.5)      (9.1)       (10.8)     (10.1)
   Other income (expense) - net         (0.4)     (10.2)        (2.0)      (6.3)
                                        -----     ------        -----      -----
   Net loss                             (9.9)     (19.3)       (12.8)     (16.4)
                                        -----     ------       ------     ------


                                      -18-
<PAGE>


     Three months ended June 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 June 30,       Increase (Decrease)
                                            ---------------------------       -------------------
                                                  2004           2003             $           %
                                                  ----           ----             -           -
        <S>                                 <C>            <C>              <C>           <C>
        Revenues                            $  8,870,458   $  5,930,836     $ 2,939,622     49.6%
        Cost of goods sold                     6,425,999      4,427,377       1,998,622     45.1
                                              ----------     ----------       ---------    -----
        Gross profit                           2,444,459      1,503,459         941,000     62.6
        Commissions and fees                   2,079,983      1,369,569         710,414     51.9
        Selling expenses                         156,751         81,257          75,494     92.9
        General and administrative expenses      642,987        379,553         263,434     69.4
        Depreciation and amortization            417,559        191,871         225,688    117.6
        Non-cash compensation                         -          21,666         (21,666)  (100.0)
                                              ----------     ----------       ---------    -----
        Total operating expense                3,297,280      2,043,916       1,253,364     61.3
        Loss from operations                    (852,821)      (540,457)       (312,364)   (57.8)
        Other income (expense) - net             (30,118)      (605,855)        575,737     95.0
                                              ----------     ----------       ----------   -----
        Net loss                            $   (882,939)  $ (1,146,312)    $   263,373     23.3%
                                              ----------     ----------       ----------   -----
</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 second  quarter  revenues  were the  highest in our  history  and
represent  nearly a 5%  increase  from the first  quarter  of 2004,  in which we
reported our previous high. We expect the following factors to positively impact
revenues in 2004: i) continuing to increase our installed base of terminals;  2)
our  expanded  sales  force  that  will be in place  for much of 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 June
30, 2004 as percentage of revenues was 72.4% compared to 74.7% in the comparable
period in 2003.  Changes in cost of goods sold as a  percentage  of revenues are
attributable  to our mix of  sales.  Wireless  products  generally  carry  lower
discounts  than long distance and other  products.  In 2004,  wireless  revenues
represented  85.5% of  revenues  compared to 95.9% in 2003.  In the  future,  we
expect our gross margin to  fluctuate  as our product mix changes,  our level of
fees charged and as 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.

     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 June 30, 2004 were higher than the comparable period in 2003 due to
the increase in revenues.  Also, a portion of the decrease 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  $7,600 in 2004 compared to $45,000 in 2003. These fees have
been  consistently in the range of 1% of gross revenues  processed  through that
system.  Since most of our revenue growth will come from transactions  generated
by the new Qxpress 200  terminal,  these  expenses  are not expected to increase
from their current level in terms of absolute  dollars and will likely  continue
to decrease as existing customers are transitioned to our new terminal.

     Selling expenses. Selling expenses for the three months ended June 30, 2004
increased by  approximately  $75,000 when  compared to 2003.  This increase is a
result  of  adding  five 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  placed 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 $265,000 during the second quarter of 2004 compared to the same
period in 2003. As a percentage of revenues, such expenses were 7.2% of revenues
2004 and 6.4% of revenues in 2003. The increase can be attributed to a number of
factors.  Our general and  administrative  salaries  and  benefits  increased by
$100,000 for the three months  ended June 30, 2004 when  compared to 2003.  This
increase  is due to  approximately  $30,000  higher  base  salary  costs in 2004
compared to 2003,  an accrual of $17,500  toward a team bonus program which will
be paid  according  to our  performance  during  2004,  an  increase in employee
benefit  costs  of  $15,000  and to  $25,000  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


                                      -19-
<PAGE>


Directors' fees and expenses and Directors and Officers insurance  ($45,000) and
an  increase  in  professional  services  such as  legal,  accounting,  investor
relations  and  consulting  fees  ($105,000).   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 June 30, 2004  increased by  approximately  $225,000 when
compared to 2003. These increases are attributable primarily to the amortization
of  software  development  costs and to  higher  depreciation  expenses  from 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 quarter of 2004 compared to the same period in 2003. As we
continue to amortize software  development  costs and we increase  significantly
the number of Qxpress 200  terminals  in  service,  we expect  depreciation  and
amortization 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 June 30,  2004 and 2003 were  $30,000  and
$605,000,  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,  $520,000 for the three months ended June 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 second quarter of 2004.  Presently,  our
debt  consists  of a  $250,000  note to our  former  CEO and  $48,000 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 June 30, 2004 we had operating loss carryforwards of
approximately $13.8 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.

     Six months ended June 30, 2004 and 2003

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

<TABLE>
<CAPTION>
                                               Six Months Ended June 30,       Increase (Decrease)
                                               -------------------------       -------------------
                                                  2004            2003             $           %
                                                  ----            ----             -           -
         <S>                                   <C>           <C>               <C>          <C>
         Revenues                            $ 17,358,288   $ 11,677,875     $ 5,680,413     48.6%
         Cost of goods sold                    12,600,527      8,735,876       3,864,651     44.2
                                               ----------     ----------       ---------    ------
         Gross profit                           4,757,761      2,941,999       1,815,762     61.7
         Commissions and fees                   4,104,890      2,668,082       1,436,808     53.9
         Selling expenses                         299,448        175,063         124,385     71.1
         General and administrative expenses    1,425,626        890,236         535,390     60.1
         Depreciation and amortization            816,750        351,038         465,712    132.7
         Non-cash compensation                         -          43,332         (43,332)  (100.0)
                                               ----------     ----------       ---------    ------
         Total operating expense                6,646,714      4,127,751       2,518,963     61.0
         Loss from operations                  (1,888,953)    (1,185,752)       (703,201)   (59.3)
         Other income (expense) - net            (340,485)      (733,064)        392,579     53.6
                                               ----------     ----------       ----------   ------
         Net loss                            $ (2,229,438)  $ (1,918,816)    $   310,622     16.2%
                                               ----------     ----------       ---------    ------
</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 $5,680,413  represents a 48.6% increase for the first
six months of 2004 compared to 2003.

     Cost of goods  sold.  Our cost of goods sold for the six months  ended June
30, 2004 as percentage of revenues was 72.6% compared to 74.8% in the comparable
period in 2003.  Changes in cost of goods sold as a  percentage  of revenues are
attributable  to our mix of  sales.  Wireless  products  generally  carry  lower
discounts  than long distance and other  products.  In 2004,  wireless  revenues
represented 86.6% of revenues  compared to 95.1% in 2003.

     Commissions  and fees.  Commissions  and fees for the six months ended June
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


                                      -20-
<PAGE>


paid to LDC for  transactions  processed  through the LDC terminals.  These fees
were approximately  $20,000 in 2004 compared to $90,000 in 2003. These fees have
been  consistently in the range of 1% of gross revenues  processed  through that
system.  Since most of our revenue growth will come from transactions  generated
by the new Qxpress 200  terminal,  these  expenses  are not expected to increase
from their current level in terms of absolute  dollars and will likely  continue
to decrease as existing customers are transitioned to our new terminal.

     Selling  expenses.  Selling expenses for the six months ended June 30, 2004
increased by  approximately  $125,000 when compared to 2003.  This increase is a
result  of  adding  five 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  1.7% of revenue in 2004 compared to 1.5% of
revenue in 2003.

     General and administrative.  General and administrative  expenses increased
by  approximately  $535,000  during the first half of 2004  compared to the same
period in 2003. As a percentage of revenues, such expenses were 8.2% of revenues
2004 and 7.6% of revenues in 2003. The increase can be attributed to a number of
factors.  Our general and  administrative  salaries  and  benefits  increased by
$275,000  for the six months  ended June 30, 2004 when  compared  to 2003.  This
increase is due approximately  $25,000 higher base salary costs in 2004 compared
to 2003,  an accrual of $150,000  toward a team bonus program which will be paid
according to our performance  during 2004, an increase in employee benefit costs
of  $50,000  and to $50,000  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  ($65,000) and an increase in
professional  services  such  as  legal,  accounting,   investor  relations  and
consulting fees ($200,000).

     Depreciation and amortization.  Depreciation and amortization  expenses for
the six months ended June 30, 2004  increased  by  approximately  $465,000  when
compared to 2003. These increases are attributable primarily to the amortization
of  software  development  costs and to  higher  depreciation  expenses  from 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 half of 2004 compared to the same period in 2003.

     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 six  months  ended  June 30,  2004 and 2003 were  $340,000  and
$735,000,  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 half of 2004 and $610,000  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 July 2004 we raised $2.4 million in cash from a private placement of our
stock to  existing  investors.  We sold a total of  600,000  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 June
30, 2004, we have paid for approximately  4,000 new 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.

     As of June 30, 2004, we had working capital of approximately  $3.16 million
and a working  capital  ratio of 3.1 to 1. The  funding we received in July 2004
further strengthened these ratios.


                                      -21-
<PAGE>


     Existing  commitments  for  cash  in 2004  include  another  6,500  Qxpress
terminals in the amount of $1.8 million,  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 $45,000. We anticipate that our inventory of PINs, which was $1.74
million at June 30, 2004, will continue to grow as our business expands.  Due to
the  short  order  time  required  for these  products,  we are able to keep our
inventory in the range of 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 end of 2004.

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.

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 May 13, 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  $32,000  remained
uncollected at June 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.



                                      -22-
<PAGE>


Item 2. Changes in Securities and Use of Proceeds

Recent Sales of Unregistered Securities.


On July 9,  2004,  we entered  into a private  placement  transaction  with four
existing  shareholders  of the Company in the amount of $2,400.000.  Pursuant to
the private  placement,  we issued  600,000  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 $2,400,000,  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,  the we  completed  the  acquisition  of the assets of Point De
Vente Inc, a distributor of prepaid wireless products based in Montreal, Quebec,
Canada.  The Company paid delivered  12,127 shares of its common stock valued at
$4.12 per share.  The Company also assumed the liabilities of the Point De Vente
Inc and agreed to provide a cash infusion of approximately  $400,000 for working
capital.

Item 4. Submission of Matters to a Vote of Security Holders

On May 27,  2004 at 2:00 p.m.,  we held an Annual  Meeting of  Shareholders,  at
which at least a majority of the shares  entitled to vote were present,  for the
purpose of considering and acting upon the following matters:

1. To elect six  directors to serve for a one-year term that expires at the 2005
Annual Meeting of Shareholders and until their successors have been duly elected
and  qualified.  The  breakdown of the votes cast with respect to the  foregoing
matter is a follows:

FOR                            AGAINST                         ABSTAIN
---                            -------                         -------

3,184,699                         -                            11,927


2. To approve the adoption of the Q Comm 2004 Stock Option Plan.  The  breakdown
of the votes cast with respect to the foregoing matter is a follows:

FOR                            AGAINST                         ABSTAIN
---                            -------                         -------

1,102,813                      112,971                         10,577

3. To ratify the  appointment  of  Pritchett,  Siler & Hardy,  P. C. as Q Comm's
independent  auditors for the current  fiscal year.  The  breakdown of the votes
cast with respect to the foregoing matter is a follows:

FOR                            AGAINST                         ABSTAIN
---                            -------                         -------

3,124,845                       65,361                          6,420


No other matter was submitted to a vote of our shareholders at this meeting.




                                      -23-
<PAGE>


Item 6. Exhibits and Reports on Form 8-K

a. Exhibits:

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

  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.

b. Reports on Form 8-K:

On May 10, 2004, we filed a current report a form 8-K under items 5 and 7.







                                      -24-
<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   July 30, 2004                            /s/Terry D. Kramer
       -------------                            ------------------
                                                Terry D. Kramer
                                                Chief Executive Officer

Date   July 30, 2004                            /s/ Michael K. Openshaw
       --------------                           -----------------------
                                                Michael K. Openshaw
                                                Chief Financial Officer
                                                (Principal Accounting Officer)








                                      -25-