**SECURITIES
        AND EXCHANGE COMMISSION**
 
 Washington,
        D.C. 20549
 
 **FORM
        10-Q**
 
 **QUARTERLY
        REPORT UNDER SECTION 13 OR 15(d)**
 **OF
        THE SECURITIES EXCHANGE ACT OF 1934**
 **FOR
        THE QUARTERLY PERIOD ENDED** **SEPTEMBER
        30, 2006**
 
 Commission
        File Number 001-31718
 
 **Q
        COMM INTERNATIONAL, INC.**
 (Exact
        name of registrant as specified in its charter)
  Utah
              87-0674277(State
                  or other jurisdiction of incorporation or organization)
              (I.R.S.
                  Employer Identification No.)
 
 510
        East Technology Avenue, Building C, Orem, Utah 84097
 (Address,
        including zip code, of principal executive office)
 
 (801)
        226-4222
 (Registrant’s
        telephone number, including area code)
 
 Indicate
        by check mark whether the registrant (1) has filed all reports required to
        be
        filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
        the
        preceding 12 months (or for such shorter period that the registrant was required
        to file such reports), and (2) has been subject to such filing requirements
        for
        the past 90 days.
 
 Yes
              |
                  X
                  |
              No
              |__|
 
 Indicate
        by check mark whether the registrant is a large accelerated filer, an
        accelerated filer, or a non-accelerated filer. See definition of “accelerated
        filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check
        one):
 
 Large
                  accelerated filer |__|
              Accelerated
                  filer |__|
              Non-accelerated
                  filer | X |
 
 Indicate
        by check mark whether the registrant is a shell company (as defined in Rule
        12b-2 of the Exchange Act).
 
 Yes
              |__|
              No
              |
                  X
                  |
  Number
        of
        shares outstanding of each of the issuer's classes of common stock, as of
        the
        latest practicable date: As of September [ ], 2006, 6,914,795 shares of the
        issuer’s common stock were outstanding.
   
  
 **Q
        COMM INTERNATIONAL, INC.**
 **QUARTERLY
        REPORT ON FORM 10-Q**
 
 SEPTEMBER
        30, 2006
 
 **TABLE
        OF CONTENTS**
 
 
 
 **PAGE**PART
                  I
              FINANCIAL
                  INFORMATIONItem
                  1.
              Financial
                  Statements
              3Unaudited
                  Condensed Consolidated Balance Sheets as of
                  September 30, 2006 and December 31, 2005
              3Unaudited
                  Condensed Consolidated Statements of Operations and
                  Comprehensive Loss for the Three and Nine Months Ended September
                  30, 2006
                  and 2005
              4Unaudited
                  Condensed Consolidated Statements of Cash Flows for
                  the Nine Months Ended September 30, 2006 and 2005
              5Notes
                  to Unaudited Condensed Consolidated Financial
                  Statements
              6Item
                  2.
              Management's
                  Discussion and Analysis of Financial Condition
                  and Results of Operations
              16Item
                  3.
              Quantitative
                  and Qualitative Disclosures About Market
                  Risk
              26Item
                  4.
              Controls
                  and Procedures
              26PART
                  II
              OTHER
                  INFORMATIONItem
                  1.
              Legal
                  Proceedings
              27Item
                  1A.
              Risk
                  Factors
              27Item
                  4.
              Submission
                  of Matters to a Vote of Securities
                  Holders
              27Item
                  6.
              Exhibits
                  and Reports on Form 8-K
              28
 
 
 
 
  2
 Table
            of Contents
 
 **PART
        I - FINANCIAL INFORMATION**
 
 **Item
        1.Financial Statements**
 
 **Q
        COMMINTERNATIONAL, INC. AND SUBSIDIARIES**
 **UNAUDITED
        CONDENSED CONSOLIDATED BALANCE SHEETS**
 
 **September
                  30,**
              
              **December
                  31,****2006**
              
              **2005****ASSETS****Current
                  Assets:**Cash
                  and cash equivalents
              
              $
              2,375,152
              
              $
              3,806,904Trade
                  accounts receivable, net
              
              
              357,616
              
              
              638,725Inventory,
                  net
              
              
              1,044,781
              
              
              1,456,937Equipment
                  held for resale
              
              
              -
              
              
              610,000Prepaid
                  expenses
              
              
              19,821
              
              
              46,550**Total
                  Current Assets**
              
              
              3,797,370
              
              
              6,559,116**Property
                  and Equipment, net**
              
              
              579,358
              
              
              1,321,564**Other
                  Assets:**Restricted
                  cash
              
              
              326,107
              
              
              532,875Capitalized
                  software development costs, net
              
              
              104,976
              
              
              283,762Intangible
                  assets, net
              
              
              105,265
              
              
              24,000Deposits
              
              
              115,945
              
              
              162,432**Total
                  Other Assets**
              
              
              652,293
              
              
              1,003,069**Total
                  Assets**
              
              $
              5,029,021
              
              $
              8,883,749**LIABILITIES
                  AND STOCKHOLDERS’ EQUITY****Current
                  Liabilities:**Accounts
                  payable
              
              $
              797,840
              
              $
              909,231Accrued
                  expenses
              
              
              531,269
              
              
              463,974Notes
                  Payable
              
              
              300,000
              
              
              -Related
                  party obligation, net of unamortized discount of $106,700 and $0,
                  respectively
              
              
              607,300
              
              
              -Capital
                  lease obligations - current portion
              
              
              45,043
              
              
              390,906**Total
                  Current Liabilities**
              
              $
              2,281,452
              
              $
              1,764,111**Long
                  Term Liabilities:**Related
                  party obligation, net of unamortized discount of $0 and $223,216,
                  respectively
              
              
              -
              
              
              390,784Capital
                  lease obligations, net of current portion
              
              
              28,424
              
              
              32,297**Total
                  Long term Liabilities**
              
              
              28,424
              
              
              423,081**Total
                  Liabilities**
              
              
              2,309,876
              
              
              2,187,192**Commitments
                  and Contingencies (notes 7, 8, 9, and 12)****Stockholders’
                  Equity:**Common
                  stock, $0.001 par value; 50,000,000 shares authorized, 6,914,795
                  shares
                  outstanding
              
              
              6,915
              
              
              6,915Additional
                  paid-in capital
              
              
              35,623,632
              
              
              35,038,139Accumulated
                  deficit
              
              
              (32,969,619
              )
              
              (28,389,476
              )Accumulated
                  other comprehensive income
              
              
              68,985
              
              
              51,747Receivable
                  from shareholder
              
              
              (10,768
              )
              
              (10,768
              )**Total
                  Stockholders’ Equity**
              
              
              2,719,145
              
              
              6,696,557**Total
                  Liabilities and Stockholders’ Equity**
              
              $
              5,029,021
              
              $
              8,883,749
  The
        accompanying notes are an integral part of these unaudited condensed
        consolidated financial statements.
  3
 Table
            of Contents
 
 **Q
        COMMINTERNATIONAL, INC. AND SUBSIDIARIES**
 **UNAUDITED
        CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE
        LOSS**
 
 **For
                  the Three Months Ended**
              
              **For
                  the Nine Months Ended****September
                  30,**
              
              **September
                  30,****2006**
              
              **2005**
              
              **2006**
              
              **2005****SALES
                  AND REVENUE**Prepaid
                  PIN sales
              
              $
              11,734,369
              
              $
              11,493,411
              
              $
              35,786,093
              
              $
              32,063,160Prepaid
                  PIN fees
              
              
              404,882
              
              
              392,028
              
              
              1,186,826
              
              
              1,064,733Product
                  sales
              
              
              108,005
              
              
              659,626
              
              
              993,954
              
              
              686,006Processing
                  and other fees
              
              
              183,105
              
              
              237,029
              
              
              490,919
              
              
              768,148**Total
                  sales and revenue**
              
              $
              12,430,361
              
              $
              12,782,094
              
              $
              38,457,792
              
              $
              34,582,047**COST
                  OF SALES AND REVENUE**Cost
                  of prepaid PIN sales and fees
              
              
              10,465,699
              
              
              10,328,259
              
              
              31,706,654
              
              
              29,734,688Cost
                  of product sales
              
              
              28,969
              
              
              655,265
              
              
              916,338
              
              
              675,530Distribution
                  commissions and fees
              
              
              1,560,472
              
              
              1,565,298
              
              
              5,081,578
              
              
              5,732,601**Total
                  cost of sales and revenue**
              
              
              12,055,140
              
              
              12,548,822
              
              
              37,704,570
              
              
              36,142,819**Gross
                  Profit (Loss)**
              
              
              375,221
              
              
              233,272
              
              
              753,222
              
              
              (1,560,772
              )**OPERATING
                  EXPENSES**Selling
              
              
              355,972
              
              
              197,028
              
              
              1,086,838
              
              
              657,018General
                  and administrative
              
              
              1,156,560
              
              
              1,018,353
              
              
              3,410,217
              
              
              3,522,559Non-cash
                  compensation related to operations
              
              
              147,434
              
              
              -
              
              
              585,493
              
              
              -Depreciation
                  and amortization
              
              
              65,861
              
              
              46,550
              
              
              151,669
              
              
              135,385**Total
                  operating expenses**
              
              
              1,725,827
              
              
              1,261,931
              
              
              5,234,217
              
              
              4,314,962**Loss
                  from operations**
              
              
              (1,350,606
              )
              
              (1,028,659
              )
              
              (4,480,995
              )
              
              (5,875,734
              )**OTHER
                  INCOME (EXPENSE)**Interest
                  income
              
              
              2,520
              
              
              2,777
              
              
              10,021
              
              
              13,702Interest
                  and other expense
              
              
              (31,146
              )
              
              (93,652
              )
              
              (109,169
              )
              
              (136,087
              )Total
                  Other Income Expense, net
              
              
              (28,626
              )
              
              (90,875
              )
              
              (99,148
              )
              
              (122,385
              )**Net
                  Loss**
              
              $
              (1,379,232
              )
              $
              (1,119,533
              )
              $
              (4,580,143
              )
              $
              (5,998,119
              )**Basic
                  and Diluted Net Loss per Common Share**
              
              $
              (0.20
              )
              $
              (0.19
              )
              $
              (0.66
              )
              $
              (1.10
              )**Basic
                  and Diluted Weighted Average Common Shares
                  Outstanding**
              
              
              6,914,795
              
              
              5,914,794
              
              
              6,914,795
              
              
              5,450,703**OTHER
                  COMPREHENSIVE LOSS**Net
                  loss
              
              $
              (1,379,232
              )
              $
              (1,119,533
              )
              $
              (4,580,143
              )
              $
              (5,998,119
              )Foreign
                  currency translation adjustment, net of tax
              
              
              17,882
              
              
              10,243
              
              
              17,238
              
              
              37,920**Comprehensive
                  Loss**
              
              $
              (1,361,350
              )
              $
              (1,109,290
              )
              $
              (4,562,905
              )
              $
              (5,960,199
              )
 
 
 The
        accompanying notes are an integral part of these unaudited condensed
        consolidated financial statements.
  4
 Table
            of Contents
 
 **Q
        COMMINTERNATIONAL, INC. AND SUBSIDIARIES**
 **UNAUDITED
        CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS**
 
 **For
                  the Nine Months Ended****September
                  30,****2006**
              
              **2005****CASH
                  FLOWS FROM OPERATING ACTIVITIES**Net
                  loss
              
              $
              (4,580,143
              )
              $
              (5,998,119
              )Adjustments
                  to reconcile net loss to net cash used in operating
                  activities:Depreciation
                  and amortization
              
              
              1,230,373
              
              
              1,411,156Amortization
                  of discount on debentures and notes
              
              
              116,516
              
              
              100,553Provision
                  for doubtful accounts
              
              
              498,612
              
              
              103,847Loss
                  on disposal of property and equipment
              
              
              -
              
              
              6,444Handset
                  inventory adjustment
              
              
              -
              
              
              925,000Impairment
                  and write-off of terminals
              
              
              -
              
              
              1,266,704Loss
                  from PIN and handset inventory adjustments
              
              
              -
              
              
              18,454Non-cash
                  compensation related to options
              
              
              585,493
              
              
              -**Change in
                  operating assets and liabilities**Accounts
                  receivable
              
              
              (217,504
              )
              
              (374,160
              )Inventory
              
              
              412,156
              
              
              (99,946
              )Prepaid
                  expenses
              
              
              26,729
              
              
              141,595Accounts
                  payable
              
              
              (111,391
              )
              
              (740,064
              )Accrued
                  expenses
              
              
              67,297
              
              
              125,465Other
                  assets
              
              
              46,486
              
              
              2,739**Net
                  Cash Used in Operating Activities**
              
              
              (1,925,376
              )
              
              (3,110,332
              )**CASH
                  FLOWS FROM INVESTING ACTIVITIES**Change
                  in restricted cash
              
              
              206,768
              
              
              (25,295
              )Purchase
                  of intangible assets
              
              
              (150,395
              )
              
              56,003Purchase
                  of property and equipment
              
              
              (205,951
              )
              
              (847,689
              )Proceeds
                  from terminals held for sale
              
              
              610,000
              
              
              -Capitalized
                  software development costs
              
              
              (34,300
              )
              
              (128,571
              )**Net
                  Cash Used by Investing Activities**
              
              $
              426,122
              
              $
              (945,552
              )**CASH
                  FLOWS FROM FINANCING ACTIVITIES**Issuance
                  of common stock
              
              $
              -
              
              $
              4,375,653Proceeds
                  from notes and debentures
              
              
              400,000Proceeds
                  from issuance of related party notes payable and warrants
              
              
              -
              
              
              614,000Payments
                  on capital lease obligations
              
              
              (349,736
              )
              
              (367,169
              )**Net
                  Cash Provided by Financing Activities**
              
              
              50,264
              
              
              4,622,484Net
                  decrease in cash and cash equivalents
              
              
              (1,448,990
              )
              
              566,600Effect
                  of foreign-exchange-rate changes on cash
              
              
              17,238
              
              
              (29,219
              )Cash
                  and cash equivalents, beginning of year
              
              
              3,806,904
              
              
              773,052**Cash
                  and cash equivalents, end of year**
              
              $
              2,375,152
              
              $
              1,310,433**Supplemental
                  Disclosures of Cash Flow Information:**Cash
                  paid during the period for:Interest
              
              $
              158,388
              
              $
              (67,534
              )
 
 
 The
        accompanying notes are an integral part of these unaudited condensed
        consolidated financial statements.
  5
 Table
            of Contents
 
 **Q
        COMMINTERNATIONAL, INC. AND SUBSIDIARIES**
 **NOTES
        TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**
  NOTE
        1 -
        SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 
 *Basis
        of Presentation* - The
        accompanying unaudited condensed consolidated financial statements have been
        prepared in accordance with Generally Accepted Accounting Principles in the
        United States of America. However, certain information or footnote disclosures
        normally included in financial statements prepared in accordance with generally
        accepted accounting principles have been condensed or omitted pursuant to
        the
        rules and regulations of the Securities and Exchange Commission. In the opinion
        of management, the financial statements include all normal recurring adjustments
        that are necessary for the fair presentation of the results of the interim
        periods presented. Interim results are not necessarily indicative of results
        for
        the fiscal year. These financial statements should be read in conjunction
        with
        the Company’s audited financial statements for the year ended December 31, 2005,
        as set forth in the Company’s Annual Report on Form 10-K, filed with the
        Securities and Exchange Commission on March 31, 2006.
 
 *Nature
        of Business* - The
        Company’s business involves purchasing and reselling prepaid telecommunication
        and other products (PINs) through a proprietary electronic point-of-sale
        activation system known as Q Xpress. The Company provides its products to
        end
        users throughout the United States as well as Canada, France, the United
        Arab
        Emirates, and the Bahamas. The Company is headquartered in Orem, Utah.
        During 2004, the Company acquired Point de Vente (PDV), a company located
        in
        Quebec, Canada through the acquisition of 100% of its stock.
  *Consolidation* - The
        consolidated financial statements include the accounts of Q Comm International,
        Inc. and its wholly owned subsidiaries, Q Comm, Inc. and PDV. All intercompany
        balances and transactions have been eliminated in consolidation.
 
 *Accounting
        Estimates* - The
        preparation of financial statements in conformity with U.S. generally accepted
        accounting principles requires management to make estimates and assumptions
        that
        affect the reported amounts of assets and liabilities, the disclosures of
        contingent assets and liabilities at the date of the financial statements,
        and
        the reported amounts of revenues and expenses during the reporting periods.
        Actual results could differ from those estimates.
 
 Key
        estimates in the accompanying consolidated financial statements include,
        among
        others, allowances for doubtful accounts, allowances for obsolete inventory,
        impairments of long-lived tangible and intangible assets, and accruals for
        litigation and contingencies.
 
 *Definite-life
        intangible assets* -
        Definite-life intangible assets consist of the purchase of Sun Communication
        on
        February 13, 2006. The Company accounts for definite-life intangible assets
        in
        accordance with provisions of Statement of Financial Accounting Standards
“SFAS”
No. 142, “Goodwill and Other Intangible Assets”. Intangible assets acquired
        in a purchase business combination and determined to have an indefinite useful
        life are not amortized, but instead are tested for impairment at least annually
        in accordance with the provisions of SFAS No. 142. Impairment losses
        arising from this impairment test, if any, are included in operating expenses
        in
        the period of impairment. SFAS No. 142 requires that definite intangible
        assets with estimable useful lives be amortized over their respective estimated
        useful lives, and reviewed for impairment in accordance with SFAS No. 144,
        Accounting for Impairment or Disposal of Long-Lived Assets. Definite-life
        intangible assets are being amortized over a straight-line basis.
 
 *Net
        Loss Per Common Share* - The
        Company computes net loss per common share in accordance with Statement of
        Financial Accounting Standards No.128, “Earnings Per Share,” which requires the
        Company to present basic earnings per share and dilutive earnings per share
        when
        the effect of options and warrants is dilutive. Because the Company incurred
        losses of $1,379,232 and $1,119,533 for the three months ended September
        30,
        2006 and 2005, respectively, and $4,580,143 and $5,998,119 for the nine months
        ended September 30, 2006 and 2005, respectively, the effect of options, warrants
        and convertible notes, totaling 2,830,159 and 2,824,993 equivalent shares,
        respectively, has been excluded from the net loss per common share computation
        because its impact would be antidilutive.
 
  6
 Table
            of Contents
 
 *Realization
        of assets -* The
        accompanying consolidated financial statements have been prepared in conformity
        with accounting principles generally accepted in the United States of America,
        which contemplates continuation of the Company as a going concern. However,
        the
        Company sustained losses of $1,379,232 and $1,119,533 for the three months
        ended
        September 30, 2006 and 2005, respectively, and sustained losses of $4,580,143
        and $5,998,119 for the nine months ended September 30, 2006 and 2005,
        respectively. As of September 30, 2006, the Company has an accumulated deficit
        of $32,969,619. The Company used, rather than provided, cash in its operations
        in the amounts of $1,925,376 for the nine months ended September 30, 2006.
        At
        September 30, 2006, the Company had $2,375,152 of cash, $1,515,918 of working
        capital and $2,719,145 of stockholders’ equity. If the Company continues to
        incur losses or if operations continue to use cash at rates similar to the
        nine
        months ended September 30, 2006, the Company may not have sufficient cash,
        working capital or net assets to sustain its operations. These conditions
        raise
        substantial doubt about the Company’s ability to continue as a going concern.
  In
        view
        of the matters described in the preceding paragraph, the recoverability of
        a
        major portion of the recorded-asset amounts shown in the accompanying
        consolidated balance sheets is dependent upon the following:  continued
        operations of the Company, raising additional capital from investors,
        and succeeding in its future operations. The financial statements do not
        include any adjustments relating to the recoverability and classification
        of
        recorded-asset amounts or amounts and classification of liabilities that
        might
        be necessary should the Company be unable to continue as a going concern.
  Unless
        the Company can significantly increase the number of terminals in use, it
        will
        continue to incur losses for the foreseeable future. The Company plans to
        allocate a significant amount of working capital to sales and marketing in
        an
        attempt to increase the number of terminals in use as well as developing
        new
        products and services with higher profit margins. The Company also plans
        on
        raising additional capital in 2006 to meet its operating needs. There is
        no
        assurance that these plans will be successful.
 
 *Stock
        Options* - 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 9. Prior to January 1, 2006, the
        Company applied APB Opinion No. 25, “Accounting for Stock Issued to Employees”,
        and related Interpretations in accounting for awards made under the Company’s
        stock-based compensation plans. Under this method, compensation expense was
        recorded on the date of grant only if the current market price of the underlying
        stock exceeded the exercise price.
  During
        the periods presented in the accompanying financial statements, the Company
        has
        granted options under its 2000, 2003 and 2004 defined stock options plans.
        The
        Company has adopted the provisions of SFAS No. 123R using the
        modified-prospective transition method and the disclosures that follow are
        based
        on applying SFAS No. 123R. Under this transition method, compensation expense
        recognized during the three and nine months ended September 30, 2006 included:
        (a) compensation expense for all share-based awards granted prior to, but
        not
        yet vested as of January 1, 2006, and (b) compensation expense for all
        share-based awards granted on or after January 1, 2006. Accordingly,
        compensation cost of $147,434 and $585,493, respectively, has been recognized
        for grants of options to employees and directors in the accompanying statements
        of operations with no tax benefit for the nine month period ended September
        30,
        2006. In accordance with the modified-prospective transition method, the
        Company’s financial statements for the prior year have not been restated to
        reflect, and do not include, the impact of SFAS 123R. Had compensation cost
        for
        the Company's stock option plans and agreements been determined based on
        the
        fair value at the grant date for awards in 2005 consistent with the provisions
        of SFAS No. 123R, the Company's net loss and basic net loss per common share
        would have been increased to the pro forma amounts indicated below:
   7
 Table
            of Contents
 
 **For
                  the**
                **Three
                  Months Ended**
                **September
                  30, 2005**
              
              **For
                  the**
                **Nine
                  Months Ended**
                **September
                  30, 2005**Net
                  loss, as reported
              
              $
              (1,119,533
              )
              $
              (5,998,119
              )Plus
                  stock-based employee compensation expense included in reported
                  net loss,
                  net of related tax effects
              
              
              -
              
              
              -Less
                  stock-based employee compensation expense determined under
                  fair-value-based method for all awards, net of related tax
                  effects
              
              
              (443,558
              )
              
              (793,889
              )Pro
                  forma net loss
              
              $
              (
                  1,563,091
              )
              $
              (6,792,008
              )Basic
                  net loss per common share, as reported
              
              $
              (.19
              )
              $
              (1.10
              )Pro
                  forma net loss per common share
              
              $
              (.26
              )
              $
              (1.25
              )
 
 *Reclassifications* -
        Certain reclassifications to the 2005 amounts have been made to conform to
        the
        2006 presentation.
 
 *Recently
        Enacted Accounting Standards* -
        In
        February 2006, the FASB issued SFAS No. 155, *Accounting
        for Certain Hybrid Financial Instruments — an amendment of FASB
        Statements No. 133 and 140.* SFAS No. 155 resolves issues addressed in SFAS No. 133
        Implementation Issue No. D1, *Application
        of Statement 133 to Beneficial Interests in Securitized Financial
        Assets.* SFAS No. 155
        will become effective for the Company’s fiscal year after September 15,
        2006. The impact of SFAS No. 155 will depend on the nature and extent of
        any new
        derivative instruments entered into after the effective date.
 
 
 NOTE
        2 -
        PROPERTY AND EQUIPMENT
  The
        following is a summary of property and equipment:
 
 **September
                  30,**
              
              **December
                  31,****2006**
              
              **2005**Point-of-sale
                  terminals and related items - in service
              
              $
              2,344,748
              
              $
              1,821,225Office
                  and computer equipment
              
              
              718,328
              
              
              488,665Total
                  cost of depreciable equipment
              
              
              3,063,076
              
              
              2,309,890Accumulated
                  depreciation and amortization
              
              
              (2,498,283
              )
              
              (1,134,947
              )Property
                  and equipment in service, net
              
              
              564,793
              
              
              1,174,943Point-of-sale
                  terminals and related items - not placed in service
              
              
              14,565
              
              
              146,621Total
              
              $
              579,358
              
              $
              1,321,564
 
  8
 Table
            of Contents
 
 Point-of-sale
        terminals that are held by the Company as property and equipment will either
        be
        sold to customers or placed in service with the Company retaining ownership.
        The
        Company begins depreciating the terminals that it owns at the time they are
        shipped to the broker or retailer. Depreciation expense for the three months
        ended September 30, 2006, and 2005 was $242,792 and $199,943, respectively,
        and
        has been included in Cost of Prepaid PIN sales and fees. Depreciation expense
        for the nine months ended September 30, 2006, and 2005 was $908,437 and
        $666,971, respectively.
   NOTE
        3 -
        DEFINITE-LIFE INTANGIBLE ASSETS
 
 On
        February 16, 2006, the Company acquired certain assets from Sun
        Communications, including approximately 350 merchant locations and terminals
        for
        $150,000 in cash. In addition, the Company is obligated to pay an earn-out
        provision totaling up to $50,000 based on acceptance of certain performance
        criteria. The earn-out provision provides for a $15,000 prepayment to Sun
        Communications, which was paid in August 2006, and the remainder, if earned,
        to
        be paid in February 2007. As of September 30, 2006 the purchase price was
        allocated as follows:
 
 Terminal
                  equipment
              
              $
              14,605Customer
                  locations
              
              
              150,395Total
              
              $
              165,000Definite
                  life intangible assets consist of the following as of September
                  30,
                  2006:Customer
                  locations
              
              $
              150,395Less:
                  accumulated depreciation
              
              
              (45,130
              )Total
              
              $
              105,265
 
 The
        costs
        of these assets are being amortized over a two year estimated life. Amortization
        expense for the three months ended September 30, 2006 and 2005 amounted to
        $16,920 and $0, respectively. Amortization expense for the nine months ended
        September 30, 2006 and 2005 amounted to $45,130 and $0, respectively. The
        Company estimates amortization expense will be as follows for the years ended
        December 31,
 
 2006
              
              $
              65,8052007
              
              
              75,1962008
              
              
              9,394Total
              
              $
              150,395
   9
 Table
            of Contents
 
 NOTE
        4 -
        CAPITALIZED SOFTWARE DEVELOPMENT COSTS
  Information
        related to capitalized software development costs is as follows:
 
 Capitalized
                  software development costs, net, December 31, 2005
              
              $
              283,762Capitalized
                  software development costs, September 30, 2006
              
              
              2,664,060Accumulated
                  amortization
              
              
              (2,559,084
              )Capitalized
                  software development costs, net, September 30, 2006
              
              $
              104,976
 
 Of
        the
        balance of capitalized software development costs as of September 30, 2006,
        approximately $1,215,000 was paid to a third-party software development company
        and other outside entities. The remaining costs represent capitalized internal
        costs, which are primarily employee salaries and benefits, and related
        capitalized interest of approximately $100,000 that was recorded during the
        time
        the project was under development.
  The
        Company regularly tests capitalized software development costs for impairment
        in
        accordance with SFAS No.142. The Company uses the estimated future cash flows
        related to its capitalized software development costs and has determined
        that
        these costs were not impaired as of September 30, 2006. The Company amortizes
        capitalized software costs over a three-year period. During the three months
        ended September 30, 2006 and 2005, the Company recorded amortization expense
        of
        $10,098 and $212,415, respectively, and for the nine months ended September
        30,
        2006 and 2005, the Company recorded amortization expense of $213,086 and
        $636,940, respectively.
 
 
 NOTE
        5 -
        ACQUISITION
 
 On
        February 16, 2006, the Company acquired certain assets from Sun
        Communications, including approximately 350 merchant locations and terminals.
        These assets were purchased for $150,000 in cash paid on February 16, 2006.
        In addition, the Company is obligated to pay an earn-out provision totaling
        up
        to $50,000 based on acceptance of certain performance criteria. The earn-out
        provision provides for a $15,000 prepayment that was made to Sun Communications
        on August 10, 2006 and the remainder, if earned, is due February 2007.
 
 
 NOTE
        6 -
        NOTES PAYABLE
 
 In
        September 2006, the Company received $300,000 in cash from a major shareholder,
        and entered into a written agreement, dated September 8, 2006, setting forth
        the
        terms of the debt financing. This debt arrangement is evidenced by a note
        bearing interest at an annual rate of 7.5% and is payable in full on or before
        December 8, 2006.
 
  NOTE
        7 -
        RELATED PARTY OBLIGATIONS
 
 In
        September 2006, the Company received $100,000 in cash from a major shareholder,
        who is a member of the Board of Directors, and entered into a written agreement,
        dated September 8, 2006, setting forth the terms of the debt financing. This
        debt arrangement is evidenced by a note bearing interest at an annual rate
        of
        7.5% and is payable in full on or before December 8, 2006.
 
 In
        July
        2005, the Company received $614,000 in cash from a major shareholder, who
        at the
        time was the Company’s Chairman of the Board of Directors, and entered into a
        written agreement, dated July 11, 2005, setting forth the terms of the debt
        financing. This debt arrangement is evidenced by a note bearing interest
        at an
        annual rate of 5% and is payable in full on or before July 7, 2007. The
        Company issued to this shareholder/director a warrant to purchase 230,000
        shares
        of common stock that is exercisable for a period of five years at a price
        of
        $3.51 per share. The proceeds from the debt financing were allocated to the
        financial instruments issued, based upon their fair values, and resulted
        in an
        allocation of $315,240 to the note and $298,760 to the warrants.
 
  10
 Table
            of Contents
  
 The
        $298,760 fair value of the warrant was recorded as a discount against the
        note.
        For the three months ended September 30, 2006 and 2005, the Company recorded
        related party interest expense of $46,941 and $78,715 on the note, which
        includes $39,266 and $68,552 related to the amortization of the discount
        and
        $7,675 and $10,127 in accrued interest expense, respectively. For the nine
        months ended September 30, 2006 and 2005, the Company recorded related party
        interest expense of $139,541 and $78,715 on the note, which includes $116,516
        and $68,522 related to the amortization of the discount, and $23,025 and
        $10,127
        in accrued interest expense.
 
 
 NOTE
        8 -
        LEASE OBLIGATIONS
 
 Certain
        computer equipment and point-of-sale terminals are leased under capital lease
        arrangements and are presented in the accompanying consolidated balance sheet
        as
        property and equipment. At September 30, 2006, the total carrying cost of
        equipment that is held under capital leases and the related accumulated
        amortization was $82,183.
 
 As
        of
        September 30, 2006, total future minimum lease payments for capital leases,
        including interest and other costs, are as follows:
  **Year
                  Ending December 31:**2006
              
              $
              40,5492007
              
              
              10,6302008
              
              
              10,6302009
              
              
              10,6302010
              
              
              9,744Total
              
              
              82,183Less
                  interest and other costs
              
              
              (8,716
              )Present
                  value of future minimum lease payments
              
              
              73,467Less
                  current portion
              
              
              (45,043
              )Long-term
                  portion
              
              $
              28,424
  The
        Company has one capital lease arrangement and is required to maintain a letter
        of credit equal to 50% of the original lease amounts during the term of the
        lease. The Company secures the letter of credit with a restricted cash account
        at a financial institution, totaling approximately $189,000 at September
        30,
        2006.
 
 The
        Company is committed under non-cancelable operating leases for office space
        and
        office equipment. Rent expense paid for the three months ended September
        30,
        2006 and September 30, 2005 was approximately $58,823 and $36,314, respectively.
        Rent expense paid for the nine months ended September 30, 2006 and September
        30,
        2005 was approximately $171,649 and $96,974, respectively. The Company’s future
        minimum rental payments under operating leases at September 30, 2006 are
        as
        follows:
 **Year
                    Ending December 31:**2006
                
                $
                63,8352007
                
                
                239,2312008
                
                
                254,1822009
                
                
                121,4172010
                
                
                78,488Total
                
                $
                757,153
 
  11
 Table
            of Contents
 
 NOTE
        9 -
        LITIGATION AND CONTINGENCIES
  *Q
        Comm International, Inc. v. The Phone Store of Missouri, LLC and Kevin
        Montgomery* .
        In April 2005, the Company filed an action against a PIN provider, due to
        approximately $1 million in deactivated PINs that the Company received in
        the fourth quarter of 2004.  Subsequent to September 30, 2005, the Company
        determined that this obligation was approximately $1.5 million and
        includes, in addition to deactivated PINs, losses resulting from handsets
        paid for by the Company that were to be sold by the PIN
        provider.  The PIN provider agreed to sell the handsets in
        order to reimburse the Company for both the handset purchase
        price and the PIN losses.  However, the PIN provider did not
        reimburse the Company.  The Company is proactively taking the
        appropriate legal action to recover the amount due.  However, there is
        no assurance of repayment, and management recorded an allowance against the
        full
        amount of the receivable in the fourth quarter of 2004.
  
 NOTE
        10 -
        STOCK OPTIONS AND WARRANTS
 
 *Stock
        Options***-** The
        Company is authorized to issue stock options under three existing stock option
        plans approved by stockholders. The 2000 plan (133,333 shares), the 2003
        plan
        (100,000 shares) and the 2004 plan (1,000,000 shares) allow for up to 1,233,333
        shares to be issued under substantially similar terms. The fair value of
        each of
        the Company’s stock option awards is estimated on the date of grant using a
        Black-Scholes option-pricing model that uses the assumptions noted in the
        table
        below. The fair value of the Company’s stock option awards is expensed on a
        graded vesting straight-line basis over the vesting period of the options,
        which
        is generally between zero to three years. Expected volatility is based on
        an
        average of historical volatility of the company’s stock. The risk-free interest
        rate for periods within the contractual life of the stock option award is
        based
        on the yield curve of a zero-coupon U.S. Treasury bond on the date the award
        is
        granted with a maturity equal to the expected term of the award. The Company
        uses historical data to estimate forfeitures within its valuation model.
        The
        expected term of awards granted is derived from historical experience under
        the
        Company’s stock-based compensation plans and represents the period of time that
        awards granted are expected to be outstanding.
 
 The
        significant weighted average assumptions relating to the valuation of the
        Company’s stock options for the nine months ended September 30, 2006, and 2005,
        were as follows:
 
 **2006**
              
              **2005**Dividend
                  yield
              0%
              
              0%Expected
                  life
              10
                  years
              
              10
                  yearsExpected
                  volatility
              86%
              
              93%Risk-free
                  interest rate
              4.6%
              
              4.3%
 
 
 
 
 
 
 
  12
 Table
            of Contents
 
 A
        summary
        of the status of options granted as of September 30, 2006, and changes during
        the period then ended are as follows:
 
 **For
                  the Nine Months Ended**
                **September
                  30, 2006****Shares**
              
              **Weighted
                  Average Exercise Price**
              
              **Weighted
                  Average Remaining Contractual Term**
              
              **Aggregate
                  Intrinsic Value**Outstanding
                  at beginning of period
              
              
              637,334
              
              $
              4.72
              
              
              7.7
                  years
              
              
              0Granted
              
              
              163,000
              
              
              2.10Exercised
              
              
              -
              
              
              -Forfeited
              
              
              (48,958
              )
              
              4.30Expired
              
              
              (68,875
              )
              
              9.51Outstanding
                  at end of period
              
              
              682,501
              
              $
              3.65
              
              
              7.5
                  years
              
              $
              10,080Vested
                  and expected to vest in the future
              
              
              669,500
              
              $
              3.65
              
              
              7.5
                  years
              
              $
              10,080Exercisable
                  at end of period
              
              
              292,705
              
              $
              4.30
              
              
              6.9
                  years
              
              $
              1,820Weighted
                  average fair value of options granted
              
              
              163,000
              
              $
              1.80
 
 The
        Company had 465,003 non-vested options at the beginning of the period with
        a
        weighted average grant date fair value of $3.56. At September 30, 2006 the
        Company had 389,785 non-vested options with a weighted average grant date
        fair
        value of $2.72, resulting in unrecognized compensation expense of $442,880,
        which is expected to be expensed over a weighted-average period of 0.72 years.
 
 The
        total
        intrinsic value of options exercised during the nine months ended September
        30,
        2006 and 2005 was $0 and $21,800 respectively. Intrinsic value is measured
        using
        the fair market value at the date of exercise (for shares exercised) at
        September 30, 2006 and 2005 (for outstanding options), less the applicable
        exercise price.
 
 During
        the nine-month periods ended September 30, 2006 and 2005, the Company received
        $0 and $589,763 upon the exercise of awards. The Company realized no tax
        benefit
        due to the exercise of options as the Company had a loss for the period and
        historical net operating loss carry forwards.
 
 
 
 
 
 
 
 
 
  13
 Table
            of Contents
  
 *Warrants* - The
        Company has issued warrants to non-employees under various agreements expiring
        through November 2008. A summary of the status of warrants granted as of
        September 30, 2006, and changes during the period then ended is as follows:
 
 **For
                  the Nine Months Ended**
                **September
                  30, 2006****Shares**
              
              **Weighted
                  Average Exercise Price**Outstanding
                  at beginning of period
              
              
              2,148,659
              
              $
              8.61Granted
              
              
              -
              
              
              -Exercised
              
              
              -
              
              
              -Forfeited
              
              
              -
              
              
              -Expired
              
              
              (1,000
              )
              
              6.00Outstanding
                  at end of period
              
              
              2,147,659
              
              $
              8.61Exercisable
                  at end of period
              
              
              2,147,659
              
              $
              8.61
 
 A
        summary
        of the status of warrants outstanding at September 30, 2006 is presented
        below:
 
 **Options
                  Outstanding**
              
              **Options
                  Exercisable****Range
                  of Exercise Prices**
              
              **Number
                  Outstanding**
              
              **Weighted
                  Average Remaining Contractual Life**
              
              **Weighted
                  Average Exercise Price**
              
              **Number
                  Exercisable**
              
              **Weighted
                  Average Exercise Price**$3.51
              
              
              230,000
              
              
              0.34
                  years
              
              $
              3.51
              
              
              230,000
              
              $
              3.515.25
                  - 7.80
              
              
              358,095
              
              
              1.20
                  years
              
              
              6.82
              
              
              358,095
              
              
              6.829.75
              
              
              1,544,231
              
              
              1.71
                  years
              
              
              9.75
              
              
              1,544,231
              
              
              9.7511.25
                  - 13.50
              
              
              15,333
              
              
              0.94
                  years
              
              
              12.03
              
              
              15,333
              
              
              12.03$3.51
                  - $ 13.50
              
              
              2,147,659
              
              
              
              
              $
              8.61
              
              
              2,147,659
              
              $
              8.61
 
 At
        September 30, 2006, the Company had 1,265,000 outstanding warrants to purchase
        shares of common stock at $9.75 per share that were publicly
        traded.
 
 A
        summary
        of all stock options and warrants outstanding at September 30, 2006 is presented
        below:
 
 **Compensatory**
              
              **Non-Compensatory**
              
              **Total**Stock
                  options issued to employees and board members under stock option
                  plans
              
              
              669,166
              
              
              -
              
              
              669,167Stock
                  options issued to employees outside stock option plans
              
              
              13,334
              
              
              -
              
              
              13,334Total
              
              
              682,500
              
              
              -
              
              
              682,500Warrants
                  issued to non-employees
              
              
              330,000
              
              
              1,817,659
              
              
              2,147,660Total
                  options and warrants outstanding
              
              
              1,012,500
              
              
              1,817,659
              
              
              2,830,160
 
  14
 Table
            of Contents
  NOTE
        11 -
        CONCENTRATION OF REVENUES
 
 The
        Company's concentration of revenue by broker, product and MVNO for the three
        and
        nine months ended September 30, 2006 and 2005 included:
  **For
                  the Three Months Ended**
              
              **For
                  the Nine Months Ended****September
                  30,**
              
              **September
                  30,****2006**
              
              **2005**
              
              **2006**
              
              **2005**Top
                  Broker
              
              
              9.2%
              
              
              10.0%
              
              
              8.4%
              
              
              8.0%Wireless
                  Products
              
              
              94.6%
              
              
              90.6%
              
              
              93.6%
              
              
              93.0%Top
                  MVNO(1)
              
              
              32.0%
              
              
              34.2%
              
              
              32.5%
              
              
              35.7%
 
  (1)
        “MVNO” is defined as a “Mobile Virtual Network Operator”.
 
 
 NOTE
        12 -
        EMPLOYMENT AGREEMENTS
 
 The
        Company has an employment agreement with its President/CEO, which terminates
        on
        December 31, 2006. The agreement may be extended for successive one-year
        periods. If the Company terminates the agreement without cause, or if the
        President/CEO terminates the agreement for good reason, the President/CEO
        is
        entitled to receive the greater of one year’s salary, plus any target cash bonus
        he would be eligible to receive during that year or payment through the
        expiration date of the agreement. In addition, any stock options would vest
        immediately. The President/CEO was also granted an option to purchase 150,000
        shares of common stock at the $3.59 market price per share on the date of
        grant
        in January 2005. Subsequent to the employment agreement, the President/CEO
        was
        granted an option to purchase an additional 20,000 shares of common stock
        at the
        $3.30 market price per share on the date of grant in August 2005, and an
        additional 30,000 shares of common stock at the $2.22 market price per share
        on
        the date of grant in February 2006.
 
 The
        Company has an employment agreement with its Chief Financial Officer, which
        terminates on December 6, 2006. The agreement may be extended for
        successive one-year periods. If the Company terminates the agreement without
        cause, or if the CFO terminates the agreement for good reason, the CFO is
        entitled to receive the greater of one year’s salary, plus any target cash bonus
        he would be eligible to receive during that year or payment through the
        expiration date of the agreement. In addition, any stock options would vest
        immediately. The CFO was granted an option to purchase 60,000 shares of common
        stock at the $3.30 market price per share on the date of grant in August
        2005,
        and an additional 40,000 shares of common stock at the $2.22 market price
        per
        share on the date of grant in February 2006.
   NOTE
        13 -
        BUSINESS SEGMENT INFORMATION
 
 The
        Company predominately operates in the United States and Canada. During the
        three
        months ended March 31, 2006, the Company sold a total of 4,100 terminals to
        a customer in the United Arab Emirates. The Company currently has service
        bureau
        revenues from customers in the United Arab Emirates, France and the Bahamas,
        which has historically represented less then 1% of revenue. The following
        table
        represents the Company’s revenue by geographic segment for the three and nine
        months ended September 30, 2006 and 2005.
 
 **For
                  the Three Months Ended**
              
              **For
                  the Nine Months Ended****September
                  30,**
              
              **September
                  30,****2006**
              
              **2005**
              
              **2006**
              
              **2005**United
                  States
              
              $
              10,585,021
              
              $
              11,570,754
              
              $
              32,885,892
              
              $
              31,316,085Canada
              
              
              1,775,770
              
              
              1,106,022
              
              
              4,769,843
              
              
              3,086,424Other
              
              
              69,570
              
              
              105,318
              
              
              802,057
              
              
              179,538Total
              
              $
              12,430,361
              
              $
              12,782,094
              
              $
              38,457,792
              
              $
              34,582,047
 
 15
 Table
              of Contents
  **Item
        2. Management's Discussion and Analysis of Financial
        Condition and Results of Operations**
 
 *Pursuant
        to the “safe harbor” provisions of the Private Securities Litigation Reform Act
        of 1995, readers of this report are advised that this document contains both
        statements of historical facts and forward-looking statements. Forward-looking
        statements are subject to risks and uncertainties, which could cause our
        actual
        results to differ materially from those indicated by the forward-looking
        statements because of the risk factors that are identified in the Company’s most
        recent annual and quarterly report, as filed with the Securities and Exchange
        Commission . Examples of forward-looking statements include, but are not
        limited
        to, the following: (i) projections of revenues, income or loss, earnings
        per share, capital expenditures, dividends, capital structure and other
        financial items; (ii) statements regarding our plans and objectives,
        including product enhancements, or estimates or predictions of actions by
        customers, suppliers, competitors or regulatory authorities;
        (iii) statements of future economic performance; and (iv) statements
        of assumptions underlying other statements.*
  *Intention
          to Withdraw from Listing of* *Q* *Comm’s
          Shares of Common Stock On the American Stock Exchange and to Withdraw from
          Registration Such Common Stock with the U.S. Securities and Exchange
          Commission*
 
 Q
          Comm is
          in the process of withdrawing Q Comm's common stock from listing on the
          American
          Stock Exchange and of withdrawing its common stock from registration under
          the
          Securities Exchange Act of 1934, as amended, with the U.S. Securities and
          Exchange Commission.
 
 Q
          Comm's
          Board of Directors has decided to delist and deregister for the following
          reasons: (i) Q Comm wishes to eliminate the overly burdensome legal fees,
          accounting fees and other costs associated with being a public company;
          (ii) Q
          Comm wishes to free up more of its management team's time so that they
          can more
          keenly focus on making Q Comm profitable; and (iii) Q Comm does not have
          a
          sufficiently large number of shareholders of record to justify continuing
          as a
          listed and registered company.
 *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 financial
        statements and related notes, which are included herein.
 
 Q
        Comm’s
        business consists of the purchase and resale of a wide variety many types
        of
        prepaid telecommunication and other prepaid products and services using a
        proprietary electronic point-of-sale system called Q Xpress. Q Comm also
        supports VeriFone terminals and in the future, plans to support other
        third-party, commercially available terminals for merchant processing. The
        Q
        Xpress system includes either the Q Xpress 200 terminals, or one of a variety
        of
        third-party merchant processing terminals, a 24x7 data center, and a
        comprehensive transaction processing platform that manages, operates and
        maintains the system and that enables the terminals to communicate with the
        data
        center.
 
 We
        intend
        to expand our historical business while expanding our product line to include
        a
        broad range of other prepaid and financial products and services, and to
        provide
        transaction processing and information management services to other vendors
        of
        prepaid products, both in the United States and abroad. We are currently
        evaluating handset distribution and PIN wholesaling businesses. Both of these
        represent incremental opportunities to increase sales revenue with higher
        margins while continuing to expand our distribution network and add new brokers.
 
 The
        Q
        Xpress 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 potential
        problems, including loss, theft, inventory financing and management issues.
        The
        Q Xpress system can support the sale of a broad range of prepaid products
        in
        electronic format from a single terminal placed in convenience stores and
        other
        retail establishments. Using a terminal, a retail merchant can sell wireless
        telephone time, traditional long distance service or other telephone products,
        add value to a prepaid debit card, make electronic bill payments, and sell
        other
        prepaid products. In general, the prepaid products are sold in the form of
        personal identification numbers, or “PINs,” that the customer can use to add
        time to a prepaid cellular handset, make long distance calls or add funds
        to a
        debit card by calling the provider of the product and providing the PIN.
        The
        consumer pays for the product or service by paying the retail establishment
        in
        which the terminal is located. The terminal records the transaction and sends
        the relevant information to our data center where it is processed and accounting
        and transaction records are generated. Revenue from these purchases is divided
        among the retail merchant, the broker that placed the terminal with the retail
        merchant, the provider of the prepaid product, and Q Comm.
  Our
        system is designed to accommodate transactions involving virtually any prepaid
        product that can be delivered electronically. Within the prepaid transaction
        market, our initial focus has been on the telecommunications market. As a
        distributor of prepaid products in this market, we purchase PINs from national
        and regional telecommunication carriers and distribute these through our
        established network of retail outlets, such as convenience stores, wireless
        product stores, check cashing stores, grocery stores and discount stores.
        The
        prepaid transaction market is rapidly expanding into various types of
        non-telecommunications products, such as gift and loyalty cards, prepaid
        debit
        cards, bill payment and money transfer. In addition to distributing traditional
        telecommunication products, our system is currently used to provide many
        of
        these products as well.
 
 In
        the
        first quarter of 2004, we announced that we had modified our software to
        run on
        a VeriFone 3700 series terminal. We began beta testing in March 2004 and
        announced the commercial launch in the second quarter of 2004. This terminal
        is
        capable of providing both our prepaid application, which calls into our data
        center and functions much the same as our Q Xpress 200 terminal, and standard
        debit/credit card processing through the merchant’s processor for such
        transactions. The ability to offer our prepaid solution to the market through
        this alternative hardware option provides us with an opportunity to expand
        our
        market share. While the VeriFone terminal does not offer as many options
        as our
        Q Xpress terminal for selling prepaid products, it is an excellent solution
        for
        customers who prefer to have only one terminal in their retail establishment.
        In
        2006, we plan to further expand the devices through which we distribute prepaid
        products, such as additional debit/credit terminal models, and PC based
        point-of-sale systems. We believe that expanding the number of devices that
        can
        connect to our data center and sell prepaid products will provide access
        to
        additional customers and increased revenue in the future.
 16
 Table
              of Contents
 *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. Revenue is recognized on a “gross” basis for our prepaid
        products and a “net” basis for all consigned products. Commissions and fees paid
        to brokers and retailers are recorded as distribution commission and fees.
 
 Beginning
        in 2003, we began offering our service-bureau business model. Under this
        model,
        our customers license our data center software and purchase Q Xpress terminals
        from us. These customers are responsible for functions such as inventory
        management, product ownership, report generation, and ACH funds transfer.
        Our
        agreements with these customers also provide ongoing fees for software
        maintenance and transactions processed through their system. On an on-going
        basis, we expect service bureau to be a diminishing portion of our business
        as a
        percentage of total revenue.
  In
        2003,
        we began generating revenues from customers in Canada, France, the Bahamas,
        and
        Australia. In early 2006 we established a service bureau in the United Arab
        Emirates. Historically, revenues from international operations have, on average,
        accounted for less than 10% of annual revenues. For the three months ended
        September 30, 2006 international operations accounted for 14.8% of total
        revenue. The increase in international revenues was attributable to growth
        in
        Canadian operations, which for the three months ended September 30, 2006
        accounted for 14.3% of total revenues. For the nine months ended September
        30,
        2006, international sales accounted for 14.5% of total revenue. Canadian
        operations accounted for 12.4% of total revenue, the 4,100 terminals sold
        to a
        service bureau in the United Arab Emirates accounted for 1.6% of total revenue,
        and sales from other international service bureaus accounted for 0.5% of
        total
        revenue. Given that prepaid wireless is much more widely accepted in Europe,
        Asia and Latin America than it is in North America, we will continue to explore
        new international opportunities.
  The
        table
        below sets forth 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.
 
 
 **For
                  the three Months Ended**
              
              **For
                  the Three Months Ended****September
                  30, 2006**
              
              **September
                  30, 2005****Amount**
              
              **Percentage**
              
              **Amount**
              
              **Percentage**Prepaid
                  Wireless
              
              $
              11,763,871
              
              
              94.6%
              
              $
              11,575,939
              
              
              90.6%Terminal
                  Sales
              
              
              37,938
              
              
              0.3%
              
              
              659,626
              
              
              5.2%Prepaid
                  Long Distance
              
              
              316,039
              
              
              2.5%
              
              
              219,528
              
              
              1.7%Fees
              
              
              109,556
              
              
              0.9%
              
              
              139,827
              
              
              1.1%Service
                  Bureau
              
              
              73,447
              
              
              0.6%
              
              
              67,287
              
              
              0.5%Prepaid
                  Debit Card
              
              
              10,882
              
              
              0.1%
              
              
              28,701
              
              
              0.2%Bill
                  Pay
              
              
              27,754
              
              
              0.2%
              
              
              18,357
              
              
              0.1%Other
                  Revenue
              
              
              90,874
              
              
              0.8%
              
              
              72,829
              
              
              0.6%Total
              
              $
              12,430,361
              
              
              100.0%
              
              $
              12,782,094
              
              
              100.0%
 
 **For
                  the Nine Months Ended**
              
              **For
                  the Nine Months Ended****September
                  30, 2006**
              
              **September
                  30, 2005****Amount**
              
              **Percentage**
              
              **Amount**
              
              **Percentage**Prepaid
                  Wireless
              
              $
              35,980,711
              
              
              93.6%
              
              $
              32,154,545
              
              
              93.0%Terminal
                  Sales
              
              
              797,551
              
              
              2.1%
              
              
              686,006
              
              
              2.0%Prepaid
                  Long Distance
              
              
              813,253
              
              
              2.1%
              
              
              473,113
              
              
              1.4%Fees
              
              
              368,003
              
              
              1.0%
              
              
              408,567
              
              
              1.2%Service
                  Bureau
              
              
              122,813
              
              
              0.3%
              
              
              204,642
              
              
              0.6%Prepaid
                  Debit Card
              
              
              43,186
              
              
              0.1%
              
              
              137,867
              
              
              0.4%Bill
                  Pay
              
              
              70,141
              
              
              0.2%
              
              
              33,306
              
              
              0.1%Other
                  Revenue
              
              
              262,134
              
              
              0.6%
              
              
              484,001
              
              
              1.3%Total
              
              $
              38,457,792
              
              
              100.0%
              
              $
              34,582,047
              
              
              100.0%
 17
 Table
              of Contents
 *Prepaid
        wireless.* 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.
  *Terminal
        sales.* Terminal
        sales includes the sale of proprietary and third-party terminals.
 
 *Prepaid
        long distance.* Prepaid
        long distance revenue continues to be a focus of the Company. 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.
 
 *Fees* .
        Fee
        revenue is earned on terminal rentals and performance fees. Performance fees
        include fees charged when weekly rentals from a terminal fall below the
        agreed-upon minimum level and other miscellaneous fees. We are seeing increased
        pricing pressures and discounting with fees due to competitive factors. We
        anticipate that competition will continue to force lower fee revenue as a
        percentage of revenue in the future.
  *Service
        bureau.* We
        first
        began setting up service-bureau customers in 2003 and we acquired our
        service-bureau customer in Canada in July 2004. The overall service-bureau
        revenue model is diminishing as a percentage of total revenue, but provides
        higher margins than our traditional broker model since there are fewer direct
        costs to offset against the fee revenues.
 
 *Prepaid
        debit cards.* Prepaid
        debit cards represent a growing segment of our business. This product allows
        a
        user to load funds onto a stored value card that will then function the same
        as
        a typical debit card. We generate revenues by receiving a share of the load
        fee
        charged to the consumer. We currently offer two products that bear the
        MasterCard logo. We believe that the convenience of a stored value card for
        the
        cash-based consumer and increased market awareness of this product will result
        in increased revenues to us in the future.
 
 *Bill
        pay* .
        Bill
        Pay, or “walk-in payment services,” is a new product category for the Company
        and represents a growing segment of our business. Q Comm receives a transaction
        fee for each walk-in bill payment processed through its system.  By
        offering walk-in bill pay services through our network, we provide retailers
        with a growing revenue source and a means of attracting more store traffic,
        repeat customers and increasing customer loyalty.
 
 *Other
        revenue.* Other
        revenue includes thermal card, point-of-purchase materials, gift and loyalty
        card sales, wireless phone features, home dial tone, wholesale products and
        prepaid internet sales.
 
 *Analysis
        of Margins*
  Historically,
        our results of operations have been characterized by low-margin products.
        Under
        our broker model, we record the entire value of the transaction as revenues.
        Our
        cost of prepaid PIN sales and fees include the amount we pay for the product.
        Our cost of prepaid PIN sales and fees do not include the fees and commissions
        we pay the broker and the retailer who participated in the sale. Several
        of
        these key measures describing costs and margins are shown in the table below
        for
        the three and nine months ended September 30, 2006 and September 30, 2005.
  **Three
                  months ended**
              
              **Nine
                  months ended****September 30,**
              
              **September
                  30,****2006**
              
              **2005**
              
              **2006**
              
              **2005**Total
                  sales and revenue
              
              $
              12,430,361
              
              $
              12,782,094
              
              $
              38,457,792
              
              $
              34,582,047Cost
                  of prepaid PIN sales and fees
              
              
              10,465,699
              
              
              10,328,259
              
              
              31,706,654
              
              
              29,734,688Percentage
                  of revenue
              
              
              84.2%
              
              
              80.8%
              
              
              82.4%
              
              
              86.0%Cost
                  of product sales
              
              $
              28,969
              
              $
              655,265
              
              $
              916,338
              
              $
              675,530Percentage
                  of revenue
              
              
              0.2%
              
              
              5.1%
              
              
              2.4%
              
              
              2.0%Distribution
                  commissions and fees
              
              $
              1,560,472
              
              $
              1,565,298
              
              $
              5,081,578
              
              $
              5,732,601Percentage
                  of revenue
              
              
              12.6%
              
              
              12.2%
              
              
              13.2%
              
              
              16.6%Gross
                  Profit (Loss)
              
              $
              375,221
              
              $
              233,272
              
              $
              753,222
              
              $
              (1,560,772
              )Percentage
                  of revenue
              
              
              3.0%
              
              
              1.8%
              
              
              2.0%
              
              
              -4.5%Terminal
                  depreciation and software amortization
              
              $
              252,890
              
              $
              412,358
              
              $
              1,121,523
              
              $
              1,304,216Percentage
                  of revenue
              
              
              2.0%
              
              
              3.2%
              
              
              2.9%
              
              
              3.8%Specific
                  costs
              
              
              -
              
              
              250,000
              
              
              -
              
              
              530,005Percentage
                  of revenue
              
              
              0.0%
              
              
              2.0%
              
              
              0.0%
              
              
              1.5%Adjusted
                  gross profit excluding terminal depreciation and amortization,
                  and
                  specific costs
              
              $
              628,111
              
              $
              895,630
              
              $
              1,874,745
              
              $
              273,449Percentage
                  of revenue
              
              
              5.1%
              
              
              7.0%
              
              
              4.9%
              
              
              0.8%
 18
 Table
              of Contents
 The
        increase in gross profit from the three months ended September 30, 2006 to
        the
        comparable period in 2005 was primarily driven by the following: (i) a PIN
        inventory write-down of approximately $250,000 incurred for the three months
        ended September 30, 2005; (ii) reduced terminal depreciation and software
        amortization during 2006; and (iii) an increase in sale and revenue dollars
        of
        higher margin consigned products, which represented 3.3% and 3.4% of
        revenue for the three months ended September 30, 2006 and 2005, respectively;
        Alternatively, our gross profit percentage was negatively impacted by the
        following: (i) a reduction of our higher-margin fees and service bureau sales;
        and (ii) an increase in the cost of prepaid PIN sales and fees; and (iii)
        lower
        fees.
  The
        increase in gross profit from the nine months ended September 30, 2006 to
        the
        comparable period in 2005 was primarily driven by the following; (i) $1,266,704
        in terminal impairment and fixed asset write-down charges incurred during
        the
        three months ending June 30, 2005; (ii) a $280,005 charge incurred in the
        period
        ended March 31, 2005 for 9,000 handsets a vendor took possession of or sold
        and
        did not reimburse the Company; (iii) a PIN inventory write-down of approximately
        $250,000 incurred for the three months ended June 30, 2005; (iv) an increase
        in
        sale and revenue dollars of higher margin consigned products, which
        represented 3.1% and 3.1% of net revenue for the nine months ended September
        30,
        2006 and 2005, respectively; and iv)  reduced distribution commissions and
        fees. Alternatively, gross profit was negatively impacted by the reduction
        of
        our higher-margin fees and service bureau sales. Because of our thin margins,
        a
        minor change in the price that we pay for products has a substantial effect
        on
        our net income or loss if we are not able (or, in the case of price decreases,
        are 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. The amount of margin available to each
        participant in the distribution chain can be affected by various factors,
        such
        as the service provided, the risk assumed by the participant, and the volume
        and
        payment terms on which the participant can purchase product. Historically,
        we
        have purchased product from a reseller at a markup from the supplier price.
        As
        our business expands, we believe that there may be opportunities to increase
        margins by purchasing a greater percentage of our products 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 difficult to anticipate potential changes that may occur
        in
        the distribution chain. Thus, there is no assurance that we will be successful
        in realizing these opportunities.
  Substantially
        all of our revenues are collected through automated clearinghouse, or ACH,
        transactions initiated by us within 72 hours of the sale of the product.
        In an
        ACH transaction, funds are electronically transferred from the merchants’
accounts to our accounts. In most cases, our brokers are responsible for
        any
        unpaid ACH transactions from retailers, which reduces the risk of bad debt
        expense from our product sales through terminals. 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 -*
 
 Historically,
        we have monitored our business and measured our performance in a number of
        ways.
        Several of these key measures have included our adjusted average monthly
        revenue
        per transacting terminal and average monthly revenue per active terminal.
        There
        is considerable volatility associated with the average monthly revenue per
        active terminal measure and the Company believes measuring the number of
        terminals that completed a transaction over the prior thirty-day period (i.e.
        average monthly revenue per transacting terminal) is a better measure of
        performance. Below is a discussion of average monthly revenue per transacting
        and active terminal. Moving forward, the Company will use average revenue
        per
        transacting terminal as a key measure of performance.
 
 As
        of
        September 30, 2006, the Company had approximately 4,800 active terminals
        in the
        United States and Canada.  Of these 4,800 active terminals, approximately
        3,700 terminals in the United States and Canada completed a transaction over
        the
        prior thirty day period, representing approximately 77% of the total 4,800
        active terminals.  Of these 3,700 terminals, as of September 30, 2006,
        approximately 3,200 and 500 terminals in the United States and Canada completed
        a transaction over the prior thirty days, respectively.
 
 As
        shown
        in the table below, our average monthly revenue per transacting terminal
        decreased to $42 for the three months ended September 30, 2006, from $55
        for the
        three months ended June 30, 2006.  For the three months ended September 30,
        2006, our contribution margin was $ 475,628, a decrease of approximately
        $178,000 compared with the three months ended June 30, 2006. This decrease
        is
        primarily attributable to product mix impacts, increased PIN purchase rates,
        a
        reduction in sales per transacting terminal, and a reduction in the average
        number of transacting terminals.  Because of our thin margins, a minor
        change in the price that we pay for products has a substantial effect on
        our net
        income or loss if we are not able (or, in the case of price decreases, are
        not
        required) to pass the difference on to our customers. Alternatively, our
        average
        revenue per transacting terminal was favorably impacted by reduced distribution
        commissions and fees and an increase in the sale of consigned
        products.
 19
 Table
              of Contents
  We
          plan
          to improve our contribution margin through the following: (i) improving our
          economies of scale by increasing the sales of prepaid PIN products and
          fee
          sales; (ii) increasing sales of higher-margin financial services products;
          (iii) increasing sales of PINs by establishing more direct relationships
          with carriers; and (iv) improving the terms of pricing agreements with
          MVNOs and brokers.  In addition, the Company is currently evaluating
          handset distribution and wholesaling PIN businesses which would further
          improve
          our contribution margin.
 
 **Broker
                  Model:**
              
              **For
                  the Three Months Ended September 30, 2006**
              
              **For
                  the Three Months Ended June 30, 2006****(in
                  dollars, except for terminal figures)**Average
                  transacting terminals (1)
              
              
              3,738
              
              
              3,935**Average
                  monthly revenue per unit (ARPU) calculation:**Total
                  sales and revenue less product sales and service bureau
                  revenue
              
              
              12,248,909
              
              
              12,547,410Less
                  cost of prepaid PIN sales and fees, and distribution commissions
                  and fees,
                  excluding depreciation and amortization allocable to cost of sales,
                  specific charges, and contribution margin derived from business
                  outside
                  the United States
              
              
              11,773,281
              
              
              11,894,079Total
                  contribution margin
              
              
              475,628
              
              
              653,332**Average
                  monthly revenue per active terminal**
              
              
              **42**
              
              
              **55**
 
 
 (1)
              A
                  terminal is defined as transacting when it completed at least one
                  transaction in a U.S. or Canadian retail site during the month
                  of
                  September 2006.
 
 Our
        broker model revenues depend on the following factors: (i) number of
        terminals in service; (ii) average gross sales per terminal;
        (iii) 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”).
  Our
        strategy with average revenue per terminal is to focus our sales efforts
        on
        quality brokers and retail chains with established prepaid sales histories,
        maintain or better the pricing in our contracts with new brokers, gain better
        discounts from suppliers by securing direct relationships and buying larger
        quantities, and continue to charge rental and minimum performance fees on
        all
        terminals placed.
 
 *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 U.S.
        generally accepted accounting principles. 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 position and results of operations, and that require the most
        subjective judgment.
 
  20
 Table
            of Contents
 
 *Revenue
        recognition.* We
        use
        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, we sell our prepaid products through third-party retail locations.
        Revenue is recognized at the time products are sold. Sales of 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, categorized as “prepaid PIN sales” on the consolidated
        statements of operations and comprehensive loss, are accounted for at “gross”
since the Company meets the requirements specified by Securities and Exchange
        Commission Staff Accounting Bulletin No. 104 (SAB 104) and Emerging Issues
        Task
        Force Issue No. 99-19 (EITF 99-19).
 
 In
        cases
        where the Company does not own the product sold and another entity retains
        such
        risk and reward of product ownership or where certain other requirements
        of SAB
        104 or EITF 99-19 are not met, the Company records revenues on a “net” basis.
        Revenue recorded on a “net” basis is categorized as “prepaid PIN fees” on the
        consolidated statements of operations and comprehensive loss.
  We
        use
        the service-bureau model primarily with international customers; it is a
        diminishing part of our business. 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. We receive an ongoing transaction fee for all sales through
        the
        system, which is recorded on a “net” basis.
  *Cost
        of prepaid PIN sales and fees* .
        Cost of
        prepaid sales and fees ** consists
        primarily of the costs of the prepaid telecommunication and other miscellaneous
        products sold at retail and terminals sold to customers, depreciation on
        terminals in use and amortization expense on capitalized software. 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.
 
 During
        January 2005, a vendor sold or took possession of approximately 9,000 handsets
        without reimbursing the Company.  We expensed these missing handsets
        in the first quarter of 2005 and recorded a receivable from the vendor, and
        recorded a reserve totaling $285,000 during the three months ended June 30,
        2005. We are pursuing litigation against this vendor (see Item 3—“Legal
        Proceedings” for a more detailed discussion).
  *Cost
        of product sales.* Cost of
        product sales includes the cost of terminals sold.
 
 *Distribution
        commissions and fees.* Distribution
        commissions and fees include fees paid to brokers and other intermediaries
        and
        transaction processing fees paid to a third party.
 
 *Software
        development costs.* We
        capitalize software development costs incurred to develop certain of the
        Company’s products and services in accordance with Statement of Position 98-1,
“Accounting for the Costs of Computer Software Developed or Obtained for
        Internal Use” (SOP 98-1). Costs are capitalized only after the technological
        feasibility of the project has been established. In accordance with SFAS
        No.
        142, the Company has recorded its software development costs as a definite-lived
        intangible asset and is amortizing this asset over its three-year estimated
        useful life.
  *Stock
        options and warrants.* 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 10. Prior to January 1, 2006,
        the
        Company applied APB Opinion No. 25, “Accounting for Stock Issued to Employees”,
        and related Interpretations in accounting for awards made under the Company’s
        stock-based compensation plans. Under this method, compensation expense was
        recorded on the date of grant only if the current market price of the underlying
        stock exceeded the exercise price.
  During
        the periods presented in the accompanying financial statements, the Company
        has
        granted options under its 2000, 2003 and 2004 defined stock options plans.
        The
        Company has adopted the provisions of SFAS No. 123R using the
        modified-prospective transition method and the disclosures that follow are
        based
        on applying SFAS No. 123R. Under this transition method, compensation expense
        recognized during the three and nine months ended September 30, 2006 included:
        (a) compensation expense for all share-based awards granted prior to, but
        not
        yet vested as of January 1, 2006, and (b) compensation expense for all
        share-based awards granted on or after January 1, 2006 In accordance with
        the
        modified-prospective transition method, the Company’s financial statements for
        the prior year have not been restated to reflect, and do not include, the
        impact
        of SFAS 123R.
 
 *Income
        taxes.* At
        September 30, 2006, we had an accumulated net operating loss for federal
        and
        state corporate income tax purposes of approximately $20.1 million. Because
        our
        ability to use this net operating loss depends on our ability to earn future
        taxable income, and because management has determined that the deferred tax
        assets may not be realized, 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 depend, in
        part,
        on applicable tax laws in effect, our future earnings, and other future events,
        the effects of which cannot be determined. Our ability to use our accumulated
        net operating loss against future taxable income, if any, may cause our future
        reported earnings, if any, to be greater than they would be if fully taxable.
 
  21
 Table
            of Contents
 *Results
        of Operations*
 
 The
        following table sets forth statement of operations data as a percentage of
        revenues for the periods presented. The trends suggested by this table may
        not
        be indicative of future operating results. As noted earlier, these percentages
        may change substantially as a result of our implementation of different sales
        models and other factors.
 
 **For
                  the Three Months Ended**
              
              **For
                  the Nine Months Ended****September
                  30,**
              
              **September
                  30,****2006**
              
              **2005**
              
              **2006**
              
              **2005**Revenue
              
              
              100.0%
              
              
              100.0%
              
              
              100.0%
              
              
              100.0%Cost
                  of prepaid PIN sales and fees
              
              
              84.2%
              
              
              80.8%
              
              
              82.4%
              
              
              86.0%Cost
                  of product sales
              
              
              0.2%
              
              
              5.1%
              
              
              2.4%
              
              
              2.0%Distribution
                  commissions and fees
              
              
              12.6%
              
              
              12.2%
              
              
              13.2%
              
              
              16.6%Selling
                  expenses
              
              
              2.9%
              
              
              1.5%
              
              
              2.8%
              
              
              1.9%General
                  and administrative expenses
              
              
              9.3%
              
              
              8.0%
              
              
              8.9%
              
              
              10.2%Stock
                  based compensation
              
              
              1.2%
              
              
              0.0%
              
              
              1.5%
              
              
              0.0%Depreciation
                  and amortization
              
              
              0.5%
              
              
              0.4%
              
              
              0.4%
              
              
              0.4%Loss
                  from operations
              
              
              -10.9%
              
              
              -8.0%
              
              
              -11.7%
              
              
              -17.0%Other
                  Income (expenses) - net
              
              
              -0.2%
              
              
              -0.7%
              
              
              -0.3%
              
              
              -0.4%Net
                  loss before income taxes
              
              
              -11.1%
              
              
              -8.8%
              
              
              -11.9%
              
              
              -17.3%Provision
                  for income taxes
              
              
              0.0%
              
              
              0.0%
              
              
              0.0%
              
              
              0.0%Net
                  loss
              
              
              -11.1%
              
              
              -8.8%
              
              
              -11.9%
              
              
              -17.3%
  The
        following table presents our statements of operations, showing dollar and
        percentage changes from three and nine months ended September, 30 2006 to
        the
        comparable periods in 2005.
  **For
                  the Three Months Ended**
              
              
              
              **For
                  the Nine Months Ended****September
                  30,**
              
              **Increase
                  (Decrease)**
              
              **September
                  30,**
              
              **Increase
                  (Decrease)****2006**
              
              **2005**
              
              $
              
              %
              
              **2006**
              
              **2005**
              
              $
              
              %**Total
                  Sales and Revenues**
              
              $
              12,430,361
              
              $
              12,782,094
              
              $
              (351,733
              )
              
              -2.8%
              
              $
              38,457,792
              
              $
              34,582,047
              
              $
              3,875,745
              
              
              11.2%**Cost
                  of Sales and Revenue:**Cost
                  of prepaid PIN sales and fees
              
              
              10,465,699
              
              
              10,328,259
              
              
              137,440
              
              
              1.3%
              
              
              31,706,654
              
              
              29,734,688
              
              
              1,971,966
              
              
              6.6%Cost
                  of product sales
              
              
              28,969
              
              
              655,265
              
              
              (626,296
              )
              
              -95.6%
              
              
              916,338
              
              
              675,530
              
              
              240,808
              
              
              35.6%Distribution
                  commissions and fees
              
              
              1,560,472
              
              
              1,565,298
              
              
              (4,826
              )
              
              -0.3%
              
              
              5,081,578
              
              
              5,732,601
              
              
              (651,023
              )
              
              -11.4%**Total
                  Cost of Sales and Revenue**
              
              
              12,055,140
              
              
              12,548,822
              
              
              (493,682
              )
              
              -3.9%
              
              
              37,704,570
              
              
              36,142,819
              
              
              1,561,751
              
              
              4.3%**Gross
                  Profit (Loss)**
              
              
              375,221
              
              
              233,272
              
              
              141,949
              
              
              60.9%
              
              
              753,222
              
              
              (1,560,772
              )
              
              2,313,994
              
              
              -148.3%**Operating
                  Expenses:**Selling
              
              
              355,972
              
              
              197,028
              
              
              158,944
              
              
              80.7%
              
              
              1,086,838
              
              
              657,018
              
              
              429,820
              
              
              65.4%General
                  and administrative
              
              
              1,156,560
              
              
              1,018,353
              
              
              138,207
              
              
              13.6%
              
              
              3,410,217
              
              
              3,522,559
              
              
              (112,342
              )
              
              -3.2%Stock
                  based compensation
              
              
              147,434
              
              
              -
              
              
              147,434
              
              
              
              
              
              585,493
              
              
              -
              
              
              585,493Depreciation
                  and amortization
              
              
              65,861
              
              
              46,550
              
              
              19,311
              
              
              41.5%
              
              
              151,669
              
              
              135,385
              
              
              16,284
              
              
              12.0%**Total
                  operating expenses**
              
              
              1,725,827
              
              
              1,261,931
              
              
              463,896
              
              
              36.8%
              
              
              5,234,217
              
              
              4,314,962
              
              
              919,255
              
              
              21.3%**Loss
                  from operations**
              
              
              (1,350,606
              )
              
              (1,028,659
              )
              
              (321,947
              )
              
              31.3%
              
              
              (4,480,995
              )
              
              (5,875,734
              )
              
              1,394,739
              
              
              -23.7%Total
                  Other Expense, net
              
              
              (28,626
              )
              
              (90,875
              )
              
              62,249
              
              
              -68.5%
              
              
              (99,148
              )
              
              (122,385
              )
              
              23,237
              
              
              -19.0%**Net
                  Loss**
              
              $
              (1,379,232
              )
              $
              (1,119,533
              )
              $
              (259,698
              )
              
              23.2%
              
              $
              (4,580,143
              )
              $
              (5,998,119
              )
              $
              1,417,976
              
              
              -23.6%**Basic
                  and Diluted Net Loss per Common Share**
              
              $
              (0.20
              )
              $
              (0.19
              )
              $
              (0.01
              )
              
              5.4%
              
              $
              (0.66
              )
              $
              (1.10
              )
              $
              0.44
              
              
              -39.8%**Basic
                  and Diluted Weighted Average Common Shares
                  Outstanding**
              
              
              6,914,795
              
              
              5,914,794
              
              
              1,000,001
              
              
              16.9%
              
              
              6,914,795
              
              
              5,450,703
              
              
              1,464,092
              
              
              26.9%**Other
                  Comprehensive Income (Loss):**Net
                  loss
              
              $
              (1,379,232
              )
              $
              (1,119,533
              )
              $
              (259,698
              )
              
              23.2%
              
              $
              (4,580,143
              )
              $
              (5,998,119
              )
              $
              1,417,976
              
              
              -23.6%Foreign
                  currency translation adjustment
              
              
              17,882
              
              
              10,243
              
              
              7,639
              
              
              74.6%
              
              
              17,238
              
              
              37,920
              
              
              (20,682
              )
              
              -54.5%Comprehensive
                  Loss
              
              $
              (1,361,350
              )
              $
              (1,109,290
              )
              $
              (252,059
              )
              
              22.7%
              
              $
              (4,562,905
              )
              $
              (5,960,199
              )
              $
              1,397,294
              
              
              -23.4%
 22
 Table
            of Contents
 
 *Three
        and Nine Months Ended September 30, 2006 and 2005*
 
 *Sales
        and revenues* .
        Our
        sales and revenues decreased by approximately $352,000 for the three months
        ended September 30, 2006 relative to the comparable period in 2005, primarily
        due to approximately $549,000 in decreased terminal sales and revenues. Sales
        and revenues from other prepaid products, including fees and debit cards
        also
        decreased by approximately $30,000 and $17,000, respectively, for the three
        months ended September 30, 2006, relative to the comparable period in 2005.
        Alternatively, sales and revenue for wireless products, prepaid long distance,
        bill pay, service bureau and other revenue increased by approximately $188,000,
        $97,000, $9,000, $6,000 and $18,000, respectively, for the three months ended
        September 30, 2006, relative to the comparable period in 2005. Wireless products
        continue to be our dominant growth category, accounting for 94.6% and 90.6%
        of
        revenue for the three months ended September 30, 2006 and 2005,
        respectively.
 
 Our
        sales
        and revenues increased by approximately $3,876,000 for the nine months ended
        September 30, 2006, relative to the comparable period in 2005. This increase
        is
        primarily attributable to an increase in the number of terminals in the field.
        Sales and revenues from prepaid wireless products, prepaid long distance,
        terminals and bill pay increased by approximately $3,626,000, $340,000, $111,000
        and $36,000, respectively, for the nine months ended September 30, 2006,
        relative to the comparable period in 2005. Alternatively, sales and revenue
        for
        prepaid debit card, service bureau, fees and other revenue decreased by
        approximately $94,000, $81,000, $40,000 and $222,000, respectively, for the
        nine
        months ended September 30, 2006, relative to the comparable period in 2005.
 
 We
        expect
        the following factors to positively impact revenues for the remainder of
        2006
        and 2007: (i) a increase in our installed base of terminals; (ii) the
        addition of new means of product distribution, such as debit/credit card
        terminals and PC-based delivery of product; (iii) the addition of new
        products to our library, such as gift/loyalty cards and bill pay, and new
        vendors of existing products; and (iv) the anticipated continuing growth of
        the prepaid wireless market. While we believe that these factors will result
        in
        further revenue growth in 2006 and 2007, there is no assurance that they
        will.
 
 *Cost
        of prepaid PIN sales and fees* .
        Our
        cost of prepaid PIN sales and fees (including terminal depreciation and
        amortization) increased by approximately $137,000 for the three months ended
        September 30, 2006 relative to the comparable period in 2005. This increase
        was
        primarily attributable to an increase in prepaid PIN sales. As a percentage
        of revenues, our cost of prepaid PIN sales and fees (including terminal
        depreciation and amortization) was 84.2%, compared to 80.8% relative to the
        comparable period in 2005. This increase was primarily attributable to product
        mix shifts.
 
 Our
        cost
        of prepaid PIN sales and fees (including terminal depreciation and amortization)
        for the nine months ended September 30, 2006 increased by approximately
        $1,972,000 for the nine months ended September 30, 2006 relative to the
        comparable period in 2005. This increase was primarily attributable to an
        increase in prepaid PN sales. As a percentage of revenues, our cost of
        prepaid PIN sales and fees (including terminal depreciation and amortization)
        was 82.4%, compared to 86.0%, relative to the comparable period in 2005.
        This
        decrease was primarily attributable to the following: (i) $1,266,704 in terminal
        impairment and fixed asset write-down charges incurred during the three months
        ended June 30, 2005; (ii) a $280,005 charge incurred in the three months
        ended
        March 31, 2005 for 9,000 Nokia 3300 handsets that a vendor took possession
        of or
        sold but for which the vendor did not pay the Company; and (iii) a PIN inventory
        write-down of approximately $250,000 incurred for the three months ended
        June
        30, 2005.
  *Cost
        of product sales* .
        Our
        cost of product sales for the three months ended September 30, 2006 decreased
        by approximately $626,000, relative to the comparable period in 2005. As a
        percentage of revenues, our cost of product sales was 0.2%, compared to 5.1%,
        relative to the comparable period in 2005. Both of these decreases are
        attributable to reduced terminal sales during the three months ended September
        30, 2005.
  Our
        cost
        of product sales for the nine months ended September 30, 2006 increased
        approximately $241,000 relative to the comparable period in 2005. As a
        percentage of revenues, our cost of product sales was 2.4%, compared to 2.0%,
        relative to the comparable period in 2005. Both of these increases are primarily
        attributable to the sale of approximately 4,100 terminals to a service bureau
        customer in the United Arab Emirates.
 
 *Distribution
        commissions and fees* .
        These
        expenses are principally commissions paid to retailers and brokers for product
        sales through the Q Xpress terminals and are a fixed percentage of the product
        sales price. Commissions and fees for the three months ended September 30,
        2006
        decreased approximately $5,000, relative to the comparable period in 2005.
        As a
        percentage of revenues, distribution commissions and fees were 12.6% for
        the
        three months ended September 30, 2006, compared to 12.2% relative to the
        comparable period in 2005. This increase is primarily attributable to a
        shift in the mix between brokered and merchant sales.
 
  23
 Table
            of Contents
 
 Distribution
        commissions and fees for the nine months ended September 30, 2006 decreased
        by
        approximately $651,000, relative to the comparable period in 2005. As a
        percentage of revenue, distribution commissions and fees were 13.2% for the
        three months ended September 30, 2006, compared to 16.6%, relative to the
        comparable period in 2005. Both of these decreases are primarily attributable
        to
        a shift in our sales strategy from brokered sales to direct sales.
 
 *Margin.* After
        subtracting the cost of prepaid PIN sales and fees, the cost of product sales,
        and distribution commissions and fees paid to the brokers and retailers from
        revenue, we had margins (including terminal depreciation and software
        amortization expenses) of approximately (10.9)% for the three months ended
        September 30, 2006 and approximately (8.0)%, relative to the comparable period
        in 2005. This increase is primarily attributable to to product mix impacts,
        increased PIN purchase rates, a reduction in sales per transacting terminal,
        and
        a reduction in the average number of transacting terminals, and a reduction
        in
        higher-margin fees. Alternatively, our average revenue per transacting terminal
        favorably impacted by a PIN inventory write-down of approximately $250,000
        incurred for the three months ended September 30, 2005, reduced distribution
        commissions and fees, and an increase in the sale of consigned
        products.
 
 After
        subtracting cost of prepaid PIN sales and fees, cost of product sales, and
        distribution commissions and fees paid to the brokers and retailers from
        revenue, we had margins (including terminal depreciation and software
        amortization expenses) of approximately (11.7)% for the nine months ended
        September 30, 2006 and approximately (17.0)% relative to the comparable period
        in 2005. This increase is primarily attributable to the following: (i)
        $1,266,704 in terminal impairment and fixed asset write-down charges incurred
        during the three months ended June 30, 2005; (ii) a $285,000 charge incurred
        in
        the three months ended March 31, 2005 for 9,000 handsets a vendor took
        possession of or sold and did not pay the Company; (iii) a PIN inventory
        write-down of approximately $250,000 incurred for the three months ended
        June
        30, 2005; and (iv) reduced distribution fees. Alternatively, our margin
        percentage was negatively impacted by the reduction of our higher-margin
        consigned product sales, service bureau sales and fees.
  *Selling
        expenses* .
        Selling
        expenses increased by approximately $159,000 during the three months ended
        September 30, 2006, relative to the comparable period in 2005. This increase
        is
        primarily attributable to an increase in salaries and benefits expenses of
        approximately $122,000, an increase in travel expenses of approximately $24,000,
        and an increase in marketing material expense of approximately $24,000, which
        expenses are offset in part by a reduction in sales commissions of approximately
        $9,000 and a reduction of approximately $2,000 in other sales and marketing
        expenses.
  Selling
        expenses increased by approximately $430,000 during the nine months ended
        September 30, 2006, relative to the comparable period in 2005. This increase
        is
        primarily attributable to an increase in salaries and benefits expenses of
        approximately $395,000, an increase in travel expenses of approximately $48,000,
        and an increase in marketing material expense of approximately $33,000, which
        expenses are offset in part by a reduction in advertising expenses of
        approximately $30,000, a reduction in commission expense of approximately
        $28,000 and a reduction in other sales and marketing expenses of approximately
        $12,000.
 
 *General
        and administrative* .
        General
        and administrative expenses for the three months ended September 30, 2006
        increased by approximately $138,000, relative to the comparable period in
        2005.
        This increase is primarily attributable to the following: (i) an increase
        of
        approximately $65,000 in bad debt expense; (ii) an increase of approximately
        $45,000 in contract call center related expenses; (iii) an increase of
        approximately $40,000 in computer supplies; (iv) an increase of approximately
        $22,000 in rent expense; (v) an increase of approximately $13,000 in investor
        relations; (vi) an increase of approximately $13,000 in phone expenses; and
        (vii) and an increase of approximately $20,000 in other administrative expenses.
        These increases were offset in part by the following: (i) a decrease of
        approximately $35,000 in account fees; (ii) a decrease of approximately $28,000
        in contract labor and other professional fees; and (iii) a decrease of
        approximately $17,000 in travel expenses; and other administrative
        expenses.
 
 General
        and administrative expenses for the nine months ended September 30, 2006
        decreased by approximately $112,000, relative to the comparable period in
        2005.
        The decrease is primarily attributable to the following: (i) a decrease of
        approximately $237,000 in legal fees, (ii) a decrease of approximately $91,000
        in accounting fees; (iii) a decrease of approximately $69,000 in salaries
        and
        benefits; (iv) a decrease of approximately $35,000 in rent expense; (v) a
        decrease of approximately $31,000 in contract fees and other professional
        services; and (vi) a decrease of approximately $12,000 in other expenses. 
These decreases were offset in part by: (i) an increase of approximately
        $130,000 in contract call center related expenses; (ii) an increase of
        approximately $75,000 in rent; (iii) an increase of approximately $60,000
        in
        computer supplies; (iv) an increase of approximately $41,000 in phone-related
        expenses; (v) an increase of approximately $35,000 in bad debt expense; and
        (vi)
        an increase of approximately $22,000 in other administrative
        expenses.
 
  24
 Table
            of Contents
 
 *Stock-based
        compensation.* Stock-based compensation expense for the three months ended September 30,
        2006
        increased by approximately $147,434, relative to the comparable period in
        2005.
        Stock-based compensation expense for the nine months ended September 30,
        2006
        increased by approximately $585,493 relative to the comparable period in
        2005.
        The Company has adopted the provisions of SFAS No. 123(R) using the
        modified-prospective transition method based on SFAS No. 123(R). Under this
        transition method, compensation expense recognized during the three months
        ended
        September 30, 2006 included: (i) compensation expense for all share-based
        awards
        granted prior to, but not yet vested as of September 30, 2006, and (ii)
        compensation expense for all share-based awards granted on or after September
        30, 2006. Accordingly, compensation costs of approximately $147,434 and $585,493
        have been recognized for grants of options to employees and directors in
        the
        accompanying statements of operations for the three and nine months ended
        September 30, 2006, respectively, and no related expenses were recognized
        in the
        statement of operations for the comparable period in 2005.
 
 *Depreciation
        and amortization.* This
        category primary consists of depreciation of terminals and amortization of
        software development expenses. Depreciation and amortization expenses were
        approximately $252,890 and $412,358, for the three months ended September
        30,
        2006 and 2005, respectively. Depreciation and amortization expenses were
        approximately $1,121,523 and $1,304,216, for the nine months ended September
        30,
        2006 and 2005, respectively. Both these decreases are primarily attributable
        to
        lower amortization of capitalized software development costs and to higher
        depreciation expense from an increase in the number of terminals in service.
        We
        expect depreciation expense to increase as the number of terminals in service
        increases. We do not anticipate additional capitalized software development
        expense until Lipman and Ingenico terminals are deployed in the Q Xpress
        system.
 
 *Other
        income and expense-net* .
        This
        category consists primarily of interest income and expense on a related party
        note and capital lease obligations. For the three months ended September
        30,
        2006 and 2005, other income and expense-net was $28,626 and $90,875,
        respectively. For the nine months ended September 30, 2006 and 2005, other
        income and expense-net was $99,148 and $122,385, respectively. Both these
        decreases were primarily attributable to interest expense related to a warrant
        to purchase 230,000 shares of common stock that was issued to a majority
        shareholder, who at the time was the Company’s Chairman of the Board of
        Directors, in conjunction with a $614,000 loan that such major
        shareholder made to the Company on July 11, 2005. The warrant was
        treated as a discount on the note and amortized over the two-year term of
        the
        loan. Also, for the three months ended September 30, 2006, the Company
        recognized approximately $39,000 in interest expense related the value of
        the
        warrant, approximately $8,000 in interest earned related to a $614,000 loan,
        and
        approximately $2,000 in interest expense primarily related to lease obligations.
        For the nine months ended September 30, 2006, the Company recognized
        approximately $117,000 in interest expense related the value of the warrant,
        approximately $23,000 in interest earned related to a $614,000 loan, and
        approximately $17,000 in interest expense primarily related to lease
        obligations.
 
 *Income
        tax expense* .
        At
        September 30, 2006, we had operating loss carryforwards of approximately
        $20.1
        million that may be applied against future taxable income, if any, through
        2025.
        The net operating loss carryforwards and other items resulted in net deferred
        tax assets of approximately $7.6 million. The amount of and ultimate realization
        of the benefits from these deferred tax assets for income tax purposes depends,
        in part, on applicable tax laws in effect, our future earnings, if any, and
        other future events, the effects of which cannot be determined at this time.
        As
        a result of the uncertainty surrounding the realization of the deferred tax
        assets, we established a valuation allowance that is equal to the value of
        net
        deferred tax assets, and no income tax benefit from our operating loss has
        been
        recognized for any of the periods presented.
  *Liquidity
        and Capital Resources*
 
 *Cash
        and cash equivalents.* As
        of
        September 30, 2006, our balance of cash and cash equivalents was $2,375,152
        and
        the balance of our restricted cash was $326,107. Restricted cash is maintained
        to support letters of credit covering capital lease arrangements and to secure
        a
        bank account that is used for processing automated clearinghouse transactions.
        In order to secure the bank account, the Company must maintain a balance
        of 2%
        of the previous month’s total transactions that have been processed through the
        account.
 
  25
 Table
            of Contents
 
 As
        of
        September 30, 2006, we had working capital of approximately $1,515,918 million
        and a current ratio of 1.7 to 1.
 
 *Financing
        activity cash flows.* Historically,
        we have financed our working capital requirements from the sale of equity,
        convertible debentures and notes, and short-term and long-term
        borrowings.
 
 The
        Company does not have the necessary capital to continue its operations as
        planned. In this regard, our independent auditors have stated in their auditor’s
        report for the year ended December 31, 2005 that our recurring losses raise
        substantial doubt about our ability to continue as a going concern (see Item
        8
“Financial Statements and Supplementary Data” for a more detailed discussion).
        Accordingly, the Company plans to raise additional funds in 2006. These
        additional funds may be in the form of equity, debt or convertible securities,
        or a combination of these.  There is no assurance that the Company will
        successfully raise additional funds.
  *Recently
        Enacted Accounting Standards*
  For
        a
        discussion of recently enacted accounting standards, see Note 1—“Summary of
        Significant Accounting Policies” to the Consolidated Financial Statements, set
        forth in Item 1.
  **Off-Balance
        Sheet Items**
 
 On
        February 16, 2006, the Company acquired certain assets from Sun
        Communications, including approximately 350 merchant locations and terminals.
        These assets were purchased for $150,000 in cash paid on February 16, 2006.
        In addition, the Company is obligated, pursuant to an earn-out provision
        in the
        purchase agreement, to pay additional amounts totaling up to $50,000 if certain
        performance criteria are met. The earn-out provision provides for a $15,000
        prepayment to Sun Communications, which was paid in July, 2006 and the
        remainder, if earned, to be paid February 2007.
 
 Excluding
        normal operating leases and the potential obligations related to Sun
        Communications discussed directly above, the Company has no off-balance sheet
        obligations.
 
 
 **Item3.
        Quantitative and Qualitative Disclosures About Market
        Risk**
 
 Not
        applicable.
 
 **Item
        4.Controls and Procedures**
  *Disclosure
        Controls and Procedures*
 
 ·
              *Our
                  Disclosure Controls and Procedures Are Effective.*Pursuant
                  to Rule 13a-15(b) under the Exchange Act, our management is required
                  to
                  evaluate the effectiveness of our disclosure controls and procedures,
                  as
                  defined in Rule 13a-15(e), as of the end of each fiscal quarter.
                  Such
                  evaluation must include the participation of our principal executive
                  officer and our principal financial officer. Accordingly, as of
                  September
                  30, 2006, the end of our third fiscal quarter, our management has
                  completed an evaluation of the effectiveness and the design and
                  operation
                  of our disclosure controls and procedures. Based upon this evaluation
                  our
                  management (including our CEO and CFO) has concluded that our disclosure
                  controls and procedures were effective as of September 30, 2006.
  *Internal
        Controls Over Financial Reporting*
 
 *Change
        in Our Internal Control over Financial Reporting in the Three Months Ended
        September 30, 2006.* There
        has
        been no change in our internal control over financial reporting, as defined
        in
        Rule 13a-15(f), during the three months ended September 30, 2006 that has
        materially affected, or is reasonably likely to materially affect, our internal
        control over financial reporting.
 
  26
 Table
            of Contents
 
 **PART
        II -OTHER INFORMATION**
  **Item
        1. LegalProceedings**
 
 As
        of
        November 13, 2006, we are not a party to any material legal proceedings,
        except
        as set forth below.
 
 *Q
        Comm International, Inc. v. The Phone Store of Missouri, LLC and Kevin
        Montgomery* .
        In April 2005, the Company filed an action against a PIN provider, due to
        approximately $1 million in deactivated PINs that the Company received in
        the fourth quarter of 2004.  Subsequent to September 30, 2005, the Company
        determined that this obligation was approximately $1.5 million and
        includes, in addition to deactivated PINs, losses resulting from handsets
        paid for by the Company that were to be sold by the PIN
        provider.  The PIN provider agreed to sell the handsets in
        order to reimburse the Company for both the handset purchase
        price and the PIN losses.  However, the PIN provider did not
        reimburse the Company.  The Company is proactively taking the
        appropriate legal action to recover the amount due.  However, there is
        no assurance of repayment, and management recorded an allowance against the
        full
        amount of the receivable in the fourth quarter of 2004.
  **Item
        1A. Risk Factors**
 
 In
        addition to the other information in this report, you should carefully consider
        the risk factors discussed in Part I, “Item 1A. Risk Factors” in our Annual
        Report on Form 10-K for the year ended December 31, 2005, which we hereby
        incorporate herein by reference. There have been no material changes to such
        risk factors since the date of that report **.**
 
 **Item
        4.Submission of Matters to a Vote of Security
        Holders**
 
 At
        the
        2006 Annual Meeting of Shareholders of Q Comm, held on August 24, 2006, at
        Q Comm’s corporate offices in Orem, Utah, the Q Comm shareholders did the
        following: (i) elected the six directors set forth in the table below to
        serve
        for a one-year term that expires at the 2007 Annual Meeting of Shareholders;
        (ii) ratified the appointment of Hansen, Barnett & Maxwell, P.C. as Q Comm’s
        independent auditors for the fiscal year ended December 31, 2006; and (iii)
        approved an increase in the number of shares available for issuance under
        Q
        Comm’s 2004 Stock Option Plan from 500,000 shares of common stock to 1,000,000
        shares of common stock.
 
 The
        following table sets forth the shares cast for each of these items of
        business.
 
 **Election
                  of the Board of Directors:**
              **Number
                  of**
                **votes
                  cast**
              
              **Votes
                  For**
              
              **Votes
                  For**
                **(%)(1)**
              
              **Votes**
                **Against**
              
              **Votes**
                **Abstained**Michael
                  Keough
              6,391,834
              
              6,340,717
              
              99.2%
              
              51,117
              
              522,961William
                  Jurika
              6,391,834
              
              6,340,717
              
              99.2%
              
              51,117
              
              522,961Gary
                  Crook
              6,391,834
              
              6,340,717
              
              99.2%
              
              51,117
              
              522,961Harry
                  Hargen
              6,391,834
              
              6,340,717
              
              99.2%
              
              51,117
              
              522,961Steven
                  Phillips
              6,391,834
              
              6,340,717
              
              99.2%
              
              51,117
              
              522,961Thomas
                  Tesmer
              6,391,834
              
              6,340,717
              
              99.2%
              
              51,117
              
              522,961
 
 **Ratification
                  of the appointment of Hansen, Barnett & Maxwell, P.C. as independent
                  auditors:**
              **Number
                  of**
                **votes
                  cast**
              
              **Votes
                  For**
              
              **Votes
                  For**
                **(%)(1)**
              
              **Votes**
                **Against**
              
              **Votes**
                **Abstained**6,372,100
              
              6,347,067
              
              99.6%
              
              25,033
              
              542,695**Approval
                  of an increase in the number of available shares under 2004 Stock
                  Option
                  Plan:**
              **Number
                  of**
                **votes
                  cast**
              
              **Votes
                  For**
              
              **Votes
                  For**
                **(%)(1)**
              
              **Votes**
                **Against**
              
              **Votes**
                **Abstained**3,907,643
              
              3,577,443
              
              91.5%
              
              330,200
              
              2,237,152
 
 (1)
        As a
        percentage of votes cast.
 
  27
 Table
            of Contents
 
 **Item
        6. Exhibitsand Reports on Form 8-K**
  (a)
        Exhibits:
  **Exhibit
                No.**
              **Description**
 
 3.1(i)
              Articles
                  of Incorporation (1)
 
 3.1(ii)
              Amendment
                  to Articles of Incorporation (2)
 
 3.2
              Amended
                  and Restated Bylaws (2)
 
 4.1
              Specimen
                  Stock Certificate (2)
 
 4.2
              Form
                  of warrant agreement, including form of warrant
                  (2)
 
 4.3
              Form
                  of unit certificate (2)
 
 4.4
              Form
                  of representative’s warrant (2)
 
 10.1
              2000
                  Stock Option Plan (2)*
 
 10.2
              2003
                  Stock Option Plan (2)*
 
 10.5
              Form
                  of Stock Purchase Warrant (2)
 
 10.6
              Form
                  of Lock-Up Agreement executed by all officers, directors, and 5%
                  shareholders (2)
 
 10.7
              Form
                  of Lock-Up Agreements for 12% Secured Convertible Debenture holders
                  (2)
 
 10.11
              Employment
                  Agreement between Q Comm International, Inc. and Michael D.
                  Keough(4)*
 
 10.12
              Employment
                  Agreement between Q Comm International, Inc. and Mark W.
                  Robinson(5)*
 
 10.15
              Form
                  of Stock Purchase Warrant, dated May 20, 2003
                  (2)
 
 10.16
              Service
                  Agreements between Q Comm International, Inc. and each of Cellcards
                  of
                  Illinois, Iowa Wireless and Hargray Wireless
                  (2)
 
 10.17
              Agreement
                  between Q Comm International, Inc. and PreCash Corporation
                  (2)
 
 10.18
              WGR
                  Ltd. Agreement (2)****
 
 10.19
              Marceco
                  Ltd. Agreement (2)
 
 10.20
              Success
                  Concepts Enterprises Inc. Agreement (2)****
 
 10.21
              510
                  East Technology Avenue Lease (3)
 
 10.22#
              Agreement
                  between Q Comm International, Inc. and Cricket Communications,
                  Inc.
                  (4)
 
 10.23
              2004
                  Stock Option Plan (7)*
 
 10.24
              9350
                  South 150 East, Suite 840, Sandy, Utah****Lease
                  (8)
   28
 Table
            of Contents
  10.25
              Standard
                  Form of Stock Option Grant for Incentive Stock Options under the 2004
                  Stock Option Plan (9)
 
 10.26
              Standard
                  Form of Stock Option Grant for Non-Qualified Stock Options under the
                  2004 Stock Option Plan (9)
 
 14
              Code
                  of Ethics (2)
  21
              Subsidiary
                  schedule (3)
 
 31.1
              Chief
                  Executive Officer Certification
                  pursuant to section 302 of the Sarbanes-Oxley Act of
                  2002**
 
 31.2
              Chief
                  Financial Officer Certification
                  pursuant to section 302 of the Sarbanes-Oxley Act of
                  2002**
 
 32.1
              Chief
                  Executive Officer Certification
                  pursuant to section 906 of the Sarbanes-Oxley Act of
                  2002**
 
 32.2
              Chief
                  Financial Officer Certification
                  pursuant to section 906 of the Sarbanes-Oxley Act of
                  2002**
 ________________________
 
 *
        Denotes
        a management contract or a compensatory plan or arrangement.
 **
        Included as an exhibit herein.
 
 (1)
              Previously
                  filed on February 24, 2000, as an exhibit to Form 10-SB, and on
                  March 20, 2000, as an exhibit in the Company’s Current Report on Form
                  8-K and incorporated herein by reference.
 
 (2)
              Previously
                  filed as an exhibit to the Company’s Registration Statement on Form SB-2
                  (File No.333-104232) and incorporated herein by reference.
 
 (3)
              Previously
                  filed as an exhibit to Form 10-KSB on September 30, 2003 and incorporated
                  herein by reference.
 
 (4)
              Previously
                  filed as an exhibit to Form 10-KSB on April 12, 2005 and incorporated
                  herein by reference.
 
 (5)
              Previously
                  filed as an exhibit to Form 10-KSB/A on August 10, 2005 and
                  incorporated herein by reference.
 
 (6)
              Previously
                  filed on October 11, 2005, as an exhibit in the Company’s Current
                  Report on Form 8-K and incorporated herein by reference.
 
 (7)
              Previously
                  filed on May 3, 2004, as Appendix C to Schedule 14a and incorporated
                  herein by reference.
 
 (8)
              Previously
                  filed as an exhibit to Form 10-K on March 31, 2006 and incorporated
                  herein
                  by reference.
 
 (9)
              Previously
                  filed as an exhibit to Form 10-Q on August 14, 2006 and incorporated
                  herein by reference.
 
 #
              Application
                  has been made to the Securities and Exchange Commission to seek
                  confidential treatment of certain portions of this exhibit under
                  Rule 406
                  of the Securities Act of 1933 or Rule 24(b)-2 under the Securities
                  Exchange Act of 1934. Omitted material for which confidential treatment
                  has been requested has been filed separately with the Securities
                  and
                  Exchange Commission.
 
 
 **SIGNATURES**
 
 Pursuant
        to the requirements of Section 13 or 15(d) of the Securities Exchange Act
        of
        1934, as amended, the registrant has duly caused this Quarterly Report on
        Form
        10-Q for the three and nine months ended September 30, 2006, to be signed
        on its
        behalf by the undersigned, thereunto duly authorized, on November 13,
        2006.
 
 
 Q
        Comm
        International, Inc.
 
  By:
              /s/
                  Mark W.
                  RobinsonMark
                  W. RobinsonChief
                  Financial Officer, Secretary and Treasurer
  29