##### Table of Contents



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, D.C. 20549
 FORM 10-QSB
 QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
 For the Quarterly Period Ended June 30, 2006
 Commission File # 0-33473
 DIGIFONICA INTERNATIONAL CORP.
 (Formerly known as MOLIRIS CORP.)
 FLORIDA
    
    06-1655695(State or other jurisdiction
of incorporation or organization)
    
    (IRS Employer Identification Number)
 4710 KINGSWAY, SUITE 1424
BURNABY, BC, CANADA V5H 4M2
 (604) 628-8900
 None
 Common A Stock, $0.001 Par Value
 þ o
  ̈ þ
  o þ




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##### 



DIGIFONICA INTERNATIONAL CORP.
 FORM 10-QSB
 For the Quarter Ended June 30, 2006
 Table of Contents
 Page No.PART I  FINANCIAL INFORMATION

3Item 1  Financial Statements

3Item 2  Managements Discussion and Analysis or Plan of Operations

17Item 3  Controls and Procedures

23PART II  OTHER INFORMATION

24Item 1  Legal Proceedings

24Item 2  Unregistered Sales of Equity Securities and Use of Proceeds

24Item 3  Defaults upon Senior Securities

24Item 4  Submission of Matters to a Vote of Security Holders

24Item 5  Other Information

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

25SIGNATURES

26Certification of Principal Executive OfficerCertification of Chief Financial OfficerCertification of Principal Executive Officer and Chief Financial OfficerCertification of Principal Executive Officer Section 302Certification of Chief Financial Officer Section 302Certification of Principal Executive Officer Section 906Certification of Chief Financial Officer Section 906
  2




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##### Table of Contents



DIGIFONICA INTERNATIONAL CORP.
 For the Quarter Ended June 30, 2006
 
 PART I  FINANCIAL INFORMATION
 
   Consolidated Statements of Operations (unaudited) for the Three and Six Months ended June 30, 2006 and 2005Consolidated Balance Sheet at June 30, 2006 (unaudited)Consolidated Statement of Cash Flows (unaudited) for the Three and Six Months ended June 30, 2006 and 2005Consolidated Stockholders Deficit Statements for the Three and Six Months Ended June 30, 2006 and 2005Notes to Financial Statements
 3




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##### Table of Contents



DIGIFONICA INTERNATIONAL CORP.
(A Development Stage Corporation)
 
 CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
 Cumulative PeriodThree Months
    
    
    Three Months
    
    
    Six Months
    
    
    Six Months
    
    
    from InceptionEnded
    
    
    Ended
    
    
    Ended
    
    
    Ended
    
    
    (Sept. 9, 2004) toJune 30, 2006
    
    
    June 30, 2005
    
    
    June 30, 2006
    
    
    June 30, 2005
    
    
    June 30, 2006OPERATING EXPENSES:Accounting and Audit
    
    $
    37,844
    
    
    $
    
    
    
    $
    57,206
    
    
    $
    
    
    
    $
    249,365Salaries, wages and commissions
    
    
    168,841
    
    
    
    
    
    
    
    363,400
    
    
    
    
    
    
    
    593,203General and administrative
    
    
    111,334
    
    
    
    (7,625
    )
    
    
    207,822
    
    
    
    62,288
    
    
    
    825,561Legal
    
    
    78,679
    
    
    
    70,817
    
    
    
    183,939
    
    
    
    86,851
    
    
    
    541,560Rent
    
    
    41,810
    
    
    
    
    
    
    
    83,170
    
    
    
    
    
    
    
    133,947Depreciation
    
    
    101,277
    
    
    
    16,013
    
    
    
    148,440
    
    
    
    16,013
    
    
    
    251,788Sales and Marketing
    
    
    231,891
    
    
    
    140,912
    
    
    
    338,720
    
    
    
    140,912
    
    
    
    816,690Research and development
    
    
    1,369
    
    
    
    147,982
    
    
    
    1,477
    
    
    
    147,982
    
    
    
    240,677Travel
    
    
    41,852
    
    
    
    50,729
    
    
    
    59,990
    
    
    
    64,008
    
    
    
    237,915TOTAL OPERATING EXPENSES
    
    
    814,897
    
    
    
    418,828
    
    
    
    1,144,164
    
    
    
    518,054
    
    
    
    3,890,706LOSS BEFORE OTHER INCOME
(EXPENSE)
    
    
    (814,897
    )
    
    
    (418,828
    )
    
    
    (1,444,164
    )
    
    
    (518,054
    )
    
    
    (3,890,706
    )OTHER INCOME (EXPENSE):Interest expense
    
    
    (3,326
    )
    
    
    
    
    
    
    (5,267
    )
    
    
    
    
    
    
    (11,164
    )Interest income
    
    
    6
    
    
    
    (9
    )
    
    
    30
    
    
    
    
    
    
    
    182Foreign currency Gain/(Loss)
    
    
    
    
    
    
    (311
    )
    
    
    
    
    
    
    
    
    
    
    (3,681
    )Gain on settlement of liabilities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    80,536TOTAL OTHER INCOME (EXPENSE)
    
    
    (3,320
    )
    
    
    (320
    )
    
    
    (5,237
    )
    
    
    
    
    
    
    65,873LOSS FROM OPERATIONS
    
    
    (818,217
    )
    
    
    (419,148
    )
    
    
    (1,449,401
    )
    
    
    (518,054
    )
    
    
    (3,824,833
    )Income tax expenses
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    NET (LOSS)
    
    $
    (818,217
    )
    
    $
    (419,148
    )
    
    $
    (1,449,401
    )
    
    
    (518,054
    )
    
    $
    (3,824,833
    )NET (LOSS) PER SHARE  BASIC and
DILUTED:Net (Loss)
    
    $
    (0.04
    )
    
    $
    (0.03
    )
    
    $
    (0.06
    )
    
    $
    (0.04
    )WEIGHTED AVERAGE NUMBER OF
COMMON A SHARES:BASIC and DILUTED
    
    
    22,894,568
    
    
    
    12,347,400
    
    
    
    22,894,568
    
    
    
    12,347,400
  4




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DIGIFONICA INTERNATIONAL CORP.
(A Development Stage Corporation)
 
 CONSOLIDATED BALANCE SHEET
 (Unaudited)
 June 302006ASSETSCash and cash equivalents
    
    $
    17,277Other receivable
    
    
    18,077Inventories
    
    
    5,566Prepaid expenses
    
    
    69,293Total current assets
    
    
    110,213Leasehold Improvements, Software and Equipment, Net of
accumulated depreciation of $251,788
    
    
    1,610,985TOTAL ASSETS
    
    $
    1,721,198LIABILITIES AND STOCKHOLDERS DEFICITLIABILITIESAccounts payable
    
    
    1,047,255Notes payable in default
    
    
    233,656Guarantee of bank note payable in default
    
    
    138,451Accrued expenses
    
    
    669,101Share subscriptions liabilities
    
    
    Due to Related Parties
    
    
    194,974Loans from shareholders
    
    
    1,072,724Total current liabilities
    
    
    3,356,161COMMITMENTS AND CONTINGENCIESSTOCKHOLDERS DEFICITCommon A stock, $0.001 par value, (2005: $2.02 par
value), 50,000,000 (2005: 2,000) shares authorized:22,903,600 issued and outstanding at June 30, 2006 and
100 issued and outstanding at June 30, 2005
    
    
    22,903Common B stock, no par value, 1,000,000 shares authorized:none issued and outstanding
    
    
    Additional paid in capital
    
    
    2,153,492Accumulated other comprehensive income (loss)
    
    
    13,475Deficit accumulated during the development stage
    
    
    (3,824,833
    )TOTAL STOCKHOLDERS DEFICIT
    
    
    (1,634,963
    )TOTAL LIABILITIES AND STOCKHOLDERS DEFICIT
    
    $
    1,721,198
  5




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##### Table of Contents



DIGIFONICA INTERNATIONAL CORP.
(A Development Stage Company)
 
 CONSOLIDATED STATEMENTS OF CASH FLOWS
 (Unaudited)
 CumulativePeriodThree Months
    
    
    Three Months
    
    
    Six Month
    
    
    Six Month
    
    
    from InceptionEnded
    
    
    Ended
    
    
    Ended
    
    
    Ended
    
    
    (Sept. 9, 2004) toJune 30, 2006
    
    
    June 30, 2005
    
    
    June 30, 2006
    
    
    June 30, 2005
    
    
    June 30, 2006FROM OPERATING ACTIVITIES:Net loss
    
    $
    (818,217
    )
    
    $
    (419,148
    )
    
    $
    (1,449,401
    )
    
    $
    (518,054
    )
    
    $
    (3,824,833
    )Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:Depreciation
    
    
    101,277
    
    
    
    16,013
    
    
    
    148,440
    
    
    
    16,013
    
    
    
    251,788Common Stock issued for services rendered
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,200Changes in operating assets and liabilities:Other receivables
    
    
    (6,216
    )
    
    
    (3,900
    )
    
    
    38,046
    
    
    
    (8,725
    )
    
    
    953,300Inventories
    
    
    (335
    )
    
    
    (13,334
    )
    
    
    (1,943
    )
    
    
    (17,799
    )
    
    
    (5,566
    )Prepaid & other current assets
    
    
    38,376
    
    
    
    (29,264
    )
    
    
    (3,314
    )
    
    
    (53,738
    )
    
    
    (44,928
    )Accounts payable
    
    
    164,750
    
    
    
    314,729
    
    
    
    154,793
    
    
    
    326,207
    
    
    
    538,125Accrued expenses
    
    
    (45,727
    )
    
    
    (15,209
    )
    
    
    (34,789
    )
    
    
    
    
    
    
    (47,621
    )Due to related party
    
    
    
    
    
    
    (11,096
    )
    
    
    
    
    
    
    
    
    
    
    (27,503
    )NET CASH PROVIDED (USED) BY CONTINUING OPERATING
ACTIVITIES
    
    
    (566,092
    )
    
    
    (161,209
    )
    
    
    (1,148,168
    )
    
    
    (256,096
    )
    
    
    (2,202,038
    )FROM INVESTING ACTIVITIESPurchase of Leasehold improvements, software and
equipment
    
    
    (259,364
    )
    
    
    (685,805
    )
    
    
    (462,976
    )
    
    
    (866,108
    )
    
    
    (1,862,774
    )Payable from Purchase of Property and Equipment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    59,282NET CASH (USED) IN INVESTING ACTIVITIES
    
    
    (259,364
    )
    
    
    (685,805
    )
    
    
    (462,976
    )
    
    
    (866,108
    )
    
    
    (1,803,492
    )FROM FINANCING ACTIVITIESIssuance of common stock, for cash
    
    
    300,000
    
    
    
    
    
    
    
    841,400
    
    
    
    
    
    
    
    2,936,609Subscription of common stock
    
    
    (40,000
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Proceeds from loan
    
    
    563,359
    
    
    
    959,413
    
    
    
    784,241
    
    
    
    1,237,946
    
    
    
    1,072,723NET CASH PROVIDED (USED) BY FINANCING ACTIVITIES
    
    
    823,359
    
    
    
    959,413
    
    
    
    1,625,641
    
    
    
    1,237,946
    
    
    
    4,009,332Effect of Foreign currency translation on cash and
cash equivalents
    
    
    (22,918
    )
    
    
    5,069
    
    
    
    (29,941
    )
    
    
    (935
    )
    
    
    13,475NET INCREASE (DECREASE) IN CASH
    
    
    (25,015
    )
    
    
    117,468
    
    
    
    (15,444
    )
    
    
    114,807
    
    
    
    17,277CASH AT BEGINNING OF PERIOD
    
    
    42,292
    
    
    
    2,431
    
    
    
    32,721
    
    
    
    5,092
    
    
    
    0CASH AT END OF PERIOD
    
    
    17,277
    
    
    
    119,899
    
    
    $
    17,277
    
    
    $
    119,899
    
    
    $
    17,277SUPPLEMENTAL CASH FLOW DISCLOSURES:Cash paid during the period for:Interest
    
    $
    3,326
    
    
    $
    
    
    
    $
    5,267
    
    
    $
    
    
    
    $
    11,319Non-cash investing and financing activities:Liabilities assumed, reverse merger
    
    
    
    
    
    
    
    
    
    $
    
    
    
    $
    
    
    
    $
    765,413Common shares issued for services
    
    
    
    
    
    
    
    
    
    $
    
    
    
    $
    
    
    
    $
    5,200
  6




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##### Table of Contents



DIGIFONICA INTERNATIONAL CORP.
(A Development Stage Corporation)
 
 CONSOLIDATED STOCKHOLDERS DEFICITS STATEMENT
 (Unaudited)
 Cumulative PeriodThree Months
    
    
    Three Months
    
    
    Six Months
    
    
    Six Months
    
    
    from InceptionEnded
    
    
    Ended
    
    
    Ended
    
    
    Ended
    
    
    (Sept. 9, 2004) toJune 30, 2006
    
    
    June 30, 2005
    
    
    June 30, 2006
    
    
    June 30, 2005
    
    
    June 30, 2006Common stock and paid-in capitalBalance, beginning of period
    
    $
    1,876,395
    
    
    $
    38,708
    
    
    $
    1,334,995
    
    
    $
    38,708
    
    
    $
    Common stock issued for cash
    
    
    300,000
    
    
    
    
    
    
    
    841,400
    
    
    
    
    
    
    
    2,171,195Common stock issued for services
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,200Balance, end of period
    
    
    2,176,395
    
    
    
    38,708
    
    
    
    2,176,395
    
    
    
    38,708
    
    
    
    2,176,395Retained earnings (deficit)Balance, beginning of period
    
    
    (2,970,223
    )
    
    
    (167,829
    )
    
    
    (2,332,016
    )
    
    
    (63,236
    )
    
    
    Net Loss
    
    
    (818,217
    )
    
    
    (419,148
    )
    
    
    (1,449,401
    )
    
    
    (518,054
    )
    
    
    (3,824,833
    )Currency translation adjustments
    
    
    (22,918
    )
    
    
    5,215
    
    
    
    (29,941
    )
    
    
    (935
    )
    
    
    13,475Comprehensive income/(loss)
    
    
    (841,135
    )
    
    
    (413,933
    )
    
    
    (1,479,342
    )
    
    
    (518,989
    )
    
    
    (3,811,358
    )Balance, end of period
    
    
    (3,811,358
    )
    
    
    (581,762
    )
    
    
    (3,811,358
    )
    
    
    (582,225
    )
    
    
    (3,811,358
    )Total stockholders deficits
    
    $
    (1,634,963
    )
    
    $
    (543,054
    )
    
    $
    (1,634,963
    )
    
    $
    (543,517
    )
    
    $
    (1,634,963
    )
  7




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##### Table of Contents



DIGIFONICA INTERNATIONAL CORP.
(A Development Stage Company)
 
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 June 30, 2006
 (Unaudited)
 NOTE 1: ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 Organization
      Principles of Consolidation
  8




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##### Table of Contents



DIGIFONICA INTERNATIONAL CORP.
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2006
(Unaudited)
 NOTE 1: ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
 Basis of Presentation
   NOTE 2: SIGNIFICANT ACCOUNTING POLICIES
 Nature of Business
  Income Taxes
  Use of Estimates and Assumptions
  Accounts Receivable
   Software Development
  9




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##### Table of Contents



DIGIFONICA INTERNATIONAL CORP.
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2006
(Unaudited)
 NOTE 2: SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
  Inventories
  Leasehold Improvement, Software and Equipment
  Furniture and fixtures
    
    
    20
    %Computers
    
    
    33
    %Nodes
    
    
    33
    %Equipment
    
    
    20
    %Software
    
    
    100
    %Capitalized software (a)
    
    
    20
    %
 
 (a)
    
    No provision for depreciation is taken until the assets are put into use. Impairment of Long-Lived Assets
  Foreign Exchange Translation
   Fair Value of Financial Instruments
  10




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##### Table of Contents



DIGIFONICA INTERNATIONAL CORP.
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2006
(Unaudited)
 NOTE 2: SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
  Environmental Matters
  Revenue Recognition
  Loss per Common Share
  Accumulated Other Comprehensive Income
  Recent Accounting Pronouncements
   11




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##### Table of Contents



DIGIFONICA INTERNATIONAL CORP.
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2006
(Unaudited)
 NOTE 2: SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
    NOTE 3: GOING CONCERN
  NOTE 4: LEASEHOLD IMPROVEMENTS, SOFTWARE AND EQUIPMENT
  12




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DIGIFONICA INTERNATIONAL CORP.
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2006
(Unaudited)
 NOTE 4: LEASEHOLD IMPROVEMENTS, SOFTWARE AND EQUIPMENT (CONTINUED)
 June 30 2006Leasehold improvements
    
    $
    150,316Furniture & fixtures
    
    
    18,028Computers
    
    
    91,228Software
    
    
    57,702Capitalized Software
    
    
    1,028,401Equipment
    
    
    254,139Nodes
    
    
    262,9591,862,773Accumulated Depreciation
    
    
    (251,788
    )Total
    
    $
    1,610,985
   NOTE 5: STOCKHOLDERS EQUITY AND STOCK TRANSACTIONS
  
    
    50,000,000 shares of its Common A stock with par value of $.001 (2005: 2,000
shares with par value of $2.02 each)
    
    1,000,000 shares of its Common B stock with no par value
  AdditionalNumber
    
    
    
    
    
    
    Paid InIssued
    
    
    Par Value
    
    
    Capital
    
    
    TotalBalance at December 31, 2005
    
    
    22,330,400
    
    
    
    22,330
    
    
    
    1,312,665
    
    
    
    1,334,995March 16, 2006 private placement for cash with 109,100 warrants
    
    
    218,200
    
    
    
    218
    
    
    
    436,182
    
    
    
    436,400March 29 to 30, 2006 warrants exercised at $1.00 each
    
    
    105,000
    
    
    
    105
    
    
    
    104,895
    
    
    
    105,000Balance at March 31, 2006
    
    
    22,653,600
    
    
    $
    22,653
    
    
    $
    1,853,742
    
    
    $
    1,876,395April 1 to 17, 2006 warrants exercised at $1.00 each
    
    
    200,000
    
    
    
    200
    
    
    
    199,800
    
    
    
    200,000April 1 to June 30, 2006 private placement for cash with 25,000 warrants
    
    
    50,000
    
    
    
    50
    
    
    
    99,950
    
    
    
    100,000Balance at June 30, 2006
    
    
    22,903,600
    
    
    $
    22,903
    
    
    $
    2,153,492
    
    
    $
    2,176,395
 13




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##### Table of Contents



DIGIFONICA INTERNATIONAL CORP.
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2006
(Unaudited)
 NOTE 5: STOCKHOLDERS EQUITY AND STOCK TRANSACTIONS (CONTINUED)
  th th
 st
 st th
  Stock purchase warrants
  Number ofWarrantsBalance, January 1, 2006
    
    
    1,315,000Issued
    
    
    109,100Exercised
    
    
    (105,000
    )Balance, March 31, 2006
    
    
    1,319,100Issued
    
    
    25,000Exercised
    
    
    (200,000
    )Forfeited
    
    
    (197,000
    )Balance, June 30, 2006
    
    
    947,100
  Number ofWarrants
    
    Exercise Price
    
    Expiry Date150,500
    
    
    $
    1.00
    
    
    November 29, 2006167,500
    
    
    $
    2.30
    
    
    May 11, 2007485,000
    
    
    $
    2.30
    
    
    October 10, 200710,000
    
    
    $
    3.00
    
    
    February 24, 2008134,100
    
    
    $
    3.00
    
    
    March 16, 2008Total
    
    
    947,100
 14




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##### Table of Contents



DIGIFONICA INTERNATIONAL CORP.
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2006
(Unaudited)
 NOTE 5: STOCKHOLDERS EQUITY AND STOCK TRANSACTIONS (CONTINUED)
 Stock Options
  NOTE 6: LEASE COMMITMENTS
   Year
    
    Amount2006
    
    $
    47,5192007
    
    
    82,2862008
    
    
    82,2862009
    
    
    82,286Total
    
    $
    294,377
 NOTE 7: COMMITMENTS CONTINGENCIES & LITIGATION
       15




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##### Table of Contents



DIGIFONICA INTERNATIONAL CORP.
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2006
(Unaudited)
 NOTE 7: COMMITMENTS CONTINGENCIES & LITIGATION (CONTINUED)
 DIL Yinbo JV Company
 NOTE 8: SUBSEQUENT EVENTS
    16




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##### Table of Contents



ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS
      17




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##### Table of Contents



GENERAL
      OVERVIEW OF COMPANY
   RECENT DEVELOPMENTS
   18




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##### Table of Contents



CRITICAL ACCOUNTING ESTIMATES AND POLICIES
  GOING CONCERN
  GUARANTEE OF NOTE PAYABLE
   19




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##### Table of Contents



RESULTS OF OPERATIONS
  Cumulative PeriodThree Months
    
    
    Three Months
    
    
    Six Months
    
    
    Six Months
    
    
    from InceptionEnded
    
    
    Ended
    
    
    Ended
    
    
    Ended
    
    
    (Sept. 9, 2004) toJune 30, 2006
    
    
    June 30, 2005
    
    
    June 30, 2006
    
    
    June 30, 2005
    
    
    June 30, 2006OPERATING EXPENSES:Accounting and Audit
    
    $
    37,844
    
    
    $
    
    
    
    $
    57,206
    
    
    $
    
    
    
    $
    249,365Salaries, wages and commissions
    
    
    168,841
    
    
    
    
    
    
    
    363,400
    
    
    
    
    
    
    
    593,203General and administrative
    
    
    111,334
    
    
    
    (7,625
    )
    
    
    207,822
    
    
    
    62,288
    
    
    
    825,561Legal
    
    
    78,679
    
    
    
    70,817
    
    
    
    183,939
    
    
    
    86,851
    
    
    
    541,560Rent
    
    
    41,810
    
    
    
    
    
    
    
    83,170
    
    
    
    
    
    
    
    133,947Depreciation
    
    
    101,277
    
    
    
    16,013
    
    
    
    148,440
    
    
    
    16,013
    
    
    
    251,788Sales and Marketing
    
    
    231,891
    
    
    
    140,912
    
    
    
    338,720
    
    
    
    140,912
    
    
    
    816,690Research and development
    
    
    1,369
    
    
    
    147,982
    
    
    
    1,477
    
    
    
    147,982
    
    
    
    240,677Travel
    
    
    41,852
    
    
    
    50,729
    
    
    
    59,990
    
    
    
    64,008
    
    
    
    237,915TOTAL OPERATING EXPENSES
    
    
    814,897
    
    
    
    418,828
    
    
    
    1,444,164
    
    
    
    518,054
    
    
    
    3,890,706LOSS BEFORE OTHER INCOME
(EXPENSE)
    
    
    (814,897
    )
    
    
    (418,828
    )
    
    
    (1,444,164
    )
    
    
    (518,054
    )
    
    
    (3,890,706
    )OTHER INCOME (EXPENSE):Interest expense
    
    
    (3,326
    )
    
    
    
    
    
    
    (5,267
    )
    
    
    
    
    
    
    (11,164
    )Interest income
    
    
    6
    
    
    
    (9
    )
    
    
    30
    
    
    
    
    
    
    
    182Foreign currency Gain/(Loss)
    
    
    
    
    
    
    (311
    )
    
    
    
    
    
    
    
    
    
    
    (3,681
    )Gain on settlement of liabilities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    80,536TOTAL OTHER INCOME (EXPENSE)
    
    
    (3,320
    )
    
    
    (320
    )
    
    
    (5,237
    )
    
    
    
    
    
    
    65,873LOSS FROM OPERATIONS
    
    
    (818,217
    )
    
    
    (419,148
    )
    
    
    (1,449,401
    )
    
    
    (518,054
    )
    
    
    (3,824,833
    )Income tax expenses
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    NET (LOSS)
    
    $
    (818,217
    )
    
    $
    (419,148
    )
    
    $
    (1,449,401
    )
    
    
    (518,054
    )
    
    $
    (3,824,833
    )
 20




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##### Table of Contents



THREE MONTHS ENDED JUNE 30, 2006 AND 2005
         SIX MONTHS ENDED JUNE 30, 2006 AND 2005
         LIQUIDITY AND CAPITAL RESOURCES
    21




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##### Table of Contents



SHORT-TERM DEBT
  $200,000 note payable, dated Oct. 28, 2003, bearing interest at
zero percent per annum, payable monthly with final payment due
Sept. 1, 2008, in default since December 31, 2004
    
    $
    178,500$32,265 note payable, dated Dec. 12, 2001, bearing interest at
5.9% per annum, payable monthly with final payment due Dec. 12,
2006, net of repossession value, in default since December 31,
2004
    
    
    4,766$18,013 note payable, dated October 1, 2004, bearing interest at
4% per annum, payable monthly with final payment due April 1,
2006 in default since December 31, 2004
    
    
    17,889$27,500 note payable, dated November 19, 2004, bearing interest
at 12.0% per annum, payable monthly with final payment due
February 19, 2005, in default since December 31, 2004
    
    
    27,500$5,000 note payable, dated November 19, 2004, bearing interest at
12.0% per annum, payable monthly with final payment due February
19, 2005, in default since December 31, 2004
    
    
    5,000Total
    
    $
    233,655
  LONG-TERM DEBT
  LIQUIDITY
   22




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##### Table of Contents



ITEM 3. EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES
   23




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##### Table of Contents



PART II
 
 ITEM 1. LEGAL PROCEEDINGS
     
 ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
     
 ITEM 3. DEFAULTS UPON SENIOR SECURITIES
  
 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS
  
 ITEM 5. OTHER INFORMATION
  24




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##### Table of Contents



ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
 (a) Exhibits
 Exhibit
    
    Description31.1
    
    Certification of Principal Executive Officer Section 302 of the Sarbanes-Oxley Act of 200231.2
    
    Certification of Chief Financial Officer Section 302 of the Sarbanes-Oxley Act of 200232.1
    
    Certification of Principal Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley
Act of 200232.2
    
    Certification of Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of
2002
 (b) Reports on Form 8-K
  25




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##### Table of Contents



SIGNATURES
  NAME AND SIGNATURE
    
    TITLE
    
    DATE/s/ Michael Bowerman

Michael Bowerman
    
    Principal
Executive Officer
    
    August 11, 2006/s/ Benjamin Tam

Benjamin Tam
    
    Chief
Financial Officer
    
    August 11, 2006
 26