##### 



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: September 30, 2006
 Commission File # 0-33473
 DIGIFONICA INTERNATIONAL 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
   ̈ þ




---



##### 



DIGIFONICA INTERNATIONAL CORP.
 FORM 10-QSB
 For the Quarter Ended September 30, 2006
 Table of Contents
 PART I  FINANCIAL INFORMATIONItem 1  Financial StatementsItem 2  Managements Discussion and Analysis or Plan of OperationsItem 3  Controls and ProceduresPART II  OTHER INFORMATIONItem 1  Legal ProceedingsItem 2  Unregistered Sales of Equity Securities and Use of ProceedsItem 3  Defaults upon Senior SecuritiesItem 4  Submission of Matters to a Vote of Security HoldersItem 5  Other InformationItem 6  Exhibits and Reports on Form 8-KSIGNATURES
 2




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##### 



DIGIFONICA INTERNATIONAL CORP.
 For the Quarter Ended September 30, 2006
 PART I  FINANCIAL INFORMATION
   Page No.Consolidated Statements of Operations (unaudited) for the Three and Nine Months ended
September 30, 2006 and 2005
    
    
    4Consolidated Balance Sheet at September 30, 2006 (unaudited)
    
    
    5Consolidated Statement of Cash Flows (unaudited) for the Three and Nine Months ended September 30,
2006 and 2005
    
    
    6Consolidated Stockholders Equity/(Deficit) Statements (unaudited) for the Three and Nine Months
Ended September 30, 2006 and 2005
    
    
    7Notes to unaudited Consolidated Financial Statements
    
    
    8-16
 3




---



##### 



DIGIFONICA INTERNATIONAL CORP.
(A Development Stage Corporation)
 CONSOLIDATED STATEMENTS OF OPERATIONS
 (Unaudited)
 Cumulative PeriodThree Months
    
    
    Three Months
    
    
    Nine Months
    
    
    Nine Months
    
    
    from InceptionEnded
    
    
    Ended
    
    
    Ended
    
    
    Ended
    
    
    (Sept. 9, 2004) toSeptember 30,
    
    
    September 30,
    
    
    September 30,
    
    
    September 30,
    
    
    September 30,2006
    
    
    2005
    
    
    2006
    
    
    2005
    
    
    2006OPERATING EXPENSES:Accounting and Audit
    
    $
    20,248
    
    
    $
    8,262
    
    
    $
    77,454
    
    
    $
    8,262
    
    
    $
    269,613Salaries, wages and commissions
    
    
    197,500
    
    
    
    12,515
    
    
    
    560,900
    
    
    
    12,515
    
    
    
    790,703General and administrative
    
    
    226,307
    
    
    
    187,739
    
    
    
    434,129
    
    
    
    250,027
    
    
    
    1,040,936Legal
    
    
    97,936
    
    
    
    348,106
    
    
    
    281,875
    
    
    
    434,957
    
    
    
    639,496Rent
    
    
    25,626
    
    
    
    23,965
    
    
    
    108,796
    
    
    
    23,965
    
    
    
    159,573Depreciation
    
    
    48,936
    
    
    
    23,124
    
    
    
    197,376
    
    
    
    39,137
    
    
    
    300,724Sales and Marketing
    
    
    183,954
    
    
    
    195,808
    
    
    
    522,674
    
    
    
    336,720
    
    
    
    1,000,644Research and development
    
    
    794
    
    
    
    106,122
    
    
    
    2,271
    
    
    
    254,104
    
    
    
    241,471Travel
    
    
    8,388
    
    
    
    52,468
    
    
    
    68,378
    
    
    
    116,476
    
    
    
    246,303TOTAL OPERATING EXPENSES
    
    
    809,689
    
    
    
    958,109
    
    
    
    2,253,853
    
    
    
    1,476,163
    
    
    
    4,689,403Loss (gain) from disposition of
capital assets
    
    
    4,436
    
    
    
    
    
    
    
    4,436
    
    
    
    
    
    
    
    4,436LOSS BEFORE OTHER INCOME
(EXPENSE)
    
    
    (814,125
    )
    
    
    (958,109
    )
    
    
    (2,258,289
    )
    
    
    (1,476,163
    )
    
    
    (4,693,899
    )OTHER INCOME (EXPENSE):Loan Fees
    
    
    (72,985
    )
    
    
    
    
    
    
    (72,985
    )
    
    
    
    
    
    
    (72,985
    )Interest expense
    
    
    (12,741
    )
    
    
    
    
    
    
    (18,008
    )
    
    
    
    
    
    
    (34,837
    )Interest income
    
    
    1
    
    
    
    112
    
    
    
    31
    
    
    
    112
    
    
    
    183Foreign currency Gain/(Loss)
    
    
    (1,665
    )
    
    
    
    
    
    
    (1,665
    )
    
    
    
    
    
    
    (5,346
    )Gain on settlement of liabilities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    80,536TOTAL OTHER INCOME (EXPENSE)
    
    
    (87,390
    )
    
    
    112
    
    
    
    (92,627
    )
    
    
    112
    
    
    
    (32,449
    )LOSS FROM OPERATIONS
    
    
    (901,515
    )
    
    
    (957,997
    )
    
    
    (2,350,916
    )
    
    
    (1,476,051
    )
    
    
    (4,726,348
    )Income tax expenses
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    NET (LOSS)
    
    $
    (901,515
    )
    
    $
    (957,997
    )
    
    $
    (2,350,916
    )
    
    
    (1,476,051
    )
    
    $
    (4,726,348
    )NET (LOSS) PER SHARE  BASIC and
DILUTED:Net (Loss)
    
    $
    (0.038
    )
    
    $
    (0.045
    )
    
    $
    (0.102
    )
    
    $
    (0.081
    )
    
    $
    (0.226
    )WEIGHTED AVERAGE NUMBER OF
COMMON A SHARES:BASIC and DILUTED
    
    
    23,845,303
    
    
    
    21,321,400
    
    
    
    23,100,714
    
    
    
    18,270,136
    
    
    
    20,916,324
  4




---



##### 



DIGIFONICA INTERNATIONAL CORP.
(A Development Stage Corporation)
 CONSOLIDATED BALANCE SHEET
 (Unaudited)
 September 302006ASSETSCash and cash equivalents
    
    $
    1,005,785Other receivables
    
    
    8,043Inventories
    
    
    3,960Prepaid expenses and other current assets
    
    
    337,973Total current assets
    
    
    1,355,761Leasehold Improvements, Software and Equipment, Net of
accumulated depreciation of $300,724
    
    
    1,798,728TOTAL ASSETS
    
    $
    3,154,489LIABILITIES AND STOCKHOLDERS EQUITYLIABILITIESAccounts payable
    
    
    1,050,340Notes payable in default
    
    
    233,656Guarantee of bank note payable in default
    
    
    138,451Accrued expenses
    
    
    736,802Due to Related Parties
    
    
    194,974Loans from shareholders
    
    
    494,425Total current liabilities
    
    
    2,848,648COMMITMENTS AND CONTINGENCIESSTOCKHOLDERS EQUITYCommon A stock, $0.001 par value, 50,000,000 shares authorized:24,493,600 issued and outstanding at September 30, 2006 and
21,321,400 issued and outstanding at September 30, 2005
    
    
    24,493Common B stock, no par value, 1,000,000 shares authorized:none issued and outstanding
    
    
    Additional paid in capital
    
    
    5,016,794Accumulated other comprehensive income (loss)
    
    
    (9,098
    )Deficit accumulated during the development stage
    
    
    (4,726,348
    )TOTAL STOCKHOLDERS EQUITY
    
    
    305,841TOTAL LIABILITIES AND STOCKHOLDERS EQUITY
    
    $
    3,154,489
  5




---



##### 



DIGIFONICA INTERNATIONAL CORP.
(A Development Stage Company)
 CONSOLIDATED STATEMENTS OF CASH FLOWS
 (Unaudited)
 CumulativePeriodThree Months
    
    
    Three Months
    
    
    Nine Month
    
    
    Nine Month
    
    
    from InceptionEnded
    
    
    Ended
    
    
    Ended
    
    
    Ended
    
    
    (Sept. 9, 2004) toSeptember 30,
    
    
    September 30,
    
    
    September 30,
    
    
    September 30,
    
    
    September 30,2006
    
    
    2005
    
    
    2006
    
    
    2005
    
    
    2006FROM OPERATING ACTIVITIES:Net loss
    
    $
    (901,515
    )
    
    $
    (957,997
    )
    
    $
    (2,350,916
    )
    
    $
    (1,476,051
    )
    
    $
    (4,726,348
    )Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:Depreciation
    
    
    48,936
    
    
    
    23,124
    
    
    
    197,376
    
    
    
    39,137
    
    
    
    300,724Loss from disposition of capital assets
    
    
    4,436
    
    
    
    
    
    
    
    4,436
    
    
    
    
    
    
    
    4,436Common Stock issued for services rendered
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,200Changes in operating assets and liabilities:Other receivables
    
    
    10,034
    
    
    
    942,795
    
    
    
    48,079
    
    
    
    934,070
    
    
    
    963,333Inventories
    
    
    1,606
    
    
    
    (11
    )
    
    
    (337
    )
    
    
    (17,810
    )
    
    
    (3,960
    )Prepaid expenses and other current assets
    
    
    (268,680
    )
    
    
    21,464
    
    
    
    (271,994
    )
    
    
    (32,274
    )
    
    
    (313,607
    )Accounts payable
    
    
    3,084
    
    
    
    404,239
    
    
    
    216,540
    
    
    
    730,909
    
    
    
    600,491Guarantee of bank loan payable in default
    
    
    
    
    
    
    (138,451
    )
    
    
    
    
    
    
    (138,451
    )
    
    
    Accrued expenses
    
    
    67,391
    
    
    
    322,559
    
    
    
    33,222
    
    
    
    322,559
    
    
    
    20,080Due to Related Parties
    
    
    
    
    
    
    (192,477
    )
    
    
    
    
    
    
    (192,477
    )
    
    
    (27,503
    )NET CASH PROVIDED (USED) BY CONTINUING OPERATING
ACTIVITIES
    
    
    (1,034,708
    )
    
    
    425,245
    
    
    
    (2,123,594
    )
    
    
    169,612
    
    
    
    (3,177,154
    )FROM INVESTING ACTIVITIESPurchase of Leasehold improvements, software and
equipment
    
    
    (242,128
    )
    
    
    (131,098
    )
    
    
    (705,104
    )
    
    
    (997,206
    )
    
    
    (2,104,902
    )Proceeds from disposition of Leasehold
Improvements, software and equipment
    
    
    1,324
    
    
    
    
    
    
    
    1,324
    
    
    
    
    
    
    
    1,324Payable from Purchase of equipment
    
    
    
    
    
    
    
    
    
    
    (59,282
    )
    
    
    
    
    
    
    NET CASH (USED) IN INVESTING ACTIVITIES
    
    
    (240,804
    )
    
    
    (131,098
    )
    
    
    (763,062
    )
    
    
    (997,206
    )
    
    
    (2,103,578
    )FROM FINANCING ACTIVITIESIssuance of common stock, for cash
    
    
    2,864,892
    
    
    
    290,500
    
    
    
    3,706,292
    
    
    
    290,500
    
    
    
    5,801,500Proceeds/(Repayment) from loan
    
    
    (578,299
    )
    
    
    (812,346
    )
    
    
    205,942
    
    
    
    425,600
    
    
    
    494,425NET CASH PROVIDED (USED) BY FINANCING ACTIVITIES
    
    
    2,286,593
    
    
    
    (521,846
    )
    
    
    3,912,234
    
    
    
    716,100
    
    
    
    6,295,925Effect of Foreign currency translation on cash and
cash equivalents
    
    
    (22,573
    )
    
    
    145,236
    
    
    
    (52,514
    )
    
    
    143,838
    
    
    
    (9,098
    )NET INCREASE (DECREASE) IN CASH
    
    
    988,508
    
    
    
    (82,463
    )
    
    
    973,064
    
    
    
    32,344
    
    
    
    1,005,785CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD
    
    
    17,277
    
    
    
    119,899
    
    
    
    32,721
    
    
    
    5,092
    
    
    
    CASH AND CASH EQUIVALENTS AT END OF PERIOD
    
    $
    1,005,785
    
    
    $
    37,436
    
    
    $
    1,005,785
    
    
    $
    37,436
    
    
    $
    1,005,785SUPPLEMENTAL CASH FLOW DISCLOSURES:Cash paid during the period for:Interest
    
    $
    12,741
    
    
    $
    
    
    
    $
    18,008
    
    
    $
    
    
    
    $
    34,837Non-cash investing and financing activities:Liabilities assumed, reverse merger
    
    $
    
    
    
    $
    765,413
    
    
    $
    
    
    
    $
    765,413
    
    
    $
    765,413
  6




---



##### 



DIGIFONICA INTERNATIONAL CORP.
(A Development Stage Corporation)
 CONSOLIDATED STOCKHOLDERS EQUITY/(DEFICIT) STATEMENT
 (Unaudited)
 Cumulative Periodfrom InceptionThree Months
    
    
    Three Months
    
    
    Nine Months
    
    
    Nine Months
    
    
    (Sept. 9, 2004) toEnded
    
    
    Ended
    
    
    Ended
    
    
    Ended
    
    
    September 30,September 30, 2006
    
    
    September 30, 2005
    
    
    September 30, 2006
    
    
    September 30, 2005
    
    
    2006Common stock and paid-in capitalBalance, beginning of period
    
    $
    2,176,395
    
    
    $
    38,708
    
    
    $
    1,334,995
    
    
    $
    38,708
    
    
    $
    Recapitalization
    
    
    
    
    
    
    (765,413
    )
    
    
    
    
    
    
    (765,413
    )
    
    
    (765,413
    )Common stock issued for cash
    
    
    2,864,892
    
    
    
    290,500
    
    
    
    3,706,292
    
    
    
    290,500
    
    
    
    5,801,500Common stock issued for services
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,200Balance, end of period
    
    
    5,041,287
    
    
    
    (436,205
    )
    
    
    5,041,287
    
    
    
    (436,205
    )
    
    
    5,041,287Retained earnings (deficit)Balance, beginning of period
    
    
    (3,811,358
    )
    
    
    (582,225
    )
    
    
    (2,332,016
    )
    
    
    (62,773
    )
    
    
    Net Loss
    
    
    (901,515
    )
    
    
    (957,997
    )
    
    
    (2,350,916
    )
    
    
    (1,476,051
    )
    
    
    (4,726,348
    )Currency translation adjustments
    
    
    (22,573
    )
    
    
    145,236
    
    
    
    (52,514
    )
    
    
    143,838
    
    
    
    (9,098
    )Comprehensive (loss)
    
    
    (924,088
    )
    
    
    (812,761
    )
    
    
    (2,403,430
    )
    
    
    (1,332,213
    )
    
    
    (4,735,446
    )Balance, end of period
    
    
    (4,735,446
    )
    
    
    (1,394,986
    )
    
    
    (4,735,446
    )
    
    
    (1,394,986
    )
    
    
    (4,735,446
    )Total stockholders equity/(deficit)
    
    $
    305,841
    
    
    $
    (1,831,191
    )
    
    $
    305,841
    
    
    $
    (1,831,191
    )
    
    $
    305,841
  7




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##### 



DIGIFONICA INTERNATIONAL CORP.
(A Development Stage Company)
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 September 30, 2006
 (Unaudited)
 NOTE 1: ORGANIZATION
 Organization
      Principles of Consolidation
  8




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##### 



DIGIFONICA INTERNATIONAL CORP.
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2006
(Unaudited)
 NOTE 1: ORGANIZATION (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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##### 



DIGIFONICA INTERNATIONAL CORP.
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2006
(Unaudited)
 NOTE 2: SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
  Leasehold Improvements, Software and Equipment
  Furniture and fixtures
    
    
    20
    %Computers
    
    
    30
    %Nodes
    
    
    30
    %Equipment
    
    
    20
    %Software
    
    
    100
    %Capitalized software
    
    
    20
    %
 Impairment of Long-Lived Assets
  Foreign Exchange Translation
   10




---



##### 



DIGIFONICA INTERNATIONAL CORP.
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2006
(Unaudited)
 NOTE 2: SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
 Fair Value of Financial Instruments
  Loss per Common Share
  Accumulated Other Comprehensive Income
  Recent Accounting Pronouncements
   11




---



##### 



DIGIFONICA INTERNATIONAL CORP.
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2006
(Unaudited)
 NOTE 3: GOING CONCERN
  NOTE 4: LEASEHOLD IMPROVEMENTS, SOFTWARE AND EQUIPMENT
  September 30, 2006Leasehold Improvements
    
    $
    145,654Furniture & Fixtures
    
    
    18,318Computers
    
    
    93,486Nodes
    
    
    262,961Equipment
    
    
    254,824Software
    
    
    57,709Capitalized Software
    
    
    1,266,5002,099,452Accumulated depreciation
    
    
    (300,724
    )Total
    
    
    1,798,728
   12




---



##### 



DIGIFONICA INTERNATIONAL CORP.
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2006
(Unaudited)
 NOTE 5: STOCKHOLDERS EQUITY AND STOCK TRANSACTIONS
  
    
    50,000,000 shares of its Common A stock with par value of $.001
    
    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
    
    
    
    2,176,395September 7, 2006 private placement for cash with 795,000 warrants
    
    
    1,590,000
    
    
    
    1,590
    
    
    
    2,863,302
    
    
    
    2,864,892Balance at September 30, 2006
    
    
    24,493,600
    
    
    $
    24,493
    
    
    $
    5,016,794
    
    
    $
    5,041,287
      13




---



##### 



DIGIFONICA INTERNATIONAL CORP.
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2006
(Unaudited)
 NOTE 5: STOCKHOLDERS EQUITY AND STOCK TRANSACTIONS (CONTINUED)
  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
    
    
    947,100Issued
    
    
    948,268Exercised
    
    
    Balance, September 30, 2006
    
    
    1,895,368
   Number of Warrants
    
    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, 2008948,268
    
    
    $2.50 1st 12 months
    
    September 7, 2008$3.00 13th to 24th monthTotal
    
    
    1,895,368
 Stock Options
 14




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##### 



DIGIFONICA INTERNATIONAL CORP.
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2006
(Unaudited)
 NOTE 6: LEASE COMMITMENTS
   Year
    
    Amount2006
    
    $
    20,6822007
    
    
    82,7292008
    
    
    82,7292009
    
    
    82,729Total
    
    $
    268,869
 NOTE 7: RELATED PARTY TRANSACTIONS
   NOTE 8: COMMITMENTS CONTINGENCIES & LITIGATION
      15




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##### 



DIGIFONICA INTERNATIONAL CORP.
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2006
(Unaudited)
 NOTE 8: COMMITMENTS CONTINGENCIES & LITIGATION (CONTINUED)
 DIL Yinbo JV Company
 NOTE 9: COMPARATIVES
  16




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##### 



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




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##### 



GENERAL
      OVERVIEW OF COMPANY
   RECENT DEVELOPMENTS
  18




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##### 



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




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##### 



RESULTS OF OPERATIONS
  Cumulative PeriodThree Months
    
    
    Three Months
    
    
    Nine Months
    
    
    Nine Months
    
    
    from InceptionEnded
    
    
    Ended
    
    
    Ended
    
    
    Ended
    
    
    (Sept. 9, 2004) toSeptember 30,
    
    
    September 30,
    
    
    September 30,
    
    
    September 30,
    
    
    September 30,2006
    
    
    2005
    
    
    2006
    
    
    2005
    
    
    2006OPERATING EXPENSES:Accounting and Audit
    
    $
    20,248
    
    
    $
    8,262
    
    
    $
    77,454
    
    
    $
    8,262
    
    
    $
    269,613Salaries, wages and commissions
    
    
    197,500
    
    
    
    12,515
    
    
    
    560,900
    
    
    
    12,515
    
    
    
    790,703General and administrative
    
    
    226,307
    
    
    
    187,739
    
    
    
    434,129
    
    
    
    250,027
    
    
    
    1,040,936Legal
    
    
    97,936
    
    
    
    348,106
    
    
    
    281,875
    
    
    
    434,957
    
    
    
    639,496Rent
    
    
    25,626
    
    
    
    23,965
    
    
    
    108,796
    
    
    
    23,965
    
    
    
    159,573Depreciation
    
    
    48,936
    
    
    
    23,124
    
    
    
    197,376
    
    
    
    39,137
    
    
    
    300,724Sales and Marketing
    
    
    183,954
    
    
    
    195,808
    
    
    
    522,674
    
    
    
    336,720
    
    
    
    1,000,644Research and development
    
    
    794
    
    
    
    106,122
    
    
    
    2,271
    
    
    
    254,104
    
    
    
    241,471Travel
    
    
    8,388
    
    
    
    52,468
    
    
    
    68,378
    
    
    
    116,476
    
    
    
    246,303TOTAL OPERATING EXPENSES
    
    
    809,689
    
    
    
    958,109
    
    
    
    2,253,853
    
    
    
    1,476,163
    
    
    
    4,689,463Loss(gain) from disposition of
capital assets
    
    
    4,436
    
    
    
    
    
    
    
    4,436
    
    
    
    
    
    
    
    4,436LOSS BEFORE OTHER INCOME
(EXPENSE)
    
    
    (814,125
    )
    
    
    (958,109
    )
    
    
    (2,258,289
    )
    
    
    (1,476,163
    )
    
    
    (4,693,899
    )OTHER INCOME (EXPENSE):Loan fees
    
    
    (72,985
    )
    
    
    
    
    
    
    (72,985
    )
    
    
    
    
    
    
    (72,985
    )Interest expense
    
    
    (12,741
    )
    
    
    
    
    
    
    (18,008
    )
    
    
    
    
    
    
    (34,837
    )Interest income
    
    
    1
    
    
    
    112
    
    
    
    31
    
    
    
    112
    
    
    
    183Foreign currency Gain/(Loss)
    
    
    (1,665
    )
    
    
    
    
    
    
    (1,665
    )
    
    
    
    
    
    
    (5,346
    )Gain on settlement of liabilities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    80,536TOTAL OTHER INCOME (EXPENSE)
    
    
    (87,390
    )
    
    
    112
    
    
    
    (92,627
    )
    
    
    112
    
    
    
    (32,499
    )LOSS FROM OPERATIONS
    
    
    (901,515
    )
    
    
    (957,997
    )
    
    
    (2,350,916
    )
    
    
    (1,476,051
    )
    
    
    (4,726,348
    )Income tax expenses
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    NET (LOSS)
    
    $
    (901,515
    )
    
    $
    (957,997
    )
    
    $
    (2,350,916
    )
    
    
    (1,476,051
    )
    
    $
    (4,726,348
    )
 20




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##### 



THREE MONTHS ENDED SEPTEMBER 30, 2006 AND 2005
         NINE MONTHS ENDED SEPTEMBER 30, 2006 AND 2005
         LIQUIDITY AND CAPITAL RESOURCES
    21




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##### 



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
    
    
    17,900$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
    
    $
    233,656
  LONG-TERM DEBT
  LIQUIDITY
   22




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##### 



ITEM 3. EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES
   23




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##### 



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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##### 



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
  Date of event reported
    
    Items reportedSeptember 12, 2006
    
    Item 3.02  Unregistered sales of equity securitiesSeptember 21, 2006
    
    Item 5.02  Departure of Directors or Principal
Officers; Election of Directors; Appointment of
Principal officers
 25




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##### 



SIGNATURES
  NAME AND SIGNATURE
    
    TITLE
    
    DATE/s/ Michael Bowerman

Michael Bowerman
    
    Principal
Executive Officer
    
    November 15, 2006/s/ Jeff Bates

Jeff Bates
    
    Chief
Financial Officer
    
    November 15, 2006
 26