UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                              WASHINGTON, DC 20549

                                   FORM 10-QSB

         [X]      QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
                  SECURITIES ACT OF 1934

                For the quarterly period ended September 30, 2003

         [_]      TRANSITION REPORT UNDER SECTION 13 OR 15(D) OF THE EXCHANGE
                  ACT

         For the transition period from __________ to _________________


                       COMMISSION FILE NUMBER 333-05112-C

                                TELEDIGITAL, INC.
        (Exact name of small business issuer as specified in its charter)

         Delaware                                         93-0898539
(State or other jurisdiction of                        (I.R.S. Employer
incorporation or organization)                        Identification No.)

          1325 East 79th Street, Suite 6, Bloomington, Minnesota 55425
                    (Address of principal executive offices)

                                 (952) 876-0527
                           (Issuer's telephone number)


--------------------------------------------------------------------------------
                    (Former name, former address and former
                   fiscal year, if changed since last report)

Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.  Yes [_] No [X]

State the number of shares outstanding of each of the issuer's classes of common
stock, as of the latest practical date:

Common Stock, $.025 Par Value - 14,310,286 shares outstanding as of May 7, 2004.

Transitional Small Business Disclosure Format (check one): Yes [_] No [X]


<PAGE>

                                TELEDIGITAL, INC.
                                      INDEX

                                                                        Page No.
                                                                        --------
PART I.  FINANCIAL INFORMATION

         Item 1.  Financial Statements
              Consolidated Balance Sheets as of
              September 30, 2003 (Unaudited) and December 31, 2002            3

              Consolidated Statements of Operations (Unaudited) for the
              Three and Nine Months Ended June 30, 2003 and 2002              4

              Consolidated Statements of Cash Flows (Unaudited) for the
              Three and Nine Months Ended September 30, 2003 and 2002         5

              Notes to Consolidated Financial Statements                      7

         Item 2.  Management's Discussion and Analysis or Plan
                  of Operation                                               14

         Item 3.  Procedures and Controls                                    17


PART II. OTHER INFORMATION                                                   18

         Item 1.  Legal Proceedings

         Item 2.  Changes in Securities and Small Business Issuer
                       Purchases of Equity Securities

         Item 3.  Default Upon Senior Securities

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

         Item 5.  Other Information

         Item 6.  Exhibits and Reports on Form 8-K

SIGNATURES                                                                   19

EXHIBITS                                                                     20







                                       2
<PAGE>



PART I                              FINANCIAL INFORMATION
ITEM 1.  FINANCIAL STATEMENTS
                        TELEDIGITAL, INC. AND SUBSIDIARY
                           CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
                                                                   September 30,   December 31,
                                                                       2003           2002
                                                                   -------------   ------------
                                                                    (Unaudited)
<S>                                                                <C>             <C>
                                     ASSETS
CURRENT ASSETS
    Cash                                                           $     34,190    $    123,284
    Accounts receivable, net                                             60,461           4,490
    Due from related party                                                 --            42,574
    Inventories                                                          96,899         718,487
                                                                   ------------    ------------
        Total Current Assets                                            191,550         888,835
                                                                   ------------    ------------

PROPERTY AND EQUIPMENT, NET                                              13,518          25,325
                                                                   ------------    ------------

OTHER ASSETS
    Debt issuance costs, net                                            237,303            --
    Security and other deposits                                          10,753          10,753
                                                                   ------------    ------------
        Total Other Assets                                              248,056          10,753
                                                                   ------------    ------------
            TOTAL ASSETS                                           $    453,124    $    924,913
                                                                   ============    ============

                      LIABILITIES AND STOCKHOLDERS' DEFICIT

CURRENT LIABILITIES
    Short-term debt                                                $  1,987,961    $  2,233,120
    Notes payable - stockholders, net of original issue discount        428,400         470,000
    Current maturities of long-term debt                                  2,254           6,474
    Accounts payable                                                    513,812         307,376
    Accrued payroll and related taxes                                   265,689         316,898
    Accrued expenses                                                    158,059         124,578
    Deferred revenues and customer deposits                              15,000          75,319
                                                                   ------------    ------------
        Total Current Liabilities                                     3,371,175       3,533,765
LONG-TERM LIABILITIES
    Convertible debentures and long-term debt, net                      393,938             577
    Other long-term liability                                           635,000            --
                                                                   ------------    ------------
        Total Liabilities                                             4,400,113       3,534,342
                                                                   ------------    ------------
COMMITMENT AND CONTINGENCIES
STOCKHOLDERS' DEFICIT
    Undesignated preferred stock, 5,000,000 shares authorized
    Common stock, $.025 par value per share
        45,000,000 shares authorized
        14,064,232 and 14,030,409 shares issued and outstanding         351,605         350,760
    Additional paid-in capital                                        9,819,557       9,568,510
    Accumulated Deficit                                             (14,118,151)    (12,528,699)
                                                                   ------------    ------------
        Total Stockholders' Deficit                                  (3,946,989)     (2,609,429)
                                                                   ------------    ------------
            TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT            $    453,124    $    924,913
                                                                   ============    ============
</TABLE>

              See accompanying notes to consolidated financial statements.

                                       3

<PAGE>

                        TELEDIGITAL, INC. AND SUBSIDIARY
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                                   (Unaudited)
<TABLE>
<CAPTION>
                                                   Three months ended               Nine months ended
                                                     September 30,                    September 30,
                                              ----------------------------    ----------------------------
                                                 2003            2002             2003            2002
                                              ------------    ------------    ------------    ------------
<S>                                           <C>             <C>             <C>             <C>
NET SALES                                     $    516,679    $     89,001    $  1,345,228    $    203,335
COST OF GOODS SOLD                                 465,823          22,336       1,261,075         174,512

INVENTORY WRITE-DOWN TO
LOWER OF COST OR MARKET                               --              --              --           120,000
                                              ------------    ------------    ------------    ------------
    Gross Profit (Loss)                             50,856          66,665          84,153         (91,177)
                                              ------------    ------------    ------------    ------------

OPERATING EXPENSES
    General and administrative                     310,112         552,233         937,504       1,185,982
    Research and development                        42,651          31,764         233,060         130,606
    Marketing                                        4,377          10,492          24,933          20,492
    Impairment of intangible asset                    --            32,207            --            88,497
                                              ------------    ------------    ------------    ------------
        Total Operating Expenses                   357,140         626,696       1,195,497       1,425,577
                                              ------------    ------------    ------------    ------------
            Operating Loss                        (306,284)       (560,031)     (1,111,344)     (1,516,754)
                                              ------------    ------------    ------------    ------------
OTHER INCOME (EXPENSE)
    Interest expense                              (134,872)       (114,409)       (478,235)       (183,725)
    Other income (expense)                              59           3,541             127           3,541
                                              ------------    ------------    ------------    ------------
        Net Other Expense                         (134,813)       (110,868)       (478,108)       (180,184)
                                              ------------    ------------    ------------    ------------
            Loss Before Income Tax Expense        (441,097)       (670,899)     (1,589,452)     (1,696,938)
INCOME TAX EXPENSE                                    --              --              --              --
                                              ------------    ------------    ------------    ------------
    NET LOSS                                  $   (441,097)   $   (670,899)   $ (1,589,452)   $ (1,696,938)
                                              ============    ============    ============    ============
Basic and diluted net loss per common share   $      (0.03)   $      (0.05)   $      (0.11)   $      (0.15)
                                              ============    ============    ============    ============

Weighted-average common shares outstanding
    Basic and diluted                           14,064,232      13,947,526      14,056,449      11,147,544
                                              ============    ============    ============    ============
</TABLE>



          See accompanying notes to consolidated financial statements.

                                       4
<PAGE>


                        TELEDIGITAL, INC. AND SUBSIDIARY
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                   (Unaudited)

<TABLE>
<CAPTION>
                                                                                 For the Nine Months Ended September 30,
                                                                                            2003           2002
                                                                                        ------------   ------------
<S>                                                                                     <C>            <C>
CASH FLOWS FROM OPERATING ACTIVITIES
    Net loss                                                                            $(1,589,452)   $(1,696,938)
    Adjustments to reconcile net loss to net cash flows from operating activities:
        Depreciation and amortization                                                        11,807         13,085
        Impairment of intangible asset                                                         --           88,497
        Forgiveness of note receivable from employee                                           --            3,000
        Inventory write-down to lower of cost or market                                        --          120,000
        Amortization of original issue discount                                             189,990           --
        Amortization of debt issuance costs                                                  22,810           --
        Common stock issued for services                                                      8,200         29,675
        Changes in operating assets and liabilities:
            Accounts receivable, net                                                        (55,971)       113,154
            Inventories                                                                     621,588     (1,292,588)
            Security and other deposits                                                        --           (5,000)
            Due from related party                                                           42,574           --
            Accounts payable                                                                206,436        227,778
            Accrued payroll and related taxes                                               (51,209)      (214,393)
            Accrued expenses                                                                 44,915         (8,392)
            Deferred revenues and customer deposits                                         (60,319)          --
                                                                                        -----------    -----------
                Net Cash Flows from Operating Activities                                   (608,631)    (2,622,122)
                                                                                        -----------    -----------
CASH FLOWS FROM INVESTING ACTIVITIES
    Purchases of property and equipment                                                        --          (14,496)
    Cash received from acquisition of Tele Digital Development, Inc.                           --          615,424
                                                                                        -----------    -----------
            Net Cash Flows from Investing Activities                                           --          600,928
                                                                                        -----------    -----------
CASH FLOWS FROM FINANCING ACTIVITIES
    Checks issued in excess of bank balance                                                    --          (42,395)
    Net advances (payments) on short-term debt                                             (345,159)     1,303,000
    Net repayments of long-term debt                                                         (4,797)        (4,256)
    Net proceeds from (payments on) notes payable - stockholders and warrants issued        458,400        (47,000)
    Proceeds from other long-term liability                                                 635,000           --
    Payments for debt issuance costs                                                       (223,907)          --
    Proceeds from the exercise of stock warrants                                               --          177,047
    Proceeds from the issuance of common stock                                                 --          763,900
                                                                                        -----------    -----------
            Net Cash Flows from Financing Activities                                        519,537      2,150,296
                                                                                        -----------    -----------
        NET CHANGE IN CASH                                                                  (89,094)       129,102
CASH - Beginning of Period                                                                  123,284           --
                                                                                        -----------    -----------
    CASH - END OF PERIOD                                                                $    34,190    $   129,102
                                                                                        ===========    ===========
</TABLE>



                                       5


<PAGE>

<TABLE>
<S>                                                                                     <C>            <C>
Supplemental cash flow disclosures:
    Cash paid for interest                                                              $   256,793    $   132,028
                                                                                        ===========    ===========
    Conversion of notes payable-stockholders and accrued interest into long-term debt   $   411,434    $      --
                                                                                        ===========    ===========

    Conversion of long-term debt and accrued interest to common stock                                  $    32,000
                                                                                        ===========    ===========
    Warrants issued related to modifications of notes payable-stockholders and
    long-term debt                                                                      $    44,902    $      --
                                                                                        ===========    ===========
    Warrants issued for services related to debt issuance                               $    36,206    $      --
                                                                                        ===========    ===========
    Conversion of notes payable - stockholders to short-term debt                       $   100,000    $      --
                                                                                        ===========    ===========
    Issuance of common stock in exchange for assets and liabilities in
    connection with merger                                                              $      --      $    96,287
                                                                                        ===========    ===========
</TABLE>

                                       6

          See accompanying notes to consolidated financial statements.



<PAGE>



                        TELEDIGITAL, INC. AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           SEPTEMBER 30, 2003 AND 2002
                                   (UNAUDITED)



(1)  BASIS OF PRESENTATION

The accompanying unaudited consolidated financial statements of Teledigital,
Inc. and Subsidiary (the "Company" or "we") have been prepared by the Company in
accordance with accounting principles generally accepted in the United States of
America for interim financial information, pursuant to the rules and regulations
of the Securities and Exchange Commission. Pursuant to such rules and
regulations, certain financial information and footnote disclosures normally
included in the consolidated financial statements have been condensed or
omitted. The results for the periods indicated are unaudited, but reflect all
adjustments (consisting only of normal recurring adjustments) which management
considers necessary for a fair presentation of operating results.

Operating results for the three and nine months ended Sepetember 30, 2003 are
not necessarily indicative of the results that may be expected for the year
ending December 31, 2003. These unaudited consolidated financial statements
should be read in conjunction with the consolidated financial statements and
footnotes thereto included in the Company's Annual Report on Form 10-KSB for the
year ended December 31, 2002.

(2)  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

A summary of the Company's significant accounting policies consistently applied
in the preparation of the accompanying financial statements follows:

PRINCIPLES OF PRESENTATION. On July 17, 2002, XOX Corporation, filed a Current
Report on Form 8-K with the Securities and Exchange Commission reporting the
merger of Tele Digital Development, Inc. ("Tele Digital") with TD Acquisition,
Inc., then a wholly owned subsidiary of XOX Corporation (XOX). As described in
the Current Report, for accounting purposes, the merger was accounted for as a
reverse acquisition, with Tele Digital as the acquirer. The historical financial
statements of Tele Digital became the historical financial statements of XOX,
and the assets and liabilities of XOX are accounted for as required under the
purchase method of accounting. Results of operations of XOX are included in the
financial statements from July 3, 2002, the effective date of the merger. All
share data has been restated to give effect to the retroactive application of
Tele Digital's one-for-two reverse stock split, as approved by its Board of
Directors on June 27, 2002. All share data has been restated to give effect of
the merger under which each Tele Digital share was converted into .7483 shares
of Teledigital (Note 4).

Effective April 9, 2003, XOX changed its name to Teledigital, Inc.

REVENUE RECOGNITION. The Company recognizes revenue when it is realized and
earned. This generally does not occur until all of the following are met:
persuasive evidence of an arrangement to purchase exists, delivery has occurred,
the price is fixed and collection is reasonably assured. The Company considers
delivery to have occurred when our products are shipped.

Software license revenue is recognized when all of the following criteria have
been met: there is an executed license agreement, software has been delivered to
the customer, the license fee is fixed and payable within twelve months,
collection is deemed probable and product returns are reasonably estimable.

DEFERRED REVENUES AND CUSTOMER DEPOSITS. Deferred revenues represent payment
received in advance of products to be delivered and are recognized as revenue
when the product is shipped. Customer deposits are received from various



                                       7
<PAGE>

customers and are refundable upon termination of the contract.


SOFTWARE DEVELOPMENT COSTS. Software development costs are expensed as incurred.
Management is required to use professional judgment in determining whether
development costs meet the criteria for immediate expense or capitalization.

ALLOWANCE FOR DOUBTFUL ACCOUNTS. The Company maintains allowances for doubtful
accounts for estimated losses resulting from the inability of our customers to
make required payments. If the financial condition of specific customers were to
deteriorate, resulting in an impairment of their ability to make payments,
additional allowances may be required or revenue could be deferred until
collectibility becomes probable. Accounts receivable are shown net of allowances
of $43,500 and $1,500 at September 30, 2003 and December 31, 2002, respectively.

INVENTORIES AND RELATED ALLOWANCE FOR OBSOLETE AND EXCESS INVENTORY. Inventories
are valued at the lower of cost or market. Inventory consists of purchased
cellular telephones. An inventory obsolescence reserve was not considered
necessary at December 31, 2002 since an inventory write down of $545,984 was
recorded during the year. We do not believe that an inventory obsolescence
reserve is required at September 30, 2003.

LONG-LIVED ASSETS. Property, equipment, and intangible assets are amortized over
their useful lives. Useful lives are based on management's estimates of the
period that the assets will generate revenue. Property and equipment and
intangible assets are reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable.

NET LOSS PER COMMON SHARE. Basic net loss per common share is computed by
dividing the net loss by the weighted average number of common shares
outstanding for the reporting period. Diluted net loss per common share is
computed by dividing net loss by the sum of the weighted average number of
common shares outstanding plus all additional common stock that would have been
outstanding if potentially dilutive common shares related to common share
equivalents (stock options and stock warrants) had been issued. Potentially
dilutive common equivalent shares of 6,124,162 and 4,199,247 at September 30,
2003 and 2002, respectively, have not been included in the computation of
diluted net loss per common share for all periods presented because their
inclusion would be anti-dilutive.

STOCK-BASED COMPENSATION. In accordance with Accounting Principles Board (APB)
Opinion No. 25 and related interpretations, the Company uses the intrinsic
value-based method for measuring stock-based compensation cost which measures
compensation cost as the excess, if any, of the quoted market price of the
Company's common stock at the grant date over the amount the employee must pay
for the stock. The Company's general policy is to grant stock options at fair
value at the date of grant. Options and warrants issued to nonemployees are
recorded at fair value, as required by Statement of Financial Accounting
Standards (SFAS) No. 123, "Accounting for Stock-Based Compensation," using the
Black Scholes pricing model.

In December 2002, the Financial Accounting Standards Board (FASB) issued SFAS
No. 148 as an amendment to SFAS No. 123 providing alternative methods of
transition for a voluntary change to the fair value based method of accounting
for stock-based employee compensation and also provides required additional
disclosures about the method of accounting for stock-based employee
compensation. The amendments are effective for financial statements for fiscal
years ending after December 31, 2002 and for interim periods beginning after
December 15, 2002. The Company adopted the annual disclosure provision of SFAS
No. 148 during the year ended December 31, 2003. The Company has currently
chosen to not adopt the voluntary change to the fair value based method of
accounting for stock-based employee compensation, pursuant to SFAS No. 148.

No stock options were granted by the Company during the nine months ended
September 30, 2003. Stock options having a weighted average exercise price of
$1.71 per share for 729,153 shares were granted in the merger of XOX in the
quarter ended June 30, 2002. Also during the quarter ended June 30, 2002, stock
options for 336,735 shares with an exercise price of $0.53 were granted to
employees.

                                       8
<PAGE>

Pursuant to APB No. 25 and related interpretations, $36,207 and $0, and $44,407
and $29,675 of compensation cost related to stock warrants and shares being
issued for services has been recognized in the accompanying consolidated
statements of operations for the three and nine months ended September 30, 2003
and 2002, respectively. Had compensation cost been recognized based on the fair
value of options at the grant dates consistent with the provisions of SFAS No.
123, the Company's pro forma net loss and basic and diluted net loss per common
share would have been as follows:

<TABLE>
<CAPTION>
                                                   Three Months Ended           Nine Months Ended
                                                      September 30,                September 30,
                                               --------------------------    --------------------------
                                                   2003          2002           2003           2002
                                               -----------    -----------    -----------    -----------
<S>                                            <C>            <C>            <C>            <C>
Net Loss:
         As reported                           $  (441,097)   $  (670,899)   $(1,589,452)   $(1,696,938)
         Pro forma                             $  (441,097)   $  (670,899)   $(1,589,452)   $(1,696,938)

Basic and diluted net loss per common share:
         As reported                           $     (0.03)   $     (0.05)   $     (0.11)   $     (0.15)
         Pro forma                             $     (0.03)   $     (0.05)   $     (0.11)   $     (0.15)

Stock-based compensation:
         As reported                           $    36,207    $      --      $    44,407    $    29,675
         Pro forma                             $      --      $      --      $      --      $      --
</TABLE>

In determining the compensation cost of the options granted during the three and
nine months ended September 30, 2003, as specified by SFAS No. 123, the fair
value of each option grant has been estimated on the date of grant using the
Black-Scholes pricing model and the weighted average assumptions used in these
calculations are summarized as follows:

                                                            2003
                                                        -------------
         Risk-free interest rate                          3.5 - 4.5%
         Expected life of options granted                5 - 10 years
         Expected volatility range                           184%
         Expected dividend yield                              0%

USE OF ESTIMATES The preparation of financial statements in conformity with
accounting principles generally accepted in the United States of America
requires management to make estimates and assumptions that affect the amounts
reported in the consolidated financial statements and accompanying notes. Actual
results could differ from those estimates.

(3)  ABILITY TO CONTINUE AS A GOING CONCERN

The accompanying financial statements have been prepared in conformity with
accounting principles generally accepted in the United States of America, which
contemplate continuation of the Company as a going concern. However, the Company
incurred a net loss of $2,450,855 for the year ended December 31, 2002 and had a
working capital deficit of $2,644,930 at December 31, 2002. Also, the Company
incurred a net loss of $1,589,452 for the nine months ended September 30, 2003
and had a working capital deficit of $3,179,625 at September 30, 2003.

Recoverability of a major portion of the recorded asset amounts shown in the
accompanying consolidated balance sheet is dependent upon the Company obtaining
additional financing. The consolidated financial statements do not include any
adjustments relating to the recoverability and classification of recorded asset
amounts or classification of liabilities that might be necessary should the
Company be unable to continue in existence.

                                       9
<PAGE>

The Company's ability to continue as a going concern is dependent on its
ultimately achieving profitability and/or raising additional capital. Management
intends to obtain additional debt or equity capital to meet all of its existing
cash obligations and fund its operations, however, there can be no assurance
that additional capital will be available on terms favorable to the Company.
(See Note 11 - Subsequent Events and Item 2 - Liquidity and Capital Resources
for debt and equity financing completed since September 30, 2003).

(4)  BUSINESS ACQUISITION

Effective July 3, 2002, the Company completed its merger pursuant to an
Agreement and Plan of Merger dated as of January 7, 2002 by and among XOX
Corporation, Tele Digital Development, Inc. ("Tele Digital"), and TD
Acquisition, Inc., a wholly owned subsidiary of XOX, as amended by Amendment No.
1 to Agreement and Plan of Merger dated as of March 29, 2002 and Amendment No. 2
to Agreement and Plan of Merger dated as of June 30, 2002 (the "Merger
Agreement"). In the merger, TD Acquisition, Inc. merged with Tele Digital, with
Tele Digital being the surviving company and becoming a wholly owned subsidiary
of XOX.

In the merger, the former shareholders of Tele Digital received shares of XOX
common stock. In addition, in the merger, warrants and options to purchase
shares of Tele Digital common stock were converted into warrants and options to
purchase shares of XOX common stock. Each share of Tele Digital common stock was
converted into .7483 shares of XOX common stock, each warrant and option to
purchase one share of Tele Digital common stock was converted into a warrant or
option to purchase .7483 shares of XOX common stock.

Immediately after the merger, the former Tele Digital shareholders, option
holders and warrant holders together owned a total of approximately 77% of XOX
common stock on a fully-diluted basis, (assuming the exercise of all options and
warrants to purchase XOX common stock), and the pre-merger XOX stockholders
owned a total of approximately 23% of XOX common stock on a fully-diluted basis.
The merger involved only the issuance of XOX common stock, and no cash
consideration or other consideration was issued or used in the merger.

The Merger was accounted for as a reverse acquisition by Tele Digital, and,
accordingly, was deemed to be equivalent, for accounting purposes, to the
issuance of Tele Digital capital stock in exchange for the fair market value of
the assets and liabilities of XOX. As a result, no goodwill was recorded, and
the assets and liabilities of Tele Digital continue to be recorded at their
historic values.

(5)  SHORT-TERM DEBT

On May 3, 2002, the Company signed a $1,308,000 note payable with a commercial
finance company. The debt was incurred to finance the purchase of cellular
telephones. The note is collateralized by the cellular telephones purchased
under the agreement, a collateralized interest in all assets, and is jointly and
severally guaranteed by two stockholders and an officer of the Company. A
warrant to purchase 260,000 shares of the Company's common stock at an exercise
price of $0.50, expiring in September 2005, was issued to the finance company
under the loan agreement. The proceeds of $1,308,000 were allocated between the
note payable and the warrant based on the relative fair values of the securities
at the time of issuance. The warrant was valued using the Black Scholes pricing
model which determined it to be zero. In August 2003, for consideration for the
Company not repaying the loan, the Company issued a warrant to the finance
company to purchase 240,000 shares of the Company's common stock at an exercise
price of $0.50 per share, expiring in August 2006. The warrant was valued using
the Black Scholes pricing model. The resulting original issue discount, the fair
value of the warrant, is being amortized over the life of the note payable using
the straight-line method, which approximates the interest method. The note
payable accrues interest at a rate of 15% and 13% (effective rate of 22% and
13%) at September 30, 2003 and December 31, 2002, and matures on June 30, 2004
(Note 11). At September 30, 2003 and December 31, 2002, the balance due on the
note payable along with accrued financing costs and interest was $1,137,961 and
$1,290,120, respectively. Interest expense on this note payable for the three
months ended September 30 2003 and 2002 was $42,026 and $56,350, respectively
and was $158,044 and $83,745 for the nine months ended September 30, 2003 and
2002, respectively.


                                       10
<PAGE>

The Company had term loans outstanding due to a bank totaling $850,000 and
$943,000 at September 30, 2003 and December 31, 2002. At September 30, 2003, the
loan accrued interest at prime plus 3% with a minimum interest rate of 7.25%. At
December 31, 2002 the interest rate was prime plus 1% with a minimum interest
rate of 6.0%. All outstanding principal and accrued interest was due on March 5,
2003. The Company refinanced the outstanding bank loan in April 2003, and the
outstanding principal and accrued interest is due on June 30, 2004. The loan is
collateralized by substantially all the assets of the Company and is jointly and
severally guaranteed by two stockholders of the Company and the revocable trust
of one stockholder. Accrued interest was $0 and $4,650 at September 30, 2003 and
December 31, 2002, respectively. Interest expense on these loans for the three
months ended September 30 2003 and 2002 was $14,092 and $14,817, respectively
and was $49,436 and $45,449 for the nine months ended September 30, 2003 and
2002, respectively.

(6) LONG-TERM DEBT

Effective January 21, 2003, the Company commenced an offering (the "Offering")
of up to 500,000 units ("Units"). Each Unit consisted of a 10% convertible
promissory note in the principal amount of $1.00 and a five-year warrant to
purchase two shares of Common Stock with an exercise price of $0.75 per share.
The Company raised a total of $500,000 ($340,000 in 2003), which includes the
$160,000 bridge note to stockholder (Note 9), with net proceeds of approximately
$388,124 and debt issuance costs of approximately $111,876. Warrants for
1,000,000 shares had been issued in conjunction with the Offering with 680,000
warrants being issued during the nine months ended September 30, 2003 and
320,000 warrants being issued on December 31, 2002. The warrants were valued
using the Black Scholes pricing model. The resulting original issue discount,
the fair value of the warrants, was amortized over the life of the promissory
notes using the straight-line method, which approximates the interest method.
Effective June 30, 2003, principal of $400,000 and interest of $11,434 was
converted into two-year 10% debenture notes convertible into common stock with a
conversion price of $0.40 per share (the "Conversion"). The notes are reflected
on the financial statements as long-term debt. One promissory note for $100,000
was not converted (Note 9). For each $1.00 converted into the debenture, one
five-year warrant with an exercise price of $0.75 was issued. A total of 411,434
warrants were issued in conjunction with the Conversion. The proceeds of
$411,434 were allocated between the debenture notes and the warrants based on
the relative fair values of the securities at the time of conversion. The
warrants were valued using the Black Scholes pricing model. The resulting
original issue discount, is being amortized over the life of the debenture notes
using the straight-line method, which approximates the interest method. The
beneficial conversion of the promissory notes into debenture notes was valued
using the Black Scholes pricing model, and determined to be zero. In conjunction
with the Conversion, the Company agreed to grant the underwriter a five-year
warrant for 100,000 shares with an exercise price of $0.40 per share.

(7)  OTHER LONG-TERM LIABILITY

Effective April 7, 2003, the Company commenced an offering (the "Revenue
Offering") consisting of a minimum of three units and a maximum of ten units
(collectively, the "Revenue Units"). Each $50,000 Revenue Unit consists of a
right to receive a fee (the "Fee") in the amount of $0.07 for each monthly
license (PIN) sold by the Company, regardless of the dollar denomination of the
PIN, exclusive of PIN revenue generated in connection with the 9278 Mobile's
license agreement. The Revenue Units began earning Fees as of December 1, 2003
("Beginning Date") and will end the later of: (i) twenty-nine (29) months after
the Beginning Date or (ii) the date Investors receive 150% of the amount paid
for the Revenue Units. The Fees are to be paid on a monthly basis and are not
secured or guaranteed, and will be accreted monthly, beginning in December 2003.
The Company raised gross proceeds of $635,000 in the Revenue Offering with net
proceeds of $499,338 and debt issuance costs of $135,662 (including $36,206 of
non-cash debt issuance costs). A long-term liability for the amount of the gross
proceeds has been recorded in the accompany financial statements. The
underwriter for the Revenue Offering was granted a five-year warrant for 158,750
shares with an exercise price of $0.40 per share. The warrant was valued using
the Black Scholes pricing model.




                                       11
<PAGE>



(8) STOCKHOLDERS' DEFICIT

On June 27, 2002, the Company's Board of Directors approved a one-for-two
reverse stock split of its $0.01 par value (pre merger) common stock. The
reverse stock split reduced the number of shares of common stock previously
issued and outstanding at December 31, 2001, subject to an increase to eliminate
fractional interests resulting from the reverse stock split. No fractional
shares of common stock were issued in connection with the reverse stock split.
All share data is presented to give effect to the retroactive application of the
reverse stock split as if it occurred on December 31, 2001.

During the year ended December 31, 2002, the Company issued 1,429,066 shares of
common stock at $0.53 per share for gross proceeds of $763,900.

During the year ended December 31, 2002 the Company issued 3,320,028 shares of
common stock for the exchange of the fair market value of the assets and
liabilities of XOX Corporation of $504,056, which is net of costs of $207,655.


During the nine months ended September 30, 2003, the Company issued 15,340
shares of common stock in lieu of cash for services rendered of $8,200.

(9)  RELATED PARTY TRANSACTIONS

DUE TO RELATED PARTIES. The Company has received advances from the Chairman of
the Board. At September 30, 2003 and December 31, 2002, the balance due was
$278,400 and $260,000, respectively. Interest on $100,000 was the prime rate
plus 1% with a minimum interest rate of 6% (6% at December 31, 2002) and was
unsecured. This loan was repaid in June 2003. The remaining balances of $278,400
and $160,000 bear interest at 6.25%, at both September 30, 2003 and December 31,
2002, and are unsecured. The advances are due on June 30, 2004.

The Company received an advance on a bridge loan payable for $160,000 from a
stockholder of the Company. Interest on the $160,000 is being charged at 10%
(effective rate of 40%). Under the terms of the bridge loan agreement, $60,000
of the debt was converted in June 2003 into 60,000 units with each unit
consisting of one dollar principal amount of a 10% convertible debenture and a
five-year warrant to purchase one share of the Company's common stock at an
exercise price of $0.75 per share (Note 6). The remaining balance of $100,000
was originally due on December 31, 2003 and has been extended to December 31,
2004. In conjunction with the bridge loan a warrant was issued to purchase
320,000 shares of the Company's common stock at an exercise price of $0.75 per
share, that expires in March 2008. The warrant was valued using the Black
Scholes pricing model, and the value was determined to be zero.

The Company received advances from a stockholder the Company. At both September
30, 2003 and December 31, 2002, the balance due was $50,000. Interest is 13% and
the note is unsecured. Per the agreement, if principal was not repaid by
December 1, 2001, a three-year warrant to purchase 3,742 common shares would be
issued for every 30 days the note was unpaid after December 31, 2001. Three-year
warrants to purchase 56,122 shares of common stock were granted with the
issuance of the note and an additional three-year warrant to purchase 3,742
shares was granted as the note was unpaid at December 31, 2001. An additional
three-year warrant to purchase 44,898 shares was granted during the year ended
December 31, 2002 and a three-year warrant for 33,674 was granted on September
30, 2003. The warrants have an exercise price of $1.34, and expire through
December 2006. The warrants were valued using the Black Scholes pricing model,
and were determined to have a value of $2,307 at September 30, 2003 and zero
value at December 31, 2002. The resulting original issue discount, the fair
value of the warrants, was expensed, which approximates the interest method. The
note is convertible into common stock at the stockholder' option at a rate of
$1.34 per share. The beneficial conversion of the note into common stock was
valued using the Black Scholes pricing model, and determined to be zero.

Accrued interest on the notes payable - stockholders was $24,345 and $929 at
September 30, 2003

                                       12
<PAGE>

and December 31, 2002, respectively. Interest expense on the notes payable -
stockholders for the three months ended September 30 2003 and 2002 was $10,172
and $7,277, respectively and was $38,500 and $11,534 for the nine months ended
September 30, 2003 and 2002, respectively.

(10)  COMMITMENTS AND CONTINGENCIES

PAYROLL AND UNEMPLOYMENT TAXES. In March 2002, the Company filed the required
payroll and unemployment tax returns to the Internal Revenue Service (IRS), the
Minnesota Department of Revenue, and the Maryland Department of Revenue for the
years ending December 31, 2001 and December 31, 2000. Settlement agreements have
been finalized with all three taxing authorities. In June 2002, the State of
Minnesota filed a state tax lien against the Company's assets with respect to
the Company's withholding tax liabilities which remained outstanding. As of
December 31, 2002, this lien has been released. In July 2002, the IRS filed a
federal tax lien against the Company's assets with respect to the Company's
withholding tax liabilities which remained outstanding. The Company entered into
an agreement with the IRS effective April 1, 2003 which included monthly
payments of $12,500 during the months April through June, 2003, monthly payments
of $17,500 for the months July through September, 2003, and monthly payments of
$20,000 beginning in October 2003 until the debt is paid in full. At September
30, 2003 and December 31, 2002, an estimated liability for the amounts due,
including an estimate for penalties and interest, of approximately $178,000 and
$296,000, respectively, is included in accrued payroll and related taxes.

(11)  SUBSEQUENT EVENTS

Effective October 20, 2003, the Company commenced an offering (the "Private
Placement Offering") of up to 1,500,000 units, each unit consisting of a 10%
convertible two-year promissory note (the "Private Placement Note") in the
principal amount of $1.00 and a five-year warrant (the "Private Placement
Warrant") to purchase three shares of common stock, at an exercise price of
$0.75 for the first share, $1.00 for the second share and $1.25 for the third
share. An additional 225,000 units were reserved for over-subscription. The
Private Placement Notes bear interest at the rate of ten percent (10%) per annum
payable at maturity, and are convertible at any time until the maturity date
into two and one-half (2-1/2) shares of common stock for each $1.00 of principal
amount converted. Payment of the Private Placement Notes is not secured or
guaranteed. In connection with the Private Placement Offering, the Company
retained an agent to act as the Company's exclusive agent to offer and sell the
units. Further, the Company agreed to issue to the agent, as part of the agent's
compensation, a warrant to purchase a number of shares of common stock equal to
ten percent (10%) of the number of shares of Common Stock into which the Private
Placement Notes sold in the Private Placement Offering may be converted. The
Company issued 2,604,000 Private Placement Warrants to purchase common stock at
prices ranging from $.75 to $1.25 per share in connection with the Private
Placement Offering. The gross proceeds of $868,000 were allocated between the
Private Placement Notes and the Private Placement Warrants based on the relative
fair values of the securities at the time of issuance. The Private Placement
Warrants were valued using the Black Scholes pricing model. The resulting
original issue discount, the fair value of the Private Placement Warrants and
the beneficial conversion of the Private Placement Notes into common stock as
defined in EITF 00-27, "Application of Issue No. 98-5 to Certain Convertible
Instruments", will be amortized over the life of the Private Placement Notes
using the straight-line method, which approximates the interest method. As of
May 7, 2004 the Company has sold 868,000 units for net cash proceeds to the
Company of approximately $725,000 with debt issuance costs of $470,772 and has
issued the underwriter a five-year warrant with an exercise price of $0.40 for
217,000 shares of Common Stock. The Private Placement Offering through the
underwriter expired as of March 23, 2004 and the Company is continuing the
offering without the underwriter.

The maturity date on the $100,000 note payable - stockholder that was not part
of the Conversion (Note 6) was extended to December 31, 2004. As consideration
for the extension, the note holder was granted a warrant that expires on October
30, 2008 for 100,000 shares of the Company's common stock with an exercise price
of $0.75 per share (Note 9). The warrant was valued using the Black Scholes
pricing model. The resulting original issue discount, the fair value of the
warrant, is being amortized over the life of the loan payable using the
straight-line method, which approximates the interest method.

On April 28, 2004 the Company signed an $830,000 note payable to a bank. The
note has a term of five years and accrues interest at the prime rate (currently
4.0%) plus 2.0%, with a minimum of 6.0% and a maximum of 8.5% and had a 1.0%

                                       13
<PAGE>

origination fee. Repayment terms include interest only through December 2004
with monthly principal and interest payments of $7,042, adjusting as the
interest rate adjusts beginning January 2005. A penalty of 5% on any prepayment
in excess of 10% of the loan balance during the first year of the loan will have
to be paid; this prepayment penalty decreases one percent each year during the
term of the loan. The loan is guaranteed by the Company's Chairman of the Board
and a shareholder and the Company's Chairman has pledged collateral equaling at
least 133% of the loan amount.

$800,000 of the April 28, 2004 bank loan was used to make a payment to the
finance company on the loan to the purchase of cellular telephones that was
entered into on May 3, 2002. The Company anticipates that the remaining
principal and accrued interest due on that loan of $422,457 will be converted
into units of the October 20,2003 Private Placement Offering for a two-year 10%
debenture convertible into common stock of the Company at a conversion rate of
$0.40 and five-year warrants for 1,267,371 shares with an average exercise price
of $1.00 per share. The Company also anticipates that the Company's Chairman and
a shareholder will each personally guarantee $100,000 of the $422,457
obligation.


        ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION

RESULTS OF OPERATIONS

THREE MONTH AND NINE MONTH PERIODS ENDED SEPTEMBER 30, 2003 COMPARED SEPTEMBER
30, 2002

Net sales for the three months ended September 30, 2003 were $516,679 compared
to $89,001 for the same period in 2002, for a 480% increase. This increase was
the result of selling Audiovox CDM-135 dual-mode cellular telephones; fees for
installing our software on telephones supplied by our customers; and selling the
airtime to be used on those phones. As more phones are sold and have our
software installed, our monthly license fee (PIN fee) and airtime revenue
increases. Net sales for the nine months ended September 30, 2003 were
$1,345,228 compared to $203,333 for the same period in 2002, for a 561%
increase. In addition to increased sales of cellular telephones, fees for
installing our software and airtime, this increase also included a $50,000
one-time license fee received in the first quarter of 2003.

Cost of goods sold increased to $465,823 compared to $22,336 or almost 2000% for
the three months ended September 30, 2003 and increased more than 600% to
$1,261,075 from $174,511 for the nine months ended September 30, 2003 compared
to the same periods in 2002. The major components of the increases were sales of
Audiovox CDM-135 telephones for approximately the amount that they were written
down to at December 31, 2002 and increased airtime volume sold. Inventory was
written down by $120,000 in the second quarter of 2002 to reflect its decrease
in market value.

General and administrative expenses decreased to $310,112 from $552,233, or
$242,121, for the three months ended September 30, 2003 and decreased to
$937,504 from $1,185,982 or $248,478, for the nine months ended September 30,
2003 compared to the same periods in 2002. The third quarter decrease was
primarily the result of an asset impairment charge, directors and officers
liability insurance and expenses related to the merger with XOX in the third
quarter of 2002 offset by a write off of an account receivable of approximately
$60,000 and an increase in the allowance for bad debts of $42,000 for an account
that had overages in airtime usage that the Company paid for but was not paid by
the customer in 2003. The decrease for the nine month period was incurred in the
three months ended September 30, 2003 compared to the same period in 2002, but
there were expenses in each period that did not occur in the comparable period
of the prior year. In the first six months of 2003 we wrote off an account
receivable of approximately $90,000 for telephones the Company delivered for
which payment was never received and in the same period of 2002 we incurred
penalties and interest related to delinquent prior years' payroll and
unemployment taxes (see Note 10 to Consolidated Financial Statements under Item
1). Research and development costs increased during the three months ended
September 30, 2003 to $42,651from $31,764 for the same period in 2002 due to
having more contract services in 2003. For the nine months ended September 30,
2003 compared to the comparable period in 2002 research and development expenses
increased to $233,060 from $130,605 primarily as the result of a $125,000
payment to Audiovox for software development in 2003.

                                       14
<PAGE>

Marketing expenses decreased to $4,377 from $10,492 in the three months ended
September 30, 2003 compared to the prior year due to our attending a trade show
in 2002 but not in 2003. Marketing expenses for the nine months ended September
30, 2003 remained relatively constant at $24,934 compared to $20,492 for the
same period in 2002.

Interest expense increased by $20,463 to $134,872 during the three months ended
September 30, 2003 and by $289,642 to $478,234 during the nine months ended
September 30, 2003 compared with the same periods in 2002. This increase was
primarily due to the addition of the short-term note payable to a commercial
finance company to finance inventory in May 2002 (see Note 5 to Consolidated
Financial Statements under Item 1); interest on the bridge financing and
amortization of original issue discount related to the fair value of warrants
issued in conjunction with bridge financing in the first six months of 2003 (see
Note 5 to Consolidated Financial Statements under Item 1).

LIQUIDITY AND CAPITAL RESOURCES

At September 30, 2003, the Company had total current assets of $191,550, of
which $96,899 was inventory of telephones held for resale. Current assets
decreased by $697,285 from December 31, 2002, primarily as the result of selling
telephone inventory and a reduction of cash which was used in operations. At
September 30, 2003, the Company had total current liabilities of $3,371,175.
Current liabilities increased by $162,590 from December 31, 2002, primarily as
the result of an increase in accounts payable.

The Company used $608,631 of cash for operating activities during the nine
months ended September 30, 2003, primarily the result of a $1,589,452 net loss
from operations for the period which included a non-cash charge of $189,990 for
amortization of original issue discount, an increase in accounts payable of
$206,436, a $621,588 decrease in inventories. The Company had no investing
activities during the nine months ended September 30, 2003. Financing activities
generated $519,537 during the nine months ended September 30, 2003, which
primarily consisted of net proceeds from the Offering and Revenue Offering (see
Notes 5, 6, and 7 to Consolidated Financial Statements under Item 1).

Funding operating deficits and current liability payments will continue to
challenge the Company. Operating expenses will continue to exceed revenue in the
near future. Principal and interest obligations on Company debts, accrued
payroll taxes and outstanding accounts payable all require additional cash
payments.

The Company continues to generate operating losses. In 2003 we raised additional
capital of approximately $358,000 by issuing promissory notes under the Offering
for $500,000 of which $400,000 and the related accrued interest were converted
into 2-year notes with annual interest of 10% convertible into the Company's
common stock with a conversion price of $0.40 per share and five-year warrants
with an exercise price of $0.75 per share for every $1.00 converted. We raised
gross proceeds of $635,000 (net of approximately $535,000) in two Revenue
Offerings that commenced in April and September 2003 under which every $50,000
investment is entitled to a revenue share of $0.07 on each PIN sold over a
29-month period beginning December 2003 with a minimum payback of 150% invested.
In October 2003 we commenced the Private Placement Offering to raise up to $1.5
million in 10% convertible promissory notes and three five-year warrants with an
average exercise price of $1.00 for every $1.00 invested. As of March 23, 2004,
gross proceeds of $868,000 (net of approximately $725,000) have been raised
under this offering.

Our ability to continue as a going concern is dependent on ultimately achieving
profitability and/or raising additional capital. We intend to obtain additional
debt or equity capital to meet all of our existing cash obligations and to fund
our operations, however, there can be no assurance that additional capital will
be available on terms favorable to the Company. We believe that we will need to
raise incremental financing of $600,000 to $800,000 over the next six months
from the date of this filing to finance our operations and service current
liabilities until operating cash flows are sufficient to fund the Company's cash
requirements. There can be no assurance that we can raise the necessary capital
at all or under terms acceptable to us. The report of the Company's independent
certified public accountants for 2002 expresses substantial doubt as to the
ability of the Company to continue as a going concern.

We intend to obtain strategic investors that along with investing cash in the
Company will also generate additional revenue but once again, there can be no
assurance that we will be successful in obtaining any strategic investors.

                                       15
<PAGE>

Additional funds will also be required to add our prepaid software to additional
models of handsets.

At its current stage of business development, the Company's quarterly revenues,
results of operations and cash flows may be materially affected by, among other
factors, market acceptance of the Company and its products, demand for the
Company's products, development and introduction of next generation products,
general economic conditions and negotiations with current debtors. Some of these
factors are not within the control of the Company. As a result, there can be no
assurance that the Company will be sufficiently funded.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

The accounting policies used in preparing our interim 2003 consolidated
financial statements are the same as those described in our Annual Report on
Form 10-KSB for fiscal year ended December 31, 2002. Our significant accounting
policies are:

REVENUE RECOGNITION. The Company recognizes revenue when it is realized and
earned. This generally does not occur until all of the following are met:
persuasive evidence of an arrangement to purchase exists, delivery has occurred,
the price is fixed and collection is reasonably assured. The Company considers
delivery to have occurred when its products are shipped.

SOFTWARE DEVELOPMENT COSTS. Software development costs are expensed as incurred.
Management is required to use professional judgment in determining whether
development costs meet the criteria for immediate expense or capitalization.

ALLOWANCE FOR DOUBTFUL ACCOUNTS. The Company maintains allowances for doubtful
accounts for estimated losses resulting from the inability of our customers to
make required payments. If the financial condition of specific customers were to
deteriorate, resulting in an impairment of their ability to make payments,
additional allowances may be required or revenue could be deferred until
collectibility becomes probable. Accounts receivable are shown net of allowances
of $43,500 and $1,500 at September 30, 2003 and December 31, 2002, respectively.

INVENTORIES AND RELATED ALLOWANCE FOR OBSOLETE AND EXCESS INVENTORY. Inventories
are valued at the lower of cost or market. Inventory consists of purchased
cellular telephones. An inventory obsolescence reserve was not considered
necessary at December 31, 2002 since an inventory write down of $545,984 was
recorded during the year. Management does not believe that an inventory
obsolescence reserve is required at September 30, 2003.

LONG-LIVED ASSETS. Property, equipment, and intangible assets are amortized over
their useful lives. Useful lives are based on management's estimates of the
period that the assets will generate revenue. Property and equipment and
intangible assets are reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable.

NET LOSS PER COMMON SHARE. Basic net loss per common share is computed by
dividing the net loss by the weighted average number of common shares
outstanding for the reporting period. Diluted net loss per common share is
computed by dividing net loss by the sum of the weighted average number of
common shares outstanding plus all additional common stock that would have been
outstanding if potentially dilutive common shares related to common share
equivalents (stock options and stock warrants) had been issued. Potentially
dilutive common equivalent shares of 6,124,162 and 4,199,247 at September 30,
2003 and 2002, respectively, have not been included in the computation of
diluted net loss per common share for all periods presented because their
inclusion would be anti-dilutive.

USE OF ESTIMATES. The preparation of financial statements in conformity with
accounting principles generally accepted in the United States of America
requires management to make estimates and assumptions that affect the amounts
reported in the consolidated financial statements and accompanying notes. Actual
results could differ from those estimates.

                                       16
<PAGE>


CAUTIONARY FACTORS THAT MAY AFFECT FUTURE RESULTS

Preparing financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts in the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.

This Quarterly Report on Form 10-QSB, including the information incorporated by
reference herein and the exhibits hereto, and other written and oral statements
made from time to time by us may include "forward-looking" statements.
Forward-looking statements broadly involve our current expectations for future
results. Any statement that is not a historical fact, including estimates,
projections, future trends and the outcome of events that have not yet occurred,
are forward-looking statements. Our forward-looking statements generally relate
to our financing plans, trends affecting our financial condition or results of
operations, our growth and operating strategy, product development, competitive
strengths, the scope of our intellectual property rights, sales efforts, and the
declaration and payment of dividends. Words such as "anticipates," "believes,"
"could", "estimates," "expects," "forecast," "intend," "may," "plan,"
"possible," "project," "should," "will" and similar expressions generally
identify our forward-looking statements. You must carefully consider
forward-looking statements and understand that such statements involve a variety
of assumptions, risks and uncertainties, known and unknown, and may be affected
by a number of factors, including, among others, the factors discussed in our
Annual Report on Form 10-KSB for the year ended December 31, 2002.

We also caution you that forward-looking statements speak only as of the date
made. We undertake no obligation to update any forward-looking statement, but
investors are advised to consult any further disclosures by us on this subject
in our filings with the Securities and Exchange Commission, especially on Forms
10-KSB, 10-QSB, and 8-K (if any), in which we discuss in more detail various
important factors that could cause actual results to differ from expected or
historic results. We intend to take advantage of the safe harbor provisions of
the Private Securities Litigation Reform Act of 1995 regarding our
forward-looking statements, and are including this sentence for the express
purpose of enabling us to use the protections of the safe harbor with respect to
all forward-looking statements.

ITEM 3. CONTROLS AND PROCEDURES

As of the end of the period covered by this report, the Company conducted an
evaluation, under the supervision and with the participation of the Chief
Executive Officer and Chief Financial Officer, of the Company's disclosure
controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the
Securities Exchange Act of 1934 (the "Exchange Act")). Based on this evaluation,
the Chief Executive Officer and Chief Financial Officer concluded that the
Company's disclosure controls and procedures are effective to provide reasonable
assurance that information required to be disclosed by the Company in reports
that it files or submits under the Exchange Act is recorded, processed,
summarized and reported within the time periods specified in the rules and forms
of the Securities and Exchange Commission. The Company's delinquent filings have
been the result of the Company not having funds available to pay independent
auditors for their services on a timely basis.

The Company also evaluated, with the participation of the Chief Executive
Officer and Chief Financial Officer of the Company, any change in the Company's
internal control over financial reporting (as defined in Rules 13a-15(f) and
15d-15(f) under the Exchange Act) that occurred during the fiscal quarter
covered by this Quarterly Report on Form 10-QSB. There was no change in the
Company's internal control over financial reporting identified in that
evaluation that occurred during the fiscal quarter covered by this Quarterly
Report on Form 10-QSB that has materially affected, or is reasonably likely to
materially affect, the Company's internal control over financial reporting.
Management is aware that there is a lack of segregation of duties due to the
small number of employees dealing with general administrative and financial
matters. However, management has decided that considering the employees involved
and the control procedures in place,


                                       17
<PAGE>

risks associated with such lack of segregation are insignificant and the
potential benefits of adding employees to clearly segregate duties do not
justify the expenses associated with such increases.

                                     PART II
                                OTHER INFORMATION

ITEM 1.  LEGAL PROCEEDINGS

On April 13, 2004, Telemac Corporation filed a complaint in the Central District
of California U.S. District Court against Teledigital, Inc. and Tele Digital
Development, Inc. for patent infringement; unregistered mark infringement; false
description, representation and designation; and unfair competition asking the
Court to enjoin the Company from violating Telemac's intellectual property
rights under its patents and unregistered mark and to impose upon the Company
damages for its infringement of Telemac's intellectual property rights.

The Company and its legal counsel have conducted a review of the intellectual
property rights of both the Company and the third party. At this time, the
Company and its counsel do not believe that the third party's intellectual
property rights are as valid and enforceable as asserted.

We believe there are certain defenses and strategies available to the Company to
defend this matter; however, we cannot provide assurance that we will be
successful in defending ourselves against such claims. The Company is in the
process of retaining trial counsel and developing an activities budget to manage
this litigation. It is too early to determine what, if any, business arrangement
will develop as a result of discussions with Telemac, Inc. regarding this
matter. The costs involved in contesting the third party's claims can be
significant, but the Company believes they can be contained while a business
dialogue ensues. Because of the unpredictable nature of this process, there can
be no assurance on the outcome of this exchange or the litigation.

ITEM 2. CHANGES IN SECURITIES AND SMALL BUSINESS ISSUER PURCHASES OF EQUITY
SECURITIES

The Company had no sales of unregistered securities during the three months
ended September 30, 2003.

ITEM 3. DEFAULT UPON SENIOR SECURITIES

None

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

None

ITEM 5. OTHER INFORMATION

None

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

All financial statement schedules not listed have been omitted because the
required information is included in the Condensed Financial Statements or the
Notes thereto, or is not applicable.

                                       18
<PAGE>

         (a)      Exhibits

                  31.1 Certification of Chief Executive Officer and Chief
                  Financial Officer pursuant to Rule 13a - 14(a) of the
                  Securities Exchange Act of 1934 (filed herewith
                  electronically).

                  32.1 Certification of Chief Executive Officer and Chief
                  Financial Officer pursuant to 18 U.S.C Section 1350, as
                  adopted pursuant to Section 906 of the Sarbanes - Oxley Act of
                  2002 (filed herewith electronically).

         (b)      Reports on Form 8-K None

                                   SIGNATURES

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

Dated: May 7, 2004                     Teledigital, Inc.



                                       /s/ Richard L. Barnaby
                                       -------------------------------------
                                       Richard L. Barnaby
                                       President and Chief Executive Officer