**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**


Washington,
      D.C. 20549





**FORM
      10-QSB**





(Mark
      One)




xQUARTERLY
      REPORT UNDER
      SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For
      the
      quarterly period ended June 30, 2006 .




o


For
      the
      transition period from ____________  to
      _____________


Commission
      file number **001-15383**





**CARDINAL
      COMMUNICATIONS, INC.**


(Exact
      name of small business issuer as specified in its charter)





**NEVADA**           **91-2117796**


(State
      or
      other jurisdiction of incorporation or organization)     (IRS
      Employer Identification No.)





**11101
      120th AVENUE, SUITE 400, BROOMFIELD, COLORADO 80021**


(Address
      of principal executive offices)




**(303)
      285-5379**


(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 x No o




Indicate
      by check mark whether the registrant is a shell company (as defined in Rule
      12b-2 of the Exchange Act). Yes
o No
x




**APPLICABLE
      ONLY TO ISSUERS INVOLVED IN BANKRUPTCY**


**PROCEEDINGS
      DURING THE PRECEDING FIVE YEARS**




Check
      whether the registrant filed all documents and reports required to be filed
      by
      Section l2, 13 or 15(d) of the Exchange Act after
      the
      distribution of securities under a plan confirmed by a court.   
Yes o  No o




**APPLICABLE
      ONLY TO CORPORATE ISSUERS**




State
      the
      number of shares outstanding of each of the issuer’s classes of common equity,
      as of the latest practicable date:





As
      of
      August 10, 2006, there were 516,984,689 shares of the issuer’s outstanding
      common stock.





Transitional
      Small Business Disclosure Format (Check one): Yes o No
x








1


**Special
      Note Regarding Forward-Looking Statements**





This
      Form
      10-QSB and other reports filed by Cardinal Communications, Inc. (the
      "Registrant" or the “Company”) from time to time with the Securities and
      Exchange Commission (collectively the "Filings") contain forward looking
      statements and information that are based upon beliefs of, and information
      currently available to, the Registrant's management as well as estimates and
      assumptions made by the Registrant's management. When used in the Filings the
      words "anticipate", "believe", "estimate", "expect", "future", "intend", "plan"
      or the negative if these terms and similar expressions as they relate to the
      Registrant or the Registrant's management identify forward looking statements.
      Such statements reflect the current view of the Registrant with respect to
      future events and are subject to risks, uncertainties, assumptions and other
      factors relating to the Registrant's industry, operations and results of
      operations and any businesses that may be acquired by the Registrant. Should
      one
      or more of these risks or uncertainties materialize, or should the underlying
      assumptions prove incorrect, actual results may differ significantly from those
      anticipated, believed, estimated, expected, intended or planned.





2







**PART
      I - Financial Information**




**Item
      1.**  **Financial
      Statements**





**CARDINAL
      COMMUNICATIONS, INC. AND SUBSIDIARIES**





**FINANCIAL
      STATEMENTS** ****


**TABLE
      OF CONTENTS**





PAGEConsolidated
                Balance Sheet as of June 30, 2006 (Unaudited)
            4Consolidated
                Statements of Operations and Comprehensive Loss for the Three and
                Six
                Months ended June 30, 2006 and 2005 (Restated) (Unaudited)
            6Consolidated
                Statements of Cash Flows for the Six Months ended June 30 2006 and
                2005
                (Restated) (Unaudited)
            7Notes
                to Consolidated Financial Statements (Unaudited)
            9





3




CARDINAL
                  COMMUNICATIONS, INC. AND SUBSIDIARIESCONSOLIDATED
                  BALANCE SHEETJune
                  30, 2006 (UNAUDITED)ASSETS(Substantially
                  pledged)Cash
                  and cash equivalents
              
              $
              618,903Marketable
                  securities
              
              
              800Accounts
                  receivable, net
              
              
              338,833Notes
                  receivable - net of $1,168,606 discount
              
              
              950,778Other
                  receivables, net
              
              
              423,966Unamortized
                  financing costs
              
              
              60,608Deposits
                  and prepaid expenses
              
              
              987,116Property
                  and equipment, net
              
              
              1,417,976Real
                  estate and land inventory
              
              
              49,602,244Deferred
                  Costs of Goods Sold
              
              
              2,625,013Intangibles,
                  net
              
              
              6,725,813Other
                  assets
              
              
              373,378Assets
                  held for sale
              
              
              202,193Total
                  Assets
              
              $
              64,327,621The
                  accompanying notes are an integral part of these
                  statements.


4


CARDINAL
                      COMMUNICATIONS, INC. AND SUBSIDIARIESCONSOLIDATED
                      BALANCE SHEET (Continued)June
                      30, 2006 (UNAUDITED)LIABILITIES
                      AND STOCKHOLDERS' EQUITY (DEFICIT)Accounts
                      payable
                  
                  
                  
                  
                  $
                  5,455,793Accrued
                      expenses and other liabilities
                  
                  
                  
                  
                  
                  3,719,982Deferred
                      revenue
                  
                  
                  
                  
                  
                  3,507,263Land
                      and construction loans
                  
                  
                  
                  
                  
                  35,716,691Related
                      party debt
                  
                  
                  
                  
                  
                  4,552,054Notes
                      payable, net of $49,319 debt discount
                  
                  
                  
                  
                  
                  10,496,823Liabilities
                      of assets held for sale
                  
                  
                  
                  
                  
                  1,060,249Total
                      Liabilities
                  
                  
                  
                  
                  
                  64,508,855Commitments
                      and ContingenciesStock
                      Committed
                  
                  
                  
                  
                  
                  1,216,880Minority
                      Interest
                  
                  
                  
                  
                  
                  2,348,309Stockholders'
                      equity (deficit):Preferred
                      stock; par value $0.0001; issuable in series; authorized
                      100,000,000Series
                      A Convertible Preferred stock; issued and outstanding
                      6,750
                  
                  
                  
                  
                  
                  1Series
                      B Convertible Preferred stock; issued and outstanding
                      350,000
                  
                  
                  
                  
                  
                  35Common
                      stock; par value $0.0001; authorized 800,000,000; issued and
                      outstanding507,304,115
                  
                  
                  
                  
                  
                  50,730Additional
                      paid-in capital
                  
                  
                  
                  
                  
                  73,903,083Deferred
                      consulting
                  
                  
                  
                  
                  
                  (106,667
                  )Other
                      comprehensive (loss)
                  
                  
                  
                  
                  
                  (12,000
                  )Accumulated
                      (deficit)
                  
                  
                  
                  
                  
                  (77,581,605
                  )Total
                      Stockholders' Equity (Deficit)
                  
                  
                  
                  
                  
                  (3,746,423
                  )Total
                      Liabilities and Stockholders' Equity (Deficit)
                  
                  
                  
                  
                  $
                  64,327,621The
                      accompanying notes are an integral part of these
                      statements.
   5
   CARDINAL
                      COMMUNICATIONS, INC. AND SUBSIDIARIESCONSOLIDATED
                      STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS(UNAUDITED)Three
                      Months Ended June 30
                  
                  Six
                      Months Ended June 302006
                  
                  2005
                      (Restated)
                  
                  2006
                  
                  2005
                      (Restated)REVENUESRevenues
                  
                  $
                  5,687,714
                  
                  $
                  4,833,328
                  
                  $
                  8,800,338
                  
                  $
                  7,213,519Gain
                      on disposition of real estate
                  
                  
                  1,761,146
                  
                  
                  -
                  
                  
                  1,761,146
                  
                  
                  -Cost
                      of sales
                  
                  
                  (5,480,074
                  )
                  
                  (3,322,774
                  )
                  
                  (7,884,740
                  )
                  
                  (4,516,357
                  )Gross
                      profit
                  
                  
                  1,968,786
                  
                  
                  1,510,554
                  
                  
                  2,676,744
                  
                  
                  2,697,162OPERATING
                      EXPENSESDepreciation
                      and amortization
                  
                  
                  203,042
                  
                  
                  364,888
                  
                  
                  463,569
                  
                  
                  688,567Asset
                      impairment
                  
                  
                  168,875
                  
                  
                  -
                  
                  
                  253,941
                  
                  
                  -Accounts
                      Payable Settlements
                  
                  
                  13,652
                  
                  
                  -
                  
                  
                  13,652
                  
                  
                  -Professional
                      fees
                  
                  
                  421,654
                  
                  
                  1,101,439
                  
                  
                  1,067,515
                  
                  
                  1,917,865Rent
                  
                  
                  157,690
                  
                  
                  116,599
                  
                  
                  304,751
                  
                  
                  168,126Salaries
                      and commissions
                  
                  
                  844,429
                  
                  
                  1,376,057
                  
                  
                  1,477,766
                  
                  
                  1,987,581Selling,
                      general and administrative
                  
                  
                  402,712
                  
                  
                  511,745
                  
                  
                  703,551
                  
                  
                  869,410Total
                      operating expenses
                  
                  
                  2,212,054
                  
                  
                  3,470,728
                  
                  
                  4,284,745
                  
                  
                  5,631,549INCOME
                      (LOSS) FROM OPERATIONS
                  
                  
                  (243,268
                  )
                  
                  (1,960,174
                  )
                  
                  (1,608,001
                  )
                  
                  (2,934,387
                  )OTHER
                      INCOME (EXPENSE)Other
                      income (expense)
                  
                  
                  274,612
                  
                  
                  (19,546
                  )
                  
                  198,069
                  
                  
                  (29,600
                  )Accretion
                      of interest (expense) on convertible debt
                  
                  
                  (94,741
                  )
                  
                  (186,381
                  )
                  
                  (232,084
                  )
                  
                  (372,761
                  )Gain
                      (loss) on disposition of assets
                  
                  
                  -
                  
                  
                  -
                  
                  
                  12,970
                  
                  
                  (25,764
                  )Interest
                      (expense)
                  
                  
                  (510,509
                  )
                  
                  (270,748
                  )
                  
                  (951,809
                  )
                  
                  (429,446
                  )Total
                      other (expense)
                  
                  
                  (330,638
                  )
                  
                  (476,675
                  )
                  
                  (972,854
                  )
                  
                  (857,571
                  )(LOSS)
                      FROM CONTINUING OPERATIONS BEFORE MINORITY INTEREST
                  
                  
                  (573,906
                  )
                  
                  (2,436,849
                  )
                  
                  (2,580,855
                  )
                  
                  (3,791,958
                  )(Income)/loss
                      attributable to minority interest
                  
                  
                  83,054
                  
                  
                  87,657
                  
                  
                  158,562
                  
                  
                  (1,881
                  )(LOSS)
                      FROM CONTINUING OPERATIONS
                  
                  $
                  (490,852
                  )
                  $
                  (2,349,192
                  )
                  $
                  (2,422,293
                  )
                  $
                  (3,793,839
                  )Income
                      (loss) from discontinued operations
                  
                  $
                  (2,001,649
                  )
                  $
                  (24,343
                  )
                  $
                  (2,220,749
                  )
                  $
                  159,700NET
                      (LOSS) BEFORE COMPREHENSIVE (LOSS)
                  
                  $
                  (2,492,501
                  )
                  $
                  (2,373,535
                  )
                  $
                  (4,643,042
                  )
                  $
                  (3,634,139
                  )OTHER
                      COMPREHENSIVE (LOSS)Unrealized
                      holding (loss)
                  
                  
                  (19,200
                  )
                  
                  (551,200
                  )
                  
                  (12,000
                  )
                  
                  (551,200
                  )COMPREHENSIVE
                      (LOSS)
                  
                  $
                  (2,511,701
                  )
                  $
                  (2,924,735
                  )
                  $
                  (4,655,042
                  )
                  $
                  (4,185,339
                  )Income/(loss)
                      per common share, basic and diluted:(Loss)
                      from continuing operations
                  
                  $
                  (0.001
                  )
                  $
                  (0.009
                  )
                  $
                  (0.006
                  )
                  $
                  (0.016
                  )Income/(loss)
                      from discontinued operations
                  
                  $
                  (0.004
                  )
                  $
                  (0.000
                  )
                  $
                  (0.005
                  )
                  $
                  0.001Net
                      (loss)
                  
                  $
                  (0.005
                  )
                  $
                  (0.009
                  )
                  $
                  (0.011
                  )
                  $
                  (0.015
                  )Weighted
                      average number of shares outstanding
                  
                  
                  483,574,680
                  
                  
                  250,738,586
                  
                  
                  430,496,840
                  
                  
                  234,745,683The
                      accompanying notes are an integral part of these
                      statements.
    6
  CARDINAL
                      COMMUNICATIONS, INC. AND SUBSIDIARIESCONSOLIDATED
                      STATEMENTS OF CASH FLOWS(UNAUDITED)
  Six
                        Months Ended June 302006
                    
                    2005
                        (Restated)CASH
                        FLOWS FROM (TO) OPERATING ACTIVITIESNet
                        (loss) before comprehensive (loss)
                    
                    $
                    (4,643,042
                    )
                    $
                    (3,634,139
                    )Adjustments
                        to reconcile net (loss) to net cash provided by(used
                        in) operating activities:Depreciation
                        and amortization
                    
                    
                    463,569
                    
                    
                    688,567Stock
                        issued for consulting, fees and compensation
                    
                    
                    1,329,341
                    
                    
                    2,549,882Stock
                        options issued for consulting services
                    
                    
                    0
                    
                    
                    0Stock
                        committed for expenses
                    
                    
                    60,828
                    
                    
                    -Accretion
                        of interest expense on convertible debt
                    
                    
                    232,084
                    
                    
                    372,761Minority
                        interest loss of subsidiaries attributable to parent
                    
                    
                    (248,174
                    )
                    
                    30,672Income
                        (loss) attributable to minority interest
                    
                    
                    (158,562
                    )
                    
                    1,881(Gain)
                        Loss on sale of assets
                    
                    
                    (12,990
                    )
                    
                    25,764Asset
                        impairment
                    
                    
                    89,393
                    
                    
                    -(Gain)
                        loss from discontinued projects
                    
                    
                    33,569
                    
                    
                    -Changes
                        in Operating Assets and Liabilities:Accounts
                        receivable
                    
                    
                    115,838
                    
                    
                    (188,553
                    )Financing
                        costs
                    
                    
                    -
                    
                    
                    210,809Accounts
                        payable
                    
                    
                    3,129,551
                    
                    
                    1,474,308Accrued
                        expenses and other liabilities
                    
                    
                    (49,088
                    )
                    
                    730,424Deferred
                        revenue
                    
                    
                    882,278
                    
                    
                    1,013,555Other
                        assets and liabilities
                    
                    
                    49,250
                    
                    
                    (57,325
                    )Real
                        estate and land inventory
                    
                    
                    (3,758,181
                    )
                    
                    (1,202,006
                    )Deferred
                        Costs of Goods Sold
                    
                    
                    (835,319
                    )
                    
                    (621,354
                    )Net
                        cash provided by (used in) continuing operations
                    
                    
                    (3,319,655
                    )
                    
                    1,395,246Net
                        cash provided by (used in) discontinued operations
                    
                    
                    2,225,833
                    
                    
                    (264,347
                    )Net
                        cash from operations
                    
                    
                    (1,093,822
                    )
                    
                    1,130,899CASH
                        FLOWS FROM (TO) INVESTING ACTIVITIESPurchases
                        of property and equipment
                    
                    
                    (52,581
                    )
                    
                    (622,475
                    )Marketable
                        securities
                    
                    
                    -Cash
                        paid for acquisition
                    
                    
                    -
                    
                    
                    (294,765
                    )Issuance
                        of note receivable
                    
                    
                    (1,052,560
                    )
                    
                    -Purchases
                        of intangibles & other assets
                    
                    
                    (6,000
                    )
                    
                    (64,414
                    )Cash
                        acquired through acquisition
                    
                    
                    -
                    
                    
                    1,352,147Proceeds
                        from sale of assets
                    
                    
                    13,474
                    
                    
                    9,284Net
                        cash provided by (used in) investing activities
                    
                    
                    (1,097,667
                    )
                    
                    379,777CASH
                        FLOWS FROM (TO) FINANCING ACTIVITIESProceeds
                        from issuances of common stock
                    
                    
                    550,000
                    
                    
                    -Proceeds
                        from notes payable
                    
                    
                    10,149,879
                    
                    
                    7,465,569Proceeds
                        from related party notes payable
                    
                    
                    1,117,500
                    
                    
                    3,127Payments
                        on notes payable
                    
                    
                    (10,021,606
                    )
                    
                    (8,647,297
                    )Payments
                        on related party notes payable
                    
                    
                    (22,011
                    )
                    
                    44,585Collections
                        on subscriptions receivable
                    
                    
                    -
                    
                    
                    -Contributions
                        by minority interest members
                    
                    
                    -
                    
                    
                    -Investment
                        by minority interest members
                    
                    
                    52,021
                    
                    
                    -Net
                        cash provided by (used in) financing activities
                    
                    
                    1,825,783
                    
                    
                    (1,134,016
                    )Net
                        increase (decrease) in cash
                    
                    
                    (365,706
                    )
                    
                    376,660Cash
                        and cash equivalents, beginning of period
                    
                    
                    984,609
                    
                    
                    480,122Cash
                        and cash equivalents, end of period
                    
                    $
                    618,903
                    
                    $
                    856,782SUPPLEMENTAL
                        DISCLOSURE OF CASH FLOW INFORMATIONCash
                        paid for interest
                    
                    $
                    682,928
                    
                    $
                    225,444Stock
                        issued for acquisition of assets
                    
                    $
                    -
                    
                    $
                    5,705,000Stock
                        issued for satisfaction of debt
                    
                    $
                    1,387,931
                    
                    $
                    126,125
  The
                      accompanying notes are an integral part of these
                      statements.
   7


**SUPPLEMENTAL
      DISCLOSURE**


**OF
      NON-CASH INVESTING AND**


**OTHER
      CASH FLOW INFORMATION**





**Six
      Months Ended June 30 2006**





In
      the
      first quarter of 2006, the Company issued 12,552,131 shares under various
      consulting agreements, which shares were valued at $236,939; however $9,500
      of
      this expense was recorded as deferred consulting. Additionally, $22,340 of
      amortized deferred consulting was recognized during this period. In the second
      quarter of 2006, the Company issued 10,001,790 shares under various consulting
      agreements, which shares were valued at $160,992. Additionally, $14,003 of
      amortized deferred consulting was recognized during this period as consulting
      expense.





In
      the
      first quarter of 2006, the Company issued 841,750 shares to an outside director
      for committee services performed, which shares were valued at $15,000. In the
      second quarter of 2006, the Company issued 1,751,000 shares to an outside
      director for committee services performed, which shares were valued at
      $30,000.





In
      the
      first quarter of 2006, the Company issued 17,414,989 shares to employees as
      part
      of an employee stock purchase and compensation program, which shares were valued
      at $328,549. In the second quarter of 2006, the Company issued 19,764,010 shares
      to employees as part of an employee stock purchase and compensation program,
      which shares were valued at $308,205.





In
      the
      first quarter of 2006, the Company issued 4,090,920 shares under two consulting
      agreements for legal services, which shares were valued at $70,000. In the
      second quarter of 2006, the Company issued 10,876,980 shares under two
      consulting agreements for legal services, which shares were valued at $205,000;
      however $160,000 of this expense was recorded as deferred consulting.
      Additionally, $40,000 of amortized deferred consulting was recognized as legal
      fees during this period.





**Six
      Months Ended June 30 2005 (Restated)**





In
      the
      first quarter of 2005 (restated), the Company issued 13,656,959 shares under
      various consulting agreements, which shares were valued at $1,160,713.
      Additionally, $8,750 of amortized deferred consulting was recognized during
      this
      period. In the second quarter of 2005 (restated) the Company issued 20,815,500
      shares under various consulting agreements, which shares were valued at
      $1,182,901; however $65,190 of this expense was recorded as deferred consulting.
      Additionally, $8,750 of amortized deferred consulting was recognized during
      this
      period.





In
      the
      second quarter of 2005 (restated), the Company issued 1,142,625 shares to
      employees as part of an employee stock purchase and compensation program, which
      shares were valued at $67,126.





In
      the
      second quarter of 2005 (restated) the Company issued 4,166,667 shares pursuant
      to a debt settlement agreement. The shares issued were valued at $245,833:
      $119,708 was recorded as consulting fees and $126,125 was recorded as debt
      settlement.





8





**CARDINAL
      COMMUNICATIONS, INC. AND SUBSIDIARIES**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**SIX
      MONTHS ENDED JUNE 30 2006 AND 2005 (Restated)**


**(UNAUDITED)**





**Note
      1. Interim Consolidated Financial Statements**





In
      the
      opinion of management, the accompanying consolidated financial statements as
      of
      June 30 2006 and for the Six Months ended June 30 2006 and 2005 (restated),
      reflect all adjustments (consisting only of normal recurring adjustments)
      necessary to present fairly the financial condition, results of operations
      and
      cash flows of Cardinal Communications, Inc. and subsidiaries (“Company”), and
      include the accounts of the Company and all of its subsidiaries.




The
      financial statements included herein have been prepared by the Company, without
      audit, pursuant to the rules and regulations of the Securities and Exchange
      Commission (“SEC”). Certain information and footnote disclosures normally
      included in financial statements prepared in accordance with generally accepted
      accounting principles in the United States have been condensed or omitted
      pursuant to such rules and regulations. These unaudited financial statements
      should be read in conjunction with the financial statements and notes thereto
      included in the Company’s Annual Report on Form 10-KSB for the year ended
      December 31, 2005 filed with the SEC on April 17, 2006.





Certain
      reclassifications and adjustments may have been made to the categories presented
      in the financial statements for the comparative period of the prior fiscal
      year
      to conform to the 2006 presentation. The Company also reclassed cash paid for
      Investment in EMT to Issuance of note receivable on the Statement of Cash flows
      from the prior interim period (please see note 6 Acquisitions, Purchase and
      Exchange Agreement, for more details of this transaction). The Company also
      reclassed an amount of income from discontinued operations that was netted
      in
      other income (expense) on the income statement from the prior interim period
      to
      Income (loss) from discontinued operations. Please see Assets Held for Sale
      and
      Discontinued Operations under Note 2 for more details. The results of operations
      for the interim periods are not necessarily indicative of the results to be
      obtained for the entire year.





**Correction
      of an Error in Previously Issued Financial Statements**





The
      Company determined it had an accounting error recording sales when the Company
      still had obligations. In this error, the Company had recognized $2,041,670
      in
      sales for December 31, 2005 and $1,050,000 in sales for June 30, 2005. Please
      see Correction of an Error in Previously Issued Financial Statements under
      Note
      3 for more details.




**Going
        Concern**
 
 As
        of
        December 31, 2005 and June 30, 2006 the Company has experienced recurring
        losses
        and, as a result, there exists substantial doubt about its ability to
        continue as a going concern. For the Six Months ended June 30 2006, the
        Company incurred a net loss of $4,643,042. As of June 30 2006, Cardinal had
        an accumulated deficit of $77,581,605 . The Company actively seeking
        customers for its services. The financial statements do not include any
        adjustments relating to the recoverability and classification of recorded
        assets, or the amounts and classification of liabilities that might be necessary
        in the event it cannot continue in existence. These factors raise
        substantial doubt about its ability to continue as a going concern.





**Nature
      of Business**





The
      Company offers integrated construction and construction management services,
      as
      well as broadband communications design, implementation, and operations services
      to other large developers and municipalities seeking to deploy broadband
      services. The Company also continues to implement and expand its business plan
      as a provider of enhanced telephone (voice) services, cable television (video)
      and Internet (data) services to business and residential customers.





**Note
      2. Critical Accounting Policies**





**Principles
      of Consolidation**





The
      accompanying consolidated financial statements include all of the accounts
      of the
      Company and all
      majority owned and/or controlled subsidiaries. At June 30, 2006, the Company
      has
      recorded minority interest of $2,348,309 representing third party ownership
      of
      the entities not wholly owned by the Company. Sovereign Partners, LLC, a wholly
      owned subsidiary of the Company, consolidates all operations of its subsidiaries
      due to a controlling financial interest or a controlling management interest
      in
      these subsidiaries. Currently the Company is formally dissolving Usurf
      Communications, Inc., Usurf TV, Inc. Pinnacle T-Bone, LLC and Patio Homes at
      T-Bone Ranch, LLC. As the Company finalizes construction projects, certain
      other
      entities will be dissolved in 2006. The Company is actively trying to sell
      its
      subsidiary Connect Paging, Inc. d/b/a Get A Phone and subsequently has recorded
      the associated assets and liabilities as held for sale and the operating results
      are included in discontinued operations. Please
      see Assets Held for Sale and Discontinued Operations below for more
      details.


9








In
      accordance with the Emerging Issues Task Force Issue No. 03-16, Accounting
      for
      Investments in Limited Liability Companies, the equity method of accounting
      is
      used for affiliated LLC entities over which the Company has significant
      influence; generally this represents partnership equity or common stock
      ownership interests of at least 3% to 5% and not more than 50%. Under the equity
      method of accounting, the Company recognizes its pro rata share of the profits
      and losses of these entities and have been included in other assets.




Inter-company
      transactions and balances have been eliminated in the
      consolidation.





**Stock-Based
      Compensation**




Effective
      January 1, 2006, the Company adopted the fair value recognition provisions
      of SFAS No. 123R, under which compensation expense is recognized in the
      Consolidated Statement of Operations for the fair value of employee stock-based
      compensation. The Company has elected the modified-prospective transition method
      as permitted by SFAS No. 123R and accordingly, prior periods have not been
      restated to reflect the effect of SFAS No. 123R. The modified-prospective
      transition method requires that stock-based compensation expense recognized
      in
      the first quarter of fiscal 2006 include (1) quarterly amortization of all
      stock-based payments granted prior to, but not vested as of January 1,
      2006, based on the grant date fair value estimated in accordance with the
      original provisions of SFAS No. 123 and (2) quarterly amortization of
      all stock-based payments granted subsequent to January 1, 2006, based on
      the grant date fair value estimated in accordance with the provisions of SFAS
      No. 123R. In addition, pursuant to SFAS No. 123R, the Company is
      required to estimate the amount of expected forfeitures when calculating
      stock-based compensation expense, rather than accounting for forfeitures as
      incurred, which was the Company’s previous method. Compensation expense will be
      recognized over the requisite service (vesting) period using the straight-line
      attribution method. The Company has evaluated the impact of the adoption of
      SFAS
      123(R), and believes that it could have an impact to the Company's overall
      results of operations depending on the number of stock options granted in a
      given year; however no employee options have been granted nor vested in
      2006.




**Stock
      for Services**




The
      Company has issued stock pursuant to various consulting agreements. Deferred
      consulting costs which are valued at the stock price on the date of a particular
      agreement or the value of services, are recorded as a reduction of stockholders’
equity and are amortized over the useful lives of the respective
      agreements .




**Revenue
      Recognition**




The
      Company recognizes revenue from the sale of real estate when cash is received,
      title possession and other attributes of ownership have been transferred to
      the
      buyer and the Company is not obligated to perform significant additional
      services after sale and delivery. During construction, all direct material
      and
      labor costs and those indirect costs related to acquisition and construction
      are
      capitalized, and all customer deposits are treated as liabilities. Capitalized
      costs are charged to earnings upon revenue recognition. Costs incurred in
      connection with completed homes and selling, general and administrative costs
      are charged to expense as incurred.





For
      the
      mortgage brokerage operations, the Company only acts as an agent to place
      mortgages with third parties. The Company recognizes revenue on fees received
      from the mortgage lenders on the day the loan is closed, which is also the
      day
      the Company receives payment. The Company receives a percentage of the loan
      closing by the third party sponsor based on the interest rate charged to the
      consumer. The Company also recognizes loan origination fees from borrowers
      at
      closing.





The
      Company recognizes revenue from non-development construction consulting service
      activities when performed and there are no remaining service
      obligations.


10





The
      Company charges telephony, video and data customers monthly service fees and
      recognizes the revenue in the month the services are provided or equipment
      is
      sold. The Company bills monthly for voice (telephone) services in advance and
      generally receives payments during the month in which the services are provided.




**Deferred
      Revenue**




The
      Company recognizes revenues in the period in which the earnings process is
      complete with no future obligations to be performed by the Company. Revenues
      collected in advance of the earnings process must be recorded as deferred
      revenues, a liability account, for financial statement purposes. Deferred
      revenue at June 30, 2006 and 2005 (restated) were $3,507,263 and $1,058,780
      respectively.




Components
                  of Deferred Revenue at June 30, 2006Deferred
                  Revenue from Real Estate Sales
              
              $
              2,827,650Deferred
                  Revenue from Management Fees
              
              
              644,931Deferred
                  Revenue from Communications Sales
              
              
              34,682Total
                  Deferred Revenue
              
              $
              3,507,263




**Deferred
      Costs of Goods Sold**




The
      Company sells real estate inventory for which sales can not be recognized until
      all foreseeable obligations are satisfied. Inventory that is sold, but has
      not
      completed the earnings process is recorded as deferred costs of goods sold.
      If
      future expenses are anticipated at the time the inventory is sold, these costs
      are accrued at the time of the sale. Deferred costs of goods sold at June 30,
      2006 and 2005 (restated) were $2,625,013 and $621,354 respectively.




**Leasing
        Previously Sold Units**
  The
        Company has entered into a series of agreements to sell residential units
        and
        leased them back. These units are used for marketing purposes as model units.
        The revenue for these units is recognized at the time of sale of these units
        and
        the monthly rent expense is recognized expensed in the period incurred.
        Generally, the Company enters into one year lease agreements for these
        units, and the buyers have the right to sell the units during the lease
        period.
 
 The
        Company has also entered into a series of agreements to sell residential
        units
        and leased them back which the Company then holds for sale. The Company does
        not
        retain any ownership interest in these units. The sale of these units reduce
        commitments on construction lines of credit. Generally, the Company enters
        into
        one year lease agreements for these units, but the buyers have the right
        to sell
        the units during the lease period. The Company records the costs of these
        sales
        as deferred costs of goods sold until the unit is sold to another party.
        The
        revenue for these units is recognized as deferred revenue at the time of
        the
        sale. The Company then recognizes the revenue and corresponding costs of
        goods
        sold once the obligations of the Company are fully satisfied.




**Property
      and Equipment**




Property
      and equipment are stated at cost and are depreciated over the estimated useful
      lives of the assets.





Class
                of Asset
            Useful
                life in YearsAirplane
                and vehicles
            5Furniture
            5Data
                Hardware
            3Equipment
            5Leasehold
                improvements
            Lesser
                of life of lease or useful lifeRental
                real estate
            20





Maintenance
      and repairs are charged to expense as incurred and expenditures for major
      improvements are capitalized. When assets are retired or otherwise disposed
      of,
      the property accounts are relieved of costs and accumulated depreciation and
      any
      resulting gain or loss is credited or charged to operations.





Classifications
      of property and equipment and accumulated depreciation were as follows at June
      30, 2006:





Airplane
                and vehicles
            
            $
            605,012Furniture
            
            
            300,651Data
                Hardware
            
            
            109,831Equipment
            
            
            1,453,630Leasehold
                improvements
            
            
            46,565Rental
                real estate
            
            
            423,2782,938,967Less
                accumulated depreciation
            
            
            (1,520,991
            )Net
                property and equipment
            
            $
            1,417,976





For
      the
      six months ending June 30, 2006 and 2005 (restated), the Company recognized
      $350,729 and $261,404 of depreciation expense, respectively.


11





In
      June
      the company sold the developed real estate in its wholly owned subsidiary,
      Colorado River KOA, LLC. The company had developed these assets for sale;
      however the company has been leasing and receiving rental income from these
      facilities while holding the property for sale. Historically these developed
      assets were held as buildings and developments properties. The Company received
      $3,000,000 for the sale of these assets and recorded a gain on disposition
      of
      real estate for the assets of $1,761,146.





**Real
      Estate and Land Inventory**





Inventories,
      consisting of single and multi family residential units and commercial projects
      under construction, are stated at the lower of accumulated cost or net
      realizable value. Inventories under development or held for development are
      stated at accumulated cost, unless certain facts indicate such cost would not
      be
      recovered from the cash flows generated by future disposition. In this instance,
      such inventories are measured at fair value.





Sold
      units are expensed on a specific identification basis. Under the specific
      identification basis, cost of sales includes the construction cost of the unit,
      an average lot cost by project based on land acquisition and development costs,
      and closing costs and commissions. Construction related overhead and salaries
      are also capitalized and allocated proportionately to projects being developed.
      Construction cost of the unit includes amounts paid through the closing date
      of
      the unit.





Major
      components of inventory at June 30 2006 were:


Residential/Commercial
                units under construction
            
            $
            30,627,875Land
                under development
            
            
            18,974,369Total
                real estate and land inventory
            
            $
            49,602,244





The
      Company also leases back units it has sold for use as model units (marketing
      tools). The monthly rental expense is recorded in the period
      incurred.





**Bad
      Debt**





The
      Company estimates the amount of uncollectible accounts receivable and records
      an
      allowance for bad debt. Uncollectible accounts receivable are then charged
      against this allowance. At June 30 2006 the Company does not have a bad debt
      allowance.





**Goodwill**





Goodwill
      was recorded at its purchase price and is not being amortized. Pursuant to
      SFAS
      142 *Goodwill
      and Other Intangible Assets* and SFAS
      144 *Accounting
      for the Impairment or Disposal of Long-Lived Assets* ,
      the
      Company at December 31, 2005 evaluated its goodwill for impairment and
      determined the fair value of its goodwill exceeded the book cost. However,
      due
      to an unexpected downturn in the Texas communications market, the Company
      decided to retest the goodwill associated with Connect Paging, Inc. The Company
      determined through this process that all of the goodwill associated with Connect
      Paging, Inc. d/b/a Get A Phone should be impaired as of June 30, 2006. The
      Company has recorded an impairment charge in the income (loss) of discontinued
      operations of $1,820,824 - extinguishing the Get A Phone goodwill asset. Please
      see Assets Held for Sale and Discontinued Operations below for more details.


12








**Intangibles**





Classification
      of intangible assets and accumulated amortization at June 30 2006 were as
      follows:





DescriptionCustomer
                base
            
            $
            133,313Goodwill
            
            
            6,688,207Totals
            
            
            6,821,520Accumulated
                amortization
            
            
            (95,707
            )Intangibles,
                net
            
            $
            6,725,813





For
      the
      Six Months ended June 30 2006 and 2005 (restated), the Company recognized
      $112,840 and $427,163 of amortization expense, respectively.





**Loss
      Per Common Share**





The
      loss
      per common share is presented in accordance with the provisions of SFAS No.
      128 *Earnings
      Per Share* .
      Basic
      loss per common share has been computed by dividing the net loss available
      to
      the common stockholder by the weighted average number of shares of common stock
      outstanding for the period. The effect of considering all potential dilutive
      securities is not presented as the effects would be anti-dilutive.





**Investment
      in EMT**





In
      February, 2006, the Company received 46,000,000 shares of Entertainment Media
      and Telecoms Corporation, Australian Stock Exchange code “ETC”. Our basis in
      these shares was valued at $87,924 US Dollars and $339,618 was recorded as
      a
      reduction to the Note Receivable from GalaVu while $251,694 was recorded as
      a
      reduction to the GalaVu Receivable Discount. In April, 2006, the Company
      received 7,250,000 shares of Entertainment Media and Telecoms Corporation,
      Australian Stock Exchange code “ETC”. Our basis in these shares was valued at
      $13,858 US Dollars and $53,527 was recorded as a reduction to the Note
      Receivable from GalaVu while $39,669 was recorded as a reduction to the GalaVu
      Receivable Discount. The GalaVu transaction is described in further detail
      under
      Note 6. Acquisitions.





**Marketable
      Securities and Comprehensive Income**





At
      June
      30 2006, the Company was holding 1,000 shares of EATware Corporation stock
      (OTCBB: EATW) and the market value of the shares was $800, while the book value
      of the shares was $12,800 as of December 31, 2005 (restated). At December 31,
      2005 the stock held was 4,000,000 shares of ZKID Network Company (OTCBB: ZKID),
      subsequently in 2006 ZKID Network Company renamed itself to EATware Corporation
      (OTCBB: EATW) and executed a 4,000:1 reverse stock split.





**Note
      3. Correction of an Error in Previously Issued Financial Statements**





The
      Company determined it had an accounting error recording sales when the
      Company still had obligations. In this error, the company had recognized
      $2,041,670 in sales for December 31, 2005 and $1,050,000 in sales for June
      30,
      2005. Accordingly, certain historical transactions have been reclassified on
      the
      financial statements as of June 30, 2006 and 2005. To correct this error, the
      Company will restate its previously filed quarterly financial statements for
      the
      first three quarters of 2005, the previously filed financial statements of
      and
      for the year ended December 31, 2005, and its previously filed quarterly
      financial statements for the first quarter of 2006.





The
      accompanying tables reconcile the Company's results of operations for the year
      ended December 31, 2005 and the Company's financial position as of December
      31,
      2005, both previously reported in the Company's 2005 Annual Report on Form
      10-KSB, to the restated financial statements.


13





For
                  the Year Ended December 31, 2005
              
              As
                  Reported in2005 10-KSB
              
              (Unaudited)Adjustments
              
              RestatedAmounts
                  for2005Revenues
              
              $
              19,301,897
              
              $
              (2,041,670
              )
              $
              17,260,227Cost
                  of Sales
              
              
              (16,208,757
              )
              
              1,854,910
              
              
              (14,353,847
              )Gross
                  Profit
              
              
              3,093,140
              
              
              (186,760
              )
              
              2,906,380Total
                  operating (expenses)
              
              
              (12,305,839
              )
              
              (201,211
              )
              
              (12,507,050
              )Total
                  other (expense)
              
              
              (2,067,209
              )
              
              0
              
              
              (2,067,209
              )(LOSS)
                  FROM CONTINUING OPERATIONS BEFORE MINORITY INTEREST
              
              
              (11,279,908
              )
              
              (387,971
              )
              
              (11,667,879
              )(Income)/loss
                  attributable to minority interest
              
              
              565,792
              
              
              160,621
              
              
              726,413(LOSS)
                  FROM CONTINUING OPERATIONS
              
              
              (10,714,116
              )
              
              (227,350
              )
              
              (10,941,466
              )Income
                  (loss) from discontinued operations
              
              $
              (511,162
              )
              $
              (0
              )
              $
              (511,162
              )NET
                  (LOSS)
              
              $
              (11,225,278
              )
              $
              (227,350
              )
              $
              (11,452,628
              )Income/(loss)
                  per common share, basic and diluted:(Loss)
                  from continuing operations
              
              $
              (0.04
              )
              $
              (0.00
              )
              $
              (0.04
              )Income/(loss)
                  from discontinued operations
              
              $
              (0.00
              )
              $
              (0.00
              )
              $
              (0.00
              )Net
                  (loss)
              
              $
              (0.04
              )
              $
              (0.00
              )
              $
              (0.04
              )Weighted
                  average number of shares outstanding
              
              
              258,985,141
              
              
              258,985,141
              
              
              258,985,141


For
                      the Year Ended December 31, 2005
                  
                  As
                      Reported in
                    2005
                      10-KSB
                  
                  (Unaudited)
                    Adjustments
                  
                  Restated
                    Amountsfor
                    2005ASSETSUnchanged
                      Assets
                  
                  $
                  59,875,996
                  
                  $
                  0
                  
                  $
                  59,875,996Deferred
                      Costs of Goods Sold
                  
                  
                  0
                  
                  
                  1,789,694
                  
                  
                  1,789,694Total
                      Assets
                  
                  $
                  59,875,996
                  
                  $
                  1,789,694
                  
                  $
                  61,665,690LIABILITIES
                      AND STOCKHOLDERS' EQUITY (DEFICIT)Unchanged
                      Liabilities
                  
                  $
                  53,320,106
                  
                  $
                  0
                  
                  $
                  53,320,106Accrued
                      expenses and other liabilities
                  
                  
                  3,681,711
                  
                  
                  135,996
                  
                  
                  3,817,707Deferred
                      revenue
                  
                  
                  583,315
                  
                  
                  2,041,670
                  
                  
                  2,624,985Total
                      Liabilities
                  
                  
                  57,585,132
                  
                  
                  2,177,666
                  
                  
                  59,762,798Commitments
                      and ContingenciesStock
                      Committed
                  
                  
                  2,804,837
                  
                  
                  0
                  
                  
                  2,804,837Minority
                      Interest
                  
                  
                  2,542,406
                  
                  
                  (160,621
                  )
                  
                  2,381,785Stockholders'
                      equity (deficit):Unchanged
                      Equity
                  
                  
                  69,333,594
                  
                  
                  0
                  
                  
                  69,333,594Accumulated
                      (deficit)
                  
                  
                  (72,389,973
                  )
                  
                  (227,351
                  )
                  
                  (72,617,324
                  )Total
                      Stockholders' Equity (Deficit)
                  
                  
                  (3,056,379
                  )
                  
                  (227,351
                  )
                  
                  (3,283,730
                  )Total
                      Liabilities and Stockholders' Equity (Deficit)
                  
                  $
                  59,875,996
                  
                  $
                  1,789,694
                  
                  $
                  61,665,690


The
      accompanying tables reconcile the Company's results of operations for the six
      months ended June 30, 2005 and the Company's financial position as of June
      30,
      2005, both previously reported in the Company's 2005 Quarterly Report on Form
      10-QSB, to the restated financial statements.


14


For
                  the Six Months Ended June 30, 2005
              
              As
                  Reportedin 2005 10-QSB
              
              (Unaudited)Adjustments
              
              RestatedAmounts
                  for2005Revenues
              
              $
              8,263,519
              
              $
              (1,050,000
              )
              $
              7,213,519Cost
                  of Sales
              
              
              (5,146,796
              )
              
              630,439
              
              
              (4,516,357
              )Gross
                  Profit
              
              
              3,116,723
              
              
              (419,561
              )
              
              2,697,162Total
                  operating (expenses)
              
              
              (5,622,463
              )
              
              (9,086
              )
              
              (5,631,549
              )Total
                  other (expense)
              
              
              (857,571
              )
              
              0
              
              
              (857,571
              )(LOSS)
                  FROM CONTINUING OPERATIONS BEFORE MINORITY INTEREST
              
              
              (3,363,311
              )
              
              (428,647
              )
              
              (3,791,958
              )(Income)/loss
                  attributable to minority interest
              
              
              (210,990
              )
              
              209,109
              
              
              (1,881
              )(LOSS)
                  FROM CONTINUING OPERATIONS
              
              
              (3,574,301
              )
              
              (219,538
              )
              
              (3,793,839
              )Income
                  (loss) from discontinued operations
              
              $
              159,700
              
              $
              -
              
              $
              159,700NET
                  (LOSS)
              
              $
              (3,414,601
              )
              $
              (219,538
              )
              $
              (3,634,139
              )Income/(loss)
                  per common share, basic and diluted:(Loss)
                  from continuing operations
              
              $
              (0.02
              )
              $
              (0.00
              )
              $
              (0.01
              )Income/(loss)
                  from discontinued operations
              
              $
              0.00
              
              $
              0.00
              
              $
              0.00Net
                  (loss)
              
              $
              (0.01
              )
              $
              (0.00
              )
              $
              (0.01
              )Weighted
                  average number of shares outstanding
              
              
              234,745,683
              
              
              258,985,141
              
              
              258,985,141


For
                    the Six Months Ended June 30, 2005
                
                As
                    Reported
                  in
                    2005 10-QSB
                
                (Unaudited)
                  Adjustments
                
                Restated
                  Amounts
                    for
                  2005ASSETSUnchanged
                    Assets
                
                $
                61,570,415
                
                $
                0
                
                $
                61,570,415Deferred
                    Costs of Goods Sold
                
                
                0
                
                
                621,353
                
                
                621,353Total
                    Assets
                
                $
                61,570,415
                
                $
                621,353
                
                $
                62,191,768LIABILITIES
                    AND STOCKHOLDERS' EQUITY (DEFICIT)Unchanged
                    Liabilities
                
                $
                50,424,224
                
                $
                0
                
                $
                50,424,224Accrued
                    expenses and other liabilities
                
                
                1,938,622
                
                
                0
                
                
                1,938,622Deferred
                    revenue
                
                
                8,780
                
                
                1,050,000
                
                
                1,058,780Total
                    Liabilities
                
                
                52,371,626
                
                
                1,050,000
                
                
                53,421,626Commitments
                    and ContingenciesStock
                    Committed
                
                
                2,037,750
                
                
                0
                
                
                2,037,750Minority
                    Interest
                
                
                3,976,806
                
                
                (209,109
                )
                
                3,767,697Stockholders'
                    equity (deficit):Unchanged
                    Equity
                
                
                67,763,528
                
                
                0
                
                
                67,763,528Accumulated
                    (deficit)
                
                
                (64,579,295
                )
                
                (219,538
                )
                
                (64,798,833
                )Total
                    Stockholders' Equity (Deficit)
                
                
                3,184,233
                
                
                (219,538
                )
                
                2,964,695Total
                    Liabilities and Stockholders' Equity (Deficit)
                
                $
                61,570,415
                
                $
                621,353
                
                $
                62,191,768




15









**Note
      4. Assets held for sale**





**Assets
      Held for Sale and Discontinued Operations**





In
      June,
      2006, the Company’s Board of Directors decided to seek a buyer of the Company’s
      wholly owned subsidiary Connect Paging, Inc. d/b/a Get A Phone. Pursuant to
      SFAS
      144 Accounting for the Impairment or Disposal of Long-Lived Assets, the Company
      has reclassified the balance sheet amounts and the income statement results
      from
      the historical presentation to assets held for sale and liabilities of assets
      held for sale and loss from discontinued operations. The cash flows have also
      been reclassified for all periods presented. The Company expects to sell Get
      A
      Phone within the next 12 months. After the completion of the sale, the Company
      will not have any significant continuing involvement in Get A Phone’s
      operations.





The
      sales
      price the Company’s Board of Directors is seeking is in excess of the carrying
      value of these assets and liabilities and therefore no adjustment to the
      carrying value has been made. However, due to the downturn in the Company’s
      Texas communications market, the Company retested the goodwill associated with
      Get A Phone. The Company determined through this process that goodwill
      associated with Get A Phone should be impaired as of June 30, 2006. Pursuant
      to
      SFAS 142 Goodwill and Other Intangible Assets, the Company has included an
      impairment charge of $1,820,824 in the loss from discontinued operations.





The
      major
      classes of Assets Held for Sale and Liabilities of assets held for sale are
      as
      follows:





Assets:




Cash
                
                $
                43,161Trade
                    accounts receivable
                
                
                81,619Prepaid
                    expenses and deposits
                
                
                11,976Net
                    Property, Plant and Equipment
                
                
                65,437$
                202,193





Liabilities:




Trade
                    Payables
                
                $
                859,526Accrued
                    Liabilities
                
                
                44,000Deferred
                    Revenue
                
                
                66,362Total
                    Salaries and Wages Payable
                
                
                31,606Total
                    Sales Tax Payable
                
                
                58,755$
                1,060,249





The
      following table details financial information included in the loss from
      discontinued operations:


16





CARDINAL
                    COMMUNICATIONS, INC. AND SUBSIDIARIESDiscontinued
                      Operations of Connect Paging, Inc. d/b/a Get A PhoneRESULTS
                    OF DISCONTINUED OPERATIONSThree
                    Months Ended June 30
                
                Six
                    Months Ended June 302006
                
                2005
                
                2006
                
                2005REVENUESRevenues
                
                $
                1,572,902
                
                $
                2,107,327
                
                $
                3,456,760
                
                $
                4,587,778Cost
                    of sales
                
                
                (888,620
                )
                
                (1,118,863
                )
                
                (2,054,435
                )
                
                (2,310,981
                )Gross
                    profit
                
                
                684,282
                
                
                988,464
                
                
                1,402,325
                
                
                2,276,797OPERATING
                    EXPENSESDepreciation
                    and amortization
                
                
                7,638
                
                
                15,582
                
                
                15,276
                
                
                30,779Asset
                    impairment
                
                
                1,820,824
                
                
                -
                
                
                1,820,824
                
                
                -Professional
                    fees
                
                
                49,833
                
                
                68,790
                
                
                85,171
                
                
                245,695Rent
                
                
                12,008
                
                
                14,913
                
                
                27,332
                
                
                27,187Salaries
                    and commissions
                
                
                244,231
                
                
                376,263
                
                
                529,553
                
                
                646,192Selling,
                    general and administrative
                
                
                487,993
                
                
                540,979
                
                
                1,081,334
                
                
                1,167,414Total
                    operating expenses
                
                
                2,622,527
                
                
                1,016,527
                
                
                3,559,490
                
                
                2,117,267(LOSS)
                    FROM OPERATIONS
                
                
                (1,938,245
                )
                
                (28,063
                )
                
                (2,157,165
                )
                
                159,530OTHER
                    INCOME (EXPENSE)Other
                    income (expense)
                
                
                (63,255
                )
                
                3,720
                
                
                (63,255
                )
                
                170Interest
                    (expense)
                
                
                (149
                )
                
                -
                
                
                (329
                )
                
                -Total
                    other (expense)
                
                
                (63,404
                )
                
                3,720
                
                
                (63,584
                )
                
                170NET
                    INCOME (LOSS)
                
                $
                (2,001,649
                )
                $
                (24,343
                )
                $
                (2,220,749
                )
                $
                159,700The
                    accompanying notes are an integral part of these
                    statements.





**Note
      5. Financing Transactions**





**Private
      Placements**





In
      the
      second quarter of 2006, the Company entered into private placements consisting
      of two subscription agreements for restricted securities totaling $550,000.
      Under the terms of the private placement Subscription Agreements, accredited
      investors were offered restricted, common stock at a rate of $0.015 per share
      for a minimum investment of $50,000.





**Convertible
      Loan Agreements**





In
      the
      first quarter of 2006, the Company entered into a series of Convertible Loan
      Agreements with ISP V, LLC totaling $1,500,000. The final agreement terms is
      for
      the total $1,500,000 to be due in January 2008 and over the course of the loan
      the principal shall accrue interest at a rate of 12% per year calculated
      monthly. As partial consideration for the initial note, the Company issued
      to
      the Payee five year warrants to purchase 2,400,000 shares of common stock at
      an
      exercise price of $0.05. A debt discount value was calculated based upon the
      Black-Scholes Pricing Model applied to the warrants; and over the life of the
      initial note $16,825 of additional interest will be recorded relating to the
      accretion of the note to its face value. For the Black-Scholes Pricing Model
      the
      average risk free interest rate used was 5%, volatility was estimated at 69%
      and
      the expected life was five years. The holder of the notes have the right, at
      any
      time, to convert $1,500,000 of the principal owed to the holder to shares of
      Common Stock per the following formula: $800,000 convertible at $.025 per share,
      $400,000 convertible at $0.05 per share and $300,000 at $0.075 per share. There
      is no intrinsic value to the beneficial conversion feature as lowest conversion
      rate is at $.025 per share and the Company’s stock was trading at $.0181 when
      the agreement was signed.


17





**Senior
      Secured Debt and Notes Payable**





In
      the
      second quarter of 2006 the Company converted $70,000 of Senior Secured
      Debentures into shares of the Company’s common stock at a rate of $0.025
      pursuant to the Convertible Loan Agreements associated with those debentures.





At
      June
      30 2006, the Company has secured notes totaling $10,546,142 with debt discount
      of $49,319 netted against the balance resulting in the secured notes payable
      balance of $10,496,823 . All of these notes are secured by assets of the
      Company. Interest rates range from 6% to 12% and have Maturity Dates from April
      2006 through January 2008 with one exception with a maturity in February 2020.
      As of June 30 2006 the senior secured debt and notes payable outstanding amounts
      range from $50,000 to $2,025,000 utilizing fourteen different lenders. Currently
      the Company is in default on five senior secured notes totaling $5,923,906
      in
      arrearage. These notes are held by two different lenders and the Company is
      actively working to renegotiate the terms of these notes. More details may
      be
      found in this report Part II Item 3. Defaults upon senior securities.





**Debt
      Collateralized by Real Estate and Construction
      Lines-of-Credit**





Through
      the Company’s subsidiary Sovereign Partners, LLC, the Company maintains secured
      revolving construction lines-of-credit with several lending institutions for
      its
      construction projects. At June 30 2006 the aggregate borrowings under the
      lines-of-credit totaled $20,279,614. Borrowings on the lines are repaid in
      connection with the sale of completed units. The lines-of-credit are secured
      by
      the project being constructed. Each construction line is personally guaranteed
      by the individual members of each development entity or an officer of the
      Company. Interest rates range from 8.82% to 10.25%, and have maturity dates
      ranging from May 2006 through February 2007, with two exceptions with maturities
      in May 2011 and July 2034, unless extended. As of June 30 2006, the construction
      lines-of-credit outstanding amounts range from $14,951 to $3,733,928, utilizing
      eight different lenders





Through
      the Company’s subsidiary Sovereign Partners, LLC the Company has debt
      collateralized by real estate. These notes payable totaled $15,437,077 at June
      30 2006. Interest rates range from 7.5% to 9.75%, and have maturity dates
      ranging from May 2006 through December 2011. As of June 30 2006, the notes
      payable outstanding amounts range from $588,907 to $2,501,414, utilizing seven
      different lenders.





Currently
      the Company is in default with two creditors on two debts collateralized by
      construction and real estate totaling $4,352,850. These notes are both
      specifically related to the SR Condominium project located in Parker, Colorado.
      The Company is actively working to renegotiate the terms of these notes. More
      details may be found in Part II Item 3. Defaults upon senior securities.





**Related
      Party Debt**





**Thunderbird
      Management Limited Partnership**





In
      March
      2006, the Board of Directors for Cardinal Communications, Inc. (the “Company”)
      approved on its behalf and the behalf of its wholly owned subsidiary, Sovereign
      Companies, LLC (“Sovereign”), the execution of a Convertible Loan Agreement,
      Promissory Note (the “Note”), and Pledge and Security Agreement with Thunderbird
      Management Limited Partnership (“Thunderbird”). A member of the Company’s Board
      of Directors and the Company’s Chief Executive Officer, Edouard A. Garneau, is
      related (as son-in-law) to the General Partner of Thunderbird Management. Mr.
      Garneau did not participate in the vote by Cardinal’s Board of Directors
      approving the Promissory Note, Pledge and Security Agreement, or Convertible
      Loan Agreement (collectively, the “Agreements”). The remaining members of
      Cardinal’s Board of Directors voted unanimously to approve the
      Agreements.





The
      Company is indebted to Thunderbird pursuant to two existing promissory notes.
      The first, dated September 12, 2000, is in the original principal amount of
      $702,000, with interest on the principal balance at the rate of 12% per annum;
      the second, dated August 24, 2004, is in the original principal amount of
      $800,000 with interest on the principal balance from time to time remaining
      at
      the rate of 10% per annum, collectively, the “Prior Notes”.


18








The
      Convertible Loan Agreement consolidates for certain purposes the Prior Notes
      and
      a third, new note (described in the next section, below) in the original
      principal amount of $998,000 (collectively, the “Thunderbird Notes”). The total
      principal amount owed under the Thunderbird Notes is $2,500,000, the “Principal
      Amount”.





The
      Thunderbird Notes are consolidated for the purposes of setting a single interest
      rate and certain conversion rights for the Principal Amount. Interest on the
      Principal Amount outstanding shall accrue at the rate of 12% per annum, which
      interest shall be paid monthly, with the first installment payable on April
      17,
      2006, and subsequent payments at the seventeenth day of the month beginning
      each
      month thereafter. Overdue principal and interest on the Thunderbird Notes shall
      bear interest, to the extent permitted by applicable law, at a rate of 18%
      per
      annum. If not sooner redeemed or converted, the Thunderbird Notes shall mature
      on the fifth anniversary of the execution of the Convertible Loan Agreement,
      at
      which time all the remaining unpaid principal, interest and any other charges
      then due under the agreement shall be due and payable in full.





The
      Thunderbird Notes shall be convertible, at either party’s option, into shares of
      the Company’s common stock at four separate conversion prices: up to 25% of the
      Principal Amount may be converted at $0.025 per share; up to twenty five percent
      (25%) of the Principal Amount may be converted at $0.075 per share; up to 25%
      of
      the Principal Amount may be converted at $0.125 per share; and the final 25%
      of
      the Principal Amount may be converted at $0.175 per share (collectively, such
      converted stock is referred to as the “Registerable Securities”).





In
      the
      Convertible Loan Agreement, the Company has agreed to register all or any
      portion of the Registerable Securities any time it receives a written request
      from Thunderbird that the Company file a registration statement under the 1933
      Act covering the registration of at least a majority of the Registerable
      Securities then outstanding. The Company has agreed, subject to the limitations
      in the Convertible Loan Agreement, to use its best lawful efforts to effect
      as
      soon as reasonably possible, and in any event (if legally possible, and as
      allowed by the SEC, and if no factor outside the Company’s reasonable control
      prevents it) within 150 days of the receipt of the initial written registration
      request, to effect the registration under the 1933 Act of all Registerable
      Securities which the Thunderbird has requested.




Notwithstanding
      the foregoing, in lieu of registration, the Company may provide Thunderbird
      with
      a certificate signed by the President of the Company stating that in the good
      faith judgment of the Board of Directors, it would be materially detrimental
      to
      the Company and its shareholders for such registration statement to be filed
      at
      that time, and it is therefore essential to defer the filing of such
      registration statement. Thereafter, the Company shall have the right to defer
      the commencement of such a filing for a period of not more than 180 days after
      receipt of the request; provided, however, that at least 12 months must elapse
      between any two such deferrals.





Upon
      the
      occurrence of any event of default, the Payee may declare the remainder of
      the
      debt immediately due and payable. The Note is secured by the pledge of certain
      assets by Borrower to the Payee pursuant to the Pledge and Security
      Agreement.





**Pledge
      and Security Agreement**





The
      Pledge and Security Agreement (“PSA”) secures payment of (i) all amounts now or
      hereafter payable by the Company and Sovereign (jointly “Pledgors”) to
      Thunderbird Management Limited Partnership, the “Secured Party”, on the
      Thunderbird Notes, and (ii) all obligations and liabilities now or hereafter
      payable by the Pledgors under, arising out of or in connection with the PSA
      (all
      such indebtedness, obligations and liabilities being herein called the
“Obligations”).





Pursuant
      to the PSA, the Pledgors pledge and grant to the Secured Party a security
      interest in the shares of stock and partnership interests comprising Pledgors’
interests in Sovereign Pumpkin Ridge, LLC, and, contingent upon Pledgors’
formation of a limited liability company for the purpose of developing the
      project, Pledgors’ future interest in “Sovereign El Rio, LLC” (collectively, the
“Pledged Interests”). The Pledged Interests also include without limitation all
      of Pledgors’ right, title and interest in and to (i) all dividends or
      distributions arising from the Pledged Interests, payable thereon or
      distributable in respect thereof, whether in cash, property, stock or otherwise,
      and whether now or hereafter declared, paid or made, and the right to receive
      and receipt therefore; (ii) all Pledged Interests into which any of the Pledged
      Interests are split or combined; and (iii) all other rights with respect to
      the
      Pledged Interests; provided, however, that Secured Party hereby agrees that,
      if
      and so long as Pledgors shall not be in default under this Agreement, Pledgors
      shall have the right to vote, or to give any approval or consent in respect
      of,
      the Pledged Interests for all purposes not inconsistent with the provisions
      of
      this Agreement.


19








Upon
      the
      full and final payment of the Thunderbird Notes, the security interests in
      the
      Pledged Interests shall terminate and all rights to the Pledged Interests shall
      revert to the Pledgors. In addition, at any time and from time to time prior
      to
      such termination of the security interests, the Secured Party may release any
      of
      the Pledged Interests. Upon any such termination of the security interests
      or
      any release of the Pledged Interests, the Secured Party will, at the Pledgors’
expense, execute and deliver to the Pledgors such documents as the Pledgors
      shall reasonably request to evidence the termination of the security interests
      or the release of the Pledged Interests.





**AEJM
      Enterprises Limited Partnership**





During
      2006 the Company converted $700,000 of related party debt to AEJM Enterprises
      Limited Partnership into restricted shares of the Company’s common stock at a
      rate of $0.0147. A member of the Company’s Board of Directors and the Company’s
      Chief Executive Officer, Edouard A. Garneau, is related (as son-in-law) to
      the
      General Partner of AEJM Enterprises Limited Partnership. Mr. Garneau did not
      participate in the vote by Cardinal’s Board of Directors approving the note
      conversion. The remaining members of Cardinal’s Board of Directors voted
      unanimously to approve the debt conversion.





**Related
      Party Debt Summary**





The
      Company has related party debt of $4,552,054 at June 30 2006, utilizing ten
      different related parties. Interest rates range from 4.25% to 16.00%, and have
      maturity dates ranging from October 2006 through January 2008, with three
      exceptions. Two notes amortize over thirty years maturing April 2033 and
      February 2034, and one note is interest only, with no stated maturity date.
      As
      of June 30 2006, the related party debts outstanding amounts range from $25,000
      to $998,000.





**Note
      6. Acquisitions**





**Sovereign
      Partners, LLC,** **** **Restructure
      and Amendment Agreement**





On
      February 18, 2005, the Company closed on the acquisition with Sovereign
      Partners, LLC (“Sovereign”) to acquire 100% of the membership interests of
      Sovereign from the Members in exchange for the issuance of 35,000,000 shares
      of
      the Company’s common stock and 100,000 shares of the Company’s newly created
      Series B Convertible Preferred Stock. Under the terms of the Acquisition
      Agreement the members are to be issued an additional 125,000 shares of Series
      B
      Preferred Stock on January 1, 2006 and July 1, 2006. As a result of the
      acquisition, Sovereign is now owned and operated as a wholly owned subsidiary
      of
      the Company. Sovereign operations include real estate development and the
      related communications infrastructure for residential, multiple dwelling unit
      (apartment) and planned community developments. See “Sovereign Acquisition”
under Item 2. Management’s Discussion and Analysis of Financial Condition and
      Results of Operations below.





In
      February, 2006, the Company entered into a Restructure and Amendment Agreement
      with the original members of Sovereign Partners, LLC. This agreement was created
      to resolve operating conflicts between the Company and Sovereign Partners,
      LLC.
      Under the terms of the agreement the original Stock Purchase Agreement was
      modified to eliminate the EBITDA and NOI provisions. All
      subsequent-to-purchase-date issuances of the Company’s stock in consideration of
      the original Stock Purchase Agreement were amended to the following. The
      guaranteed shares were modified to equal 500,000 shares of the Company’s
      Convertible Series B Preferred Stock issued as 250,000 shares with the execution
      of the agreement and the balance of 250,000 shares to be issued on July 1,
      2006.
      Incentive shares shall equal 1,000,000 shares of the Company’s Convertible
      Series B Preferred Stock and will be issued as 500,000 shares on January 1,
      2007
      and 500,000 shares on July 1, 2007. Bonus shares shall equal 1,000,000 shares
      of
      the Company’s Convertible Series B Preferred stock and will be issued as 500,000
      shares on January 1, 2008 and 500,000 shares on July 1, 2008. In addition,
      the
      Company shall distribute Balance Shares in two equal installments on January
      1,
      2009 and July 1, 2009. The Balance Shares shall be shares of the Company’s
      Convertible Series B Preferred Stock which shall equal such number of such
      preferred stock as shall provide the Members with ownership of at least, but
      not
      more than 49.99% of the issued and outstanding shares of the Common Stock of
      the
      Company on an as converted and fully diluted capitalization basis as measured
      on
      the Measurement Date. The Measurement Date shall be the last day of the first
      consecutive 10 day period, wherein the shares of the Company’s common stock have
      had a closing bid price of at least $0.10 per share on each day in that period,
      as adjusted for any stock splits, dividends, or similar adjustments. The Balance
      Shares calculation shall not include, and shall be adjusted for any shares
      or
      securities issued with respect to any mergers, acquisitions, conversion of
      Sovereign debt existing as of February 18, 2005 or any options or warrants
      that
      expire, unexercised prior to January 1, 2009 which may have been outstanding
      on
      the Measurement Date.


20








**Technology
      and Trademark License Agreement**





On
      February 17, 2006, the Company (or “Cardinal”) signed a Technology and Trademark
      License Agreement (the “License”) with GalaVu Entertainment Networks, Inc., of
      Toronto, Ontario, Canada (“GalaVu”). The term of the License is ten (10) years.
      Among other things, the License grants Cardinal a non-exclusive, royalty-free,
      fully paid up, worldwide license to make, use, sell, offer to sell, manufacture,
      market, and distribute the finished products and technology incorporated into
      GalaVu’s video on demand system (the “GalaVu Technology”). Under the License,
      Cardinal has the right to bundle products incorporating the GalaVu Technology
      with other products distributed by Cardinal. Cardinal also has the right to
      sublicense the rights granted under the License to third parties, provided
      that
      Cardinal enters into sublicense agreements with each such sublicensee consistent
      with the terms set forth in the License. The rights provided to Cardinal under
      the License shall apply equally to existing and future products of similar
      or
      like functionality as those currently offered by GalaVu.





In
      addition, provisions in the License grant Cardinal the right, but not the
      obligation, to purchase products incorporating or comprising the GalaVu
      Technology from GalaVu (the “Purchased Products”). Cardinal pays only the actual
      costs of manufacturing and shipping the Purchased Products to Cardinal (or
      as
      directed by Cardinal); GalaVu shall not be entitled to any mark-up or profit
      on
      such products for the first 5,000 units of such products (the “Initial Units”).
      Orders for any products in excess of the Initial Units shall be marked-up by
      the
      lowest amount charged by GalaVu to any of its customers or
      partners.




The
      License also grants to Cardinal a non-exclusive, royalty-free, fully paid up,
      worldwide license to use GalaVu’s trademarks, service marks, and logos (the
“Marks”) for (i) the sale of GalaVu branded products (the “Branded Products”),
      (ii) the use and display for marketing, advertising and promotion according
      to
      certain usage standards, and (iii) incorporating the Marks into the Branded
      Products. Any uses of the Marks shall be submitted in writing for review by
      GalaVu in advance and shall not be distributed or used in any manner without
      prior written approval of the Licensor or its authorized representative, which
      approval shall not be unreasonably withheld or delayed. No license is granted
      for the use, display, or incorporation of the Marks on products other than
      the
      Branded Products. Cardinal has the right to bundle the Branded Products with
      other products or services distributed by Cardinal (such Branded Products when
      bundled with such other products, the “Bundled Products”), provided that
      Cardinal uses the Marks solely on and in conjunction with that portion of
      Bundled Products that constitute the Branded Products. Cardinal has the right
      to
      sublicense these rights to its partners, resellers, OEMs, distributors and
      sales
      representatives that market and distribute Branded Products (each, a
“Sublicensee”) solely for the purpose of advertising, marketing, selling and
      distributing the Branded Products in accordance with the terms of the License;
      provided that Cardinal enters into agreements with each such Sublicensee
      consistent with the terms set forth in the License.





The
      parties to the License acknowledge and agree that the License does not create
      a
      fiduciary relationship among or between them; that each shall remain an
      independent business; and that nothing in the License is intended to constitute
      either party as an agent, legal representative, subsidiary, joint venture,
      partner, employee or servant of the other for any purpose
      whatsoever.




**Purchase
      and Exchange Agreement**





On
      February 17, 2006, the Company, Livonia Pty Limited (an Australian corporation)
      and Entertainment Media & Telecoms Corporation Limited (“EMT”), executed an
      agreement regarding the purchase and the exchange of certain debt owed by EMT
      and/or its subsidiaries (collectively, “EMT”) for equity in EMT, and including
      provisions for a loan for working capital from Cardinal to GalaVu (the “EMT
      Agreement”).


21








Pursuant
      to the EMT Agreement, Cardinal agreed to purchase the balance of the debt owed
      by EMT to Alleasing Finance Australia Limited (“Alleasing”), in the principal
      amount of $1,491,366 (the “Debt”) in exchange for an assignment of the Debt and
      all security interests securing repayment of the Debt. The purchase price paid
      by the Company for the Debt is $510,638.





In
      addition, the Company has provided a bridge loan for working capital of $602,530
      to GalaVu (the “Loan”). The definitive terms, conditions, and interest rate in
      respect of such Loan shall be agreed between Cardinal and Livonia.
      Notwithstanding the generality of the foregoing, Cardinal’s representative shall
      have sole discretion as to the use of proceeds from the Loan, including how,
      to
      whom, and when the Loan proceeds are dispersed.





The
      Debt
      and the Loan are to be secured by the assets of EMT’s subsidiaries. The Debt
      purchased from Alleasing shall remain secured by the assets of EMT’s
      subsidiaries, including GalaVu. Also, Livonia shall assign to Cardinal $478,603
      of the secured debt that Livonia previously purchased from Alleasing in a
      separate transaction, such that the total secured debt held by Cardinal shall
      total $2,573,137 (the “Cardinal Secured Debt”). All such Cardinal Secured Debt
      is and will remain secured by all the EMT’s subsidiaries’ assets. Initially a
      notes receivable discount was recorded in the amount of $1,459,969 to recognize
      the fair value of the Secured Debt. This discount will be reduced as the debt
      is
      satisfied.





Cardinal
      also agreed that, to the extent permissible under Australian law and subject
      to
      the approval of the shareholders of EMT, should the same be necessary, Cardinal
      shall: (a) convert $393,145 of the Cardinal Secured Debt into 53,250,000 shares
      of free-trading, common stock of EMT at a conversion rate of .7383 cent) per
      share; and (b) at a date to be agreed between the parties, convert $2,165,988
      of
      the Cardinal Secured Debt into shares of free-trading EMT common stock at a
      conversion rate of $0.0036915 per share, equating to 586,250,000 shares in
      EMT.
      In addition, Livonia agreed that, to the extent permissible under Australian
      law
      and subject to approval of the shareholders of EMT, should same be necessary,
      Livonia shall: (a) convert $313,778 owing to it by EMT into 42,500,000 shares
      in
      EMT at a conversion rate of .7383 cent per share; and (b) at a date to be agreed
      between the parties, convert $571,260 owing to it by EMT into shares in EMT
      at a
      conversion rate of $0.0036915 per share, equating to 146,750,000 shares in
      EMT.
      The Parties agreed to take all acts necessary to ensure that, following both
      the
      Cardinal conversion and the Livonia conversion, Cardinal shall own 64% of the
      outstanding shares of EMT, accounted for on a fully diluted basis. EMT has
      historically traded on the Australian stock exchange under the symbol
      ETC.





Livonia
      and EMT agreed that should: (a) the shareholders of EMT not agree to the
      conversion by Cardinal of its Cardinal Secured Debt into equity in EMT, or
      (b)
      EMT does not regain trading status on the Australian Stock Exchange within
      one
      hundred and twenty (120) days of the date of the EMT Agreement, Livonia and
      EMT
      shall do all acts, matters or things to facilitate the transfer of the assets
      constituting the security (including but not limited to the assets of GalaVu)
      to
      Cardinal free and clear of all liens, claims, and encumbrances, in exchange
      for
      Cardinals’ agreement to extinguish the Cardinal Secured Debt. Cardinal agreed
      that, in the event that the GalaVu assets are transferred to Cardinal in
      exchange for the Cardinal Secured Debt, Livonia shall be entitled to acquire
      shares of Cardinal as follows: first, Livonia shall cause EMT to be sold;
      second, the purchase price obtained by Livonia from such sale (the “Purchase
      Price”) shall be paid directly to Cardinal in its entirety in exchange for
      shares of Cardinal common stock. The number of shares shall be determined by
      dividing the dollar amount of the Shell Purchase Price, converted to United
      States dollars, by the lower of 80% of the price per share for the five (5)
      trading days preceding the date of issuance, or $0.02.





**Assignment
      Deed**





Effective
      February 20, 2006, the Company signed an Assignment Deed with Alleasing Finance
      Australia Limited, an Australian company (formerly Rentworks Limited)
      (“Alleasing”) (the “Assignment”). Pursuant to the Assignment, Alleasing agreed
      to assign Cardinal all of its right, title, and interest in the debt owing
      by
      the Entertainment Media & Telecoms Corporation Limited (“EMT”) and/or EMT’s
      subsidiaries, including GalaVu Entertainment Networks, Inc. (“GalaVu”) to
      Cardinal in the amount of $1,491,366 (the “Debt”). The purchase price paid by
      Cardinal for the debt is $510,638.


22








The
      Debt
      is secured by the (a) Pledge Agreement between Entertainment Media &
Telecoms Corporation (Canada), Inc., (registered in Canada) (“EMT (Canada)”),
      and Rentworks Limited dated June 30 2006; (b) Security Agreement between EMT
      (Canada) and Rentworks Limited dated June 302006; (c) Security Agreement between
      GalaVu and Rentworks Limited dated June 30 2006; (d) Guaranty between EMT
      (Canada), Inc., and Rentworks Limited dated June 30 2006; and (e) Guaranty
      between GalaVu and Rentworks Limited dated June 30 2006.





Interested
      Director





A
      member
      of the Company’s Board of Directors at the time of the transaction, David A.
      Weisman, and certain entities affiliated with Mr. Weisman are shareholders
      of
      GalaVu’s parent corporation, Entertainment Media & Telecoms Corporation
      Limited. Mr. Weisman did not participate in the vote by Cardinal’s Board of
      Directors approving the License, the Assignment Deed, or the Purchase and
      Exchange Agreement (collectively, the “Agreements”). As of June 9, 2006, Mr.
      Weisman is no longer a member of our board of directors. The remaining members
      of Cardinal’s Board of Directors voted unanimously to approve the
      Agreements.





**Item
      2.**  **Management’s
      Discussion And Analysis Of Financial Condition And Results Of
      Operations**





The
      following information should be read in conjunction with the consolidated
      financial statements, including the notes thereto, included elsewhere in this
      Form 10-QSB, and the Management's Discussion and Analysis of Financial Condition
      and Results of Operations included in our 2005 Annual Report on Form 10-KSB
      filed with the Securities and Exchange Commission.




**Forward-Looking
      Statements and Associated Risks**




This
      report contains forward-looking statements, including statements regarding,
      among other things, (a) our growth strategies, (b) anticipated trends in our
      industry, (c) our future financing plans and (d) our ability to obtain financing
      and continue operations. In addition, when used in this filing, the words
      "believes," "anticipates," "intends," "in anticipation of," and similar words
      are intended to identify certain forward-looking statements. These
      forward-looking statements are based on our expectations and are subject to
      a
      number of risks and uncertainties, many of which are beyond our control. Actual
      results could differ materially from these forward-looking statements as a
      result of changes in trends in the economy and our industry, reductions in
      the
      availability of financing and other factors. In light of these risks and
      uncertainties, the forward-looking statements contained in this report may
      not
      occur. Except to fulfill our obligation under the United States securities
      laws,
      we do not undertake any obligation to publicly release the results of any
      revisions to these forward-looking statements that may be made to reflect any
      future events or circumstances.





**Overview
      of Our Business**





Cardinal
      Communications, Inc is a “Developer of Connected Communities,” as such; we
      design, construct, and operate diversified communication systems. The systems
      include voice, video, internet, wireless, and video-on-demand services to
      customers in multiple dwelling units (MDU), newly constructed housing
      developments, commercial properties, and the hospitality industry. One of our
      divisions builds residential and commercial properties, insuring a steady stream
      of telecommunication customers. Our growth strategy includes obtaining as many
      telecommunications customers as we can. We intend to grow our customer base
      through internal growth whenever possible, but we may acquire customers by
      acquiring related businesses or properties. If operational cash flow is
      insufficient to fund this growth, we will attempt to raise capital throughout
      the year.




**Correction
      of an Error in Previously Issued Financial Statements**





We
      determined there was an accounting error recording sales when we still had
      obligations. In this error, we recognized $2,041,670 in sales for December
      31, 2005 and $1,050,000 in sales for June 30, 2005. Accordingly, certain
      historical transactions have been reclassified on the financial statements
      as of
      June 30, 2006 and 2005. To correct this error, we will restate our previously
      filed quarterly financial statements for the first three quarters of 2005,
      the
      previously filed financial statements of and for the year ended December 31,
      2005, and our previously filed quarterly financial statements for the first
      quarter of 2006.


23




**Certain
      Relationships and Related Transactions**





We
      have
      certain debt owed to individuals and/or entities that are considered to be
      related parties for SEC reporting purposes.





The
      following table sets forth the individual amounts totaling $4,552,054 due as
      of
      June 30 2006 to related parties, and entities:








**Name
                and Relationship**
            
            **Amount**
            
            **Interest**
            
            **Due****Rate**
            
            **Date**Jeffrey
                Fiebig, Director and Shareholder
            
            $
            125,280
            
            
            16
            %
            
            Dec
                ‘06Thunderbird
                Management Limited Partnership,(1)
            
            
            2,500,682
            
            
            12
            %
            
            Mar
                ‘11Bob
                Searls, Director and Shareholder(2)
            
            
            805,100
            
            
            6
            %
            
            May
                ‘33Kerry
                Briggs, Director and Shareholder
            
            
            275,000
            
            
            10
            %
            
            Oct
                ‘06Investors
                and/or Partners in Sovereign Partners as a group
            
            
            845,992
            
            
            4-12
            %
            
            Oct
                ‘06 - June ‘28Total
            
            $
            4,552,054


(1)
      The
      general partner of Thunderbird Management and Limited Partnership, Ed Buckmaster
      is a shareholder of the Company and Ed Garneau’s father-in-law.


(2)
      Mr.
      Searls is also the general partner of Searls Family LLLP which is a shareholder
      of the Company.











**Segment
      Information**





We
      have
      two reportable segments: communications services and real estate activities.
      Communications services include individual, voice, video and data services
      as
      well as various combinations of bundled packages of these communications
      services. Real estate activities include sales of residential single family
      units, rental from commercial properties and fees from mortgage operations.





The
      accounting policies of the segments are the same as those described in the
      summary of critical accounting policies. Our business is conducted through
      separate legal entities. Each entity is managed separately as each business
      has
      a distinct customer base and requires different strategic and marketing efforts.
      The following table reflects the income statement and balance sheet information
      for each of the reporting segments at June 30, 2006:





**Real
                    Estate**
                
                **Communications**
                
                **Corporate**
                
                **Total**Revenue
                
                $
                8,541,696
                
                $
                258,642
                
                $
                -
                
                $
                8,800,338Comprehensive
                    net income (loss)
                
                
                1,104,938
                
                
                (494,597
                )
                
                (5,265,384
                )
                
                (4,655,042
                )Interest
                    (expense)
                
                
                (407,348
                )
                
                -
                
                
                (544,461
                )
                
                (951,809
                )Depreciation
                    and amortization
                
                
                191,623
                
                
                174,274
                
                
                97,672
                
                
                463,569Assets
                
                
                55,877,363
                
                
                431,961
                
                
                8,018,297
                
                
                64,327,621


**Current
      Sovereign Projects**





Mountain
      View at West T-Bone Ranch, Greeley, Colorado





Mountain
      View at West T-Bone Ranch is a 21 acre multi-dwelling unit development located
      in southwest Greeley, Colorado with onsite amenities including a clubhouse
      with
      pool, hot tub, and fitness room. The completed project will have 215 units
      consisting of two-story flats with detached garages, along with 7-unit and
      4-unit townhomes with attached garages. To date, 92 units, three of the units
      are models, have been sold with an average sale price of $139,616. As
      of June 30, 2006, we had 11 units representing $1,859,900 of deferred revenue
      representing sales of units which we can not recognize the revenue pending
      the
      satisfaction of future obligations. These units had an average sales price
      of
      $169,082.





24








The
      Renaissance at Fox Hill, Greeley, Colorado





The
      Renaissance at Fox Hill is a 13 acre multi-dwelling unit development located
      in
      Greeley, Colorado. The completed project will contain 123 dwelling units
      consisting of two story stacked flats/carriage units with direct access garages
      and 4-unit townhomes with attached garages. To date, 50 units have been sold
      with an average sale price of $186,484. As of June 30, 2006, we had 2 units
      representing $500,600 of deferred revenue representing sales of units which
      we
      can not recognize the revenue pending the satisfaction of future obligations.
      These units had an average sales price of $250,300.





Colony
      Ridge Condominiums, (Settler’s Chase) Thornton, Colorado





The
      Colony Ridge Condominiums are a mix of 4 three-story stacked flats over one
      level of underground parking with elevators, and 98 townhome-style residences
      on
      an 11.65 acre parcel in Thornton, Colorado. Colony Ridge at Settler’s Chase is
      the final phase in the master planned community of Settler’s Chase, located in
      Thornton, Colorado. To date, 29 units, four of the units are models, have
      been sold with an average sale price of $181,146.





SR
      Condominiums, Parker, Colorado




The
      SR
      Condominiums are a mix of two and three story stacked flats with detached
      garages marketed as Hunter’s Chase Condominiums in Parker, Colorado. The
      completed project will include 188 dwelling units situated on a 13 acre parcel
      and includes a clubhouse featuring an outdoor swimming pool and spa. To date,
      34
      units, two of the units are models, have been sold with an average sale
      price of $157,367.





Millstone
      at Clear Creek, Golden, Colorado





The
      Millstone at Clear Creek consists of three four-story condominium buildings
      each
      with a ground level parking structure located on an approximately 1.7 acre
      parcel in Golden, Colorado. The completed project will have 78 dwelling units.
      To date, 60 units have been contracted for with an average sale price of
      $315,491.





Sovereign
      Pumpkin Ridge, Greeley, Colorado





The
      Pumpkin Ridge development consists of 78 lots in the Pumpkin Ridge subdivision
      located in west Greeley, Colorado. The plan is to build single and two-story
      single family detached residences on each of the lots. To date, 20 units, three
      of the units are models, have been sold with an average sale price of
      $270,328. As of June 30, 2006, we had 2 units representing $467,150 of deferred
      revenue representing sales of units which we can not recognize the revenue
      pending the satisfaction of future obligations. These units had an average
      sales
      price of $233,575.








Settler’s
      Commercial Development, Thornton, Colorado





Settler’s
      Commercial Development is the commercial/retail component of a master planned
      community. This 3.8 acre parcel is the final phase of the Settler’s Chase
      subdivision to be developed and is located in Thornton, Colorado. Building
      construction began in December 2005, with delivery of space scheduled for summer
      2006. 3 Margaritas Restaurants will anchor the site and negotiations with other
      tenants are ongoing.





Sovereign
      Parker Commercial, Parker, Colorado





Parker
      Commercial consists of 18.5 undeveloped commercial acres located within the
      downtown core of Parker, Colorado. This property is currently on the market
      for
      approximately $3.5 million.


25





Legacy
      of
      Shorewood, Shorewood (Milwaukee), Wisconsin





Legacy
      of
      Shorewood is a 40 unit condominium project in the Village of Shorewood, a suburb
      of Milwaukee. It is a single building, converted from its prior use as an
      assisted living facility, renovated and rebuilt into 40 individual condominiums.
      It is a 4-story structure with underground parking and elevator access. To
      date,
      27 units have been sold with an average sales price of $230,974.





El
      Rio
      Country Club, Arizona





El
      Rio
      consists of approximately 640 acres of land dedicated to a gated community
      anchored by an 18-hole golf course. Sovereign Homes has been named one of the
      Preferred Builders for the 1600-home, master planned community project in
      northwest Arizona's Mojave Valley.





Colorado
      River KOA, LLC, Colorado





In
      June
      the company sold the developed real estate in its wholly owned subsidiary,
      Colorado River KOA, LLC. The company had developed these assets for sale;
      however the company has been leasing and collecting rental income from these
      campground facilities while holding the property for sale. The Company received
      $3,000,000 for the sale of these assets and recorded a gain on disposition
      of
      real estate for the assets of $1,761,146.





**Going
      Concern**





Our
      auditor stated in its report on our financial statements for the period ended
      December 31, 2005 that we have experienced recurring losses and, as a result,
      there exists substantial doubt about our ability to continue as a going concern.
      For the Six Months ended June 30 2006, we incurred a net loss of $4,643,042
      . As
      of June 30 2006, Cardinal had an accumulated deficit of $77,581,605 . We are
      actively seeking customers for our services. The financial statements do not
      include any adjustments relating to the recoverability and classification of
      recorded assets, or the amounts and classification of liabilities that might
      be
      necessary in the event we cannot continue in existence. These factors raise
      substantial doubt about our ability to continue as a going concern.





**Critical
      Accounting Policies**





Management’s
      Discussion and Analysis discusses the results of operations and financial
      condition as reflected in our consolidated financial statements, which have
      been
      prepared in accordance with accounting principals generally accepted in the
      United States. The preparation of financial statements in conformity with
      accounting principals generally accepted in the United States requires
      management to make estimates and assumptions that affect the reported amounts
      of
      assets and liabilities, disclosure of contingent assets and liabilities at
      the
      date of the financial statements and reported amounts of revenues and expenses
      during the reporting period. On an ongoing basis, management evaluates its
      estimates and judgments, including those related to accounts receivable,
      inventory valuation, amortization and recoverability of long-lived assets,
      including goodwill, litigation accruals and revenue recognition. These critical
      accounting policies are described in more detail under Item 6 in the section
      entitled "Management's Discussion and Analysis of Financial Condition and
      Results of Operations" in our Annual Report on Form 10-KSB for the year ended
      December 31, 2005 filed with the Securities and Exchange Commission on April
      17,
      2006. Management bases its estimates and judgments on its historical experience
      and other relevant factors, the results of which form the basis for making
      judgments about the carrying values of assets and liabilities that are not
      readily apparent from other sources.





While
      we
      believe that the historical experience and other factors considered provide
      a
      meaningful basis for the accounting policies applied in the preparation of
      our
      consolidated financial statements, we cannot guarantee that our estimates and
      assumptions will be accurate. If such estimates and assumptions prove to be
      inaccurate, we may be required to make adjustments to these estimates in future
      periods.





**Results
      of Operations**





**Six
      Months Ended June 30 2006 And 2005 (Restated)**





**Discontinued
      Operations**





The
      Company reclassified the income statement results for its wholly owned
      subsidiary, Connect Paging, Inc. d/b/a Get A Phone from the historical
      presentation to discontinued operations for all periods presented.


26








**Revenues**





For
      the
      Six Months ended June 30 2006 and 2005 (restated), Cardinal had revenue of
      $8,800,338 and $7,213,519 respectively, an increase of $1,586,819 . This
      increase is primarily due to increased real estate sales. The Company’s 2006
      revenues are derived primarily from the sale of residential units, rental from
      commercial properties, fees from mortgage operations, telecommunication
      services, internet access services, telecommunications-related hardware and
      services, satellite-based CATV access services and construction management
      services. These revenues are recognized and recorded as services are performed
      and properties are sold or rented.





**Operating
      Expenses**





For
      the
      Six Months ended June 30 2006 and 2005 (restated), operating expenses were
      $4,284,745 and $5,631,549 , respectively, a decrease of $1,346,804 . The
      decrease was primarily due to reduced professional and consulting fees. During
      the Six Months ended June 30 2006, operating expenses consisted primarily of
      professional and consulting fees of $1,067,515 , of which $589,274 were paid
      in
      stock, salaries and commissions of $1,477,766 of which $636,754 were paid in
      stock, other general and administrative expenses of $703,551 . The general
      and
      administrative expenses consisted of office expense of $372,000 , insurance
      expense of $134,699 and numerous small expenses.





**Loss
      From Continuing Operations Net Loss**





For
      the
      Six Months ended June 30 2006, we had a loss from continuing operations of
      $2,422,293 or $0.006 per share. In the comparable period of the prior year,
      we
      had a loss from continuing operations of $3,793,839 or $0.016 per share. The
      decrease in loss from continuing operations period over period is directly
      attributable to reduced professional and consulting fees.




**Income
      and Loss From Discontinued Operations**





For
      the
      Six Months ended June 30 2006, we had a loss from discontinued operations of
      $2,220,749 or $0.005 per share. In the comparable period of the prior year,
      we
      generated income from discontinued operations of $159,700 or $0.001 per share.
      The loss from discontinued operations period over period is directly
      attributable to the impairment of goodwill associated with Get A Phone of
      $1,820,824 and reduced revenues of $1,131,018.




**Net
      Loss**





For
      the
      Six Months ended June 30 2006, we had a net loss of $4,643,042 or $0.011 per
      share. In the comparable period of the prior year, we had a net loss of
      $3,634,139 or $0.015 per share. The increase in net loss period over period
      is
      directly attributable to the $1,820,824 impairment of Goodwill associated with
      discontinued operations.




**Liquidity**





We
      have a
      minimum cash on hand to meet the current operational needs of the business.
      We
      are actively seeking additional sources of cash through additional financing
      and
      equity transactions in order to meet the short term cash needs of the business.
      If we are unsuccessful in these efforts, we may not be able fund the operational
      needs of the business through the remaining months of fiscal year 2006.
      Historically, we have funded our construction and telecommunication activities
      with internally generated cash flows, existing credit agreements, and equity
      financing. For the Six Months ended June 30 2006 our operations used $1,093,822
      of cash and at June 30 2006 we had cash on hand of $618,903 . As we grow, we
      expect operations to continually use cash since our construction projects use
      a
      large portion of operational cash which is provided by construction lines of
      credit. As construction projects are finished and sold the construction lines
      of
      credit are satisfied and the projects provide profit and long term liquidity.
      Operating, investing and financing activities used a total of $365,706 net
      cash
      in the Six Months ended June 30, 2006 compared to generating $376,660 of cash
      in
      the same period in 2005 (restated).


27








Currently
      we are in default with four of our creditors representing 7 of our notes
      totaling $10,276,756 in arrearage. We are actively seeking to renegotiate the
      terms of these debts. More liquidity information is available in the future
      obligation note below and Part II Item 3. Defaults upon senior
      securities





**Cash
      Used in Operating Activities**





During
      the Six Months ended June 30 2006, our operations used cash of $1,093,822
      compared to generating $1,130,899 during the same period in 2005 (restated).
      For
      the Six Months ended June 30, 2006 the use of cash was a direct result of
      expanded construction projects, while for the Six Months ended June 30, 2005
      (restated) we issued a higher amount of stock for consulting, fees and
      compensation. During the Six Months ended June 30 2006, $232,084 of accreted
      interest expense was recorded in relation to our notes payable with beneficial
      conversion features; during the same period in 2005 (restated) we incurred
      accreted interest expense of $372,761 .




**Cash
      Provided by Investing Activities**





During
      the Six Months ended June 30 2006, we engaged in significant capital investment
      activity, primarily through the purchase of a notes receivable from GalaVu
      for
      $1,052,560 . The total value of capital investments for the period used
      $1,097,667 compared to a net cash gain for the same period in 2005 (restated)
      of
      $379,777 .





**Cash
      Provided by Financing Activities**





During
      the Six Months ended June 30 2006, financing provided cash of $1,825,783
      compared to using $1,134,016 during the same period in 2005 (restated). The
      majority of our increased borrowings came from related party notes payable.
      The
      balance of our increased financing came from stock subscription agreements.




**Future
      Obligations**





The
      following table sets forth contractual obligations as of June 30, 2006:




**2
                    Years**
                
                
                
                **More
                    than****Contractual
                    Obligations**
                
                **Total**
                
                **or
                    less**
                
                **3-5
                    years**
                
                **5
                    years**Land
                    and construction loans
                
                $
                35,716,691
                
                $
                31,191,849
                
                $
                588,907
                
                $
                3,935,935Related
                    party debt
                
                
                4,552,054
                
                
                1,246,272
                
                
                2,500,682
                
                
                805,100Notes
                    payable, net of $49,319 debt discount
                
                
                10,496,823
                
                
                9,963,294
                
                
                
                
                
                533,529Total
                
                $
                50,765,568
                
                $
                42,401,415
                
                $
                3,089,589
                
                $
                5,274,564




The
      majority of our obligations over the next 2 years consist of revolving land
      and
      construction loans which are paid off as real estate inventory is sold and
      extended as new construction is performed. We are working with both our notes
      payable and related party debt holders to extend their terms. However we are
      in
      default with four of our creditors representing 7 of our notes totaling
      $10,276,756 currently in arrearage. More details may be found in this report’s
      Part II Item 3. Defaults upon senior securities. If the debentures are not
      extended, paid or converted; the debenture holders could foreclose on our
      assets.




Future
      Cash Flow




Our
      telecommunications subsidiary: Cardinal Broadband enjoys monthly recurring
      revenues provided by their subscriber base. The total costs associated with
      these subscribers has historically exceeded revenues, however we are striving
      to
      increase our subscriber base and lowering our costs in an attempt to generate
      excess cash flow. If we are unsuccessful at increasing our cash flow generated
      from this subsidiary our operations may be curtailed or ceased all
      together.




28







Our
      real
      estate development projects generate positive cash flow. Currently we are using
      this positive cash flow to satisfy debt as it comes due. When analyzing our
      operational cash flow one should bear in mind that as we develop real estate
      inventory, the expense is reflected in operations, however the construction
      loans directly related to this expense are reflected in our financing
      activities. The costs of construction loans as well as other forms of financing
      are not forecasted to increase dramatically. We expect real estate sales to
      increase as new communities are ready for sale.




It
      is
      uncertain if we will be profitable for the year ended December 31, 2006. Our
      auditors have issued a going concern opinion for our Company which means that
      given our current operations our auditors believe there is a possibility we
      will
      not continue in operation long enough to realize our investment in assets
      through operations (as opposed to sale). In order to mitigate this possibility,
      we constantly monitor current operational requirements and financial market
      conditions to evaluate the use of available financing sources, including debt
      and securities offerings.




Future
      acquisitions may require additional cash investment. When possible we will
      finance future acquisitions through operational cash flow, however if needed
      we
      will also utilize private placements of our securities and debt.




**Off-Balance
      Sheet Financing Activities**





**None.**





**Factors
      Affecting our Business and Prospects**





The
      most
      significant risks and uncertainties associated with our business are described
      in Part II Item 1.A; however, they are not the only risks we face. If any of
      the
      following risks actually occur, our business, financial condition, or results
      or
      operations could be materially adversely affected, the trading of our common
      stock could decline, and an investor may lose all or part of his or her
      investment.





**Material
      Weaknesses in Collecting and Processing Financial
      Information**


Management
        has determined that certain material weaknesses in our internal controls
        over
        the financial reporting process existed at December 31, 2005 and
        through the date of this filing. Specifically, management has determined
        that
        there is a material weakness in the controls over recording, processing,
        classes
        of transactions and disclosure and related assertions included in the financial
        statements from our subsidiaries and incorporating and consolidating that
        information into the holding company’s financial records.
  Management
        did not identify the appropriate accounting treatment for certain transactions
        involving the sale and subsequent leaseback of residential units as it relates
        to the timing of revenue and expense recognition. Management was not aware
        of
        the material impact of the specific transactions on the consolidated financial
        statements and may have inadvertently not provided our auditors with the
        specific lease agreements for these transactions. We believe this weakness
        is
        attributable to the fact that we experienced a high degree of employee turnover
        at the time of acquisition of our Sovereign subsidiary. At the time of the
        acquisition, certain policies and procedure to assure that all transactions
        had
        proper documentation had not been implemented. Contributing factors include
        the
        fact that we inherited these accounting systems when we acquired these
        businesses, and that the information processing problems have been aggravated
        by
        the turnover of staff and we had a decentralized accounting department.
        Management believes that this situation reflects a material weakness in our
        internal controls and procedures insofar as there is a more than remote
        likelihood that our inability to identify the proper accounting treatment
        and
        assess the impact on the financial statements in conjunction with consolidating
        our financial statements could lead to a material misstatement of our financial
        statements.  Management has identified a material misstatement in our
        financial statements to date as a result of this weakness, and we have restated
        prior periods accordingly (See Note 3 of the financial statements). We have
        recently advised our auditors when we became aware of the weakness in our
        accounting systems due to the nature of the documentation related to a specific
        set of transactions.   We have taken specific steps to correct this
        weakness in regards to the documentation and we have restated the prior period
        financial statements accordingly. We have recently implemented a centralized
        accounting team, including a Controller and a Chief Financial Officer. We
        have
        also implemented additional procedures regarding the requirements of increased
        level of documentation related to all transactions. We believe that these
        actions will address our concerns.


29


The
        occurrence of material misstatements in our financial statements by reason
        of a
        material weakness in our internal controls and procedures or any other reason
        could harm our operating results, cause us to fail to meet our reporting
        obligations, subject us to increased risk of errors and fraud related to
        our
        financial statements or result in material misstatements in our financial
        statements.  Any such failure also could adversely affect the results of
        the periodic management evaluations and annual independent certified public
        accountant attestation reports regarding the effectiveness of our “internal
        control over financial reporting” that will be required when the Securities and
        Exchange Commission’s rules under Section 404 of the Sarbanes-Oxley Act
        of 2002 become applicable to us.  Inadequate internal controls could
        also expose the officers and directors of our company to securities laws
        violations and also cause investors to lose confidence in our reported financial
        information, which could have a negative effect on the trading price of our
        stock.







**PART
      II- OTHER INFORMATION**




**Item
      1.**  **Legal
      proceedings**




Cardinal
      Communications, Inc. (the “Company”) was named as a defendant in a proceeding
      styled Exceleron Software, Inc. v. Cardinal Communications, Inc., Cause No.
      DV05-8334-J, filed in the Dallas County, Texas District Court on August 22,
      2005. On May 5, 2006, the parties reached an agreement to settle the matter
      and
      dismiss the case, with prejudice. The Company has paid Exceleron a total of
      $47,500 in full satisfaction of all claims and has recorded expense of the
      same
      amount in connection with the settlement.





The
      Company was a defendant in an arbitration proceeding styled Douglas O. McKinnon
      v. Cardinal Communications, Inc. pending before the American Arbitration
      Association in Denver, Colorado. The demand for arbitration was filed on July
      29, 2005. Mr. McKinnon was seeking $360,000, representing two years salary
      pursuant to an employment agreement with the Company. The parties have settled
      the claim for a one year consulting services agreement valued at $242,000
      payable in stock over the course of twelve months and the Company is recording
      the consulting expense in the period incurred.





Colorado
      River KOA, LLC (“CRKOA”), a wholly owned subsidiary of the Company, was sued by
      WHR Properties, Inc. in a case styled WHR Properties, Inc. v. Colorado River
      KOA, LLC and was pending in Gunnison County District Court in Colorado. The
      action was filed on March 17, 2006 and alleges breach of an agreement for the
      purchase of real property and seeks specific performance of the alleged contract
      and, alternatively, an unspecified claim for damages. On March 22, 2006, the
      Gunnison County District Court entered an order enjoining the sale of the
      property to any third party. The parties reached a settlement whereby CRKOA
      sold
      the property at issue to WHR. The action has been dismissed by WHR.





Sovereign
      Companies, LLC and Sovereign Developments, LLC, (collectively “Sovereign”),
      wholly owned subsidiaries of the Company, were sued by Jech Excavating, Inc.
      in
      a case styled Jech Excavating, Inc. v. Riverplace Condominiums, LLC et al.,
      Case
      No. 55-CV-06-2-28 pending in Olmstead County District Court in Minnesota. The
      action was filed on February 22, 2006 and alleged breach of contract under
      a
      promissory note relating to the performance of excavating work at the Riverplace
      development. The action also asserted a claim against Mr. Garneau individually.
      The Plaintiff sought damages of $664,000 together with interest and attorney’s
      fees. The parties reached a settlement whereby Sovereign paid Jech Excavating
      $638,000 in settlement of the claims which funds were derived from the sale
      of
      the Riverplace property. The action has been dismissed by Jech.





The
      Company is a defendant in a proceeding styled AMCO Insurance Company, as
      Subrogee of Poor Boy Bagels v. Sovereign Homes of Colorado, a division of
      Sovereign Companies LLC, Case No. 06C18852, filed in the County Court for Denver
      County, Colorado, on July 10, 2006. The complaint alleges that the defendant
      negligently severed a power line while performing construction operations,
      and
      seeks $2,134 in damages, which includes interest. The Company intends to
      vigorously defend the action. However, the Company cannot control the outcome
      and extent of the losses, if any, that may be incurred.





On
      August
      11, 2006, a Chapter 11 bankruptcy petition was filed for Connect Paging, Inc,
      d/b/a Get A Phone in the Western District of Texas Federal Bankruptcy Court
      styled In Re: Connect Paging, Inc., Case No. 06-51519. Connect Paging, Inc.
      d/b/a Get A Phone is a wholly owned subsidiary of the Company currently held
      for
      sale. Connect Paging, Inc. requests temporary relief from its creditors while
      it
      restructures its debt. The Company cannot control the outcome of this petition;
      however the Company continues to seek a buyer for these assets.


30








**Item
      1A.** **Risk Factors**





Except
      as
      updated below, there has been no material changes with respect to the risk
      factors disclosed in our Annual Report on Form 10-K for the fiscal year ended
      December 31, 2005 filed with the SEC on April 17, 2006.





WE
      HAVE A
      HISTORY OF SIGNIFICANT LOSSES AND WE MAY NEVER ACHIEVE OR SUSTAIN PROFITABILITY.
      IF WE ARE UNABLE TO BECOME PROFITABLE, OUR OPERATIONS WILL BE ADVERSELY
      EFFECTED.





We
      have
      incurred annual operating losses since our inception. As a result, at June
      30
      2006, we had an accumulated deficit of $77,581,605  .
      Our
      gross revenues for the Six Months ended June 30 2006 and 2005, were $8,800,338
      and $7,213,519 with losses from operations of $1,608,001 and $2,934,387 and
      net
      losses of $4,643,042 and $3,634,139 respectively.





As
      we
      pursue our business plan, we expect our operating expenses to increase
      significantly. We will need to generate increased revenues to become profitable.
      Accordingly, we cannot assure you that we will ever become or remain profitable.
      If our revenues fail to grow at anticipated rates or our operating expenses
      increase without a commensurate increase in our revenues, our financial
      condition will be adversely affected. Our inability to become profitable on
      a
      quarterly or annual basis would have a materially adverse effect on our business
      and financial condition. Also, the market price for our stock could fall.





WE
      HAVE
      SENIOR SECURED CONVERTIBLE DEBENTURES TOTALING $5,670,000 DUE IN 2006,
      COLLATERALIZED BY ALL OUR ASSETS. WE DO NOT HAVE THE FUNDS AVAILABLE TO PAY
      THESE DEBENTURES IF NOT CONVERTED INTO COMMON STOCK. IF THE DEBENTURES ARE
      NOT
      PAID OR CONVERTED, THE DEBENTURE HOLDERS COULD FORECLOSE ON OUR ASSETS.





We
      have
      entered into a series of private placements totaling $5,600,000 in senior
      secured debentures, convertible into common stock. Senior Secured debentures
      totaling $4,350,000 were due in July 2006 and are currently in default. We
      do
      not currently have the funds to pay these debentures and we cannot assure you
      that we will have the funds to pay them. If the debentures are not paid or
      converted, the debenture holders could foreclose on all of our assets. The
      debentures are collateralized by all of our assets.





WE
      HAVE A
      NOTE PAYABLE TO EVERGREEN VENTURE PARTNERS, LLC DUE IN 2006. WE CURRENTLY DO
      NOT
      HAVE THE FUNDS AVAILABLE TO PAY THIS NOTE WHEN DUE.





In
      2005
      we entered into an agreement with Evergreen Venture Partners, LLC to purchase
      17,000,000 unregistered shares of our common stock for a $750,000 note payable.
      The terms of the agreement call for payment of the note in July 2006. This
      note
      is currently in default. We do not have the funds to pay this debenture and
      we
      cannot assure you that we will have the funds to pay it.





WE
      REQUIRE ADDITIONAL FUNDING





We
      do not
      have sufficient cash on hand or cash generated from operations to continue
      operations into the foreseeable future. To continue funding operations the
      Company must raise additional cash, either through debt or equity financing.
      No
      assurance can be given that the Company will be successful in obtaining any
      such
      financing with acceptable terms, or that such financing will provide for
      payments to the Company sufficient to continue to sustain operations.  In
      the absence of such financing the Company may be required to reduce operations.
      Even assuming the Company is successful in securing additional sources of
      financing to fund the continued operations, there can be no assurance that
      the
      Company will become profitable or self sustaining in the future.


.


WE
      CAN
      ISSUE COMMON STOCK WITHOUT SHAREHOLDER APPROVAL THAT MAY CAUSE DILUTION TO
      EXISTING SHAREHOLDERS.


31





We
      have
      800,000,000 authorized shares of common stock that can be issued by the Board
      of
      Directors. At June 30 2006, we had 10,750,071 shares of common stock available
      for issue. Under most circumstances the Board of Directors has the right to
      issue these shares.





OUR
      COMMON STOCK HAS EXPERIENCED SIGNIFICANT PRICE VOLATILITY IN THE PAST AND WE
      EXPECT IT TO EXPERIENCE HIGH VOLATILITY IN THE FUTURE. THIS HIGH VOLATILITY
      SUBSTANTIALLY INCREASES THE RISK OF LOSS TO PERSONS OWNING OUR COMMON STOCK.





The
      trading price for our common stock has been, and we expect it to continue to
      be,
      highly volatile. For example, the closing bid price of our stock has fluctuated
      between $0.005 and $0.35 per share since January 1, 2003. The price at which
      our
      common stock trades depends upon a number of factors, including our historical
      and anticipated operating results and general market and economic conditions,
      which are beyond our control. In addition, the stock market has, from time
      to
      time, experienced extreme price and volume fluctuations. These broad market
      fluctuations may lower the market price of our common stock. Moreover, during
      periods of stock market price volatility, share prices of many
      telecommunications companies have often fluctuated in a manner not necessarily
      related to their operating performance. Accordingly, our common stock may be
      subject to greater price volatility than the stock market as a whole.







**item
      2.**  **Unregistered
      Sales of Equity Securities and Use of Proceeds**




1. (a)
      Securities Issued. In January 2006; 1,000,000 shares of the Company's common
      stock were issued.





(b)
      Underwriter, Purchaser or Recipient. Such shares of stock were issued to
      Equitrend Advisors, LLC.





(c)
      Consideration. Such shares were issued pursuant to a services purchase
      agreement.





(d)
      Exemption from Registration. These securities are exempt from registration
      under
      the Securities Act of 1933, as amended, pursuant to the provisions of Section
      4(2) thereof, as a transaction not involving a public offering. This purchaser
      is a sophisticated investor capable of evaluating an investment in the Company.





2. (a)
      Securities Issued. In January 2006; 2,370,360 shares of the Company's common
      stock were issued.





(b)
      Underwriter, Purchaser or Recipient. Such shares of stock were issued to Kenneth
      Miller.





(c)
      Consideration. Such shares were issued pursuant to consideration for loan
      guarantees.





(d)
      Exemption from Registration. These securities are exempt from registration
      under
      the Securities Act of 1933, as amended, pursuant to the provisions of Section
      4(2) thereof, as a transaction not involving a public offering. This purchaser
      is a sophisticated investor capable of evaluating an investment in the Company.





3. (a)
      Securities Issued. In January 2006; 193,180 shares of the Company's common
      stock
      were issued.





(b)
      Underwriter, Purchaser or Recipient. Such shares of stock were issued to Edwin
      Buckmaster.





(c)
      Consideration. Such shares were issued pursuant to consideration for loan
      guarantees.





(d)
      Exemption from Registration. These securities are exempt from registration
      under
      the Securities Act of 1933, as amended, pursuant to the provisions of Section
      4(2) thereof, as a transaction not involving a public offering. This purchaser
      is a sophisticated investor capable of evaluating an investment in the Company.





4. (a)
      Securities Issued. In January 2006; 8,980,360 shares of the Company's common
      stock were issued.





(b)
      Underwriter, Purchaser or Recipient. Such shares of stock were issued to Edouard
      Garneau.





(c)
      Consideration. Such shares were issued pursuant to consideration for loan
      guarantees.


32








(d)
      Exemption from Registration. These securities are exempt from registration
      under
      the Securities Act of 1933, as amended, pursuant to the provisions of Section
      4(2) thereof, as a transaction not involving a public offering. This purchaser
      is a sophisticated investor capable of evaluating an investment in the Company.





5. (a)
      Securities Issued. In January 2006; 170,450 shares of the Company's common
      stock
      were issued.





(b)
      Underwriter, Purchaser or Recipient. Such shares of stock were issued to Paul
      Garneau.





(c)
      Consideration. Such shares were issued pursuant to consideration for loan
      guarantees.





(d)
      Exemption from Registration. These securities are exempt from registration
      under
      the Securities Act of 1933, as amended, pursuant to the provisions of Section
      4(2) thereof, as a transaction not involving a public offering. This purchaser
      is a sophisticated investor capable of evaluating an investment in the Company.





6. (a)
      Securities Issued. In January 2006; 125,000 shares of the Company's common
      stock
      were issued.





(b)
      Underwriter, Purchaser or Recipient. Such shares of stock were issued to Jeffrey
      Fiebig.





(c)
      Consideration. Such shares were issued pursuant to consideration for loan
      guarantees.





(d)
      Exemption from Registration. These securities are exempt from registration
      under
      the Securities Act of 1933, as amended, pursuant to the provisions of Section
      4(2) thereof, as a transaction not involving a public offering. This purchaser
      is a sophisticated investor capable of evaluating an investment in the Company.





7. (a)
      Securities Issued. In January 2006; 6,810 shares of the Company's common stock
      were issued.





(b)
      Underwriter, Purchaser or Recipient. Such shares of stock were issued to Craig
      Cook.





(c)
      Consideration. Such shares were issued pursuant to consideration for loan
      guarantees.





(d)
      Exemption from Registration. These securities are exempt from registration
      under
      the Securities Act of 1933, as amended, pursuant to the provisions of Section
      4(2) thereof, as a transaction not involving a public offering. This purchaser
      is a sophisticated investor capable of evaluating an investment in the Company.





8 . (a)
      Securities Issued. In February 2006; 9,974,288 shares of the Company's common
      stock were issued.





(b)
      Underwriter, Purchaser or Recipient. Such shares of stock were issued to Michael
      Blank.





(c)
      Consideration. Such shares were issued pursuant to satisfy a Settlement
      Consultant Program.





(d)
      Exemption from Registration. These securities are exempt from registration
      under
      the Securities Act of 1933, as amended, pursuant to the provisions of Section
      4(2) thereof, as a transaction not involving a public offering. This purchaser
      is a sophisticated investor capable of evaluating an investment in the Company.








9 . (a)
      Securities Issued. In February 2006; 15,372,015 shares of the Company's common
      stock were issued.





(b)
      Underwriter, Purchaser or Recipient. Such shares of stock were issued to Edwin
      Buckmaster.





(c)
      Consideration. Such shares were issued pursuant to satisfy a Settlement
      Consultant Program.





(d)
      Exemption from Registration. These securities are exempt from registration
      under
      the Securities Act of 1933, as amended, pursuant to the provisions of Section
      4(2) thereof, as a transaction not involving a public offering. This purchaser
      is a sophisticated investor capable of evaluating an investment in the Company.


33








10 . (a)
      Securities Issued. In February 2006; 47,743,590 shares of the Company's common
      stock were issued.





(b)
      Underwriter, Purchaser or Recipient. Such shares of stock were issued to AEJM
      Enterprises Limited Partnership .





(c)
      Consideration. Such shares were issued to satisfy a Note Payable in the amount
      of $700,000.





(d)
      Exemption from Registration. These securities are exempt from registration
      under
      the Securities Act of 1933, as amended, pursuant to the provisions of Section
      4(2) thereof, as a transaction not involving a public offering. This purchaser
      is a sophisticated investor capable of evaluating an investment in the Company.





11 . (a)
      Securities Issued. In March 2006; 357,143 shares of the Company's common stock
      were issued.





(b)
      Underwriter, Purchaser or Recipient. Such shares of stock were issued to Steven
      Basmajian.





(c)
      Consideration. Such shares were issued pursuant to a consulting agreement.





(d)
      Exemption from Registration. These securities are exempt from registration
      under
      the Securities Act of 1933, as amended, pursuant to the provisions of Section
      4(2) thereof, as a transaction not involving a public offering. This purchaser
      is a sophisticated investor capable of evaluating an investment in the Company.





12.
            (a)
                Securities Issued. In April 2006, 69,443 shares of the Company's
                series B
                convertible preferred stock were issued.





(b)
      Underwriter, Purchaser or Recipient. Such shares of stock were issued to DD
      Family Properties, LLC.





(c)
      Consideration. Such shares were issued pursuant to a stock purchase agreement.





(d)
      Exemption from Registration. These securities are exempt from registration
      under
      the Securities Act of 1933, as amended, pursuant to the provisions of Section
      4(2) thereof, as a transaction not involving a public offering. This purchaser
      is a sophisticated investor capable of evaluating an investment in the Company.





13.
            (a)
                Securities Issued. In April 2006, 23,805 shares of the Company's
                series B
                convertible preferred stock were issued.





(b)
      Underwriter, Purchaser or Recipient. Such shares of stock were issued to
      Thunderbird Management Limited Partnership.





(c)
      Consideration. Such shares were issued pursuant to a stock purchase agreement.





(d)
      Exemption from Registration. These securities are exempt from registration
      under
      the Securities Act of 1933, as amended, pursuant to the provisions of Section
      4(2) thereof, as a transaction not involving a public offering. This purchaser
      is a sophisticated investor capable of evaluating an investment in the Company.





14.
            (a)
                Securities Issued. In April 2006, 26,770 shares of the Company's
                series B
                convertible preferred stock were issued.





(b)
      Underwriter, Purchaser or Recipient. Such shares of stock were issued to Searls
      Family, LLLP.





(c)
      Consideration. Such shares were issued pursuant to a stock purchase agreement.





(d)
      Exemption from Registration. These securities are exempt from registration
      under
      the Securities Act of 1933, as amended, pursuant to the provisions of Section
      4(2) thereof, as a transaction not involving a public offering. This purchaser
      is a sophisticated investor capable of evaluating an investment in the Company.


34





15.
            (a)
                Securities Issued. In April 2006, 22,310 shares of the Company's
                series B
                convertible preferred stock were issued.





(b)
      Underwriter, Purchaser or Recipient. Such shares of stock were issued to Krantz
      Family, LLLP.





(c)
      Consideration. Such shares were issued pursuant to a stock purchase agreement.





(d)
      Exemption from Registration. These securities are exempt from registration
      under
      the Securities Act of 1933, as amended, pursuant to the provisions of Section
      4(2) thereof, as a transaction not involving a public offering. This purchaser
      is a sophisticated investor capable of evaluating an investment in the Company.





16.
            (a)
                Securities Issued. In April 2006, 21,416 shares of the Company's
                series B
                convertible preferred stock were issued.





(b)
      Underwriter, Purchaser or Recipient. Such shares of stock were issued to Dolphin
      Bay, LLC.





(c)
      Consideration. Such shares were issued pursuant to a stock purchase agreement.





(d)
      Exemption from Registration. These securities are exempt from registration
      under
      the Securities Act of 1933, as amended, pursuant to the provisions of Section
      4(2) thereof, as a transaction not involving a public offering. This purchaser
      is a sophisticated investor capable of evaluating an investment in the Company.





17.
            (a)
                Securities Issued. In April 2006, 3,548 shares of the Company's series
                B
                convertible preferred stock were issued.





(b)
      Underwriter, Purchaser or Recipient. Such shares of stock were issued to Paul
      Garneau.





(c)
      Consideration. Such shares were issued pursuant to a stock purchase agreement.





(d)
      Exemption from Registration. These securities are exempt from registration
      under
      the Securities Act of 1933, as amended, pursuant to the provisions of Section
      4(2) thereof, as a transaction not involving a public offering. This purchaser
      is a sophisticated investor capable of evaluating an investment in the Company.





18.
            (a)
                Securities Issued. In April 2006, 3,547 shares of the Company's series
                B
                convertible preferred stock were issued.





(b)
      Underwriter, Purchaser or Recipient. Such shares of stock were issued to Laura
      Mia Garneau.





(c)
      Consideration. Such shares were issued pursuant to a stock purchase agreement.





(d)
      Exemption from Registration. These securities are exempt from registration
      under
      the Securities Act of 1933, as amended, pursuant to the provisions of Section
      4(2) thereof, as a transaction not involving a public offering. This purchaser
      is a sophisticated investor capable of evaluating an investment in the Company.





19.
            (a)
                Securities Issued. In April 2006, 56,598 shares of the Company's
                series B
                convertible preferred stock were issued.





(b)
      Underwriter, Purchaser or Recipient. Such shares of stock were issued to Kenneth
      Miller.





(c)
      Consideration. Such shares were issued pursuant to a stock purchase agreement.





(d)
      Exemption from Registration. These securities are exempt from registration
      under
      the Securities Act of 1933, as amended, pursuant to the provisions of Section
      4(2) thereof, as a transaction not involving a public offering. This purchaser
      is a sophisticated investor capable of evaluating an investment in the Company.





20.
            (a)
                Securities Issued. In April 2006, 3,363 shares of the Company's series
                B
                convertible preferred stock were issued.


35








(b)
      Underwriter, Purchaser or Recipient. Such shares of stock were issued to Jeffery
      Schetgen.





(c)
      Consideration. Such shares were issued pursuant to a stock purchase agreement.





(d)
      Exemption from Registration. These securities are exempt from registration
      under
      the Securities Act of 1933, as amended, pursuant to the provisions of Section
      4(2) thereof, as a transaction not involving a public offering. This purchaser
      is a sophisticated investor capable of evaluating an investment in the Company.





21.
            (a)
                Securities Issued. In April 2006, 6,250 shares of the Company's series
                B
                convertible preferred stock were issued.





(b)
      Underwriter, Purchaser or Recipient. Such shares of stock were issued to Thomas
      Beck.





(c)
      Consideration. Such shares were issued pursuant to a stock purchase agreement.





(d)
      Exemption from Registration. These securities are exempt from registration
      under
      the Securities Act of 1933, as amended, pursuant to the provisions of Section
      4(2) thereof, as a transaction not involving a public offering. This purchaser
      is a sophisticated investor capable of evaluating an investment in the Company.





21.
            (a)
                Securities Issued. In April 2006, 6,250 shares of the Company's series
                B
                convertible preferred stock were issued.





(b)
      Underwriter, Purchaser or Recipient. Such shares of stock were issued to Brent
      E. Couch.





(c)
      Consideration. Such shares were issued pursuant to a stock purchase agreement.





(d)
      Exemption from Registration. These securities are exempt from registration
      under
      the Securities Act of 1933, as amended, pursuant to the provisions of Section
      4(2) thereof, as a transaction not involving a public offering. This purchaser
      is a sophisticated investor capable of evaluating an investment in the Company.





22.
            (a)
                Securities Issued. In April 2006, 2,500 shares of the Company's series
                B
                convertible preferred stock were issued.





(b)
      Underwriter, Purchaser or Recipient. Such shares of stock were issued to Jeffrey
      W. Fiebig.





(c)
      Consideration. Such shares were issued pursuant to a stock purchase agreement.





(d)
      Exemption from Registration. These securities are exempt from registration
      under
      the Securities Act of 1933, as amended, pursuant to the provisions of Section
      4(2) thereof, as a transaction not involving a public offering. This purchaser
      is a sophisticated investor capable of evaluating an investment in the Company.





23.
            (a)
                Securities Issued. In April 2006, 2,500 shares of the Company's series
                B
                convertible preferred stock were issued.





(b)
      Underwriter, Purchaser or Recipient. Such shares of stock were issued to Craig
      A. Cook.





(c)
      Consideration. Such shares were issued pursuant to a stock purchase agreement.





(d)
      Exemption from Registration. These securities are exempt from registration
      under
      the Securities Act of 1933, as amended, pursuant to the provisions of Section
      4(2) thereof, as a transaction not involving a public offering. This purchaser
      is a sophisticated investor capable of evaluating an investment in the Company.





26.
            (a)
                Securities Issued. In April 2006, 850 shares of the Company's series
                B
                convertible preferred stock were issued.


36








(b)
      Underwriter, Purchaser or Recipient. Such shares of stock were issued to Curt
      A.
      Bushman.





(c)
      Consideration. Such shares were issued pursuant to a stock purchase agreement.





(d)
      Exemption from Registration. These securities are exempt from registration
      under
      the Securities Act of 1933, as amended, pursuant to the provisions of Section
      4(2) thereof, as a transaction not involving a public offering. This purchaser
      is a sophisticated investor capable of evaluating an investment in the Company.





28.
            (a)
                Securities Issued. In April 2006, 850 shares of the Company's Series
                B
                convertible Preferred Stock were issued.





(b)
      Underwriter, Purchaser or Recipient. Such shares of stock were issued to Michael
      P. Petrusich.





(c)
      Consideration. Such shares were issued pursuant to a stock purchase agreement.





(d)
      Exemption from Registration. These securities are exempt from registration
      under
      the Securities Act of 1933, as amended, pursuant to the provisions of Section
      4(2) thereof, as a transaction not involving a public offering. This purchaser
      is a sophisticated investor capable of evaluating an investment in the Company.





29.  (a)
      Securities Issued. In April 2006; 170,070 shares of the Company's common stock
      were issued.





(b)
      Underwriter, Purchaser or Recipient. Such shares of stock were issued to Steven
      Basmajian.





(c)
      Consideration. Such shares were issued pursuant to a consulting agreement.





(d)
      Exemption from Registration. These securities are exempt from registration
      under
      the Securities Act of 1933, as amended, pursuant to the provisions of Section
      4(2) thereof, as a transaction not involving a public offering. This purchaser
      is a sophisticated investor capable of evaluating an investment in the Company.





30 .  (a)
      Securities Issued. In June 2006; 33,333,34 shares of the Company's common stock
      were issued.





(b)
      Underwriter, Purchaser or Recipient. Such shares of stock were issued to Edwin
      Buckmaster.





(c)
      Consideration. Such shares were issued pursuant to a stock subscription
      agreement valued at $500,000.





(d)
      Exemption from Registration. These securities are exempt from registration
      under
      the Securities Act of 1933, as amended, pursuant to the provisions of Section
      4(2) thereof, as a transaction not involving a public offering. This purchaser
      is a sophisticated investor capable of evaluating an investment in the Company.








31 .  (a)
      Securities Issued. In April 2006; 6,650,000 shares of the Company's common
      stock
      were issued.





(b)
      Underwriter, Purchaser or Recipient. Such shares of stock were issued to Ed
      Buckmaster.





(c)
      Consideration. Such shares were issued to satisfy a Note Payable in the amount
      of $150,000.





(d)
      Exemption from Registration. These securities are exempt from registration
      under
      the Securities Act of 1933, as amended, pursuant to the provisions of Section
      4(2) thereof, as a transaction not involving a public offering. This purchaser
      is a sophisticated investor capable of evaluating an investment in the Company.








32 .  (a)
      Securities Issued. In April 2006; 1,678,250 shares of the Company's common
      stock
      were issued.





(b)
      Underwriter, Purchaser or Recipient. Such shares of stock were issued to Richard
      Koontz.





(c)
      Consideration. Such shares were issued pursuant to satisfy a Note Payable plus
      interest totaling $29,000.


37





(d)
      Exemption from Registration. These securities are exempt from registration
      under
      the Securities Act of 1933, as amended, pursuant to the provisions of Section
      4(2) thereof, as a transaction not involving a public offering. This purchaser
      is a sophisticated investor capable of evaluating an investment in the Company.





33.  (a)
      Securities Issued. In May 2006; 607,900 shares of the Company's common stock
      were issued.





(b)
      Underwriter, Purchaser or Recipient. Such shares of stock were issued to Kenneth
      Miller.





(c)
      Consideration. Such shares were issued pursuant to consideration for loan
      guarantees.





(d)
      Exemption from Registration. These securities are exempt from registration
      under
      the Securities Act of 1933, as amended, pursuant to the provisions of Section
      4(2) thereof, as a transaction not involving a public offering. This purchaser
      is a sophisticated investor capable of evaluating an investment in the Company.





34.  (a)
      Securities Issued. In May 2006; 50,000 shares of the Company's common stock
      were
      issued.





(b)
      Underwriter, Purchaser or Recipient. Such shares of stock were issued to Edwin
      Buckmaster.





(c)
      Consideration. Such shares were issued pursuant to consideration for loan
      guarantees.





(d)
      Exemption from Registration. These securities are exempt from registration
      under
      the Securities Act of 1933, as amended, pursuant to the provisions of Section
      4(2) thereof, as a transaction not involving a public offering. This purchaser
      is a sophisticated investor capable of evaluating an investment in the Company.





35.  (a)
      Securities Issued. In May 2006; 2,410,950 shares of the Company's common stock
      were issued.





(b)
      Underwriter, Purchaser or Recipient. Such shares of stock were issued to Edouard
      Garneau.





(c)
      Consideration. Such shares were issued pursuant to consideration for loan
      guarantees.





(d)
      Exemption from Registration. These securities are exempt from registration
      under
      the Securities Act of 1933, as amended, pursuant to the provisions of Section
      4(2) thereof, as a transaction not involving a public offering. This purchaser
      is a sophisticated investor capable of evaluating an investment in the Company.





36.  (a)
      Securities Issued. In May 2006; 43,750 shares of the Company's common stock
      were
      issued.





(b)
      Underwriter, Purchaser or Recipient. Such shares of stock were issued to Paul
      Garneau.





(c)
      Consideration. Such shares were issued pursuant to consideration for loan
      guarantees.





(d)
      Exemption from Registration. These securities are exempt from registration
      under
      the Securities Act of 1933, as amended, pursuant to the provisions of Section
      4(2) thereof, as a transaction not involving a public offering. This purchaser
      is a sophisticated investor capable of evaluating an investment in the Company.





37.  (a)
      Securities Issued. In May 2006; 34,400 shares of the Company's common stock
      were
      issued.





(b)
      Underwriter, Purchaser or Recipient. Such shares of stock were issued to Jeffrey
      Fiebig.





(c)
      Consideration. Such shares were issued pursuant to consideration for loan
      guarantees.





(d)
      Exemption from Registration. These securities are exempt from registration
      under
      the Securities Act of 1933, as amended, pursuant to the provisions of Section
      4(2) thereof, as a transaction not involving a public offering. This purchaser
      is a sophisticated investor capable of evaluating an investment in the Company.


38








38.  (a)
      Securities Issued. In May 2006; 18,500 shares of the Company's common stock
      were
      issued.





(b)
      Underwriter, Purchaser or Recipient. Such shares of stock were issued to Craig
      Cook.





(c)
      Consideration. Such shares were issued pursuant to consideration for loan
      guarantees.





(d)
      Exemption from Registration. These securities are exempt from registration
      under
      the Securities Act of 1933, as amended, pursuant to the provisions of Section
      4(2) thereof, as a transaction not involving a public offering. This purchaser
      is a sophisticated investor capable of evaluating an investment in the Company.








39 .  (a)
      Securities Issued. In June 2006; 1,989,703 shares of the Company's common stock
      were issued.





(b)
      Underwriter, Purchaser or Recipient. Such shares of stock were issued to Robert
      Schechter.





(c)
      Consideration. Such shares were issued pursuant to satisfy a Note Payable plus
      interest totaling $49,743.





(d)
      Exemption from Registration. These securities are exempt from registration
      under
      the Securities Act of 1933, as amended, pursuant to the provisions of Section
      4(2) thereof, as a transaction not involving a public offering. This purchaser
      is a sophisticated investor capable of evaluating an investment in the Company.








40 .  (a)
      Securities Issued. In June 2006; 1,595,764 shares of the Company's common stock
      were issued.





(b)
      Underwriter, Purchaser or Recipient. Such shares of stock were issued to Shimon
      Fishman.





(c)
      Consideration. Such shares were issued pursuant to satisfy a Note Payable plus
      interest totaling $39,894.





(d)
      Exemption from Registration. These securities are exempt from registration
      under
      the Securities Act of 1933, as amended, pursuant to the provisions of Section
      4(2) thereof, as a transaction not involving a public offering. This purchaser
      is a sophisticated investor capable of evaluating an investment in the Company.







**Item
      3.**  **Defaults
      upon senior securities**







Washington
      Mutual Bank FA





As
      of the
      date of the filing of this report the Company is in default in payment of one
      note payable to Washington Mutual Bank FA (WAMU) totaling $1,908,075 due in
      principal. The financial institution has submitted a default letter to the
      Company as of July 2006 due to the fact the note payable matured in August
      2005
      and elected not to renew the note. The Company has been unsuccessful to date
      in
      obtaining additional financing to replace the note. The note is specifically
      related to the SR Condominium project located in Parker, Colorado. The Company
      is currently in negotiations with WAMU to resolve the outstanding
      balance.





MW
      Housing Partners III, LP





As
      of the
      date of the filing of this report the Company is in default on one note payable
      to MW Housing Partners III, LP (Weyerhaeuser) totaling $2,444,775 due in
      principal. The note is specifically related to the SR Condominium project
      located in Parker, Colorado. Weyerhaeuser submitted a default notice to the
      Company in July 2006 due to the fact the Company was in default on the note
      to
      WAMU associated with the same construction project, SR Condominium. A clause
      in
      the notes payable gives Weyerhaeuser the right to place the Company in default
      status if a different note from a different lender is in default status on
      the
      same project. Weyerhaeuser elected to exercise this right under the note. The
      Company is currently in negotiations with Weyerhaeuser to resolve the
      issue.


39








Crestview
      Capital Master, LLC





As
      of the
      date of the filing of this report the Company is in default in payment of four
      notes payable to Crestview Capital Master, LLC (Crestview) totaling $4,350,000
      due in principal and $823,906 due in interest. The total principal and interest
      matured on July 1, 2006. The Company is currently in negotiations with Crestview
      to resolve the outstanding balance.





Evergreen
      Venture Partners, LLC





As
      of the
      date of the filing of this report the Company is in default in payment of one
      non-interest bearing, note payable to Evergreen Venture Partners, LLC
      (Evergreen) for $750,000. The total principal matured on July 1, 2006. The
      Company is currently in negotiations with Evergreen to resolve the outstanding
      balance.




**Item
      4.**  **Submission
      of matters to a vote of security holders**




Annual
      Meeting of the Shareholders




On
      June
      6, 2006 Cardinal Communications, Inc. (the “Company”) held its Annual Meeting of
      the Shareholders. The number of issued and outstanding shares of the Common
      Stock of Cardinal Communications, Inc. as of May 12, 2006, the record date
      established by the Board of Directors for determining shareholder eligibility
      to
      vote at the meeting, was 445,328,774; the number of issued and outstanding
      shares of the Series A Preferred Stock of Cardinal Communications, Inc. eligible
      to vote at the meeting, was 8,750; and the number of issued and outstanding
      shares of the Series B Preferred Stock of Cardinal Communications, Inc. eligible
      to vote at the meeting, was 350,000.




Each
      of
      the common shares voting at the meeting was entitled to one vote. Each of the
      Series A preferred shares voting at the meeting was entitled to 2000 votes.
      Each
      of the Series B preferred shares voting at the meeting was entitled to 100
      votes. There were represented personally or by proxy at the meeting stockholders
      holding an aggregate of 269,741,333 shares of the Common Stock of Cardinal
      Communications, Inc., representing 61% percent of the total shares eligible
      to
      vote; 8,750 shares of the Series A Preferred Stock of Cardinal Communications,
      Inc., representing 100% percent of the total Series A shares eligible to vote;
      and 350,000 shares of the Series B Preferred Stock of Cardinal Communications,
      Inc., representing 100% percent of the total Series B shares eligible to
      vote.




During
      the meeting the following items were approved:




(1)  ELECTION
      OF EIGHT DIRECTORS. Ed Garneau, Richard E. Wilson, Jeffrey Fiebig, Byron Young,
      Joseph M. Durnford, Robert T. Hale, Robert R. Searls and Kerry D. Briggs elected
      to serve as directors of the Company until our next annual meeting of the
      shareholders, or until their respective successors are elected and qualified.
      There are no other directors on our Board of Directors.




(2)  RATIFICATION
      AND APPROVAL OF AUDITORS. The selection of AJ. Robbins, PC as the Company’s
      independent auditors for the fiscal years ending December 31, 2006 was
      ratified.




(3)  APPROVAL
      OF REVERSE COMMON STOCK SPLIT. Our Board of Directors has been given the
      discretionary authority, prior to the next annual meeting of the shareholders,
      if the Board deems it in the best interest of the Shareholders, to amend our
      Articles of Incorporation to effect a reverse stock split of one of the
      following amounts: i) one share of common stock for five shares of common stock;
      ii) one share of common stock for ten shares of common stock, iii) one share
      of
      common stock for twenty shares of common stock or iv) one share of common stock
      for thirty shares of common stock.




(4)  APPROVAL
      OF FORWARD COMMON STOCK SPLIT. Our Board of Directors has discretionary
      authority, prior to the next annual meeting of shareholders, if the Board deems
      it in the best interest of the Shareholders, to amend our Articles of
      Incorporation to effect a forward stock split of two common shares of common
      stock for each one share of common stock.




40







Votes
      of
      the common stockholders received and tabulated at the meeting were as
      follows:




Proposal
      1 .  The
      number of shares cast for, against and withheld with respect to the nominees
      for
      election to the Board of Directors to serve until the Annual Meeting of
      Stockholders to be held in the year 2006 and until his successor shall be
      elected and qualified was as follows:





FOR
              
              ABSTAIN
              
              AGAINSTEdouard
                  Garneau
              
              
              267,401,115
              
              
              2,286,792
              
              
              53,426Richard
                  Wilson
              
              
              267,395,961
              
              
              45,860
              
              
              2,299,512Jeffrey
                  Fiebig
              
              
              266,760,961
              
              
              40,692
              
              
              2,939,680Byron
                  Young
              
              
              269,637,215
              
              
              50,692
              
              
              53,426Joseph
                  M. Durnford
              
              
              269,531,059
              
              
              195,860
              
              
              14,414Robert
                  T. Hale
              
              
              266,657,559
              
              
              830,860
              
              
              2,252,914Robert
                  R. Searls
              
              
              268,911,229
              
              
              200,692
              
              
              629,412Kerry
                  D. Briggs
              
              
              268,911,229
              
              
              825,692
              
              
              4,412


For
      the
      purposes of tabulating votes, directors are elected by a plurality of votes.
      A bstentions
      and negative votes had no effect.





Proposal
      2.  The
      number of shares cast for, against and withheld with respect to confirmation
      of
      A.J. Robbins, P.C., as the Company’s auditors was as follows:





FOR
              ABSTAIN
              AGAINST269,736,239
              692
              4,402





Proposal
      3.  The
      number of shares cast for, against and withheld with respect to approval of
      authority to the Board of Directors to implement a reverse stock split was
      as
      follows:




FOR
              ABSTAIN
              AGAINST259,454,613
              500,034
              9,786,686





Proposal
      4.  The
      number of shares cast for, against and withheld with respect to approval of
      authority to the Board of Directors to implement a forward stock split was
      as
      follows:


FOR
              ABSTAIN
              AGAINST206,383,263
              500,230
              62,857,840
 41





Votes
      of
      the Series A Preferred Stockholders received and tabulated at the meeting were
      as follows:





Proposal
      1 .  The
      number of shares cast for, against and withheld with respect to the nominees
      for
      election to the Board of Directors to serve until the Annual Meeting of
      Stockholders to be held in the year 2006 and until his successor shall be
      elected and qualified was as follows:








FOR
              ABSTAIN
              AGAINSTEdouard
                  Garneau
              
              8,750Richard
                  Wilson
              
              8,750Jeffrey
                  Fiebig
              
              8,750Byron
                  Young
              
              8,750Joseph
                  M. Durnford
              
              8,750Robert
                  T. Hale
              
              8,750Robert
                  R. Searls
              
              8,750Kerry
                  D. Briggs
              
              8,750








For
      the
      purposes of tabulating votes, directors are elected by a plurality of votes.
      A bstentions
      and negative votes had no effect.





Proposal
      2.  The
      number of shares cast for, against and withheld with respect to confirmation
      of
      A.J. Robbins, P.C., as the Company’s auditors was as follows:





FOR
              ABSTAIN
              AGAINST8,750





Proposal
      3.  The
      number of shares cast for, against and withheld with respect to approval of
      authority to the Board of Directors to implement a reverse stock split was
      as
      follows:





FOR
              ABSTAIN
              AGAINST8,750





Proposal
      4.  The
      number of shares cast for, against and withheld with respect to approval of
      authority to the Board of Directors to implement a forward stock split was
      as
      follows:





FOR
              ABSTAIN
              AGAINST8,750


42





Votes
      of
      the Series B Preferred Stockholders received and tabulated at the meeting were
      as follows:





Proposal
      1 .  The
      number of shares cast for, against and withheld with respect to the nominees
      for
      election to the Board of Directors to serve until the Annual Meeting of
      Stockholders to be held in the year 2006 and until his successor shall be
      elected and qualified was as follows:








FOR
              ABSTAIN
              AGAINSTEdouard
                  Garneau
              350,000Richard
                  Wilson
              350,000Jeffrey
                  Fiebig
              350,000Byron
                  Young
              350,000Joseph
                  M. Durnford
              350,000Robert
                  T. Hale
              350,000Robert
                  R. Searls
              350,000Kerry
                  D. Briggs
              350,000








For
      the
      purposes of tabulating votes, directors are elected by a plurality of votes.
      A bstentions
      and negative votes had no effect.





Proposal
      2.  The
      number of shares cast for, against and withheld with respect to confirmation
      of
      A.J. Robbins, P.C., as the Company’s auditors was as follows:





FOR
              ABSTAIN
              AGAINST350,000





Proposal
      3.  The
      number of shares cast for, against and withheld with respect to approval of
      authority to the Board of Directors to implement a reverse stock split was
      as
      follows:





FOR
              ABSTAIN
              AGAINST350,000





Proposal
      4.  The
      number of shares cast for, against and withheld with respect to approval of
      authority to the Board of Directors to implement a forward stock split was
      as
      follows:






FOR
              ABSTAIN
              AGAINST252,780
              
              97,220
    43




**Item
      5.**  **Other
      Information**




**Subsequent
      Events**





**Departure
      of Directors.**





On
      July
      20, 2006, the Board of Directors accepted the resignation of Robert T. Hale
      effective July 16, 2006. Also on July 20, 2006, the Board of Directors accepted
      the resignation of Byron Young from the Company’s board of directors, effective
      July 20, 2006. The resignations of Mr. Hale and Mr. Young were not due to any
      disagreement with the Company’s operations, policies or practices. The
      departures of Mr. Hale and Mr. Young were reported in the Company’s Current
      Report on Form 8-K filed with the SEC on July 24, 2006.





**Entry
      into a Material Definitive Agreement.**





In
      furtherance of the obligations set forth in the Purchase Agreement related
      to
      the assets of GalaVu Entertainment Networks, Inc. (GalaVu), on August 15, 2006,
      the Company and GalaVu executed an Assignment and Assumption Agreement. Pursuant
      to the Assignment, GalaVu has assigned, conveyed, transferred and set over
      to
      the Company all of GalVu's rights related to or connected with the Pledged
      Assets (.Please see Purchase and Exchange Agreement


under
      Note 6. Acquisitions for more details). As Assignee, the Company retained the
      right to accept or reject the assignment as to each of the assets. The
      determination of which assets to accept or reject shall be exercised at the
      Company's sole and absolute discretion, which discretion may be exercised by
      the
      Company at any time and from time to time for one hundred and eighty (180)
      days
      following the execution of the Assignment. For any of GalaVu's contracts that
      are accepted by the Company, the Company has agreed to assume and to perform
      all
      of the GalaVu's obligations under such contracts.








44


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





EXHIBIT NO.  DESCRIPTION
  (1)
                3.1  Articles
                    of
                    Incorporation of Registrant.
   (6)
              3.2  Bylaws
                  of Registrant, as amended April 20, 2005.
   (3)
              3.5  Articles
                  of
                  Amendment to Articles of Incorporation of Registrant.
   (4)
              3.6  Articles
                  of
                  Amendment to Articles of Incorporation of Registrant.
   (8)
              3.7  Certificate
                  of
                  Designation of Series A Convertible Preferred Stock.
   (6)
              3.8  Certificate
                  of
                  Designation of Series B Convertible Preferred
                  Stock.
   (7)
              3.9  Articles
                  of
                  Amendment to Articles of Incorporation of Registrant.
   (2)
              4.1  Specimen
                  Common
                  Stock Certificate.
   (5)
              4.2  Specimen
                  Series
                  A Preferred Stock Certificate.
   (5)
              4.3  Specimen
                  Series
                  B Preferred Stock Certificate.
   (6)
              21.1  Subsidiaries
                  of
                  Registrant.
   #
                31.1  Certification
                    pursuant to rules 13A-14 and 15D-14 of the Securities
                    Exchange Act of 1934 of President and CEO.
   #
                31.2  Certification
                    pursuant to rules 13A-14 and 15D-14 of the Securities
                    Exchange Act of 1934 of Chief Financial Officer.
   #
                32.1  CERTIFICATION
                    PURSUANT TO18 U.S.C. SECTION 1350 AS ADOPTED PURSUANT TO SECTION
                    906 OF
                    THE SARBANES-OXLEY ACT OF 2002 of CEO and Chief Financial
                    Officer.





(1)
      Incorporated by reference from Registrant's Registration Statement on Form
      S-1,
      Commission File No. 333-26385.





(2)
      Incorporated by reference from Registrant's Registration Statement on Form
      S-1,
      Commission File No. 333-96027.





(3)
      Incorporated by reference from Registrant's Current Report on Form 8-K filed
      with the SEC on July 29, 1998.


45








(4)
      Incorporated by reference from Registrant's Current Report on Form 8-K filed
      with the SEC on July 13, 1999.





(5)
      Incorporated by reference from Registrant’s Annual Report on Form 10-KSB filed
      with the SEC on March 31, 2005 and amended on April 6, 2005.





(6)
      Incorporated by reference from Registrant’s Report on Form 10-KSB filed with the
      SEC on April 17, 2006.





(7)
      Incorporated by reference from Registrant’s Report on Form 10-QSB filed with the
      SEC on August 18, 2005.





**#
      Filed Herewith**













**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.




Date:August
                22, 2006
            **CARDINAL
                COMMUNICATIONS, INC.**By:*/S/
                Edouard A. Garneau*Edouard
                A. GarneauChief
                Executive OfficerBy:*/S/
                D. Brian Karr***D.
                Brian KarrChief
                Financial Officer








46