**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**


Washington,
      D.C. 20549





**FORM
      10-QSB/A**





(Mark
      One)




x   
      QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934




For
      the
      quarterly period ended March 31, 2006 .




o   
      TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT




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
      WEST 120****TH****AVENUE, SUITE 220, 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 May
      12, 2006, there were 445,328,774 shares of the issuer’s outstanding common
      stock.





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







**EXPLANATORY
      NOTE**





Cardinal
      Communications, Inc. (the “Company,” “we,” “us,” or “our”) is filing this
      Amendment No. 1 on Form 10-QSB/A to our Quarterly Report on Form 10-QSB for
      the
      quarterly period ended March 31, 2006, as filed with the Securities and Exchange
      Commission on May 22, 2006(the “Report”), for the purpose of improving our
      public disclosure.





This
      report includes amendments to items:




The
      Consolidated Financial Statements for the three months ended March 31, 2006
      have
      been corrected for an accounting error whereby the Company prematurely
      recognized $380,000 of sales in 2006. Please see Correction of an Error in
      Previously Issued Financial Statements in the Notes to Consolidated Financial
      Statements Note 3 for more details;




In
      the
      Notes to Consolidated Financial Statements for the three months ended March
      31,
      2006 and 2005:




Note
                1:
            Added
                disclosure of Correction of an Error in Previously Issued Financial
                Statements; Additional Going Concern
                disclosure;




Note
                2:
            The
                addition of disclosures for Deferred Revenue, Deferred Costs of Goods
                Sold, Leasing Previously Sold Units, and Property and
                Equipment;




Note
              3:
            Disclosure
                of the Correction of an Error in Previously Issued Financial
                Statements;




Note
              4:
            Additional
                disclosure regarding Thunderbird Management Limited
                Partnership;




Item
                2:
            Added
                disclosure of Correction of an Error in Previously Issued Financial
                Statements, amended the Liquidity disclosure and added a future
                obligations disclosure;




Item
              3:
            Added
                a Controls and Procedures section;




Part
      II,
      Item 1A. Moved Risk Factors to this section and added a new risk factor for
      Requiring Additional Funding;




Exhibits
      31.1 and 31.2: As required by Rule 12b-15 under the Securities Exchange Act
      of
      1934, as amended, new certifications by the Company’s principal executive
      officer and principal financial officer are being filed as exhibits to this
      Form
      10-QSB/A; and




To
      correct typographical errors and to make certain tabular changes in the
      Registrant’s consolidated financial statements and notes thereto.





Except
      as
      described above, this amendment does not update or modify in any way the
      disclosures in the Registrant’s Quarterly Report on Form 10-QSB for the
      quarter ended March 31, 2006, and does not purport to reflect any information
      or
      events subsequent to the filing thereof.





2




**PART
      I - Financial Information**




**ITEM
      1.**  **FINANCIAL
      STATEMENTS**





**CARDINAL
      COMMUNICATIONS, INC. AND SUBSIDIARIES**





**FINANCIAL
      STATEMENTS**


**TABLE
      OF CONTENTS**





PAGEConsolidated
                Balance Sheet as of March 31, 2006 (restated) (Unaudited)
            4Consolidated
                Statements of Operations and Comprehensive Loss for the three months
                ended
                March 31, 2006 (restated) and 2005 (Unaudited)
            6Consolidated
                Statements of Cash Flows for the three months ended March 31, 2006
                (restated) and 2005 (Unaudited)
            7Notes
                to Consolidated Financial Statements (Unaudited)
            9





3




CARDINAL
        COMMUNICATIONS, INC. AND SUBSIDIARIES
  CONSOLIDATED
        BALANCE SHEET
 March
        31,
        2006 (Restated) (UNAUDITED)
  ASSETS
 (Substantially
        pledged)
  Cash
                  and cash equivalents
              
              $
              447,363Marketable
                  securities
              
              
              107,924Accounts
                  receivable, net
              
              
              740,689Other
                  receivables net of $1,208,275 discount
              
              
              1,471,192Unamortized
                  financing costs
              
              
              80,494Deposits
                  and prepaid expenses
              
              
              937,101Property
                  and equipment, net
              
              
              2,849,371Real
                  estate and land inventory
              
              
              47,594,233Deferred
                  costs of goods sold
              
              
              2,360,413Intangibles,
                  net
              
              
              8,557,746Other
                  assets
              
              
              309,565Total
                  Assets
              
              $
              65,456,091
  The
        accompanying notes are an integral part of these statements.


4




CONSOLIDATED
        BALANCE SHEET (Continued)
 March
        31,
        2006 (Restated) (UNAUDITED)
  LIABILITIES
        AND STOCKHOLDERS' EQUITY (DEFICIT)
  Accounts
                  payable
              
              $
              4,273,814Accrued
                  expenses and other liabilities
              
              
              3,772,288Deferred
                  revenue
              
              
              3,067,362Land
                  and construction loans
              
              
              35,426,111Related
                  party debt
              
              
              4,622,273Notes
                  payable, net of $129,492 debt discount
              
              
              13,234,450Total
                  Liabilities
              
              
              64,396,298Commitments
                  and ContingenciesStock
                  Committed
              
              
              2,367,992Minority
                  Interest
              
              
              2,135,352Stockholders'
                  equity (deficit):Preferred
                  stock; par value $0.0001; issuable in series; authorized
                  100,000,000Series
                  A Convertible Preferred stock; issued and outstanding
                  8,750
              
              
              1Series
                  B Convertible Preferred stock; issued and outstanding
                  100,000
              
              
              10Common
                  stock; par value $0.0001; authorized 800,000,000; issued and
                  outstanding412,497,784
              
              
              41,249Additional
                  paid-in capital
              
              
              71,357,569Deferred
                  consulting
              
              
              (165,173
              )Other
                  comprehensive income
              
              
              7,200Accumulated
                  (deficit)
              
              
              (74,684,407
              )Total
                  Stockholders' Equity (Deficit)
              
              
              (3,443,551
              )Total
                  Liabilities and Stockholders' Equity (Deficit)
              
              $
              65,456,091
  The
        accompanying notes are an integral part of these statements.





5




CARDINAL
        COMMUNICATIONS, INC. AND SUBSIDIARIES
  CONSOLIDATED
        STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
 (UNAUDITED)
  Three
                  Months Ended March 312006
              
              2005(Restated)REVENUESRevenues
              
              $
              4,996,482
              
              $
              4,860,642Cost
                  of sales
              
              
              (3,570,478
              )
              
              (2,385,701
              )Gross
                  profit
              
              
              1,426,004
              
              
              2,474,941OPERATING
                  EXPENSESDepreciation
                  and amortization
              
              
              268,165
              
              
              338,876Asset
                  impairment
              
              
              85,066
              
              
              -Professional
                  fees
              
              
              681,200
              
              
              993,331Rent
              
              
              162,384
              
              
              63,800Salaries
                  and commissions
              
              
              918,659
              
              
              881,452Selling,
                  general and administrative
              
              
              894,183
              
              
              984,101Total
                  operating expenses
              
              
              3,009,657
              
              
              3,261,560(LOSS)
                  FROM OPERATIONS
              
              
              (1,583,653
              )
              
              (786,619
              )OTHER
                  INCOME (EXPENSE)Other
                  income (expense)
              
              
              (63,573
              )
              
              (13,604
              )Accretion
                  of interest (expense) on convertible debt
              
              
              (137,343
              )
              
              (186,380
              )Gain
                  (loss) on disposition of assets
              
              
              -
              
              
              (25,764
              )Interest
                  (expense)
              
              
              (441,481
              )
              
              (158,698
              )Total
                  other (expense)
              
              
              (642,397
              )
              
              (384,446
              )(LOSS)
                  BEFORE MINORITY INTEREST
              
              
              (2,226,050
              )
              
              (1,171,065
              )(Income)/loss
                  attributable to minority interest
              
              
              106,416
              
              
              (89,538
              )NET
                  (LOSS) before comprehensive income
              
              
              (2,119,634
              )
              $
              (1,260,603
              )OTHER
                  COMPREHENSIVE INCOMEUnrealized
                  holding gain
              
              
              7,200
              
              
              -COMPREHENSIVE
                  (LOSS)
              
              $
              (2,112,434
              )
              $
              (1,260,603
              )Net
                  (loss) per common share
              
              $
              (0.006
              )
              $
              (0.006
              )Weighted
                  average number of shares outstanding
              
              
              377,418,999
              
              
              218,752,780
  The
        accompanying notes are an integral part of these statements.
  6




CARDINAL
        COMMUNICATIONS, INC. AND SUBSIDIARIES
  CONSOLIDATED
        STATEMENTS OF CASH FLOWS
 (UNAUDITED)
  Three
                  Months Ended March 312006
              
              2005(Restated)CASH
                  FLOWS FROM (TO) OPERATING ACTIVITIESNet
                  (loss) before minority interest
              
              $
              (2,226,050
              )
              $
              (1,171,065
              )Adjustments
                  to reconcile net (loss) to net cash provided by(used)
                  in operating activities:Depreciation
                  and amortization
              
              
              268,165
              
              
              338,876Stock
                  issued for consulting, fees and compensation
              
              
              663,328
              
              
              1,169,461Stock
                  committed for Expenses
              
              
              83,064
              
              
              -Accretion
                  of interest expense on convertible debt
              
              
              137,343
              
              
              186,380Minority
                  interest loss of subsidiaries attributable to parent
              
              
              (66,445
              )
              
              -(Gain)
                  Loss on sale of assets
              
              
              (1,990
              )
              
              40,415Asset
                  impairment
              
              
              85,066
              
              
              -(Gain)
                  loss from discontinued operations
              
              
              33,569
              
              
              -Changes
                  in Operating Assets and Liabilities:Accounts
                  receivable
              
              
              (158,269
              )
              
              (313,693
              )Accounts
                  payable
              
              
              1,379,753
              
              
              (200,487
              )Accrued
                  expenses and other liabilities
              
              
              (179,454
              )
              
              160,449Deferred
                  revenue
              
              
              411,342
              
              
              7,007Other
                  assets and liabilities
              
              
              101,006
              
              
              (9,727
              )Deferred
                  costs of goods sold
              
              
              (499,753
              )
              
              -Real
                  estate and land inventory
              
              
              (3,031,757
              )
              
              (1,450,535
              )Net
                  cash (used in) operating activities
              
              
              (3,001,082
              )
              
              (1,242,919
              )CASH
                  FLOWS FROM (TO) INVESTING ACTIVITIESPurchases
                  of property and equipment
              
              
              -
              
              
              (44,747
              )Marketable
                  securities
              
              
              (87,924
              )
              
              -Cash
                  paid for investment in EMT
              
              
              (450,030
              )
              
              (294,765
              )Issuance
                  of note receivable
              
              
              (602,530
              )
              
              -Purchases
                  of intangibles & other assets
              
              
              (28,400
              )
              
              (64,414
              )Cash
                  acquired through acquisition
              
              
              -
              
              
              1,352,147Proceeds
                  from sale of assets
              
              
              2,474
              
              
              9,284Net
                  cash provided by (used in) investing activities
              
              
              (1,166,410
              )
              
              957,505CASH
                  FLOWS FROM (TO) FINANCING ACTIVITIESProceeds
                  from notes payable
              
              
              5,096,797
              
              
              3,109,351Proceeds
                  from related party notes payable
              
              
              1,012,500
              
              
              -Payments
                  on notes payable
              
              
              (2,523,387
              )
              
              (2,272,159
              )Payments
                  on related party notes payable
              
              
              (29,151
              )
              
              -Collections
                  on subscriptions receivable
              
              
              -
              
              
              44,585Disbursements
                  to minority interest members
              
              
              (21,021
              )
              
              -Net
                  cash provided by (used in) financing activities
              
              
              3,535,738
              
              
              881,777Net
                  increase (decrease) in cash
              
              
              (631,754
              )
              
              596,363Cash
                  and cash equivalents, beginning of period
              
              
              1,079,117
              
              
              730,372Cash
                  and cash equivalents, end of period
              
              $
              447,363
              
              $
              1,326,735SUPPLEMENTAL
                  DISCLOSURE OF CASH FLOW INFORMATIONCash
                  paid for interest
              
              $
              456,761
              
              $
              44,249Stock
                  issued for acquisition of assets
              
              $
              -
              
              $
              5,705,000Stock
                  issued for satisfaction of debt
              
              $
              1,406,234
              
              $
              -
  The
        accompanying notes are an integral part of these statements.
  7


**SUPPLEMENTAL
      DISCLOSURE**


**OF
      NON-CASH INVESTING AND**


**OTHER
      CASH FLOW INFORMATION**





**Three
      Months Ended March 31, 2006**





In
      the
      first quarter of 2006, we issued 12,552,131 shares under various consulting
      agreements, which shares were valued at $236,938.92; 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
      first quarter of 2006, we issued 841,750 shares to an outside director for
      committee services performed, which shares were valued at $15,000.





In
      the
      first quarter of 2006, we 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
      first quarter of 2006, we issued 4,090,920 shares under two consulting
      agreements for legal services, which shares were valued at $70,000.





**Three
      Months Ended March 31, 2005**





In
      the
      first quarter of 2005, we issued 13,656,959 shares under various consulting
      agreements, which shares were valued at $1,160,713; however $8,750 of this
      expense was recorded as deferred consulting.




8





**CARDINAL
      COMMUNICATIONS, INC. AND SUBSIDIARIES**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**THREE
      MONTHS ENDED MARCH 31, 2006 AND 2005**


**(UNAUDITED)**





**Note
      1. Interim Consolidated Financial Statements**





In
      the
      opinion of management, the accompanying consolidated financial statements as
      of
      March 31, 2006 (restated) and for the three months ended March 31, 2006
      (restated) and 2005, 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/A for the year ended
      December 31, 2005 filed with the SEC on December 1, 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 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 $380,000 in
      sales for March 31, 2006 (restated). This error did not effect the quarter
      ended
      March 31, 2005. Please see Correction of an Error in Previously Issued Financial
      Statements under Note 3 for more details.





**Going
      Concern**





As
      of
      March 31, 2006 (restated) 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 Three Months ended March 31 2006, the Company incurred a net
      loss of $2,119,634 . As of March 31 2006, Cardinal had an accumulated deficit
      of
      $74,684,407 . The Company is 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 March 31, 2006 (restated)
      the
      Company has recorded minority interest of $2,135,352 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.




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.
      As
      of March 31, 2006 (restated) the current and former company employees hold
      6,650,000 options that were granted fully vested on August 1, 2004. The options
      which expire August 1, 2006 are exercisable as follows: one third (2,216,666
      shares) exercisable at $0.10 per share, one third (2,216,666 shares) exercisable
      at $0.22 per share and one third (2,216,667 shares) exercisable at $0.30 per
      share.




**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 charges 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. To the extent
      that
      revenue is received, but not earned, the Company records these amounts as
      deferred revenue.





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.




10





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.





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




**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 March 31, 2006 (restated) and 2005 were $3,067,362 and $254,057
      respectively.


Components
                  of Deferred Revenue at March 31, 2006Deferred
                  Revenue from Real Estate Sales
              
              $
              2,421,670Deferred
                  Revenue from Management Fees
              
              
              549,732Deferred
                  Revenue from Communications Sales
              
              
              95,960Total
                  Deferred Revenue
              
              $
              3,067,362




**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 March
      31,
      2006 (restated) and 2005 were $2,360,413 and $0 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 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 these units 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





11




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 March
      31, 2006 (restated):


Airplane
                  and vehicles
              
              $
              605,012Furniture
              
              
              81,988Data
                  Hardware
              
              
              105,791Equipment
              
              
              1,773,894Leasehold
                  improvements
              
              
              63,106Rental
                  real estate - campgrounds
              
              
              2,414,762Rental
                  real estate
              
              
              423,2785,467,831Less
                  accumulated depreciation
              
              
              (2,618,460
              )Net
                  property and equipment
              
              $
              2,849,371


For
      the
      three months ending March 31, 2006 and 2005, the Company recognized $186,320
      and
      $116,949 of depreciation expense, respectively.





**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 March 31, 2006 were:




Residential/Commercial
                units under construction
            
            $
            23,546,907Land
                under development
            
            
            24,047,326Total
                real estate and land inventory
            
            $
            47,594,233





12




**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 March 31, 2006 the Company has a recorded bad debt
      allowance of $888,398.





**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.





**Intangibles**





Classification
      of intangible assets and accumulated amortization at March 31, 2006 were as
      follows:





DescriptionRight
                of entry agreements
            
            $
            95,000Customer
                base
            
            
            221,408Goodwill
            
            
            8,509,032Totals
            
            
            8,825,440Accumulated
                amortization
            
            
            (267,694
            )Intangibles,
                net
            
            $
            8,557,746





For
      the
      three months ended March 31, 2006 and 2005, the Company recognized $81,845
      and
      $221,927 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 Gala Vu while $251,694 was recorded as
      a
      reduction to the Gala Vu Receivable Discount. The Gala Vu transaction is
      described in further detail under Note 5. Acquisitions.





**Marketable
      Securities and Comprehensive Income**





At
      March
      31, 2006 , the Company was holding 4,000,000 shares of ZKID Network Company
      (OTCBB: ZKID), and the market value of the shares was $20,000, while the book
      value of the shares was $12,800 as of December 31, 2005 and therefore the
      Company recorded $7,200 as an unrealized holding gain. Subsequent to March
      31,
      2006 ZKID Network Company renamed itself to EATware Corporation (OTCBB: EATW)
      and executed a 4,000:1 reverse stock split therefore the Company now holds
      1,000
      shares of EATware Corporation stock.





**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 $380,000 in
      sales for March 31, 2006 (restated); however it did not effect the quarter
      ended
      March 31, 2005. Accordingly, certain historical transactions have been
      reclassified on the financial statements as of March 31, 2006 (restated).




13




The
      accompanying tables reconcile the Company's results of operations for the Three
      Months ended March 31, 2006 and the Company's financial position as of March
      31,
      2006, both previously reported in the Company's 2006 Quarterly Report on Form
      10-QSB, to the restated financial statements.


For
                  the Three Months Ended March 31, 2006
              
              As
                  Reported in 2006 10-QSB
              
              (Unaudited)
                  Adjustments
              
              Restated
                  Amounts for 2006Revenues
              
              $
              5,376,482
              
              $
              (380,000
              )
              $
              4,996,482Cost
                  of Sales
              
              
              (4,097,400
              )
              
              526,922
              
              
              (3,570,478
              )Gross
                  Profit
              
              
              1,279,082
              
              
              146,922
              
              
              1,426,004Total
                  operating (expenses)
              
              
              2,888,044
              
              
              121,613
              
              
              3,009,657Total
                  other (expense)
              
              
              (642,397
              )
              
              -
              
              
              (642,397
              )(LOSS)
                  BEFORE MINORITY INTEREST
              
              
              (2,251,359
              )
              
              25,309
              
              
              (2,226,050
              )(Income)/loss
                  attributable to minority interest
              
              
              72,817
              
              
              33,599
              
              
              106,416NET
                  (LOSS)
              
              $
              (2,178,542
              )
              $
              58,908
              
              $
              (2,119,634
              )Income/(loss)
                  per common share, basic and diluted:Net
                  (loss) per common share
              
              $
              (0.006
              )
              $
              0.000
              
              $
              (0.006
              )Weighted
                  average number of shares outstanding
              
              
              377,418,999
              
              
              377,418,999
              
              
              377,418,999






14





For
                  the Three Months Ended March 31, 2006
              
              As
                  Reported in 2006 10-QSB
              
              (Unaudited)
                  Adjustments
              
              Restated
                  Amounts for 2006ASSETSUnchanged
                  Assets
              
              $
              15,501,445
              
              $
              -
              
              $
              15,501,445Real
                  estate and land inventory
              
              
              47,712,380
              
              
              (118,147
              )
              
              47,594,233Deferred
                  Costs of Goods Sold
              
              
              -
              
              
              2,360,413
              
              
              2,360,413Total
                  Assets
              
              $
              63,213,825
              
              $
              2,242,266
              
              $
              65,456,091LIABILITIES
                  AND STOCKHOLDERS' EQUITY (DEFICIT)Unchanged
                  Liabilities
              
              $
              57,556,648
              
              $
              -
              
              $
              57,556,648Accrued
                  expenses and other liabilities
              
              
              3,589,029
              
              
              183,259
              
              
              3,772,288Deferred
                  revenue
              
              
              645,692
              
              
              2,421,670
              
              
              3,067,362Total
                  Liabilities
              
              
              61,791,369
              
              
              2,604,929
              
              
              64,396,298Commitments
                  and ContingenciesStock
                  Committed
              
              
              2,367,992
              
              
              -
              
              
              2,367,992Minority
                  Interest
              
              
              2,382,123
              
              
              (246,771
              )
              
              2,135,352Stockholders'
                  equity (deficit):Unchanged
                  Equity
              
              
              71,240,856
              
              
              -
              
              
              71,240,856Accumulated
                  (deficit)
              
              
              (74,568,515
              )
              
              (115,892
              )
              
              (74,684,407
              )Total
                  Stockholders' Equity (Deficit)
              
              
              (3,327,659
              )
              
              (115,892
              )
              
              (3,443,551
              )Total
                  Liabilities and Stockholders' Equity (Deficit)
              
              $
              63,213,825
              
              $
              2,242,266
              
              $
              65,456,091




**Note
      4. Financing Transactions**





**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.





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”).





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”.




15





The
      Convertible Loan Agreement consolidates for certain purposes the Prior Notes
      and
      a third note in the original principal amount of $998,000 dated March 24, 2006
      (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. The note is due March 25, 2011. 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.




16





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.




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.




**Senior
      Secured Debt and Notes Payable**





At
      March
      31, 2006, the Company has secured notes totaling $13,363,942 with debt discounts
      of $129,492 netted against the balance resulting in the secured notes payable
      balance of $13,234,450. 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
      March 31, 2006 the senior secured debt and notes payable outstanding amounts
      range from $10,000 to $2,757,102 utilizing fourteen different lenders.
      Subsequent to the quarter ended March 31, 2006, the Company has entered into
      certain agreements to convert $45,000 of Senior Secured Debentures into shares
      of the Company’s common stock.





**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 March 31, 2006 the aggregate borrowings under the
      lines-of-credit totaled $18,160,610. 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 5.75 % to 9.0%, 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 March 31, 2006, the
      construction lines-of-credit outstanding amounts range from $143,000 to
      $3,095,274, utilizing eight different lenders.





Through
      the Company’s subsidiary Sovereign Partners, LLC the Company has debt
      collateralized by real estate. These notes payable totaled $17,265,504 at March
      31, 2006. Interest rates range from 5% to 10%, and have maturity dates ranging
      from May 2006 through December 2011. As of March 31, 2006, the notes payable
      outstanding amounts range from $600,284 to $4,172,052, utilizing eight different
      lenders.





**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.




17





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”.





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.




18





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**





The
      Company has related party debt of $4,622,273 at March 31, 2006, utilizing eleven
      different related parties. Interest rates range from 6.00% 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 March 31, 2006, the related party debts outstanding amounts range from $1,000
      to $818,973, utilizing nine different lenders.





**Note
      5. 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.




19





**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. The License requires
      GalaVu to provide Cardinal within five (5) days of the date of execution of
      the
      License, all technical information (including, but not limited to product
      specifications, blueprints and schematics, circuit diagrams, software,
      middleware, and firmware) required to manufacture GalaVu’s products and/or
      comprising the GalaVu Technology.





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 shall pay 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 venturer,
      partner, employee or servant of the other for any purpose
      whatsoever.




20




**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”).





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.





21





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 March 31, 2006 ; (b) Security Agreement between
      EMT
      (Canada) and Rentworks Limited dated March 31,2006; (c) Security Agreement
      between GalaVu and Rentworks Limited dated March 31, 2006 ; (d) Guaranty between
      EMT (Canada), Inc., and Rentworks Limited dated March 31, 2006 ; and (e)
      Guaranty between GalaVu and Rentworks Limited dated March 31, 2006
      .





Interested
      Director





A
      member
      of the Company’s Board of Directors, 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”). The remaining members of Cardinal’s Board of Directors voted
      unanimously to approve the Agreements.





**Note
      6 Subsequent Events**





New
      Directors





Subsequent
      to quarter end, effective April 19, 2006, the Company appointed Joseph M.
      Durnford, Robert T. Hale, Robert R. Searls, and Kerry D. Briggs to serve as
      directors of the Company. Pursuant to Sections 3.2 and 3.10 of the Bylaws of
      the
      Company, Messrs. Durnford, Hale, Searls, and Briggs shall serve in such capacity
      until the next annual meeting of the shareholders of the Company. Two of the
      newly appointed members of the Board of Directors, Robert Searls and Kerry
      Briggs, have prior relationships with the Company and may be “interested” as
      defined by Form 8K. Mr. Searls is a former member of Sovereign Partners, LLC,
      and a current shareholder of Cardinal. Mr. Briggs has been an outside joint
      venture partner for five Sovereign Partner projects: SR Condominiums, LLC,
      Colony Ridge Development, LLC, Settler’s Chase Commercial Development, Heritage
      Condominiums, LLC (complete), and Settler’s Chase Development, LLC (complete).





**I** **TEM
        2.**  **M** **ANAGEMENT’S** **D** **ISCUSSION** **A** **ND** **A** **NALYSIS** **O** **F** **F** **INANCIAL** **C** **ONDITION** **A** **ND** **R** **ESULTS** **O** **F** **O** **PERATIONS**





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.




22





**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. Another of our divisions concentrates on selling
      “land line” services on a prepaid basis. 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 $380,000 in sales for March 31, 2006. Accordingly, certain historical
      transactions have been reclassified on the financial statements as of March
      31,
      2006 (restated). To correct this error, we have restated our previously filed
      quarterly financial statements for the quarter ended June 30, 2005, the quarter
      ended September 30, 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.





**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 $4,622,273 due as
      of
      March 31, 2006 to related parties, and entities:


**Name
                  and Relationship**
              
              **Amount**
              
              **Interest
                  Rate**
              
              **Due
                  **Date****Byron
                  Young, Director and Shareholder
              
              $
              1,000
              
              
              0
              %
              
              NoneEd
                  Buckmaster(1)
              
              
              150,000
              
              
              0
              %
              
              NoneJeffrey
                  Fiebig, Director and Shareholder
              
              
              120,640
              
              
              16
              %
              
              Dec
                  ‘06Thunderbird
                  Management Limited Partnership, Shareholder
              
              
              2,500,682
              
              
              12
              %
              
              Mar
                  ‘11Bob
                  Searls, Director and Shareholder(2)
              
              
              808,102
              
              
              6
              %
              
              May
                  ‘33Jantaq,
                  Inc.(3)
              
              
              303,058
              
              
              0
              %
              
              *Investors
                  and/or Partners in Sovereign Partners as a group
              
              
              738,791
              
              
              4-12
              %
              
              Oct
                  ‘06 - June
                  ‘28Total
              
              $
              4,622,273





(1)
      The
      general partner of AEJM Enterprises 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.




(3)
      A
      principal of Jantaq, Inc. John Weisman is the brother of one of our directors,
      David Weisman




(*)
      This
      debt is currently due and is being negotiated.




**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.




23





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:


**Real
                  Estate**
              
              **Communications**
              
              **Corporate**
              
              **Total**Revenue
              
              $
              3,352,487
              
              $
              1,643,995
              
              $
              -
              
              $
              4,996,482Comprehensive
                  Net (Loss)
              
              
              (288,299
              )
              
              (339,850
              )
              
              (1,484,285
              )
              
              (2,112,434
              )Interest
                  (Expense)
              
              
              (213,562
              )
              
              (179
              )
              
              (227,739
              )
              
              (441,481
              )Depreciation
                  and Amortization
              
              
              96,034
              
              
              100,314
              
              
              71,817
              
              
              268,165Assets
              
              
              52,724,100
              
              
              2,988,787
              
              
              9,743,205
              
              
              65,456,091





**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, 90 units have been sold with
      an
      average sale price of $138,890.





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, 48 units have been sold
      with an average sale price of $183,804.





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, 26 units have been sold with an average sale price
      of $181,121.





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,
      26
      units have been sold with an average sale price of $155,479.





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, 43 units have been contracted for with an average sale price of
      $292,232.





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, 17 units have
      been sold with an average sale price of $264,127




24





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.





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,
      24 units have been sold with an average sales price of $231,234.





Riverplace
      Condominiums, Rochester, Minnesota





Riverplace
      Condominiums consists of 4 undeveloped commercial acres of land on the Zumbro
      River in Rochester, Minnesota. This property sold for $950,000 on May 3,
      2006.





Stonegate
      Summit, Rochester, Minnesota





Stonegate
      Summit consists of approximately 20 acres of land on top of a hill in Rochester,
      Minnesota. 155 townhome and condominium units are planned for the site. Initial
      site grading has commenced, but infrastructure work is currently on-hold pending
      acceptable construction financing.





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.





**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 three months ended March 31, 2006 (restated), we incurred a net loss
      of
      $2,119,634. As of March 31, 2006 (restated), Cardinal had an accumulated deficit
      of $74,684,407. 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.




25





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**





**Three
      months Ended March 31, 2006 (restated) And 2005**





**Revenues**





For
      the
      three months ended March 31, 2006 (restated) and 2005, Cardinal had revenue
      of
      $4,996,482 and $4,860,642 , respectively, an increase of $135,840 . This
      increase is primarily due to recording a full quarter of Sovereign Partners,
      LLC
      revenue in 2006 whereas we only had partial revenue for Sovereign Partners,
      LLC
      in 2005. The Company’s 2006 revenues are derived primarily from the sale of
      telecommunication services, internet access services, telecommunications-related
      hardware and services, satellite-based CATV access services, residential units,
      rental from commercial properties, fees from mortgage operations and
      construction management services. These revenues are recognized and recorded
      as
      services are performed and properties are sold or rented.





**Operating
      Expenses**





For
      the
      three months ended March 31, 2006 (restated) and 2005, operating expenses were
      $3,009,657 and $3,261,560 , respectively, a decrease of $251,903 . We attribute
      this decrease to reduced professional and consulting fees. During the three
      months ended March 31, 2006 (restated), operating expenses consisted primarily
      of professional and consulting fees of $681,200 , of which $319,780 were paid
      in
      stock, salaries and commissions of $918,659 of which $343,548 were paid in
      stock, and other general and administrative expenses of $894,183 . The general
      and administrative expenses consisted of bad debt related to Get-A-Phone of
      $306,815, rent expense of $115,203, insurance expense of $82,116 and numerous
      small expenses.





**Net
      Loss**





For
      the
      three months ended March 31, 2006 (restated), we had a net loss of $2,119,634
      or
      $0.006 per share. In the comparable period of the prior year, we had a net
      loss
      of $1,260,603 or $0.006 per share. The increase in net loss period over period
      is directly attributable to decreased revenues in our Connect Paging, Inc.
      d/b/a
      Get A Phone subsidiary and reduced margins in our Sovereign Partners, LLC
      subsidiary. We are increasing our marketing efforts at Get a Phone in an attempt
      to stimulate sales and we anticipate our margins to increase at Sovereign
      Partners once our Millstone at Clear Creek project begins closing sales.




**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
      three months ended March 31, 2006 (restated) our operations used $3,001,082
      of
      cash and at March 31, 2006 (restated) we had cash on hand of $447,363 . 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 $631,754 net cash in the Three Months ended March 31, 2006 (restated)
      compared to generating $596,363 of cash in the same period in 2005.




26





More
      liquidity information is available in the future obligation note
      below.





**Cash
      Used in Operating Activities**





During
      the three months ended March 31, 2006 (restated), our operations used cash
      of
      $3,001,082 compared to using $1,242,919 during the same period in 2005. For
      both
      the three months ended March 31, 2006 (restated) and March 31, 2005, the use
      of
      cash was a direct result of expanded construction projects. During the three
      months ended March 31, 2006 (restated), $137,343 of accreted interest expense
      was recorded in relation to our notes payable with beneficial conversion
      features; during the same period in 2005 we incurred accreted interest expense
      of $186,380 .




**Cash
      Used in Investing Activities**





During
      the three months ended March 31, 2006 (restated), we engaged in a significant
      amount of capital investment activity, primarily through the acquisition of
      business assets from other companies including the acquisition of notes
      receivable, payable by Gala Vu for $1,107,450. The total value of capital
      investments for the period used $1,166,410 compared to a net cash gain for
      the
      same period in 2005 of $957,505.





**Cash
      Provided by Financing Activities**





During
      the three months ended March 31, 2006 (restated), financing provided cash of
      $3,535,738 compared to $881,777 provided during the same period in 2005. The
      majority of our increased borrowings came from convertible loan agreements
      with
      ISP V, LLC and Thunderbird Management Limited Partnership. The balance of our
      increased borrowings came from debt collateralized by real estate and
      construction lines-of-credit.




**Future
      Obligations**





The
      following table sets forth contractual obligations as of March 31, 2006
      (restated):


**2
                  Years**
              
              
              
              **More
                  than****Contractual
                  Obligations**
              
              **Total**
              
              **or
                  less**
              
              **3-5
                  years**
              
              **5
                  years**Land
                  and construction loans
              
              $
              35,426,111
              
              $
              28,308,087
              
              $
              2,296,574
              
              $
              4,821,450Related
                  party debt
              
              
              4,622,273
              
              
              1,741,944
              
              
              1,502,682
              
              
              1,377,647Notes
                  payable, net of $129,492 debt discount
              
              
              13,234,450
              
              
              12,727,119
              
              
              -
              
              
              507,331Total
              
              $
              53,282,834
              
              $
              42,777,150
              
              $
              3,799,256
              
              $
              6,706,428




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. 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 receives 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.




27




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**





We
      do not
      have any off-balance sheet arrangements that have, or are reasonably likely
      to
      have a current or future effect on our financial condition, changes in financial
      condition, revenue or expenses, results of operations, liquidity, capital
      expenditures or capital resources that are material.





**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.





**Item
      3. Controls and Procedures**





**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.




28





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.





29


**PART
      II- OTHER INFORMATION**





**I** **TEM
        1.**  **L** **EGAL
        PROCEEDINGS**




Cardinal
      Communications, Inc. (the “Company”) is 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 will pay Exceleron a total of
      $47,500 in full satisfaction of all claims and has recorded a liability of
      the
      same amount in connection with the settlement.





Usurf
      TV,
      formerly known as Neighborlync, a wholly owned subsidiary of the Company that
      ceased operations in early 2005, was sued by Platte Valley Bank in Scotts Bluff,
      Nebraska County Court. The case is styled Platte Valley Bank v. Usurf TV, f/k/a/
      Neighborlync, Inc., Case No. CI O5-1050 and was filed on September 12, 2005.
      The
      Plaintiff obtained judgment for $45,000 in or around October 2005. The
      Defendant, however, does not have any assets and is no longer in business.
      The
      Company will vigorously defend itself against any attempts to enforce the
      judgment against the Company, but has recorded a $45,000 liability in connection
      with this lawsuit.





King
      Concrete, LLC (a dissolved wholly-owned subsidiary of Sovereign Partners, LLC,
      a
      wholly-owned subsidiary of the Company), was a defendant in a proceeding known
      as ABCO Development Corporation v. Systems Contractors, Inc., Case Nos. Case
      Nos. BC316119 and BC313338 pending in the Superior Court for the County of
      Los
      Angeles, California. The lawsuit alleged defective construction claims with
      respect to certain concrete components performed by King Concrete at a project
      site in Lakewood, Colorado. In February 2006, this suit was settled and the
      Company incurred no losses in relation to the suit.





The
      Company is 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 is seeking $360,000, representing two years salary
      pursuant to an employment agreement with the Company. The parties have reached
      an agreement in principal to settle the claim for $242,000 payable in stock
      over
      the course of one year. The parties are in the process of finalizing the
      settlement documents and, once complete, will record a liability of the same
      amount in connection with the settlement.





Sovereign
      Companies, LLC (“Sovereign”), a wholly owned subsidiary of the Company, is
      involved in litigation surrounding a condominium development project in Greeley,
      Colorado known as Mountain View at T-Bone. In October 2005, Sovereign, Mountain
      View at T-Bone, LLC (“Mountain View”), and Mr. Edouard A. Garneau filed a
      declaratory relief action against certain members of Mountain View seeking
      a
      determination of the various rights and obligations of the members. The action
      is styled Sovereign Companies, LLC et al. v. Yale King et al., Case No.
      05-CV-649 and is pending in Larimer County District Court in Colorado. The
      declaratory relief action seeks to clarify the roles and responsibilities of
      certain members and the operational authority of individual managers of Mountain
      View and asserts claims against certain of its members. Mr. Garneau is a member
      of the Company’s Board of Directors and indirectly owns and controls shares of
      the Company’s common and preferred stock.


In
      a
      related action, Sovereign and Mr. Garneau, in his capacity as Manager of
      Sovereign and Mountain View, were named in a lawsuit brought by several
      individual members of Mountain View, claiming unspecified damages for breach
      of
      contract by Sovereign and Mr. Garneau, and for other causes of action against
      Mr. Garneau individually. That case is styled Yale King et al. v. Sovereign
      Companies, LLC et al., Case No. 2005-CV-1008 and was filed in June 2005 in
      Weld
      County District Court in Colorado. This action was subsequently dismissed for
      improper venue and transferred to Denver County District Court. Both related
      cases have been stayed pending a determination as to where the two cases should
      proceed. Sovereign disputes the allegations of the other Mountain View members
      and intends to vigorously defend the action. However, the Company cannot control
      the outcome and extent of the losses, if any, that may be incurred. Mr. Garneau
      is a member of the Company’s Board of Directors and indirectly owns and controls
      shares of the Company’s common and preferred stock.





Colorado
      River KOA, LLC (“CRKOA”), a subsidiary of the Company, has been sued by WHR
      Properties, Inc. in a case styled WHR Properties, Inc. v. Colorado River KOA,
      LLC and is currently 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. CRKOA disputes the allegations and intends to
      vigorously defend the action. The parties are currently engaged in settlement
      negotiations. However, the Company cannot control the outcome and extent of
      the
      losses, if any, that may be incurred.




30





Sovereign
      Companies, LLC and Sovereign Developments, LLC, (collectively “Sovereign”),
      wholly owned subsidiaries of the Company, have been 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 alleges breach of
      contract under a promissory note relating to the performance of excavating
      work
      at the Riverplace development. The action also asserts a claim against Mr.
      Garneau individually. The Plaintiff is seeking 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 parties are in the process
      of finalizing the settlement and dismissal papers.





Sovereign
      Homes, a wholly owned subsidiary of the Company, has been sued by third-party
      plaintiff, Jech Excavating, Inc. in a case styled Falcon Drilling &
Blasting, Inc. v. Jech Excavating, Inc. et al., Case No. 55-C4-05-005151,
      pending in Olmstead County District Court in Minnesota. The third-party
      complaint against Sovereign Homes was filed on March 9, 2006 and seeks
      enforcement of a mechanics lien, alleges breach of contract, and asserts other
      claims relating to the performance of excavating work at the Rocky Creek
      development. The Plaintiff is seeking damages of $263,000 together with interest
      and attorney’s fees. The parties are currently engaging in settlement
      negotiations. Sovereign Homes intends to vigorously defend the action. However,
      Sovereign Homes cannot control the outcome and extent of the losses, if any,
      that may be incurred.





The
      Company is a defendant in a proceeding styled Jantaq, Inc. v. Cardinal
      Communications, Inc., Case No. BC350688, filed in the Los Angeles County
      Superior Court on April 13, 2006. The complaint alleges breach of contract
      and
      fraud claims against the Company and seeks $300,000 in damages together with
      interest and attorney’s fees. 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.





**I** **TEM
        1** **A** **.** **R** **ISK** **F** **ACTORS**





The
      most
      significant risks and uncertainties associated with our business are described
      below; 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.





OUR
      INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM EXPRESSED IN THEIR AUDIT REPORT
      RELATED TO OUR FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 2005,
      SUBSTANTIAL DOUBT ABOUT OUR ABILITY TO CONTINUE AS A GOING CONCERN.





In
      their
      opinions on our financial statements for the years ended December 31, 2004
      and
      2005, our independent auditor, AJ. Robbins PC expressed substantial doubt about
      our ability to continue as a going concern because of our recurring losses
      and
      negative working capital.





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.




31





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





We
      have
      800,000,000 authorized shares of common stock that can be issued by the Board
      of
      Directors. At March 31 2006, we had 142,667,477 shares of common stock available
      for issue. Under most circumstances the Board of Directors has the right to
      issue these shares.




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





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.





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 March
      31,
      2006 (restated), we had an accumulated deficit of $74,684,407. Our gross
      revenues for the three months ended March 31, 2006 (restated) and 2005, were
      $4,996,482 and $4,860,642 with losses from operations of $1,583,653 and $786,619
      and net losses of $2,119,634 and $1,260,603 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
      ARE
      DEPENDENT UPON LONG-TERM FINANCING. IF WE ARE UNABLE TO RAISE CAPITAL AS WE
      NEED
      IT, OUR OPERATIONS COULD BE JEOPARDIZED.





Our
      ability to implement our business plan and grow is dependent on raising a
      significant amount of capital. We have sustained our operations in large part
      from sales of our equity. We may not be able to successfully generate revenues
      or raise additional funds sufficient to finance our continued operations. In
      the
      long-term, failure to generate sufficient revenues or obtain financing would
      have a material adverse effect on our business and would jeopardize our ability
      to continue our operations.





WE
      HAVE
      IN THE PAST AND MAY IN THE FUTURE ENGAGE IN ACQUISITIONS, WHICH WILL CAUSE
      US TO
      INCUR A VARIETY OF COSTS AND WHICH MAY NOT ACHIEVE ANTICIPATED OR DESIRED
      RESULTS. WE MAY NOT ACHIEVE THE RESULTS WE ANTICIPATE AND DESIRE FROM OUR
      ACQUISITION OF THE SOVEREIGN COMPANIES.




32





From
      time
      to time we engage in discussions with third parties concerning potential
      acquisitions of businesses, products, technologies and other assets.
      Acquisitions may require us to make considerable cash outlays and can entail
      the
      need for us to issue equity securities, incur debt and contingent liabilities,
      incur amortization expenses related to intangible assets, and can result in
      the
      impairment of goodwill, which could harm our profitability. Acquisitions involve
      a number of additional risks, including:




·  difficulties
      in and costs associated with the assimilation of the operations, technologies,
      personnel and products of the acquired companies,





·  assumption
      of known or unknown liabilities or other unanticipated events or circumstances,





·  risks
      of
      entering markets in which we have limited or no experience, and





·  potential
      loss of key employees.





Any
      of
      these risks could harm our ability to achieve profitability of acquired
      operations or to realize other anticipated benefits of an acquisition.





On
      February 18, 2005 we acquired Sovereign Partners, LLC which we now own and
      operate as a subsidiary in the residential and planned community (real estate
      and communications infrastructure) development industry. In connection with
      the
      acquisition, we issued common stock and newly created Series B preferred stock.
      That issuance was dilutive to our shareholders. We are obligated to issue more
      shares of preferred stock, which is convertible to common stock on a hundred
      for
      one basis, under the terms of the acquisition agreement with Sovereign. All
      such
      issuances will be dilutive to our shareholders. In addition, the preferred
      stock
      we are issuing is senior to the rights of our common stock holders upon
      liquidation. If we are unable to assimilate Sovereign's management and
      operations, or if we incur unforeseen liabilities, or if the operations of
      Sovereign do not continue to grow or if they diminish, we will not obtain
      recognizable benefits from the acquisition and our shareholders will have
      suffered material dilution.





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 $5,670,000 in senior
      secured debentures, convertible into common stock. If not converted, the
      debentures are due in July 2006 and December 2006. The debentures bear interest
      at rates from six percent (6%) to twelve percent (12%) and are collateralized
      by
      our assets. 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 on the due dates.
      If
      the debentures are not paid or converted, the debenture holders could foreclose
      on 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 plus accrued interest
      in
      July 2006, provided however, if our common share price exceeds $0.21 per share
      for 30 consecutive days, payment of the note shall be forgiven.





WE
      RELY
      ON LOCAL TELEPHONE COMPANIES AND OTHER COMPANIES TO PROVIDE CERTAIN
      TELECOMMUNICATIONS SERVICES. A DISRUPTION OF THESE SERVICES COULD HAVE AN
      ADVERSE EFFECT ON OPERATIONS.





Our
      wholly owned subsidiary, Connect Paging, Inc. d/b/a Get-A-Phone is a Texas-based
      communications company operating as a local exchange carrier in areas currently
      served by SBC and Verizon Southwest. We buy certain telecommunications from
      SBC
      and Verizon and resell these to our customers. If we were not able to buy these
      services or if we experienced a disruption of these services, it would adversely
      affect our ability to operate in these areas.




33





WE
      HAVE
      THE ABILITY, WITHOUT SHAREHOLDER APPROVAL, TO ISSUE PREFERRED STOCK AND
      DESIGNATE THE RIGHTS, PREFERENCES AND PRIVILEGES THAT MAY BE SENIOR TO COMMON
      STOCK.





In
      November 2004, we issued 10,000 shares of Series A Convertible Preferred Stock
      ("Series A Stock") at $100.00 per share, for a total consideration of
      $1,000,000. The Series A Stock is convertible into our common stock at a
      conversion price ranging from $0.05 to $0.075 as calculated in accordance with
      the Certificate of Designation. The Series A Stock has a liquidation preference
      ahead of the common stock in the event of any dissolution or winding up of
      our
      Company and is entitled to any dividends that may be declared from time to
      time
      by the Board of Directors.





In
      February 2005, we issued 35,000,000 shares of our common stock and 100,000
      shares of our newly created Series B Convertible Preferred Stock in the
      acquisition of Sovereign Partners, LLC. The Series B Preferred Stock is
      convertible into our common stock at a conversion rate of one hundred (100)
      shares of common stock for each one (1) share of Series B Preferred Stock,
      in
      accordance with the Certificate of Designation. The Series B Preferred Stock
      has
      a liquidation preference ahead of the common stock in the event of any
      dissolution or winding up of our Company and is entitled to any dividends that
      may be declared from time to time by our Board of Directors.





We
      have a
      total of 100,000,000 authorized shares of preferred stock. The Board of
      Directors may determine, without shareholder approval, the rights, preferences
      and privileges of the preferred stock. Depending on the rights, preferences
      and
      privileges granted when the preferred stock is issued, it may have the effect
      of
      delaying, deferring or preventing a change in control without further action
      by
      the shareholders, may discourage bids for our common stock at a premium over
      the
      market price of the common stock and may adversely affect the market price
      of
      and the voting and other rights of the holders of our common stock.





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 $0.02 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.





SOVEREIGN
      PARTNERS, LLC IS ROUTINELY INVOLVED IN LITIGATION MATTERS ARISING FROM ACCIDENTS
      AND WARRANTY RELATED CLAIMS; ALTHOUGH WE STRIVE TO KEEP THE LITIGATION COSTS
      AND
      PAYMENTS IF ANY, TO A MINIMUM, AND WE MAINTAIN LIABILITY INSURANCE, WE CANNOT
      BE
      ASSURED THAT LITIGATION WILL NOT HAVE AN ADVERSE IMPACT ON THE OPERATIONS AND
      FINANCIAL PERFORMANCE OF THE COMPANY TAKEN AS A WHOLE.





Sovereign
      Partners, LLC (“Sovereign”), a wholly owned subsidiary of the Company, performs
      residential and commercial construction activities directly and through
      sub-contractors. Such activities frequently give rise to warranty claims and
      personal injury claims against Sovereign and other job contractors. Although
      Sovereign has procedures in place to assist in the prevention of such claims,
      litigation arising from accidents and warranty issues are an inevitable part
      of
      the business. While Sovereign maintains insurance for such claims in reasonable
      amounts to protect it from losses, we cannot predict if any pending or future
      claims will have an adverse impact on our financial condition and results of
      operations. Also, we cannot be certain that liability insurance will continue
      to
      be available to Sovereign on terms acceptable to Sovereign, if at all. Loss
      of
      Sovereign’s liability insurance could have an adverse impact on our financial
      condition and results of operations.





OUR
      COMMON STOCK IS SUBJECT TO PENNY STOCK RULES WHICH MAY BE DETRIMENTAL TO
      INVESTORS.




34





Our
      common stock has traded at a price substantially below $5.00 per share,
      subjecting trading in the stock to certain SEC rules requiring additional
      disclosures by broker-dealers. These rules generally apply to any non-NASDAQ
      equity security that has a market price of less than $5.00 per share, subject
      to
      certain exceptions, commonly referred to as a "penny stock." Such rules require
      the delivery, prior to any penny stock transaction, of a disclosure schedule
      explaining the penny stock market and the risks associated therewith and impose
      various sales practice requirements on broker-dealers who sell penny stocks
      to
      persons other than established customers and institutional or wealthy investors.
      For these types of transactions, the broker-dealer must make a special
      suitability determination for the purchaser and have received the purchaser's
      written consent to the transaction prior to the sale. The broker-dealer also
      must disclose the commissions payable to the broker-dealer, current bid and
      offer quotations for the penny stock and, if the broker-dealer is the sole
      market maker, the broker-dealer must disclose this fact and the broker-dealer's
      presumed control over the market. Such information must be provided to the
      customer orally or in writing before or with the written confirmation of trade
      sent to the customer. Monthly statements must be sent disclosing recent price
      information for the penny stock held in the account and information on the
      limited market in penny stocks. The additional burdens imposed upon
      broker-dealers by such requirements could discourage broker-dealers from
      effecting transactions in our common stock. These disclosure requirements may
      have the effect of reducing the level of trading activity in the secondary
      market for a stock that becomes subject to the penny stock rules.





WE
      OPERATE IN A HIGHLY COMPETITIVE MARKET, AND WE MAY NOT BE ABLE TO COMPETE
      EFFECTIVELY AGAINST ESTABLISHED COMPETITORS WITH GREATER FINANCIAL RESOURCES
      AND
      MORE DIVERSE STRATEGIC PLANS.





We
      face
      competition from many communications providers with significantly greater
      financial, technical and marketing resources, longer operating histories,
      well-established brand names, larger customer bases and diverse strategic plans
      and technologies. Intense competition has led to declining prices and margins
      for many communications services. We expect this trend to continue as
      competition intensifies in the future. We expect significant competition from
      traditional and new communications companies, including local, long distance,
      cable modem, Internet, digital subscriber line, fixed and mobile wireless and
      satellite data service providers, some of which are described in more detail
      below. If these potential competitors successfully focus on our market, we
      may
      face intense competition which could harm our business. In addition, we may
      also
      face severe price competition for building access rights, which could result
      in
      higher sales and marketing expenses and lower profit margins.





OUR
      BUSINESS IS CYCLICAL AND IS SIGNIFICANTLY IMPACTED BY CHANGES IN GENERAL AND
      LOCAL ECONOMIC CONDITIONS.





Our
      Real
      Estate business is cyclical and is significantly impacted by changes in national
      and general economic factors outside of our control, such as short and long-term
      interest rates, the availability of financing for homebuyers, consumer
      confidence, which can be substantially affected by external conditions,
      including international hostilities, federal mortgage financing programs, and
      federal income tax provisions. The cyclicality of our business is also highly
      sensitive to changes in economic conditions that can occur on a local or
      regional basis, such as changes in housing demand, population growth, employment
      levels and job growth, and property taxes. Weather conditions and natural
      disasters such as earthquakes, hurricanes, tornadoes, floods, droughts, fires
      and other environmental conditions can harm our homebuilding business on a
      local
      or regional basis. Civil unrest can also have an adverse effect on our
      homebuilding business. Fluctuating lumber prices and shortages, as well as
      shortages or price fluctuations in other important building materials, can
      have
      an adverse effect on our homebuilding business. Similarly, labor shortages
      or
      unrest among key trades, such as carpenters, roofers, electricians and plumbers,
      can delay the delivery of our homes and increase our costs. Rebuilding efforts
      underway in the gulf coast region of the United States following the destruction
      caused by the two devastating hurricanes there in the summer of 2005 may cause
      or exacerbate shortages of labor and/or certain materials. The difficulties
      described above can cause demand and prices for our homes to diminish or cause
      us to take longer and incur more costs to build our homes. We may not be able
      to
      recover these increased costs by raising prices because the price of each home
      is usually set several months before the home is delivered, as our customers
      typically sign their home purchase contracts before construction has even begun
      on their homes. In addition, some of the difficulties described above could
      cause some homebuyers to cancel their home purchase contracts
      altogether.




35





THE
      HOMEBUILDING INDUSTRY HAS NOT EXPERIENCED A DOWNTURN IN MANY YEARS, AND NEW
      HOMES MAY BE OVERVALUED.





Although
      the homebuilding business can be cyclical, it has not experienced a downturn
      in
      many years. Some have speculated that the prices of new homes, and the stock
      prices of companies like ours that build new homes, are inflated and may decline
      if the demand for new homes weakens. A decline in the prices for new homes
      would
      have an adverse effect on our homebuilding business. If new home prices decline,
      interest rates increase or there is a downturn in the economy, some homebuyers
      may cancel their home purchases because the required deposits are small and
      generally refundable. If the prices for new homes begin to decline, interest
      rates increase or there is a downturn in local or regional economies or the
      national economy, homebuyers may have financial incentive to terminate their
      existing sales contracts in order to negotiate for a lower price or to explore
      other options. Such a result could have an adverse effect on our homebuilding
      business and our results of operations.





OUR
      SUCCESS DEPENDS ON THE AVAILABILITY OF IMPROVED LOTS AND UNDEVELOPED LAND THAT
      MEET OUR LAND INVESTMENT CRITERIA.





The
      availability of finished and partially developed lots and undeveloped land
      for
      purchase that meet our internal criteria depends on a number of factors outside
      our control, including land availability in general, competition with other
      homebuilders and land buyers for desirable property, inflation in land prices,
      and zoning, allowable housing density and other regulatory requirements. Should
      suitable lots or land become less available, the number of homes we may be
      able
      to build and sell could be reduced, and the cost of land could be increased,
      perhaps substantially, which could adversely impact our results of
      operations.





HOME
      PRICES AND SALES ACTIVITY IN THE PARTICULAR MARKETS AND REGIONS IN WHICH WE
      DO
      BUSINESS IMPACT OUR RESULTS OF OPERATIONS BECAUSE OUR BUSINESS IS CONCENTRATED
      IN THESE MARKETS.





Home
      prices and sales activity in some of our key markets have declined from time
      to
      time for market-specific reasons, including adverse weather or economic
      contraction due to, among other things, the failure or decline of key industries
      and employers. If home prices or sales activity decline in one or more of the
      key markets in which we operate, our costs may not decline at all or at the
      same
      rate and, as a result, our overall results of operations may be adversely
      impacted.





INTEREST
      RATE INCREASES OR CHANGES IN FEDERAL LENDING PROGRAMS COULD LOWER DEMAND FOR
      OUR
      HOMES.





Nearly
      all of our customers finance the purchase of their homes, and a significant
      number of these customers arrange their financing through our subsidiary
      Lighthouse Lending, LLC. Increases in interest rates or decreases in
      availability of mortgage financing would increase monthly mortgage costs for
      our
      potential homebuyers and could therefore reduce demand for our homes and
      mortgages. Increased interest rates can also hinder our ability to realize
      our
      backlog because our sales contracts provide our customers with a financing
      contingency. Financing contingencies allow customers to cancel their home
      purchase contracts in the event they cannot arrange for financing at interest
      rates that were prevailing when they signed their contracts. Because the
      availability of Fannie Mae, FHLMC, FHA and VA mortgage financing is an important
      factor in marketing many of our homes, any limitations or restrictions on the
      availability of those types of financing could reduce our home sales.





WE
      ARE
      SUBJECT TO SUBSTANTIAL LEGAL AND REGULATORY REQUIREMENTS REGARDING THE
      DEVELOPMENT OF LAND, THE HOMEBUILDING PROCESS AND PROTECTION OF THE ENVIRONMENT,
      WHICH CAN CAUSE US TO SUFFER DELAYS AND INCUR COSTS ASSOCIATED WITH COMPLIANCE
      AND WHICH CAN PROHIBIT OR RESTRICT HOMEBUILDING ACTIVITY IN SOME REGIONS OR
      AREAS.





Our
      homebuilding business is heavily regulated and subject to increasing local,
      state and federal statutes, ordinances, rules and regulations concerning zoning,
      resource protection, other environmental impacts, building design, construction
      and similar matters. These regulations often provide broad discretion to
      governmental authorities that regulate these matters, which can result in
      unanticipated delays or increases in the cost of a specified project or a number
      of projects in particular markets. We may also experience periodic delays in
      homebuilding projects due to building moratoria in any of the areas in which
      we
      operate. We are also subject to a variety of local, state and federal statutes,
      ordinances, rules and regulations concerning the environment. These laws and
      regulations may cause delays in construction and delivery of new homes, causing
      us to incur substantial compliance and other costs, and can prohibit or severely
      restrict homebuilding activity in certain environmentally sensitive regions
      or
      areas. In addition, environmental laws may impose liability for the costs of
      removal or remediation of hazardous or toxic substances whether or not the
      developer or owner of the property knew of, or was responsible for, the presence
      of those substances. The presence of those substances on our properties may
      prevent us from selling our homes and we may also be liable, under applicable
      laws and regulations or lawsuits brought by private parties, for hazardous
      or
      toxic substances on properties and lots that we have sold in the past. The
      mortgage brokering operations of Lighthouse Lending, LLC are heavily regulated
      and subject to the rules and regulations promulgated by a number of governmental
      and quasi-governmental agencies. There are a number of federal and state
      statutes and regulations which, among other things, prohibit discrimination,
      establish underwriting guidelines which include obtaining inspections and
      appraisals, require credit reports on prospective borrowers and fix maximum
      loan
      amounts. A finding that we materially violated any of the foregoing laws could
      have an adverse effect on our results of operations.




36





WE
      BUILD
      HOMES IN HIGHLY COMPETITIVE MARKETS, WHICH COULD HURT OUR FUTURE OPERATING
      RESULTS.





We
      compete in each of our markets with a number of homebuilding companies for
      homebuyers, land, financing, raw materials and skilled management and labor
      resources. Our competitors include large national homebuilders, as well as
      other
      smaller regional and local builders that can have an advantage in local markets
      because of long-standing relationships they may have with local labor or land
      sellers. We also compete with other housing alternatives, such as existing
      homes
      and rental housing. These competitive conditions can make it difficult for
      us to
      acquire desirable land which meets our land buying criteria, cause us to offer
      or to increase our sales incentives or price discounts, and result in reduced
      sales. Any of these competitive conditions can adversely impact our revenues,
      increase our costs and/or impede the growth of our local or regional
      homebuilding businesses.





CHANGING
      MARKET CONDITIONS MAY ADVERSELY IMPACT OUR ABILITY TO SELL HOMES AT EXPECTED
      PRICES.





There
      is
      often a significant amount of time between when we initially acquire land and
      when we can make homes on that land available for sale. The market value of
      a
      proposed home can vary significantly during this time due to changing market
      conditions. In the past, we have benefited from increases in the value of homes
      over time, but if market conditions were to reverse, we may need to sell homes
      at lower prices than we anticipate. We may also need to take write-downs of
      our
      home inventories and land holdings if market values decline.





BECAUSE
      OF THE SEASONAL NATURE OF OUR REAL ESTATE BUSINESS, OUR QUARTERLY OPERATING
      RESULTS FLUCTUATE.





We
      have
      experienced seasonal fluctuations in quarterly operating results. We typically
      do not commence significant construction on a home before a sales contract
      has
      been signed with a homebuyer. A significant percentage of our sales contracts
      are made during the spring and summer months. Construction of our homes
      typically requires approximately four months and weather delays that often
      occur
      during late winter and early spring may extend this period. As a result of
      these
      combined factors, we historically have experienced uneven quarterly results,
      with lower revenues and operating income generally during the first and second
      quarters of our fiscal year.





OUR
      LEVERAGE MAY PLACE BURDENS ON OUR ABILITY TO COMPLY WITH THE TERMS OF OUR
      INDEBTEDNESS, MAY RESTRICT OUR ABILITY TO OPERATE AND MAY PREVENT US FROM
      FULFILLING OUR OBLIGATIONS.





The
      amount of our debt could have important consequences. For example: it could
      limit our ability to obtain future financing for working capital, capital
      expenditures, acquisitions, debt service requirements or other requirements;
      require us to dedicate a substantial portion of our cash flow from operations
      to
      the payment of our debt and reduce our ability to use our cash flow for other
      purposes; impact our flexibility in planning for, or reacting to, changes in
      our
      business; place us at a competitive disadvantage because we have more debt
      than
      some of our competitors; and make us more vulnerable in the event of a downturn
      in our business or in general economic conditions. Our ability to meet our
      debt
      service and other obligations will depend upon our future performance. We are
      engaged in businesses that are substantially affected by changes in economic
      cycles. Our revenues and earnings vary with the level of general economic
      activity in the markets we serve. Our businesses could also be affected by
      financial, political, business and other factors, many of which are beyond
      our
      control. The factors that affect our ability to generate cash can also affect
      our ability to raise additional funds through the sale of debt and/or equity
      securities, the refinancing of debt or the sale of assets. Changes in prevailing
      interest rates may also affect our ability to meet our debt service obligations,
      because borrowings under our bank credit facilities bear interest at floating
      rates. A higher interest rate on our debt could adversely affect our operating
      results. Our business may not generate sufficient cash flow from operations
      and
      borrowings may not be available to us under our bank credit facilities in an
      amount sufficient to enable us to pay our debt service obligations or to fund
      our other liquidity needs. We may need to refinance all or a portion of our
      debt
      on or before maturity, which we may not be able to do on favorable terms or
      at
      all. The indentures governing our outstanding debt instruments and our bank
      credit facilities include various financial covenants and restrictions,
      including restrictions on debt incurrence, sales of assets and cash
      distributions by us. Should we not comply with any of those restrictions or
      covenants, the holders of those debt instruments or the banks, as appropriate,
      could cause our debt to become due and payable prior to maturity.




37





WE
      MAY
      HAVE DIFFICULTY IN CONTINUING TO OBTAIN THE ADDITIONAL FINANCING REQUIRED TO
      OPERATE AND DEVELOP OUR BUSINESS.





Our
      construction operations require significant amounts of cash and/or available
      credit. It is not possible to predict the future terms or availability of
      additional capital. Our bank credit facilities limit our ability to borrow
      additional funds by placing a maximum cap on our leverage ratio. If conditions
      in the capital markets change significantly, it could reduce our sales and
      may
      hinder our future growth and results of operations.





OUR
      FUTURE GROWTH MAY BE LIMITED BY CONTRACTING ECONOMIES IN THE MARKETS IN WHICH
      WE
      CURRENTLY OPERATE, AS WELL AS OUR INABILITY TO ENTER MARKETS.





Our
      future growth and results of operations could be adversely affected if the
      markets in which we currently operate do not continue to support the expansion
      of our existing business or if we are unable to identify new markets for entry.
      Our inability to grow organically in existing markets or to expand into new
      markets would limit our ability to achieve our growth objectives and would
      adversely impact our future operating results.





REGULATION
      OF THE INTERNET.





Due
      to
      the increasing popularity and use of the Internet by broad segments of the
      population, it is possible that laws and regulations may be adopted with respect
      to the Internet pertaining to content of Web sites, privacy, pricing, encryption
      standards, consumer protection, electronic commerce, taxation, and copyright
      infringement and other intellectual property issues. No one is able to predict
      the effect, if any, that any future regulatory changes or developments may
      have
      on the demand for our Internet access or other Internet-related services.
      Changes in the regulatory environment relating to the Internet access industry,
      including the enactment of laws or promulgation of regulations that directly
      or
      indirectly affect the costs of telecommunications access or that increase the
      likelihood or scope of competition from national or regional telephone
      companies, could materially and adversely affect our business, operating results
      and financial condition.




**ITEM
        2.**  **U** **NREGISTERED** **S** **ALES
        OF** **E** **QUITY** **S** **ECURITIES
        AND** **U** **SE
        OF** **P** **ROCEEDS**




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.




38





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.





(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.


39


(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.





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 pursuant 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.




**I** **TEM
        3.**  **D** **EFAULTS
        UPON SENIOR SECURITIES**




None.




40




**I** **TEM
        4.**  **S** **UBMISSION
        OF MATTERS TO A VOTE OF SECURITY HOLDERS**




None.




**I** **TEM
        5.**  **O** **THER** **I** **NFORMATION**




**Private
      Placements**




Subsequent
      to the quarter ended March 31, 2006, the Company has entered into a series
      of
      private placements 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.





**Converted
      Senior Secured Debentures**





Subsequent
      to the quarter ended March 31, 2006, the Company has entered into certain
      agreements to convert $45,000 of Senior Secured Debentures into shares of the
      Company’s common stock.




**I** **TEM
        6.**  **E** **XHIBITS
        AND** **R** **EPORTS
        ON** **F** **ORM
        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.





41
 
  EXHIBIT
                    NO.
                
                DESCRIPTION(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.





(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-QSB filed with the
      SEC on June 3, 2005.





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





**#
      Filed Herewith**





42




**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:December
                6, 2006
            **CARDINAL
                COMMUNICATIONS, INC.**By:
            */S/ Edouard A. Garneau*Edouard
                A. GarneauChief
                Executive Officer






43