UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                  FORM 10-KSB

      [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
                              EXCHANGE ACT OF 1934

                     FOR THE FISCAL YEAR ENDED JUNE 30, 2006

                                       OR
    [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
                              EXCHANGE ACT OF 1934

                    For the transition period from N/A to N/A
                        Commission File Number:  0-25474

                            MEDCOM USA, INCORPORATED
           (Name of small business issuer as specified in its charter)

             DELAWARE                                  65-0287558
      State of Incorporation                IRS Employer Identification No.

            7975 NORTH HAYDEN ROAD, SUITE D-333, SCOTTSDALE, AZ 85258
                    (Address of principal executive offices)

       Registrant's telephone number, including Area Code: (480) 675-8865
        Securities registered pursuant to Section 12(b) of the Act:  None
           Securities registered pursuant to Section 12(g) of the Act:

                         COMMON STOCK, $.0001 PAR VALUE

Check  whether  the Registrant (1) has filed all reports required to be filed by
Section  13  or  15(d) of the Securities Exchange Act of 1934 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
                                    ----       ----

Check  if  disclosure of delinquent filers in response to Item 405 of Regulation
S-B  is  not contained in this form, and no disclosure will be contained, to the
best  of  the  Registrant's  knowledge,  in  definitive  proxy  or  information
statements  incorporated  by  reference  in  Part III of this Form 10-KSB or any
amendment  to  this  Form  10-KSB.  [X]

Registrant's revenues for the most recent fiscal year were $ 6,000,257

The aggregate market value of the common stock held by non-affiliates computed
based on the closing price of such stock on August 23, 2006, was approximately
$20,878,208


1
<PAGE>
                                     PART I

ITEM 1.  DESCRIPTION OF BUSINESS.

Except for historical information contained herein, the following discussion
contains forward-looking statements that involve risks and uncertainties. Such
forward-looking statements include, but are not limited to, statements regarding
future events and the Company's plans and expectations. Actual results could
differ materially from those discussed herein. Factors that could cause or
contribute to such differences include, but are not limited to, those discussed
elsewhere in this Form 10-KSB or incorporated herein by reference, including
those set forth in Management's Discussion and Analysis or Plan of Operation.

OVERVIEW

MedCom USA, Inc. (the "Company") a Delaware corporation was formed in August
1991 under the name Sims Communications, Inc. The Company's primary business was
providing telecommunications services. In 1996 the Company introduced four
programs to broaden the Company's product and service mix: (a) cellular
telephone activation, (b) sale of prepaid calling cards, (c) sale of long
distance telephone service and (d) rental of cellular telephones using an
overnight courier service. With the exception of the sale of prepaid calling
cards and cellular telephone activation, the other programs were discontinued in
December 1997. During the fiscal year of 1998, the Company diversified its
operations and moved into the area of medical information processing.

The Company changed its name to MedCom USA, Inc. in October 1999. During the
fiscal years of 1999 and continuing through present, the Company directed its
efforts in medical information processing. As of March 31, 2006, the Company
currently operates the MedCom System (MedCom) that is deployed through a
point-of-sale terminal or web portal offering electronic transaction processing,
as well as insurance eligibility verification. The Company has aggressively
focused on its primary operations in Electronic Data Interchange (EDI) and core
business in electronic Medical Transaction Processing.

MEDICAL TRANSACTION PROCESSING
------------------------------

MEDCOM SYSTEM

The Company provides innovative technology-based solutions for the healthcare
industries that enable users to efficiently collect, use, analyze and
disseminate data from payers, health care providers and patients. The MedCom
System currently operates through a point-of-sale terminal or web portal.  The
point-of-sale terminals are purchased from Hypercom Corporation (Hypercom)The
Company is offering a service bundled package that would have the capability of
processing unlimited claims and eligibility verification for monthly service
fees.

The Company's a "web portal" encourages customers to process their medical
claims through an online portal.   Many customers purchase the terminal for the
front office and the portal system for the back office to take advantage of the
ease of both products.

FINANCIAL SERVICES


2
<PAGE>
The Company's credit card center and check services, provides the healthcare
industry a combination of services designed to improve collection and approvals
of credit/debit card payments along with the added benefit and convenience of
personal check guarantee from financial institutions.

Easy-Pay is an accounts receivable management program that allows a provider to
swipe a patient's credit card and store the patient's signature in the
terminals, and bill the patient's card at a later date when it is determined
what services rendered were not covered by the patient's insurance.  Also, Easy-
Pay allows patients the added benefit and convenience of a one-time payment
option or recurring installment payments that will be processed on a specified
date determined by the provider and patient.  These options insure providers
that payments are timely processed with the features of electronic accounts
receivable management.  These services are all deployed thorough point-of-sale
terminals or web portal.  Using the MedCom system, medical providers are
relieved of many of the problems associated with billings and account
management, and results in lower administrative documentation and costs.

PATIENT ELIGIBILITY

The MedCom System is also an electronic processing system that consolidates
insurance eligibility verification, processes medical claims, and monitors
referrals.  The MedCom System allows a patient's primary care physician to
request approval from the patient's insurance carrier or managed care plan for a
referral to a secondary physician or specialist.  The secondary physician or
specialist can use the MedCom system to verify referrals are approved by the
patient's insurance carrier.  The MedCom system's referral capabilities reduce
documentation and administrative costs which results in increased productivity
and greater patient information for the specialist, as well as a written record
of the referral authorization.

The MedCom System can record and track encounters between patients and health
care providers for performance evaluation and maintenance of records.  After
examining a patient the physician enters a patient's name, procedure code and
diagnostic code at a nearby terminal.  This information is then uploaded to
MedCom's computer network, processed and transmitted back to the provider
formatted in both summary and/or detailed reports, and as a result healthcare
providers' reimbursements are accelerated and account receivables are reduced.
The average time it takes the healthcare providers to collect payments from
insurance carriers and plans decreases from an average of 89 days to 7-21 days.
Health care providers will benefit from a 100% paperless claim processing
system.

As of June 30, 2006 the MedCom system was able to retrieve on-line eligibility
and authorization information from approximately 450 medical insurance companies
and plans.  Included in this group is the newly activated Medicare Part A & B
eligibility for all 50 states.  This gives us access to over 42 million lives.
The system also electronically processes and submits claims for its healthcare
providers to over 1,700 companies.  These insurance providers include CIGNA,
Prudential, Oxford Health Plan, United Health Plans, Blue Cross, Medicaid,
Aetna, Blue Cross/Blue Shield, and Prudential.

COMPETITION

Competing health insurance claims processing and/or benefit verification systems
include


3
<PAGE>
WebMD (HLTH), NDCHealth (NDC), and Per-se Technologies (PSTI).  There are
similar companies that compete with the Company with respect to its financial
transaction processing services performed by the MedCom system.  These companies
compete with the Company directly or to some degree.  Many of these competitors
are better capitalized than the Company, and maintain a significant market share
in their respective industries.

TECHNICAL SUPPORT ASSISTANCE

The Company offers multiple training options for its products and services and
is easily accessed at www.MedComUSA.com.  Onsite training and teleconferencing,
                      -----------------
and technical support assistance are also features offered to health care
providers. Also, a 24-hour terminal replacement program and system upgrades are
offered.

MARKETING STRATEGY

MedCom has broadened marketing strategy to reduce cost and increase efficiency.
The Company has employed telesales strategy where as there is less dependence on
individual sales personnel. The Company just completed its final phase of its
portal software development which has broadened the sales model to both a
terminal and portal sale. The company has entered into telesales agreements
which have implemented the new marketing strategy. The completion of the portal
will increase sales to hospitals which results in multiple sales. In addition,
the portal has become popular for individual doctors, dentist, and other
healthcare professionals which often results in a single or possibly multiple
sales. The Company has focused its sales to hospitals as a growing revenue
source.

In the past the Company built its marketing around a strategy of expanding its
sales capacity by using experienced external Independent Sales Organizations
(ISO) and putting less reliance on an internal sales force. MedCom has set-up
these Independent Sales Organizations (ISOs) to market and distribute the MedCom
System throughout the U.S. In addition to regional ISOs which represent
approximately 100+ sales people, the Company has signed an agreement with Abanoc
International and is in the midst of training 200+ sales people in 15 cities
around the country. Initial sales have already begun to result from this
relationship. Financial service companies comprise an important sales channel
that views the healthcare industry as an important growth opportunity. Only 6%
of all healthcare payments are made with a credit card today, although according
to a recent survey 55% of all consumers would prefer to pay doctor and hospital
visits by credit/debit card.

MedCom has been expanding its position with hospitals, working closely with
Hospital consultants and targeted seminars. The Company, with its new
Onlinewebportal product and Medicare access, is becoming an increasingly
valuable tool for the outpatient and faculty practice areas of hospitals. While
the ISO groups focus on individual doctors, dentists and clinics, our hospital
team is focusing on multiple unit sales opportunities with hospitals around the
country.

SERVICE  AGREEMENTS

During December 1998, the Company entered into a service agreement with WebMD
Envoy.  This agreement encompasses the process of Electronic Data Interchange
(EDI) and related services.  The services provided are complimentary to the
Company's core business, and


4
<PAGE>
accomplishes transaction processing services that allows healthcare providers
and payers to process medical transactions quickly and accurately, and results
in reduced administrative costs and an increase in healthcare reimbursements to
healthcare providers.

During January 2002, the Company entered into a service agreement with MedUnite.
This alliance will encompass the utilization of proprietary technologies and
will enhance the existing network of healthcare constituents. Strategically both
companies share the same vision of transforming the healthcare transactions
systems affecting how healthcare providers, health plans, and other groups
transacting business with one another by significantly reducing claim and
payment processing time, and reducing healthcare administrative costs.

During February 2005, the Company entered into a service agreement with CDS
Capital. This agreement will enable eligible healthcare providers utilizing the
MedCom terminals to finance their accounts receivables. Health care providers
using the MedCom terminal to secure patient eligibility and process claims will
now be able to receive regular payments for a large percentage of claims
processed from the previous week. This financial management service will
decrease the time and costs associated with accounts receivable collections.

During June 2005, the Company entered into a service agreement with Tesia-PCI.
This agreement to replace and service and support at a minimum of 1,500 POS
terminals inclusive of eligibly, claims processing, credit card processing for
Tesia's dental providers.

PROCESSING TERMINAL LEASING AGREEMENTS

The Company has entered into leasing agreements for the purpose of leasing
contracts. The Company has pledged and granted for collateral in connection with
the lease agreements one million restricted common shares. These common shares
would be surrendered upon default of the leasing agreements. This pledge and
granting of security interest was executed on January 2002.

In Fiscal year 2005 the Company arranged its terms with this credit facility as
an equipment lessor whereby the Company sold terminals to the lessor when it has
obtained a service contract with a provider. Under these agreements, the Company
leased back the processing terminals from the lessor and in turn leased them to
the purchaser for a period of 48 to 60 months; however; the customer could
terminate the agreement after 12 months. The Company accounted for the
transactions as sale-leasebacks. The leases with the customers are inclusive
with the monthly service contracts and are effectively accounted for as
operating leases. Gains on terminal sales under sale-leaseback transactions are
deferred and are being amortized to income in proportion to amortization of the
assets, generally over the term of the lease with the credit facility generally
for a period of 48 to 60 months. During the prior periods very few customers
terminated there agreements prior to the expiration of the underlying lease.

Additionally, effective July 1, 2005, the Company modified the licensing
agreement to make them noncancellable for the term of the underlying licensing
agreement. Accordingly, management believes that application of a new method of
accounting and revenue recognition more appropriately accomplishes the matching
of revenues and cost of licenses entered into after July 1, 2005.


5
<PAGE>
REVENUES

Revenues from the MedCom system are generated through the sale of the portal
software, software terminals, and processing insurance benefit
eligibility/verification, insurance claims, and financial transaction
processing. The Company receives a fixed amount per software portal and software
terminal, and also receives fees for each transaction processed through the
MedCom System. Revenue sources include fees for financial transactions processed
through the software portal and software terminal, fees for collection of
receivables if the Company provides billing services, fees associated with
reimbursements made by insurance carriers for submitting claims that are
processed electronically, fees for using the system's referral program and, fees
for processing uploaded data. The Company also markets a complete billing
service using the MedCom System for hospitals and large practice groups. The
Company receives a percentage of the billing amount collected under these
arrangements.

Due to changes in technology and certain modification to the licenses
agreements, the Company has adopted a new method of accounting and revenue
recognition in accordance with SOP 97-2 and EITF 00-21 (See "Revenue
Recognition")

PATENT

The Company has the ability to market and sell licensing opportunities for the
MedCom proprietary patented technology for Activating Phone cards and Gift Cards
at retail. The patent covers the technology and process for taking a card with
magnetic strip or other data capture mechanism and activating the card by
downloading a determined monetary value onto the card for use at a later date
for different types of transactions. This process can be utilized for prepaid
phone cards, gift cards, and affinity cards. New View Technologies, which was
acquired by MedCom USA, developed the patent and all patents were assigned.

The Company has formed a new wholly owned subsidiary; Card Activations
Technology, Inc. for the purpose of spinning off the Company's holdings in its
proprietary patented technology for the gift and phone cards.

ADDITIONAL  INFORMATION

MedCom files reports and other materials with the Securities and Exchange
Commission. These documents may be inspected and copied at the Commission's
Public Reference Room at 450 Fifth Street, N.W., Washington, D.C., 20549. You
can obtain information on the operation of the Public Reference Room by calling
the Commission at 1-800-SEC-0330. You can also get copies of documents that the
Company files with the Commission through the Commission's Internet site at
www.sec.gov.
-----------

ITEM 2.  DESCRIPTION OF PROPERTY.

As of fiscal year end June 30, 2006, the Company maintains its corporate
executive offices in Scottsdale, Arizona.  The Company leases 1,317 square feet
of office space for approximately $32,000 annually.  The Company entered into a
three-year lease in May 2002 for the Scottsdale facility the lease has been
renewed through May 2008. The Company also maintains an office in Irvine,
California, for executive office space for approximately $1,300 a month.  The
Company also


6
<PAGE>
leases 5,906 square feet of office space in Islandia, New York, for
approximately $104,389 annually; the lease expires March 31, 2008.

As of fiscal year end June 30, 2006, the Company had 38 employees of which
approximately 37 are full-time equivalent employees.

ITEM 3.  LEGAL PROCEEDINGS

The Company is also involved in various claims and legal actions arising in the
ordinary course of business. In the opinion of management, except as discussed
above, the ultimate disposition of these matters will not have a material
adverse effect on the Company's financial position, results of operations, or
liquidity.

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

The Company submitted no matters to a vote of its security holders during the
fiscal year ended June 30, 2006.

                                     PART II

ITEM 5.  MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.

MedCom common stock is traded in the over-the-counter market, and quoted in the
National Association of Securities Dealers Inter-dealer Quotation System
("Electronic Bulletin Board) and can be accessed on the Internet at
www.otcbb.com under the symbol "EMED."
-------------

At June 30, 2006, there were 70,317,569 shares of common stock of MedCom
outstanding and there were approximately 585 shareholders of record of the
Company's common stock.

The following table sets forth for the periods indicated the high and low bid
quotations for MedCom's common stock.  These quotations represent inter-dealer
quotations, without adjustment for retail markup, markdown or commission and may
not represent actual transactions.

<TABLE>
<CAPTION>
FISCAL 2006                       HIGH BID   LOW BID
--------------------------------  ---------  --------
<S>                               <C>        <C>
Quarter Ended June 30, 2006       $     .65  $    .25

Quarter Ended March 31, 2006            .55       .25

Quarter Ended December 31, 2005         .78       .65

Quarter Ended September 30, 2005       1.26       .98

FISCAL 2005                       HIGH BID   LOW BID
--------------------------------  ---------  --------

Quarter Ended June 30, 2005       $     .77  $    .75

Quarter Ended March 31, 2005           1.12       .99

Quarter Ended December 31, 2004        1.78      1.72

Quarter Ended September 30, 2004       2.43      2.38
</TABLE>


7
<PAGE>
MedCom has never paid dividends on any of its common stock shares. MedCom does
not anticipate paying dividends at any time in the foreseeable future and any
profits will be reinvested in MedCom's business.  MedCom's Transfer Agent and
Registrar for the common stock is Corporate Stock Transfer located in Denver,
Colorado.

SALE OF UNREGISTERED SECURITIES

<TABLE>
<CAPTION>
QUARTER ENDED        STOCK ISSUED     CASH RECEIVED    STOCK ISSUED     STOCK ISSUED FOR
                       FOR CASH                        FOR SERVICES    Warrents Exercised
<S>                 <C>              <C>              <C>              <C>
September 30, 2005        1,156,999          591,750          685,508              12,997
 December 31, 2005          950,000          380,000          811,500                   -
    March 31, 2006        1,584,788          590,949        2,665,848                   -
     June 30, 2006        2,860,861          832,592        1,924,636
                    ---------------------------------------------------------------------
      Total Issued        6,552,648        2,395,291        6,087,492              12,997
</TABLE>

During  the year ended June 30, 2006, the Company issued 6,552,648 shares of its
common  stock  for  $2,395,291.  The  shares  were  issued to third parties in a
private  placement  of  the  Company's  common  stock.  The  shares  were  sold
throughout  the  year  ended  June 30, 2006, ranging from $1.00 per share at the
beginning  of the year to $.25 per share at the end of the year.  Commissions of
approximately $147,455 are recorded as a charge in additional paid in capital as
direct costs associated with the raising of equity capital. The company incurred
expense  related  to  the  raising  of  capital  of  $147,455.

The Company has issued shares of its common stock as consideration to
consultants for services rendered.  The value of those shares is determined
based on the trading value of the stock at the dates on which the agreements
were into for the services.   During the year ended June 30, 2006, the Company
granted to consultants, 6,087,492 shares of common stock valued in the aggregate
range of .50 to 1.50 strike price.

STOCK SPLITS

Share data in this report have been adjusted to reflect the following stock
splits relating to the Company's common stock: June 1995: 2-for-1 forward split,
February 1996: 1-for-10 reverse split, February 1998: 1-for-4 reverse split, May
2001: 1-for-5 reverse split.

ITEM 6.  MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.

Management's discussion and analysis contains statements that are
forward-looking and involve risks and uncertainties.  Several factors could
cause actual results to differ materially from those described in such
forward-looking statements.  This includes the Company's ability to manage
growth, involvement in litigation, competition in the health electronic
transaction processing, ongoing contractual relationships, dependence upon key
personnel, changes in customer demand for product and services, and the adoption
of new, or changes in, accounting policies, practices and estimates and the
application of such policies, practices, and estimates, and federal and state
governmental regulation, specifically in the areas of electronic transaction
processing in the health care industries.


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<PAGE>
The following financial data should be read in conjunction with the consolidated
financial statements of MedCom USA and related notes and other financial
information appearing elsewhere in this report.

<TABLE>
<CAPTION>
  Statement of Operations Data
-------------------------------
                                Years Ended June 30,    Years Ended June 30,
                               ----------------------------------------------
                                        2006                    2005
                               ----------------------  ----------------------
<S>                            <C>                     <C>
Revenues                       $           6,000,257   $           2,747,270
Cost of Deliverables                      (3,578,345)               (440,155)
Operating and Other Expenses              (8,760,468)             (9,440,937)
                               ----------------------  ----------------------
Net Loss                       $          (6,338,555)  $          (7,133,821)

Balance Sheet Data:
                                Years Ended June 30,    Years Ended June 30,
                               ----------------------------------------------

                                        2006                    2005
                               ----------------------  ----------------------

Current Assets                 $           1,238,144   $             366,442
Total Assets                               2,763,168               4,244,744
Current Liabilities                        3,688,558               4,540,974
Non Current Liabilities                    5,910,008               4,930,942
Total Liabilities                          9,598,565               9,471,917
Working Capital (Deficit)                 (2,450,414)             (4,174,532)
Shareholders' Equity (Deficit) $          (6,835,398)  $          (5,227,173)
-----------------------------------------------------------------------------
</TABLE>
The  Company  has  declared  no common stock dividends since its inception.

General. As of June 30, 2006, the Company currently utilizes the MedCom System
that is deployed through a processing terminal, PC software, or online
processing, and offers electronic transaction processing to the health care
industries. MedCom USA continues to focus on its primary operations and core
business in medical transaction processing.

YEAR  ENDED  JUNE  30,  2006
----------------------------

RESULTS  OF  OPERATIONS

     FISCAL YEAR END JUNE 30, 2006, COMPARED TO FISCAL YEAR END JUNE 30, 2005

Revenues for Fiscal 2006 increased to $6,000,257 from $2,747,271 during Fiscal
2005.  This increase in revenue is directly the result of changes in the
Company's strategic direction in core operations.  This included discontinuing
declining or unprofitable business sectors and officer and management changes.
The Company continues to aggressively pursue and devote its resources and focus
its direction in electronic transaction processing.   The Company's agreement
with its credit facility in connection with the sale of terminals and portal
transactions therewith, the Company must defer revenue gains on the sale of the
terminals and portal software.  Further the increase is related to a change in
accounting method that will be implemented in Fiscal 2006 and this change will
address these issues.  Fiscal 2005 we continued with the old accounting method
of recogonizing revenue and will be changing those methods in the upcoming
fiscal year.

Selling expenses for Fiscal 2006 decreased to $602,269 from $733,160 during
Fiscal 2005.  This


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<PAGE>
decrease is primarily the result of marketing efforts and includes commissions
paid to internal sales personnel to market the Company's products and services.
The Company is currently assessing if it will continue with its outside
independent sales organizations.  Presently the company is increasing is sales
team and will increase sales in various target states.  The company is seeking
to introduce the telesales marketing strategy for less expensive sales force.

General and administrative expenses for Fiscal 2006 increased to $4,565,800 from
$4,517,022 during Fiscal 2005.  This increase is attributed to the Company's
hiring of additional employees as growth has occurred in the area of providing
technical support for our products and services in relation to the increases in
sales.  The increase is related to settleing outstanding litigation which
resulted increase in legal fees.  The company does not expect additional expense
related to these expense in the future.

Professional and consulting expenses for Fiscal 2006 decreased to $0 from
$708,662 during Fiscal 2005.  These expenses are now being reported in the
general and administrative category.

Interest expense for Fiscal 2006 increased to $1,405,015 from $850,004 for
Fiscal 2005.  This increase is a result of increased sales volume and terminal
and software portal sales transactions with the Company's credit facility.
Also, expenses were incurred and paid on notes the Company has outstanding.
Interest income for Fiscal 2006 increase to $485,559 from $0 from Fiscal 2005
and increase was due to the change in accounting method that complies with SOP
97-2 and ETIF 00-21.

The company incurred $32,200 in the settlement of a litigation from Fiscal 2005.
The company had gain on extinguishment of debt for liabilities that were
satisfied through settlement.  The company impaired its assets in the amount of
$53,202.

The loss for Fiscal 2006 was ($6,338,555) from ($7,133,884) for Fiscal 2005.
Sales and marketing expenses along with interest expenses have increased for
Fiscal 2005.  The Company has incurred these marketing and sales expenses in
relation to increased demand for the Company's products and services.

LIQUIDITY AND CAPITAL RESOURCES

The Company's operating requirements have been funded primarily on its capital
sale of terminals and web portal transactions, and sales of the Company's common
stock. During the year ended June 30, 2006, the Company's net proceeds from the
sale of the terminals and software portals were $1,571,068. The company received
$2,395,291in proceeds from the sale of common stock. The Company believes that
the cash flows from its monthly service and transaction fees are inadequate to
repay the capital obligations and has relied upon the sale of common stock
through a private place to sustain its operations.

Cash used in operating activities for Fiscal 2006 was ($2,719,049) compared
($4,700,884) for Fiscal 2005. The Company's focus on core operations results in
a higher accounts receivable. The Company receives payments from customers
automatically through electronic fund transfers. Collection cycles are generally
less than thirty days. The company has grown its operations to reduce the
deficit cash flow positions.

Cash provided in investing activities was $1,854,257 for Fiscal 2006, compared
to cash provided in investing activities of $1,307,044 for Fiscal 2005.
Streamlining operations and capital budget curtailment practices promoted a
reduction in equipment purchases for the Company.


10
<PAGE>
Cash provided by financing activities was $855,734 in Fiscal 2006, compared to
$3,317,426 for Fiscal 2005.  Financing activities primarily consisted of
proceeds from the sale of the terminal and software portal transactions during
the fiscal period.  The company does not have adequate cash flows to satisfy its
obligations although have improved cash flow and anticipates have adequate cash
flows in the upcoming fiscal period.

The Company has used funds advanced from an affiliated entity that is controlled
by the Company's chairman and chief executive officer.  As of June 30, 2006 the
Company maintains an account payable from this entity for the amount of $794,626
including accrued interest.

The company has funding agreements with Leeco Financial Service Inc. and Ladco
Financial Group who provide exclusive funding for the License agreement between
the Company and Customer.  The funding groups accept contracts and adopt the
same terms and conditions that the Company and Customer have agreed.  In prior
years Ladco required to personally guarantee the customer agreements which were
a financial burden to the company.  In fiscal 2006, the company no longer sought
funding through Ladco and has consistently sought the funding of Leeco.  Leeco
does not require personal guarantees of customer agreements other then hospital
agreements.  Leeco requires the company to personally guarantee the hospital
agreements due to the size and volume of transaction with the terminal and web
portals.

The company expects increased cash flow from its existing accounts receivables,
transaction processing, benefit claims processing, direct terminal sales, and
credit card processing. The increase in cash flow is directly related to the
increase in sales through our telesales. Further we anticipate increase income
from our Tesia-PC contracts that have a higher volume of credit card processing
in which we receive a minimum of $28.50 per month on all transactions with a 15
cent per transaction fee.

The company is looking at expanding its market and look for acquisition that
complement the existing revenue model.

OTHER CONSIDERATIONS

There are numerous factors that affect the business and the results of its
operations. Sources of these factors include general economic and business
conditions, federal and state regulation of business activities, the level of
demand for product services, the level and intensity of competition in the
healthcare electronic transaction processing industry, and the ability to
develop new services based on new or evolving technology and the market's
acceptance of those new services, the Company's ability to timely and
effectively manage periodic product transitions, the services, customer and
geographic sales mix of any particular period, and our ability to continue to
improve our infrastructure including personnel and systems to keep pace with the
Company's anticipated rapid growth.


11
<PAGE>
<TABLE>
<CAPTION>
ITEM 7.  FINANCIAL STATEMENTS

MEDCOM USA, INC.

TABLE OF CONTENTS                                                           PAGE
-----------------                                                           ----
<S>                                                                         <C>

INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM:                              F-2
      SE Clark & Company, P.C.

CONSOLIDATED FINANCIAL STATEMENTS:
     Consolidated Balance Sheet at June 30, 2006                            F-3

     Consolidated Statements of Operations for the years ended
       June 30, 2006 and 2005                                               F-4

     Consolidated Statements of Stockholders' Equity for the years ended
       June 30, 2006 and 2005                                               F-5

     Consolidated Statements of Cash Flows for the years ended
       June 30, 2006 and 2005                                               F-6

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS                                  F-7
</TABLE>


12
<PAGE>
            REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
            -------------------------------------------------------

                            S.E.CLARK & COMPANY, P.C.
--------------------------------------------------------------------------------
           Registered Firm: Public Company Accounting Oversight Board


            Report of Independent Registered Public Accounting Firm
            -------------------------------------------------------

Board of Directors and Stockholders
MedCom USA, Inc.
Scottsdale, Arizona

We  have  audited  the  accompanying  balance  sheet  of  MedCom  USA, Inc. (the
"Company"),  as  of  June  30,  2006  and  the related statements of operations,
changes  in  stockholders' equity, and cash flows for the year then ended. These
financial  statements  are  the  responsibility of the Company's management. Our
responsibility  is  to express an opinion on these financial statements based on
our  audits.  We  did not audit the financial statements for the year ended June
30,  2005,  which  are presented for comparative purposes. Those statements were
audited  by  other  auditors  whose report contained an unqualified opinion with
added  comment  pertaining  to  the  Company's  ability  to  continue as a going
concern.

We  conducted  our  audit in accordance with the standards of the Public Company
Accounting  Oversight Board, generally accepted in the United States of America.
Those  standards require that we plan and perform the audit to obtain reasonable
assurance  about  whether  the  financial  statements  are  free  of  material
misstatement.  An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements.  An audit also includes
assessing  the  accounting  principles  used  and  significant estimates made by
management,  as well as evaluating the overall financial statement presentation.
We  believe  that  our  audit  provides  a  reasonable  basis  for  our opinion.

As  described  in  Note 9, management has made adjustments in the fourth quarter
ended  June  30,  2006.  The adjustments are precipitated by a recently detected
material  control  weakness  between  operations  and funding.  Certain material
financial  transactions  were  consistently  recorded  during  the year based on
funding  documentation  that  varied  with the agreement terms as understood and
documented by operations.  The financial statements do not include provision for
any  costs  that may be incurred resulting from restatements, if any, pertaining
to  the  adjustments  referred  to  above.

In  our opinion, except for the effects if any, resulting from resolution of the
above  matter, the financial statements referred to above present fairly, in all
material  respects,  the financial position of MedCom USA, Inc. (the "Company"),
as of June 30, 2006 and the results of its operations and its cash flows for the
years  then ended in conformity with accounting principles generally accepted in
the  United  States  of  America.

The  accompanying  financial  statements  have  been  prepared assuming that the
Company  will  continue  as  a  going  concern.  As  discussed  in Note 1 to the
financial  statements,  the accumulation of losses and shortage of capital raise
substantial doubt about its ability to continue as a going concern. Management's
plans  concerning  these  matters  are  also  described in Note1.  The financial
statements  do  not  include  any adjustments relating to the recoverability and
classification  of  asset  carrying  amounts or the amount and classification of
liabilities  that  might  result  should  the Company be unable to continue as a
going  concern.

/S/ S.E.CLARK & COMPANY, P.C.

Tucson, Arizona
September 22, 2006


--------------------------------------------------------------------------------
 744 N. Country Club Road, Tucson, AZ 85716  (520) 323-7774, Fax (520) 323-8174,
                               seclarkcpa@aol.com
                               ------------------


13
<PAGE>
<TABLE>
<CAPTION>
MEDCOM USA, INC.
CONSOLIDATED BALANCE SHEET
JUNE 30, 2006
--------------------------------------------------------------------------------

ASSETS:
<S>                                                                    <C>
CURRENT ASSETS
  Cash                                                                 $      1,148
  Licensing Contracts - ST                                                  792,739
  Prepaid expenses and other current assets                                 207,591
                                                                       -------------
    Total current assets                                                  1,001,478

PROCESSING TERMINALS, net                                                   776,942
PROPERTY AND EQUIPMENT, net                                                 530,335

  Licensing Contracts - LT                                                1,341,627
  Other Assets                                                               30,757
                                                                       -------------
    TOTAL ASSETS                                                       $  3,681,139
                                                                       =============

LIABILITIES AND STOCKHOLDERS' DEFICIT:

CURRENT LIABILITIES:
  Accounts payable                                                     $    252,214
  Accrued expenses and other liabilities                                    638,094
  Dividend payable                                                           23,750
  Deferred revenue - current portion                                        758,629
  Licensing obligations - current portion                                 1,722,541
                                                                       -------------
    Total current liabilities                                             3,395,227

LICENSING OBLIGATIONS - long-term portion                                 3,602,773
  Deferred Revenue                                                        2,723,911
  Notes from Affiliates                                                     794,626
                                                                       -------------
    Total liabilities                                                    10,516,537
                                                                       -------------

STOCKHOLDERS' DEFICIT:
  Convertible preferred stock, Series A $.001par value, 52,900 shares
    designated, 4,250 issued and outstanding                                      4
  Convertible preferred stock, Series D $.01par value, 50,000 shares             29
    designated, 2,850 issued and outstanding
  Common stock, $.0001 par value, 80,000,000 shares authorized,
    70,317,569 issued and outstanding                                         7,032
  Treasury stock                                                            (37,397)
  Paid in capital                                                        80,108,536
  Accumulated deficit                                                   (86,913,601)
                                                                       -------------
    Total stockholders' equity                                           (6,835,398)
                                                                       -------------

    TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT                        $  3,681,139
                                                                       =============
</TABLE>


  The accompanying notes are an integral part of these consolidated financial
                                  statements.
                                      F-3


14
<PAGE>
<TABLE>
<CAPTION>
MEDCOM USA, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDEDJUNE 30, 2006 AND JUNE 30,2005
--------------------------------------------------------------------------------
                                                  2006          2005
                                              ------------  ------------
<S>                                           <C>           <C>
REVENUES:
  Terminal sales                              $   275,350   $   301,764
  Service                                       4,153,839     1,152,559
  Licensing Fees                                1,571,068     1,292,947
                                              ------------  ------------
                                                6,000,257     2,747,271
COST OF DELIVERABLES                            3,578,345       440,155
                                              ------------  ------------
GROSS PROFIT                                    2,421,913     2,307,116
                                              ------------  ------------

OPERATING EXPENSES:
    General and administrative expenses         4,565,800     4,517,022
    Sales and marketing expenses                  602,269       733,160
    Royalties                                           -       119,741
    Professional and consulting fees                    -       708,662
    Depreciation and amortization               2,663,747     1,960,440
                                              ------------  ------------
      Total operating expenses                  7,831,816     8,039,025
                                              ------------  ------------
OPERATING LOSS                                 (5,409,903)   (5,731,909)
                                              ------------  ------------

OTHER (INCOME) AND EXPENSES
    Interest expense                            1,405,015       850,004
    Interest Income                              (485,559)
    Legal Settlement                               32,200       233,982
    Loss on Disposal of Assets and Inventory            -       223,820
    Gain on Extinguishment of Debt                (76,208)
    Impairment of Assets                           53,202        94,106
                                              ------------  ------------
      Total other expense                         928,651     1,401,912
                                              ------------  ------------
LOSS BEFORE INCOME TAXES                       (6,338,554)   (7,133,820)

INCOME TAX (BENEFIT) PROVISION                          -             -
                                              ------------  ------------
NET LOSS                                      $(6,338,554)  $(7,133,820)
                                              ============  ============

NET LOSS PER SHARE:
  Basic:                                      $     (0.10)  $     (0.17)
                                              ============  ============
  Diluted:                                    $     (0.10)  $     (0.17)
                                              ============  ============

WEIGHTED AVERAGE COMMON SHARES OUTSTANDING:
  Basic                                        62,821,854    41,167,477
                                              ============  ============
  Diluted                                      62,821,854    41,167,477
                                              ============  ============
</TABLE>


    The accompanying notes are an integral part of these consolidated financial
                                   statements.
                                      F-4


15
<PAGE>
<TABLE>
<CAPTION>
MEDCOM USA, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' DEFICIT FOR THE
FOR THE YEARS ENDEDJUNE 30, 2006 AND2005
--------------------------------------------------------------------------------

                                                                 \ ----------- PREFERED STOCK -----------\
                                            COMMON STOCK      PREFERRED A & B    PREFERRED C     PREFERRED D       PAID-IN
                                           SHARES    AMOUNT   SHARES  AMOUNT   SHARES  AMOUNT   SHARES  AMOUNT     CAPITAL
                                         ----------  -------  ------  -------  ------  -------  ------  -------  -----------
<S>                                      <C>         <C>      <C>     <C>      <C>     <C>      <C>     <C>      <C>
BALANCE JULY 1, 2004                     50,029,144  $ 5,003   4,250  $     4       -  $     -   2,850  $    29  $71,953,269

Common stock issued for cash              5,925,093      593                                                       2,418,696

Common stock issued to settle claims        276,000       28                                                         275,972

Common stock for payable conversions         85,000        9                                                         135,992

Exercise of cashless options                289,195       29

Common stock issued for cash
  received subsequent to June 30 2005       770,000       77                                                         307,923

Payment on 2004 subscription receivable

Common stock granted as
  consideration for services                290,000       29                                                         608,913

  Net loss
                                         ----------  -------  ------  -------  ------  -------  ------  -------  -----------
BALANCE
    JUNE 30, 2005                        57,664,432  $ 5,767   4,250  $     4       -  $     -   2,850  $    28  $75,700,765
                                         ==========  =======  ======  =======  ======  =======  ======  =======  ===========


                                         TREASURY   SUBSCRIPTION   ACCUMULATED
                                           STOCK     RECEIVABLE      DEFICIT        TOTAL
                                         ---------  ------------  -------------  ------------
<S>                                      <C>        <C>           <C>            <C>
BALANCE JULY 1, 2004                     $(37,397)  $  (500,000)  $(73,454,519)  $(1,496,214)

Common stock issued for cash                                                       2,419,289

Common stock issued to settle claims                                                 276,000

Common stock for payable conversions                                                 136,001

Exercise of cashless options                                                              29

Common stock issued for cash
  received subsequent to June 30 2005                                                308,000

Payment on 2004 subscription receivable

Common stock granted as
  consideration for services                                                         608,942

  Net loss                                                          (7,133,820)   (7,133,820)
                                         ---------  ------------  -------------  ------------
BALANCE
    JUNE 30, 2005                        $(37,397)  $         -   $(80,588,339)  $(4,881,775)
                                         =========  ============  =============  ============
</TABLE>


    The accompanying notes are an integral part of these consolidated financial
                                   statements
                                 F-5(Continued)


16
<PAGE>
<TABLE>
<CAPTION>
MEDCOM USA, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' DEFICIT FOR THE
FOR THE YEARS ENDEDJUNE 30, 2006 AND2005 (CONTINUED)
--------------------------------------------------------------------------------

                                                       \ ----------- PREFERED STOCK -----------\
                                   COMMON STOCK     PREFERRED A & B    PREFERRED C      PREFERRED D      PAID-IN     TREASURY
                                 SHARES    AMOUNT   SHARES  AMOUNT   SHARES  AMOUNT   SHARES  AMOUNT     CAPITAL       STOCK
                               ----------  -------  ------  -------  ------  -------  ------  -------  ------------  ---------
<S>                            <C>         <C>      <C>     <C>      <C>     <C>      <C>     <C>      <C>           <C>
BALANCE JULY 1, 2005           57,664,432  $ 5,766   4,250  $     4       -  $     -   2,850  $    29  $75,700,765   $(37,397)

Common stock issued for cash    6,552,648      655                                                       2,394,636

Common stock for compensation   6,087,492      609                                                       2,394,761

Exercise of cashless warrents      12,997        1                                                          12,996

Cost of Raising Capital                 -        -                                                        (394,622)

  Net loss
                               ----------  -------  ------  -------  ------  -------  ------  -------  ------------  ---------
BALANCE
    JUNE 30, 2006              70,317,569  $ 7,032   4,250  $     4       -  $     -   2,850  $    29  $80,108,536   $(37,397)
                               ==========  =======  ======  =======  ======  =======  ======  =======  ============  =========


                               SUBSCRIPTION   ACCUMULATED
                                RECEIVABLE      DEFICIT        TOTAL
                               ------------  -------------  ------------
<S>                            <C>           <C>            <C>
BALANCE JULY 1, 2005           $          -  $(80,612,444)  $(4,905,880)

Common stock issued for cash                                  2,395,291


Common stock for compensation                                 2,395,370

Exercise of cashless warrents                                    12,997

Cost of Raising Capital                                        (394,622)

  Net loss                                     (6,338,555)   (6,338,555)
                               ------------  -------------  ------------
BALANCE
    JUNE 30, 2006              $          -  $(86,950,999)  $(6,835,398)
                               ============  =============  ============
</TABLE>


    The accompanying notes are an integral part of these consolidated financial
                                   statements
                                 F-5(Continued)


17
<PAGE>
<TABLE>
<CAPTION>
MEDCOM USA, INC.
STATEMENT OF CASH FLOWS FOR THE
YEARS ENDED JUNE 30, 2006 AND 2005

                                                          2006          2005
                                                      ------------  ------------
<S>                                                   <C>           <C>
CASH FLOWS FROM OPERATING ACTIVITIES:

  Net (loss)                                          $(6,338,555)  $(7,115,069)
  Adjustments to reconcile net loss to net cash
    (used in) operating activities:
  Depreciation and amortization                         2,663,747     1,960,440
  Issuance of stock as consideration for services       2,395,291       608,942
  Issuance of stock for settlement of claims                    -       233,982
  Issuance of stock for conversion of payables                          136,000
  Gain on write-off of obligations                              -             -
  Treasury stock taken in settlement of claims                  -             -
  Allowance for sales returns                             (82,424)            -
  Loss on inventory/assets abandoned                                    223,820
  Impairment of goodwill                                        -       436,423
  Changes in assets and liabilities:
    Trade accounts receivable                            (782,649)       11,118
    Inventories                                                 -       113,848
    Prepaid and other current assets                      (58,503)       41,887
    Accounts payable                                     (244,528)      234,049
    Accrued liabilities                                 1,218,088        14,235
    Deferred revenue                                   (1,489,516)   (1,600,559)
                                                      ------------  ------------
      Net cash  (used in) operating activities         (2,719,049)   (4,700,884)
                                                      ------------  ------------

CASH FLOWS FROM INVESTING ACTIVITIES:
  Purchases of  equipment                               1,604,714       (33,453)
  Purchases of software upgrades                                -      (448,929)
  Licensing fees                                         (176,886)
  Advances from/(to) affiliates                           426,429     1,789,426
                                                      ------------  ------------
      Net cash provided by investing activities         1,854,257     1,307,044
                                                      ------------  ------------

CASH FLOWS FROM FINANCING ACTIVITIES:
  Principal repayments on Licensing                    (1,539,557)   (1,547,302)
  Proceeds from sale of common stock                    2,395,291     2,919,289
  Bank overdraft usage                                          -       252,535
  Proceeds from capital sale-leaseback transactions             -     1,692,904
                                                      ------------  ------------
      Net cash provided by financing activities           855,734     3,317,426
                                                      ------------  ------------

(DECREASE) INCREASE IN CASH                                (9,059)      (76,414)
CASH, BEGINNING OF YEAR                                    10,207        86,621
                                                      ------------  ------------
CASH, END OF YEAR                                     $     1,148   $    10,207
                                                      ============  ============
</TABLE>


    The accompanying notes are an integral part of these consolidated financial
                                   statements.


18
<PAGE>
<TABLE>
<CAPTION>
MEDCOM USA, INC.
CONSOLIDATED  STATEMENT  OF  CASH  FLOWS,  (CONTINUED)
FOR THE YEAR ENDEDJUNE 30, 2006 AND2005
--------------------------------------------------------------------------------


SUPPLEMENTAL CASH FLOW INFORMATION:                           2006       2005
                                                            --------  ----------
<S>                                                         <C>       <C>
  Interest paid                                             $889,790  $  850,004
                                                            ========  ==========

  Income taxes paid                                         $    -0-  $      -0-
                                                            ========  ==========

SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES:

  Terminals capitalized under sales/leaseback transactions       -0-  $2,086,489
                                                            ========  ==========
</TABLE>


    The accompanying notes are an integral part of these consolidated financial
                                   statements.
                                 F-6 (Continued)


19
<PAGE>
MEDCOM USA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDEDJUNE 30, 2006 AND 2005
--------------------------------------------------------------------------------

1.   ORGANIZATION

MedCom USA, Inc. (the "Company") a Delaware corporation was formed in August
1991 under the name Sims Communications, Inc. The Company's primary business was
providing telecommunications services. In 1996 the Company introduced four
programs to broaden the Company's product and service mix: (a) cellular
telephone activation, (b) sale of prepaid calling cards, (c) sale of long
distance telephone service and (d) rental of cellular telephones using an
overnight courier service. With the exception of the sale of prepaid calling
cards, these four programs were discontinued in December 1997. During the fiscal
year of 1998, the Company diversified its operations and moved into the area of
medical information processing.

The Company changed its name to MedCom USA, Inc. in October 1999. During the
fiscal years of 1999 and continuing through present, the Company directed its
efforts in medical information processing. As of March 31, 2006, the Company
currently operates the MedCom System (MedCom) that is deployed through a
point-of-sale terminal or personal computer offering electronic transaction
processing, as well as insurance eligibility verification. The Company has
aggressively focused on its primary operations in Electronic Data Interchange
(EDI) and core business in electronic Medical Transaction Processing.

2.   BASIS OF PRESENTATION

The accompanying financial statements represent the consolidated financial
position and results of operations of the Company and includes the accounts and
results of operations of the Company and its wholly owned subsidiaries. The
accompanying financial statements include only the active entity of MedCom USA,
Inc.,

The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. The Company continues to incur
material operating losses and has failed to generate positive cash flow from
operations. The Company has a cash flow deficit of $2,719,049 at June 30, 2006.
The Company has generated cash flow through the sale of its software and
hardware transactions to fund its operations. Management believes that the
Company has begun to generate a level of volume in the sales and service
contracts of its processing software that will allow the Company to meet
operating cash flow requirements.

The Company has begun to experience increased sales of its MedCom System and has
generated cash through the sale of software through the MedCom System.
Management is attempting to attain a sustaining level of operating cash flow
from the Company's MedCom operations. The Company has raised additional equity
capital in the year ended June 30, 2006 and may attempt to raise additional
capital to grow the MedCom.

Cash reserves and working capital at June 30, 2006 were insufficient to fund
currently due obligations. As discussed above, the Company is generating cash
flow from sales activities of its software. Such cash flow has only recently
provided some evidence that it is sufficient to cover current operating
expenses. However, this level of cash flow does not permit the Company to retire
many older debts or expand its operations. The Company believes that it needs
additional cash, either from outside financing or expanded sales activities, in
order to retire past due debts and significantly expand the Company's
operations. If the Company is unable to produce sales as planned and/or raise
additional investment capital to fully implement its business plan, it


20
<PAGE>
may jeopardize the ability of the Company to continue as a going concern.

3.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

ACCOUNTING POLICIES AND ESTIMATES
---------------------------------

The preparation of our financial statements in conformity with accounting
principles generally accepted in the United States of America requires our
management to make certain estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. As such, in accordance with
the use of accounting principles generally accepted in the United States of
America, our actual realized results may differ from management's initial
estimates as reported.

CASH AND CASH EQUIVALENTS
-------------------------

Cash and cash equivalents include all short-term liquid investments that are
readily convertible to known amounts of cash and have original maturities of
three months or less.  At times cash deposits may exceed government insured
limits.

CONCENTRATION OF CREDIT RISK
----------------------------

The Company maintains its operating cash balances in banks in Islandia, New
York, and in Scottsdale, Arizona. The Federal Depository Insurance Corporation
(FDIC) insures accounts at each institution up to $100,000.

Financial instruments that potentially subject the Company to concentrations of
credit risk are primarily trade accounts receivable. The trade accounts
receivable are due primarily from small business customers in numerous
geographical locations throughout the United States.

The Company estimates and provides an allowance for uncollectible accounts
receivable.

For the year ended June 30, 2006, the company had a major vendor TESIA-PCI that
a contract was executed that the Company would deliver 1500 units over the
period presented.  The agreement allowed the minimum billing of $28.50 per month
per unit in a pool based on a 15 cent transaction fee.  The Company has
experienced that the average billing per unit is greater than the minimum with
an average billing per unit of approximately $35 per unit.  During the year
ended June 30, 2006 only a portion were installed and the remaining units will
be installed over the subsequent periods.

The Company has entered into agreements with Tesia-PCI.  The agreements entered
into by and between the Company and Tesia-PCI represents of a major customer of
the Company.  The Company realized $1,156,000 from Tesia-PCI during the year
ended June 30, 2006.

INVENTORIES
-----------

For the period ending June 30, 2005, inventories were carried at the lower of
cost or market on a first-in first-out basis.  The Company purchases hardware
from its supplier and records inventory at its original cost.  Inventory
terminals are at times returned by customers, and if these units have been sold
and repurchased, the Company recorded the returned inventory units at the
amortized capitalized cost under the sale-leaseback arrangements.  The
capitalized costs under the sale-leaseback transactions are substantially
greater than the


21
<PAGE>
original purchase price from the supplier. Due to technological changes
terminals are no longer considered an integral component in the generation of
revenue. Accordingly effective July 1, 2005 terminals are expensed rather than
capitalized as inventory terminals that have a nominal individual value. For the
period beginning July 1, 2005 the Company adopted a new method of accounting and
no longer carries inventory as its method of accounting. "See Revenue
Recognition"

PROPERTY AND EQUIPMENT
----------------------

Property and equipment is stated at cost less accumulated depreciation.
Depreciation is recorded on a straight-line basis over the estimated useful
lives of the assets ranging from 3 to 5 years.  The Company's leaseback
transactions of processing terminals to healthcare providers are generally for a
period of 48 to 60 months. Depreciation expense for the leased terminal assets
are on the straight-line method over the term of the lease in amounts necessary
to reduce the carrying amount of the terminal asset.  Estimated and actual
residual values are reviewed on a regular basis to determine that depreciation
amounts are appropriate.

<TABLE>
<CAPTION>
<S>                         <C>
  Property & Equipment      $1,218,292
  Accumulated Depreciation    (687,956)
                            -----------
  Net Property & Equipment  $  530,335
                            -----------
</TABLE>

ASSETS HELD UNDER CAPITAL LEASES
--------------------------------

Assets held under capital leases are recorded at the lower of the net present
value of the minimum lease payments or the fair value of the leased asset at the
inception of the lease. Amortization expense is computed using the straight-line
method over the shorter of the estimated useful lives of the assets or the
period of the related lease.  Effective July 1, 2005, the Company has adopted a
new method of accounting and will discontinue the capitalization of terminal
Assets. (See "Revenue Recognition")

AMORTIZATION OF LEASEHOLD IMPROVEMENTS
--------------------------------------

Amortization of leasehold improvements is computed using the straight-line
method over the shorter of the remaining lease term or the estimated useful
lives of the improvements.  All leasehold improvements have been fully amortized
as of June 30, 2006.

REVENUE RECOGNITION
-------------------

The Company recognized income on monthly service and transaction fees it charges
to customers in the month in which the service is provided. Income on
sale-leaseback transactions, prior to July 1, 2005, is deferred and recognized
over the term of the leaseback. Management has determined that the
sale-leaseback transactions are capital leases.

In June 30, 2005 the Company capitalizes the value of the point of sale
terminals that are sold under capital sale-leaseback transactions. The terminals
are purchased from third party vendors and are recorded as inventory at that
time. The Company enters into sale and service agreements with its customers at
which time the terminal is programmed with the Company's proprietary software
and installed with the customer. Many of those terminals were the basis for the
sale-leaseback transactions. The terminals are capitalized at the value
determined by the lessor on the basis of the cash flow under the terms of the
sale and service agreements with the customers.

The terminals were capitalized at the value determined by the lessor on the
basis of the cash flow under the terms of the sale and service agreements with
the customers are as follows.


22
<PAGE>
<TABLE>
<CAPTION>
<S>                       <C>
Terminal Assets           $ 6,197,320
Accumulated Amortization   (5,420,378)
                          ------------
  Net Terminal Assets     $   776,942
                          ------------
</TABLE>

The Company has since upgraded its technology to address its core revenue model
that is the sale of medical software.  In recognition of the changes in
technology and certain modifications to its licensing agreements the Company has
adopted a new accounting method effective July 1, 2005, in accordance with SOP
97-2 and EITF 00-21, which they believe better matches revenue and expenses.
SOP 97-2 applies to all entities that license, sell, lease, or market computer
software. It also applies to "hosting" arrangements in which the customer has
the option to take possession of the software. Hosting arrangements occur when
end users do not take possession of the software but rather the software resides
on the vendor's or a third party's hardware, and the customer accesses and uses
the software on an as-needed basis over the Internet or some other connection.
It does not, however, apply to revenue earned on products containing software
incidental to the product as a whole or to hosting arrangements that do not give
the customer the option of taking possession of the software.

SOP 97-2 provides that revenue should be recognized in accordance with contract
accounting when the arrangement requires significant production, modification,
or customization of the software. When the arrangement does not entail such
requirements, revenue should be recognized when persuasive evidence of an
agreement exists, delivery has occurred, the vendor's price is fixed or
determinable, and collectibility is probable.

The largest part of revenues stems from vendors' license fees associated with
software. The Company has recognized revenue from license fees when the software
was shipped to the customer. The amount and timing of revenue recognition is
complicated, however, by multiple-element arrangements that provide for multiple
software deliverables [e.g., software products, upgrades or enhancements, post
contract customer support (PCS), or other services]. In hosting arrangements
that are within the scope of SOP 97-2, multiple elements might include specified
or unspecified upgrade rights, in addition to the software product and the
hosting service. The software provider often charges a single fee that must be
allocated to the products delivered in the present and in the future.

In an arrangement with multiple deliverables, EITF 00-21 requires that the
delivered items be considered a separate unit of accounting if the delivered
items have value to the customer on a stand-alone basis, if there is objective
and reliable evidence of the fair value of the undelivered items, and if the
arrangement includes a general right of return for the delivered item, or if
delivery or performance of the undelivered items is considered probable and
substantially in the control of the vendor. EITF 00-21 requires allocation of
the vendor's fee to the various elements based on each element's stand-alone
value.

In general, both SOP 97-2 and EITF 00-21 require allocating revenue to all of
the elements of a multiple-deliverable arrangement using the relative fair value
method, where objective and reliable evidence of fair value is present for all
the products contained in the group.

Management has established Vendor-Specific Objective Evidence ("VSOE") for
access fee, equipment, provider enrollment fee, EDI connectivity fee,
Payer/Provider fee, benefit verification fee, referral transfer fee, service
authorization fee, claim status, training, support, program upgrades, carrier
editions, and customized reports. Revenue is accordingly allocated and
recognized based on the value of deliverables. VSOE relates the method of
accounting under SOP 97-2 and EITF 00-21.

INCOME TAXES
------------


23
<PAGE>
Management evaluates the probability of the utilization of the deferred income
tax assets. The Company has estimated a $23,387,245 deferred income tax asset at
June 30, 2006. Of that amount, $23,387,245 related to net operating loss
carry-forwards at June 30, 2006. Management determined that because the Company
has not yet generated taxable income it was not appropriate to recognize a
deferred income tax asset related to the net operating loss carry-forward.
Therefore, a fully deferred income tax asset is offset by an equal valuation
allowance.

If the Company begins to generate taxable income, management may determine that
all of the deferred income tax asset may be recognized. Recognition of the asset
could increase after tax income in the future. Federal Net operating loss
carryforwards of $58,468,213 expire from 2011 to 2026. State net operating loss
carryforwards of $35,844,767 expire from 2006 to 2009. During the year ended
June 30, 2006, the Company reduced the state portion of the deferred income tax
asset related to net operating loss carryforwards by $3,884,000 resulting from
the expiration of such carryforwards. The future utilization of the net
operating losses is uncertain. The valuation allowance on the deferred income
tax asset was decreased by $1,553,600 in the year ended June 30, 2005, resulting
primarily to the expiration of state net operating loss carryforwards.

     The Company recognizes deferred income taxes for the differences between
     financial accounting and tax bases of assets and liabilities. Income taxes
     for the years ended June 30, consisted of the following:

<TABLE>
<CAPTION>
                                           2006          2005
                                       ------------  ------------
<S>                                    <C>           <C>
     Current tax (benefit) provision   $(2,458,234)  $(2,853,528)
     Deferred tax (benefit) provision    2,458,234     2,853,528
                                       ------------  ------------
      Total income tax provision       $     - 0 -   $     - 0 -
                                       ============  ============
</TABLE>


FAIR VALUE OF FINANCIAL INSTRUMENTS
-----------------------------------

Financial instruments consist primarily of accounts receivable, and obligations
under accounts payable, accrued expenses, capital lease obligations and notes
payable. The carrying amounts of accounts receivable, accounts payable, accrued
expenses and notes payable approximate fair value because of the short maturity
of those instruments. The carrying value of the Company's capital lease
arrangements approximates fair value because the instruments were valued at the
cost of the equipment at the time the Company entered into the arrangements. The
Company has applied certain assumptions in estimating these fair values. The use
of different assumptions or methodologies may have a material effect on the
estimates of fair values.

NET LOSS PER SHARE
------------------

Net loss per share is calculated using the weighted average number of shares of
common stock outstanding during the year. The Company has adopted the provisions
of Statement of Financial Accounting Standards No. 128, Earnings Per Share.

USE OF ESTIMATES
----------------

The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions.
This may affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements, and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.

VENDOR-SPECIFIC OBJECTIVE EVIDENCE:
-----------------------------------


24
<PAGE>
The Company has nonsoftware and software deliverables which have a specific cost
per customer. The costs of the deliverables are valued at an estimated based on
historical cost and usage. The company delivers the following VSOE:

Provider enrollment, EDI Connectivity, Payer/Provider, Benefit Verification -
Govt Billings, Referral Transfers - Govt billing, Benefit Verification -
Commercial, Referral Transfer - Commercial, Claim Status, Service Authorization,
Maintenance, Training, Support, Program Upgrades, Carrier Editions, and
Customized Reports. These deliverables are delivered electronically therefore
the estimated average cost is $1.00. The company assessed its prior electronic
costs and estimated that these costs average between 80 cents to $1.25 per
customers. Management decided to use the average cost of $1.00 to value these
deliverables.

The company provides non-software deliverables and has valued these costs based
on the average of purchasing the hardware for outside third parties. The
non-software deliverables are the Billing terminal which cost $400 per terminal,
pin pads which cost $100, check reader which cost $100, Reader Printers which
cost $100, and Portal Wedge costs $100. The Company has further estimated the
cost per terminal to upgrade and update the software to be in compliance with
the health care industry estimates the per terminal and portal cost at $250.

STOCK-BASED  COMPENSATION
-------------------------

Statements of Financial Accounting Standards No. 123, Accounting for Stock-Based
Compensation, ("SFAS 123") established accounting and disclosure requirements
using a fair-value based method of accounting for stock-based employee
compensation. In accordance with SFAS 123, the Company has elected to continue
accounting for stock based compensation using the intrinsic value method
prescribed by Accounting Principles Board Opinion No. 25, "Accounting for Stock
Issued to Employees."

INTANGIBLE ASSETS
-----------------

During the period of year ended June 30, 2005, goodwill was recognized in the
Company's acquisition of MedCom.  Since that time, the Company has divested of
all other business segments.  Management had impaired the assets in total since
there was not sufficient evidence that the Company will generate operating
income and operating cash flows.  The technology of the company has changed that
the asset no longer has value.

The Company adopted Statement of Financial Accounting Standard ("SFAS") No. 142,
Goodwill and Other Intangible Assets, effective July 1, 2002.  As a result, the
Company discontinued amortization of goodwill, and instead annually evaluates
the carrying value of goodwill for impairment, in accordance with the provisions
of SFAS No. 142.   Due to material continued operating losses, the Company
determined that its carrying value of goodwill was impaired at June 30, 2005.
On the basis of that determination in the year ended June 30, 2005 to write off
the full remaining carrying value at June 30, 2005.

IMPAIRMENT  OF  ASSETS
----------------------

The Company performs an assessment of impairment of long-lived assets
periodically whenever there is an indication that the carrying amount of the
asset may not be recoverable.  Recoverability of these assets is determined by
comparing the forecasted undiscounted cash flows generated by those assets to
the assets' net carrying value.  The amount of impairment loss, if any, is
measured as the difference between the net book value of the assets and the
estimated fair value of the related assets.


25
<PAGE>
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS:  In December 2002, the FASB issued
-----------------------------------------
SFAS No. 148, Accounting for Stock-Based Compensation - Transaction and
Disclosure, which provides alternative methods of transition for a voluntary
change to fair value, based method of accounting for stock-based employee
compensation as prescribed in SFAS 123, Accounting for Stock-Based Compensation.
Additionally, SFAS No. 148 requires more prominent and more frequent disclosures
in financial statements about the effects of stock-based compensation. The
provisions of this statement are effective for fiscal years ending after
December 15, 2002, with early application permitted in certain circumstances.
The Company presently does not intend to adopt the fair value based method of
accounting for its stock based compensation.

In June 2003 the FASB issued Statement No. 150, "Accounting for Certain
Financial Instruments with Characteristics of both Liabilities and Equity" SFAS
No. 150 requires certain instruments, including mandatorily redeemable shares,
to be classified as liabilities, not as part of shareholders' equity or
redeemable equity. For instruments that are entered into or modified after May
31, 2003, SFAS No. 150 is effective immediately upon entering the transaction or
modifying the terms. For other instruments covered by Statement 150 that were
entered into before June 1, 2003, Statement 150 is effective for the first
interim period beginning after June 15, 2003. The Company has evaluated the
provisions of SFAS No. 150 and implementation of such was not material.

In November 2002, the FASB issued Interpretation No. 45 ("FIN 45"), Guarantor's
Accounting and Disclosure Requirements for Guarantees, including Indirect
Guarantees of Indebtedness of Others. FIN 45 requires a company, at the time it
issues a guarantee, to recognize an initial liability for the fair value of
obligations assumed under the guarantees and elaborates on existing disclosure
requirements related to guarantees and warranties. The initial recognition
requirements are effective for the Company during the third quarter ending March
31, 2003. The adoption of FIN 45 did not have an impact on the Company's
financial position or results of operations.

In January 2003, the FASB issued FASB Interpretation No. 46 ("FIN 46"),
Consolidation of Variable Interest Entities, an Interpretation of ARB No. 51.
FIN 46 requires certain variable interest entities to be consolidated by the
primary beneficiary of the entity if the equity investors in the entity do not
have the characteristics of a controlling financial interest or do not have
sufficient equity at risk for the entity to finance its activities without
additional subordinated financial support from other parties. FIN 46 is
effective for all new variable interest entities created or acquired after
January 31, 2003. For variable interest entities created or acquired prior to
February 1, 2003, the provisions of FIN 46 must be applied for the first interim
or annual period beginning after June 15, 2003. The adoption of FIN 46 did not
have an impact on the Company's financial position or results of operations.

In December 2004 the FASB issued a revised Statement 123 (SFAS 123R),
"Accounting for Stock-Based Compensation" requiring public entities to measure
the cost of employee services received in exchange for an award of equity
instruments based on grant date fair value. The cost will be recognized over the
period during which an employee is required to provide service in exchange for
the award - usually the vesting period. The Company is evaluating the impact of
this new pronouncement and does not expect the effect of implementation will
have a significant impact on the Company's financial statements.

4.   ACCOUNTS RECEIVABLE

     The Company's accounts receivable at June 30, 2005 consisted of:

<TABLE>
<CAPTION>
<S>                                                <C>
          MedCom trade accounts receivable         $ 349,609
          Other                                        5,000
                                                   ----------
            Total                                    354,609
            Less: Allowance for doubtful accounts   ( 82,424)
                                                   ----------
                                                   $ 272,185
                                                   ==========
</TABLE>


26
<PAGE>
The Company estimates uncollectible account balances and provides an allowance
for such estimates. The allowance for doubtful accounts at June 30, 2005,
consists of an estimate for potentially uncollectible accounts in the MedCom
division.

In June 30, 2006 the company adopted a new accounting method to record the VSOE
deliverables under SOP 97-2 and ETIF 00-21. The Company had lease receivables of
$2,120,975 and Gateway access fees receivables of $541,214. On a monthly basis
the company ACH's these payments directly from the customers' account to ensure
timely payment. The current customer agreement requires that the customers sign
up for ACH authorization of these fees and other deliverables that the customer
agrees.

5.   NOTES PAYABLE

Notes payable at June 30, 2006 comprise the following:

<TABLE>
<CAPTION>
<S>                                                     <C>
Leeco agreement adopts the agreement that the
Company executes with the customer.  Leeco collects
all funds through ACH and is paid from those proceeds.
The excess of those proceeds are collected by the
company.  Leeco holds as collateral all the proceeds    $3,395,001
from the customer leases, access fees and all cash
collections and is secured from all assets of the
company.

Ladco agreement adopts the agreement that the
Company executes with the customer.  Ladco collects
all funds through ACH and is paid from those proceeds.
The excess of those proceeds are collected by the
company.  Ladco holds as collateral all the proceeds
from the customer leases, access fees and all cash
collections and is secured from all assets of the
company.                                                $3,574,828
                                                        ----------
                                                          6,969829
Less current portion                                     1,858,447
                                                        ----------
                                                        $5,339,215
                                                        ==========
</TABLE>

On September 14, 2006 the company renegotiated the Ladco debt.  Further the
company would be able to pay the remaining balance of the note for 39 months at
$99,500 payments per month until paid in full.  Under the renegotiated note the
note matures on October 2009.

Notes payable at June 30, 2005 comprise the following:

<TABLE>
<CAPTION>
<S>                                                       <C>
Convertible note payable to individual. The note bears
interest at 8% per annum and is payable quarterly.  The
note is convertible to common stock at $6.25 per share.
The note had an original maturity date of February 1998
and is currently in default.                              $ 25,000


27
<PAGE>
Note payable to landlord. Collateralized by leasehold
improvements.  Original principal balance of $95,000.
Legal settlement negotiated July 2005 requires quarterly
payments beginning August 2005 through November
2007 (imputed interest at 8% per annum) plus the
issuance of 150,000 shares of the Company's common
stock.
                                                           341,178
                                                          --------
                                                           366,178
Less current portion                                       201,313
                                                          --------
                                                          $164,865
                                                          ========
</TABLE>

The  convertible  note  payable  was  in  default as of June 30, 2005.  The note
payable  to  a  former  landlord relates to a court ordered judgment against the
Company  for the past due note, unpaid rent and legal fees.  The Company settled
the terms of this obligation in the year ended June 30, 2005 by issuance of this
note  payable.  The  company  has  paid the renegotiated balances as of June 30,
2006.  For  the year ended June 30, 2006 the company paid all of the outstanding
notes  as  of  June  30, 2005 based on the renegotiated rate and all liabilities
related  to  the  above  been  satisfied  as  of  the  year ended June 30, 2006.

6.   CAPITAL LEASE OBLIGATIONS AND SALE-LEASEBACK TRANSACTIONS

June 30, 2005, the Company leases many of its MedCom terminals under capital
lease agreements.

The Company has entered into an arrangement with a third party lessor whereby
the Company sells its terminals that are placed with customers to the lessor.
The lessor in turn leases back the terminals. These transactions are recorded as
sale-leaseback transactions. The leases between the Company and the lessor are
accounted for as capital leases. The Company generates revenue from the
terminals through monthly service and rental fees and transaction fees. The
value of the sale transaction between the Company and lessor is determined by
Company's agreement with the customer relative to the number of terminals,
length of the customer contract and monthly service fee due from the customer.
The Company acquires terminals from its suppliers, programs the terminals with
its software and sells the terminals to the lessor when it enters into an
agreement with a customer for those specific terminals. Any gain on the sale
transaction with the lessor is deferred and amortized proportionately with the
capitalized asset. That period is generally four or five years, the typical
length of the lease agreement. At June 30, 2005, the amount of deferred gain on
sale-leaseback transactions was $2,717,526.

Generally, the terms of repayment for the capital lease obligations approximates
the monthly rental charged the customer by the Company. These leases are
collateralized by the underlying equipment, contract with the customer and, in
addition, 1,000,000 shares of the Company's common stock. The projected cash
flow from the customer contract is generally greater than the payments required
under the capital lease arrangement with the customer. There have been
occurrences when customers terminate a contract and the terminals are returned
to the Company. The Company will have the opportunity to resell that unit under
a new contract. The Company may also obtain a new capital lease through a sale
leaseback transaction with the lessor. Therefore, there may be more than a
single capital lease obligation to repay although there is only a single
customer contract. The Company believes that it generates sufficient cash flows
from direct sales and service revenue to cover such variances in capital lease
obligations to customer contracts.

The following presents future minimum lease payments under the capital leases by
year and the present value of minimum lease payments as of June 30, 2006:

<TABLE>
<CAPTION>
          Years ended June 30:

                                               Terminals
                                              ------------
<S>                                           <C>
                        2007                    1,395,614
                        2008                      892,629
                        2009                      196,657
                                              ------------
          Total minimum lease payments          2,484,900
          Lees: amount representing interest   (1,624,236)
                                              ------------
          Present value of minimum
            lease payments                    $   860,664
                                              ============
</TABLE>

7.   OPERATING LEASES

The Company leases its office space under long-term operating leases expiring
through 2008. Rent expense under these leases was $234,720 and $154,238 for the
years ended June 30, 2006 and 2005, respectively.

Future minimum annual lease payments and sublease rentals under operating lease
agreements for years ended June 30:

<TABLE>
<CAPTION>
<S>        <C>
     2007   158,860
     2008   170,980
     2009   142,404
     2010   148,652
     2011   159,785
     2012   162,795
           --------
           $943,476
           ========
</TABLE>

8. STOCKHOLDERS' EQUITY

DURING  THE  YEAR  ENDED  JUNE  30,  2005:

The  Company  issued  7,635,288  shares  of  its  common stock.  Of that amount,
42,184shares  of the Company's common stock were sold to an entity controlled by
the Company's president and chairman.  The balances of the shares were issued to
third  parties  in  a private placement of the Company's common stock, issued to
settle  obligations  and  as  consideration  for services.  The shares were sold
throughout  the  year  ended  June 30, 2005, ranging from $0.50 per share at the
beginning of the year to $1.50 per share at the end of the year.  Commissions of
approximately $426,000 are recorded as a charge in additional paid in capital as
direct costs associated with the raising of equity capital.  In conjunction with
the  offering  of the common stock the Company issued and the investors received
1,332,199  warrants  to  purchase the Company's common stock.  The warrants have
exercise  prices  ranging  from  $1.00 to $4.50 per share and expire three years
from  date  of  issue.

The  Company  has  issued  shares  of  its  common  stock  as  consideration  to
consultants  for  services  rendered.  The  value  of those shares is determined
based  on  the  trading  value  of  the  stock  at  the  dates  on  which  the


28
<PAGE>
agreements  were entered into for the services.   During the year ended June 30,
2005,  the Company granted to consultants, 290,000 shares of common stock valued
in the aggregate at $608,942.  The value of these shares was expensed during the
year.

The Company issued 276,000 shares of its common stock in the year ended June 30,
2005  to  settle a legal dispute relating from operations that were discontinued
in  the  2001.  The shares were at $1.00 per share based on the trading price of
the  stock  at  the  time  of  the  settlement.

During  the  year  ended June 30, 2005, the Company issued 770,000 shares of its
common stock under a notice of conversion of common stock warrants.  Payment for
the  exercise  of  $308,000  was not received until July 2005 and the amount has
been  recorded  as  a  subscription  receivable  asset  at  June  30,  2005.

An  entity controlled by the Company's president and chairman regularly advances
funds  to  the  Company  to cover short-term cash flow deficiencies.  During the
year  ended  June  30,  2005, this affiliate converted advances of $776,992 into
3,186,499  shares  of  the  Company's  common  stock.

Common  stock  options  for  508,941 shares were exercised during the year ended
June  30,  2005.  A  total  of  607,800 options were exercised.  Of that amount,
holders  of  257,800  options performed a cashless exercise netting only 158,941
shares  being  issued  in those exercises.  The balances of 350,000 options were
exercised  for  cash  of  $296,984.

DURING JUNE 30, 2006:

<TABLE>
<CAPTION>
QUARTER ENDED       STOCK ISSUED  CASH RECEIVED  STOCK ISSUED   STOCK ISSUED FOR
                      FOR CASH                   FOR SERVICES  Warrents Exercised
<S>                 <C>           <C>            <C>           <C>
September 30, 2005     1,156,999        591,750       685,508              12,997
 December 31, 2005       950,000        380,000       811,500                   -
    March 31, 2006     1,584,788        590,949     2,665,848                   -
     June 30, 2006     2,860,861        832,592     1,924,636
                    -------------------------------------------------------------
Total Issued           6,552,648      2,395,291     6,087,492              12,997
</TABLE>

During  the year ended June 30, 2006, the Company issued 6,552,648 shares of its
common  stock  for  $2,395,291.  The  shares  were  issued to third parties in a
private  placement  of  the  Company's  common  stock.  The  shares  were  sold
throughout  the  year  ended  June 30, 2006, ranging from $1.00 per share at the
beginning  of  the  year  to  $.25  per  share  at  the  end  of  the  year.

The Company has issued shares of its common stock as consideration to
consultants for services rendered.  The value of those shares is determined
based on the trading value of the stock at the dates on which the agreements
were into for the services.   During the year ended June 30, 2006, the Company
granted to consultants, 6,087,492 shares of common stock.  The value of these
shares was expensed during the year.  The Company issues common stock for
services to vendors and consultants in lieu of cash.  The Company values those
issuances at fair value in accordance SFAS 143 and SAB 107.  The company values
the issuance at the same value that common stock is sold for cash in a private
placement that the company is completing.

Preferred  Stock

The Company is authorized to issue up to 300,000 shares of $.001 par value
Preferred Stock. The Board of Directors has the authority to divide the
Preferred Stock into series and, within the certain limitations, to set the
relevant terms of such series created.

In April 1995, the Company established the Series A Preferred Stock and
authorized the issuance of up to 50,000


29
<PAGE>
shares. Each share of series A Preferred Stock is entitled to a dividend at the
rate of $1.60 per share when, and if declared by the Board of Directors.
Dividends not declared are not cumulative. Additionally, each share of Series A
Preferred Stock is convertible into .20 shares of the Company's Common Stock at
any time after July 1, 1999. A total of 850 shares of common stock may be issued
upon the conversion of the shares of Series A preferred stock outstanding as of
June 30, 2000. Upon any liquidation or dissolution of the Company, each
outstanding share of Series A Preferred Stock is entitled to distribution of $20
per share prior to any distribution to the holders of the Company's common
stock. As of June 30, 2000, the Company has 4,250 shares of Series A Preferred
Stock issued and outstanding.

In April 2000, the Company established the Series D Preferred stock and
authorized the issuance of up to 2,900 shares. The Company issued 494 shares
related to a business acquisition of and 2,356 shares for the acquisition of
related intellectual property.

Each share of Series D preferred stock is entitled to a dividend at the rate of
$0.04 per share and has a stated value of $1,000 per share. Dividends on all
Series D preferred stock begin to accrue and accumulate from the date of
issuance. Additionally, each share of Series D preferred stock is convertible
into 40.49 shares of common stock for a total of 576,923 shares at the option of
the stockholders. Upon liquidation or dissolution of the Company, each
outstanding share of Series D preferred stock is entitled to a distribution of
the stated amount per share prior to any distribution to the shareholders of the
Company's common stock. The Company can convert the Series D preferred stock
into shares of common stock using the same conversion ratio at any time after
April 15, 2001 so long as the bid price of the Company's common stock exceeds
$4.94 per share and the shares of common stock issuable upon the conversion of
the Series D preferred stock are either covered by an effective registration
statement or are eligible for sale pursuant to rule 144 of the Securities and
Exchange Commission. Each share of Series D preferred stock is entitled to vote
in all matters submitted to the Company's shareholders on an "as converted"
basis.

The  Company  has not declared its dividend on the preferred stock for the years
ended  June  30,  2006  and  2005.  At  June  30, 2006, there was an accumulated
undeclared  and  unpaid  dividend  on  the Series D preferred stock of $342,000.
Total  accrued, but unpaid dividends related to the Series D preferred stock was
$23,750  at  June  30,  2006.

9.   COMMITMENTS AND CONTINGENCIES

Royalty Agreement

In connection with the original licensing and subsequent acquisition of MedCom,
the Company entered into a royalty agreement with the original Licensor. The
royalty provisions of the license agreement remained in effect after the
purchase. This agreement was amended in the year ended June 30, 2002. The
Company will pay the Licensor 20% of the first $1,000,000 of qualified monthly
revenues, less direct costs, generated by the licensed software and 10% of net
monthly revenue in excess of $1,000,000.

Customer Contracts

Customers may arrange to have the purchase of the Company's point-of-sale
terminals financed through the financial institution that provides the
sale-leaseback financing to the Company.  The Company has agreements with this
financial institution to guarantee varying amounts associated with the financial
institution's arrangements with the customers.  Generally, the Company may be
required to remit to the financial institution, one to six months of scheduled
customer payments if the customer defaults on its financing arrangement with the
financial institution.  Subsequent to June 30, 2005, the Company entered into a
new master contract with the financial institution that limits the recourse to
the Company to the first payment under the customer's contract.  The amount of
such payment would not exceed $100.  The Company has not experienced material
obligations to-date under the recourse agreements and believes that the new
agreement substantially limits


30
<PAGE>
potential obligations in the future to an immaterial amount.  In year ended June
30, 2006 the Company renegotiated the customer contracts that included the
language that the leases entered into by the customers were non-cancelable under
the term of the agreement.  The Company further gave incentive to existing
customers to enter into the new contract and many customers renewed.

Interim Financial Statements

Management has made adjustments in the fourth quarter ended June 30, 2006. The
adjustments are precipitated by a recently detected control weakness between
operations and funding. Certain material financial transactions were
consistently recorded during the year based on documentation submitted to a
lender to obtain funding. The documentation varied with the agreement terms as
understood and documented by operations. The adjustments resulted in reducing
year to date revenues by $954,000. They also resulted in the reduction of
receivables for approximately $1,300,000. Management is taking a proactive
action in addressing these issues. Management has taken proactive action to
improve document control by commencing a program to centralize and coordinate
critical documentation. The financial statements do not include provision for
any costs that may be incurred resulting from these adjustments.

Card Activation Technologies, Inc.

The Company has formed a new wholly owned subsidiary, Card Activation
Technologies, Inc. for the purpose of spinning off the Company's holdings in its
proprietary patented technology for the gift and phone cards.

10.  NET LOSS PER SHARE

Net loss per share is calculated using the weighted average number of shares of
common stock outstanding during the year. Preferred stock dividends are
subtracted from the net income to determine the amount available to common
shareholders. Preferred stock convertible to 115,396 common shares and options
and warrants exercisable into 3,207,224 shares of common stock were not
considered in the calculation for diluted earnings per share for the year ended
June 30, 2006 and 2005 respectively because the effect of their inclusion would
be anti-dilutive.

11.  RELATED PARTY TRANSACTIONS

The Company's president and chairman is a significant shareholder of the
Company. This individual controls another entity that is also a significant
shareholder of the Company. During the year ended June 30, 2002, the Company
moved its administrative offices into space occupied by this related entity that
is a significant shareholder of the Company of American Nortel Communications,
Inc. The Company shares office space and management and administrative personnel
with this related entity. Certain of the Company's personnel perform functions
for the related entity but there was no allocation of personnel related expenses
to the related entity in the years ended June 30, 2006 and 2005.

The Company frequently receives advances and advances funds to an entity
controlled by the Company's president and which is a significant shareholder of
the Company. During the year ended June 30, 2004, the Company converted advances
of $776,992 into 3,186,499 shares of the Company's common stock and advanced
funds of $1,420,229 to this entity. During the year ended June 30, 2005,
repayments were made on these advances and additional funds were contributed.
The balance due to this affiliate at June 30, 2006 was $794,625. The advances
are generally short term in nature with an interest rate of 9%.

12.  STOCK BASED COMPENSATION


31
<PAGE>
The Company issues stock options from time to time to executives, key employees
and members of the Board of Directors. The Company has adopted the
disclosure-only provisions of Statement of Financial Accounting Standards No.
123, "Accounting for Stock-Based Compensation," and continues to account for
stock based compensation using the intrinsic value method prescribed by
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees". Accordingly, no compensation cost has been recognized for the stock
options granted to employees.

There were no options granted in the year ended June 30, 2005 and all options
previously granted have been fully vested and therefore there is no pro forma
effect for the year ended June 30, 2005. The fair value of each option grant is
estimated on the date of grant using the Black-Scholes option-pricing model.

In February 2003, 400,000 warrants to acquire the Company's common stock at
$0.50 per share were issued as consideration for consulting services to be
rendered. The fair value of these warrants of $150,600 was expensed in June 30,
2005

The Company grants options under several stock option plans. The Company's
Incentive Stock Option Plans, Non-Qualified Stock Option Plans and Stock Bonus
Plans are collectively referred to as the "Plans". The following sets forth
certain information as of June 30, 2006 concerning the stock options and stock
bonuses granted by the Company pursuant to the Plans. Each option represents the
right to purchase one share of the Company's Common Stock.

<TABLE>
<CAPTION>
--------------------------------------------------------------------------------
                                  TOTAL SHARES RESERVED  REMAINING OPTIONS
                                     UNDER THE PLAN       UNDER THE PLAN
<S>                               <C>                    <C>
1998 Incentive Stock Option Plan              1,500,000            400,167

2000 Incentive Stock Option Plan              1,000,000            925,150

2000 Non-Qualified Stock
  Option Plan                                 2,000,000          1,820,575

1999 Stock Bonus Plan                           900,000            833,250

2000 Stock Bonus Plan                           500,000            500,000
--------------------------------------------------------------------------------
</TABLE>

There were no options granted in the end of the period of June 30, 2006 and all
options previously granted have been fully vested and therefore there is no pro
forma effects for the year ended Common stock warrants outstanding at year ended
June 30, 2006 consist of the following:

<TABLE>
<CAPTION>
          Number of  Exercise   Expiration
          Warrants     Price    of Warrants
          ---------  ---------  -----------
<S>                  <C>        <C>
            628,991  $    4.00    6/30/2006
            678,400  $    1.00    6/30/2007
            390,400  $    2.75    6/30/2007
             94,400  $    3.00    6/30/2008
            148,999  $    4.00    7/30/2008
             20,000  $    4.50    9/30/2008
          ---------
          1,961,190
          =========
</TABLE>


32
<PAGE>
The  fair  values  of  the  options  granted in the year end June 30, 2006, were
estimated at the date of grant using the Black-Scholes option-pricing model with
the  following  assumptions:

<TABLE>
<CAPTION>
<S>                                <C>
          Dividend yield              None
          Volatility                  1.56
          Risk free interest rate     4.18%
          Expected asset life      5 years
</TABLE>

The Company accounts for stock awards issued to nonemployees in accordance with
the provisions of SFAS 123 and Emerging Issues Task Force ("EITF") Issue No.
96-18 Accounting for Equity Instruments that are Issued to Other Than Employees
for Acquiring, or in Conjunction with Selling Goods or Services. Under SFAS 123
and EITF 96-18, stock awards to nonemployees are accounted for at their fair
value as determined under Black-Scholes option pricing model.

All warrants issued in the year ended June 30, 2005 were issued as part of
equity units that included common stock sold in private placement transactions.

13.  BUSINESS SEGMENTS

The Company previously had three reportable segments: intelligent vending
machines, healthcare management software development and medical transaction
processing. During the year ended June 30, 2001, the Company determined it would
divest or abandon all business segments other than the medical transaction
processing segment.  Therefore, going forward, the Company will have only one
reportable segment.  At June 30, 2005 the Company operates only in the medical
transaction-processing segment with substantially all revenue generated in the
United States.  The medical transaction-processing segment includes revenue from
the MedCard System, including the sale of terminals, processing fees and billing
service revenue and the licensing, sales and services related to the Company's
One Medical Services Network.

                                *  *  *  *  *  *


ITEM 8.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.

In November 2005 our prior auditor resigned and the Company engaged the firm of
SE Clark & Company PC.

ITEM 8A:  CONTROLS AND PROCEDURES

EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES

Disclosure controls and procedures are designed with an objective of ensuring
that information required to be disclosed in our periodic reports filed with the
Securities and Exchange Commission, such as this Quarterly Report on Form 10ksb,
is recorded, processed, summarized and reported within the time periods
specified by the Securities and Exchange Commission. Disclosure controls are
also designed with an objective of ensuring that such information is accumulated
and communicated to our management, including our chief executive officer, in
order to allow timely consideration regarding required disclosures.


33
<PAGE>
The evaluation of our disclosure controls by our principal executive officer
included a review of the controls' objectives and design, the operation of the
controls, and the effect of the controls on the information presented in this
Quarterly Report. Our management, including our chief executive officer, does
not expect that disclosure controls can or will prevent or detect all errors and
all fraud, if any. A control system, no matter how well designed and operated,
can provide only reasonable, not absolute, assurance that the objectives of the
control system are met. Also, projections of any evaluation of the disclosure
controls and procedures to future periods are subject to the risk that the
disclosure controls and procedures may become inadequate because of changes in
conditions, or that the degree of compliance with the policies or procedures may
deteriorate.

Based on their review and evaluation as of the end of the period covered by this
Form 10KSB, and subject to the inherent limitations all as described above, our
principal executive officer have concluded that our disclosure controls and
procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities
Exchange Act of 1934) are effective as of the end of the period covered by this
report. They are aware of significant changes in our disclosure controls or in
other factors that could significantly affect these controls subsequent to the
date of their evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses. During the period covered by
this Form 10KSB we became aware of a significant adjustments in the fourth
quarter ended June 30, 2006.  The adjustments are precipitated by a recently
detected material control weakness between operations and funding.  Certain
material financial transactions were consistently recorded during the year based
on documentation submitted to a lender to obtain funding.  The funding
documentation varied with the agreement terms as understood and documented by
operations.  Management is assess whether any action is necessary related to
these adjustments.  Management is taking a proactive action in address these
issues.  Management has taken proactive action to improve document control by
commencing a program to centralize and coordinate critical documentation.
Although the overall companies controls are adequate with exception to the
document control matter. There have not been any changes in our internal control
over financial reporting that have materially affected, or that are reasonably
likely to materially affect, our internal control over financial reporting.

                                    PART III

ITEM 9.  DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT.

DIRECTOR AND EXECUTIVE OFFICER

     Mr. William P. Williams as of August 2001 accepted the position of Chief
Executive Officer and sole Director of the Company.  Information representing
Mr. Williams is set forth below:

William P. Williams   53      Chairman, President, Chief Executive Officer, and
                              Chief Financial Officer

     The chief executive officer and sole director and officer of the Company
will hold office until additional members or officers are duly elected and
qualified.  The background and principal occupations of the sole officer and
director of the Company is as follows:

     William P. Williams has been the Chairman, Chief Executive Officer, of
Medcom USA since August 2001. He is also currently Chief Executive Officer and
Chairman of the Board for American Nortel Communications, Inc., a publicly
traded company located in Scottsdale, Arizona, which is in the business of
long-distance telephone service domestically, as well as internationally.  From
1983 to 1995, he was President and Chairman of the Board of Shelton Financial,
Inc., a financial factoring firm headquartered in San Antonio, Texas.  Mr.
Williams has a Bachelor of Arts and a Master of Business Administration in
Finance from Baylor University.


34
<PAGE>
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT 9.A. DIRECTORS AND EXECUTIVE
OFFICERS, PROMOTERS, AND CONTROL PERSONS:

     The Company is aware that all filings of Form 4 and 5 required of Section
16(a) of the Exchange Act of Directors, Officers or holders of 10% of the
Company's shares have not been timely and the Company has instituted procedures
to ensure compliance in the future.

ITEM 10.  EXECUTIVE COMPENSATION

General.  Mr. William P. Williams serves as the Company's sole-director and
chief executive officer.  Pursuant to a Management Services Agreement executed
and approved by the Company Mr. Williams was compensated approximately $450,000
for management fees, and other sources or forms of compensation was not paid or
collected for Fiscal year ended June 30, 2006.

ITEM 11.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.

     As of June 30, 2006 information with respect to the only persons owning
beneficially 5% or more of the outstanding common stock and the number of and
percentage of the outstanding shares owned is represented below:

<TABLE>
<CAPTION>
Name and Address                Shares Owned (1)  Common Stock
------------------------------  ----------------  -------------
<S>                             <C>               <C>
American Nortel Communications        19,286,016       28%
7975 North Hayden Road #D-333
Scottsdale, Arizona 85258

William P. Williams                    6,609,500       10%
7975 North Hayden Road #D-333
Scottsdale, Arizona 85258
</TABLE>

(1)  Excludes any shares issuable upon the exercise of any warrants or options
     or upon the conversion of other convertible securities. Wilcom Inc.,
     Williams Family Trust, and Bill Williams have beneficial ownership of the
     above stock.


ITEM 12.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

     The Company frequently advances funds to an affiliated entity, which is
also a significant shareholder of the Company.  During the year ended June 30,
2006, the Company advanced funds of $794,626 to this entity.

ITEM  13.  EXHIBITS  AND  REPORTS.

EXHIBITS
--------
3.1       Articles of Incorporation (2)

3.2       Amendments to Articles of Incorporation - Fourth Article (2)

3.3       Amendment to Articles of Incorporation - Name Change (2)


35
<PAGE>
10.18     Amendment to License Agreement - Dream Technologies, LLC (1)

--------------------------------------

(1). Incorporated by reference to the same exhibit filed with Amendment No. 5
to the Company's Registration Statement on Form S-3 (Commission File No.
333-71179)
(2). Incorporated by reference to the same exhibit filed with the Company's
Annual Report on Form 10-KSB for the year ending June 30, 2001.

REPORTS ON FORM 8-K
-------------------

8-K filed for change in principle auditor in November 2005

ITEM 14.  PRINCIPAL ACCOUNTANT FEES AND SERVICES
------------------------------------------------

AUDIT  FEES.  The  aggregate  fees  billed  by  Epstein  Weber  &  Conover.  for
professional  services  rendered for the audit of the Company's annual financial
statements  for  the fiscal years ended June 30, 2005 approximated $41,000.  The
aggregate fees billed by S.E.Clark & Company, PC for the review of the financial
statements  included  in  the  Company's  Forms  10-Q  for  fiscal  years  2006
approximated  $11,000.

AUDIT-RELATED  FEES.  The  aggregate  fees  billed by S.E. Clark & Company, P.C.
for  assurance  and  related  services  that  are  reasonably  related  to  the
performance of the audit or review of the Company's financial statements for the
fiscal  year  ended  June  30, 2006, and that are not disclosed in the paragraph
captioned  "Audit  Fees"  above,  were  $0  and  $0,  respectively.

TAX  FEES.  The  aggregate  fees  billed  by  S.E.  Clark  &  Company,  P.C. for
professional  services  rendered for tax compliance, tax advice and tax planning
for  the  fiscal  year  ended  June  30,  2006  were  $0.

ALL  OTHER  FEES.  The  aggregate  fees billed by S.E. Clark & Company, P.C. for
products  and  services,  other  than  the  services described in the paragraphs
"Audit  Fees,"  "Audit-Related  Fees," and "Tax Fees" above for the fiscal years
ended  June  30,  2006  approximated  $6,000.

ITEM 15: SIGNATURES

                                   SIGNATURES

     In accordance with Section 13 or 15(d) of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on its behalf by
the undersigned, there unto duly authorized.

Registrant                          Medcom USA Incorporated
Date: September 28, 2006            By: /s/ William P. Williams
                                    --------------------------------------------
                                    William P. Williams
                                    Chairman, President Chief Executive Officer
                                    (Principle Executive Officer,
                                    Principle Financial Officer)