**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**


Washington,
      D.C. 20549





**FORM
      10-QSB**





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




For
                the fiscal quarter ended June 30, 2006
            Commission
                File Number: 333-86498






**PROTOCALL
      TECHNOLOGIES INCORPORATED**


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




**NEVADA**
            **41-2033500**(State
                or other jurisdiction of incorporation)
            (I.R.S.
                Employer Identification No.)




**47
      Mall Drive, Commack, NY 11725-5717**





(Address
      of principal executive offices)





**(631)
      543-3655**


(Issuer’s
      telephone number, including area code)





Check
      whether the issuer (1) filed all reports required to be filed by Section 13
      or
      15(d) of the Exchange Act of 1934 during the preceding 12 months (or for such
      shorter period that the issuer was required to file such reports), and (2)
      has
      been subject to such filing requirements for the past 90 days. Yes [X] No
      [   ]





Indicate
      by checkmark whether the Registrant is an accelerated filer (as defined in
      Rule
      12b-2 of the Exchange Act). Yes [ ] No [ X ]





As
      of
      August 14, 2006, there were 68,824,542 shares of Common Stock
      outstanding.





Transitional
      Small Business Disclosure Format. Yes
      [   ] No [ X ]














**Protocall
      Technologies Incorporated and Subsidiaries**


**Condensed
      Consolidated Balance Sheets**








**Part
      I - Financial Information**


**Item
      1 - Financial Statements**




**June
                30,**
            
            **December
                31,****2006**
            
            **2005****(Unaudited)**
            
            **(Audited)****ASSETS**Current
                assets:Cash
            
            $
            37,082
            
            $
            402,221Accounts
                receivable, net
            
            
            104,684
            
            
            56,980Inventory
            
            
            17,747
            
            
            28,106Prepaid
                expenses and other current assets
            
            
            12,835
            
            
            55,302Total
                current assets
            
            
            172,348
            
            
            542,609Property
                and equipment, net
            
            
            301,767
            
            
            510,670Patents,
                net
            
            
            24,351
            
            
            25,567Deferred
                lease costs
            
            
            58,447
            
            
            97,405Security
                deposits
            
            
            20,825
            
            
            14,433**TOTAL
                ASSETS**
            
            $
            577,738
            
            $
            1,190,684**LIABILITIES
                AND STOCKHOLDERS' DEFICIT**Current
                liabilities:Accounts
                payable
            
            $
            704,966
            
            $
            690,321Accrued
                expenses
            
            
            630,153
            
            
            827,091Payroll
                taxes payable
            
            
            67,739
            
            
            67,264Accrued
                salaries - officers
            
            
            317,603
            
            
            394,274Deferred
                revenue
            
            
            20,000
            
            
            -Loans
                payable
            
            
            53,855
            
            
            54,105Loan
                payable - related party
            
            
            7,927
            
            
            7,927Convertible
                note payable
            
            
            100,000
            
            
            -Current
                portion of notes payable
            
            
            37,953
            
            
            -Current
                portion of obligations under capital leases
            
            
            341,127
            
            
            299,225Total
                current liabilities
            
            
            2,281,323
            
            
            2,340,20Loans
                Payable, less current portion
            
            
            56,610
            
            
            56,610Obligations
                under capital leases, less current portion
            
            
            331,686
            
            
            461,227Notes
                payable, including accrued interest of $6,172 at June 30,
                2006and
                $4,583 at December 31, 2005
            
            
            123,597
            
            
            84,055Notes
                payable - related party, including accrued interest of $32,192 at
                June 30,
                2006and
                $23,901 at December 31, 2005
            
            
            446,757
            
            
            438,466Total
                liabilities
            
            
            3,239,973
            
            
            3,380,565Commitments
                and contingenciesStockholders'
                deficit:Common
                stock, $0.001 par value, 100,000,000 shares authorized, 63,097,228
                and
                47,789,364 issued and outstanding at June 30, 2006 and December 31,
                2005,
                respectively
            
            
            63,097
            
            
            47,789Additional
                paid-in capital
            
            
            37,433,546
            
            
            36,083,723Deferred
                sales fee, net
            
            
            (162,908
            )
            
            (204,488
            )Deferred
                consulting costs
            
            
            (22,002
            )
            
            -Accumulated
                deficit
            
            
            (39,973,968
            )
            
            (38,116,905
            )Total
                stockholders' deficit
            
            
            (2,662,235
            )
            
            (2,189,881
            )**TOTAL
                LIABILITIES AND STOCKHOLDERS’ DEFICIT**
            
            $
            577,738
            
            $
            1,190,684


*See
          notes to condensed consolidated financial statements*
 2





**Protocall
      Technologies Incorporated and Subsidiaries**


**Condensed
      Consolidated Statements of Operations**




**Six
                Months Ended June 30,**
            
            **Three
                Months Ended June 30,****2006**
            
            **2005**
            
            **2006**
            
            **2005****(Unaudited)**
            
            **(Unaudited)**Net
                sales
            
            $
            354,420
            
            $
            200,971
            
            $
            159,810
            
            $
            99,390Cost
                of sales
            
            
            304,831
            
            
            148,792
            
            
            155,510
            
            
            75,713Gross
                profit
            
            
            49,589
            
            
            52,179
            
            
            4,300
            
            
            23,677Selling,
                general and administrative expenses
            
            
            (1,737,088
            )
            
            (2,615,384
            )
            
            (702,933
            )
            
            (1,365,441
            )Research
                and development expenses
            
            
            (48,643
            )
            
            (95,158
            )
            
            (24,046
            )
            
            (44,400
            )Operating
                loss
            
            
            (1,736,142
            )
            
            (2,658,363
            )
            
            (722,679
            )
            
            (1,386,164
            )Other
                income (expense):Interest
                expense, including amortization ofdebt
                discount and beneficial conversionfeature
                of debt
            
            
            (109,759
            )
            
            (89,886
            )
            
            (67,009
            )
            
            (38,569
            )Loss
                on disposal of fixed assets
            
            
            (19,562
            )
            
            (10,938
            )
            
            (19,562
            )
            
            (10,938
            )Other
                income
            
            
            8,400
            
            
            38,296
            
            
            4,200
            
            
            22,806Total
                other income (expense)
            
            
            (120,921
            )
            
            (62,528
            )
            
            (82,371
            )
            
            (26,701
            )Net
                loss
            
            $
            (1,857,063
            )
            $
            (2,720,891
            )
            $
            (805,050
            )
            $
            (1,412,865
            )Net
                loss per share - basic and diluted
            
            $
            (0.04
            )
            $
            (0.11
            )
            $
            (0.01
            )
            $
            (0.06
            )Weighted
                average number of shares-basic anddiluted
            
            
            52,546,370
            
            
            25,592,060
            
            
            54,559,745
            
            
            25,798,121


*See
          notes to condensed consolidated financial statements*
 3





**Protocall
      Technologies Incorporated and Subsidiaries**


**Condensed
      Consolidated Statement of Changes in Stockholders’ Deficit**





**Additional**
            
            
            **Deferred**
            
            
            **Deferred**
            
            
            
            
            
            **Total****Common
                Stock**
            
            
            **Paid
                in**
            
            
            **Sales**
            
            
            **Consulting**
            
            
            **Accumulated**
            
            
            **Stockholders'****Shares**
            
            
            **Amount**
            
            
            **Capital**
            
            
            **Fee
                (Net)**
            
            
            **Fee**
            
            
            **Deficit**
            
            
            **Deficit****Balance
                December 31, 2005**
            
            47,789,364
            
            $
            47,789
            
            $
            36,083,723
            
            $
            (204,488)
            
            $
            -
            
            $
            (38,116,905)
            
            $
            (2,189,881)Common
                Shares issued in January
              private
                placement
            
            2,222,222
            
            
            2,222
            
            
            297,778
            
            
            -
            
            
            
            
            
            -
            
            
            300,000Common
                Shares issued in February
              private
                placement
            
            390,625
            
            
            391
            
            
            49,609
            
            
            -
            
            
            
            
            
            -
            
            
            50,000Common
                Shares issued for settlement
              of
                litigation
            
            1,000,000
            
            
            1,000
            
            
            139,000
            
            
            -
            
            
            
            
            
            -
            
            
            140,000Common
                Shares issued in April
              private
                placements
            
            1,819,363
            
            
            1,820
            
            
            298,180
            
            
            -
            
            
            
            
            
            -
            
            
            300,000Common
                Shares issued in May
              private
                placements
            
            1,079,136
            
            
            1,079
            
            
            148,921
            
            
            -
            
            
            
            
            
            -
            
            
            150,000Common
                Shares issued in June
              private
                placement
            
            1,059,322
            
            
            1,059
            
            
            98,941
            
            
            -
            
            
            
            
            
            -
            
            
            100,000Common
                Shares issued due to anti dilution provisions
            
            6,814,118
            
            
            6,814
            
            
            (6,814)
            
            
            -
            
            
            
            
            
            -
            
            
            -Common
                Shares issued for consulting fees
            
            923,078
            
            
            923
            
            
            115,616
            
            
            -
            
            
            
            
            
            -
            
            
            116,539Stock
                options issued for compensation expense
            
            -
            
            
            -
            
            
            202,887
            
            
            -
            
            
            
            
            
            -
            
            
            202,887Costs
                of private placement offerings
            
            -
            
            
            -
            
            
            (60,000)
            
            
            -
            
            
            
            
            
            -
            
            
            (60,000)Warrants
                issued for consulting fees
            
            -
            
            
            -
            
            
            45,005
            
            
            -
            
            
            (45,005)
            
            
            -
            
            
            -Warrant
                issued in connection with issuance
              of
                convertible note
            -
            
            
            -
            
            
            20,700
            
            
            -
            
            
            
            
            
            -
            
            
            20,700Amortization
                of deferred sales fee
            
            -
            
            
            -
            
            
            -
            
            
            41,580
            
            
            
            
            
            -
            
            
            41,580Amortization
                of deferred consulting fees
            
            
            
            
            
            
            
            
            
            
            
            
            
            23,003
            
            
            
            
            
            23,003Net
                loss
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            
            
            
            (1,857,063)
            
            
            (1,857,063)**Balance
                June 30, 2006**
            
            63,097,228
            
            $
            63,097
            
            $
            37,433,546
            
            $
            (162,908)
            
            $
            (22,002)
            
            $
            (39,973,968)
            
            $
            (2,662,235)





*See
            notes to condensed consolidated financial statements*
 4


**Protocall
      Technologies Incorporated and Subsidiaries**


**Condensed
      Consolidated Statements of Cash Flows**





**Six
                Months Ended**
            
            **Six
                Months Ended****June
                30, 2006**
            
            **June
                30, 2005****(Unaudited)**
            
            **(Unaudited)****Cash
                flows from operating activities:**Net
                loss
            
            $
            (1,857,063
            )
            $
            (2,720,891
            )Adjustments
                to reconcile net loss to net cash used in operating
                activities:Depreciation
                and amortization
            
            
            191,907
            
            
            326,207Loss
                on disposal of fixed assets
            
            
            19,562
            
            
            10,938Common
                stock and warrants issued for services
            
            
            116,539
            
            
            -Equity
                compensation cost
            
            
            202,887
            
            
            86,976Subscription
                receivable write-off
            
            
            -
            
            
            1,665Financing
                expense related to warrant issuance
            
            
            20,700
            
            
            -Amortization
                of deferred lease costs
            
            
            38,958
            
            
            24,525Amortization
                of deferred sales fee
            
            
            41,580
            
            
            -Amortization
                of deferred consulting fee
            
            
            23,003Change
                in value of derivative financial instrument
            
            
            5,682
            
            
            -Change
                in value of warrant issued for settlement
            
            
            18,096Changes
                in:Accounts
                receivable
            
            
            (47,704
            )
            
            4,883Inventory
            
            
            10,359
            
            
            (21,570
            )Prepaid
                expenses and other current assets
            
            
            42,467
            
            
            13,889Security
                deposits
            
            
            (6,392
            )
            
            -Accounts
                payable and accrued expenses
            
            
            (66,071
            )
            
            163,802Payroll
                taxes payable
            
            
            475
            
            
            -Accrued
                salaries officers
            
            
            (765
            )
            
            (148,574
            )Deferred
                revenue
            
            
            20,000
            
            
            -Accrued
                interest on other notes payable
            
            
            9,880
            
            
            9,881**Net
                cash used in operating activities**
            
            
            (1,215,900
            )
            
            (2,248,269
            )**Cash
                flows from investing activities:**Capital
                expenditures
            
            
            (1,350
            )
            
            (45,811
            )**Cash
                flows from financing activities:**Net
                proceeds from issuance of common stock
            
            
            840,000
            
            
            1,335,570Proceeds
                from issuance of convertible note
            
            
            100,000
            
            
            -Repayment
                of loan payable
            
            
            (250
            )
            
            -Repayment
                of notes payable
            
            
            -
            
            
            (3,720
            )Notes
                payable to officers/stockholders
            
            
            
            
            
            (10,875
            )Repayment
                of capitalized lease obligations
            
            
            (87,639
            )
            
            (168,436
            )**Net
                cash provided by financing activities**
            
            
            852,111
            
            
            1,152,539**Net
                decrease in cash**
            
            
            (365,139
            )
            
            (1,141,541
            )**Cash
                - beginning of period**
            
            
            402,221
            
            
            2,133,223**Cash
                - end of period**
            
            $
            37,082
            
            $
            991,682**Supplemental
                cash flow information:**Cash
                paid for:Interest
            
            $
            26,720
            
            $
            43,688Income
                taxes
            
            $
            -
            
            $
            -Non
                cash transactions:Warrants
                issued for consulting services
            
            $
            45,005
            
            $
            -Stock
                issued for settlement
            
            $
            140,000
            
            $
            -


*See
            notes to condensed consolidated financial statements*
 5




**Protocall
      Technologies Incorporated and Subsidiaries**


Notes
      to
      Unaudited Condensed Consolidated Financial Statements







**Basis
      of Presentation: The Accompanying unaudited condensed consolidated financial
      statements have been prepared in accordance with Generally Accepted Accounting
      Principles for interim financial information and with the instructions to Form
      10-Q and article 10 of Regulation S-X. Accordingly, they do not include all
      of
      the information and footnotes required by Generally Accepted Accounting
      Principles for complete financial statements. In the opinion of management,
      all
      adjustments (consisting of normal recurring accruals) considered necessary
      for a
      fair presentation have been included.**





**Note
      A -** **Summary
      of Significant Accounting Policies and Related Matters**





**[1]**  **Description
      of business**





The
      accompanying consolidated financial statements include the accounts of Protocall
      Technologies Incorporated and its wholly-owned subsidiaries, Protocall Software
      Delivery Systems, Inc. ("PSD") and Precision Type, Inc. (collectively, the
      "Company"). The Company has substantially focused all of its time and resources
      on its SoftwareToGo® product in its PSD subsidiary. PSD was founded in 1998 to
      develop and commercialize a proprietary system that enables software retailers
      to produce fully packaged software CDs, on-demand, at their stores and at their
      web site fulfillment centers. SoftwareToGo® (the “System”) is a software
      display, storage and production system, similar in size to an ATM cash machine.
      The System is designed to complement physical inventory systems and enable
      traditional resellers to create "on demand" inventory at point of sale for
      walk-in as well as Internet customers. The Company intends to market and
      distribute its System to major retailers. The Company signs license agreements
      with software publishers, allowing the Company to resell their software products
      to one or more of the Company’s retail customers.





The
      Company incurred net losses for the six months ended June 30, 2006 and 2005
      of
      $1,857,063 and $2,720,891, respectively, and has an accumulated deficit of
      $39,973,968 at June 30, 2006. Through June 30, 2006, the Company has been
      dependent upon investments through private offerings of convertible and
      non-convertible debt and equity from related and non-related parties to finance
      its business operations.





**[2]**  **Going
      concern**





As
      of
      August 14, 2006, the Company had a cash balance of approximately $526,608.
      Management believes that cash on hand in addition to expected proceeds from
      a
      recently completed private placement (see note J) will enable the Company to
      continue its business plan through approximately early 2007 although there
      can
      be no assurances that this will be the case or that the expected proceeds of
      the
      private placement will be received. In addition, the Company’s contracts with
      suppliers provide for specific payment terms and, as of the date of this report,
      the Company has not met these payment terms with respect to a number of its
      suppliers. If these suppliers decline to do business with the Company as a
      result of delayed payment, it could possibly result in the loss of substantial
      business for the Company and its inability to continue as a going
      concern.





Management’s
      plan is to pursue additional long-term capital to fund its operations after
      further content and customer agreements have been signed, although there can
      be
      no assurances that any such agreements will be signed or that any financing
      will
      be available, or if available, that it will be on terms acceptable to the
      Company. Management believes that its ability to secure additional long-term
      financing is directly related to the Company’s progress with new customers and
      movie content agreements, which are actively being pursued by it.





The
      accompanying financial statements have been prepared on the basis that the
      Company will continue as a going concern, which assumes the realization of
      assets and satisfaction of liabilities in the normal course of
      business. The
      uncertainties regarding the availability of continued financing and commencement
      of adequate commercial revenues raise substantial doubt about the Company’s
      ability to continue as a going concern, which contemplates the realization
      of
      assets and satisfaction of liabilities in the normal course of business. The
      financial statements do not include any adjustments relating to the
      recoverability of the recorded assets or the classification of liabilities
      that
      may be necessary should the Company be unable to continue as a going
      concern .




6


**Protocall
        Technologies Incorporated and Subsidiaries**
 Notes
        to
        Unaudited Condensed Consolidated Financial Statements




**[3]**  **Revenue
      recognition**





The
      Company recognizes revenue from retailer sales of product through its software
      delivery system upon delivery to the consumer





Rebates
      and refunds are recorded as a reduction of revenue in accordance with Emerging
      Issues Task Force ("EITF") Issue No. 01-9, Accounting for Consideration Given
      by
      a Vendor to a Customer (Including a Reseller of the Vendor's
      Products).





**[4]**  **Use
      of estimates**





The
      preparation of the consolidated financial statements in conformity with
      accounting principles generally accepted in the United States of America
      requires management to make estimates and assumptions that affect the reported
      amounts of assets and liabilities and disclosure of contingent assets and
      liabilities at the date of the consolidated financial statements and the
      reported amounts of revenues and expenses during the reporting period. Such
      estimates include valuation of warrants issued in connection with various forms
      of financing by the Company. Actual results could differ from those
      estimates.





**[5]**  **Accounting
      for stock options**





In
      December 2004, the Financial Accounting Standards Board (“FASB”) issued SFAS No.
      123R “Share Based Payment” (“SFAS 123R”), which requires all share-based
      payments to employees, including grants of employee stock options, to be
      recognized in the statement of operations as an operating expense, based on
      their fair values on grant date. Prior to the adoption of SFAS 123R, the Company
      accounted for stock based compensation using Accounting Principles Board (APB)
      Opinion No. 25, Accounting for Stock Issued to Employees and Related
      Interpretations. The Company adopted the provisions of SFAS 123R effective
      January 1, 2006, using the modified prospective transition method. Under the
      modified prospective transition method, non-cash compensation expense is
      recognized for the portion of outstanding stock option awards granted prior
      to
      the adoption of SFAS 123R for which service has not been rendered, and for
      any
      future stock option grants. Accordingly, periods prior to adoption have not
      been
      restated. The Company recognizes share-based compensation costs on a
      straight-line basis over the requisite service periods of awards. That cost
      is
      recognized as compensation expense over the service period, which is normally
      the vesting period of the options.





The
      following table illustrates the effect on net income and earnings per share
      if
      the fair value based method had been applied to the six month period ended
      June
      30, 2005:





Net
                loss as reported
            
            $
            (2,720,891
            )Stock-based
                employee compensation expense included in reported net loss, net
                of
                related tax effects
            
            
            86,976Stock-based
                employee compensation determined under the fair value based
                method
            
            
            (376,797
            )Pro
                forma net loss
            
            $
            (3,010,712
            )Net
                income per share-basic and dilutedas
                reported
            
            $
            (.11
            )Pro
                forma
            
            $
            (.12
            )





Stock
      based compensation expense recognized in the consolidated statement of
      operations for the six months ended June 30, 2006 was $202,887, $118,127 of
      which is employee compensation, $26,708 is for options issued to consultants
      and
      $58,052 is for options issued to directors. The compensation cost of $551,902
      for non-vested options at June 30, 2006 will be recorded over the respective
      vesting periods.





Option
      transactions for the six months ended June 30, 2006 are summarized as
      follows:





7
 
 **Protocall
          Technologies Incorporated and Subsidiaries**
 Notes
          to
          Unaudited Condensed Consolidated Financial
          Statements






**2000
                Plan**
            
            
            **2004
                Plan****#
                of Shares**
            
            
            **Weighted**
              **Average**
              **Exercise**
              **Price
                per**
              **Share**
            
            
            **Weighted**
              **Average**
              **Remaining**
              **Contractual
                Term**
            
            
            **#
                of Shares**
            
            
            **Weighted**
              **Average**
              **Exercise**
              **Price
                per Share**
            
            
            **Weighted**
              **Average**
              **Remaining**
              **Contractual
                Term**
            
            
            **Aggregate**
              **Intrinsic**
              **Value**Outstanding
                at beginning of year
            
            
            2,537,785
            
            $
            1.64
            
            
            -
            
            
            4,142,988
            
            $
            .71
            
            
            -
            
            $
            0.00Granted
                (1)
            
            
            -
            
            
            -
            
            
            -
            
            
            257,667
            
            $
            .69
            
            
            -
            
            $
            0.00Exercised
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -Forfeited
                (2)
            
            
            (19,660
            )
            $
            2.39
            
            
            -
            
            
            (1,569,480
            )
            $
            .40
            
            
            -
            
            $
            0.00Outstanding
                at end of period
            
            
            2,518,125
            
            $
            1.63
            
            
            1.09
            
            
            2,831,175
            
            $
            .88
            
            
            8.37
            
            $
            0.00Exercisable
                at end of period
            
            
            2,518,125
            
            $
            1.63
            
            
            1.09
            
            
            2,142,419
            
            $
            .83
            
            
            8.23
            
            $
            0.00Non
                vested at end of period
            
            
            -
            
            
            
            
            
            
            
            
            688,756
            
            $
            1.02
            
            
            8.81
            
            $
            0.00





(1)
            990,000
                options were granted March 31, 2006 subject to shareholder approval.
                These
                options are not considered granted for financial reporting
                purposes.





(2)
            1,362,000
                options were rescinded subsequent to March 31, 2006 as a result of
                Board
                of Directors action to correct option grants in November 2005 inconsistent
                with the Company’s 2004 Stock Option Plan. The rescinded options include:
                (a) 300,000 of 500,000 shares granted to Don Hoffmann, former CEO,
                (b)
                103,750 of 150,000 shares granted to Brenda Newman, Senior VP Digital
                Rights and Content Management, (c) 479,125 of 750,000 shares granted
                to
                Peter Greenfield, Director, and (d) 479,125 of 750,000 shares granted
                to
                Bruce Newman, Director and current President and CEO.





These
      options were not included in the stock option charge for the quarters ending
      March 31 and June 30, 2006 and are incorporated above as being forfeited in
      the
      first quarter of 2006.





The
      weighted average fair value of stock options is estimated at the grant date
      using the Black-Scholes option-pricing model with the following weighted average
      assumptions:





**Six
                Months Ended June,****2006**
            
            
            **2005**Risk-free
                interest rate
            
            
            4.52
            %
            
            3.81
            %Expected
                life of options
            
            
            5
                years
            
            
            4.98
                yearsExpected
                dividend yield
            
            
            0.00
            %
            
            0.00
            %Expected
                volatility
            
            
            168.23
            
            
            143.91Weighted
                average fair value
            
            $
            0.10
            
            $
            .93





**[6]**  **Loss
      per share and common share equivalent**





The
      Company's basic and diluted net loss per share is computed by dividing net
      loss
      by the weighted average number of outstanding common shares. Potentially
      dilutive securities, which were excluded from the computation of diluted loss
      per share because to do so would have been anti-dilutive, are as
      follows:





**Six
                Months Ended June 30,****2006**
            
            
            **2005**Stock
                options
            
            
            5,349,300
            
            
            7,057,885Warrants
            
            
            13,498,151
            
            
            2,648,008Convertible
                notes (1)
            
            
            1,708,093
            
            
            --Total
                dilutive shares
            
            
            20,555,544
            
            
            9,705,893





8
 
 **Protocall
          Technologies Incorporated and Subsidiaries**
 Notes
          to
          Unaudited Condensed Consolidated Financial Statements


(1)
            Represents
                aggregate principal and accrued interest of $82,466 convertible into
                common stock at $0.128 per share and principal of $100,000 convertible
                into common stock at $.094 per
                share.





**[7]**  **Inventory**





Inventory,
      consisting primarily of blank CDs, CD cases and other supplies associated with
      products distributed on the Company's virtual inventory system, are valued
      at
      the lower of cost (first-in, first-out) or market.





**[8]**  **Financial
      instruments**





The
      Company evaluates its convertible debt, options, warrants or other contracts
      to
      determine if those contracts or embedded components of those contracts qualify
      as derivatives to be separately accounted for under Statement of Financial
      Accounting Standards 133 "Accounting for Derivative Instruments and Hedging
      Activities" (“SFAS 133”) and related interpretations including EITF 00-19
      "Accounting for Derivative Financial Instruments Indexed to, and Potentially
      Settled in, a Company's Own Stock" (“EITF 00-19”). The result of this accounting
      treatment is that the fair value of the embedded derivative is marked-to-market
      each balance sheet date and recorded as a liability. In the event that the
      fair
      value is recorded as a liability, the change in fair value is recorded in the
      consolidated statement of operations as other income or expense. Upon conversion
      or exercise of a derivative instrument, the instrument is marked to fair value
      at the conversion date and then that fair value is reclassified to
      equity.





In
      circumstances where the embedded conversion option in a convertible instrument
      is required to be bifurcated and there are also other embedded derivative
      instruments in the convertible instrument that are required to be bifurcated,
      the bifurcated derivative instruments are accounted for as a single, compound
      derivative instrument.





The
      classification of derivative instruments, including whether such instruments
      should be recorded as liabilities or as equity, is re-assessed at the end of
      each reporting period. Equity instruments that are initially classified as
      equity that become subject to reclassification under SFAS 133 are reclassified
      to liability at the fair value of the instrument on the reclassification date.
      Derivative instrument liabilities are classified in the balance sheet as current
      or non-current based on whether or not net-cash settlement of the derivative
      instrument is expected within 12 months of the balance sheet date.





**[9]**  **Reclassifications**





Certain
      accounts in the prior year financial statements have been reclassified for
      comparative purposes to conform with the presentation in the current year
      financial statements. These reclassifications have no effect on previously
      reported net loss.





**Note
      B - Related Party Transactions**





On
      October 14, 2003, a stockholder/director opened an irrevocable standby letter
      of
      credit on behalf of the Company as required by an equipment lease agreement,
      for
      the entire term of the lease obligation, in the amount of $1,040,000. As
      compensation, the Company issued a warrant to purchase 520,000 shares of common
      stock exercisable at the lower of $2.75 per share or the sales price of common
      stock in subsequent offerings. The fair value of the warrant was $269,470
      utilizing the Black-Scholes option-pricing model. The warrant was originally
      scheduled to expire on October 14, 2010, but was converted into approximately
      95,047 shares of common stock in connection with the reverse merger on July
      22,
      2004. The fair value of the warrant has been recorded as a deferred lease cost
      and is being amortized, on a straight-line basis, over the term of the lease
      obligation which terminates April 1, 2007. In November 2005, the letter of
      credit was reduced to $750,652 and extended through April 2008. The Company
      is
      contingently liable for the amounts of the letter of credit in the event the
      stockholder/director is obligated to make payments thereunder as a result of
      noncompliance with the terms of the lease agreement.





**Note
      C - Notes Payable - Related Party**





On
      July 22, 2004, in connection with the reverse merger, $414,565 of
      previously accrued interest on a convertible note payable due to a related
      party
      was converted into a new promissory note, bearing interest at 4% per annum.
      As
      of June 30, 2006, the total accrued interest on the note payable amounted to
      $32,192. All principal and accrued interest on the note is due and payable
      in
      full on July 22, 2007. The payee had a right to convert all or any portion
      of
      the outstanding principal balance and/or accrued interest of the notes into
      shares of common stock in the Company’s next round of equity financing
      subsequent to July 22, 2004, which
      occurred in June 2005 ,
      on the
      same terms and conditions as applicable to all other purchasers of such equity
      securities. The payee was notified by certified mail of their right to convert
      their note and all accrued interest into shares of common stock due to the
      equity financing that occurred in June 2005. The payee has declined to convert
      all or any portion of the outstanding principal balance and/or accrued interest
      of the note.





9


**Protocall
        Technologies Incorporated and Subsidiaries**
 Notes
        to
        Unaudited Condensed Consolidated Financial Statements




**Note
      D - Notes Payable**





On
      July 22, 2004, in connection with the reverse merger, $79,473 of previously
      accrued interest on convertible notes payable was converted into a new
      promissory note, bearing interest at 4% per annum. As of June 30, 2006, the
      total accrued interest on the note payable amounted to $6,171. All principal
      and
      accrued interest on the note is due and payable in full on July 22, 2007. The
      payees had a right to convert all or any portion of the outstanding principal
      balance and/or accrued interest of the notes into shares of common stock in
      the
      Company’s next round of equity financing subsequent to July 22, 2004, which
      occurred in June 2005, on the same terms and conditions as applicable to all
      other purchasers of such equity securities.





Pursuant
      to the July 31, 2002 Salary Adjustment Agreement, upon the termination of
      employment of one of the participants, $75,906 of accrued, but unpaid, salary
      was converted to a note bearing interest at the rate of 12% per year.  The
      principal of the note is payable in four equal quarterly installments beginning
      January 2007. The accrued interest is due monthly .





**Note
      E - Convertible Notes Payable**








In
      April
      2006, the Company issued a Convertible Promissory Note (the “Note”) for $100,000
      in a private placement. The note holder has the option, to convert the Note
      and
      receive shares of the Company in any financing transaction from third parties
      conducted by the Company under the same general terms and conditions as provided
      for in such a financing transaction (“conversion pricing provision”). The Note
      bears interest at 12% per annum and is payable
      at the earlier of (i) October 31, 2006, or (ii) completion of a subsequent
      financing of no less than $5,000,000 in gross proceeds to the Company. In
      connection with the issuance of the Note, the Company issued the note holder
      a
      warrant to purchase 125,000 shares of common stock at an exercise price of
      $.20
      per share. The warrants may be exercised up to three years from date of
      issuance. The fair value of the warrants on the date of issuance was $20,700
      as
      determined utilizing the Black-Scholes option-pricing model with the following
      assumptions: 172.65% volatility, three year expected life, 4.96% risk free
      interest rate, and a dividend yield ratio of 0%. The Company allocated the
      net
      proceeds between the Note and the warrants based on the relative fair value
      based method. The proceeds allocated to the value of the warrant were recorded
      as a finance expense. In July 2006, the Note was fully converted into 1,136,364
      shares of common stock at a share price of $.088





The
      Note
      is a hybrid instrument which contains an embedded derivative feature which
      requires separate accounting as a derivative instrument under SFAS No. 133.
      The
      embedded derivative feature has been bifurcated from the debt host contract,
      referred to as the "Financial Instrument". The embedded derivative feature
      includes the conversion pricing provision within the note. The value of the
      embedded derivative liability of $5,682 was bifurcated from the debt host
      contract and recorded as a derivative financial instrument liability included
      in
      accrued expenses on the condensed consolidated balance sheets.





**Note
      F - Consulting Agreements**





In
      April
      2006, the Company entered into an investor relations consulting agreement with
      a
      third party. Pursuant to this agreement, the Company issued the consultant
      a
      fully vested warrant to purchase 100,000 shares of the Company’s common stock at
      an exercise price of $.019 per share in exchange for all past due invoices.
      The
      warrant is exercisable over 4 years, and had a fair value of $17,550. The
      warrant was recorded as an investor relations expense in selling, general and
      administrative expense on the condensed consolidated statement of operations.
      The Company also issued a warrant to purchase 60,000 shares of the Company’s
      common stock at an exercise price of $.019 per share, for future services.
      The
      warrant is exercisable over 4 years and has a fair value of $10,530. The warrant
      is being amortized over the six month life of the consulting contract. As of
      June 30, 2006, $2,633 has been recorded as an investor relations expense in
      selling, general and administrative expense on the condensed consolidated
      statement of operations.





In
      June
      2006, the Company entered into an investor relations consulting agreement with
      a
      third party. Pursuant to the terms of the agreement, the Company is obligated
      to
      issue the consultant a warrant to purchase 250,000 shares of common stock at
      an
      exercise price of $.013 per share. The fair value of the warrant is $16,925,
      which has been recorded and is being amortized over the one year term of the
      consulting agreement. As of June 30, 2006, $2,821 has been recorded as an
      investor relations expense in selling, general and administrative expense on
      the
      condensed consolidated statement of operations.




10


**Protocall
        Technologies Incorporated and Subsidiaries**
 Notes
        to
        Unaudited Condensed Consolidated Financial Statements




**Note
      H - Litigation**





Upon
      his
      termination from employment with the Company, the former CEO Mark Benedikt
      asserted monetary claims under his employment agreement, and by demand dated
      October 19, 2005, sought arbitration of those claims which for purposes of
      the
      arbitration demand he had valued at $366,979. The Company settled on January
      23,
      2006. The terms of the settlement require the Company to make periodic cash
      payments totaling $100,000 and the issuance of a warrant to purchase 240,000
      shares of common stock at an exercise price of $1.06 per share with registration
      rights. The warrant was valued at $24,274 on the settlement date and recorded
      as
      expense and as a liability in 2006. In accordance with EITF 00-19, this
      liability is marked to fair value at each reporting date until the warrant
      is
      exercised. On June 30, 2006, the warrant was valued at $18,016. The Company
      will
      incur a liability of up to $25,000 if it fails to register the warrants as
      per
      the terms of the agreement. The Company had accrued the $100,000 due to Mr.
      Benedikt as of December 31, 2005. The Company has paid $56,855 against this
      liability as of June 30, 2006.





On
      August
      23, 2005, First Providence Financial Group, LLC (“First Providence”) filed a
      Demand for Arbitration against the Company with the American Arbitration
      Association. The demand alleged that the Company breached a January 2000
      placement agency agreement with First Providence. The demand sought $5 million
      in damages, plus fees and costs. The demand alleged that First Providence had
      a
      right of first refusal and that the Company disregarded it. The Company believed
      that First Providence was not then in business, incapable of performing and
      failed to do so when requested to perform. The Company reached a settlement
      agreement with First Providence on January 31, 2006. The Company issued First
      Providence 1,000,000 shares of common stock and reimbursed First Providence
      $8,000 for out of pocket costs. The shares valued at $140,000 were accrued
      in
      December 2005. First Providence withdrew the arbitration request.





The
      case
      of Code Ventures LLC v. Protocall Software Delivery Systems, Inc., et al. was
      filed in the Superior Court of the State of California, San Diego Judicial
      District, on or about August 31, 2005. The complaint asserts claims for: (i)
      breach of a software development agreement between the parties dated October
      13,1999; (ii) quantum merit; and (iii) goods sold, and seeks damages of at
      least
      $200,000, plus interest, attorneys’ fees, and cost. The plaintiff also seeks a
      judgment declaring that it is entitled to exercise certain options for stock
      in
      Protocall Software Delivery Systems, Inc. The Company filed a cross complaint
      asserting claims for breach of contract, restitution, money had and received,
      conversion and declaratory relief. The Company is also seeking recovery of
      $43,700 for the value of equipment not returned to the Company by Code Ventures.
      Depositions of the owner of Code Ventures and the Person Most Knowledgeable
      on
      behalf of the Company have been taken. Both parties have designated expert
      witnesses to opine on various issues relating to the issuance, restriction
      and
      value of the stock options in dispute. The jury trial is scheduled to commence
      on September 15, 2006. Management of the Company intends to vigorously defend
      its position, and believes the Company has meritorious defenses to Code
      Ventures’ claims and has not recorded any charges for any potential settlement.
      However, no determination can be made as to the ultimate outcome at this time,
      nor to the potential amount of loss to the Company should an unfavorable outcome
      result.





**Note
      I - Private Offerings**





In
      January 2006, the Company entered into a securities purchase agreement with
      an
      investor in a private placement. In connection with the private placement,
      the
      Company sold 2,222,222 shares of common stock, at $.135 per share, and warrants
      (the “January Warrants”) to purchase up to 1,111,111 shares of the Company’s
      common stock, for an aggregate of $300,000.





The
      January Warrants have an exercise price of $.50 per share of common stock,
      are
      exercisable immediately and expire on the third year anniversary of the initial
      warrant date. The exercise price of the January Warrants is subject to
      adjustment in the event of specified dilutive or accretive events, such as
      stock
      splits and stock combinations. The exercise price, as well as the per share
      price of the common stock sold in the private placement, is subject to further
      adjustment if the Company issues any shares of common stock or securities
      convertible or exercisable into common stock (subject to customary exceptions
      such as securities issued pursuant to equity incentive plans) through January
      2007 at a price per share less than the per share price of the common stock
      and/or the exercise price of the January Warrants, in which case the per share
      price and/or the exercise price, as applicable, will be adjusted to equal the
      price of the securities in the new issuance. The adjustment in the per share
      price would result in the issuance of additional shares of common stock to
      the
      holder. Due to the private offering entered into in July 2006 (see below) ,
      the
      Company issued additional shares of common stock and adjusted the January
      Warrants’ exercise price to $.083 per share pursuant to the anti-dilution
      provisions of the January 2006 securities purchase agreement.


11
  **Protocall
        Technologies Incorporated and Subsidiaries**
 Notes
        to
        Unaudited Condensed Consolidated Financial Statements


In
      February 2006, the Company entered into a securities purchase agreement with
      an
      investor in a private placement. In connection with the private placement,
      the
      Company sold 390,625 shares of common stock, at $.128 per share, and warrants
      (the “February Warrants”) to purchase up to 585,938 shares of the Company’s
      common stock, for an aggregate of $50,000.





The
      February Warrants have an exercise price of $.128 per share of common stock,
      are
      exercisable immediately and expire on the third year anniversary of the initial
      warrant date. The exercise price of the February Warrants is subject to
      adjustment in the event of specified dilutive or accretive events, such as
      stock
      splits and stock combinations. The exercise price, as well as the per share
      price of the common stock sold in the private placement, is subject to further
      adjustment if the Company issues any shares of common stock or securities
      convertible or exercisable into common stock (subject to customary exceptions
      such as securities issued pursuant to equity incentive plans) through February
      2007 at a price per share less than the per share price of the common stock
      and/or the exercise price of the February Warrants, in which case the per share
      price and/or the exercise price, as applicable, will be adjusted to equal the
      price of the securities in the new issuance. The adjustment in the per share
      price would result in the issuance of additional shares of Common Stock to
      the
      holder. Due to the private offering entered into in July 2006 (see below),
      the
      Company issued additional shares of common stock and adjusted the February
      Warrants’ exercise price to $.083 per share pursuant to the anti dilution
      provisions of the February 2006 securities purchase agreement.





In
      April
      2006, the Company entered into a securities purchase agreement with investors
      in
      a private placement. In connection with the private placement, the Company
      sold
      1,234.568 shares of common stock, at $.162 per share, 584,795 shares of common
      stock at $.171 per share and warrants (the “April Warrants”) to purchase up to
      1,218,324 shares of the Company’s common stock, for an aggregate of $300,000.





The
      April
      Warrants have an exercise price of $.20 per share of common stock, are
      exercisable immediately and expire on the third year anniversary of the initial
      warrant date. The exercise price of the April Warrants is subject to adjustment
      in the event of specified dilutive or accretive events, such as stock splits
      and
      stock combinations. The exercise price, as well as the per share price of the
      common stock sold in the private placement, is subject to further adjustment
      if
      the Company issues any shares of common stock or securities convertible or
      exercisable into common stock (subject to customary exceptions such as
      securities issued pursuant to equity incentive plans) through April 2007 at
      a
      price per share less than the per share price of the common stock and/or the
      exercise price of the April Warrants, in which case the per share price and/or
      the exercise price, as applicable, will be adjusted to equal the price of the
      securities in the new issuance. The adjustment in the per share price would
      result in the issuance of additional shares of common stock to the holder. Due
      to
      the private offerings entered into in July 2006 (see below) , the Company
      additional shares of common stock to the April investors and adjusted the April
      Warrants’ exercise price to $.083 per share pursuant to the anti-dilution
      provisions of the April 2006 securities purchase agreement.





In
      May
      2006, the Company entered into a securities purchase agreement with investors
      in
      a private placement. In connection with the private placement, the Company
      sold
      an aggregate of 1,079,136 shares of common stock, at $.139 per share, and
      warrants (the “May Warrants”) to purchase up to 539,568 shares of common stock,
      for an aggregate of $150,000.





The
      May
      Warrants have an exercise price of $.20 per share of common stock, are
      exercisable immediately and expire on the third year anniversary of the initial
      warrant date. The exercise price of the May Warrants is subject to adjustment
      in
      the event of specified dilutive or accretive events, such as stock splits and
      stock combinations. The exercise price, as well as the per share price of the
      common stock sold in the private placement, is subject to further adjustment
      if
      the Company issues any shares of common stock or securities convertible or
      exercisable into common stock (subject to customary exceptions such as
      securities issued pursuant to equity incentive plans) through May 2007 at a
      price per share less than the per share price of the common stock and/or the
      exercise price of the May Warrants, in which case the per share price and/or
      the
      exercise price, as applicable, will be adjusted to equal the price of the
      securities in the new issuance. The adjustment in the per share price would
      result in the issuance of additional shares of common stock to the holder. Due
      to
      the private offering entered into in July 2006 (see below) , the Company issued
      additional shares of common stock to the May investors and adjusted the May
      Warrants’ exercise price to $.083 per share pursuant to the anti-dilution
      provisions of the May 2006 securities purchase agreement.





In
      June
      2006, the Company entered into a securities purchase agreement with an investor
      in a private placement. In connection with the private placement, the Company
      sold an aggregate of 1,059,322 shares of common stock, at $.094 per share,
      and
      warrants (the “June Warrants”) to purchase up to 1,059,322 shares of common
      stock, for an aggregate of $100,000.




12


**Protocall
        Technologies Incorporated and Subsidiaries**
 Notes
        to
        Unaudited Condensed Consolidated Financial Statements


The
      June
      Warrants have an exercise price of $.20 per share of common stock, are
      exercisable immediately and expire on the third year anniversary of the initial
      warrant date. The exercise price of the June Warrants is subject to adjustment
      in the event of specified dilutive or accretive events, such as stock splits
      and
      stock combinations. The exercise price, as well as the per share price of the
      common stock sold in the private placement, is subject to further adjustment
      if
      the Company issues any shares of common stock or securities convertible or
      exercisable into common stock (subject to customary exceptions such as
      securities issued pursuant to equity incentive plans) through June 2007 at
      a
      price per share less than the per share price of the common stock and/or the
      exercise price of the June Warrants, in which case the per share price and/or
      the exercise price, as applicable, will be adjusted to equal the price of the
      securities in the new issuance. The adjustment in the per share price would
      result in the issuance of additional shares of common stock to the holder.
      Due
      to the private offering entered into in July 2006 (see below), the Company
      issued an additional 158,314 shares of common stock to the June investor and
      adjusted the June Warrants’ exercise price to $.083 per share pursuant to the
      anti dilution provisions of the June 2006 securities purchase
      agreement.





**Note
      J - Subsequent Events**





In
      July
      2006, the Company entered into securities purchase agreements with two investors
      in a private placement with each investor. In connection with the private
      placements, the Company sold an aggregate of 1,170,592 shares of common stock,
      at a share price of $.083 and $.088 per share, and warrants (the “July
      Warrants”) to purchase up to 1,170,592 shares of common stock, for an aggregate
      of $100,000.





The
      July
      Warrants have an exercise price of $.20 per share of common stock, are
      exercisable immediately and expire on the third year anniversary of the initial
      warrant date. The exercise price of the July Warrants is subject to adjustment
      in the event of specified dilutive or accretive events, such as stock splits
      and
      stock combinations. The exercise price, as well as the per share price of the
      common stock sold in the private placement, is subject to further adjustment
      if
      the Company issues any shares of common stock or securities convertible or
      exercisable into common stock (subject to customary exceptions such as
      securities issued pursuant to equity incentive plans) through July 2007 at
      a
      price per share less than the per share price of the common stock and/or the
      exercise price of the July Warrants, in which case the per share price and/or
      the exercise price, as applicable, will be adjusted to equal the price of the
      securities in the new issuance. The adjustment in the per share price would
      result in the issuance of additional shares of common stock to the
      holder.





In
      July
      2006, the $100,000 convertible note was converted into equity at a share price
      of $.088. The Company issued the investor 1,136,364 shares of common stock
      at a
      share price of $.088 and warrants to purchase up to 1,136,364 shares of common
      stock at an exercise price of $.20 per share. The
      exercise price of the Warrants is subject to adjustment in the event of
      specified dilutive or accretive events, such as stock splits and stock
      combinations. The exercise price, as well as the per share price of the common
      stock sold in the private placement, is subject to further adjustment if the
      Company issues any shares of common stock or securities convertible or
      exercisable into common stock (subject to customary exceptions such as
      securities issued pursuant to equity incentive plans) through July 2007 at
      a
      price per share less than the per share price of the common stock and/or the
      exercise price of the July Warrants, in which case the per share price and/or
      the exercise price, as applicable, will be adjusted to equal the price of the
      securities in the new issuance. The adjustment in the per share price would
      result in the issuance of additional shares of common stock to the
      holder.





In
      August
      2006, the Company entered into an agreement with a third party intellectual
      property patent consultant. The Company agreed to issue the third party 269,230
      shares of common stock at $0.13 per share as payment for services rendered.
      The
      shares were valued at $35,000.





In
      August
      2006, the Company finalized a financing agreement for a $2,000,000 investment
      by
      four private investors (collectively, the “Investors”). Under the terms of the
      agreement, the Company received an initial amount of $700,000, the first of
      three tranches of the funding which are expected to be completed over the course
      of the next several months. For this financing, the Investors received callable
      secured convertible notes totaling $2,000,000 with a 6% per annum interest
      rate
      and a maturity date of August 8, 2009. The notes are convertible, into shares
      of
      our common stock based on the average of the lowest three trading prices for
      shares of the Company’s common stock during the 20-trading day period ending on
      the trading day prior to the date a conversion notice is sent to us. Under
      the
      terms of the transaction documents relating to the Company's convertible note
      and warrant issuance, the Company is obligated to have authorized and reserved
      for issuance two times the number of shares issuable upon conversion or exercise
      of the notes and warrants, respectively (based on the then-current conversion
      price and exercise price). The Company does not meet this requirement as of
      the date hereof, but is seeking shareholder approval to do so consistent with
      its obligations under the transaction documents.


13




**Protocall
        Technologies Incorporated and Subsidiaries**
 Notes
        to
        Unaudited Condensed Consolidated Financial Statements


The
      Company determined that these secured convertible notes contain embedded
      derivative financial instruments which under EITF 00-19, are required to be
      accounted for under SFAS 133 using the fair value accounting model.





The
      embedded derivatives in the notes requiring bifurcation under ElTF 00-19 would
      be accounted for as liabilities and marked to market at each balance sheet
      date
      and the corresponding gain or loss in value will be recorded in the statement
      of
      operation as additional financing costs, which could have a material effect
      on
      the Company’s future financial position, results of operations and earnings per
      share. The notes will have a material impact on the Company’s financial
      position, the results of operations and earnings per share.


The
      Company also issued to the private investors seven-year warrants to purchase
      15,000,000 shares of our common stock which are exercisable at an exercise
      price
      or $.10 per share.





The
      Company has committed to filing a Form SB-2 Registration Statement with the
      SEC
      by September 22, 2006. The second tranche of the funding ($600,000) will not
      be
      received until the Form SB-2 is filed with the SEC , and the third and final
      tranche of the funding ($700,000) will not be received until the Form SB-2
      is
      declared effective by the SEC. There are penalty provisions if the filing does
      not become effective by December 6, 2006. The notes are collateralized by all
      of
      the Company’s assets.








14




**Item
      2 - Management’s Discussion and Analysis or Plan of
      Operation**





**Unless
      the context otherwise requires, “we,” “our”, “us” and similar phrases refer to
      Protocall Technologies Incorporated together with is wholly-owned subsidiaries,
      Protocall Software Delivery Systems, Inc. and Precision Type,
      Inc.**





**Overview**





Protocall
      Technologies Incorporated was formed in New York in December 1992. Until 1998,
      Protocall was focused primarily on licensing proprietary font software to large
      businesses and operated through its recently discontinued Precision Type, Inc.
      subsidiary. Active marketing of Protocall's font software licensing business
      was
      discontinued in 2001, when Protocall determined to focus solely on developing
      its current software distribution business (SoftwareToGo); however, revenues
      from the font software business continued through June 2004. For
      much
      of 2005 and 2006, we have focused on supporting our SoftwareToGo system,
      pursuing new customers and publishers and developing our new TitleMatch
      System.





Our
      system is currently utilized for delivery of software products under the product
      name “SoftwareToGo®;” however, we are vigorously pursuing an expansion of
      available products to include movie and television content. We believe our
      technology is readily adaptable to these and other types of digital products
      without additional significant investment. In connection with movie and
      television content, we recently announced our new ‘TitleMatch’ system name,
      which was selected to reflect the inclusion of products other than consumer
      software.





Due
      to
      very limited revenues to date, management has not yet developed nor relied
      on
      any key performance indicators to assess our business.





**Risk
      Factors**





**We
      have incurred significant losses in the past and expect losses in the future,
      which can have a detrimental**  **effect
      on the long-term capital appreciation of our common stock.**





We
      have a
      limited operating history on which to base an evaluation of our business and
      prospects. Our prospects must be considered in light of inherent risks, expenses
      and difficulties encountered by companies in their early stage of development,
      particularly companies in new and evolving markets. Such risks include
      acceptance by software publishers, retailers and consumers in an evolving and
      unpredictable business environment, the lack of a well developed brand identity
      and the ability to bring products to market on a timely basis.




**Due
      to our continual dependence upon outside financing, there is substantial doubt
      as to whether we can**  **continue
      as a going concern.**





Through
      June, 2006 we have been continually dependent upon borrowings through private
      offerings of convertible and non-convertible debt and equity from related and
      non-related parties to finance its business operations.





**Management
      believes that cash on hand at August 14, 2006 in addition to expected proceeds
      from a recently completed private placement (see note J) will enable us to
      continue our business plan through**  **approximately
      early 2007, although there can be no assurances that this will be the case
      or
      that the expected proceeds of the private placement will be
      received**





We
      are
      currently seeking additional financing to meet our short-term and long-term
      liquidity requirements, although there can be no assurances that such financing
      will be available, or if available, that it will be on terms acceptable to
      us.
      The accompanying financial statements have been prepared on the basis that
      we
      will continue as a going concern, which assumes the realization of assets and
      satisfaction of liabilities in the normal course of business. The
      uncertainties regarding the availability of continued financing and commencement
      of adequate commercial revenues raise substantial doubt about our ability to
      continue as a going concern, which contemplates the realization of assets and
      satisfaction of liabilities in the normal course of business.





**Until
      such time as we can rely on revenues generated from operations, we have a need
      for subsequent**  **funding;
      if we are not successful in obtaining such funding, we will be forced to curtail
      or cease our**  **activities.**





If
      the
      expected proceeds from the private placement are received, we estimate that
      we
      will require additional cash resources by early 2007. Our continued operations
      thereafter will depend upon the availability of cash flow, if any, from our
      operations or our ability to raise additional funds through equity or debt
      financing. There can be no assurance that we will be able to obtain additional
      funding when it is needed, or that such funding, if available, will be
      obtainable on terms favorable to or affordable by us. If we cannot obtain needed
      funds, we may be forced to curtail or cease our activities. The uncertainties
      regarding the availability of subsequent funding and commencement of adequate
      commercial revenues raise substantial doubt about our ability to continue as
      a
      going concern, which contemplates the realization of assets and satisfaction
      of
      liabilities in the normal course of business.




15




**We
      depend on continuing relationships with our software publishers, and if we
      lose
      these relationships our**  **product
      offerings would be limited and less desirable to consumers and
      retailers.**





We
      generate revenue as a just-in-time software distributor to retail stores and
      e-commerce retailers. If we cannot develop and maintain satisfactory
      relationships with software publishers on acceptable commercial terms, we will
      likely experience a decline in revenue. We also depend on these software
      publishers to create, support and provide updates for software products that
      consumers will purchase. If we are unable to license a sufficient number of
      titles from software publishers, or if the quality of titles provided by these
      software publishers does not reach a satisfactory level, we may not be able
      to
      generate adequate interest among retailers or consumers to utilize the system.
      Our contracts with our software publisher clients are generally one to two
      years
      in duration, with an automatic renewal provision for additional one-year
      periods, unless we are provided with a written notice at least 90 days before
      the end of the contract. As is common in our industry, we have no long-term
      or
      exclusive contracts or arrangements with any software publishers that guarantee
      the availability of software products. Software publishers that currently supply
      software to us may not continue to do so and we may be unable to establish
      new
      relationships with software publishers to supplement or replace existing
      relationships.




**Our
      contracts with our suppliers provide for specific payment terms, and if we
      miss
      those payment terms, our suppliers could decline to continue to do business
      with
      us.**





Our
      contracts with our suppliers provide for specific payment terms and, as of
      the
      date of this report, we have not met these payment terms with respect to a
      number of our suppliers. If these suppliers decline to do business with us
      as a
      result of delayed payment, it could possibly result in the loss of substantial
      business for us and our inability to continue as a going concern.





**Our
      publisher license acquisition process is lengthy, which may cause us to incur
      substantial expenses and expend management time without generating corresponding
      revenue, which would impair our cash flow.**





We
      market
      our services directly to software publishers and retailers. These relationships
      are typically complex and take time to finalize. Due to operating procedures
      in
      many organizations, a significant amount of time may pass between selection
      of
      our products and services by key decision-makers and the signing of a contract.
      The period between the initial sales call and the signing of a contract with
      significant sales potential is difficult to predict and typically ranges from
      one to twelve months for software publishers. If, at the end of a sales effort,
      a prospective publisher does not license its products to us, we may have
      incurred substantial expenses and expended management time that cannot be
      recovered and that will not generate corresponding revenue. As a result, our
      cash flow and our ability to fund expenditures incurred during the publisher
      license acquisition process may be impaired.





**Software-on-demand
      and DVD-on-demand technology is still evolving and unproven and the industry
      may
      ultimately fail to accept this technology, resulting in our products not being
      in demand.**





Our **** success
      will depend in large part on the growth in consumer acceptance of
      software-on-demand and DVD-on-demand technology as a method of distributing
      software products. Software-on-demand is a relatively new method of distributing
      software products to consumers, and unless it gains widespread market
      acceptance, we will be unable to achieve our business plan. Factors that will
      influence the market acceptance of the technology include:





The
      willingness of software publishers and movie and television content owners
      to
      license content for distribution through our system.





·
            Continuing
                demand by consumers for software products distributed on CD media
                and
                movie and television content on DVD
                media;


·
            Consumer
                behavior relating to product selection through touch-screen terminals
                for
                walk-in store deployments; and


·
            Consumer
                acceptance of DVD-style packages, which are the same as traditional
                packages for movie and television content on DVD, but smaller than
                traditional software packages.




16




**Even
      if our technology achieves widespread acceptance, we may be unable to overcome
      the substantial existing and future technical challenges associated with on-site
      delivery of software and movies reliably and consistently on a long-term
      basis.**





Our
      failure to do so would impair our ability to execute our business
      plan.




**Our
      industry is characterized by rapid technological change that may make our
      technology and systems obsolete or cause us to incur substantial costs to adapt
      to these changes.**





To
      remain **** competitive,
      we must continue to enhance and improve the responsiveness, functionality and
      features of our system and the underlying network infrastructure. If we incur
      significant costs without adequate results, or are unable to adapt rapidly
      to
      technological changes, we may fail to achieve our business plan. The electronic
      commerce industry is characterized by rapid technological change, changes in
      user and client requirements and preferences, frequent new product and service
      introductions embodying new technologies and the emergence of new industry
      standards and practices that could render our technology and systems obsolete.
      To be successful, we must adapt to rapid technological change by licensing
      and
      internally developing leading technologies to enhance our existing services,
      developing new products, services and technologies that address the increasingly
      sophisticated and varied needs of our clients, and responding to technological
      advances and emerging industry standards and practices on a cost-effective
      and
      timely basis. The development of our system and other proprietary technologies
      involves significant technical and business risks. We may fail to use new
      technologies effectively or fail to adapt our proprietary technology and systems
      to client requirements or emerging industry standards.




**System
      failures could reduce the attractiveness of our service offerings; any prolonged
      interruptions in our operations could cause consumers to seek alternative
      providers** **of software.**





We
      provide electronic **** delivery
      of digital media products and product marketing services to our clients and
      end-users through our proprietary technology and rights management systems.
      These systems also maintain an electronic inventory of products. The
      satisfactory performance, reliability and availability of the technology and
      the
      underlying network infrastructure are critical to our operations, level of
      client service, reputation and ability to attract and retain clients. While
      we
      have engaged an outside service company to perform regular service on the
      systems in the field, we have experienced periodic interruptions, affecting
      all
      or a portion of our systems, which we believe will continue to occur from time
      to time. Any systems damage or interruption that impairs our ability to accept
      and fill client orders could result in an immediate loss of revenue to us,
      and
      could cause us to lose clients. In addition, frequent systems failures could
      harm our reputation.




**We
      may become liable to clients who are dissatisfied with our system, which would
      directly impact our prospects.**





We
      design, develop, implement and manage electronic commerce solutions that are
      crucial to the operation of our clients’ businesses. Defects in the solutions we
      develop could result in delayed or lost revenue, adverse consumer reaction,
      and/or negative publicity which could require expensive corrections. As a
      result, clients who experience these adverse consequences either directly or
      indirectly as a result of our services could bring claims against us for
      substantial damages. Any claims asserted could exceed the level of any insurance
      coverage that may be available to us. Moreover, the insurance we carry may
      not
      continue to be available on economically reasonable terms, or at all. The
      successful assertion of one or more large claims that are uninsured, that exceed
      insurance coverage or that result in changes to insurance policies (including
      premium increases) could adversely affect our operating results or financial
      condition.




**Because
      of the relatively small number of employees each of whom possess specialized
      knowledge about our business we would be adversely impacted if any one of those
      employees were to become unavailable** .





We
      do not
      currently carry key-man life insurance on the lives of any of our executive
      officers.





**Our
      liability insurance may not be adequate in a catastrophic situation.** **Substantially
      all of our products are produced at our headquarters in Commack, New York or
      assembled in retailers’ stores.**





We
      currently maintain property damage insurance covering our inventory, furniture
      and equipment in our corporate headquarters. We maintain liability insurance,
      products and completed operations liability insurance and an umbrella liability
      policy. We also maintain insurance coverage for liability claims resulting
      from
      the use of our equipment located in retail stores and for equipment in-transit
      to and from retail stores. We also purchase business interruption insurance
      for
      losses relating to our facilities. Nevertheless, material damage to, or the
      loss
      of, our facilities, equipment or system data files, due to fire, severe weather,
      flood or other catastrophe, even if insured against, could result in a
      significant loss to us. We are currently preparing a disaster recovery
      plan.




17




**Our
      failure to protect our intellectual property could cause an erosion of our
      current competitive strengths** **.** **** **We
      regard the protection of our patents, trademarks, copyrights, trade secrets
      and
      other intellectual property**  **as
      critical to our success.**





We
      rely
      on a combination of patent, copyright, trademark, service mark and trade secret
      laws and contractual restrictions to protect our proprietary rights. We have
      entered into confidentiality and non-disclosure agreements with our employees
      and contractors, and non-disclosure agreements with parties with whom we conduct
      business, in order to limit access to and disclosure of our proprietary
      information. See “Business -- Patents and Intellectual Property.” These
      contractual arrangements and the other steps taken by us to protect our
      intellectual property may not prevent misappropriation of our technology or
      deter independent third-party development of similar technologies. We also
      seek
      to protect our proprietary position by filing U.S. and foreign patent
      applications related to our proprietary technology, inventions and improvements
      that are important to the development of our business. Proprietary rights
      relating to our technologies will be protected from unauthorized use by third
      parties only to the extent they are covered by valid and enforceable patents
      or
      are effectively maintained as trade secrets. We pursue the registration of
      our
      trademarks and service marks in the United States and internationally. Effective
      patent, trademark, service mark, copyright and trade secret protection may
      not
      be available in every country in which our services are made available
      online.




**The
      steps we have taken to protect our proprietary rights may be inadequate and
      third parties may infringe or misappropriate our trade secrets, trademarks
      and
      similar proprietary rights.**





Any **** significant
      failure on our part to protect our intellectual property could make it easier
      for our competitors to offer similar services and thereby adversely affect
      our
      market opportunities. In addition, litigation may be necessary in the future
      to
      enforce our intellectual property rights, to protect our trade secrets or to
      determine the validity and scope of the proprietary rights of others. Litigation
      could result in substantial costs and diversion of management and technical
      resources and may not be successful.




**Claims
      against us related to the products that we deliver electronically and the
      products that we deliver**  **physically
      could also require us to expend significant resources.**





Claims
      may be made against us for negligence, copyright or trademark infringement,
      product liability or other theories based on the nature and content of software
      products or tangible goods that we deliver electronically and physically.
      Because we did not create these products, we are generally not in a position
      to
      know the quality or nature of the content of these products. Although we carry
      general liability insurance that requires our customers to indemnify us against
      consumer claims, our insurance and indemnification measures may not cover
      potential claims of this type, may not adequately cover all costs incurred
      in
      defense of potential claims, or may not reimburse us for all liability that
      may
      be imposed. Any costs or imposition of liability that are not covered by
      insurance or indemnification measures could be expensive and time-consuming
      to
      address, distract management and/or delay product deliveries, even if we are
      ultimately successful in the defense of these claims.




**Security
      breaches could hinder our ability to securely transmit confidential information
      and could harm our clients** **.** **** **A
      significant barrier to electronic commerce and communications is the secure
      transmission of**  **confidential
      information over public networks.**





Any
      compromise or elimination of our security could be costly to remedy, damage
      our
      reputation and expose us to liability, and dissuade existing and new clients
      from using our services. We rely on encryption and authentication technology
      licensed from third parties to provide the security and authentication necessary
      for secure transmission of confidential information, such as consumer credit
      card numbers. A party who circumvents our security measures could misappropriate
      proprietary information or interrupt our operations.




**We
      may be required to expend significant capital and other resources to protect
      against security breaches or address problems caused by
      breaches.**





Concerns
      over the security of the Internet and other online transactions and the privacy
      of users could deter people from using the Internet to conduct transactions
      that
      involve transmitting confidential information, thereby inhibiting the growth
      of
      our business. To the extent that our activities or those of third-party
      contractors involve the storage and transmission of proprietary information,
      such as credit card numbers, security breaches could damage our reputation
      and
      expose us to a risk of loss or litigation and possible liability. Our security
      measures may not prevent security breaches and failure to prevent security
      breaches could lead to a loss of existing clients and deter potential clients
      away from our services.




18




**We
      rely to a large degree on third parties for the manufacture and maintenance
      of
      our system, who could subject us to delays in satisfying customer
      needs.**





We
      rely
      heavily upon third parties to perform **** such
      tasks as assembly and on-site maintenance of our system. Our ability to enter
      new markets and sustain satisfactory levels of sales in each market will depend
      in significant part upon the ability of these companies to perform effectively
      on our behalf. There can be no assurance that we will be successful in entering
      into agreements with all of these companies when necessary. In addition, once
      we
      enter into such manufacturing contracts, we face the possibility that such
      contracts will not be extended or replaced. We anticipate that we can obtain
      in
      a timely manner alternative third party services and that the failure to extend
      or replace existing contracts would not have a material adverse effect on us,
      although we can give no assurance in this regard.




**Implementation
      of our system requires capital, which we may not be able to
      provide** **,
      which could preclude us**  **from
      entering into otherwise promising agreements** **.**





Utilizing
      our system in a retail environment requires a capital commitment for equipment
      and deployment costs, which we may not be able to provide. In agreements that
      call for users of our system to fund equipment and deployment costs themselves,
      we may be required to reduce our selling prices when
      compared to agreements in which we finance equipment and deployment costs. 
The retailer’s financial risk/reward decision might prevent it from
      entering an agreement with us or it may
      demand price concessions to mitigate the financial risk, which may ultimately
      result in the agreement not being economically feasible for us to
      perform .




**Sales
      are highly** **dependent** **on obtaining license rights** **,
      the failure of which would result in insufficient revenue to pay for system
      equipment and deployment costs** **.**





Sales
      of
      products through our system are highly dependent on the qualitative mix of
      titles that we are able to license from software publishers and movie studios
      for inclusion on our system. Although we have executed licensing agreements
      with more
      than 214
      software publishers covering
      approximately 1,048 titles , our current
      product offering is not adequate to achieve sufficient revenue for either a
      retailer or us to pay for system equipment and deployment costs. In
      order
      for us to be successful, we will need to improve the quality of titles on our
      system.




**Our
      common stock may be considered a “penny stock” and may be difficult to sell when
      desired.**





The
      SEC
      has adopted regulations which generally define “penny stock” to be an equity
      security that has a market price of less than $5.00 per share or an exercise
      price of less than $5.00 per share, subject to specific exemptions. The market
      price of our common stock is less than $5.00 per share and therefore may be
      designated as a “penny stock” according to rules of the SEC. This designation
      requires any broker or dealer selling these securities to disclose certain
      information concerning the transaction, obtain a written agreement from the
      purchaser and determine that the purchaser is reasonably suitable to purchase
      the securities. These rules may restrict the ability of brokers or dealers
      to
      sell our common stock and may affect the ability of our stockholders to sell
      their shares. In addition, since our common stock is currently quoted on the
      OTC
      Bulletin Board, stockholders may find it difficult to obtain accurate quotations
      of our common stock and may experience a lack of buyers to purchase the stock
      or
      a lack of market makers to support the stock price.


**We
        have not yet received shareholder approval to increase the number of our
        authorized shares of common stock to meet our obligations under the transaction
        documents relating to our recently-issued 6% secured convertible notes and
        warrants, and if we fail to do so we will be in breach of our obligations
        under
        the transaction documents and subject to penalties.**
  Under
        the
        terms of the transaction documents relating to our recently-issued 6% secured
        convertible notes and warrants, we are obligated to have authorized and reserved
        for issuance two times the number of shares issuable upon conversion or exercise
        of the notes and warrants, respectively (based on the then-current conversion
        price and exercise price). We need to increase our authorized capital to
        meet this requirement. As of the date of this report we do not have shareholder
        approval to do so yet, but are working to get it consistent with our obligations
        under the transaction documents. If we fail to get shareholder approval and
        increase our authorized capital sufficiently and in a timely manner, we will
        be
        subject to liquidated damages penalties under the transaction
        documents.





**Investors
      should not anticipate receiving cash dividends on our common
      stock** **.**





We
      have
      never declared or paid any cash dividends or distributions on our capital stock.
      We currently intend to retain any future earnings to support operations and
      to
      finance expansion and, therefore, we do not anticipate paying any cash dividends
      on our common stock in the foreseeable future.





**Revenue
      Model**





We
      employ
      two revenue models in our existing retailer agreements: one for conventional
      ("bricks and mortar") retailers, and another for online/catalog retailers.
      Under
      the "bricks and mortar" revenue model, which is applicable to our agreement
      with
      CompUSA, we license content, integrate, install and maintain SoftwareToGo site
      equipment, provide system training to store personnel, supply the physical
      deliverables (CD, case, packaging and labeling), provide system help desk
      support during store hours and act as an on-demand distributor to the retailer.
      The retailer, in accordance with store configuration and consumer
      merchandising/promotion plans developed jointly with us, supplies prominent
      space for the Product Preview Stations within their stores as well as an
      appropriate location for the Order Fulfillment Station, and provides
      SoftwareToGo system promotion. Prior to deployment, we and the retailer jointly
      develop plans relating to sales reporting procedures, communication line setup,
      network wiring, POS system integration and product pricing.




19




For
      online and catalog retailers, which is applicable to our agreement with
      TigerDirect.com, the business model differs somewhat. For these retailers,
      a
      high-capacity SoftwareToGo Order Fulfillment Station is used without the need
      for a Product Preview Station. The system can be installed either at our
      facilities or at the customer's shipping center. If the system is installed
      at
      our facility, the system is operated by us and our employees ship the products.
      Under this model, we expect much higher capacity utilization for the Order
      Fulfillment Station and, consequently, a faster payback on deployed
      capital.





We
      secure
      the right to replicate titles through licensing agreements with software
      publishers, paying a licensing fee to each publisher per product vended. In
      instances where a consumer returns SoftwareToGo-produced products, the publisher
      license fee is credited to us.





We
      expect
      to be able to improve our licensing terms as the number of installed
      SoftwareToGo sites increase. Because our agreements with publishers provide
      for
      a longer time period to pay the licensing fees due for products sold than the
      period of time provided to the retailers to pay us for the software produced
      by
      the SoftwareToGo system, we do not anticipate an increase to working capital
      requirements from this aspect of the business as the business grows. We do
      not
      prepay or guarantee any minimum license fees to publishers. Our agreements
      provide for a fixed selling price for each product licensed through our system.
      We invoice our customers on a monthly basis, based on 30-day payment terms,
      for
      each unit sold during the prior month.





**Critical
      Accounting Policies**





Our
      discussion and analysis of results of operations and financial condition are
      based upon our consolidated financial statements, which have been prepared
      in
      accordance with accounting principles generally accepted in the United States
      of
      America. The preparation of these consolidated financial statements requires
      us
      to make estimates and judgments that affect the reported amounts of assets,
      liabilities, revenues and expenses, and related disclosure of contingent assets
      and liabilities. We evaluate our estimates on an ongoing basis, including those
      related to provisions for uncollectible accounts receivable, inventories, and
      contingencies and litigation. We base our estimates on historical experience
      and
      on various other assumptions that are believed to be reasonable under the
      circumstances, the results of which form the basis for making judgments about
      the carrying values of assets and liabilities that are not readily apparent
      from
      other sources. Actual results may differ from these estimates under different
      assumptions or conditions.





The
      accounting policies that we follow are set forth in Note A to our condensed
      consolidated financial statements as included in this report. These accounting
      policies conform to accounting principles generally accepted in the United
      States of America, and have been consistently applied in the preparation of
      the
      financial statements.





**Revenue
      Recognition**





We
      recognize revenue from retailers’ sales of product through our software delivery
      system and through catalogues, upon delivery to the retail customer or
      consumer.





Part
      of
      our marketing strategy to acquire new consumers includes retail promotions
      in
      which we pay retailers if they are successful in marketing software products
      on
      our system to consumers. These payments are recorded as a reduction in revenue
      in accordance with EITF No. 01-9. As a result of this accounting treatment,
      these payments, which we consider to be marketing costs, are not included in
      marketing expense, but instead, recorded as a reduction in revenue. Estimated
      customer rebates are reflected as a reduction in revenue in the period that
      the
      related sale is recorded. Customer returns, although not material, are also
      reflected as a reduction in revenue in the period that they are returned or
      earlier if any such returns are anticipated.





**Seasonality**





We
      believe there will ultimately be a minor degree of seasonality in our business.
      We anticipate that the fourth quarter of each fiscal year (October to December)
      will show slightly higher revenues due to the holiday shopping
      season.




20




**Software
      Development Costs**





Costs
      associated with the development and enhancement of proprietary software incurred
      between the achievements of technological feasibility and availability for
      general release to the public were insignificant, and therefore not
      capitalized.





**Research
      and Product Development Costs**





We
      expense research and product development costs as incurred.





**Principles
      of Consolidation**





The
      consolidated financial statements include the accounts of Protocall Technologies
      Incorporated and its wholly-owned subsidiaries. All intercompany balances and
      transactions have been eliminated in consolidation.





**Results
      of Operations - Three months ended June 30, 2006 compared to three months ended
      June 30, 2005**





**Net
      Loss**





We
      had
      net losses of $805,050 and $1,412,865 for the three months ended June 30, 2006
      and 2005, respectively. During these periods, operations were financed through
      various equity and debt private financing transactions.





**Net
      Sales**





Net
      sales
      for the three months ended June 30, 2006 increased $60,420, or 60.79%, to
      $159,810 compared to $99,390 for the three months ended June 30, 2005. This
      increase is principally due to increased sales from
      TigerDirect.com.





**Gross
      Profit**





Gross
      profit for the three months ended June 30, 2006 was $4,300, or 2.69% of net
      sales, as compared to $23,677, or 23.8% of net sales, for the comparable period
      ended June 30, 2005. The decrease in gross profit percentage is due to a change
      in our product mix.





**Research
      and Development Expenses**





Research
      and development expense, or R&D, decreased $20,354 or 45.84%, from $44,400
      to $24,046, for the three months ended June 30, 2006 as compared to the same
      period ended June 30, 2005 due to decreased spending resulting from cash flow
      constraints.





**Selling,
      General and Administrative Expenses**





Selling,
      general and administrative expenses decreased $662,508 or 48.52%, to $702,933
      for the three months ended June 30, 2006 from $1,365,441 for the three months
      ended June 30, 2005.





Consulting
      expenses decreased $192,932 in 2006, or 96.10%, to $7,833 from $200,765 in
      2005,
      due to the greater use of outside consultants in 2005 to assist in financing,
      marketing and accounting matters associated with becoming a public
      company.





Marketing
      expenses decreased $41,588 in 2006, or 58.21%, to $29,861 from $71,449 in 2005,
      due to increased marketing and advertising of our SoftwareToGo system in 2005
      and an effort to reduce costs in 2006.





Employee
      compensation decreased $287,547 or 54.64% from $526,220 in 2005 to $238,673
      in
      2006 due to the accrual of $243,750, at June 30, 2005, to be paid to the former
      President and Chief Executive Officer of the Company over the 15 month period
      subsequent to his resignation, pursuant to his separation agreement, and a
      greater amount of personnel in 2005, offset by the Company’s adoption of SFAS
      123R in January 2006 and resulting second quarter charge of $32,488 for the
      fair
      value of stock options earned during the quarter.





Investor
      Relations **** increased
      by $95,085 to $121,946 in 2006 from $26,861 in 2005 **** due
      to
      increased **** use
      of
      public relations and investor relations consultants.




21




Employee
      benefits decreased $58,547 or 86.33% from $67,815 in 2005 to $9,268 in 2006
      due
      to the reduced amount of employees in the Company.





**Interest
      and Finance Charges**





Interest
      and finance expenses combined increased by $28,441, or 73.74%, to $67,009 from
      $38,568 for the three months ended June 30, 2006 compared to the three months
      ended June 30, 2005.





Interest
      expense increased $7,741, or 10.78%, to $26,830 from $19,089, for 2006 as
      compared to 2005. Finance expense increased $20,699, or 106.27%, to $40,179
      from
      $19,480 for 2006 as compared to 2005. This increase was due to finance charges
      relating to debt discount and beneficial conversion feature of a convertible
      note issued in April 2006.





**Results
      of Operations - Six months ended June 30, 2006 compared to six months ended
      June
      30, 2005**





**Net
      Loss from Continuing Operations**





We
      had
      net losses of $1,857,063 and $2,773,070 for the six months ended June 30, 2006
      and 2005, respectively. During these periods, operations were financed through
      various equity and debt private financing transactions.





**Net
      Sales**





Net
      sales
      for the six months ended June 30, 2006 increased $153,449, or 76.35%, to
      $354,420 compared to $200,971 for the six months ended June 30, 2005. This
      increase is principally due to an increase in sales to
      TigerDirect.com.





**Gross
      Profit**





Gross
      profit for the six months ended June 30, 2006 was $49,589, or 13.9% of net
      sales, as compared to $52,179, or 26.0% of net sales, for the comparable period
      ended June 30, 2005. The decrease in gross profit percentage is due to the
      increased use of SPIFF’s (sales performance incentive for future) and
      rebates.





**Research
      and Development Expenses**





Research
      and development expense, or R&D, decreased $46,515 or 48.88%, from $95,158
      to $48,643, for the six months ended June 30, 2006 as compared to the same
      period ended June 30, 2005. The decrease in R&D was primarily due to
      decreased spending in 2006 and enhancements made to the latest version of our
      SoftwareToGo system during the first quarter of 2005.





**Selling,
      General and Administrative Expenses**





Selling,
      general and administrative expenses decreased $878,296, or 33.58%, to $1,737,088
      for the six months ended June 30, 2006 from $2,615,384 for the six months ended
      June 30, 2005.





Consulting
      expenses decreased $179,197 in 2006, or 53.60%, to $155,106 from $334,303 in
      2005, due to the use of outside consultants in 2005 to assist in financing,
      marketing and accounting matters associated with being a public
      company.





Legal
      expenses decreased $61,912 in 2006, or 39.09%, to $96,465 from $ 158,377 in
      2005, due to the use of outside consultants in 2005 to assist in financing,
      marketing and accounting matters associated with being a public
      company.





Marketing
      expenses decreased $107,980 in 2006, or 64.83%, to $58,579 from $166,559 in
      2005, due to increased marketing and advertising of our SoftwareToGo system
      in
      2005 and an effort to reduce costs in 2006.





Employee
      compensation decreased $463,101 or 47.01% from $985,167 in 2005 to $522,066
      in
      2006 due to a greater amount of personnel in 2005 and the accrual of $243,750,
      at June 30, 2005, to be paid to the former President and Chief Executive Officer
      of the Company over the 15 month period subsequent to his resignation, pursuant
      to his separation agreement, offset by the Company’s adoption of SFAS 123R in
      January 2006 and resulting charge of $118,127 for the fair value of stock
      options earned during the six months ended June 30, 2006.




22


Investor
      relations increased $193,662 in 2006, or 636.57% from $30,423 for the six months
      ended June 30, 2005 to $224,085 for the six months ended June 30, 2006 due
      primarily to a charge of $116,539 for stock issued a third party IR firm and
      increased use of IR firms in 2006.





Employee
      benefits decreased $82,150 or 73.57% from $111,659 in 2005 to $ 29,509 in 2006
      due to the reduced amount of employees in the Company.





**Interest
      and Finance Charges**





Interest
      and finance expenses combined increased by $19,873, or 22.11%, to $109,759
      from
      $89,886 for the six months ended June 30, 2006 compared to the six months ended
      June 30, 2005.





Interest
      expense decreased $827, or 1.62%, to $50,101 from $50,928, for 2006 as compared
      to 2005. Finance expense increased $20,700, or 53.13%, to $59,658 from $38,958
      for 2006 as compared to 2005. This increase was due to finance charges relating
      to debt discount and beneficial conversion feature of a convertible note issued
      in April 2006.





**Liquidity
      and Capital Resources**





At
      June
      30, 2006, our working capital deficit amounted to $2,108,975 as compared with
      a
      working capital deficit of $1,797,598 at December 31, 2005. At June 30, 2006,
      we
      had an accumulated deficit in the amount of $39,973,968. The accumulated losses
      resulted principally from costs incurred in developing our business plan,
      research and development, general and administrative expenses, seeking and
      establishing sales channels and capital raising activities.





As
      of
      August 14, 2006, the Company had a cash balance of approximately $526,608.
      Management believes that cash on hand in addition to expected proceeds from
      a
      recently completed private placement will enable the Company to continue its
      business plan through approximately early 2007 although there can be no
      assurances that this will be the case or that the expected proceeds of the
      private placement will be received





Management’s
      plan is to pursue additional long-term capital to fund its operations after
      further content and customer agreements have been signed, although there can
      be
      no assurances that any such agreements will be signed or that any financing
      will
      be available, or if available, that it will be on terms acceptable to the
      Company. Management believes that its ability to secure additional long-term
      financing is directly related to the Company’s progress with new customers and
      movie content agreements, which are actively being pursued by it.





The
      accompanying financial statements have been prepared on the basis that the
      Company will continue as a going concern, which assumes the realization of
      assets and satisfaction of liabilities in the normal course of
      business. The
      uncertainties regarding the availability of continued financing and commencement
      of adequate commercial revenues raise substantial doubt about the Company’s
      ability to continue as a going concern, which contemplates the realization
      of
      assets and satisfaction of liabilities in the normal course of business. The
      financial statements do not include any adjustments relating to the
      recoverability of the recorded assets or the classification of liabilities
      that
      may be necessary should the Company be unable to continue as a going
      concern .





**Item
      3 - Controls and Procedures**





As
      required by U.S. Securities and Exchange Commission rules, we have evaluated
      the
      effectiveness of the design and operation of our disclosure controls and
      procedures at the end of the period covered by this report, the three months
      ended June 30, 2006. This evaluation was carried out under the supervision
      and
      with the participation of our management, including our principal executive
      officer and principal financial officer. Based upon the controls evaluation,
      our
      principal executive officer and principal financial officer have concluded
      that,
      as of the end of the period covered by this report, our disclosure controls
      are
      effective to provide reasonable assurance that information required to be
      disclosed in our reports filed under the Securities Exchange Act of 1934 such
      as
      this report, is recorded, processed, summarized and reported within the time
      periods specified in the SEC’s rules and forms.





On
      May
      17, 2006, Don Hoffmann resigned as the Company’s Chief Executive Officer and
      from the Board of Directors.  Bruce Newman, our former Chief Executive
      Officer and a director was renamed Chief Executive Officer.





With
      the
      exception of the above, there has been no change in our internal controls over
      financial reporting during the fiscal quarter ended June 30, 2006 that has
      materially affected, or is reasonably likely to materially affect, our internal
      controls over financial reporting.




23




Disclosure
      controls and procedures are our controls and other procedures that are designed
      to ensure that information required to be disclosed by us in the reports that
      we
      file or submit under the Exchange Act is recorded, processed, summarized and
      reported, within the time periods specified in the SEC’s rules and forms.
      Disclosure controls and procedures include, without limitation, controls and
      procedures designed to ensure that information required to be disclosed by
      us in
      the reports that we file under the Exchange Act is accumulated and communicated
      to our management, including principal executive officer and principal financial
      officer, as appropriate, to allow timely decisions regarding required
      disclosure.





**Part
      II - Other Information**





**Item
      1 - Legal Proceedings**


None.





**Item
      2 - Unregistered Sales of Equity Securities and Use of
      Proceeds**


None





**Item
      3 - Default Upon Senior Securities**


None





**Item
      4 - Submission of Matters to a Vote of Security Holders**


None





**Item
      5 - Other Information**


None





**Item
      6 - Exhibits And Reports On Form 8-K**




***Exhibits***




31.1
            Certification
                of Principal Executive Officer Pursuant to Section 302 of the
                Sarbanes-Oxley Act of 2002.





31.2
            Certification
                of Principal Financial and Accounting Officer Pursuant to Section
                302 of
                the Sarbanes-Oxley Act of 2002.





32.1
            Certificate
                Pursuant To 10 U.S.C. Section 1350, Section 906 of the Sarbanes-Oxley
                Act
                of 2002.





**Reports
      on Form 8-K**




1.
            We
                filed a Current Report on Form 8-K on January 5, 2006 regarding the
                completion of a private placement of common stock and a warrant to
                purchase common stock.





2.
            We
                filed a Current Report on Form 8-K on February 28, 2006 regarding
                the
                completion of a private placement of common stock and a warrant to
                purchase common stock.





3.
            We
                filed a Current Report on Form 8-K on April 17, 2006 regarding the
                completion of a private placement of common stock and a warrant to
                purchase common stock.





4.
            We
                filed a Current Report on Form 8-K on May 17, 2006 regarding the
                departure
                of a principal officer.





5.
            We
                filed a Current Report on Form 8-K on May 25,2006 regarding the completion
                of a private placement of common stock and a warrant to purchase
                common
                stock.





6.
            We
                filed a Current Report on Form 8-K on July 21,2006 regarding the
                completion of a private placement of common stock and a warrant to
                purchase common stock.





7.
            We
                filed a Current Report on Form 8-K on August 10, 2006 regarding the
                entry
                into a material definitive
                agreement.




24




**SIGNATURES**





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





Date:
      August 15, 2006





**PROTOCALL
      TECHNOLOGIES INCORPORATED**





By: 
      /s/ Bruce
      Newman


Bruce
      Newman, President and Chief Executive Officer


(Principal
      Executive Officer, Principal


Financial
      Officer and Principal Accounting Officer)












25