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

                                   FORM 10-KSB

                   ANNUAL REPORT UNDER SECTION 13 OR 15(D) OF
                       THE SECURITIES EXCHANGE ACT OF 1934
                   FOR THE FISCAL YEAR ENDED JANUARY 31, 2006

                          COMMISSION FILE NO. 333-52268

                    DIRECT RESPONSE FINANCIAL SERVICES, INC.
                 (Name of Small Business Issuer in Its Charter)

            Colorado                                   333-52268
---------------------------------         ------------------------------------
(State or Other Jurisdiction of           (I.R.S. Employer Identification No.)
 Incorporation or Organization)



      2899 Agoura Road #115, Westlake Village, CA              91361
 ------------------------------------------------------    --------------
        (Address of Principal Executive Offices)             (Zip Code)



                               (818) 735-3726
------------------------------------------------------------------------------
              (Issuer's Telephone Number, Including Area Code)

    SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE EXCHANGE ACT: NONE

    SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE EXCHANGE ACT: NONE

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

Check if there is no  disclosure of  delinquent  filers  pursuant to Item 405 of
Regulation S-B contained  herein,  and no disclosure  will be contained,  to the
best of registrant's  knowledge,  in definitive proxy or information  statements
incorporated  by reference  in Part III of this Form 10-KSB or any  amendment to
this Form 10-KSB. [ ]

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

The Registrant's revenues for our most recent fiscal year were $35,200.

The  aggregate  market value of the voting stock held by  non-affiliates  of the
Registrant was $2,331,156 as of May 12, 2006, based upon the closing sales price
of the  Registrant's  common  stock as quoted on the  over-the-counter  bulletin
board of $0.035.

There were 74,841,168  shares of our common stock, no par value,  outstanding as
of May 12, 2006.

                    DOCUMENTS INCORPORATED BY REFERENCE None.

Transitional Small Business Disclosure Format (Check One): Yes [ ] No [X]

<PAGE>


              DIRECT RESPONSE FINANCIAL SERVICES, INC. FORM 10-KSB
                   FOR THE FISCAL YEAR ENDED JANUARY 31, 2006

                                      INDEX

                                     PART I

                                                                           Page

Item 1.        Description of Business                                      4
Item 2.        Description of Property                                      8
Item 3.        Legal Proceedings                                            9
Item 4.        Submission of Matters to a Vote of Security Holders          9

                                     PART II

Item 5.        Market for the Registrant's Common Equity and
               Related Stockholder Matters                                  10

Item 6.        Management's Discussion and Analysis or Plan of Operation    11
Item 7.        Financial Statements                                         F-1
Item 8.        Changes in and Disagreements with Accountants on
               Accounting and Financial Disclosure                          19
Item 8A.       Controls and Procedures                                      19
Item 8B.       Other Information                                            19

                                    PART III

Item 9.        Directors, Executive Officers, Promoters and Control
                  Persons; Compliance with Section 16(A) of the
                  Exchange Act.                                             20
Item 10.       Executive Compensation                                       20
Item 11.       Security Ownership of Certain Beneficial Owners and
                  Management                                                23
Item 12.       Certain Relationships and Related Transactions               23
Item 13.       Exhibits                                                     23
Item 14.       Principal Accountant Fees and Services                       25


               SIGNATURES                                                   26



                                      -2-
<PAGE>



                 STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

In this annual report,  references to "Direct  Response,"  "the Company,"  "we,"
"us," and "our"  refer to  Direct  Response  Financial  Services,  Inc.  and its
subsidiary.

Except for the historical  information  contained herein, some of the statements
in this  Report  contain  forward-looking  statements  that  involve  risks  and
uncertainties.  These statements are found in the sections entitled  "Business,"
"Management's  Discussion  and  Analysis of Financial  Condition  and Results of
Operations,"  and  "Risk  Factors."  They  include  statements  concerning:  our
business strategy;  expectations of market and customer response;  liquidity and
capital  expenditures;  future  sources of  revenues;  expansion of our proposed
product line; and trends in industry activity generally.  In some cases, you can
identify  forward-looking  statements by words such as "may," "will,"  "should,"
"expect,"  "plan,"  "could,"  "anticipate,"   "intend,"  "believe,"  "estimate,"
"predict,"  "potential,"  "goal," or  "continue" or similar  terminology.  These
statements   are  only   predictions   and  involve  known  and  unknown  risks,
uncertainties  and other  factors,  including,  but not  limited  to,  the risks
outlined  under  "Risk  Factors,"  that may cause our or our  industry's  actual
results,  levels of  activity,  performance  or  achievements  to be  materially
different  from  any  future  results,   levels  of  activity,   performance  or
achievements  expressed  or  implied  by such  forward-looking  statements.  For
example,  assumptions  that could cause actual results to vary  materially  from
future  results  include,  but are not limited  to: our ability to  successfully
develop and market our products to customers;  our ability to generate  customer
demand for our products in our target  markets;  the  development  of our target
markets and market opportunities;  and sales of shares by existing shareholders.
Although we believe  that the  expectations  reflected  in the  forward  looking
statements  are  reasonable,  we  cannot  guarantee  future  results,  levels of
activity, performance or achievements.  Unless we are required to do so under US
federal  securities laws or other applicable laws, we do not intend to update or
revise any forward-looking statements



                                      -3-
<PAGE>



                                     PART I

ITEM 1. DESCRIPTION OF BUSINESS

BACKGROUND

We were  incorporated  in the  State of  Colorado  on April 7,  2000 to  develop
software and Internet  portals.  On April 29, 2002,  we acquired  100% of Direct
Response Financial Services,  Inc., a Delaware corporation and changed our focus
to the development of financial services for the direct response industry.

In June of 2002, we changed our name to Direct Response Financial Services, Inc.

Direct Response  Financial  Services,  Inc. is currently traded on the NASD Over
the Counter  Bulletin Board under the symbol "DRFL." Direct  Response  Financial
Services,  Inc.  began  trading on the Berlin  Exchange  under the ticker symbol
"DFS" on December 3, 2002.

We have expanded our operations since August of 2005. Principally,  the expanded
operations  involve  Direct2Own,  a  division  of the  Company.  Although  gross
revenues  have  increased by the expanded  operations,  costs and expenses  have
concurrently  increased as well. The Company  remains  reliant on  contributions
from our officers and shareholders  when traditional  capital  financing through
equity or debt is not  available to the  Company.  In the past and likely in the
future,  when bank  financing or equity capital is  unavailable,  cash liquidity
demands will likely require cash advances and financing commitments from related
officers and  shareholders  of the  Company.  No formal  agreements  between any
officer or  shareholder  and the Company  currently  exist to  continue  funding
operations.

BUSINESS

Direct  Response  Financial  Services  is a company  which  combines  marketing,
technology  and  services  for  emerging  market  segments  -  particularly  the
ever-growing  multi-cultural  consumer  marketplace.  The Company  also seeks to
market  various  consumer  electronics  products  directly to consumers  via its
existing  business  division,  Direct2Own.  In addition,  through its  financial
group,  Direct Card  Services,  LLC, the Company offers  financial  products and
services  to the  un-banked  and  underserved  consumer.  The  Company  is  well
positioned to take advantage of the growing market for consumer  electronics and
pre-paid financial products.

The Company started a new division in August 2005 called Direct2Own ("D2O"). The
D2O division offers  financing in the sub-prime  market to customers  seeking to
acquire computers,  televisions and other consumer electronic products,  but are
unable  to  afford  the cost of these  products.  Direct2Own  offers  brand-name
computers, televisions and other consumer electronic products to these consumers
for a small down payment and an  agreement  by the customer  with the Company to
make monthly payments over one year until the price of the purchased  product is
fully  paid.  The  Company  markets  the D2O  service  through  the  Internet at
www.direct2own.com,  print media and television.  Since its inception Direct2Own
has experienced strong consumer response.

It is  estimated  that the  un-banked  and  underbanked  represent  Two Trillion
dollars in potential  revenues and income over the next 5 to 10 years. This does
not include  spending  power which in the year 2005 was estimated to be at least
$650B.  Moreover, a high percentage of the adult population in the United States
is  credit  challenged,  or,  in other  words,  they are  without  the  means to
immediately acquire desired consumer  electronics.  The Company's business model
includes the following features:

o     Financing of Consumer  Electronic  Products to the Sub-Prime  Market:  The
      Company offers financing to customers with bad credit or no credit for the
      purchase of computers,  televisions  and other  electronic  products.  The
      Company  believes  that the demand in this segment is  significant.  It is
      estimated  that over 50% of all adult  consumers  are in need of sub-prime
      financing  in this  sector.  The Company  also offers a credit  repair and
      management service to those customers  utilizing its financing options for
      the purchase of consumer electronics.

o     High Growth,  Low Overhead Business Model: The Company's business model is
      based on reaching  large numbers of consumers in its target market through
      partnerships  with media sources,  retail  outlets,  and other  technology
      partners without incurring heavy upfront advertising and technology costs.
      In  essence,   the  Company  uses  its  cultural   knowledge   and  unique
      relationships to bridge the gap between those who desire to sell and those
      who  desire to buy in the  multi-cultural  context.  In other  words,  the
      Company  spends  significant  time  analyzing  the buying  behavior of all
      groups of persons and after doing so the Company tailors its marketing and
      sales efforts accordingly.

o     Pre-paid Financial and Calling Card Products: The Company,  through Direct
      Card Services,  LLC,  offers pre-paid stored value calling cards and debit
      cards. These products are offered directly by the Company to consumers via
      the  Internet  and  in  conjunction  with  sale  activities   through  the
      Direct2Own  division.  The Company has its own custom  labeled  debit card
      which it features at www.dcsmediacard.com  and www.direct2own.com.  Direct
      Card Services also offers  private  labeled debit cards for third parties.
      These debit card programs will have a customized  logo and will usually be
      branded with the  MasterCard  or Visa logo allowing the card to be used in
      almost any environment - worldwide ATM usage and usage wherever MasterCard
      or Visa is  accepted.  The Company  also  offers  pre-paid  long  distance
      telephone service for its customers through  outsourced  telephone service
      providers.  This service is offered as a special  benefit to the Company's
      debit card  customers  and also as a  stand-alone  product on a customized
      basis for certain business customers.



                                      -4-
<PAGE>


o     Gateway to Large and Growing  Hispanic  Market:  The Company believes that
      America's largest consumer goods and services  companies are targeting the
      Hispanic  market.  By becoming a provider of products and services to this
      market,  the Company  intends to  establish a  significant  foothold in an
      economic  space  allowing  it  to  charge  a  premium  for  its  services.
      Additionally,  through its pre-paid product offers, the Company intends to
      build a database of multi-cultural  consumers who are currently "under the
      radar"  because  they  use cash in  transactions.  Moreover,  the  Company
      through its proprietary  data  management  systems will be able to monitor
      spending patterns and other financial histories creating invaluable market
      research  data  that  is  sellable  to  marketers,  while  protecting  the
      identities of individual cardholders.  The information will also allow the
      Company to identify and create new products and services tailored for this
      audience.

o     Strong Financial-Based  Revenue Combined with Scalable Upside: The Company
      seeks to create a sustainable  financial  contract base with  customers of
      Direct2Own.  Direct  Card  Services  plans to create a  sustained  base of
      pre-paid debit card  customers.  Customers from both Direct2Own and Direct
      Card Services provide a proprietary  marketing and customer database owned
      by the Company.  As the Company's customer base grows, the Company intends
      on creating further growth through referral and repeat customer  business.
      The Company  believes that it is well positioned for future growth without
      the need of significant  infrastructure changes or significant increase in
      existing fixed costs.


PRODUCTS AND SERVICES

Financing of Consumer Electronics in the Sub-Prime Market

The Company started a new business  division known as Direct2Own.  This business
division commenced  operations in August of 2005. The business provides the sale
of computers,  televisions,  and other consumer  electronics to consumers in the
United States with no credit or damaged credit.  In essence,  Direct2Own  offers
consumer electronics products in the sub-prime credit market.

Direct2Own  markets its business  primarily through the Internet,  and print and
television  medias. The business promotes itself through its web site located at
www.direct2own.com.

Direct2Own offers consumer  electronics  products to its qualified  customers on
the following general terms and conditions.  Customers are required to provide a
modest down  payment and must agree to monthly or  bi-monthly  automatic  debits
from the  customer's  existing  checking  account,  credit card,  or debit card.
Direct2Own  charges no interest on its products,  however,  Direct2Own charges a
significant  mark-up on the sale of its products above what a consumer would pay
if they were able to make full  payment in cash for the same  product  through a
separate source.

Prepaid Debit Cards

The Company  employs  current  e-commerce  and e-finance  solutions to interface
between individual and business customers. We also provide solutions for payment
acceptance in any electronic  environment.  These technology  solutions  address
processing of electronic payments whether through credit, debit, pre-paid or ATM
means. We participate in the market for credit,  debit,  stored-value  and smart
cards,  electronic  checks,  cash,  wireless and  alternative  Internet  payment
methods.

The Company has developed a  proprietary  database,  the  DirecTrac  System(TM),
which is  designed  to track  the  spending  and  usage  patterns  of its  debit
cardholders.  The database  collects and  aggregates  data while  protecting the
identity  of  individual  cardholders.  Collecting  and  sorting  the data is an
automated,  low-cost process that offers the Company the opportunity to generate
high-margin revenues.  The data also has tremendous value for consumer goods and
products marketers.  The fast-growing  Hispanic market is not only one that most
Fortune 500  companies  are  currently  targeting;  it is also a market in which
there is a lack of standard consumer data. Because much of the population is new
to the U.S.  and  because  the  population  has to date made  infrequent  use of
payment  cards due to a cash-based  lifestyle,  tracking  consumer data for this
market has been a  challenge.  Direct  Response has the  opportunity  to provide
detailed  consumer  spending  pattern data to other  companies for a fee,  while
protecting  the  identities of individual  cardholders.  Companies that purchase
such data from Direct  Response  may use the  information  to better  target and
serve the needs of its  Hispanic  customers by making  credit-related  decisions
based upon debit card data.

We have invested in and licensed  proprietary  technology from various financial
services companies including Optimum Pay USA, Inc., a partially owned subsidiary
of Cybertek  Holdings and SECOS.  Cybertek  Holdings is a publicly  traded South
Korean company  specializing in network security systems,  fraud and transaction
processing. Optimum Pay and SECOS have each developed proprietary technology for
secure  electronic  payments that we have strategic and  contractual  relations.
Optimum Pay makes this  technology  available  to the  Company  for  purposes of
maintaining  the privacy and  confidentiality  of consumer  data obtained by the
Company. Furthermore,  through our subsidiary Direct Card Services, LLC, we have
partnered with Cardservice  International to provide merchant banking  services.
The Company is an approved Independent Sales Organization,  or ISO. As an ISO of
Cardservice  International,  the Company  solicits  accounts  (merchants)  which
ultimately  are serviced  and  processed by  Cardservice  International  and its
banking relationships.  The Company earns a fee on each transaction processed by
a merchant with Cardservice International.  Furthermore, through these strategic
partnerships,  we are  positioned  to  capture  the  growing  market  trends  in
e-finance  and P2P  payment  transaction  processing.  We are  also  working  on
deploying proprietary,  wireless,  payment technology that allows for electronic
point of sale payment  solutions absent a landline  (payment is verified through
our gateway network).



                                      -5-
<PAGE>


Card Attributes:  Direct Response has designed a prepaid debit card program that
is uniquely  suited to the needs of the Latino  population in the United States.
Market  research  shows that about half of the adults in this 40 million  person
population  do not have credit  cards,  and a very large number of these persons
have no bank accounts.

Direct Response's cards meet all Patriot Act requirements, yet they require only
minimal documentation and no pre-approvals or credit checks, while providing all
the  benefits of a standard  MasterCard  debit card.  These are key benefits for
people who have not had the  opportunity  to build a long  credit or  employment
history in the United States.  Debit cards only allow the cardholder to spend up
to the limit  loaded on the card,  thus  avoiding  the risk of  incurring  debt.
Cardholders are issued MasterCard branded debit cards, which offer the clout and
benefits that all MasterCard debit cardholders  receive. The use of a debit card
provides  additional  safety and security for customers who would otherwise have
to carry cash for all purchases.  The use of a card also enables the customer to
make travel  purchases such as hotel  reservations  as well as making  purchases
online and via telephone.  Cardholders are also given the opportunity to build a
credit history through an optional  service  provided by Direct  Response,  thus
helping them to get credit cards or other credit-based products in the future.

The top four  benefits to the  customer  are: 1) the ability to own a MasterCard
debit card with its access to the MasterCard  network  (including all ATMs);  2)
the cost  savings  associated  with Direct  Response's  debit card versus  other
financial  services  typically  employed by  Hispanics;  and 3) the  security of
having  financial  value  in  electronic  form  versus  cash;  and  4) a  large,
conveniently  located card loading  network  that  includes  10,000 ATM and bank
locations,  as well as the Company's proprietary DirectLoad Network(TM) which is
being built out in Hispanic grocery locations.  For example, the Company charges
a $3.00 fee for loading any of its pre-paid  debit cards  whereas the  customary
charge by most financial groups is $5.00 to $6.00. In addition, the Company does
not charge a transaction fee after the first 8 transactions  in any month.  Most
competitors  charge a transaction fee for every  transaction.  These transaction
fees are usually $1.00 per  transaction.  A large part of the Latino  population
does not have a bank  account  or  credit  cards.  Using the  services  of check
cashing  establishments  to cash  their  paychecks,  these  consumers  then  pay
additional  fees to wire money  abroad or  purchase  money  orders to pay bills.
Direct  Response's debit card minimizes fees and allows the customer to complete
all financial transactions through one card conveniently and safely.  Generally,
the majority of Hispanics use financial companies to provide bill payment, money
transfer, cash for payroll checks and money exchange. These services can be very
expensive  to  the  average  Hispanic  customer,   particularly  when  money  is
transferred from the United States to other countries.

Pre-Paid Debit Card Product:  The main financial  product offered by Direct Card
Services is a pre-paid  debit card.  Direct Card  Services  offers its own debit
card known as the DCS  Personal  Advantage  Media  Card(TM)  via the Internet at
www.dcsmediacard.com.  This card is co-branded  with  MasterCard and is marketed
through various Internet search engines and gateways.  Direct Card Services also
features a series of co-branded  debit cards  through  Hispanic  grocers.  These
cards are offered through major  independent Los Angeles based Hispanic grocers.
The Company also is in  negotiations  to offer  co-branded  debit cards  through
major grocery chains in Arizona and in Texas.

Prepaid Calling Cards: Direct Response is currently developing a prepaid calling
card that it plans to launch in combination  with third party vendors.  The card
will be sold either  independently  or in conjunction  with the Company's  debit
cards.  Direct  Response's  calling card will offer preferred rates to users who
pay for the calling minutes using their Direct Response prepaid debit card.

DirectLoad Network(TM): Over the last two years, Company has focused on creating
its own proprietary retail loading network for its debit cards.  Direct Response
is currently building its proprietary DirectLoad Network(TM), designed to become
a card loading and transaction  network in the country  targeted to the Hispanic
population.  User-friendly  electronic  terminals  will be located  at  Hispanic
grocery stores in heavily  Hispanic-populated  communities.  Cardholders will be
able to go to their  local  Hispanic  grocery  store and load funds on cards and
then use the cards for purchases at that store or anywhere  else.  This offers a
tremendous  convenience to cardholders  who may not have bank accounts and would
not otherwise be able to quickly and conveniently load funds onto their cards.

                             CONSUMER FINANCE GROUP

The Company  started  providing  consumer  electronic  products on a rent to own
basis to consumers  through its Direct2Own  division in August of 2005.  Through
this  business the Company has  identified  additional  business  opportunities.
These business opportunities include niche rent to own or financing for auto and
truck audio and visual  accessories.  Moreover,  the Company seeks relationships
with existing retailers offering consumer  electronics  whereby the Company will
provide financing for customers who are rejected for traditional credit.


             PRE-PAID DEBIT CARDS AND INTERNET FINANCIAL TECHNOLOGY

The Company  through its  affiliation  with  MasterCard,  Optimum Pay USA, Inc.,
BankFirst,   and  First   Premier  Bank   provides   stored  value  cash  cards,
person-to-person  financial  services and innovative systems to move money, also
known as transmitter solutions.  Direct Card Services is an approved ISO/MSP for
each bank. As an Independent  Sales  Organization  and Master  Service  Provider
Direct Card Services develops and markets pre-paid debit card programs which are
sponsored  by the  respective  banks.  The banks  also act as the  issuer of the
underlying debit card in conjunction with Direct Card Services.  The first debit
cards  offered by the Company  include the DCS  Personal  Advantage  Media Card,
which  is  offered   through  the   Company's   Internet   website   located  at
www.dcsmediacard.com  and at  www.direct2own.com.  The  Company  also  owns  and
operates  an  Internet  web  site  at  www.globalmoneyonline.com   for  Internet
financial  transactions.  Such  transactions  include  crediting to debit cards,
movement of cash from card to card, account review, and movement of cash from an
existing  financial account to the Global Money Online account.  This innovative
system permits the Company's  customers to avoid the need to visit a retail bank
location to move  money.  Further,  the system  allows the  Company's  customers
access 24/7 365 days per year.



                                      -6-
<PAGE>


In order to accommodate  large-scale  growth in the number of debit cardholders,
without  incurring  heavy  overhead  costs,  the Company has  partnerships  with
back-end  transaction  managers  who have large  infrastructures  and  extensive
expertise in the area. These partnerships include:

Optimum Pay USA,  Inc.:  Optimum Pay USA,  Inc. has been a long-term  partner of
Direct  Response  Financial  Services,  which owns a minority  stake,  or 2%, of
Optimum Pay. They manage existing debit card programs for the Company, including
the DCS  Personal  Advantage  Media  Prepaid  MasterCard  Card(TM).  Optimum Pay
provides back-end transaction processing systems and data management.


Optimum Pay is a provider of  electronic  data  exchange  and  delivers  proven,
value-added  electronic  payment products and services to the financial services
industry.  Its financial services platform and proprietary  software enable both
consumers and businesses to conduct  financial  transactions  utilizing  today's
technologies.   Optimum  Pay  offers  a  robust  suite  of  unique,   host-based
stored-value  and payroll debit card solutions  direct to businesses,  employers
and to  financial  institutions.  The  Optimum Pay  processing  platform is both
proprietary  and  configurable,  allowing for the delivery of both  standard and
non-standard programs based on customer requirements.


BANKFIRST:  BANKFIRST serves as Direct  Response's debit card issuer for the DCS
Personal Advantage Media Prepaid MasterCard Card(TM). BANKFIRST is recognized as
one of the pioneers in the stored-value, prepaid, and debit card industries. The
bank is a  federally  chartered  bank,  a  MasterCard  Association  member,  and
currently has numerous debit card programs in service.


First PREMIER Bank:  First PREMIER Bank,  together with its sister  organization
PREMIER Bankcard,  is headquartered in Sioux Falls, South Dakota.  Together they
employ over 2,300 statewide. In 2001, 2002 and 2003, the organization was ranked
as the top performing financial  institution of its asset size in the country by
ABA Banking Journal. First PREMIER Bank serves customers in locations throughout
the eastern part of South Dakota and has assets of a billion  dollars.  They are
ranked among the top 40 largest Automated Clearing House (ACH) originating banks
in the U.S.  PREMIER  Bankcard has grown to become the 14th largest  credit card
issuer in the nation.


Direct Card  Services is approved as an ISO/MSP by First  PREMIER  Bank to issue
stored value debit cards through the MasterCard(R) and Maestro(R) network. First
PREMIER Bank approved  Direct Card  Services,  a subsidiary  of the Company,  to
issue and provide  debit card  products for a number of the  Company's  existing
debit card customers.  First PREMIER will provide the backend program for Direct
Response's debit cards sales through Hispanic retail grocery outlets.


MasterCard  International:  Direct Card Services, the Company's subsidiary, is a
MasterCard(R)-approved  independent  sales  organization for debit card programs
including the DCS Personal Advantage Media Prepaid MasterCard Card(TM).


Chase Manhattan Bank: Chase Manhattan Bank, one of the top banks in the U.S., is
the  automated  clearing  house for Direct  Response's  Global  Money  Online(R)
product.

Worldwide  Financial  Services:  Worldwide  Financial  Services,  Inc. (WFS) dba
Express  Payment  Solutions  was  founded  in  January  2004.  "Express  Payment
Solution"  (EPS) was  developed  through  necessity of needing to provide a cash
payment  solution for a governmental  program to enable  millions of underserved
and  subsidized  housing  individuals  access  to debit  card  services.  WFS is
privately held company located in Indianapolis, Indiana.

Direct Response has entered into an agreement with Worldwide  Financial Services
and Optimum Pay USA, Inc. which allows Direct Response's debit card customers to
load their cards at four leading  banks with over 10,000 bank and ATM  locations
nationwide. Direct Response Financial Services' debit cardholders may load their
debit cards at any participating bank using a custom-printed  deposit slip which
allows  for  electronic  tracking  of  deposits  to the debit card  account  and
automatic transfer from the depositing bank to the issuing bank.


                            MERCHANT BANKING SERVICES

We offer  banking  services  (credit  card  transaction  processing  and related
services) to all levels and types of online, and offline merchants.  Through our
proprietary  banking  software and our  subsidiary,  Direct Card Services,  LLC,
agent of CardService  International,  we are able to offer competitive rates for
merchant  banking services in the business and provide our clients with customer
service.  By lowering  payment  risk and  reducing  credit card charge backs and
losses,  we help our clients obtain lower card processing  costs,  which in turn
allows them higher profit  margins.  Direct Card  Services,  LLC, began offering
card-processing services for merchants on October 10, 2002. In addition,  Direct
Card  Services,  LLC has  initiated  a sales  campaign  for  signup of  business
merchants for card processing services with limited success to date.

The  Company  has  several  independent  contractor  sales  agents who offer the
Company's  merchant banking services.  These sales agents are located throughout
the United States.

SOURCES OF REVENUES

The Company has several sources of revenues.  Revenues are generated through the
following activities:



                                      -7-
<PAGE>


Sale of Computers,  Televisions  and other  Consumer  Electronic  Products - The
Company earns revenue when it sells  consumer  electronic  products  through its
Direct2Own division.

Sale of Ancillary  Products - The Company also earns  revenue when it upsells to
customers  additional  components and accessories  with its consumer  electronic
products.

Debit Card Sales - The Company earns income on each debit card sale.  The income
varies  depending  upon the card  program and the  marketing  method used by the
Company.

Debit Card Transaction Income - The Company earns monthly income from each debit
card which has been  issued and  remains  active.  Transaction  income  includes
monthly  statement  fees,  customer  service fees,  transaction  fees, ATM fees,
loading fees, and other related fees.

Merchant  Banking  Income - The Company earns  monthly fees on merchant  banking
service income for each of its merchant banking customers.

Internet Transaction Income - When the Company's customers utilize the Company's
Internet  financial  web site at  www.globalmoneyonline.com  the  Company  earns
transaction fees.

SALES, MARKETING AND DIRECT RESPONSE STRATEGIES

The Company markets its consumer  electronic  products through a direct response
business model using the Internet,  television  and print media.  The Direct2Own
division  markets  its  products  (financial  offerings)  through  the  Internet
utilizing paid advertising with Google and Yahoo and also through search engines
and  affiliate  programs.  The Company has  contracted  with  PartnerCentric,  a
respected  Internet  consulting  firm, to manage and execute its  Internet-based
initiatives. Under the agreement,  PartnerCentric manages Direct2Own's affiliate
and Internet marketing programs.  This includes developing an affiliate network,
overseeing  the paid search  advertising  and assisting in  development  of new,
cost-effective  marketing  solutions for the Internet.  Direct2Own also promotes
its business  through  national and regional  print media directed to a targeted
demographic of customers. This demographic is strategic to the business model of
the Company.

Direct Card Services markets its debit card product through the Internet,  print
media and  strategic  relationships  with third  parties.  Debit  cards are also
featured in conjunction with Direct2Own activities.

COMPETITION

The  markets for the  financial  products,  services  and  consumer  electronics
offered by us are intensely competitive.  We compete with a variety of companies
in  various  segments  of  the  financial  services  and  consumer   electronics
industries.  Our  competitors  vary in size  and in the  scope  and  breadth  of
products and services they offer.  Certain  segments of the  financial  services
industry  tend to be highly  fragmented  with numerous  companies  competing for
market share.  Highly  fragmented  segments  currently  include online  banking,
financial account processing,  customer  relationship  management  solutions and
electronic  funds transfer and card  solutions.  Other segments of the financial
services industry are relatively new with limited competition, including private
label banking and wealth management  solutions.  We face a number of competitors
in the electronic bill presentment and payment market.  We also face competition
from in-house  technology  departments of existing and potential clients who may
develop their own product offerings. Moreover, the consumer electronics field is
crowded both in the retail, Internet and direct response space.  Competition for
the  individual  consumer is intense and price  volatility  for products  always
exists.

The Company  competes on a global basis with any bank or  financial  institution
offering  pre-paid debit cards.  This includes Wells Fargo Bank, Bank of America
and Washington Mutual Bank. Smaller financial institutions also compete with the
Company including Western Union, NetSpend and the Rush Card. With respect to the
Direct2Own  division and its specialty  focus on consumer  electronics  the main
competitors  consist  of  privately  held  Blue  Hippo  (www.bluehippo.com)  and
Financing Alternatives,  Inc. (www.pcs4all.com).  These competitors are directly
involved in the same market as Direct2Own.  Blue Hippo is a significant presence
in the market  utilizing  massive  television  campaigns to reach its customers.
Financing Alternatives, Inc. directly competes with the Company in the print and
Internet media space.

If  the  Company  is  to  succeed  given  the  level  of   competition  it  must
differentiate itself through its business model.

EMPLOYEES

At May 12, 2006, we had a total of 5 full-time employees,  3 part-time employees
and  engage  consultants  from time to time.  We have never  experienced  a work
stoppage and believe our employee relations are very good.

ITEM 2. DESCRIPTION OF PROPERTY

Our corporate  headquarters  are located at 30851 Agoura Road, Suite 204, Agoura
Hills,  CA 91301, in  approximately  3,000 square feet of space occupied under a
lease with a monthly  rental rate of  approximately  $5,000.00  that  expires in
March,  2009. The Company maintains a mailing address of 2899 Agoura Road, #115,
Westlake Village, CA 91361.



                                      -8-
<PAGE>


ITEM 3. LEGAL PROCEEDINGS

On February 3, 2006,  the Company was named as a defendant in a civil  complaint
with the  County of San Diego  Superior  Court  Case No.  GIC860806,  San Diego,
California. The action is entitled, "La Jolla Cove Investors, Inc., a California
corporation vs. Direct Response Financial  Services,  Inc." The complaint is for
breach of contract  based upon an  allegation  that the Company  failed to repay
alleged monies due and payable under a pre-existing  convertible  debenture,  as
amended, between the Company and La Jolla Cove Investors,  Inc. made on or about
January 9, 2003.  The Company  denies any  liability  under the  complaint.  The
Company has also  cross-complained  against La Jolla Cove  Investors and certain
individuals  for  damages  caused to the  Company  by  reason of their  acts and
omissions.

The complaint seeks monetary  damages of $242,882.62 plus interest of $19.94 per
day from and after January 31, 2006, plus  reasonable  attorneys' fees and court
costs.  Contingencies exist with respect to this litigation matter, the ultimate
resolution of which cannot be presently determined. Accordingly, there can be no
assurance that the Company will prevail in this litigation.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITYHOLDERS.

None



                                      -9-
<PAGE>



                                     PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.

Our common  stock is quoted on the  Over-The-Counter  Bulletin  Board  under the
symbol "DRFL." Our common stock has been quoted on the OTCBB since April 2002.

For the periods  indicated,  the following table sets forth the high and low bid
prices per share of common stock. These prices represent inter-dealer quotations
without retail markup, markdown, or commission and may not necessarily represent
actual transactions.


                                               Low($)  High ($)
                                               ------  --------

                        2004 Period Ending
                        ------------------
                        January 31              0.50     1.52
                        April 30                0.17     0.89
                        July 31                 0.04     0.23
                        October 31              0.02     0.07

                        2005 Period Ending
                        ------------------
                        January 31              0.02     0.09
                        April 30                0.03     0.07
                        July 31                 0.02     0.03
                        October 31              0.01     0.03

                        2006 Period Ending
                        ------------------
                        January 31              0.01     0.01
                        April 30                0.01     0.06


HOLDERS

As of May 12, 2006, we had  approximately  57 holders of our common  stock.  The
number of record holders was  determined  from the records of our transfer agent
and does not include  beneficial owners of common stock whose shares are held in
the  names  of  various  security  brokers,  dealers,  and  registered  clearing
agencies.  The  transfer  agent of our  common  stock is  First  American  Stock
Transfer, Phoenix, Arizona.

DIVIDENDS

We have never declared or paid any cash dividends on our common stock. We do not
anticipate paying any cash dividends to stockholders in the foreseeable  future.
In  addition,  any future  determination  to pay cash  dividends  will be at the
discretion  of the Board of Directors  and will be dependent  upon our financial
condition, results of operations,  capital requirements,  and such other factors
as the Board of Directors deem relevant.

EQUITY COMPENSATION PLAN INFORMATION

<TABLE>
<CAPTION>
------------------------------------ ------------------------ ---------------------- ------------------------
           Plan category              Number of securities      Weighted average      Number of securities
                                        to be issued upon       exercise price of    remaining available for
                                           exercise of        outstanding options,       future issuance
                                      outstanding options,     warrants and rights
      As of January 31, 2006           warrants and rights
------------------------------------ ------------------------ ---------------------- ------------------------
                                               (a) (b) (c)
------------------------------------ ------------------------ ---------------------- ------------------------
<S>                                             <C>                     <C>                     <C>
Equity compensation plans approved              0                       0                       0
by security holders
------------------------------------ ------------------------ ---------------------- ------------------------
Equity compensation plans not                   0                       0                       0
approved by security holders
------------------------------------ ------------------------ ---------------------- ------------------------
Total                                           0                       0                       0
------------------------------------ ------------------------ ---------------------- ------------------------
</TABLE>

                  RECENT ISSUANCES OF UNREGISTERED SECURITIES.

For the fourth  quarter of the fiscal year ended January 31, 2006, the following
issuances were made:

On January 6, 2006, we issued the following shares in lieu of compensation or as
directors' fees:

T. Randolph Catanese - 250,000 shares
Edward Kim - 83,333 shares
Douglas R.  Hume - 125,000 shares
Devin  Lorier - 100,000 shares
Thomas R. Catanese, Jr. - 100,000 shares


                                      -10-
<PAGE>


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

INTRODUCTION

The  following  discussion  of  our  financial  condition  and  results  of  our
operations should be read in conjunction with the Financial Statements and Notes
thereto.  Our fiscal  year ends  January  31.  This  document  contains  certain
forward-looking  statements including,  among others,  anticipated trends in our
financial  condition and results of operations and our business  strategy.  (See
"Factors Which May Affect Future Results"). These forward-looking statements are
based largely on our current  expectations  and are subject to a number of risks
and   uncertainties.   Actual  results  could  differ   materially   from  these
forward-looking  statements.  Important  factors to consider in evaluating  such
forward-looking  statements  include (i)  changes in external  factors or in our
internal  budgeting  process  which  might  impact  trends  in  our  results  of
operations; (ii) unanticipated working capital or other cash requirements; (iii)
changes in our business  strategy or an inability to execute our strategy due to
unanticipated  changes in the  industries in which we operate;  and (iv) various
competitive  market factors that may prevent us from competing  successfully  in
the marketplace.

During the previous fiscal year to date, we have initiated the following actions
and  strategies  with  regards  to the  on-going  advancement  of  our  business
opportunities:

o     The Company  started a new business  division  known as  Direct2Own.  This
      business  division  commenced  operations in August of 2005.  The business
      provides  the sale of  computers,  televisions,  cell  phones,  and  other
      consumer  electronics  to consumers in the United States with no credit or
      damaged  credit.  In  essence,   Direct2Own  offers  consumer  electronics
      products in the sub-prime credit market.

Direct2Own  markets its business  primarily through the Internet,  and print and
television  medias. The business promotes itself through its web site located at
www.direct2own.com.

Direct2Own offers consumer  electronics  products to its qualified  customers on
the following general terms and conditions.  Customers are required to provide a
modest down  payment and must agree to monthly or  bi-monthly  automatic  debits
from the  customer's  existing  checking  account,  credit card,  or debit card.
Direct2Own  charges no interest on its products,  however,  Direct2Own charges a
significant  mark-up on the sale of its products above what a consumer would pay
if they were able to make full  payment in cash for the same  product  through a
separate source.

The critical factors for the success of Direct2Own are, in part: (1) the Company
must make good credit  decisions with each customer sale to limit customer fraud
or  customer  defaults,  (2) the  Company  must  manage its growth to permit its
infrastructure  to concurrently grow in a way to maximize profit while providing
ongoing  customer  care,  (3) the  Company  must also have  access to capital to
permit it to grow its sales  since the  Company  relies on capital  to  purchase
consumer goods which are in turn resold to the Company's customers,  and (4) the
Company  needs to  maximize  its use of  advertising  media to obtain the lowest
customer acquisition cost practicable.

In the  previous  fiscal  year  (ending  January  31,  2006),  the  Company  was
successful in creating  customer  sales  through the  Direct2Own  division.  The
Company  treats  its  customer  sales as  actual  sales for  business  purposes.
However,  the  Company's  financial  statements  reflect  these  sales  as lease
payments and the financial statements do not immediately  recognize revenue from
such sales due to applicable  accounting rules.  (For example,  on the Company's
Consolidated  Balance Sheets under CURRENT ASSETS, under the description of "Net
investment  in capital  leases"  amounts  shown are  composed of the cost of the
consumer  electronic  product less the down payment  received  plus any unearned
revenue.  The  unearned  revenue is shown as a current  liability in the balance
sheet.  Some of the Company's  activities  were counted as actual sales and were
booked accordingly. This affected the reconciliation of all sales by the Company
noted  hereafter  to  the  numbers  identified  in  the  accompanying  financial
statements.)  Total  sales in fiscal  year  ending  January  31,  2006,  equaled
$159,116,  which comprised $41,593 of cash received from customers (representing
their down  payments for consumer  electronics  purchased  from the Company) and
$117,523  representing  accounts  receivable  owed by  customers to the Company.
These  accounts  receivable  are due  and  payable  to the  Company  monthly  or
bi-monthly and if all payments are made customer  contracts are fully  completed
within one year after the contract is created.  Importantly, the Company has met
all of its  obligations  to its customers at such time as its customers  receive
ordered consumer products from the Company.  Thereafter,  the Company interfaces
with the customer  primarily for  collection of funds,  if a customer is late on
payment,  or if the customer has a question.  Warranty  obligations are borne by
the manufacturers of the consumer  electronics sold by the Company.  The Company
bears no warranty obligation to its customers.

Following  fiscal year end January 31, 2006, from February 1, 2006,  through May
12, 2006,  the Company had  additional  total sales of  approximately  $370,000,
which  comprised   approximately   $110,000  of  cash  received  from  customers
(representing  their down payments for consumer  electronics  purchased from the
Company plus monthly payments received) and approximately  $260,000 representing
accounts receivable owed by customers to the Company.

o     Optimum Pay USA, Inc.- In addition to its  pre-existing  relationship as a
      2% owner of all  outstanding  equity in Optimum Pay USA, Inc. the Company,
      through its  subsidiary  Direct Card Services,  LLC,  entered into several
      agreements with OP for issuance and approval of debit card programs.



                                      -11-
<PAGE>


All cards are  networked  through  MasterCard.  Further,  DCS is  approved as an
independent  sales  organization  of  MasterCard  as part of the  bank  approval
process for the above card  programs  through Bank First and First Premier Bank.
In  addition,  the Company  contracted  with  Optimum Pay for the  delivery  and
installation  of its Internet  financial site called  www.globalmoneyonline.com.
Optimum Pay provides the  interface  with the issuing bank and the processor for
the Company's  debit card  programs.  Optimum Pay also manages the data from all
card  programs  as well as  provides  some  form of  customer  service  for card
customers.  Additionally,  Optimum Pay operates  and  maintains  the  technology
infrastructure for www.globalmoneyonline.com.

o     Agent  Agreement  with  CardService  International  - In  addition  to its
      existing  relationship  with Chase Merchant Services for the processing of
      referred  merchant  credit and debit card  transactions,  the  Company has
      continued  to  operate  under  its  Non-Exclusive,   Non-Registered  Agent
      Agreement with CardService  International,  Inc. This agreement allows the
      Company access to an additional card processor,  providing  another option
      for the Company when referring merchant card processing business.

As it continues to grow, the Company will need additional  capital. In the past,
capital  needs were met  through  cash  advances by third  party  investors  and
through  loans by interested  shareholders.  In order for the Company to sustain
its projected  growth and to achieve its current business model the Company will
require significant capital either through equity investment or through loans.

CAPITAL RAISING ACTIVITIES

The  Company  engaged in limited  capital  raising  activity  for the  preceding
period. This included a small debenture conversion with La Jolla Cove Investors,
Inc. as more  particularly  described  below.  The Company did not engage in any
registered or exempt placements of its securities.

Private Sale of Convertible Debenture

In January  2003,  as amended on May 19, 2003,  we signed a Securities  Purchase
Agreement  with La Jolla Cove  Investors,  Inc.  for the sale of a  $150,000  8%
convertible debenture and non-detachable warrant to purchase up 1,500,000 shares
of our common stock.  The debenture bears interest at 8%, matures two years from
the date of issuance and is  convertible  into shares of our common  stock.  The
number of common  shares into which this  debenture may be converted is equal to
the dollar amount of the debenture being converted  multiplied by eleven,  minus
the product of the conversion  price,  multiplied by ten times the dollar amount
of  the  debenture  being  converted,  divided  by  the  conversion  price.  The
conversion price is equal to the lesser of: (i) $1.00 or (ii) 80% of the average
of the five lowest volume  weighted  average  prices during the 20 calendar days
prior to the  conversion  date.  The full  principal  amount of the  convertible
debentures are due upon default under the terms of convertible  debentures.  See
the Selling Stockholder section for a Sample Debenture Conversion Calculation.

On or about February 19, 2004,  the Company and La Jolla Cove Investors  entered
into an Addendum to the debenture which provided that upon  effectiveness of the
Company's  SB-2  Registration  Statement  (which was  declared  effective  as of
February 19, 2004), La Jolla would immediately effect a $2,500 conversion of the
debenture  and  $25,000  warrant  exercise,  along  with  providing  a  $150,000
pre-payment to the Company against future warrant conversions.

On March 23, 2004, the Company and La Jolla entered into another Addendum to the
debenture which provided the following:

o     For a period of 60 days from the  Addendum La Jolla would  convert no more
      than $2,200 of the debenture and related  Warrants per calendar week, on a
      cumulative basis

o     Beginning  from the 61st day from the  Addendum  the 10%  monthly  maximum
      conversion  amount shall be 20% if the volume  weighted  average  price is
      above $0.63

o     The maturity date of the debenture is extended to January 9, 2006, and the
      expiration  date of the  non-detachable  warrant is extended to January 9,
      2007

o     If a  conversion  election  is made by La Jolla on a date when the  volume
      weighted average price is below $0.63, the Company shall have the right to
      prepay that portion of the  debenture  that La Jolla elected to convert at
      150% of such amount.

On June 24, 2004, the Company and La Jolla entered into another  Addendum to the
debenture  which  provided that La Jolla would provide a $60,000  pre-payment to
the Company  against  future  warrant  conversions  in exchange  for the Company
delivering  2,000,000  shares of stock  pursuant to the  Company's  February 19,
2004,  SB-2  Registration  Statement to be held by La Jolla in  anticipation  of
future debenture conversions and warrant exercise by La Jolla.

On or about November 9, 2004,  the Company and La Jolla Cove  Investors  entered
into an Addendum to the debenture which provided that upon  effectiveness of the
Company's SB-2  Registration  Statement,  La Jolla would  immediately  provide a
$150,000   pre-payment  to  the  Company  against  future  warrant  conversions.
Additionally,  La Jolla agreed that its sales of Company shares would be limited
to no more  than 18% of the  daily  volume  of the  shares  on any  given  date.
Further,  under the Addendum the Company has the right to pre-purchase debenture
conversion shares directly from La Jolla. Pursuant to the Addendum,  the Company
issued a certificate  in the amount of 20,000,000  shares to La Jolla to be held
in trust by La Jolla's attorney pending future debenture conversions.



                                      -12-
<PAGE>


On August 15,  2005,  the Company and La Jolla Cove  Investors  entered  into an
Addendum to the  debenture  which  provided  the  following:  (a) La Jolla would
cancel the  certificate  being held by its attorney in the amount of  20,000,000
shares received pursuant to the November 9, 2004, Addendum and the Company would
issue replacement  certificates in the form of twenty unrestricted  certificates
for  1,000,000  each to La  Jolla to be held in  trust  by La  Jolla's  attorney
pending  future  debenture  conversions;  (b) La Jolla  would  provide a $45,000
pre-payment to the Company against future warrant conversions (to be credited to
the November 9, 2004,  addendum  pre-payment  balance);  (c) LJCI would submit a
warrant  conversion  in the amount of $1,354 for which shares could be issued by
the Company to a third party for  investor  relations  services in exchange  for
which La Jolla  received  a  $20,000  warrant  pre-payment  credit;  and (d) the
Company  has the right to redeem any  pre-paid  warrant  credits for 125% of the
outstanding amount of such credits.

On September 26, 2005, the Company and La Jolla Cove  Investors  entered into an
Addendum to the debenture which provided the following:  (a) The Company granted
La Jolla a security  interest  in its assets  and the  assets of  Direct2Own  to
secure  repayment of warrant  prepayments  under the debenture (this  obligation
expires January 9, 2006, when the debenture itself becomes due and payable); (b)
Alan Atlas,  Esq.  surrendered to the Company's  transfer agent 3,000,000 shares
that he was  holding for La Jolla with  instructions  to cancel said shares (the
transfer agent thereafter canceled these shares);  and (c) La Jolla would submit
an immediate  $2,000  debenture  conversion and $20,000 warrant  exercise,  with
$12,000 being wired to the Company and $8,000 being subtracted from the November
2004 warrant prepayment balance.

On January 9, 2006, the convertible  debenture  between the Company and La Jolla
expired by its own  terms.  La Jolla has no  further  right to submit  debenture
conversions or warrant exercises to the Company.

In the last fiscal quarter to January 9, 2006, La Jolla converted  $2,000 of the
debenture, leaving a debenture balance of $90,987. In addition, as of January 9,
2006, there remained three sets of warrant  pre-payment  balances with La Jolla:
(1) the June 29,  2004,  addendum  warrant  pre-payment  balance is currently at
$30,000;  (2) the  November 9, 2004,  addendum  warrant  pre-payment  balance is
currently at $56,455;  and the August 15,  2005,  addendum  warrant  pre-payment
balance is currently at $65,000.

ONGOING REQUIREMENTS

We will have to secure additional  capital to meet our ongoing  requirements and
to  meet  our  stated  objectives  throughout  the  2006  fiscal  year.  We  are
identifying   potential  investors  in  conjunction  with  our  current  finance
partners,  and will seek to secure new investment banking partners on an ongoing
basis.  Of course,  sources of capital  and the cost of capital  are  subject to
prevailing and general  market  conditions.  Moreover,  any terms and conditions
related to such  investment or loan are contingent upon  satisfactory  terms and
conditions  for the Company.  Based on current  market  conditions and given our
success in raising private financing in the past, we expect that we will be able
to complete financings as required for growth and operations.  We are continuing
to review all  opportunities  for both long-term equity programs as well as debt
financing. Any significant capital expenses or increases in operating costs will
be dependent  upon our ability to raise  additional  capital,  debt financing or
generate revenue from sales of our products or services.

CRITICAL ACCOUNTING POLICIES AND RECENT ACCOUNTING PRONOUNCEMENTS

In January  2003,  the FASB  issued  Interpretation  No. 46,  "Consolidation  of
Variable  Interest  Entities."  It  requires  existing  unconsolidated  variable
interest  entities (VIE's) to be consolidated by their primary  beneficiaries if
the entities do not effectively  disperse risks among the parties  involved.  It
applies  immediately  to VIE's  created  after  January 31, 2003 and to VIE's in
which an enterprise holds a variable  interest that was acquired before February
1, 2003, the  Interpretation  applies for periods beginning after June 15, 2003.
In  December  2003,  the  FASB  reissued  Interpretation  No.  46  with  certain
modifications  and   clarifications  for  certain  VIE's.  The  Company  has  no
unconsolidated  VIE's and therefore its financial  statements  are in compliance
with the requirements of Interpretation No. 46.

In April 2003,  the FASB  issued SFAS No. 149  "Amendment  of  Statement  133 on
Derivative  Instruments and Hedging Activities",  which amends and clarifies the
accounting  guidance on certain derivative  instruments and hedging  activities.
SFAS 149 is generally  effective  for contracts  entered into or modified  after
June 30, 2003 and hedging  relationships  designated  after June 30,  2003.  The
adoption of this  statement  did not impact the  Company's  financial  position,
results of operations, or cash flows.

In May 2003,  the FASB issued SFAS No. 150,  "Accounting  for Certain  Financial
Instruments  with  Characteristics  of both  Liabilities  and Equity."  SFAS 150
establishes  standards for how an issuer of equity  (including the equity shares
of any entity  whose  financial  statements  are  included  in the  consolidated
financial  statements)  classifies  and  measures on its balance  sheet  certain
financial  instruments with characteristics of both liabilities and equity. SFAS
150 is effective for financial  instruments  entered into or modified  after May
31, 2003 and for existing financial instruments after July 1, 2003. The adoption
of this statement did not impact the Company's  financial  position,  results of
operations, or cash flows.

During 2004,  the FASB issued SFAS No. 151,  "Inventory  costs - an amendment of
ARB No. 43, Chapter 4", SFAS No. 152,  "Accounting for Real Estate  Time-Sharing
Transactions - an amendment of FASB Statements No. 66 and 67", and SFAS No. 153,
"Exchanges of Nonmonetary  Assets - an amendment of APB Opinion No. 29".  During
2005, the FASB issued SFAS No. 154 "Accounting  Changes and Error  Corrections-a
replacement  of APB  Opinion 20 and FASB No. 3". We do not believe the impact of
adoption of these  statements  will be  significant  to our  overall  results of
operations or financial position.



                                      -13-
<PAGE>


On December 16,  2004,  the FASB issued SFAS No. 123 (R),  Share-Based  Payment,
which is an amendment to SFAS No. 123, Accounting for Stock-Based  Compensation.
This new standard eliminates the ability to account for share-based compensation
transactions   using  Accounting   Principles  Board  ("APB")  Opinion  No.  25,
Accounting  for  Stock  Issued  to  Employees,   and  generally   requires  such
transactions  to be  accounted  for  using  a  fair-value-based  method  and the
resulting  cost  recognized  in our financial  statements.  This new standard is
effective  for awards that are  granted,  modified or settled in cash in interim
and annual  periods  beginning  after  December 15, 2005. In addition,  this new
standard will apply to unvested options granted prior to the effective date. The
Company  intends to adopt this new standard  during the first fiscal  quarter of
2006.



                                      -14-
<PAGE>



                                  RISK FACTORS

In  evaluating  our business,  prospective  investors  and  shareholders  should
carefully consider the risks factors, any of which could have a material adverse
impact on our business,  operating results and financial condition and result in
a complete loss of your investment.

RISKS RELATED TO OUR BUSINESS:

WE HAVE HAD LOSSES SINCE OUR INCEPTION. AND, EVEN THOUGH WE NOW GENERATE REVENUE
WE EXPECT  LOSSES TO  CONTINUE  IN THE  FUTURE  AND THERE IS A RISK WE MAY NEVER
BECOME PROFITABLE.

We have incurred losses and experienced  negative  operating cash flow since our
formation.  For our fiscal  year ended  January 31,  2006,  we had a net loss of
($853,471)  and for our fiscal year ended January 31, 2005, we had a net loss of
($1,137,299).  We expect to continue  to incur  significant  operating  expenses
notwithstanding  that the Company has begun to show positive  growth in revenues
over the last operating year. Management believes that the Company is on pace to
achieve  break-even  in the next fiscal  year;  however,  given the  significant
capital  needs  of the  Company,  particularly  with  regard  to the  Direct2Own
division,  even with  continued  growth in  revenues  the  Company  may  sustain
continued  losses in the near term. If we are unable to reduce or mitigate these
losses the Company may be required to seek additional debt or equity  financing.
Should the Company elect to do so as a means of financing its growth there could
be significant additional dilution of shareholder holdings.

IF WE ARE UNABLE TO OBTAIN  ADDITIONAL  FUNDING OUR BUSINESS  OPERATIONS WILL BE
HARMED.

We believe that our available  short-term  assets and investment  income will be
sufficient to meet our operating expenses and capital  expenditures  through the
end of  fiscal  year  2007.  We do not  know  if  additional  financing  will be
available  when  needed,  or if it is  available,  if it  will be  available  on
acceptable  terms.  Insufficient  funds may  prevent  us from  implementing  our
business  strategy or may require us to delay,  scale back or eliminate  certain
contracts for the provision of our technology and products.

THE MARKET FOR OUR ELECTRONIC COMMERCE SERVICES IS EVOLVING AND MAY NOT CONTINUE
TO DEVELOP OR GROW RAPIDLY ENOUGH FOR US TO REMAIN CONSISTENTLY PROFITABLE.

Competition in the consumer electronics field is intense. Prices vary wildly and
consumer buying patterns are unpredictable. Since the Company is focused on that
segment  of the  population  with  incomes  equal to or less  than  the  average
household  income in the United  States,  should the economy suffer it is likely
the Company's business will be immediately  affected in a negative way. Also, if
the number of electronic  commerce  transactions does not continue to grow or if
consumers or businesses  do not continue to adopt our services,  it could have a
material  adverse  effect on our  business,  financial  condition and results of
operations.  We believe future growth in the electronic  commerce market will be
driven by the cost,  ease-of-use and quality of products and services offered to
consumers and  businesses.  In order to  consistently  increase and maintain our
profitability, consumers and businesses must continue to adopt our services.

OUR FUTURE  PROFITABILITY  DEPENDS  UPON OUR ABILITY TO  IMPLEMENT  OUR STRATEGY
SUCCESSFULLY TO INCREASE ADOPTION OF ELECTRONIC BILLING AND PAYMENT METHODS.

Our future  profitability  will depend, in part, on our ability to implement our
strategy  successfully  to increase  adoption of electronic  billing and payment
methods  including  the issuance of debit cards through our  subsidiary,  Direct
Card Services,  LLC. Our strategy  includes  investment of time and money during
fiscal 2006 in programs designed to:

o     drive consumer awareness of electronic billing and payment;

o     encourage  consumers  to sign up for and use our  electronic  billing  and
      payment services offered by our distribution partners;

o     encourage consumers to purchase and use our debit card products;

o     continually  refine our  infrastructure  to handle seamless  processing of
      transactions;

o     continue to develop state of the art, easy-to-use technology; and

o     increase  the  number  of  billers  whose  bills  we can  present  and pay
      electronically.

If we do not  successfully  implement  our  strategy,  revenue  growth  will  be
minimal, and expenditures for these programs will not be justified.

Our investment in these  programs will have a negative  impact on our short-term
profitability.   Additionally,   our  failure  to   implement   these   programs
successfully  or to  increase  substantially  adoption  of  electronic  commerce
billing and payment  methods by consumers who pay for the services  could have a
material  adverse  effect on our  business,  financial  condition and results of
operations.



                                      -15-
<PAGE>


SECURITY AND PRIVACY BREACHES IN OUR ELECTRONIC TRANSACTIONS MAY DAMAGE CUSTOMER
RELATIONS AND INHIBIT OUR GROWTH.

Any failures in our security and privacy  measures could have a material adverse
effect on our  business,  financial  condition  and  results of  operations.  We
electronically transfer large sums of money and store personal information about
consumers,  including bank account and credit card information,  social security
numbers, and merchant account numbers. If we are unable to protect, or consumers
perceive  that we are  unable  to  protect,  the  security  and  privacy  of our
electronic  transactions,  our growth and the growth of the electronic  commerce
market in general could be materially  adversely affected. A security or privacy
breach may:

o     cause our customers to lose confidence in our services;

o     deter consumers from using our services;

o     harm our reputation;

o     expose us to liability;

o     increase our expenses from potential remediation costs; and

o     decrease market acceptance of electronic commerce transactions.

While we believe that we utilize proven  applications  designed for premium data
security  and  integrity  to process  electronic  transactions,  there can be no
assurance  that our use of these  applications  will be  sufficient  to  address
changing market  conditions or the security and privacy concerns of existing and
potential subscribers.

WE RELY ON THIRD PARTIES TO DISTRIBUTE OUR ELECTRONIC  COMMERCE PRODUCTS,  WHICH
MAY NOT RESULT IN WIDESPREAD ADOPTION.

In  electronic  commerce,  we  rely on our  contracts  with  financial  services
organizations,  businesses, billers, Internet portals and other third parties to
provide branding for our electronic commerce services and to market our services
to their  customers.  These  contracts are an important  source of the growth in
demand for our  electronic  commerce  products.  If any of these  third  parties
abandon,  curtail or insufficiently  increase their marketing efforts,  it could
have a material adverse effect on our business,  financial condition and results
of operations.

THE TRANSACTIONS WE PROCESS EXPOSE US TO CREDIT RISKS.

Any losses  resulting  from returned  transactions,  merchant fraud or erroneous
transmissions  could result in liability  to financial  services  organizations,
merchants  or  subscribers,  which could have a material  adverse  effect on our
business,  financial  condition and results of  operations.  The  electronic and
conventional  paper-based  transactions  we process  expose us to credit  risks.
These include risks arising from returned transactions caused by:

o     insufficient funds;

o     unauthorized use;

o     stop payment orders;

o     payment disputes;

o     closed accounts;

o     theft;

o     frozen accounts; and

o     fraud.

We  are  also  exposed  to  credit  risk  from  merchant   fraud  and  erroneous
transmissions.

WE MAY EXPERIENCE  BREAKDOWNS IN OUR PAYMENT PROCESSING SYSTEM THAT COULD DAMAGE
CUSTOMER RELATIONS AND EXPOSE US TO LIABILITY.

A system  outage  or data  loss  could  have a  material  adverse  effect on our
business,  financial  condition  and results of  operations.  In addition to the
damage to our reputation a system outage or data loss could entail,  many of our
contractual  agreements  with  financial  institutions  require  the  payment of
penalties  if  our  systems  do  not  meet  certain  operating   standards.   To
successfully  operate  our  business,  we must be able to  protect  our  payment
processing  and other  systems from  interruption  by events that are beyond our
control. For example, our system may be subject to loss of service interruptions
caused  by  hostile  third  parties  or other  instances  of  deliberate  system
sabotage. Other events that could cause system interruptions include:



                                      -16-
<PAGE>


o     fire;

o     natural disaster;

o     unauthorized entry;

o     power loss;

o     telecommunications failure; and

o     computer viruses.

Although we have taken steps to protect  against data loss and system  failures,
there  is  still  risk  that we may  lose  critical  data or  experience  system
failures.  Furthermore, our property and business interruption insurance may not
be adequate to compensate us for all losses or failures that may occur.

WE MAY EXPERIENCE  SOFTWARE DEFECTS AND DEVELOPMENT  DELAYS,  DAMAGING  CUSTOMER
RELATIONS, DECREASING OUR POTENTIAL PROFITABILITY AND EXPOSING US TO LIABILITY.

Our products are based on  sophisticated  software  and  computing  systems that
often  encounter  development  delays,  and the underlying  software may contain
undetected  errors or defects.  Defects in our  software  products and errors or
delays in our processing of electronic transactions could result in:

o     additional development costs;

o     diversion  of technical  and other  resources  from our other  development
      efforts;

o     loss of credibility with current or potential customers;

o     harm to our reputation; or

o     exposure to liability claims.

In addition,  we rely on  technologies  supplied to us by third parties that may
also contain  undetected  errors or defects  that could have a material  adverse
effect on our business, financial condition and results of operations.  Although
we  attempt  to limit  our  potential  liability  for  warranty  claims  through
disclaimers in our software documentation and limitation-of-liability provisions
in our license and customer agreements, we cannot assure you that these measures
will be successful in limiting our liability.

IF WE DO NOT  RESPOND  TO RAPID  TECHNOLOGICAL  CHANGE OR  CHANGES  IN  INDUSTRY
STANDARDS, OUR SERVICES COULD BECOME OBSOLETE AND WE COULD LOSE OUR CUSTOMERS.

If competitors  introduce new products and services  embodying new technologies,
or if new industry  standards and  practices  emerge,  our existing  product and
service  offerings,  proprietary  technology  and systems  may become  obsolete.
Further,  if we fail to adopt  or  develop  new  technologies  or to  adapt  our
products and services to emerging  industry  standards,  we may lose current and
future  customers,  which could have a material  adverse effect on our business,
financial condition and results of operations.  The electronic commerce industry
is changing  rapidly.  To remain  competitive,  we must  continue to enhance and
improve  the   functionality   and  features  of  our  products,   services  and
technologies.

                       RISKS RELATING TO OUR COMMON STOCK:

OUR COMMON STOCK IS SUBJECT TO "PENNY STOCK" RULES.

The Securities and Exchange  Commission has adopted Rule 15g-9 which establishes
the  definition  of a "penny  stock,"  for the  purposes  relevant to us, as any
equity  security that has a market price of less than $5.00 per share or with an
exercise price of less than $5.00 per share, subject to certain exceptions.  For
any transaction involving a penny stock, unless exempt, the rules require:

o     that a broker or dealer  approve a person's  account for  transactions  in
      penny stocks; and

o     the broker or dealer receive from the investor a written  agreement to the
      transaction, setting forth the identity and quantity of the penny stock to
      be purchased.

In order to approve a person's  account for  transactions  in penny stocks,  the
broker or dealer must:

o     obtain financial  information and investment  experience objectives of the
      person; and



                                      -17-
<PAGE>


o     make a reasonable  determination that the transactions in penny stocks are
      suitable  for that  person  and the person has  sufficient  knowledge  and
      experience in financial  matters to be capable of evaluating  the risks of
      transactions in penny stocks.

The broker or dealer  must also  deliver,  prior to any  transaction  in a penny
stock, a disclosure  schedule  prepared by the Commission  relating to the penny
stock market, which, in highlight form:

o     sets  forth the basis on which the broker or dealer  made the  suitability
      determination; and

o     that the broker or dealer  received a signed,  written  agreement from the
      investor prior to the transaction.

Disclosure  also has to be made about the risks of  investing in penny stocks in
both public offerings and in secondary trading and about the commissions payable
to both the broker-dealer and the registered representative,  current quotations
for the securities and the rights and remedies available to an investor in cases
of fraud in penny stock  transactions.  Finally,  monthly  statements have to be
sent disclosing recent price information for the penny stock held in the account
and information on the limited market in penny stocks.



                                      -18-
<PAGE>




ITEM 7. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA


                    DIRECT RESPONSE FINANCIAL SERVICES, INC.
                          (A Development Stage Company)


                          INDEX TO FINANCIAL STATEMENTS

                    DIRECT RESPONSE FINANCIAL SERVICES, INC.


                        CONSOLIDATED FINANCIAL STATEMENTS




                                                                           Page
Report of Independent Registered Public Accounting Firm                    F-2

Consolidated Financial Statements:

         Consolidated Balance Sheets                                       F-3

         Consolidated Statements of Operations                             F-5

         Consolidated Statement of Stockholders' Equity                    F-6

         Consolidated Statements of Cash Flows                             F-7

         Notes to Consolidated Financial Statements                        F-8





        The accompanying notes are an integral part of these statements.



                                      F-1
<PAGE>

                    DIRECT RESPONSE FINANCIAL SERVICES, INC.
                          (A Development Stage Company)


            Report of Independent Registered Public Accounting Firm

Board of Directors
Direct Response Financial Services

         We have audited the accompanying  consolidated balance sheets of Direct
Response Financial  Services,  Inc. as of January 31, 2006 and January 31, 2005,
and the related  consolidated  statements of  operations,  stockholders'  equity
(deficit), and cash flows for the years ended January 31, 2006 and 2005, and the
period from inception (April 24, 2002) through January 31, 2006. These financial
statements   are  the   responsibility   of  the   Company's   management.   Our
responsibility  is to express an opinion on these financial  statements based on
our audit.

         We conducted our audit in  accordance  with the standards of the Public
Company Accounting Oversight Board (United States). Those standards require that
we plan and perform the audit to obtain  reasonable  assurance about whether the
financial  statements  are free of  material  misstatement.  The  Company is not
required  to have,  nor were we engaged  to  perform,  an audit of its  internal
control over financial reporting.  Our audit included  consideration of internal
control over financial  reporting as a basis for designing audit procedures that
are appropriate in the  circumstances,  but not for the purpose of expressing an
opinion on the  effectiveness  of the Company's  internal control over financial
reporting.  Accordingly,  we express  no such  opinion.  An audit also  includes
examining on a test basis,  evidence  supporting the amounts and  disclosures in
the  financial   statements,   assessing  the  accounting  principles  used  and
significant  estimates  made by  management,  as well as evaluating  the overall
financial  statement  presentation.   We  believe  that  our  audits  provide  a
reasonable basis for our opinion.

         In our opinion,  the  financial  statements  referred to above  present
fairly, in all material respects,  the consolidated financial position of Direct
Response  Financial  Services,  Inc. as of January 31, 2006 and January 31, 2005
and the consolidated results of its operations,  stockholders' equity (deficit),
and its cash flows for the years  ended  January  31,  2006 and 2005 and for the
period from inception  (April 24, 2002) through  January 31, 2006, in conformity
with accounting principles generally accepted in the United States of America.

         The accompanying  financial statements have been prepared assuming that
the  Company  will  continue as a going  concern.  As  described  in Note 2, the
Company has sustained net operating losses and has insufficient  working capital
to complete its business plan, which raises substantial doubts about its ability
to continue as a going concern.  Management's plans in regard to this matter are
also  discussed  in  Note  2.  The  financial  statements  do  not  include  any
adjustments that might result from the outcome of this uncertainty.

         As discussed in Note 9, the accompanying consolidated balance sheet and
consolidated  statement of operations  have been restated as of January 31, 2005
and the year then ended; and the consolidated  statement of stockholders' equity
and cash flows from  inception  (April 20,  2002) to December 31, 2005 have also
been restated.


/s/ Miller and McCollom
MILLER AND MCCOLLOM
Certified Public Accountants
4350 Wadsworth Boulevard, Suite 300
Wheat Ridge, Colorado 80033
May 19, 2006

        The accompanying notes are an integral part of these statements.



                                      F-2
<PAGE>

                    DIRECT RESPONSE FINANCIAL SERVICES, INC.
                          (A Development Stage Company)

                           Consolidated Balance Sheets

<TABLE>
<CAPTION>
                                     ASSETS

                                                                                 January 31,
                                                                                    2005
                                                                  January 31,    (Restated,
                                                                     2006        see Note 9)
                                                                  -----------    -----------
<S>                                                               <C>            <C>
CURRENT ASSETS
    Cash                                                          $     4,047    $    49,993
    Net investment in capital leases                                   50,371           --
    Accounts receivable net of allowance for doubtful accounts
       accounts of $4,178 at January 31, 2006                            --            9,472
    Inventory                                                          58,000         58,000
    Prepaid expenses                                                   36,933         12,850
    Deposit                                                              --            2,500
                                                                  -----------    -----------
           Total current assets                                       149,351        132,815

PROPERTY AND EQUIPMENT
    Property and equipment net of $1,340 and $893
        accumulated depreciation                                          893          1,340

OTHER ASSETS
    Investment                                                        200,000        200,000
    Less valuation allowance                                         (200,000)          --
                                                                  -----------    -----------
           Total assets                                           $   150,243    $   334,155
                                                                  ===========    ===========

                 LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)

CURRENT LIABILITIES
    Note payable (Note 8)                                         $   255,937    $      --
    Debenture payable                                                  92,342        121,500
    Conversion and warrant derivative liability                          --          215,811
    Accounts payable                                                  115,826         13,322
    Accounts payable - related party                                  596,300        494,612
    Accrued expenses                                                   66,396         34,416
    Shareholder deposit                                               165,549        200,000
    Advances from related party                                        26,766         26,435
    Advances from stockholders - current portion                      381,760        222,532
                                                                  -----------    -----------
           Total current liabilities                                1,700,876      1,328,628
                                                                  -----------    -----------

LONG-TERM LIABILITIES
    Advances from stockholders, less current portion                     --          191,384
                                                                  -----------    -----------
           Total liabilities                                        1,700,876      1,520,012

        The accompanying notes are an integral part of these statements.


                                      F-3
<PAGE>

                    DIRECT RESPONSE FINANCIAL SERVICES, INC.
                          (A Development Stage Company)

<CAPTION>
<S>                                                               <C>            <C>
Commitments and contingencies                                            --             --

STOCKHOLDERS' EQUITY (DEFICIT)
    Common stock - authorized 100,000,000 shares, no par
      value, 78,537,168 and 58,577,350 shares issued and
      outstanding at January 31, 2006 and 2005                      3,681,556      3,591,807
      Common stock warrants                                           115,106        140,106
      Subscribed stock                                               (111,824)      (735,824)
    Accumulated other comprehensive (loss)                           (200,000)          --
    (Deficit) accumulated during the development stage             (5,035,471)    (4,181,946)
                                                                  -----------    -----------
           Total stockholders' (deficit)                           (1,550,633)    (1,185,857)
                                                                  -----------    -----------

           Total liabilities and stockholders' equity (deficit)   $   150,243    $   334,155
                                                                  ===========    ===========
</TABLE>

        The accompanying notes are an integral part of these statements.


                                      F-4
<PAGE>

                    DIRECT RESPONSE FINANCIAL SERVICES, INC.
                          (A Development Stage Company)

                      Consolidated Statements of Operations

<TABLE>
<CAPTION>
                                                                                April 24,
                                                                                  2002
                                                                               (inception)
                                                                                 through
                                                                               January 31,
                                               Year ending     Year ending        2006
                                               January 31,     January 31,    (Restated, see
                                                   2006            2005           Note 9)
                                               ------------    ------------    ------------
<S>                                            <C>             <C>             <C>
Revenues                                       $     23,257    $     12,331    $     37,666
Cost of sales                                           418           4,501           5,888
                                               ------------    ------------    ------------
    Gross Profit                                     22,839           7,830          31,778
Lease financing interest                             11,943            --            11,943
                                               ------------    ------------    ------------
    Total                                            34,782           7,830          43,721

Costs and Expenses:
    Consulting expense paid by issuing stock        290,053         691,550       2,760,758
    Consulting expense paid by cash                 135,447         116,948         252,395
    Professional fees                               222,910         268,911         768,607
    Advertising and marketing                       141,091          70,645         244,144
    General and administrative                      175,844         317,926         667,860
    Rent expense                                     24,000          24,000          88,856
                                               ------------    ------------    ------------
         Total                                      989,345       1,489,980       4,782,620

Earnings (loss) from operations                    (954,563)     (1,482,150)     (4,738,899)

Interest income                                     234,487         560,320         794,807
Interest expense                                   (133,395)       (215,469)     (1,091,379)
                                               ------------    ------------    ------------

Net (loss)                                     $   (853,471)   $ (1,137,299)   $ (5,035,471)
                                               ============    ============    ============

(Loss) per share                               $       (.02)   $       (.05)   $       (.14)
                                               ============    ============    ============

Weighted average shares outstanding              74,432,668      30,904,963      36,091,750
                                               ============    ============    ============
Other comprehensive income:
    Net (loss)                                 $   (853,471)   $ (1,137,299)   $ (5,035,471)
    (Loss) on valuation of investment              (200,000)           --          (200,000)
                                               ------------    ------------    ------------
Total other comprehensive (loss)               $  1,047,471    $ (1,137,299)   $ (5,229,471)
                                               ============    ============    ============
</TABLE>

        The accompanying notes are an integral part of these statements.


                                      F-5
<PAGE>

                    DIRECT RESPONSE FINANCIAL SERVICES, INC.
                          (A Development Stage Company)

            Consolidated Statement of Stockholders' Equity (Deficit)
                              (Restated See Note 8)

<TABLE>
<CAPTION>
                                                                                             Other       (Deficit)
                                                                                         Comprehensive  accumulated
                                                                                         Income (Loss)  during the
                                                              Common      Common Stock                  development
                                              Shares          Stock        Warrants                        Stage          Total
                                            -----------    -----------    -----------                   -----------    -----------
<S>                                         <C>            <C>            <C>            <C>            <C>            <C>
Balance April 24, 2002 (inception)           16,737,500    $     6,000    $      --                            --      $     6,000

Shares issued for cash                           50,000         25,000           --                            --           25,000
Shares issued for services                    1,270,000        724,500           --                            --          724,500
Net loss for year ended January 31, 2003           --             --             --                      (1,316,238)    (1,316,238)
                                            -----------    -----------    -----------                   -----------    -----------

Balance January 31, 2003                     18,057,500        755,500           --                      (1,316,238)      (560,738)
                                            -----------    -----------    -----------                   -----------    -----------

Shares issued for services                    1,290,334        943,530           --                            --          943,530
Net loss for year ended January 31, 2004           --             --             --                      (1,728,409)    (1,728,409)
                                            -----------    -----------    -----------                   -----------    -----------

Balance January 31, 2004                     19,347,834    $ 1,699,030    $      --                      (3,044,647)   $(1,345,617)

Shares issued for services                   10,302,500        691,550           --                            --          691,550
Shares and warrants issued for cash
in private placement                          2,300,000         59,894        140,106                          --          200,000
Shares issued for conversion of debenture     6,187,469        333,500           --                            --          333,500
Reduction of conversion and warrant                --
derivative liability                               --           72,009           --                          72,009
Shares issued under stock  subscription      20,439,547        735,824           --                            --          735,824
Net loss for year ended January 31, 2005           --             --             --                      (1,137,299)    (1,137,299)
                                            -----------    -----------    -----------                   -----------    -----------

Less subscribed stock                                                                                                     (735,824)
                                                                                                                       -----------

Balance January 31, 2005                     58,577,350    $ 3,591,807    $   140,106           --       (4,181,946)   $(1,185,857)

Shares issued for services                   11,942,333        290,053           --             --             --          290,053
(Refund) of deposit of private placement           --             --          (25,000)          --             --          (25,000)
Reduction of conversion and warrant
derivative liability                               --           70,853           --             --             --           70,853
Loss on valuation of investment                    --             --             --         (200,000)          --         (200,000)
Shares issued for conversion of debenture    17,001,603        158,000                                                     158,000
Shares issued to debenture holder - other     7,219,882        196,753                                                     196,753
Shares returned under stock subscription    (16,000,000)      (624,000)                                                   (624,000)
Shares repurchased                             (204,000)        (1,910)                                                     (1,910)
Net loss for year ended January 31, 2006           --             --             --             --         (853,471)      (853,471)
                                            -----------    -----------    -----------    -----------    -----------    -----------

Adjustment prior year subscribed stock                                                                                     735,824
Less subscribed stock                                                                                                     (111,824)
                                                                                                                       -----------

Balance January 31, 2006                     78,537,168    $ 3,681,556    $   115,106       (200,000)    (5,235,471)   $(1,550,633)
</TABLE>


        The accompanying notes are an integral part of these statements.


                                      F-6
<PAGE>

                    DIRECT RESPONSE FINANCIAL SERVICES, INC.
                          (A Development Stage Company)

                      Consolidated Statements of Cash Flows

<TABLE>
<CAPTION>
                                                                                            April 24,
                                                                                              2002
                                                                                           (inception)
                                                                                             through
                                                                                           January 31,
                                                              Year ending    Year ending      2006
                                                              January 31,    January 31,  (Restated, see
                                                                 2006           2005          Note 9)
                                                              -----------    -----------    -----------
<S>                                                           <C>            <C>            <C>
Cash flows from operating activities:
         Net (loss)                                           $  (853,471)   $(1,137,299)   $(5,035,471)
         Non-cash items included in net (loss):
                  Depreciation                                        447            446          1,340
                  Conversion and warrant derivative expense      (144,958)      (372,134)       142,861
                  Expenses paid by issuing stock                  290,053        691,550      2,655,633
                  Loss on investment                                 --             --           60,000
         Net change in operating assets and liabilities:
                  Accounts receivable                               9,472         (9,472)          --
                  Net investment in capital leases                 50,163           --           50,163
                  Prepaid expenses                                (21,583)        93,875         13,067
                  Inventory                                          --             --          (58,000)
                  Accounts payable and accrued liabilities        105,378         97,194        681,899
                                                              -----------    -----------    -----------
Net cash (used) by operating activities                          (564,499)      (635,840)    (1,488,508)

Cash flows from investing activities:
         Purchase of investments                                     --             --         (260,000)
         Purchase of property and equipment                          --             --           (2,233)
                                                              -----------    -----------    -----------
Net cash (used) by investing activities                              --             --         (262,233)

Cash flows from financing activities:
         Proceeds from bank loan                                  255,937           --          255,937
         Proceeds from advances - related parties                   2,291           --          427,943
         (Repayment) of advances - related parties                   --          (19,417)       (19,417)
         (Repayment) proceeds from common stock
         warrants                                                 (25,000)       140,106        115,106
         Proceeds from debenture                                     --             --          100,000
         Bank overdraft                                                91           --               91
         Proceeds from shareholder deposit                        105,000        360,000        465,000
         (Purchase) of common stock                                (1,910)          --           (1,910)
         Proceeds from issuance of common stock                   182,144        204,894        412,038
                                                              -----------    -----------    -----------
Net cash provided by financing activities                         518,553        685,583      1,754,788
                                                              -----------    -----------    -----------

Net (decrease) increase in cash                                   (45,946)        49,743          4,047

Cash at beginning of period                                        49,993            250           --
                                                              -----------    -----------    -----------
Cash at end of period                                         $     4,047    $    49,993    $     4,047
                                                              ===========    ===========    ===========

Supplemental disclosure of cash flow information:
   Cash paid during the period for:
         Interest                                             $      --      $     3,519    $    10,193
         Income taxes                                         $      --      $      --      $      --
</TABLE>

        The accompanying notes are an integral part of these statements.


                                      F-7
<PAGE>

                    DIRECT RESPONSE FINANCIAL SERVICES, INC.
                          (A Development Stage Company)

Note 1 - Summary of Significant Accounting Policies

This summary of significant  accounting  policies of Direct  Response  Financial
Services,  Inc.  (Company) is presented to assist in understanding the Company's
financial statements.  The financial statements and notes are representations of
the Company's management who is responsible for their integrity and objectivity.
These accounting policies conform to generally accepted accounting principles in
the  United  States  of  America  and  have  been  consistently  applied  in the
preparation of the financial statements.  The financial statements are stated in
United States of America dollars.

Organization and Description of Business

The Company was incorporated in the State of Delaware on April 24, 2002.

The  Company  is in the  development  stage  and  has  had  limited  significant
operations.

The Company's  primary business activity is financing the purchase of computers,
televisions and other electronic products through its Direct2Own  division.  The
Company also provides stored value debit card programs and merchant accounts for
credit and debit card  processing  through its subsidiary  Direct Card Services,
LLC.

On  April  29,  2002  the  Company   entered  into  a  Agreement   and  Plan  of
Reorganization with Relevant Links, Inc., a public company  (incorporated in the
State of Colorado on April 7, 2000) with no assets or  liabilities.  As a result
of the  reorganization,  the Company became a publicly reporting  company.  (See
note 4). Subsequent to the reorganization,  Relevant Links, Inc changed its name
to Direct Response Financial Services, Inc. (Colorado) (DRFS-CO).

On May 16, 2002, the Company  participated in forming Direct Card Services,  LLC
(DCS)  for  the  purpose  of  facilitating  the  Company's  bankcard  processing
business. Under the terms of the LLC agreement, the Company has a 50% interest.

Principles of Consolidation

The accompanying  consolidated financial statements include the Company and its'
wholly owned and controlled  subsidiary,  DRFS-CO, and its controlled subsidiary
DCS. All inter-company accounts have been eliminated in the consolidation.

The  Company  considers  its 50%  interest in DCS to be a  controlling  interest
because,  as sole managing member, it has management  control in addition to its
profit  interest.  Because DCS has a deficit equity position at January 31, 2006
and 2005, no minority interest has been recorded.

Revenue Recognition

The Company applies the provisions of SEC Staff Accounting  Bulletin ("SAB") No.
104, Revenue  Recognition in Financial  Statements  ("SAB 104"),  which provides
guidance on the recognition, presentation and disclosure of revenue in financial
statements filed with the SEC.

        The accompanying notes are an integral part of these statements.


                                      F-8
<PAGE>

                    DIRECT RESPONSE FINANCIAL SERVICES, INC.
                          (A Development Stage Company)

The SAB 104 outlines the basic  criteria  that must be met to recognize  revenue
and provides guidance for disclosure related to revenue recognition policies. In
general,  the Company  recognized  revenue related to monthly contracted amounts
for services  provided when (i) persuasive  evidence of the arrangement  exists,
(ii)  delivery has  occurred or services  have been  rendered,  (iii) the fee is
fixed or determinable and (iv) collectibility is reasonably assured.

The Company  offers no warranties on equipment  sold beyond those offered by the
manufacturer.

The  principal  activity of  Direct2Own  is financing the purchase of computers,
televisions and other electronic products. The Company generally receives orders
and accepts down payment and twelve monthly  payments  prior to granting  title.
The Company treats the activity as a lease financing activity in accordance with
FAS 98, Accounting for Leases.

Inventory

The  company's  inventory  consists of credit card  blanks and  supplies  and is
valued at the lesser of cost or net realizable  value using the average  costing
method.

Use of Estimates

The  preparation  of the  Company's  financial  statements  in  conformity  with
generally accepted  accounting  principles requires management to make estimates
and assumptions that affect the amounts  reported in these financial  statements
and accompanying notes. Actual results could differ from those estimates.

Earnings (Loss) Per Share

Earnings  (loss)  per share of common  stock is  computed  by  dividing  the net
earnings  (loss) by the weighted  average  number of common  shares  outstanding
during the period.  Fully diluted  earnings per share are not presented  because
they are anti-dilutive.

Estimated Fair Value of Financial Instruments

The carrying value of the Company's accounts  receivable,  accounts payable, and
other financial  instruments  reflected in the financial statement  approximates
fair value due to the short-term maturity of the instruments.  The fair value of
the Company's  advances  from  stockholders  and  debentures  payable  cannot be
estimated, because of the unique and proprietary nature of these instruments.

Comprehensive Income

The Company has adopted Statement of Financial  Accounting  Standards (SFAS) No.
130, "Reporting Comprehensive Income". SFAS 130 requires that the components and
total amounts of comprehensive  income be displayed in the financial  statements
beginning in 1998.  Comprehensive  income includes net income and all changes in
equity  during a period  that  arises from  non-owner  sources,  such as foreign
currency items and unrealized gains and losses on certain  investments in equity
securities and the loss in valuation of an investment in a related company (Note
5).

        The accompanying notes are an integral part of these statements.


                                      F-9
<PAGE>

                    DIRECT RESPONSE FINANCIAL SERVICES, INC.
                          (A Development Stage Company)

Income Taxes

The Company  records  deferred  taxes in accordance  with Statement of Financial
Accounting  Standards  (SFAS)  No.  109,  "Accounting  for  Income  Taxes."  The
statement  requires  recognition  of  deferred  tax assets and  liabilities  for
temporary  differences  between the tax bases of assets and  liabilities and the
amounts at which they are carried in the  financial  statements,  based upon the
enacted tax rates in effect for the year in which the  differences  are expected
to reverse.  A valuation  allowance  is  established  when  necessary  to reduce
deferred tax assets to the amount expected to be realized.

Valuation of Long-Lived Assets

The  Company   periodically   analyzes  its  long-lived   assets  for  potential
impairment,  assessing  the  appropriateness  of  lives  and  recoverability  of
unamortized balances through measurement of undiscounted operation cash flows on
a basis consistent with accounting  principles  generally accepted in the United
States of America.

Other

The Company's fiscal year end is January 31.

The Company  paid no  dividends  during the periods  presented.  Advertising  is
expensed as it is incurred. The company has no cash equivalents.

The Company consists of one reportable business segment.

All revenue reported is from external customers in the United States. All of the
Company's assets are located in the United States.

Note 2 - Basis of Presentation - Going Concern

The  accompanying  financial  statements  have been prepared in conformity  with
generally accepted accounting principles in the United States of America,  which
contemplates  continuation  of the  Company  as a going  concern.  However,  the
Company has sustained net operating losses and has insufficient  working capital
to complete  its business  plan.  This fact raises  substantial  doubt about the
Company's  ability to continue  as a going  concern.  Management  plans to raise
additional  capital to enable the Company to complete its business  plan.  There
can be no assurance  that  management  will be successful in raising  additional
capital sufficient to complete its business plan.

        The accompanying notes are an integral part of these statements.


                                      F-10
<PAGE>

                    DIRECT RESPONSE FINANCIAL SERVICES, INC.
                          (A Development Stage Company)

Note 3 - Development Stage Company

Based upon the Company's  business plan, it is a development  stage  enterprise.
Accordingly,  the Company  presents its financial  statements in conformity with
the  accounting  principles  generally  accepted in the United States of America
that  apply  in  establishing  operating  enterprises.  As a  development  stage
enterprise, the Company discloses the deficit accumulated during the development
stage and the cumulative  statements of operations and cash flows from inception
to the current balance sheet date.

Note 4 - Property and Equipment

Components of property and equipment consist of:

                                                         Depreciation
                                                             Rate
                               Accumulated       Net         and
                       Cost    Depreciation     Amount      Method
                      ------   ------------     ------    ----------
January 31, 2005:
   Office Equipment   $2,233   $        893     $1,340    3 years SL
January 31, 2006:
   Office Equipment    2,233          1,340        893    3 years SL


Depreciation is provided in amounts sufficient to recover asset costs over their
estimated useful lives.

Note 5 - Investment

During  July 2003,  the  Company  invested  $200,000  in Optimum  Pay USA,  Inc.
("Optimum").  Optimum develops electronic payment systems. Optimum Pay USA, Inc.
is a privately held company with headquarters in Irvine,  California and offices
in Covington,  Kentucky.  The company issued an unsecured  promissory  note to a
shareholder  of the  company  for 2.5 shares of Series A  Convertible  Preferred
Stock of Optimum,  which represents  approximately two percent (2%) ownership of
Optimum Pay USA,  Inc.  The  promissory  note was due July 31,  2005,  and bears
interest of three percent (3%), and is accounted for as described in Note 6. The
investment  is  accounted  for using the cost  method and valued at the lower of
cost or fair market  value.  During the quarter  ended  January  31,  2006,  the
Company  determined  that the  decline in value of the  investment  in a related
company was temporary.  The Company  believed that it had the ability and intent
to hold the investment indefinitely.  However, there was no basis to determine a
forecasted  recovery of fair value up to (or beyond) the cost of the investment.
Accordingly, the Company has provided an allowance for the entire investment.


        The accompanying notes are an integral part of these statements.


                                      F-11
<PAGE>

                    DIRECT RESPONSE FINANCIAL SERVICES, INC.
                          (A Development Stage Company)

Note 6 - Advances from Stockholders and Related Parties

The Company has received  advances from  stockholders in the amount of $381,760.
The advances are evidenced by unsecured  promissory notes bearing interest rates
of 3% to 6%. The notes are due prior to the year ending January 31, 2007.

Advances totaling  $381,760 are the subject of efforts by Company  management to
retire the Promissory Notes for less than their stated face value.  Negotiations
with the Promissory Note holders are in progress, but not completed.

Note 7 - Convertible Debenture, Shareholder Deposits and Subscribed Stock

In January  2003,  the Company sold an 8%  convertible  debenture  for $150,000.
Interest on the  debenture  is payable  monthly.  No assets have been pledged as
security and the note cannot be prepaid.  The  agreement,  as amended on May 19,
2003,  February 19, 2004, March 23, 2004 and November 8, 2004, has the following
additional provisions:

The number of shares for which the  debenture is  convertible  into common stock
(in  denominations  of $1,000 or more in an integral  multiple of $500 in excess
thereof) is equal to the debenture  dollar amount being converted  multiplied by
eleven,  minus  the  product  of the  conversion  price,  as  determined  below,
multiplied  by ten  times  the  dollar  amount  of the  debenture  amount  being
converted,  with the entire foregoing result divided by the conversion price. To
the extent that, on any date,  the holding of common shares  results in a holder
being  deemed to be the  beneficial  owner of more than five percent (5%) of the
then outstanding shares of the Company's common stock, the holder shall not have
the right and the Company  shall not have the  obligation to convert any portion
of the debenture as shall cause such holder to be deemed the beneficial owner of
more than five percent (5%) of the then outstanding shares of common stock.

The conversion  price is equal to the lesser of $1.00,  or eighty per cent (80%)
(the  discount  multiplier)  of the average of the three  lowest  market  prices
during the ninety (90) day period prior to the holder's election to convert.

In  addition  to the right to  convert  the  debenture,  the  holder  was given,
coinciding  with the  exercising  of the  debenture,  a warrant until January 9,
2006, to purchase  shares of the Company's  common stock at an exercise price of
$1.00 per share  equal to ten times the dollar  amount of the  debentures  being
converted.

During February and March 2004, the Company  amended the debenture  agreement to
extend the due date of the debenture to January 2006 and the expiration  date of
the conversion warrant to January 2007.  Additionally,  the amendments allow for
the debenture holder to add $150,000 of principal under certain conditions.

During June 2004, the Company  amended the agreement to provide for a prepayment
of $60,000 to be used for  converting  portions of the debenture and  exercising
warrants in exchange for the Company issuing 2,000,000 shares of common stock in
anticipation  of future  debenture  conversions  and  warrant  exercises.  As of
January 31, 2005,  439,547 of these shares have not been  utilized and are shown
on the financials statements as subscribed stock.

        The accompanying notes are an integral part of these statements.


                                      F-12
<PAGE>

                    DIRECT RESPONSE FINANCIAL SERVICES, INC.
                          (A Development Stage Company)


During November 2004, the Company further  amended the debenture  agreement.  In
accordance with the agreement,  the Company  delivered  20,000,000 shares of the
Company's  restricted  common shares in the name of the  debenture  holder to an
escrow  agent which may be released to the  debenture  holder  pursuant to valid
debenture  conversions and warrant exercise notices.  The shares issued and held
in escrow are recorded at the estimated value of the conversion and shown on the
financials statements as subscribed stock.

The  Company  has the option to  repurchase  any common  shares to be issued for
future  debenture  conversions and warrant  exercises  provided that the Company
gives notice and the debenture  holder converts  debenture  amounts and exercise
warrant  amounts at least equal to the number of shares the  Company  desires to
purchase.  The purchase  price for the common shares shall be 92% of the average
of the volume weighted  average price of the Company's common shares on the five
trading days prior to the date the debenture holder receives the notice from the
Company.

During the year ending January 31, 2005, the debenture holder converted  $28,500
of the principal of the debenture and received 7,902,469 shares of the Company's
common stock and simultaneously issued 285,000 warrant shares for $285,000.  The
debenture  holder also has  deposited  $200,000  with the Company to be used for
future conversions.

During the year ending January 31, 2006, the debenture holder converted  $38,513
of  the  principal  of the  debenture  and  received  17,001,603  shares  of the
Company's  common stock and  simultaneously  issued  385,130  warrant shares for
$385,130.  The debenture holder also has deposited  $105,000 with the Company to
be used for future conversions.

On August 15, 2005,  the Company  entered into an addendum to the agreement with
the debenture  holder.  The addendum  provided the debenture holder would cancel
the certificate for 20,000,000  restricted shares it was holding and the Company
would  issue  twenty  unrestricted  certificates  to the  debenture  holder  for
1,000,000  shares each. The debenture  holder returned  16,000,000 of the twenty
1,000,000 shares to the Company. The debenture holder subsequently  returned the
outstanding 4,000,000 shares.

Note 8 - Note Payable

On November 15, 2005, the Company  ratified and approved a line of credit in the
amount of $350,000. The term of the line of credit is revolving with an interest
rate of 2% above prime.  The loan is due November  2006.  The  Company's CEO and
President  personally  guaranteed  the repayment of the Company's line of credit
and property  owned by a family trust was provided to the bank as  collateral to
secure repayment.


        The accompanying notes are an integral part of these statements.


                                      F-13
<PAGE>

                    DIRECT RESPONSE FINANCIAL SERVICES, INC.
                          (A Development Stage Company)

Note 9 - Restatement of Financial Statements

In January  2003,  the Company  sold an 8%  convertible  debenture  and issued a
warrant for the purchase of common stock. In its original  filings for the years
ended  January 31, 2005,  2004 and 2003,  the Company  failed to account for the
embedded beneficial conversion feature in the debenture as required by EITF 98-5
and the application of EITF 00-19 and EITF 00-27. Similarly, the company omitted
the derivative  feature of requiring the conversion and warrant  issuances to be
in  registered  common  stock.  The Company has valued the  embedded  beneficial
conversion feature using the prescribed formula in the debenture for determining
the number of shares to be issued as applied in accordance  with EITF 00-19.  An
amount of $308,322 was expensed on January 9, 2003, the commitment  date,  since
the debenture was  convertible  at any time and the Warrants  exercisable at the
same dates.

Since the conversion warrant agreement requires the Company to physically settle
the conversions  only by delivering  registered  shares,  it is assumed that the
Company will be required to net-cash  settle the  conversion in accordance  with
EITF  00-19  and  record  the above  calculated  amount  as a  liability  and is
disclosed as a conversion and warrant derivative liability.

The Company valued the conversion and warrant  liability at fair value using the
Black-Scholes  formula  applying  the  same  assumptions  as used  for  both the
conversion and exercise features.

As the  debenture  conversions  are made and the  warrants  are  exercised,  the
derivative  liability  is  proportionately  reduced and the common  stock amount
increased.  The  conversion  and  warrant  derivative  liability  was reduced by
$72,009 for the year ended  January 31,  2005,  and the  conversion  and warrant
derivative liability was reduced by $70,853 for the year ended January 31, 2006.

The Company remeasures the conversion and warrant liability  quarterly following
the original  recording on the  commitment  date.  The Company is  prohibited by
contract  to issue  shares  that would cause the holder to own 5% or more of the
Company's  outstanding  stock.  The holder owned common stock on the measurement
dates only at October 31, 2005.

In the accompanying financial statements increases in the liability are shown as
interest expense and decreases as interest income.

The amounts  charged to expense and credited to income for the periods  measured
are as follows.

                               Date        Expense or (income)
                         January 31, 2003   $     308,322
                         January 31, 2004         351,632
                         April 30, 2004          (351,195)
                         July 31, 2004           (163,166)
                         October 31, 2004         (45,959)
                         January 31, 2005         188,186
                         April 30, 2005            89,529
                         July 31, 2005           (166,201)
                         October 31, 2005         (37,777)
                         January 31, 2006         (30,509)

        The accompanying notes are an integral part of these statements.


                                      F-14
<PAGE>

                    DIRECT RESPONSE FINANCIAL SERVICES, INC.
                          (A Development Stage Company)

The net loss for the years ended  January 31, 2003 and 2004,  were  restated and
increased by $308,302 and $351,632,  respectively for the conversion feature and
warrant valuation.

Accordingly,  the Company has restated  its  financial  statements  for the year
ended January 31, 2005 to correct the  omissions in the financial  statements as
previously filed.

Following are  reconciliations of the Company's  restatement of the Consolidated
Balance Sheet,  Consolidated  Statement of Operations and Consolidated Statement
of Cash Flows of January 31, 2005.

        The accompanying notes are an integral part of these statements.


                                      F-15
<PAGE>

                    DIRECT RESPONSE FINANCIAL SERVICES, INC.
                          (A Development Stage Company)

<TABLE>
<CAPTION>
                                     ASSETS

                                                                     January 31,                     January 31,
                                                                        2005                            2005
                                                                     As Reported     Adjustments      Restated
                                                                     ------------    -----------     ----------
<S>                                                                  <C>             <C>
CURRENT ASSETS
           Total current assets                                           132,815                       132,815

PROPERTY AND EQUIPMENT
    Property and equipment, net of $893 and $447 depreciation               1,340                         1,340

OTHER ASSETS
    Investments                                                           200,000                       200,000
                                                                     ------------                    ----------
           Total assets                                              $    334,155    $               $  334,155
                                                                     ============                    ==========

                 LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)

CURRENT LIABILITIES
           Total current liabilities                                      964,882                       964,882

LONG-TERM LIABILITIES
    Advances from stockholders, less current portion                      191,384                       191,384
    Advances from related party                                            26,435                        26,435
    Conversion and warrant derivative liability                              --          215,811        215,811
    Debenture payable                                                     121,500                       121,500
                                                                      -----------    -----------    -----------
           Total liabilities                                            1,304,201        215,811      1,520,012

Commitments and contingencies                                                --                            --

STOCKHOLDERS' EQUITY (DEFICIT)
    Common stock - authorized 100,000,000 shares, no par
      value, 58,577,350 shares issued and outstanding at January
31, 2005                                                                3,987,586       (395,779)     3,591,807
      Common stock warrants                                               140,106                       140,106
      Subscribed stock                                                   (735,824)                     (735,824)
    (Deficit) accumulated during the development stage                 (4,361,914)       179,968     (4,181,946)
                                                                      -----------    -----------    -----------
           Total stockholders' (deficit)                                 (970,046)      (215,811)    (1,185,857)
                                                                      -----------    -----------    -----------

           Total liabilities and stockholders' equity (deficit)       $   334,155    $      --      $   334,155
                                                                      ===========    ===========    ===========
</TABLE>

        The accompanying notes are an integral part of these statements.


                                      F-16
<PAGE>

                    DIRECT RESPONSE FINANCIAL SERVICES, INC.
                          (A Development Stage Company)

<TABLE>
<CAPTION>
                                               Year ending
                                               January 31,                     January 31,
                                                  2005                            2005
                                               As reported     Adjustments       Restated
                                               ------------    ------------    ------------
<S>                                            <C>             <C>             <C>
Revenues                                       $     12,331    $               $     12,331
Cost of sales                                         4,501                           4,501
                                               ------------    ------------    ------------
    Gross Profit                                      7,830                           7,830

Costs and Expenses:
    Consulting expense paid by issuing stock        691,550                         691,550
    Consulting expense paid by cash                 116,948                         116,948
    Professional fees                               268,911                         268,911
    Advertising and marketing                        70,645                          70,645
    General and administrative                      317,926                         317,926
    Rent expense                                     24,000                          24,000
                                               ------------    ------------    ------------
         Total                                    1,489,980                       1,489,980

Earnings (loss) from operations                  (1,482,150)                     (1,482,150)

Interest income                                        --           560,320         560,320
Interest expense                                    (27,283)       (188,186)       (215,469)
                                               ------------    ------------    ------------

Net (loss)                                     $ (1,509,433)   $    372,134    $ (1,137,299)
                                               ============    ============    ============


(Loss) per share                               $       (.05)   $               $       (.05)
                                               ============    ============    ============

Weighted average shares outstanding              30,904,963                      30,904,963
                                               ============    ============    ============
</TABLE>


        The accompanying notes are an integral part of these statements.


                                      F-17
<PAGE>

                    DIRECT RESPONSE FINANCIAL SERVICES, INC.
                          (A Development Stage Company)


<TABLE>
<CAPTION>
                                                              January 31,                   January 31,
                                                                 2005                          2005
                                                              As reported    Adjustments     Restated
                                                              -----------    -----------    -----------
<S>                                                           <C>            <C>            <C>
Cash flows from operating activities:
         Net (loss)                                           $(1,509,433)   $   372,134    $(1,137,299)
         Non-cash items included in net (loss):
                  Depreciation                                        446                           446
                  Conversion and warrant derivative expense      (372,134)      (372,134)
                  Expenses paid by issuing stock                  691,550                       691,555
         Net change in operating assets and liabilities:
                  Accounts receivable                              (9,472)                       (9,472)
                  Prepaid expenses                                 93,875                        93,875
                  Accounts payable and accrued liabilities         97,194                        97,194
                                                              -----------    -----------
Net cash (used) by operating activities                          (635,840)          --
                                                                                               (635,840)

Cash flows from financing activities:
         (Repayment) of advances - related parties                (19,417)                      (19,417)
         Proceeds from common stock warrants                      140,106                       140,106
         Shareholder deposit                                      360,000                       360,000
         Proceeds from issuance of common stock                   204,894                       204,894
                                                              -----------    -----------    -----------
Net cash provided by financing activities                         685,583                       685,583
                                                              -----------    -----------    -----------

Net increase in cash                                               49,743                        49,993

Cash at beginning of period                                           250           --             --
                                                              -----------    -----------    -----------
Cash at end of period                                         $    49,993    $              $    49,993
                                                              ===========    ===========    ===========

Supplemental disclosure of cash flow information:
  Cash paid during the period for:
         Interest                                             $     3,519    $              $     3,519
         Income taxes                                         $      --      $      --      $      --
</TABLE>


Note 10 - Stockholders' Equity

At inception, the Company issued 6,000,000 shares of stock for services,  valued
at $6,000, which was the estimated fair value of the services received.

During  December  2002,  the Company sold 50,000  shares of its common stock for
$25,000 cash, which was an average price per share of $.50.

During January 2003, the Company issued 1,270,000 shares of its common stock for
services, which was valued at estimated fair value of $724,500 (weighted average
$.57 per share) based on quoted market prices on the date of the transaction. Of
the shares issued,  1,240,000  shares were issued to related  parties and 30,000
shares were issued to non-related parties for consulting services.

        The accompanying notes are an integral part of these statements.


                                      F-18
<PAGE>

                    DIRECT RESPONSE FINANCIAL SERVICES, INC.
                          (A Development Stage Company)


In March of 2003, the Company  enacted a "2003 stock  incentive  plan." The plan
authorizes the board of directors,  or its designated committee,  to award up to
750,000  shares  or  options  for  shares,  generally  under  terms  and  prices
determined  by the board.  Awards may be granted  to  officers,  directors,  and
employees of and  consultants  and advisers to the Company or its  subsidiaries.
The plan contains  additional terms and  restrictions.  749,334 shares have been
issued pursuant to the plan through April 30, 2003.

During the fiscal year ended  January  2005,  the Company  issued an  additional
10,302,500  shares of its common stock to related  parties for  services,  which
were valued at  estimated  fair value of  $691,550  (weighted  average  $.08 per
share) based on quoted market prices on the date of the transaction.

During the fiscal year ended  January  2006,  the Company  issued an  additional
7,850,000 shares of its common stock to related parties for services,  which was
valued at  estimated  fair value of $153,500  (weighted  average $.02 per share)
based on quoted market prices on the date of the transaction.

During the fiscal year ended  January  2006,  the Company  issued an  additional
5,108,333 shares of its common stock for services, which was valued at estimated
fair value of $167,833  (weighted average $.04 per share) based on quoted market
prices on the date of the transaction.

The Company also issued stock and warrants with a private  placement  memorandum
in 2005.  The Company was  authorized to sell up to a maximum of 50 Units,  with
each Unit consisting of either:  (1) 200,000 Rule 144 restricted  common shares;
(2) 100,000 Rule 144 restricted  common shares plus a separate warrant entitling
the holder to purchase up to 50,000 shares of free trading stock  exercisable at
$0.10 per share for a period of two years from the date of  investment  pursuant
to the terms and conditions of the warrant;  or (3) a warrant for 167,000 shares
of free  trading  stock  exercisable  at  $0.02  per  share  with  each  warrant
convertible into 1.5 shares of stock  exercisable for a period of two years from
the  date of the  investment,  but not  prior  to six  months  from  the date of
investments  pursuant  to the terms  and  conditions  of the  warrant  (each,  a
"Unit").  The  selection  of Unit  Type  1,  Unit  Type 2 or  Unit  Type 3 (or a
combination  thereof  with the approval of the Company) was at the option of the
investor.  The Company issued 2,300,000 shares of common stock under the private
placement memorandum. Warrants issued were as follows:

         Exercise Price    Expires    Number
         --------------    -------    -------
              $.10          2007      127,500
              $.02          2007       12,606

The  Company  refunded  five  Units in the amount of  $25,000  from the  Private
Placement Memorandum to four investors during the year ended January 31, 2006.


        The accompanying notes are an integral part of these statements.


                                      F-19
<PAGE>

                    DIRECT RESPONSE FINANCIAL SERVICES, INC.
                          (A Development Stage Company)

During the year ending  January 31,  2005,  the company  issued  common stock by
debenture  conversions,  exercise of warrants, and subscribed stock as described
above in Note 7.

The  Company  entered  into a  consulting  agreement  dated  March 8, 2005.  The
consulting company will provide services with regard to acquisition,  financing,
and company goals and structure.  The  consultant  will receive a monthly fee in
the amount of $5,000  and a  percentage  (finders  fee) of  investment  proceeds
identified by the consultant.

The Company  entered into a consulting  agreement  dated December 31, 2005, with
two individuals. In consideration of the Consulting Services to be provided, the
Company shall issue 100,000 shares of Rule 144  restricted  common stock to each
of the individuals. The agreement is in effect for one year.

Note 11 - Related Party Transactions

During the year ended January 31, 2005,  the Company  incurred legal fees with a
law firm, in which the  Company's  CEO is a partner,  in the amount of $186,617,
all of which is unpaid at year-end.

During the year ended January 31, 2006, the Company incurred legal fees with the
above mentioned law firm in the amount of $181,750.

As of January  31,  2006,  a director  of the  Company  was the  president  of a
significant  business  related to the Company  because it  provides  third party
processing  and  technology  to the  Company  as part of its  stored  value card
programs.  As of March 1, 2006,  this  individual is no longer a director of the
Company.

Note 12 - Income Taxes

As of  January  31,  2006,  the  Company  had  approximately  $4,850,000  of net
operating  loss  carryover  that expires in 2023  through  2026. A change in the
ownership  of more than 50% of the  Company may result in the  inability  of the
Company to utilize the  carryover.  The Company had an  estimated  deferred  tax
asset of $446,200  related to the net  operating  loss  carryover,  including an
addition of $87,200 for the current year.  Carryforwards  previously incurred by
the Company are not available due to  restrictions  when  ownership  changes.  A
valuation  allowance  has been provided for the total amount of the deferred tax
asset, including the current year addition, since the amounts, if any, of future
revenues necessary to be able to utilize the carryover, are uncertain.

The overall  effective tax rate differs from the Federal  statutory tax rate for
the year ended January 31, 2006 as follows:

                                                            % of Pre-tax
                                                           income (loss)
                                                           --------------
          Tax provision based on Federal statutory rate           34.0%
          State tax, net of Federal benefit                        2.3%
          Surtax exemption                                       (27.1%)
                                                           --------------
          Estimated tax rate                                       9.2%
          Valuation allowance                                     (9.2%)
                                                           --------------
          Effective tax rate                                       0.0%
                                                           ==============

        The accompanying notes are an integral part of these statements.


                                      F-20
<PAGE>

                    DIRECT RESPONSE FINANCIAL SERVICES, INC.
                          (A Development Stage Company)

Note 13 - Concentration of Risk

Through its subsidiary Direct Card Services,  LLC, the Company is dependent on a
marketing  agreement with a major bank for its future revenue regarding bankcard
processing.

Note 14 - Commitments and Contingencies

Through March 1, 2006,  the Company  rents its office space on a  month-to-month
basis.

The Company  entered into an agreement with Optimum Pay, Inc. to manage the data
functions  related to its Direct Card  Services,  LLC Personal  Advantage  Media
Card.  The Company incurs costs and fees with Optimum Pay, Inc. when the Company
issues  individual  debit  cards from the Direct  Card  Services,  LLC  Personal
Advantage  Media  program.  Earlier debit card programs  between the Company and
Optimum Pay,  Inc. have been  terminated.  With the  termination  of these other
debit card  programs  any ongoing  obligation  to Optimum  Pay,  Inc.  for these
terminated programs have ended.

Note 15 - Subsequent Events

Contingencies

On February 3, 2006,  the Company was named as a defendant in a civil  complaint
with the  County of San  Diego  Superior  Court.  The  holder  of the  Company's
debenture loan filed a complaint for breach of contract based upon an allegation
that the  Company  failed  to  repay  alleged  monies  due and  payable  under a
pre-existing  convertible  debenture,  as  amended,  between the Company and the
holder of the debenture.  The Company  denies any liability  under the complaint
and has  cross-complained  against the debenture holder and certain  individuals
for  damages  caused  to the  Company  by reason  of their  acts and  omissions.
Contingencies  exist with  respect to this  litigation  matter and the  ultimate
resolution of which cannot be presently determined. Accordingly, there can be no
assurance that the Company will prevail in this litigation.

Lease

The Company  leased new office  space for the period from April 1, 2006 to March
31, 2009.  The  following is the  expected  base rental  expenses for the fiscal
years to March 31, 2009.

                          Period ended        Amount
                        ----------------    -----------
                        January 31, 2007    $    52,898
                        January 31, 2008         61,966
                        January 31, 2009         63,825
                        January 31, 2010         10,689

        The accompanying notes are an integral part of these statements.


                                      F-21
<PAGE>

                    DIRECT RESPONSE FINANCIAL SERVICES, INC.
                          (A Development Stage Company)

Stock Repurchase

On April 28, 2006, the Company  completed the repurchase of 1,491,200  shares of
its common stock in the open market and has  cancelled an  additional  5,000,000
shares of  common  stock in  combination  with its  repurchase  of  shares.  The
combined  amount of cancelled  or  repurchased  shares is 8.1% of the  Company's
total outstanding number of shares.

Financing

On March 6,  2006,  the  Company  entered  into a  Revolving  Loan and  Security
Agreement  with a limited  liability  company.  Pursuant  to the  Agreement  the
Company may borrow up to $5,000,000 on a revolving basis with simple interest at
22%. Under the terms of the Agreement the Company is to repay any borrowed funds
on a twelve month amortized basis,  including  principal and interest,  from the
activities  of  Direct2Own,  a division of the  Company.  The loan  proceeds are
secured  by  customer  contracts  originated  by  Direct2Own  through  the  loan
proceeds. The Agreement has a term until December 1, 2009.

Note 16 - Recent Accounting Pronouncements

In January  2003,  the FASB  issued  Interpretation  No. 46,  "Consolidation  of
Variable  Interest  Entities."  It  requires  existing  unconsolidated  variable
interest  entities (VIE's) to be consolidated by their primary  beneficiaries if
the entities do not effectively  disperse risks among the parties  involved.  It
applies  immediately  to VIE's  created  after  January 31, 2003 and to VIE's in
which an enterprise holds a variable  interest that was acquired before February
1, 2003, the  Interpretation  applies for periods beginning after June 15, 2003.
In  December  2003,  the  FASB  reissued  Interpretation  No.  46  with  certain
modifications  and   clarifications  for  certain  VIE's.  The  Company  has  no
unconsolidated  VIE's and therefore its financial  statements  are in compliance
with the requirements of Interpretation No. 46.

In April 2003,  the FASB  issued SFAS No. 149  "Amendment  of  Statement  133 on
Derivative  Instruments and Hedging Activities",  which amends and clarifies the
accounting  guidance on certain derivative  instruments and hedging  activities.
SFAS 149 is generally  effective  for contracts  entered into or modified  after
June 30, 2003 and hedging  relationships  designated  after June 30,  2003.  The
adoption of this  statement  did not impact the  Company's  financial  position,
results of operations, or cash flows.

In May 2003,  the FASB issued SFAS No. 150,  "Accounting  for Certain  Financial
Instruments  with  Characteristics  of both  Liabilities  and Equity."  SFAS 150
establishes  standards for how an issuer of equity  (including the equity shares
of any entity  whose  financial  statements  are  included  in the  consolidated
financial  statements)  classifies  and  measures on its balance  sheet  certain
financial  instruments with characteristics of both liabilities and equity. SFAS
150 is effective for financial  instruments  entered into or modified  after May
31, 2003 and for existing financial instruments after July 1, 2003. The adoption
of this statement did not impact the Company's  financial  position,  results of
operations, or cash flows.


        The accompanying notes are an integral part of these statements.


                                      F-22
<PAGE>

                    DIRECT RESPONSE FINANCIAL SERVICES, INC.
                          (A Development Stage Company)

During 2004,  the FASB issued SFAS No. 151,  "Inventory  costs - an amendment of
ARB No. 43, Chapter 4", SFAS No. 152,  "Accounting for Real Estate  Time-Sharing
Transactions - an amendment of FASB Statements No. 66 and 67", and SFAS No. 153,
"Exchanges of Nonmonetary  Assets - an amendment of APB Opinion No. 29".  During
2005, the FASB issued SFAS No. 154 "Accounting  Changes and Error  Corrections-a
replacement  of APB  Opinion 20 and FASB No. 3". We do not believe the impact of
adoption of these  statements  will be  significant  to our  overall  results of
operations or financial position.

On December 16,  2004,  the FASB issued SFAS No. 123 (R),  Share-Based  Payment,
which is an amendment to SFAS No. 123, Accounting for Stock-Based  Compensation.
This new standard eliminates the ability to account for share-based compensation
transactions   using  Accounting   Principles  Board  ("APB")  Opinion  No.  25,
Accounting  for  Stock  Issued  to  Employees,   and  generally   requires  such
transactions  to be  accounted  for  using  a  fair-value-based  method  and the
resulting  cost  recognized  in our financial  statements.  This new standard is
effective  for awards that are  granted,  modified or settled in cash in interim
and annual  periods  beginning  after  December 15, 2005. In addition,  this new
standard will apply to unvested options granted prior to the effective date. The
Company  intends to adopt this new standard  during the first fiscal  quarter of
2006.

        The accompanying notes are an integral part of these statements.


                                      F-23
<PAGE>

                    DIRECT RESPONSE FINANCIAL SERVICES, INC.
                          (A Development Stage Company)


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

None.

ITEM 8A. CONTROLS AND PROCEDURES

As of the end of the period covered by this report,  we conducted an evaluation,
under the supervision and with the  participation of our chief executive officer
and chief  financial  officer of our  disclosure  controls  and  procedures  (as
defined in Rule 13a-15(e) and Rule  15d-15(e) of the Exchange  Act).  Based upon
this  evaluation,  our  chief  executive  officer  and chief  financial  officer
concluded  that our  disclosure  controls and procedures are effective 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 Commission's rules and forms. There was
no change in our internal  controls or in other  factors that could affect these
controls  during our last fiscal  quarter that has  materially  affected,  or is
reasonably  likely to materially  affect,  our internal  control over  financial
reporting.

ITEM 8B. OTHER INFORMATION

On March 6,  2006,  the  Company  entered  into a  Revolving  Loan and  Security
Agreement  with a limited  liability  company.  Pursuant  to the  Agreement  the
Company may borrow up to $5,000,000 on a revolving basis with simple interest at
22%. Under the terms of the Agreement the Company is to repay any borrowed funds
on a twelve month amortized basis,  including  principal and interest,  from the
activities  of  Direct2Own,  a division of the  Company.  The loan  proceeds are
secured  by  customer  contracts  originated  by  Direct2Own  through  the  loan
proceeds. The Agreement has a term until December 1, 2009.



                                      -19-
<PAGE>



                                    PART III

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

DIRECTORS AND EXECUTIVE OFFICERS

         NAME                      AGE   POSITION
         ----                      ---   --------
         T. Randolph Catanese      48    Chief Executive Officer and Director
         Daniel Brandt             28    Chief Financial Officer
         Douglas Hume              34    Director

T. RANDOLPH  CATANESE,  CHIEF EXECUTIVE  OFFICER AND DIRECTOR.  From 1983 to the
present,  Mr.  Catanese  has been  practicing  as an  attorney  in the  State of
California and is an active member of the California  Bar  Association.  In this
capacity,   Mr.  Catanese  has  represented  clients  in  general  business  and
commercial  matters.  In May of 2002 he founded  Direct  Card  Services,  LLC, a
wholly owned subsidiary of Direct Response Financial Services, Inc. Mr. Catanese
has acted as Managing  Member of Direct Card Services,  LLC since its inception.
Mr.  Catanese  graduated  from the University of Arizona with a Bachelor of Arts
degree in 1980. Additionally, Mr. Catanese attended Pepperdine University School
of Law where he received his Juris Doctorate in 1983.

DANIEL BRANDT, CHIEF FINANCIAL OFFICER. From 2005 to the present,  Daniel Brandt
serves as a Director of Equities  for Park Avenue  Securities,  where he manages
more than 50 registered  brokers.  From 2002 to 2005, Mr. Brandt was a Financial
Advisor for Merrill Lynch,  where he managed the wealth of many  individuals and
companies in the Los Angeles  area.  From 2001 to 2002,  Mr.  Brandt  joined UBS
PaineWebber,  where he acquired all  necessary  securities  licenses and started
building his high net worth clientele. Mr. Brandt has been involved in more than
$2 billion  in  investment  banking  deals.  He was  educated  at Arizona  State
University from 1996 to 2000, where he obtained a BS in Supply Chain Management,
a BA in Spanish and a minor in International Business on an academic scholarship
and was a member of the ASU Honors College.

DOUGLAS R. HUME,  ESQ,  DIRECTOR.  Mr. Hume has served as general counsel to our
company  over  the  past  fiscal  year.  He is a member  of the  California  Bar
Association. He will continue to act as general counsel to our company.

Directors  serve until the next annual  meeting and until their  successors  are
elected and  qualified.  Officers are  appointed to serve for one year until the
meeting of the board of directors  following the annual meeting of  stockholders
and until their successors have been elected and qualified.

CODE OF ETHICS

We have adopted a Code of Business Conduct and Ethics that applies to all of our
directors,  officers and employees,  including our principal  executive officer,
principal  financial  officer  and  principal  accounting  officer.  The Code of
Business   Conduct   and   Ethics   will   be   posted   on   our   website   at
http://www.DRFS.net.

Executive Officers of the Company

Officers are  appointed to serve at the  discretion  of the Board of  Directors.
None of our executive  officers or directors has a family  relationship with any
other of our executive officers or directors.

COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT, AS AMENDED.

Based  solely upon our review of copies of Forms 3, 4 and 5, and any  subsequent
amendments  thereto,  furnished  to the Company by our  directors,  officers and
beneficial owners of more than ten percent of our common stock, we are not aware
of any  Forms  3, 4  and/or  5  which  certain  of our  directors,  officers  or
beneficial  owners of more than ten percent of our common stock that, during our
fiscal year ended  December 31, 2005,  failed to file on a timely basis  reports
required by Section 16(a) of the Securities Exchange Act of 1934

ITEM 10. EXECUTIVE COMPENSATION

The following tables set forth certain  information  regarding our President and
each of our most highly-compensated executive officers whose total annual salary
and bonus for the fiscal year ending January 31, 2006, 2005 and 2004:



                                      -20-
<PAGE>



                           SUMMARY COMPENSATION TABLE
                               ANNUAL COMPENSATION

<TABLE>
<CAPTION>
                                                           Other
                                                           Annual      Restricted    Options       LTIP
   Name & Principal                Salary       Bonus      Compen-       Stock         SARs(#)     Payouts   All Other Comp-
       Position           Year       ($)         ($)     sation ($)    Awards ($)                    ($)     ensation($)(1)
------------------------ ------- ------------ ---------- ------------ ------------- ----------- ------------ --------------
<S>                       <C>         <C>         <C>         <C>          <C>           <C>          <C>         <C>
T. Randolph Catanese,     2006        0           0           0            0             0            0           30,000
CEO, President and        2005        0           0           0          75,000          0            0             0
Director                  2004        0           0           0            0             0            0             0
------------------------ ------- ------------ ---------- ------------ ------------- ----------- ------------ --------------
Ted Kozub, Fmr. CFO, CEO  2006        0           0           0            0             0            0             0
and Director              2005      14,000        0           0            0             0            0           12,500
                          2004       9,000        0           0           27,500         0            0            2,500
------------------------ ------- ------------ ---------- ------------ ------------- ----------- ------------ --------------
Daniel Brandt, CFO        2006        0           0           0            0             0            0             0
------------------------ ------- ------------ ---------- ------------ ------------- ----------- ------------ --------------
</TABLE>


                                      -21-
<PAGE>


(1) - Includes unrestricted stock awards issued pursuant to S-8 registration.

No options were granted or  exercised  during our fiscal year ended  January 31,
2006.

Directors  were entitled to receive  $1,000 per quarter for service and expenses
for director  meetings.  The Company is obligated to pay these fees, but to date
not all fees have been paid to serving directors.

During the fiscal year ending January 31, 2006, the Board of Directors served as
the Compensation Committee with regard to executive compensation, in the absence
of a formal committee.

Other  than  base  salaries,  there  were no  additional  compensation  plans or
policies in place for any executive  officer as of January 31, 2006.  Restricted
stock  compensation to officers was issued in lieu of salary and approved by the
Board of Directors.  Unless noted, all stock compensation was issued in the form
of restricted shares and, for accounting purposes, were valued at the prevailing
closing market price on the day of issuance.

There are no  annuity,  pension or  retirement  benefits  proposed to be paid to
Officers, Directors, or employees of Direct Response Financial Services, Inc. in
the event of retirement at normal  retirement date pursuant to any existing plan
provided by Direct Response Financial Services, Inc.

OPTION GRANTS IN LAST FISCAL YEAR

There were no grants of stock  options/SARs  made  during the fiscal  year ended
January 31, 2006.

<TABLE>
<CAPTION>
                                             OPTIONS/SAR GRANTS IN LAST FISCAL YEAR
--------------------------------------------------------------------------------------------------------------------------
                Individual Grants
                            Percent of                                Potential Realizable Value
                              Total                                     at Assumed Annual Rates         (Alternative to
                             Options/                                 of Stock Price Appreciation     Potential Realizable
                               SARs                                        For Option Term                   Value)
               Options/     Granted to                                ---------------------------     --------------------
                 SARs        Employees     Exercise
               Granted      in Fiscal     Base Price    Expiration                                         Grant Date
Name             (#)           Year         ($/Sh)         Date             5%($)     10%($)             Present Value $
----           --------     ----------    ----------    ----------          -----     ------             ---------------
<S>            <C>          <C>           <C>           <C>           <C>             <C>                <C>
Not Applicable
</TABLE>


OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION VALUES

There were no  exercises  of any stock  options  during  the  fiscal  year ended
January 31, 2006 and there were no unexercised options at the fiscal year-end.



              AGGREGATED OPTIONS/SAR EXERCISES IN LAST FISCAL YEAR
                          AND FY-END OPTION/SAR VALUES

<TABLE>
<CAPTION>
                                                                  Value of Unexercised
                                                 Number of Unexercised                In-the-Money
                 Shares                             Option/SARs at                   Option/SARs at
                Acquired                              FY-End(#)                        FY-End ($)
                  on            Value        -----------------------------     -----------------------------
Name           Exercise(#)    Realized($)    Exercisable     Unexercisable     Exercisable     Unexercisable
----           -----------    -----------    -----------     -------------     -----------     -------------
<S>            <C>            <C>            <C>             <C>               <C>             <C>
Not Applicable
</TABLE>

EMPLOYMENT AGREEMENTS

The Company has an employment agreement with its Chief Financial Officer, Daniel
Brandt, dated March 22, 2006. The Agreement is on an at-will basis for a term of
24 months,  which is  automatically  renewed for an  additional 12 months unless
terminated  by the parties as set forth  therein,  and provides  that Mr. Brandt
shall be paid a salary of $5,000 per month.  Additionally,  Mr.  Brandt  will be
granted  500,000shares  of restricted  common stock vesting  monthly over the 24
month term of the Agreement.  Further, Mr. Brandt has the opportunity to receive
incentive bonus compensation and stock grants based upon performance.

Employment,  non-disclosure and  non-circumvention  agreements exist between the
Company and certain employees and independent contractors.



                                      -22-
<PAGE>


ITEM 11.  SECURITY  OWNERSHIP OF CERTAIN  BENEFICIAL  OWNERS AND  MANAGEMENT AND
RELATED STOCKHOLDER MATTERS

The  following  table  sets  forth  certain  information   regarding  beneficial
ownership of our common stock as of May 12, 2006, by

o     each  person  who is known by us to  beneficially  own more than 5% of our
      common stock;

o     each of our officers and directors;

o     all of our officers and directors as a group.


                   NAME AND ADDRESS             NUMBER OF         PERCENTAGE OF
TITLE OF CLASS     OF BENEFICIAL OWNER          SHARES            CLASS*
--------------     -------------------          -----------       -------------

Common Stock       T. Randolph Catanese         6,162,800                 8.23%

Common Stock       Douglas R. Hume              1,322,199                 1.77%

Common Stock       Daniel Brandt                  751,700                 1.00%

Common Stock       Officers and directors
                    as a group of 3             8,236,699                 11.01%


Based on 74,841,168  shares of our common stock issued and outstanding as of May
12, 2006.

ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Since June of 2002,  the Chief  Executive  Officer of the Company and manager of
one of our  subsidiaries  has provided loan funds from  personal  sources to the
Company and from sources of a law firm of which the Chief Executive Officer is a
principal.  As of the date  hereof,  these loan funds due equal  $32,673.  These
funds are  partially  evidenced by a promissory  note due by the Company to this
individual in the amount of $20,825.  The note is unsecured,  bears 6% interest,
and is due April 16, 2006.

During year ended January 31, 2006, we have incurred legal fees with a law firm,
in which a partner  is also the  Chief  Executive  Officer  of the  Company  and
manager of one of our subsidiaries,  in the amount of $181,750,  all of which is
unpaid.

In addition,  the Company received a corporate loan, line of credit,  with First
Private Bank & Trust,  Los Angeles,  California  on November 3, 2005. As part of
the loan  requirements the bank required that the Chief Executive Officer of the
Company sign a personal  guarantee for the loan proceeds and agree to securitize
the loan with a deed of trust  recorded  against the Chief  Executive  Officer's
personal residence.  Concurrent with the loan closing,  the Company entered into
an indemnification  and hold harmless agreement with the Chief Executive Officer
whereby the Company  agreed to indemnify and hold  harmless the Chief  Executive
Officer from any liability or obligations in connection  with the line of credit
with First Private Bank & Trust.

ITEM 13. EXHIBITS

(a) Index to Exhibits

Exhibit No.       Description
-----------       -----------

                  ARTICLES OF INCORPORATION AND BYLAWS

     3.1          Articles of  Incorporation  (Incorporated  by reference to our
                  registration  statement  on Form  SB-1  filed  with the SEC on
                  December 18, 2000, File No. 333-52268).

     3.2          Bylaws   (Incorporated   by  reference  to  our   registration
                  statement  on Form SB-1  filed  with the SEC on  December  18,
                  2000, File No. 333-52268).

                  INSTRUMENTS DEFINING RIGHTS OF SECURITY HOLDERS

     4.1          Common Stock  Purchase  Warrant with La Jolla Cove  Investors,
                  Inc.(Incorporated  by  reference  to our Form 10KSB filed with
                  the SEC on May 27, 2003, File No. 333-52268).

     4.2          Convertible   Debenture   with  La   Jolla   Cove   Investors,
                  Inc.(Incorporated  by  reference  to our Form 10KSB filed with
                  the SEC on May 27, 2003, File No. 333-52268).

     4.3          Letter Agreement with La Jolla Cove  Investors(Incorporated by
                  reference  to our  Form  10KSB  filed  with the SEC on May 27,
                  2003, File No. 333-52268).

     4.4          Purchase    Agreement   with   La   Jolla   Cove    Investors,
                  Inc.(Incorporated  by  reference  to our Form 10KSB filed with
                  the SEC on May 27, 2003, File No. 333-52268).


                                      -23-
<PAGE>


     4.5          Registration    Rights    Agreement   with   La   Jolla   Cove
                  Investors(Incorporated  by  reference  to our Form 10KSB filed
                  with the SEC on May 27, 2003, File No. 333-52268).

     4.6          Promissory Note with RPMJ,  Inc.(Incorporated  by reference to
                  our Form 10KSB  filed with the SEC on May 27,  2003,  File No.
                  333-52268).

     4.7          Addendum  to  Convertible  Debenture  and  Warrant to Purchase
                  Common Stock(Incorporated by reference to our Form 10KSB filed
                  with the SEC on May 27, 2003, File No. 333-52268).

                               MATERIAL CONTRACTS

      10.1 Amendment to the Limited  Liability  Company Agreement of Direct Card
      Services, LLC

      10.2   Option   to   Purchase    Agreement    (LLC)   with   T.   Randolph
      Catanese(Incorporated by reference to our Form 10KSB filed with the SEC on
      May 27, 2003, File No. 333-52268).

      10.3    Management    Consulting    Agreement    with   Anecius    Holding
      Company(Incorporated  by reference to our Form 10KSB filed with the SEC on
      May 27, 2003, File No. 333-52268).

      10.4 Ted Kozub Employment  Agreement(Incorporated by reference to our Form
      10KSB filed with the SEC on May 27, 2003, File No. 333-52268).

      10.5 WNCR  Consulting  Agreement dated January 20, 2004  (Incorporated  by
      reference to our Form 10KSB filed with the SEC on April 30, 2004, File No.
      333-52268).

      10.6 MDU with ROI Media Solutions  (Incorporated  by reference to our Form
      10KSB filed with the SEC on April 30, 2004, File No. 333-52268).

      10.7  KLAX  FM  Radio   Marketing   Agreement   dated  February  12,  2004
      (Incorporated  by  reference to our Form 10KSB filed with the SEC on April
      30, 2004, File No. 333-52268).

      10.8 KKFR Radio Marketing Agreement (Incorporated by reference to our Form
      10KSB filed with the SEC on April 30, 2004, File No. 333-52268).

      10.9 Agent  Agreement  (Incorporated  by reference to our Form 10KSB filed
      with the SEC on April 30, 2004, File No. 333-52268).

      10.10 La Jolla Addendum (Incorporated by reference to our Form 10KSB filed
      with the SEC on April 30, 2004, File No. 333-52268).

      10.11  La  Jolla  Addendum  to  convertible  debenture   (Incorporated  by
      reference to our Form 10KSB filed with the SEC on April 30, 2004, File No.
      333-52268).

      10.12 Approved Sales Program  Agreement  (Incorporated by reference to our
      Form 10KSB filed with the SEC on April 30, 2004, File No. 333-52268).

      10.13 Approved Sales Program Agreement dated January 5, 2004 (Incorporated
      by reference to our Form 10KSB filed with the SEC on April 30, 2004,  File
      No. 333-52268).

      10.14  Floyd  Cochran   Consulting   Agreement   dated  January  20,  2004
      (Incorporated  by  reference to our Form 10KSB filed with the SEC on April
      30, 2004, File No. 333-52268).

      10.15  Addendum to Convertible  Debenture and Warrant  between the Company
      and La Jolla dated November 8, 2004 (Incorporated by reference to our Form
      10-KSB for the year ended January 31, 2005)

      10.16 Strategic Alliance  Agreement between Direct Card Services,  LLC and
      Info Touch USA, Inc. dated December 7, 2004  (Incorporated by reference to
      our Form 10-KSB for the year ended January 31, 2005).

      10.17  Agreement for Custom  Pre-Paid  Stored Value Debit Card between the
      Company and Super A Foods,  Inc. dated February 21, 2005  (Incorporated by
      reference to our Form 10-KSB for the year ended January 31, 2005).

      10.18 Letter of  Understanding  between Direct Card Services,  LLC and ROI
      Media Solutions,  LLC dated February 24, 2005(Incorporated by reference to
      our Form 10-KSB for the year ended January 31, 2005).


                                      -24-
<PAGE>


      10.19 Joint Marketing Agreement between the Company, Direct Card Services,
      LLC and del Rey Financial,  Inc. dated February 23,  2005(Incorporated  by
      reference to our Form 10-KSB for the year ended January 31, 2005).

      10.20 Letter Agreement between Direct Card Services, LLC, Optimum Pay USA,
      Inc. and Poder de Compra, Mexico, SA dated March 24,  2005(Incorporated by
      reference to our Form 10-KSB for the year ended January 31, 2005).

      10.21 Consulting  Services  Agreement between the Company and GMCRNet.com,
      Inc. dated March 11, 2005(Incorporated by reference to our Form 10-KSB for
      the year ended January 31, 2005).

      10.22 Key Executive Employment Agreement dated as of March 22, 2006 by and
      between the Company and Daniel Brandt (filed herewith).

      10.23  Revolving  Loan and Security  Agreement  dated March 6, 2006 by and
      between the Company and Ravinia Funding LLC (filed herewith).

      10.24 Form of Warrant issued to Ravinia Funding LLC (filed herewith).

      10.25 Form of Secured  Revolving Note issued to Ravinia Funding LLC (filed
      herewith).

      31.1  Certification by Chief Executive  Officer pursuant to Sarbanes Oxley
      Section 302.

      31.2  Certification by Chief Financial  Officer pursuant to Sarbanes Oxley
      Section 302.

      32.1  Certification  by Chief  Executive  Officer  pursuant  to 18  U.S.C.
      Section 1350

      32.2  Certification  by Chief  Financial  Officer  pursuant  to 18  U.S.C.
      Section 1350


ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES

AUDIT FEES

Miller and McCollom billed us $21,575 and $13,750 for services  rendered for the
audit of our  annual  consolidated  financial  statements  for the  years  ended
January 31, 2006 and 2005, respectively.

ALL OTHER FEES

The  aggregate  fees billed by Miller and McCollom for services  rendered to the
Company,  other than services  covered in "Audit Fees" for the fiscal year ended
January 31, 2006 were $0. Miller and McCollom did not perform any services which
directly  or  indirectly  related to the  operation  of, or  supervision  of the
operation of, our information systems or management of our local area network.



                                      -25-
<PAGE>



                                   SIGNATURES

In  accordance  with  Section 13 or 15(d) of the Exchange  Act,  the  registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.

                                 DIRECT RESPONSE FINANCIAL SERVICES, INC.

                                 BY: /s/ T. Randolph Catanese
                                 -------------------------------------
                                 T. Randolph Catanese, Chief Financial
                                 Officer (Principal Executive Officer)

                                 May 24, 2006


In  accordance  with the Exchange  Act, this report has been signed below by the
following  persons on behalf of the  registrant and in the capacities and on the
dates indicated.

            NAME                       TITLE                          DATE
            ----                       -----                          ----

/s/ T. Randolph Catanese           CEO and Director               May 24, 2006
---------------------------
T. Randolph Catanese


/s/ Daniel Brandt                  CFO                            May 24, 2006
---------------------------
Daniel Brandt


/s/ Douglas Hume                   Director                       May 24, 2006
---------------------------
Douglas Hume


                                      -26-