**UNITED
        STATES**
   **SECURITIES
        AND EXCHANGE COMMISSION**
   **Washington,
        D.C. 20549**
   **FORM
        10-KSB**
   **(Mark
        one)**
  ý ANNUAL
        REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For
        the
        fiscal year ended September
        30, 2006
   ̈ TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
        OF
        1934
   For
        the
        transition period from _________ to ____________
   Commission
        File No. **000-33389**
   **nFinanSe
        Inc.**
   (Name
        of
        small business issuer in its charter)
  **Nevada**
              **65-1071956**(State
                  or other jurisdiction of
              (I.R.S.
                  Employerincorporation
                  or organization)
              Identification
                  Number)**6015
                  31****st****Street East,****Bradenton,
                  Florida**
              **34203**(Address
                  of principal executive offices)
              (Zip
                  Code)
  Registrant’s
        telephone number, including area code: **(941)
        753-2875**
   Securities
        registered pursuant to Section 12(b) of the Act: none
   Securities
        registered pursuant to Section 12 (g) of the Act: 200,000,000 common shares
        par
        value $0.001 per share
   Check
        whether the issuer (l) has filed all reports required to be filed by Section
        13
        or 15(d) of the Exchange Act during the past 12 months (or for such shorter
        period that the registrant was required to file such reports), and (2) has
        been
        subject to such filing requirements for the past 90 days. Yes ý No  ̈
   Check
        if
        there is no disclosure of delinquent filers in response to Item 405 of
        Regulation S-B contained in this form, 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. ý
   Indicate
        by check mark whether the registrant is a shell company (as defined in Rule
        12b-2 of the Exchange Act). Yes  ̈ No ý
   Revenues
        for our fiscal year ending September 30, 2006 were $77,833.
   The
        aggregate market value of our voting stock held by non-affiliates computed
        by
        reference to the last reported sale price of such stock as of December 28,
        2006,
        was $5,371,202.
   The
        number of shares of the issuer’s Common Stock outstanding as of December 28,
        2006 is 3,829,028.
   Documents
        Incorporated By Reference: As
        stated in Part III of this annual report, portions of the registrant’s
        definitive proxy statement to be filed within 120 days after the end of the
        fiscal year covered by this annual report are incorporated herein by
        reference.
   Transitional
        Small Business Disclosure Format (check one): Yes  ̈ No ý
  
  
   SPECIAL
                  NOTE REGARDING FORWARD-LOOKING STATEMENTS...........................
              1PART
                  I............................................................................................................
              2Item
                  1.
              Description
                  of Business..................................................................
              2Item
                  2.
              Description
                  of Property...................................................................
              14Item
                  3.
              Legal
                  Proceedings.........................................................................
              14Item
                  4.
              Submission
                  of Matters to a Vote of Security Holders................................
              14PART
                  II............................................................................................................
              15Item
                  5.
              Market
                  for Our Common Equity and Related Stockholder
                  Matters................
              15Item
                  6.
              Management’s
                  Discussion and Analysis or Plan of Operation......................
              17Item
                  7.
              Financial
                  Statements......................................................................
              30Item
                  8.
              Changes
                  In and Disagreements With Accountants on Accounting and Financial
                  Disclosure..................................................................................
              30Item
                  8A.
              Controls
                  and Procedures..................................................................
              30Item
                  8B.
              Other
                  Information.........................................................................
              30PART
                  III..........................................................................................................
              31Item
                  9.
              Directors,
                  Executive Officers, Promoters, Control Persons and Corporate Governance;
                  Compliance with Section 16(a) of the Exchange Act...............
              31Item
                  10.
              Executive
                  Compensation.................................................................
              31Item
                  11.
              Security
                  Ownership of Certain Beneficial Owners and Management and Related
                  Stockholder Matters..........................................................
              31Item
                  12.
              Certain
                  Relationships and Related Transactions, and Director
                  Independence....
              31Item
                  13.
              Exhibits.....................................................................................
              32Item
                  14.
              Principal
                  Accounting Fees and Services...............................................
              33Consolidated
                  Financial
                  Statements.............................................................................................................................
              F-1
 
 
  
   SPECIAL
        NOTE REGARDING FORWARD-LOOKING STATEMENTS
  In
        this annual report we make a number of statements, referred to as “ *forward-looking
        statements* ”,
        which are intended to convey our expectations or predictions regarding the
        occurrence of possible future events or the existence of trends and factors
        that
        may impact our future plans and operating results. These forward-looking
        statements are derived, in part, from various assumptions and analyses we
        have
        made in the context of our current business plan and information currently
        available to us and in light of our experience and perceptions of historical
        trends, current conditions and expected future developments and other factors
        we
        believe to be appropriate in the circumstances. You can generally identify
        forward-looking statements through words and phrases such as “ *seek,* ”
        “ *anticipate,* ”
        “ *believe,* ”
        “ *estimate,* ”
        “ *expect,* ”
        “ *intend,* ”
        “ *plan,* ”
        “ *budget,* ”
        “ *project,* ”
        “ *may
        be,* ”
        “ *may
        continue,* ”
        “ *may
        likely result,* ” ** and
        similar expressions. When reading any forward-looking statement you should
        remain mindful that all forward-looking statements are inherently uncertain
        as
        they are based on current expectations and assumptions concerning future
        events
        or future performance of our company, and that actual results or developments
        may vary substantially from those expected as expressed in or implied by
        that
        statement for a number of reasons or factors, including those relating
        to:
  ·
              our
                  ability to design and market our products;·
              our
                  ability to protect our intellectual property rights and operate
                  our
                  business without infringing upon the intellectual property rights
                  of
                  others;·
              whether
                  or not markets for our products develop and, if they do develop,
                  the pace
                  at which they develop;·
              our
                  ability to attract the qualified personnel to implement our growth
                  strategies,·
              our
                  ability to develop sales and distribution capabilities;·
              the
                  accuracy of our estimates and projections;·
              our
                  ability to fund our short-term and long-term financing
                  needs;·
              changes
                  in our business plan and corporate strategies; and·
              other
                  risks and uncertainties discussed in greater detail in this annual
                  report,
                  including those factors under the heading “Risk Factors” and those risks
                  discussed under the heading “Management’s Discussion and Analysis or Plan
                  of Operation.”
 
 Each
        forward-looking statement should be read in context with, and with an
        understanding of, the various other disclosures concerning our company and
        our
        business made elsewhere in this annual report as well as other public reports
        filed with the United States Securities and Exchange Commission, or the SEC .
        You should not place undue reliance on any forward-looking statement as a
        prediction of actual results or developments. We are not obligated to update
        or
        revise any forward-looking statement contained in this annual report to reflect
        new events or circumstances unless and to the extent required by applicable
        law.
  As
        used in this annual report, the terms “ *we* ,”
        “ *us* ,”
        “ *our* ,”
        “ *nFinanSe* ,”
        and “ *the
        Company* ”
        mean nFinanSe Inc. unless otherwise indicated. All dollar amounts in this
        annual
        report are in U.S. dollars unless otherwise stated.
  1
  
 **PART
        I**
  **Item
        1.** **Description
        of Business.**
  **COMPANY
        OVERVIEW**
 
 nFinanSe
        Inc., formerly Morgan Beaumont, Inc., or Morgan Beaumont, is a provider of
        stored value cards, or SVCs, and prepaid card solutions for a wide variety
        of
        markets. Our products and services are aimed at capitalizing on the growing
        demand for stored value and re-loadable ATM/prepaid card financial products.
        We
        believe SVCs are a fast-growing product segment in the financial services
        industry.
  During
        the fourth quarter of fiscal 2006, we reorganized our management team and
        repositioned our core business focus. On September 6, 2006, Jerry R. Welch
        joined the Company as its Chief Executive Officer and Raymond P. Springer
        joined  the
        Company as its Chief Financial Officer. As part of our repositioning, we proposed to change
        our
        corporate name to nFinanSe Inc.  We
        believe the new name will increase awareness that we are a company in the financial services arena and will enable us to begin to create a unique and distinctive brand with consumers. On November 15,
        2006,
        we received approval at a special meeting of stockholders to change our name
        to
        nFinanSe Inc. In addition, stockholders authorized the following proposals: (i) authorizing a reverse stock split
        which
        will take place at such time as our board of directors determine; (ii)
        increasing the number of authorized shares of common stock; (iii) approving
        the
        creation of blank check preferred stock; and (iv) changing our fiscal year
        end
        to the Saturday closest to December 31 of each year.
  Further,
        we are in the process of (i) exiting the phone card and telecom marketplace;
        (ii) adding experienced industry executives to our management and
        sales/marketing teams; (iii) engaging new professional services providers
        to
        prepare us for growth; and (iv) reorganizing our operations to properly address
        our go-to-market strategy.
  We
        operate two divisions: (i) the **nFinanSe
        Card Division,** which issues prepaid gift cards, reloadable general spend cards, payroll
        cards
        and promotional/incentive cards; and (ii) the **nFinanSe Network,** which is a network of load locations for stored value and prepaid cards.
  **COMPANY
        BACKGROUND**
 
 We
        were
        founded on July 10, 2000 and began developing a technology platform focused
        on selling debit
        cards to individuals
        without bank accounts or who maintain limited funds in their bank accounts,
        those individuals are referred to by us as the
        unbanked and underbanked Typically, the unbanked and underbanked market is comprised of sub-prime,
        credit
“challenged” consumers. We identified that a major barrier to the acceptance and
        use of debit cards was the ability to load additional funds on the debit
        card.
        To address this issue, we shifted focus in 2003 toward enhancing our network,
        the SIRE Network, now known as the nFinanSe Network, to enable customers
        to load
        funds directly onto their prepaid SVCs.
 In
        August
        2004, our predecessor company, Morgan Beaumont, completed a reverse merger
        and
        recapitalization with a publicly traded company, Pan American Energy Corp.,
        whereby Pan American Energy Corp. remained as the surviving entity, changed
        its
        name to Morgan Beaumont, Inc., and adopted the business plans and strategies
        of
        Morgan Beaumont. On November 22, 2006, we changed our name from Morgan Beaumont,
        Inc. to nFinanSe Inc.
  2
  In
        May 2005, we commenced selling traditional prepaid phone cards in order to
        develop brand recognition within the sub-prime customer market. During the
        quarter ended September 30, 2006, we decided to discontinue the low-margin
        prepaid phone card business and focus strictly on selling SVCs and expanding
        our
        load network described below.
  During
        fiscal 2006, we added Western Union and MoneyGram to our fund loading network
        and signed an agreement with Discover **®**  Financial
        Services, LLC, whereby we became a preferred issuer of Discover® Network branded
        SVCs.
  **COMPANY’S
        PRODUCTS AND SERVICES**
 
 nFinanSe
        Card Division
  The
        nFinanSe Card Division, or the Card Division, issues gift, reward and
        multipurpose, open-loop, reloadable SVCs. These SVCs are sold directly to
        consumers through a network of retail locations. The Card Division also issues
        payroll and promotion/incentive SVCs directly to companies. These SVCs are
        sold
        to corporate issuers by our sales team and through a number of strategic
        partners.
  **Card
                  Product**
              **Description**
              **Uses**
              **Benefits**General
                  Purpose
                Reloadable
                  SVCs
              This
                  is a prepaid SVC primarily for the unbanked that is reloadable
                  at nFinanSe
                  locations nationwide and is sold at selected retail locations through
                  our
                  distributors.
              Underbanked/unbanked
                  consumers can use the SVCs at ATM’s and to make purchases.
              Security,
                  convenience, lower cost than check cashing and money
                  orders.Payroll
                  SVCs
              This
                  is a prepaid SVC for the loading of an employee’s payroll. The SVC is
                  reloadable through the web, from the client’s payroll department or via
                  direct deposit payroll.
              Payroll
                  distribution targeting companies with a large population of employees
                  that
                  receive checks, or are underbanked/unbanked employees.
              Lowers
                  cost of payroll by eliminating costly checks and processing/replacement
                  issues.Gift
                  SVCs
                (Open
                  Network)
              Typically,
                  branded SVCs denominated for a set value, but may be loaded with
                  a
                  variable amount.
              Typically
                  a retail product sold at stores, banks or other locations.
              Consumers
                  can buy what they want and the SVC can be used at thousands of
                  retailers
                  nationwide.Reward
                  SVCs
                (Open
                  or closed)
              Set
                  denominated Discover® Network branded SVCs that may also be loaded with a
                  variable amount.
              Used
                  by companies as an incentive for reward programs, sales contests
                  and
                  commissions.
              Rewards
                  are immediate and cardholders are able to buy what they
                  want.
 
  3
  We
        have a strategic relationship with Discover® Network whereby we are a preferred
        issuer of Discover® Network branded SVCs. We believe that Discover® Network SVCs
        offer significant advantages over other branded SVCs sold in the United States.
        Because Discover® Network does not require the use of issuing banks, it is able
        to offer consumers the most feature-advantaged, cost-effective SVC in the
        marketplace. Because Discover® Network SVCs can be used everywhere Discover®
Network cards are accepted, they provide nationwide reach and 24/7 coverage.
        These SVCs also offer the advantages of immediate issuance, remaining balance
        reporting and real-time authorization. We believe that most non-Discover
        cards
        cannot provide these services.
 
 Additionally,
        we believe that there is a tremendous growth opportunity in offering Discover®
Network branded customer loyalty/employee incentive reward cards. These cards
        are offered by companies
        to replace coupons, rebates, merchandise and other customer loyalty programs.
        They can also be used to give employees bonuses or benefits without having
        to
        utilize checks. These programs are customizable and can be modified by a
        consumer company on an as needed basis. We believe that our ability to provide
        24/7 customer service, ease of card loading and servicing, flexibility to
        offer
        an open or closed loop solution and a redundant secure network, coupled with
        Discover® Network’s brand recognition and market penetration, make our programs
        quite attractive to offering companies.
  **nFinanSe
        Network**
  We
        have developed and are currently deploying our nFinanSe Network, which connects
        with load locations and multiple SVC processors. As of September 30, 2006,
        we
        had approximately 80,000 nFinanSe Network locations consisting primarily
        of
        Western Union and MoneyGram locations. By offering the integrated “back office”
capabilities of SVC issuance, our value load platform technology, and a large
        number of cash load locations on our nFinanSe Network, we believe our business
        is becoming an end-to-end SVC solutions provider in the financial services
        industry.
  We
        believe that the nFinanSe Network is the largest universal load platform
        that
        has the capability to accept any card from any consumer anywhere, regardless
        of
        the processor or issuing bank. The nFinanSe Network provides a national presence
        and a technology platform that potentially revolutionizes the prepaid card
        market. We are able to add locations to our nFinanSe Network through a remote
        software deployment, which is downloaded to supporting terminals and integrated
        to the retailer’s transaction processor’s datacenter. We believe that our
        nFinanSe Network is the only open network available which is cost-effectively
        scalable. We
        believe the nFinanSe Network is also compliant with Federal and state legal requirements
        (including the Patriot Act). Currently, the nFinanSe Network enables us to
        issue
        and service our own general spend SVCs while directly controlling all aspects
        of
        the cardholder experience such as customer service and WEB portal access.
        We
        believe that as our SVCs are sold at more locations, there will be more
        endpoints connected to the nFinanSe Network. This should enable SVC holders
        to
        reload at many sites, increasing customer satisfaction, reducing churn and
        increasing card usage. This makes the nFinanSe Network one of our key strategic
        assets.
  **nFinanSe
        Network Locations as of September 30, 2006
        (approximate)**
 
 In
                  Person Payment
              3,000Western
                  Union
              49,000Bank
                  of America
              6,000MoneyGram
              20,000
 
  4
  **IMPORTANT
        RELATIONSHIPS**
 
 Our
        current and intended operations involve us working with some of the following
        business partners to sell SVCs and services. Each of these relationships
        plays a
        different role.
  **·**
            Discover®
                Network.
                On May 9, 2006, we entered into a Stored Value Card Issuer Agreement
                with
                Discover Financial Services LLC,whichpermits
                us to offer SVCs with the Discover hologram to prospective cardholders
                through various channels approved byDiscover®
                Network.
                This agreement has a three-year term and renews annually thereafter.
                We
                payDiscovercertain program, authorization and settlement fees andDiscoverpays us interchange revenue earned on sales transactions from cards
                that
                we issue. Although we have some legacy relationships with
                othercard agencies, we are focused primarily on selling Discover® Network
                -branded SVCs on a go-forward basis.  **·**
            Palm
                Desert National Bank.
                When we determined that the best way to meet the needs of our business
                plan involved selecting a nationally chartered bank sponsor,Discover®
                Network recommended Palm Desert National Bank, or PDNB. We will use
                PDNB
                as our sponsoring bank for issuing payroll cards and reloadable general
                spend cards. The benefits of using a nationally chartered bank are
                integral in meeting certain regulatory and licensing requirements
                applicable to SVCs.  ·
            Metavante
                Corporation.Discover®
                Network requires that we engage an approved processor so that all
                of the
                consumer transactions are tracked and debits/credits to the consumer
                SVC
                accounts are properly adjusted. We chose Metavante Corporation to
                act as
                the processor. Metavante has all necessary regulatory and banking
                approvals to conduct transactions from POS terminals and banks to
                apply
                credits and debits to the consumer cards. Metavante has a schedule
                of fees
                for services provided to us and to the SVC holder. Those fees associated
                with SVC holder activity are typically passed on to the consumer,
                usually
                through a service-related price mark-up.  ·
            Distribution
                Partners.
                Our current retail go-to-market strategy is to use pre-paid phone
                card
                distributors who wish to add additional products to their line. We
                ship
                SVCs to these distributors on a consignment basis. The distributor
                then
                moves the SVCs to their contracted retail locations. When the SVC
                is sold
                at retail, the retailer activates the SVC by swiping it through a
                POS
                terminal. At various agreed upon times, our wholesale fees and the
                face
                amount of Gift Cards and the load amount of the Reloadable General
                Spend
                Cards are paid through an ACH debit from the Distributor. There are
                some
                fees collected from the consumer (the monthly maintenance is the
                most
                common), for which we will pay the distributor a
                commission.  ·
            Third-Party
                Load Locations.
                We have important relationships with Western Union and MoneyGram
                that
                allow them to load nFinanSe Network reloadable SVCs. These relationships
                greatly expand our load network and give us what we believe to be
                a
                competitive advantage in reloadable SVCs. Not only can we load nFinanSe
                Discover® Network -branded SVCs at these locations, but our network has
                the functionality to load pre-authorized third-party-issued cards
                as
                well.  **LICENSING
        REQUIREMENTS**
  We
        have obtained a National Association of Securities Dealer, or NASD, Federal
        Money Services Business License, or a FMS License, which is required by some
        states. Additionally, due to the nature of the business we conduct, we believe
        many states require card issuers of reloadable general spend cards to obtain
        a
        money transmitter license to sell or service the card product in that particular
        state **.** Due
        to the
   5
  changing
        regulatory situation, it is possible that a state in which we are doing business
        that does not currently require a license may change its laws, rules,
        regulations or interpretations thereof and require that we obtain a license.
        We
        have no ability to predict future license requirements, or the period of
        time to
        obtain such additional licenses. To date, we have not obtained any state
        licenses. As an alternative, we have chosen to issue reloadable general SVCs
        through a sponsoring national bank whereby the bank acts as the card and
        value
        issuer. In the event that we decide to issue SVCs without the support of
        a
        sponsoring national bank, or if we decide to issue the value, we will continue
        the process of filing appropriate state license applications, as appropriate.
  **COMPETITION**
  The
        markets for financial products and services, including SVCs and services related thereto,
        are intensely competitive. We compete with a variety of companies in our
        markets
        and our competitors vary in size, scope and breadth of products and services.
        Certain segments of the financial services industry tend to be highly
        fragmented, with numerous companies competing for market share. Highly
        fragmented segments currently include financial account processing, customer
        relationship management solutions, electronic funds transfer and SVC solutions.
        In addition to competition from other companies, we face competition from
        the
        in-house technology departments of existing and potential clients who may
        develop their own product offerings.
  We
        believe our competitive advantages are:
  ·
              the
                  attributes of the Discover® Network -branded
                  card;
  ·
              the
                  size and breadth of our load
                  network;
  ·
              the
                  industry experience of our sales force;
                  and
  ·
              the
                  price of our SVCs and services.
  **PROPRIETARY
        RIGHTS**
 
 We
        have not patented or trademarked any of our products or technology through
        the
        U.S. Patent and Trademark Office, nor have we copyrighted any of our products
        or
        technology through the U.S. Copyright Office. We have filed trademark
        applications for the name nFinanSe Inc. and our logo and nFinanSe Network
        and
        logo. Third parties may infringe or misappropriate our intellectual property
        rights or we may not be able to detect unauthorized use and take appropriate
        steps to enforce our rights. In addition, other parties may assert infringement
        claims against us. Such claims, regardless of merit, could result in the
        expenditure of significant financial and managerial resources. Further, an
        increasing number of patents are being issued to third parties regarding
        money
        and debit card processes. Future patents may limit our ability to use processes
        covered by such patents or expose us to claims of patent infringement or
        otherwise require us to seek to obtain related licenses. Such licenses may
        not
        be available to us on acceptable terms. The failure to obtain such licenses
        on
        acceptable terms could have a negative effect on our business.
  Our
        management believes that our products, trademarks and other proprietary rights
        do not infringe on the proprietary rights of third parties and that we have
        licensed the proprietary rights required to conduct our business from third
        parties.
   6
  Our
        proprietary intellectual property consists of:
   ·
            interactive
                voice response software, to provide access to information in a database
                using a telephone;  ·
            customer
                relationship management software, for use in customer service applications
                that require tightly integrated and customizable interaction;and  ·
            application
                server and web server software, to provide the business logistics
                necessary for proper data transmission of all
                transactions.  We
        believe that the majority of our proprietary software is protected by common
        law
        copyright.
  **EMPLOYEES**
  As
        of September 30, 2006, we had 29 full time employees, of which 5 are officers
        and executives; 4 are engaged in sales; 4 are engaged in marketing; 4 are
        engaged in technology research and development; 2 are engaged in customer
        service; 8 are engaged in operations and 2 are engaged in finance. None of
        our
        current employees are covered by any collective bargaining agreement and
        we have
        never experienced a work stoppage. We consider our employee relations to
        be
        good.
  **RISK
        FACTORS**
  In
        addition to the other information included in this annual report, the following
        factors should be carefully considered in evaluating our business, financial
        position and future prospects. Any of the following risks, either alone or
        taken
        together, could materially and adversely affect our business, financial position
        or future prospects. If one or more of these or other risks or uncertainties
        materialize, or if our underlying assumptions prove to be incorrect, our
        actual
        results may vary materially from what we have projected. There may be additional
        risks that we do not presently know or that we currently believe are immaterial
        which could also materially adversely affect our business, financial position
        or
        future prospects.
  ***We
        have incurred losses since inception and anticipate that we will continue
        to
        incur losses for the foreseeable future.***
 
 As
        stated earlier, we have operated continuously at a loss since inception and
        may
        be unable to continue as a going concern. We expect to experience continuing
        financial losses. The extent to which we experience losses will depend on
        a
        number of factors, including:
 
 ·
            completion
                and successful testing of our proprietary software technologies; ·
            implementation
                of our sales and marketing strategies; ·
            our
                ability to enter into agreements with POS and load center operators
                on
                satisfactory terms; ·
            competitive
                developments in our market; ·
            customer
                acceptance of and demand for our SVCs and services; ·
            our
                ability to attract, retain and motivate qualified personnel, particularly
                sales associates; ·
            the
                continued adoption by consumers SVCs; and ·
            the
                extent to which we can obtain protection for our intellectual property
                through patents, copyrights and
                trademarks.  7
  We
        cannot
        give any assurances that our products will ever achieve commercial acceptance
        among our target SVC customers. We cannot predict whether we will ever obtain
        or
        sustain positive operating cash flow or generate net income in the future,
        nor
        can we predict whether we will ultimately achieve cash flow levels sufficient
        to
        support our operations.
  ***We
        will need to raise additional capital.***
  We
        will need significant additional capital to fund our operations. Future capital
        requirements will depend on many factors, including the success of our
        anticipated products and the timeliness of releases and market acceptance
        of new
        products. There can be no assurance that additional funds will be available
        when
        needed, or, if available, that such funds can be obtained on terms acceptable
        to
        us. If adequate funds are unavailable, we may be required, among other things,
        to:
  ·
            delay,
                reduce the scope of or eliminate one or more of our research or product
                development, marketing or sales programs;  ·
            license
                rights to technologies or products on terms that are less favorable
                to us
                than might otherwise be available; and/or  ·
            obtain
                funds through arrangements that may require us to relinquish rights
                to
                technology or products that it would otherwise seek to develop or
                commercialize by itself.  We
        expect to finance our future cash needs for at least the next several years
        principally through public or private equity offerings and through debt
        financings. We may also pursue strategic partnerships and collaborations
        and
        licensing arrangements when appropriate.
  ***Additional
        equity or debt financing may be dilutive to existing stockholders or impose
        terms that are unfavorable to us or our existing
        stockholders.***
  If
        we raise additional funds by issuing equity securities, our stockholders
        may
        experience dilution. Debt financing, if available, may involve arrangements
        that
        include covenants limiting or restricting our ability to take specific actions,
        such as incurring additional debt, making capital expenditures or declaring
        dividends. Any debt financing or additional equity that we raise may contain
        terms, such as liquidation and other preferences that are not favorable to
        us or
        our other stockholders. If we raise additional funds through collaboration
        and
        licensing arrangements with third parties, it may be necessary to relinquish
        valuable rights to our technologies and products or grant unfavorable license
        terms.
  ***We
        could be required to cut back or stop our operations if we are unable to
        obtain
        needed funding.*** **
  If
        we are unable to meet our needs for additional funding in the future, we
        may be
        required to limit, scale back or cease operations.
 
 At
        September 30, 2006, we had only $936,605 of cash. We believe that our business
        strategy and expansion plans will escalate our cash needs significantly.
        As of
        September 30, 2006, we believed that we had cash and available capital resources
        sufficient to sustain operations, execute our sales and marketing strategies,
        and retain key personnel for approximately  four months. Although, on December 28, 2006, we raised $4,000,000 through the
        sale of
        preferred stock, we anticipate that we will need to raise additional funds
        and
        that our survival and ultimate success will depend on raising additional
        capital. There is no assurance such capital will be available at all, or
        if it
        is available, that such capital will be available on terms acceptable to
        us. If
        we are required to raise additional capital by issuing equity securities,
        the
        percentage ownership of our existing stockholders will be reduced.
  8
  If
        adequate funds are unavailable, we may be required, among other things,
        to:
 
 ·
            delay,
                reduce the scope of or eliminate one or more of our technology development
                and/or marketing or product development
                initiatives; ·
            license
                rights to our technologies or products on terms that are less favorable
                to
                us than might otherwise be available; or ·
            obtain
                funds through arrangements that may require us to relinquish rights
                to
                technology, products and markets that we would otherwise seek to
                develop
                or commercialize by ourselves. 
 ***Most
        states require us to undergo a difficult and costly process of obtaining
        licenses to load SVCs.***
  Approximately
        45 states have established laws or regulations requiring entities taking
        or
        loading money on cards or processing such transactions, to be licensed by
        the
        state unless that entity has a federal or
        state banking
        charter and is operating from a licensed bank branch. We have engaged legal counsel and
        an expert in the field to research the state requirements and/or to
        contact the authorities of each state (as
        necessary) in
        which we either
        conduct business or intend to conduct
        business to determine our compliance needs. In the interim, based
        on our current mode of operations, we
        intend to continue to rely upon the licenses of our sponsoring bank. Some
        states
        may require us to obtain our own license to conduct money loading
        operations. This may mean that, in order for us to be able to conduct our card loading
        operations, we will be required to apply for and obtain licenses in nearly
        every
        state in which we conduct business. This process will require us to hire
        specialist attorneys and
        consultants to
        assist us in the application process, which involves the filing of extensive
        license applications and posting bonds in
        various amounts, with bond fees that range from $100 to $16,500 per state, excluding potential
        additional fees for additional locations. The required bonds will
        range in
        amounts from $25,000 to $2,000,000 for each license ,
        depending of state statutory requirements .
        We will also have to file
        for authority to do business in each such state and thereafter file tax returns and be
        subject
        to service of process in each state. We do not presently know if we will
        be able
        to obtain all of the licenses we need to fulfill existing and proposed
        contracts, or if we will be able to obtain the funding necessary to qualify
        for the bonds necessary to secure all of the licenses. In most states, we
        will not have to obtain the bonds prior to applying for the license .
 
 ***States
        may adopt even more stringent licensing rules and regulations, compliance
        with
        which could be expensive and time consuming.***
 
 There
        have been, and we expect that there will continue to be, a number of legislative
        and regulatory proposals aimed at changing the SVC industry. There were over
        one
        hundred stored value bills introduced in state legislatures in the first
        half of
        2004 alone .
        We expect regulation of this industry to only increase and become more
        complicated. Regulatory and tax intensive states may adopt complex and heavily
        regulated schemes. While we cannot predict the legislative or regulatory
        proposals that will be adopted or what effect those proposals may have on
        our
        business, including any future licensing requirements, the pendency or approval
        of such proposals could materially adversely affect our business by limiting
        our
        ability to raise capital or to obtaining strategic partnerships or
        licenses.
  ***Our
        point of purchase operators may subject us to liability if they fail to follow
        applicable laws.***
  As
        part of our license requirements, we may be required to have agency agreements
        with each of our load centers. Among other things, the agreements will require
        them to comply with the Patriot Act and anti-money laundering laws. While
        we do
        not intend to be responsible for their actions, we could be subject to state
        or
        federal actions if our load center agents violate or are accused of violating
        the law. Such actions could compromise our credibility with our customers,
        issuing banks and state regulators and generally
 
 9
 
 have
        a materially adverse effect on our business. Any such claims or litigation,
        with
        or without merit, could be costly and a diversion of management’s attention,
        which could have a material adverse effect on our business, operating results
        and financial condition. Adverse determinations in such claims or litigation
        could harm our business, operating results and financial condition.
  ***There
        is only a limited market for our common stock as a “Penny Stock.”***
 
 A
        limited public market currently exists for our common stock on the OTC Bulletin
        Board. In the future, there can be no assurance that a more active public
        market
        for our common stock will ever develop or be sustained.
 
 Our
        common stock is also subject to the penny stock rules. The term “penny stock”
generally refers to low-priced, speculative securities of very small companies.
        Before a broker-dealer can sell a penny stock, SEC rules require the
        broker-dealer to first approve the customer for the transaction and receive
        from
        the customer a written agreement for the transaction. The broker-dealer must
        furnish the customer with a document describing the risks of investing in
        penny
        stocks. The broker-dealer must tell the customer the current market quotation,
        if any, for the penny stock and the compensation the broker-dealer and its
        broker will receive for the trade. Finally, the broker-dealer must send monthly
        account statements showing the market value of each penny stock held in the
        customer's account. These requirements make penny stocks more difficult to
        trade. Since our common stock is subject to the penny stock rules, the market
        liquidity of our common stock may be adversely affected.
  ***We
        depend on key personnel and could be harmed by the loss of their services
        because of the limited number of qualified people in our
        industry.***
 
 Because
        of our small size, we require the continued service and performance of our
        management team, sales and marketing employees and technology employees,
        all of
        whom we consider to be key employees. Competition for highly qualified employees
        in the financial services industry is intense. Our success will depend to
        a
        significant degree upon our ability to attract, train, and retain highly
        skilled
        directors, officers, management, business, financial, legal, marketing, sales,
        and technical personnel and upon the continued contributions of such people.
        In
        addition, we may not be able to retain our current key employees. The loss
        of
        the services of one or more of our key personnel and our failure to attract
        additional highly qualified personnel could impair our ability to expand
        our
        operations and provide service to our customers.
  ***Security
        and privacy breaches of 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 numbers, credit card information, social
        security numbers and merchant account numbers. If we are unable to protect
        this
        information, or if consumers perceive that we are unable to protect this
        information, our business and the growth of the electronic commerce market
        in
        general could be materially adversely affected. A security or privacy breach
        may:
   10
   ·
              cause
                  our customers to lose confidence in our
                  services;
 ·
              deter
                  consumers from using our services;
 ·
              harm
                  our reputation;
 ·
              expose
                  us to liability;
 ·
              increase
                  expenses related to remediation costs;
                  and
 ·
              decrease
                  market acceptance of electronic commerce transactions and SVC
                  use.
  While
        management believes that we have utilized proven applications designed for
        premium data security and integrity in 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
        have engaged a consulting firm to conduct a Payment Card Industry ,
        or PCI **,** Security
        and Compliance audit and certification for our network. If successful, this
        audit will provide us with Level
        One certification, or the highest certification attainable, **** of
        the
        nFinanSe Network. We anticipate the process to be completed by February 28,
        2007.
  ***The
        market for electronic commerce services is evolving and may not continue
        to
        develop or grow rapidly enough for us to become
        profitable*** *.*
  If
        the number of electronic commerce transactions does not continue to grow
        or if
        consumers or businesses do not continue as projected to adopt our products
        and
        services, it could have a material adverse effect on our business, financial
        condition and results of operations. Management believes 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
        reach
        and thereafter maintain our profitability, consumers and businesses must
        continue to adopt our products and services.
  ***The
        debit card and SVC industry is a fairly new industry that is developing and
        building out standards, processes and relationships.***
  We
        are a developmental company building out networks and relationships. In the
        course of this build out of the network, relationships, load locations and
        related systems, there exists the possibility that the associated companies
        may
        delay payments to us, or return our products due to lack of demand by their
        customer base. These delays and or returns could have an adverse effect on
        cash
        flow, sales and inventory levels.
  ***If
        we do not respond to rapid technological change or changes in industry
        standards, our products and services could become obsolete and we could lose
        our
        existing and future 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.
   11
  Changes
        in banking regulations could hurt our ability to carry out our business plan.
  We
        have designed our systems and card programs to comply and work in association
        with applicable banking rules and regulations. A change of those rules and
        regulations could require us to dramatically alter our software programs,
        the
        hardware upon which we operate and our implementation and operation of debit
        cards and SVCs. Such changes could be costly or impractical and we may not
        be
        able to modify our operations and technology to comply with any major changes
        in
        banking regulations.
  ***Changes
        in the*** ***Bank
        Secrecy Act and/or the USA/PATRIOT*** ***Act could impede our ability to circulate cards that can be easily loaded
        or
        issued.***
  Our
        current compliance
        program and screening
        process for the distribution and/or sale of debit cards and SVCs is designed
        to
        comply with  the
        Bank Secrecy Act, or the BSA, and the USA PATRIOT Act regulations that require financial institutions to obtain and confirm
        information related to their respective cardholders. If the BSA,
        and/or the USA PATRIOT Act or subsequent legislation increases the level of scrutiny that we must
        apply
        to our cardholders and customers, it may be costly or impractical for us
        to
        continue to profitably issue and load cards for our customers.
  ***We
        may eventually face significant competition from major
        banks.***
 
 While
        several other small and private companies offer products and services similar
        to
        those offered by us, most banks have not targeted the sub-prime credit market.
        It is possible that those banks may begin to enter the market for, and expend
        increasing resources to develop, financial services targeted at the sub-prime
        credit market, including the sale and servicing of SVCs and similar services.
        These banks have significantly greater market presence, brand-name recognition,
        and financial, technical, and personnel resources than us. Although few banks
        have focused on our immediate sub-prime credit intended target market, they
        may
        do so in the future. Accordingly, we may experience increased competition
        from
        traditional and emerging banks and other financial institutions. We cannot
        predict whether we will be able to compete successfully against current or
        future competitors or that competitive pressures will not materially adversely
        affect our business, financial condition, or prospects. Any increase in
        competition may reduce our gross margins, require increased spending on sales
        and marketing, and otherwise materially adversely affect our business, financial
        condition and prospects.
  ***Internal
        processing errors could result in us failing to appropriately deduct
        transactions from customer accounts.*** **
  In
        the event of a system failure that went undetected for a substantial period
        of
        time, we could allow transactions on blocked accounts, false authorizations,
        fail to deduct charges from accounts or fail to detect systematic fraud or
        abuse. Errors or failures of this nature could immediately adversely impact
        us,
        our credibility and our financial standing.
  ***A
        change in licensing laws could impair our ability to move money over banking
        networks.***
  We
        are dependent upon the use of electronic banking networks owned by major
        financial services institutions and major banks to load cash onto SVCs and
        record deductions against cardholders’ accounts. If we lose access to such
        networks by virtue of contract issues or changes in the laws or regulations
        governing their use, it could render our products useless.
   12
 
 ***The
        requirements to maintain higher reserve accounts could impair our growth
        and
        profitability.***
  We
        are required to maintain reserve deposit accounts with both Discover and PDNB. If we are required to deposit higher than normal reserves with
        either
        or both, it could have a material impact on our cash available for operations
        and impede our business expansion.
  ***If*** ****** ***Discover*** ***Financial Services, LLC changes its requirements or terminates our contract,
        the
        loss would substantially interfere with our marketing strategy and require
        us to
        issue only non-hologram products.***
  We
        have
        chosen to focus our card programs on the Discover hologram card due to what
        we
        believe to be superior attributes. That is, Discover® Network cards can be
        instantly issued at the POS, there is a real time authorization of transactions
        to mitigate fraud and the customer routinely gets balance information on
        their
        sales receipts. Discover® Network cards are accepted by over four million
        merchants and ATMs throughout the United States. If we were to lose our ability
        to issue cards under the Discover® Network brand, we would lose market
        acceptance for our products.
 
 ***Certain
        delays could cause loss of business opportunities and inhibit our
        growth.***
  Delays
        in the development of our programs or business plans could cause loss of
        opportunities. These delays could be in areas such as:
  ·
              deployment
                  of our technology;
 ·
              integration
                  with our transaction processor;
 ·
              SVC
                  sales and activation;
 ·
              SVC
                  integration and usage;
 ·
              integration
                  with our sponsoring bank;
 ·
              integration
                  with our retail distributors; and
 ·
              approvals
                  of our card programs.
  These
        delays could cause us to use more cash, increase our need for outsourcing
        or
        costs of licensing technology, and/or render our SVCs unusable, which would
        result in customer refunds and returns from our distributors. The delays
        may
        also impact our cash flow and profitability and cause us to lose our bank
        sponsorship which may lead to us losing our ability to load cash onto SVCs
        and
        reduce the features of the SVCs. Delays in distribution and/or adoption of
        our
        technology or products could delay the sale, activation and use of the SVCs.
  ***Providing
        credit to the wrong distributors could harm our business and inhibit our
        growth.***
  If
        we provide credit to distributors that are unable to fulfill their financial
        obligations to us it could have a material adverse effect on our financial
        condition and results of operations. We immediately transfer funds onto card
        holder accounts at POS even though the money will not be paid to us for several
        days by the distributor. We continually monitor our distributors’ financial
        condition and we have arrangements whereby we are authorized to electronically
        debit their accounts each day for amounts due us. We usually require some
        level
        of minimum cash balance be maintained with us to cover the associated risk.
        However, if at the time the ACH debit is initiated, the distributor does
        not pay
        us as agreed and the amount is in excess of the maintained cash balance,
        it
        could seriously harm our financial condition to the extent the distributor
        does
        not pay obligations owed to us in excess of maintained cash
        balances.
   13
   **Item
        2. Description of Property.**
  Our
        offices are located at 6015 31 st East, Suite 201, Bradenton, FL 34203, where we occupy approximately 20,000
        square feet which we sublease at a monthly rent of $12,167. We also have
        a
        direct lease on 10,000 square feet on the second floor of the same building
        which we pay rent of $11,780  but **** currently
        do not use. Both the sublease and the lease expire on December 31, 2008.
  All
        of our tangible personal property is located at the leased premises described
        above and is in good operating condition and repair (subject to normal wear
        and
        tear).
  **Item
        3.** **Legal
        Proceedings.**
  We
        are involved in certain litigation in the ordinary course of business and
        in
        litigation against a former employer of some current and former employees
        of our
        company. We do not believe the resolution of these matters will have a material
        adverse effect on our financial position or results of operations.
 
 **Item
        4.** **Submission
        of Matters to a Vote of Security Holders.**
  None.
   14
   **PART
        II**
  **Item
        5.** **Market
        for Our Common Equity and Related Stockholder Matters.**
  **Market
        Information**
  Our
        shares are currently trading on the OTC Bulletin Board under the stock symbol
        MBEU. Below are the high and the low prices for our shares for each quarter
        of
        our last two fiscal years **.**
  **Fiscal
                  Quarter Ended**
              **High**
              **Low**September
                  30, 2006
              $8.20
              $1.40June
                  30, 2006
              $8.20
              $5.20March
                  31, 2006
              $15.60
              $7.40December
                  31, 2005
              $14.40
              $7.60September
                  30, 2005
              $22.80
              $8.60June
                  30, 2005
              $18.00
              $8.80March
                  31, 2005
              $35.20
              $10.20December
                  31, 2004
              $19.60
              $2.20
 
 The
        source of the high and low bid price information is the OTC Bulletin Board.
        The
        market quotations reflect inter-dealer prices, without retail mark-up, markdown
        or commission and may not represent actual transactions.
  **Holders
        of Record of Common Stock**
  As
        of September 30, 2006, there were ninety-one registered holders of record of our common stock.
  **Dividends**
  There
        are no restrictions in our Articles of Incorporation or Bylaws that restrict
        us
        from declaring dividends. The Nevada Revised Statutes, however, prohibits
        us
        from declaring dividends where, after giving effect to the distribution of
        the
        dividend:
  A.  we
        would not be able to pay our debts as they become due in the usual course
        of
        business; or
 
 B.  our
        total assets would be less than the sum of our total liabilities, plus the
        amount that would be needed to satisfy the rights of  stockholders who have preferential rights superior to those receiving the
        distribution.
  We
        have neither declared nor paid any cash dividends on our capital stock and
        do
        not anticipate paying cash dividends in the foreseeable future. Our current
        policy is to retain any earnings in order to finance the expansion of our
        operations. Our board of directors will determine future declaration and
        payment
        of dividends, if any, in light of the then-current conditions and in accordance
        with the Nevada Revised Statutes.
   15
   **Recent
        Sales of Unregistered Securities**
  On
        April 27, 2006, we entered into a Convertible Promissory Note for $1,050,000
        to
        provide interim funding until we could complete our next longer-term funding.  This
        note was initially due on the earlier of five days after a qualified financing
        or the
        three month anniversary of the loan, however ,
        the maturity date was subsequently extended until February 2, 2007. The note
        accrued
        interest at the rate of 9%
        per annum, was convertible into our common stock and contained 100% warrant
        coverage. Both the conversion price of the note and the exercise price of the warrant were assumed to be equal to the price paid
        for our shares in the subsequent qualified financing which occurred in August
        2006, which was $0.25.
  On
        August 2, 2006, we entered into a series of Senior Secured Convertible
        Promissory Notes for
        an aggregate of $3,967,250, which included the conversion of the April 2006
        note
        of $1,054,000 plus $17,250 of accrued interest. These notes were due on the earlier of five days after a qualified financing, as
        defined in the notes ,
        or February 2, 2007. The notes  accrued interest at the rate of 9% per annum  and
        were convertible into our common stock at the same terms of our next qualified
        financing . In
        connection with this financing, we issued warrants to purchase 793,450 shares
        of
        common stock with an exercise price of $5.00 per share.
  On
        September 29, 2006, we entered into Securities Exchange Agreements, or the
        Exchange Agreements, with the
        holders of the August notes .
        Pursuant to the Exchange Agreements, we issued an aggregate of $3,967,250
        senior
        secured convertible promissory notes in exchange for the surrender by the August
        noteholders of August notes in the aggregate of $3,967,250 and warrants exercisable into 793,450 shares of our common stock . Within 90 days of the date of the Exchange Agreements, we had the right to
        demand the purchase of an additional $1,000,000 of Notes by the Investors
        and
        their affiliates on a pro rata basis. We exercised this right and sold an
        additional $1,000,000 of the notes on November 8, 2006.
  These
        September notes accrue interest at a 9% per annum rate and mature on June 30, 2007. We may
        prepay the notes at any time. We are obligated to reserve 4,967,250 shares of common stock
        to
        provide for the conversion of the notes into common stock. The holders may convert the notes into common stock at any time prior to the notes ’
        prepayment or maturity at a conversion price of $1.00 per share. The notes provide for customary events of default, including payment defaults, breaches
        of
        covenants and certain events of bankruptcy, insolvency and reorganization.
        If an
        event of default occurs and is continuing, the principal amount of the notes ,
        plus accrued and unpaid interest, if any, will be immediately due and
        payable.
  Pursuant
        to the terms of the notes ,
        we shall not effect any conversion of a note ,
        and the holder
        of such note shall not have the right to convert any portion of such note ,
        to the extent that after giving effect to such conversion, such holder would beneficially own in excess of 9.99% of the common stock outstanding
        immediately after giving effect to the issuance of common stock upon
        conversion.
  Pursuant
        to the terms of the Exchange Agreements, whenever we propose to register
        any of
        our securities under the Securities Act of 1933, as amended, or the Act,
        in a
        secondary offering of the our securities and the registration form to be
        used
        may be used for the registration of common stock acquired upon conversion
        of the
        Notes, or the Registrable Securities, we are obligated to give prompt written
        notice to the Investors and include in such registration, subject to certain
        pro
        rata allocation provisions, all Registrable Securities for which we have
        received written requests for inclusion. Additionally, upon conversion of
        the
        Notes into common stock, we are obligated to file a registration statement
        covering the Registrable Securities within ninety days
        of such conversion. We are further obligated to use reasonable efforts to
        cause
        such registration statement to be declared effective under the Act as promptly
        as possible
   16
  after
        the filing thereof, and to use reasonable efforts to keep the registration
        statement continuously effective under the Act until the date when all
        Registrable Securities covered by the registration statement may be
        sold.
  On
        December 21, 2006, we issued an additional $200,000 in Senior Secured
        Convertible Promissory Notes to an existing investor in the previously issued
        notes.
 
 On
        December 28, 2006, we completed the exchange of all of our outstanding Senior
        Secured Convertible Promissory Notes, in the aggregate amount of $5,327,930
        of
        principal and accrued interest, into 5,327,930 shares of our Series A
        Convertible Preferred Stock. Pursuant to the terms of the exchange, all of
        the
        notes were surrendered and cancelled as consideration for the shares of such
        stock, which are convertible into one share of our common stock at a conversion
        rate of $1.00 per share.
 
 Further,
        in a private placement occurring concurrently with the exchange, we received
        proceeds of $4,000,000 through the sale of an additional 4,000,000 shares
        of the
        aforementioned Series A Convertible Preferred Stock to certain accredited
        investors, including investors who had been holders of the notes.
 
 After
        the
        transactions described above, the balance of the notes is zero and we have
        9,327,930 shares of Series A Convertible Preferred Stock
        outstanding.
 **Equity
        Compensation Plan Information**
 
 The
        following table provides information about the securities authorized for
        issuance under our equity compensation plans as of the end of fiscal year 2006.
  
 **Equity
        Compensation Plan Information**
  **(c)****Number
                  of securities****(a)**
              
              **(b)**
              
              **remaining
                  available for****Number
                  of securities to**
              
              **Weighted-average**
              
              **future
                  issuance under equity****be
                  issued upon exercise**
              
              **exercise
                  price of**
              
              **compensation
                  plan****of
                  outstanding options,**
              
              **outstanding
                  options,**
              
              **(excluding
                  securities****warrants
                  and rights**
              
              **warrants
                  and rights**
              
              **reflected
                  column (a))**Equity
                  compensation plansapproved
                  by security holders
              
              728,600
              
              $7.78
              
              21,400
   **Item
        6. Management’s Discussion and Analysis and Plan of
        Operation.**
  **Management’s
        Discussion and Analysis of Financial Condition and Results of
        Operations.**
  **Overview.** nFinanSe
        is a provider of SVCs. There are four basic types of SVCs that we issue.
        They
        are payroll, gift, reloadable general spend and corporate reward SVCs. The
        gift
        and reloadable general spend SVCs are marketed to the consumer through retailer
        programs managed by established prepaid card distributors. Payroll and reward
        SVCs are marketed to Fortune 1000 companies by our sales force. The stored
        value
        of the cards is increased via “load” transactions that take place over our
        proprietary nFinanSe Network. In addition, the nFinanSe Network can be used
        to
        process load transactions for other companies that market SVCs.
        nFinanSe  Network
        transactions can take place throughout our distributor’s retail networks and at
        several different payment and remittance processors like Western Union,
        Travelers Express MoneyGram and Bank of America.
   17
  Reloadable
        general SVCs can have their stored-value replenished or “reloaded” via load
        transactions. These SVCs are marketed to the sub-prime credit market, which
        consists primarily of those consumers who cannot qualify for a credit card
        or
        bank account or who are otherwise unattractive to banks, such as people who
        are
        immigrants, recently divorced, young or have no credit history or very low
        income. We market payroll SVCs directly to employers whose employee demographics
        fit the sub-prime market profile.
  We
        believe gift SVCs have gained a high degree of consumer acceptance and our
        gift
        SVCs are marketed to appeal to this large consumer market segment. Our corporate
        reward SVCs are marketed to companies who intend to reward customer and employee
        loyalty through the issuance of SVCs.
  We
        earn
        income when a SVC is sold, when a “re-loadable” SVC is “loaded,” or when the SVC
        is used for purchases or ATM transactions. The fees that we earn can vary
        by the
        transaction type, and the physical location of the transaction.
  **Historical
        Summary.** Information
        prior to August 24, 2004, the date of our reverse merger with Pan American,
        has
        been omitted from this annual report. All financial information presented
        in
        this annual report represents nFinanSe’s results for the past two fiscal years.
        As part of the merger with Pan American, nFinanSe changed its fiscal year
        end
        from December 31 to September 30. As a result of this change, financial
        information contained herein is comprised of our results in fiscal years
        ended
        September 30, 2006 and September 30, 2005.
  **Discontinued
        Operations.** In
        October 2006, we discontinued the operations of our wholesale long distance
        and
        prepaid phone card subsidiary, MBI Services, Inc., due to lack of profitability
        and management’s desire to focus our entire effort on our core SVC business.
        Accordingly, all financial information pertaining to this discontinued business
        has been eliminated from ongoing operations for all periods presented in
        the
        attached financials to this annual report and is instead shown as a single
        line
        item entitled “Discontinued Telecom Operations.”
  **Results
        of Operations** .
        Our
        principal operations commenced in 2001, however, to this date, we have had
        limited revenues. In June 1975, the Financial Accounting Standards Board,
        or
        FASB, released its Statement No. 7, or FASB No. 7, which sets forth guidelines
        for identifying an enterprise in the development stage and the standards
        of
        financial accounting and reporting applicable to such an enterprise. In the
        opinion of management, we and our activities from our inception through
        September 30, 2006 fall within the referenced guidelines. Accordingly, we
        report
        our activities in this annual report in accordance with FASB No. 7.
  **Lack
        of Profitability of Business Operations since 2001.** We
        were
        initially focused exclusively on the sale of SVCs. During the years leading
        up
        to fiscal 2006, we experienced significant difficulties and interruptions
        with
        our third-party card issuers due to administrative errors, defective cards,
        and
        poor service. In one instance, our bank failed to submit proper paperwork
        to
        MasterCard and after we had already shipped cards to customers, MasterCard
        cancelled our program. In another instance, the processor we were using
        delivered defective cards to us. When we refused to pay for the cards, the
        card
        issuer cut-off services and our program was effectively shut down. Additionally,
        it became apparent to management that there was a flaw in focusing solely
        on the
        sale of SVC products that did not have a convenient load solution for consumers.
        Consequently, management made the decision to expand our focus to include
        the
        development of a proprietary process, the nFinanSe Network, to allow the
        consumer to perform value loads in a retail environment. In fiscal 2006,
        we
        entered into agreements with MoneyGram and Western Union whereby SVCs could
        be
        loaded at their locations. These agreements
  18
  greatly
        expanded our load network. Additionally, in 2006, we signed an agreement
        with
        Discover Financial Services, LLC that
        permits us to issue Discover ®
        Network -branded
        SVCs directly or through a sponsoring bank. We believe the Discover ®
        Network SVC
        products have multiple competitive advantages over the SVCs we previously
        sold.
        The difficulties with our pre-Discover ®
        Network SVC
        programs could not be resolved in a manner favorable to us. Consequently,
        management made the decision to focus our efforts on implementing the agreement
        with Discover Financial Services, LLC in lieu of pursuing SVC sales through
        our
        existing arrangements. Accordingly, our sales efforts were interrupted while
        we
        developed our new Discover ®
        Network SVC
        programs and abandoned our existing SVC programs by disposing of our then
        existing SVC inventory. The time and money lost due to the difficulties and
        interruptions we experienced with other issuers’ SVC programs, the cessation of
        sales activity and the SVC inventory write offs associated with the adoption
        and
        development of the Discover ®
        Network SVC
        products, along with the expense of developing the nFinanSe Network has kept
        us
        from achieving profitability to date.
  During
        fiscal year 2007, we intend to expand the number of active retail locations
        where our retail gift and reloadable general spend SVCs can be purchased
        by
        entering into agreements with established prepaid card distributors. We expect
        this effort will increase the number of locations where our card holders
        can
        load funds onto their cards. At September 30, 2006, there were over 80,000
        locations where our SVCs could be loaded. Subsequent to fiscal year end,
        we have
        entered into agreements with several prepaid card distributors representing
        over
        10,000 retail locations. Although much work is still required to get these
        agreements implemented and to have our reloadable general spend and retail
        gift
        SVCs accepted in the market, our business plan is to have approximately 20,000
        active retail locations selling our retail gift and reloadable general spend
        SVCs by the end of calendar 2007.
   **Sales
        and Revenues** .
        We
        produce revenues through five types of fees: fees when a card is sold, fees
        when
        the nFinanSe Network is used to reload a card, fees when a card is used in
        a
        purchase or ATM transaction and fees when a card with a cash balance is charged
        for monthly maintenance. These fees differ by card type or transaction type.
  Revenues
        for the year ended September 30, 2006 and the year ended September 30, 2005
        were
        $77,833 and $485,834, respectively. Revenue was down in the year ended September
        30, 2006 by 84 % when compared to the year ended September 30, 2005. This
        decrease is attributable to our interruptions in SVC sales, restructuring
        of our
        SVC business and re-aligning our business with Discover Financial Services,
        LLC.
        Sales in both fiscal 2005 and in fiscal 2006 were hindered because we did
        not
        have working card programs to sell.
  **Cost
        of Goods Sold.** Cost of
        goods sold for the year ended September 30, 2006 and the year ended September
        30, 2005 were $583,762 and $292,130, respectively. The large increase in
        fiscal
        2006 and the resulting large gross deficiency were due to disposing of $354,766
        in obsolete SVC inventory.
  **Other
        Operating Expenses.** Other
        operating expenses for the year ended September 30, 2006 and the year ended
        September 30, 2005 were $7,792,500 and $5,545,806, respectively. The increase
        in
        our operating expenses of 45% for the year ended September 30, 2006 compared
        to
        year ended September 30, 2005, was attributable to the following:
  **Other
        employee compensation and benefits.** Other
        employee compensation and benefits was $2,691,783 for the year ended September
        30, 2006, compared to $2,367,270 in year ended September 30, 2005, a 14%
        increase. This increase was the result of personnel changes throughout the
        Company as we progress from a development phase to an implementation phase
        company.
   19
   **Stock
        based compensation and consulting expense.** Stock
        based compensation and consulting expense also increased from $1,088,200
        for the
        year ended September 30, 2005 to $1,952,229 for the year ended September
        30,
        2006, a 792% increase primarily due to $1,272,263 in employee stock based
        compensation expense recognized in the fiscal year 2006 due to the adoption
        of
        SFAS 123 in January of 2006.
  **Other
        professional and consulting fees.** Other
        professional and consulting fees increased 84% from $958,580 for the year
        ended
        September 30, 2005 to $1,762,414 for the year ended September 30, 2006. The
        increase is primarily attributable to legal fees associated with filing our
        Registration Statement on Form SB-2, which became effective on June 14, 2006,
        legal and consulting fees in connection with our licensing and compliance
        efforts and legal fees and consulting fees in connection with financing the
        business.
  **Impairments.** There
        were no impairments included in the loss from continuing operations during
        the
        year ended September 30, 2006 compared to $212,000 for the year ended September
        30, 2005. Statement of Financial Accounting Standards (SFAS) 144, “ *Accounting
        for the Impairment or Disposal of Long-Lived Assets* ,”
or
        SFAS 144, requires that long-lived assets, including certain identifiable
        intangibles, be reviewed for impairment whenever events or changes in
        circumstances indicate that the carrying value of the assets in question
        may not
        be recoverable. We evaluated our assets during the year ended September 30,
        2006
        and believe all of our long lived assets are recoverable.
  **Occupancy
        and equipment costs.** Occupancy and equipment costs increased from $379,987 to $585,569 for year
        ended
        September 30, 2005 compared to the year ended September 30, 2006, a 54%
        increase. This increase was due primarily to subleasing 20,000 square feet
        of
        additional office space in our existing building to support our increased
        staff.
        Our intention to sublease our existing 10,000 square feet of office space
        was
        not realized as planned.
  **Travel
        and entertainment.** Travel
        and entertainment increased from $99,484 for the year ended September, 30
        2005
        to $165,390 for the year ended September 30, 2006, a 66% increase. This is
        primarily attributable to our restructuring efforts and the realignment of
        our
        business with Discover Financial Services, LLC.
  **Other
        Expense.** Other
        expense increased $169,658 from $327,528 for the year ended September 30,
        2005
        to $497,186 for the year ended September 30, 2006, a 52% increase. This increase
        was primarily attributable to increases in bad debt expense of $100,986 and
        legal settlements totaling $90,000.
  **Loss
        from Operations.** As
        a
        result of the trends described above, our loss from operations increased
        55% to
        $8,298,429 in the year ended September 30, 2006 from $5,352,102 for the year
        ended September 30, 2005.
  **Other
        Non-Operating Income and Expense.**
  **Loss
        on Derivative Financial Instruments** . **** We
        recognized a net gain on our non-trading derivative financial instruments
        of
        $3,465,948 for the year ended September 30, 2006, compared to a net loss
        of
        ($1,620,686) in 2005. Derivative financial instruments, as defined in Financial
        Accounting Standard No. 133, *Accounting
        for Derivative Financial Instruments and Hedging Activities,* or
        FAS
        133, consist of financial instruments or other contracts that contain a notional
        amount and one or more underlying derivatives (e.g. interest rate, security
        price or other variable), require no initial net investment and permit net
        settlement. Derivative financial instruments may be free-standing or embedded
        in
        other financial instruments. Further, derivative financial instruments are
        initially, and subsequently, measured at fair value and recorded as liabilities
        or, in rare instances, assets.
   20
   The
        following table illustrates the components of our derivative income
        (expense):
  Year
                  ended September 30,2006
              
              2005Incremental
                  fair value adjustments to derivative
                financial
                  instruments
              
              $
              5,502,444
              
              $
              (1,620,686
              )Day-one
                  derivative losses
              
              
              (2,036,496
              )
              
              --$
              3,465,948
              
              $
              (1,620,686
              )
 
 Estimating
        fair values of derivative financial instruments requires the development
        of
        significant and subjective estimates that may, and are likely to, change
        over
        the duration of the instrument with related changes in internal factors and
        external market indicators. In addition, option-based techniques are highly
        volatile and sensitive to changes in our trading market price which has a
        high-historical volatility. Accordingly, our incremental fair value adjustments
        reflect the significant decline in the trading market value of our common
        stock
        and changes in other important assumptions, such as an increase in our credit
        risk and increasing market interest rates. In addition, we entered into
        financing transactions during the year ended September 30, 2006 that resulted
        in
        our recognition of compound derivates and derivative warrants at fair values
        greater than the financing proceeds. Since derivative financial instruments
        are
        initially, and subsequently, carried at fair values, we were required to
        record
        day-one derivative losses on these financing activities.
 
 We
        evaluate all of our material financial instruments and contracts for indications
        of derivatives. As of September 30, 2006 we do not carry derivative liabilities
        and, therefore, we do not currently anticipate further earnings volatility.
        However, we expect to enter into additional financing and other contracts
        that
        may result in our recognition of derivative liabilities and the related earnings
        volatility caused by fair value measurement.
  **Gains
        (losses) on debt extinguishments.** During
        our fiscal year ending September 30, 2006, we entered into certain debt exchange
        and modification agreements that, under current accounting standards,
        constituted debt extinguishments. Such extinguishments arise when previously
        issued debt instruments are exchanged for new instruments with materially
        different terms or in instances where modifications to existing debt agreements
        materially modify the original terms or material fees are paid to effect
        the
        modification. When our debt was extinguished or, in the case of modifications,
        effectively extinguished, we were required to record the newly issued debt
        at
        its fair values which exceeded the carrying values of our existing balances.
        As
        a result, we were required to recognize debt extinguishment gains and losses
        that net to a loss of $5,137,817.
  **Interest
        income.** Interest
        income decreased $16,327 from $34,284 for the fiscal year ended September
        30,
        2005 to $17,737 for the fiscal year ended September 30, 2006, a 70% decrease.
        This decrease is primarily attributable to $10,000 of interest paid on a
        note
        receivable in the year ended September 30, 2005. The remaining balance on
        that
        note receivable was written-off in the year ended September 30,
        2005.
  **Interest
        expense.** Interest
        expense increased from $4,159 for the fiscal year ended September 30, 2005,
        to
        $1,499,630 for the fiscal year ended September 30, 2006. Substantially all
        of
        our interest expense represented non-cash amortization of debt discounts
        that
        arose when we allocated proceeds from our financing transactions to other
        securities issued in connection with the respective financings, such as
        warrants, and derivative features embedded in the debt instruments. We amortized
        debt discounts and premiums using the effective method where charges and
        credits
        are charged to interest expense and
   21
  interest
        income, respectively. As of September 30, 2006, we do carry certain convertible
        promissory notes that were initially recorded at a fair value premium in
        connection with the aforementioned debt extinguishments.
  **Gain
        from settlement of litigation.** Gain
        from
        settlement of litigation declined from $60,000 for the fiscal year ended
        September 30, 2005 to $0 for the fiscal year ended September 30,
        2006.
  **Registration
        penalties.** Registration
        penalties represent estimated penalties due to investors when we are delayed
        in
        the filing of registration statements or achieving effectiveness thereon.
        We
        record registration penalties when they are both probable of being incurred
        and
        reasonably estimable. Registration penalties decreased $1,101 from $99,750
        for
        the fiscal year ended September 30, 2005, to $98,649 for the fiscal year
        ended
        September 30, 2006. We have currently satisfied all current filing and
        effectiveness conditions. However, there continue to be registration related
        events that could reasonably occur in the future and require additional
        penalties. As of September 30, 2006, these events are not probable.
  **Loss
        from Continuing Operations.** Loss
        from continuing operations was $11,550,840 for the fiscal year ended September
        30, 2006 or $4,573,079 higher than the prior fiscal year. As mentioned above,
        we
        recorded substantial non-cash expenses in 2006 that were primarily responsible
        for the increased loss.
  **Loss
        from Discontinued Operations.** During
        the year ended September 30, 2006, we discontinued our Prepaid Calling Card
        Business and, accordingly, our financial statements for all periods presented
        have been restated to reflect the Prepaid Calling Card Business as a
        discontinued operation.  Loss
        from our discontinued operations was $3,238,801 for the year ended September
        30,
        2006 or $2,798,627 higher than the prior year. This loss is attributable
        to
        cessation of our telecom business which had nine additional months of operations
        for the fiscal year ended September 30, 2006 than in the fiscal year ended
        September 30, 2005. We ceased our telecom business operations in September
        2006.
        (See footnote A to our Consolidated Financial Statements.) ****** Approximately
        $741,400 of the fiscal year 2006 loss is attributable to the write down of
        the
        discontinued operation’s assets to fair value.
  **Liquidity
        and Capital Resources.** From
        inception to September 30, 2006, we have raised $12,091,177 from sales of
        our
        common stock and warrants for purchase of our common stock, $4,165,162 from
        the
        issuance of debt and $3,000,000 from collections of a note receivable from
        a
        stockholder in connection with our merger with Pan American. We used these
        proceeds to fund operating activities and purchase property and equipment. **** On
        September 30, 2006, we had a cash balance of $936,605.
  We
        will
        need significant additional capital to fund our operations going forward.
        We
        expect to finance our future cash needs for at least the next several years
        principally through public or private equity offerings and through debt
        financings. We may also pursue strategic partnerships and collaborations
        and
        licensing arrangements when appropriate. We
        may
        decide to raise the capital in more than one transaction based on market
        conditions and business circumstances. Although we are confident of our business
        plan, we have experienced unforeseen difficulties with implementing our plans
        in
        the past and there can be no assurance that unforeseen difficulties can be
        avoided going forward. This fact alone could hamper our ability to raise
        the
        funds necessary to permit us to continue as a going concern for a reasonable
        period of time. If we are able to raise the funds, the terms and conditions
        may
        be highly dilutive to existing stock holders.
  Subsequent
        to September 30, 2006, we raised $1,200,000 through the issuance of Senior
        Secured Convertible Promissory Notes which were exchanged with other previously
        issued Senior Secured Convertible Promissory Notes for 5,327,930 shares of
        our
        Series A Convertible Preferred Stock on December 28, 2006.
   22
   Further,
        in a private placement occurring concurrently with the exchange, we raised
        approximately $4,000,000 through the sale of 4,000,000 shares of Series A
        Convertible Preferred Stock.
  We
        believe that we will still need to raise additional capital in order to execute
        our business plan and fund operations during 2007.
  **Changes
        in Number of Employees and Location.** We
        anticipate that the development of our business will require the hiring of
        a
        substantial number of additional employees  in
        sales,
        operations and customer service. We believe our current location in Bradenton,
        Florida makes recruiting quite difficult due the demographics of the area.
        Our
        plans call for us to move our headquarters into the greater Tampa area if
        a
        suitable location can be found.
  **Off-Balance
        Sheet Arrangements**
  **Operating
        Leases**
  We
        are obligated under the lease agreements for our facilities in Bradenton,
        Florida, which expire on December 31, 2008, to future minimum lease payments
        approximately as follows as of September 30, 2006:
 
 Year
                  ending
                September
                  30,
              
              Amounts2007
              
              290,4002008
              
              198,9002009
              
              38,200Total
              $
              551,250
 Rent
        expense for the fiscal year ended September 30, 2006, and the fiscal year
        ended
        September 30, 2005 approximated $274,000 and $182,500,
        respectively.
  **Consulting
        Agreements**
  During
        fiscal 2006, we entered into several consulting arrangements to assist us
        in
        raising capital. Each of these contracts has now been terminated. Payments
        under
        these contracts amounted to $83,000 in cash and $693,000 of non-cash equity
        compensation.
 
 On
        August
        1, 2006 **,** we also
        entered into a six month arrangement with a specialist attorney to assist
        with
        compliance and licensing issues for a fee of $7,000 per month. The specialist
        attorney agreed to terminate the existing contract, effective September 30,
        2006, and will continue to work with us on a project by project
        basis.
  **Employment
        Agreements**
  At
        September 30, 2006, we are obligated under a non-cancelable employment agreement
        with our chairman of the board of directors and former chief executive officer,
        Clifford Wildes. Pursuant to the agreement, Mr. Wildes is to receive base
        annual
        compensation of $225,000 through December 31, 2007, various vacation and
        medical
        benefits, a car allowance of $750 per month and annual bonuses ranging from
        2.5%
        to 3.0% of our net income. The agreement contains a takeover provision that
        requires us to
   23
  pay
        the greater of $750,000, or an amount equal to 7.5% of any sale price in
        excess
        of $25,000,000 to Mr. Wildes in the event a change in control occurs. If
        we
        terminate Mr. Wildes without cause, we will be required to pay severance
        in the
        amount of compensation and benefits he would have otherwise earned for a
        period
        of twelve months.
  We
        entered into a non-cancelable employment agreement with our current chief
        executive officer, Jerry R. Welch, effective September 5, 2006 through December
        31, 2008, pursuant to which he receives an annual salary of $235,000.
        Additionally, Mr. Welch received the option to purchase a number of shares
        of
        our common stock equal to 4.25% of the outstanding shares of our total issued
        stock, options and warrants as of the earlier of the following: (a) the date
        five days following the date we complete our next round of permanent financing
        following August 31, 2006, at a strike price equal to the market price on
        the
        grant date; or (b) February 28, 2007, at a strike price equal to the market
        price on the grant date. The options vest in 28 equal installments, the first
        six installments vesting on February 28, 2007, and an additional installment
        vesting on the final day of the month each following month, with the final
        installment vesting as of December 31, 2008. Mr. Welch also receives a
        performance-based bonus and certain medical and other benefits. If we terminate
        Mr. Welch without cause, we will be required to pay severance in the amount
        of
        compensation and benefits he would have otherwise earned for a period of
        twelve
        months.
  We
        entered into a non-cancelable employment agreement with our chief financial
        officer, Raymond P. Springer, effective September 5, 2006 through December
        31,
        2008, pursuant to which he receives an annual salary of $185,000. Mr. Springer
        received options to purchase a number of shares of our common stock equal
        to 2%
        of the outstanding shares of our total issued stock, options and warrants
        as of
        the earlier of the following: (a) the date five days following the date we
        complete our next round of permanent financing following August 31, 2006,
        at a
        strike price equal to the market price on the grant date; or (b) February
        28,
        2007, at a strike price equal to the market price on the grant date. The
        options
        vest in 28 equal installments, the first six installments vesting on February
        28, 2007, an additional installment vesting on the final day of the month
        each
        following month, with the final installment vesting as of December 31, 2008.
        Mr.
        Springer also receives a performance-based bonus and certain medical and
        other
        benefits. If we terminate Mr. Springer without cause, we will be required
        to pay
        severance in the amount of compensation and benefits he would have otherwise
        earned for a period of twelve months.
  **Service
        and Purchase Agreements**
  We
        have entered into three one-year contracts with each of Discover Financial Services, LLC ,
        our card network, PDNB, our sponsoring bank and Metavante, our processor.
        Since
        the majority of the fees to be paid are contingent primarily on card volume,
        it
        is not possible to calculate the amount of the future commitment on these
        contracts. The Metavante agreement includes a monthly minimum payment of
        $5,000.
  **Purchase
        Commitments**
  As
        of September 30, 2006, we had no material purchase commitments.
   24
  **Critical
        Accounting Policies**
  **Use
        of Estimates**
 
 The
        preparation of consolidated financial statements in conformity with accounting
        principles generally accepted in the United States of America requires us
        to
        make certain estimates and assumptions that affect the reported amounts of
        assets and liabilities and disclosure of contingent assets and liabilities
        at
        the date of the consolidated financial statements. The reported amounts of
        revenues and expenses during the reporting period may be affected by the
        estimates and assumptions we are required to make. Estimates that are critical
        to the accompanying consolidated financial statements arise from our belief
        that
        we will secure an adequate amount of cash to continue as a going concern,
        that
        all long-lived assets are recoverable and that the resolution of various
        contingencies will not materially impact our consolidated financial statements.
        In addition, the liability resulting from accrued registration rights damages
        arises from a significant estimate. The markets for our products are
        characterized by intense competition, rapid technological development, evolving
        standards, short product life cycles and price competition, all of which
        could
        impact the future realization of our assets. Estimates and assumptions are
        reviewed periodically and the effects of revisions are reflected in the period
        that they are determined to be necessary. It is at least reasonably possible
        that our estimates could change in the near term with respect to these
        matters.
 
 **Revenue
        Recognition**
 
 We
        generate the following types of revenues:
 
 ·
              Wholesale
                  fees, which arise from sales and activation of our
                  SVCs.
 ·
              Transaction
                  fees, which arise from the use of and loading of cash onto
                  SVCs.
 ·
              Maintenance
                  fees, which arise from keeping the SVCs active on a monthly
                  basis.
 
 In
        general, our revenue recognition policy for our product fees and services
        is
        consistent with the criteria set forth in *Staff
        Accounting Bulletin 104 - Revenue Recognition in Financial
        Statements* ,
        or SAB
        104, for determining when revenue is realized or realizable and earned. In
        accordance with the requirements of SAB 104, we recognize revenue when, (1)
        persuasive evidence of an arrangement exists; (2) delivery has occurred;
        (3) our
        price to the buyer is fixed or determinable; and (4) collectibility of the
        receivables is reasonably assured. More specifically, revenue for our SVCs
        is
        recognized when shipped and revenue for our prepaid telephone card sales
        is
        recognized when the products are used. Costs of revenue, including the cost
        of
        printing the SVCs, are recorded at the time revenue is recognized.
 
 **Stock
        - Based Compensation**
 
 Prior
        to
        January 1, 2006, we used Financial Accounting Standard No. 148 “Accounting for
        Stock-Based Compensation - Transition and Disclosure” (“FAS 148”) to account for
        our stock based compensation arrangements. It amended the disclosure provisions
        of FAS 123 to require prominent disclosure about the effects on reported
        net
        income of an entity’s accounting policy decisions with respect to stock-based
        employee compensation. Through December 31, 2005, as permitted by FAS No.
        123
        and amended by FAS No. 148, we used the intrinsic value method under Accounting
        Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees,” to
        account for our stock-based employee compensation arrangements. Effective
        January 1, 2006, we began applying Financial Accounting Standards Board
        Statement No. 123 (“FAS 123 (Revised)”), “Share-Based Payments” (“FAS 123(R)”)
        to account for our stock based compensation arrangements. This statement
        requires us to recognize compensation expense in an amount equal to the fair
        value of shared-based payments such as stock options granted to
        employees.
  25
  We
        have
        elected to apply FAS 123(R) on a modified prospective method. Under this
        method,
        we are required to record compensation expense (as previous awards continue
        to
        vest) for the unvested portion of previously granted awards that remain
        outstanding at the date of adoption. The effect of adopting this statement
        was
        to increase our net loss by approximately $1,272,000 during the year ended
        September 30, 2006.
 
 With
        respect to non-employee stock options that vest at various times and have
        no
        significant disincentives for non-performance and/or specific performance
        commitments, we follow the guidance in Emerging Issues Task Force Issue (“EITF”)
        No. 96-18. Pursuant to this standard, the value of these options is estimated
        at
        various reporting dates and finally measured at the respective vesting date(s)
        of the options (or the date on which the consultants’ performance is complete).
        The expense for each group of options is recognized ratably over the vesting
        period for each group, and the estimated value of any unvested options is
        updated at such time. As a result, under these arrangements, our initial
        and
        periodic recording of stock based compensation expense represents an estimate
        for which changes are reflected in the period that they are determined to
        be
        necessary.
 
 **Convertible
        Debt and Equity Instruments Issued with Registration Rights
        Agreements**
 
 In
        connection with the sale of debt or equity instruments, we may enter into
        Registration Rights Agreements that generally require us to file registration
        statements with the Securities and Exchange Commission to register common
        shares
        that may be issued on conversion of debt or preferred stock, to permit re-sale
        of common shares previously sold under an exemption from registration or
        to
        register common shares that may be issued on exercise of outstanding options
        or
        warrants. The agreements typically require us to pay damages, in the form
        of
        contractually stipulated penalties, for any delay in filing the required
        registration statements or in the registration statements becoming effective,
        maintaining effectiveness or, in some instances, maintaining a listing of
        our
        common stock. These damages are usually expressed as a fixed percentage,
        per
        month, of the original proceeds we received on issuance of the debt, preferred
        stock, common shares, options or warrants. We account for these penalties
        as
        contingent liabilities, applying the accounting guidance of Financial Accounting
        Standard No. 5, “Accounting for Contingencies” (“FAS 5”). This accounting is
        consistent with views established by the Emerging Issues Task Force in its
        consensus set forth in EITF 05-04 and FASB Staff Positions FSP EITF 00-19-2
        “Accounting for Registration Payment Arrangements”, which was issued December
        21, 2006. Accordingly, we recognize the damages when it becomes probable
        that
        they will be incurred and amounts are reasonably estimable.
 
 In
        connection with sales of our common stock during the fiscal year ended September
        30, 2005, we granted certain registration rights that provided for liquidated
        damages in the event we failed to timely register the common stock for re-sale
        or maintain the effectiveness of that registration. Although the registration
        rights agreement did not provide for net-cash settlement, the existence of
        liquidated damages provided for a defacto net-cash settlement option. As
        a
        result, a portion of the common stock proceeds were initially reclassified
        from
        equity and included as a derivative financial instrument liability until
        such
        time as the conditions were eliminated. At
        the time the required registration statement became effective on June 15,
        2006,
        the amount payable up to that date of approximately $206,000 was re-classified
        to Accrued Registration Rights Damages Payable and the portion of the estimated
        liability for future periods of approximately $454, 000 no longer payable
        as a
        result of effectiveness, was re-classified to equity. The liability is
        re-measured each reporting period and at September 30, 2006 the liability
        of
        approximately $204,000 relates to the estimated fair value of our liability
        related to our obligation to maintain the effectiveness of the
        registration.
  26
  **Financial
        Instruments and Concentrations**
 
 Financial
        instruments, as defined in Financial Accounting Standard No. 107, “Disclosures
        about Fair Values of Financial Instruments”, consist of cash, evidence of
        ownership in an entity and contracts that both (i) impose on one entity a
        contractual obligation to deliver cash or another financial instrument to
        a
        second entity, or to exchange other financial instruments on potentially
        unfavorable terms with the second entity, and (ii) conveys to that second
        entity
        a contractual right (a) to receive cash or another financial instrument from
        the
        first entity or (b) to exchange other financial instruments on potentially
        favorable terms with the first entity. Accordingly, our financial instruments
        consist of cash and cash equivalents, accounts receivable, accounts payable,
        accrued liabilities, notes payable, derivative financial instruments, and
        convertible debt.
 
 The
        carrying values of our cash and cash equivalents, receivables and accounts
        payable and accrued and other liabilities approximate their respective fair
        values due to their short-term nature. The fair value of our Senior Secured
        Convertible Promissory Notes of $6,614,581 is also the carrying value of
        these
        instruments because they were recorded at their fair value when they were
        issued
        on September 29, 2006 in connection with the debt exchange transaction that
        is
        more fully discussed in Note K of the audited financial statements.
 
 Financial
        instruments, which potentially subject us to significant concentrations of
        credit risk, consist primarily of accounts receivable, and cash and cash
        equivalents. At September 30, 2006, our net accounts receivable did not
        represent a material credit risk. With respect to cash and cash equivalents,
        we
        frequently maintain such balances in excess of federally insured limits.
        We have
        not experienced any losses in such accounts.
 
 Derivative
        financial instruments, as defined in Financial Accounting Standard No. 133,
        “Accounting for Derivative Financial Instruments and Hedging Activities”,
        consist of financial instruments or other contracts that contain a notional
        amount and one or more underlying derivatives (e.g. interest rate, security
        price or other variable), require no or minimal initial net investment and
        permit net settlement. Derivative financial instruments may be free-standing
        or
        embedded in other financial instruments. Further, derivative financial
        instruments that are recorded as liabilities or, in rare instances, as assets
        are initially, and subsequently, measured at fair value.
 
 We
        generally do not use derivative financial instruments to hedge exposures
        to
        cash-flow, market or foreign-currency risks. However, we review the terms
        of our
        convertible debt and equity instruments to determine whether there are embedded
        derivative instruments, including the embedded conversion option, that are
        required to be bifurcated and accounted for separately as a derivative financial
        instrument. In circumstances where the convertible instrument contains more
        than
        one embedded derivative instrument, including the conversion option, that
        is
        required to be bifurcated, the bifurcated derivative instruments are accounted
        for as a single, compound derivative instrument. Also, in connection with
        the
        sale of convertible debt and equity instruments, we may issue freestanding
        options or warrants that may, depending on their terms, be accounted for
        as
        derivative instrument liabilities, rather than as equity.
 
 For
        derivative financial instruments that are accounted for as liabilities, the
        derivative instrument is initially recorded at its fair value and is then
        re-valued at each reporting date, with changes in the fair value reported
        as
        charges or credits to operations. We estimate fair values of derivative
        financial instruments using various techniques (and combinations thereof)
        that
        are considered to be consistent with the objective of measuring fair value.
        In
        selecting the appropriate technique, we consider, among other factors, the
        nature of the instrument, the market risks that it embodies and the expected
        means of settlement. For less complex derivative instruments, such as
        freestanding warrants, we generally use the
  27
  Black-Scholes-Merton
        option valuation model because it embodies all of the requisite assumptions
        (including trading volatility, estimated terms and risk free rates) necessary
        to
        fair value these instruments. For complex derivative instruments, such as
        embedded conversion options, we generally use the Flexible Monte Carlo valuation
        technique because it embodies all of the requisite assumptions (including
        credit
        risk, interest-rate risk and exercise/conversion behaviors) that are necessary
        to fair value these more complex instruments. For forward contracts that
        contingently require net-cash settlement as the principal means of settlement,
        we project and discount future cash flows applying probability-weighting
        to
        multiple possible outcomes. Estimating fair values of derivative financial
        instruments requires the development of significant and subjective estimates
        that may, and are likely to, change over the duration of the instrument with
        related changes in internal factors and external market indicators. In addition,
        option based techniques are highly volatile and sensitive to changes in our
        trading market price which has a high-historical volatility. Since derivative
        financial instruments are initially and subsequently carried at fair values,
        our
        income reflects the volatility in these estimate and assumption
        changes.
 
 The
        following table illustrates the components of our derivative income (expense)
        during the years ended September 30, 2006 and 2005:
 
 2006
              
              2005Incremental
                  fair value adjustments to derivative financial instruments
              
              $
              5,502,444
              
              $
              (1,620,686
              )Day-one
                  derivative losses
              
              
              (2,036,496
              )
              
              --Totals
              
              $
              3,465,948
              
              $
              (1,620,686
              )
 
 **Impact
        of Recently Issued Accounting Pronouncements**
 
 In
        May
        2005, the Financial Accounting Standards Board issued Financial Accounting
        Standard No. 154, “Accounting Changes and Error Corrections” (“FAS 154”). The
        Statement applies to all voluntary changes in accounting principle and to
        changes required by an accounting pronouncement that do not include explicit
        transition provisions.  FAS 154 requires that changes in accounting
        principle be retroactively applied, instead of including the cumulative effect
        in the income statement.  The correction of an error will continue to
        require financial statement restatement.  A change in accounting estimate
        will continue to be accounted for in the period of change and in subsequent
        periods, if necessary.  FAS 154 is effective for fiscal years beginning
        after December 31, 2005.  The adoption of this Statement is not expected to
        have a material impact on our financial condition or results of
        operations.
 
 In
        June
        2005, the EITF reached a consensus on Issue 05-6, “Determining the Amortization
        Period for Leasehold Improvements,” which requires that leasehold improvements
        acquired in a business combination or purchased subsequent to the inception
        of a
        lease be amortized over the lesser of the useful life of the assets or a
        term
        that includes renewals that are reasonably assured at the date of the business
        combination or purchase. EITF Issue 05-6 is effective for periods beginning
        after June 29, 2005. Earlier application is permitted in periods for which
        financial statements have not been issued. The adoption of this Issue did
        not
        have an impact on our financial statements
 
 In
        February 2006, the FASB issued Financial Accounting Standard No. 155,
“Accounting for Certain Hybrid Financial Instruments; an amendment of Financial
        Accounting Standard Nos. 133 and 140" (“FAS 155”), to simplify and make more
        consistent the accounting for certain financial instruments. FAS 155 amends
        FAS
        133, “Accounting for Derivative Instruments and Hedging Activities”, to permit
        fair value remeasurement for any hybrid financial instrument with an embedded
        derivative that otherwise would
  28
  require
        bifurcation, provided that the whole instrument is accounted for on a fair
        value
        basis. FAS 155 amends FAS 140, “Accounting for the Impairment or Disposal of
        Long-Lived Assets”, to allow a qualifying special-purpose entity to hold a
        derivative financial instrument that pertains to a beneficial interest other
        than another derivative financial instrument. FAS 155 applies to all financial
        instruments acquired or issued after the beginning of an entity’s first fiscal
        year that begins after September 15, 2006, with earlier application allowed.
        This standard is not expected to have a significant effect on our financials
        statements.
 
 In
        March
        2006, the FASB issued Financial Accounting Standard No. 156, “Accounting for
        Servicing of Financial Assets, an amendment of FASB Statement No. 140,
        Accounting for Transfers and Servicing of Financial Assets and Extinguishments
        of Liabilities” (“FAS 156”). This statement requires all separately recognized
        servicing assets and servicing liabilities to be initially measured at fair
        value, if practicable, and permits for subsequent measurement using either
        fair
        value measurement with changes in fair value reflected in earnings or the
        amortization and impairment requirements of FAS 140. The subsequent measurement
        of separately recognized servicing assets and servicing liabilities at fair
        value eliminates the necessity for entities that manage the risks inherent
        in
        servicing assets and servicing liabilities with derivatives to qualify for
        hedge
        accounting treatment and eliminates the characterization of declines in fair
        value as impairments or direct write-downs. FAS 156 is effective for
        an entity’s first fiscal year beginning after September 15,
        2006.  This statement is not expected to have a significant effect on
        our financial statements.
 
 In
        September 2006, the FASB issued Financial Accounting Standard No. 157, “Fair
        Value Measurements” (“FAS 157”). This Statement defines fair value, establishes
        a framework for measuring fair value in accordance with generally accepted
        accounting principles and expands disclosures about fair value measurements.
        This statement applies under other accounting pronouncements that require
        or
        permit fair value measurements as the Board previously concluded in those
        accounting pronouncements that fair value is a relevant measurement attribute.
        Accordingly, this Statement does not require us to develop or report any
        new
        fair value measurements. This Statement is effective for financial statements
        for fiscal years beginning after November 15, 2007. Earlier application is
        permitted provided that the reporting entity has not yet issued financial
        statements for that fiscal year. This statement is not expected to have a
        significant effect on our financial statements.
 
 In
        September 2006, the FASB issued Financial Accounting Standard No. 158
“Employers’ Accounting for Defined Benefit Pension and Other Postretirement
        Plans” - , an amendment of FASB Statements No. 87, 88, 106, and 132(R)” (“FAS
        158”). This Statement requires an employer that is a business entity and
        sponsors one or more single-employer defined benefit plans to (a) recognize
        the
        funded status of a benefit plan—measured as the difference between plan assets
        at fair value (with limited exceptions) and the benefit obligation—in its
        statement of financial position; (b) recognize as a component of other
        comprehensive income, net of tax, the gains or losses and prior service costs
        or
        credits that arise during the period but are not recognized as components
        of net
        periodic benefit cost pursuant to FAS 87, “Employers’ Accounting for Pensions”,
        or FAS 106, “Employers’ Accounting for Postretirement Benefits Other Than
        Pensions” ; (c) measure defined benefit plan assets and obligations as of the
        date of the employer’s fiscal year-end statement of financial position (with
        limited exceptions); and (d) disclose in the notes to financial statements
        additional information about certain effects on net periodic benefit cost
        for
        the next fiscal year that arise from delayed recognition of the gains or
        losses,
        prior service costs or credits, and transition asset or obligation. An employer
        with publicly traded equity securities is required to initially recognize
        the
        funded status of a defined benefit postretirement plan and to provide the
        required disclosures as of the end of the fiscal year ending after December
        15,
        2006. This statement is not expected to have a significant effect on our
        financial statements.
  29
  In
        June
        2006, the FASB issued FASB Interpretation No. 48, "Accounting for Uncertainty
        in
        Income Taxes" (“FIN 48”) which clarifies the accounting for uncertainty in
        income taxes recognized in an enterprise's financial statements in accordance
        with FAS 109, "Accounting for Income Taxes". This interpretation prescribes
        a
        recognition threshold and measurement attribute for the financial statement
        recognition and measurement of a tax position taken or expected to be taken
        in a
        tax return. FIN 48 also provides guidance on derecognition, classification,
        interest and penalties, accounting in interim periods, disclosure and
        transition. FIN 48 is effective for fiscal years beginning after December
        15,
        2006. This statement is not expected to have a significant effect on our
        financial statements.
 **Item
        7.** **Financial
        Statements.**
  The
        audited financial statements of the Company for the periods ended September
        30,
        2006, and the reports thereon of Kingery & Crouse, P.A. are included in this
        annual report following the Exhibit Index to this annual report.
  **Item
        8.** **Changes
        In and Disagreements With Accountants on Accounting and Financial
        Disclosure.**
  None.
  **Item
        8A.** **Controls
        and Procedures.**
  **Evaluation
        of Disclosure Controls and Procedures**
  As
        required by Rule 13a-15 under the Exchange Act, we carried out an evaluation
        of
        the effectiveness of the design and operation of our disclosure controls
        and
        procedures as of September 30, 2006. This evaluation was carried out under
        the
        supervision and with the participation of our chief executive officer and
        our
        chief financial officer. Based upon that evaluation, our chief executive
        officer
        and chief financial officer concluded that our disclosure controls and
        procedures were effective in timely alerting management to material information
        relating to the Company required to be included in our periodic SEC filings.
        There have been no significant changes in our internal controls or in other
        factors that could significantly affect internal controls subsequent to the
        date
        we carried out our evaluation.
  Disclosure
        controls and procedures are controls and other procedures that are designed
        to
        ensure that information required to be disclosed in our reports filed or
        submitted under the Exchange Act is recorded, processed, summarized and reported
        within the time periods specified in the SEC’s rules and forms. Disclosure
        controls and procedures include, without limitation, controls and procedures
        designed to ensure that information required to be disclosed in our reports
        filed under the Exchange Act is accumulated and communicated to management,
        including our chief executive officer and chief financial officer, to allow
        timely decisions regarding required disclosure.
  **Changes
        in Internal Control of Financial Reporting**
  During
        the year ended September 30, 2006, there were no changes in our internal
        control
        over financial reporting that have materially affected, or are reasonably
        likely
        to affect, our internal control over financial reporting
  **Item
        8B.** **Other
        Information.**
  None.
    30
   **PART
        III**
  **Item
        9.** **Directors,
        Executive Officers, Promoters, Control Persons and Corporate Governance;**  **Compliance
        with Section 16(a) of the Exchange Act.**
  The
        information called for by Item 9 of Form 10-KSB will be set forth under the
        caption “Directors, Executive Officers, Promoters, Control Persons and Corporate
        Governance; Compliance with Section 16(a) of the Exchange Act” in our definitive
        proxy statement, to be filed within 120 days after the end of the fiscal
        year
        covered by this annual report on Form 10-KSB, and is incorporated herein
        by
        reference.
 
 **Item
        10.** **Executive
        Compensation.**
  The
        information called for by Item 10 of Form 10-KSB will be set forth under
        the
        caption “Executive Compensation” in our definitive proxy statement, to be filed
        within 120 days after the end of the fiscal year covered by this annual report
        on Form 10-KSB, and is incorporated herein by reference.
 
 **Item
        11.** **Security
        Ownership of Certain Beneficial Owners and Management and Related**  ****  **Stockholder
        Matters.**
  The
        information called for by Item 11 of Form 10-KSB will be set forth under
        the
        caption “Security Ownership of Certain Beneficial Owners and Management and
        Related Stockholder Matters” in our definitive proxy statement, to be filed
        within 120 days after the end of the fiscal year covered by this annual report
        on Form 10-KSB, and is incorporated herein by reference.
 
 **Item
        12.** **Certain
        Relationships and Related Transactions, and Director
        Independence.**
  The
        information called for by Item 12 of Form 10-KSB will be set forth under
        the
        caption “Certain Relationships and Related Transactions, and Director
        Independence” in our definitive proxy statement, to be filed within 120 days
        after the end of the fiscal year covered by this annual report on Form 10-KSB,
        and is incorporated herein by reference.
  31
  
 **Item
        13.** **Exhibits.**
  **Exhibit
                  No.**
              **Description
                  of Exhibit**3.1*
              Amended
                  and Restated Articles of Incorporation of the Company.3.2
              By-Laws
                  of the Company (filed as Exhibit 3.2 to the Company’s Annual Report on
                  Form 10-KSB filed on December 29, 2004 and incorporated by reference
                  herein).4.1
              Form
                  of Senior Secured Convertible Promissory Note, as executed by the
                  Company
                  and the holders thereof on September 29, 2006 and November 8, 2006
                  (filed
                  as Exhibit 99.2 to the Company’s Current Report on Form 8-K filed on
                  October 5, 2006 and incorporated by reference herein).4.2
              Form
                  of Securities Exchange Agreement, as executed by the Company and
                  holders
                  of the Company’s Primary Notes on September 29, 2006 (filed as Exhibit
                  99.1 to the Company’s Current Report on Form 8-K filed on October 5, 2006
                  and incorporated by reference herein).4.3
              Form
                  of Joinder, as executed on November 8, 2006, by the Company and
                  those
                  holders of Senior Secured Convertible Promissory Notes, all dated
                  as of
                  November 8, 2006, who were not originally parties to the Securities
                  Exchange Agreements dated as of September 29, 2006 (filed as Exhibit
                  99.3
                  to the Company’s Current Report on Form 8-K filed on November 13, 2006 and
                  incorporated by reference herein).10.1
              Swift
                  Pay Service Agreement, dated as of March 18, 2005, by and between
                  Western
                  Union and the Company (filed as Exhibit 8.1.1 to the Company’s Current
                  Report on Form 8-K filed on June 24, 2005 and incorporated by reference
                  herein).10.2
              ExpressPayment
                  (TM) Service Agreement, dated as of October 31, 2006, by and between
                  MoneyGram Payment Systems, Inc. and the Company (filed as Exhibit
                  8.1.1 to
                  the Company’s Current Report on Form 8-K filed on November 18, 2005 and
                  incorporated by reference herein).10.3
              Stored
                  Value Card Issuer Agreement, dated as of May 10, 2006, by and between
                  Discover Financial Services LLC and the Company (filed as Exhibit
                  8.1.1 to
                  the Company’s Current Report on Form 8-K filed on May 11, 2006 and
                  incorporated by reference herein).10.4*
              Stored
                  Value Prepaid Card Sponsorship Agreement,
                  dated as of October 20, 2006,and
                  Addendum toStored
                  Value Prepaid Card Sponsorship Agreement, dated as of November
                  10, 2006,
                  by and betweenPalm
                  Desert National Bank and the Company.10.5*
              Stored
                  Value Card Processing Agreement, dated as of June 14, 2006, by
                  and betweenMetavante
                  Corporation and the Company.10.6
              Employment
                  Agreement, dated as of September 5, 2006, by and between Jerry
                  R. Welch
                  and the Company (filed as Exhibit 99.1 to the Company’s Current Report on
                  Form 8-K filed on September 15, 2006 and incorporated by reference
                  herein).10.7
              Nonqualified
                  Stock Option Agreement, dated as of September 5, 2006, by and between
                  Jerry R. Welch and the Company (filed as Exhibit 99.2 to the Company’s
                  Current Report on Form 8-K filed on September 15, 2006 and incorporated
                  by
                  reference herein).
  32
  
 10.8
              Employment
                  Agreement, dated as of September 5, 2006, by and between Raymond
                  P.
                  Springer and the Company (filed as Exhibit 99.3 to the Company’s Current
                  Report on Form 8-K filed on September 15, 2006 and incorporated
                  by
                  reference herein).10.9
              Nonqualified
                  Stock Option Agreement, dated as of September 5, 2006, by and between
                  Raymond P. Springer and the Company (filed as Exhibit 99.4 to the
                  Company’s Current Report on Form 8-K filed on September 15, 2006 and
                  incorporated by reference herein).10.10*
              Employment
                  Agreement, dated as of October 1, 2005, by and between Mr. Clifford
                  Wildes
                  and the Company**.**10.11*
              Commercial
                  Lease Agreement, dated as of January 10, 2005, by and between The
                  6015,
                  LLC and the Company.10.12
              Sublease
                  Agreement, dated as of August 5, 2005, by and between GEBO Corporation
                  USA
                  and the Company (filed as Exhibit 5.3 to the Company’s Quarterly Report on
                  Form 10-QSB filed on August 15, 2005 and incorporated by reference
                  herein).10.13*
              2004
                  Amended Stock Incentive Plan.14.1*
              Code
                  of Ethics31.1*
              Certifications
                  of Chief Executive Officer pursuant to Rule 13a-14(a) or Rule 15d-14(a)
                  of
                  the Securities Exchange Act of 1934.31.2*
              Certifications
                  of Chief Financial Officer pursuant to Rule 13a-14(a) or Rule 15d-14(a)
                  of
                  the Securities Exchange Act of 1934.32.1*
              Certification
                  of Chief Executive Officer pursuant to 18 U.S.C. Section 1350.32.2*
              Certification
                  of Chief Financial Officer pursuant to 18 U.S.C. Section 1350.
  *
        Filed herewith.
   **Item
        14.** **Principal
        Accounting Fees and Services.**
  The
        information called for by Item 14 of Form 10-KSB will be set forth under
        the
        caption “Principal Accounting Fees and Services” in our definitive proxy
        statement, to be filed within 120 days after the end of the fiscal year covered
        by this annual report on Form 10-KSB, and is incorporated herein by
        reference.
  
   33
   **SIGNATURES**
   In
        accordance with Section 13 or 15(d) of the Exchange Act, we caused this report
        to be signed on our behalf by the undersigned, thereunto duly
        authorized.
   **nFinanSe
        Inc.**
  By:
              */s/
                  Jerry R. Welch*Jerry
                  R. Welch, Chief Executive Officer and DirectorDate:
              December
                  29, 2006
  In
        accordance with the Securities 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.
  By:
              */s/Jerry
                  R. Welch*Jerry
                  R. Welch, Chief Executive Officer and Director(Principal
                  Executive Officer)Date:
              December
                  29, 2006By:
              */s/Raymond
                  P. Springer*Raymond
                  P. Springer, Secretary and Chief Financial Officer(Principal
                  Financial Officer and Principal Accounting Officer)Date:
              December
                  29, 2006By:
              */s/
                  Clifford Wildes*Clifford
                  Wildes, Chairman of the BoardDate:
              December
                  29, 2006By:
              */s/
                  Benjamin Bond*Benjamin
                  Bond, DirectorDate:
              December
                  29, 2006By:
              */s/
                  Mark Brewer*Mark
                  Brewer, DirectorDate:
              December
                  29, 2006By:
              */s/
                  Joseph Hudgins*Joseph
                  Hudgins, DirectorDate:
              December
                  29, 2006By:
              */s/
                  Virgil Sandifer*Virgil
                  Sandifer, DirectorDate:
              December
                  29, 2006
 
  34
  
 **EXHIBITS
        INDEX**
 
 **Exhibit
                  No.**
              **Description
                  of Exhibit**3.1*
              Amended
                  and Restated Articles of Incorporation of the Company.3.2
              By-Laws
                  of the Company (filed as Exhibit 3.2 to the Company’s Annual Report on
                  Form 10-KSB filed on December 29, 2004 and incorporated by reference
                  herein).4.1
              Form
                  of Senior Secured Convertible Promissory Note, as executed by the
                  Company
                  and the holders thereof on September 29, 2006 and November 8, 2006
                  (filed
                  as Exhibit 99.2 to the Company’s Current Report on Form 8-K filed on
                  October 5, 2006 and incorporated by reference herein).4.2
              Form
                  of Securities Exchange Agreement, as executed by the Company and
                  holders
                  of the Company’s Primary Notes on September 29, 2006 (filed as Exhibit
                  99.1 to the Company’s Current Report on Form 8-K filed on October 5, 2006
                  and incorporated by reference herein).4.3
              Form
                  of Joinder, as executed on November 8, 2006, by the Company and
                  those
                  holders of Senior Secured Convertible Promissory Notes, all dated
                  as of
                  November 8, 2006, who were not originally parties to the Securities
                  Exchange Agreements dated as of September 29, 2006 (filed as Exhibit
                  99.3
                  to the Company’s Current Report on Form 8-K filed on November 13, 2006 and
                  incorporated by reference herein).10.1
              Swift
                  Pay Service Agreement, dated as of March 18, 2005, by and between
                  Western
                  Union and the Company (filed as Exhibit 8.1.1 to the Company’s Current
                  Report on Form 8-K filed on June 24, 2005 and incorporated by reference
                  herein).10.2
              ExpressPayment
                  (TM) Service Agreement, dated as of October 31, 2005, by and between
                  MoneyGram Payment Systems, Inc. and the Company (filed as Exhibit
                  8.1.1 to
                  the Company’s Current Report on Form 8-K filed on November 18, 2005 and
                  incorporated by reference herein).10.3
              Stored
                  Value Card Issuer Agreement, dated as of May 10, 2006, by and between
                  Discover Financial Services LLC and the Company (filed as Exhibit
                  8.1.1 to
                  the Company’s Current Report on Form 8-K filed on May 11, 2006 and
                  incorporated by reference herein).10.4*
              Stored
                  Value Prepaid Card Sponsorship Agreement,
                  dated as of October 20, 2006,and
                  Addendum toStored
                  Value Prepaid Card Sponsorship Agreement, dated as of November
                  10, 2006,
                  by and betweenPalm
                  Desert National Bank and the Company.10.5*
              Stored
                  Value Card Processing Agreement, dated as of June 14, 2006, by
                  and betweenMetavante
                  Corporation and the Company.10.6
              Employment
                  Agreement, dated as of September 5, 2006, by and between Jerry
                  R. Welch
                  and the Company (filed as Exhibit 99.1 to the Company’s Current Report on
                  Form 8-K filed on September 15, 2006 and incorporated by reference
                  herein).10.7
              Nonqualified
                  Stock Option Agreement, dated as of September 5, 2006, by and between
                  Jerry R. Welch and the Company (filed as Exhibit 99.2 to the Company’s
                  Current Report on Form 8-K filed on September 15, 2006 and incorporated
                  by
                  reference herein).
  35
  
 10.8
              Employment
                  Agreement, dated as of September 5, 2006, by and between Raymond
                  P.
                  Springer and the Company (filed as Exhibit 99.3 to the Company’s Current
                  Report on Form 8-K filed on September 15, 2006 and incorporated
                  by
                  reference herein).10.9
              Nonqualified
                  Stock Option Agreement, dated as of September 5, 2006, by and between
                  Raymond P. Springer and the Company (filed as Exhibit 99.4 to the
                  Company’s Current Report on Form 8-K filed on September 15, 2006 and
                  incorporated by reference herein).10.10*
              Employment
                  Agreement, dated as of October 1, 2005, by and between Mr. Clifford
                  Wildes
                  and the Company**.**10.11*
              Commercial
                  Lease Agreement, dated as of January 10, 2005, by and between The
                  6015,
                  LLC and the Company.10.12
              Sublease
                  Agreement, dated as of August 5, 2005, by and between GEBO Corporation
                  USA
                  and the Company (filed as Exhibit 5.3 to the Company’s Quarterly Report on
                  Form 10-QSB filed on August 15, 2005 and incorporated by reference
                  herein).10.13*
              2004
                  Amended Stock Incentive Plan.14.1*
              Code
                  of Ethics31.1*
              Certifications
                  of Chief Executive Officer pursuant to Rule 13a-14(a) or Rule 15d-14(a)
                  of
                  the Securities Exchange Act of 1934.31.2*
              Certifications
                  of Chief Financial Officer pursuant to Rule 13a-14(a) or Rule 15d-14(a)
                  of
                  the Securities Exchange Act of 1934.32.1*
              Certification
                  of Chief Executive Officer pursuant to 18 U.S.C. Section 1350.32.2*
              Certification
                  of Chief Financial Officer pursuant to 18 U.S.C. Section 1350.
 
  *
        Filed
        herewith.
  36
   **nFinanSe
          Inc.**
 **(A
          Development Stage Enterprise)**
 
 **Consolidated
          Financial Statements**
 
 **As
          of and for various periods ended**
 **September
          30, 2006 and 2005**
 
  F-1
  
 
 
 
 **nFinanSe
          Inc.**
 **(A
          Development Stage Enterprise)**
 
 **Consolidated
          Financial Statements as of and**
 **for
          various periods ended**
 **September
          30, 2006 and 2005,**
 **and
          Report of Independent**
 **Registered
          Public Accounting Firm**
 
 
 **TABLE
          OF CONTENTS**
 
 
 PageReport
                    of Independent Registered Public Accounting
                    Firm..............................................
                F-3Consolidated
                    Financial Statements as of and for various periods ended September
                    30,
                    2006 and 2005:Consolidated
                    Balance Sheet as of September 30, 2006................................................
                F-4Consolidated
                    Statements of Operations for the years ended September 30, 2006
                    and 2005,
                    and the period July 10, 2000 (date of incorporation) to September
                    30,
                    2006........................
                F-5Consolidated
                    Statements of Stockholders’ Equity (Deficit)for the years ended September 30, 2006 and 2005, and the period
                    July 10,
                    2000 (date of incorporation) to September 30,
                    2006.......................................................................................................
                F-6Consolidated
                    Statements of Cash Flows for the years ended September 30, 2006
                    and 2005,
                    and the period July 10, 2000 (date of incorporation) to September
                    30,
                    2006..................
                F-9Notes
                    to Consolidated Financial
                    Statements.............................................................
                F-11
 
  F-2
  
 
 
 *[LETTERHEAD
          OF KINGERY & CROUSE, P.A]*
 
 
 ***REPORT
          OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM***
 
 *To
          the Board of Directors and Stockholders of nFinanSe Inc. and
          Subsidiary:*
 
 *We
          have audited the accompanying consolidated balance sheet of nFinanSe Inc.
          and
          subsidiary, formerly known as Morgan Beaumont, Inc. (the “Company”), a
          development stage enterprise, as of September 30, 2006, and the related
          consolidated statements of operations, stockholders’ equity (deficit) and cash
          flows for the year then ended, the year ended September 30, 2005 and the
          period
          July 10, 2000 (date of incorporation) to September 30, 2006. These consolidated
          financial statements are the responsibility of the Company’s management. Our
          responsibility is to express an opinion on these consolidated financial
          statements based on our audits.*
 
 *We
          conducted our audits in accordance with the standards of the Public Company
          Accounting Oversight Board (United States of America). Those standards
          require
          that we plan and perform the audits 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 audits 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 includes examining,
          on a test basis, evidence supporting the amounts and disclosures in the
          financial statements. An audit also includes assessing the accounting principles
          used and significant estimates made by management, as well as evaluating
          the
          overall financial statement presentation. We believe that our audits provide
          a
          reasonable basis for our opinion.*
 
 *In
          our opinion, the consolidated financial statements referred to above present
          fairly, in all material respects, the financial position of the Company
          as of
          September 30, 2006, and the results of its operations and cash flows for
          the
          year then ended, the year ended September 30, 2005, and the period July
          10, 2000
          (date of incorporation) to September 30, 2006, in conformity with accounting
          principles generally accepted in the United States of America.*
 
 *The
          accompanying consolidated financial statements have been prepared assuming
          that
          the Company will continue as a going concern. As discussed in Notes A and
          B to
          such financial statements, the Company is in the development stage, has
          suffered
          recurring losses from operations and has ongoing requirements for additional
          capital investment. These factors raise substantial doubt about the Company’s
          ability to continue as a going concern. Management’s plans in regard to these
          matters are also described in Note B. The consolidated financial statements
          do
          not include any adjustments that might result from the outcome of this
          uncertainty.*
 
 
 *Kingery
          & Crouse, P.A /s/*
 
 *December
          28, 2006*
 *Tampa,
          FL*
  F-3
  
 **nFinanSe
          Inc.**
 **(A
          Development Stage Enterprise)**
 
 **CONSOLIDATED
          BALANCE SHEET AS OF SEPTEMBER 30, 2006**
 
 **ASSETS**CURRENT
                    ASSETS:Cash
                    and cash equivalents
                $
                936,605Receivables:Accounts
                    (net of allowance for doubtful accounts of $158,457)
                
                10,556Other
                
                1,430Prepaid
                    expenses and other current assets
                
                41,820Assets
                    of discontinued telecom operations
                
                109,157Total
                    current assets
                
                1,099,568PROPERTY AND EQUIPMENT
                
                566,408OTHER
                    ASSETS
                
                90,655**TOTAL**
                $
                1,756,631**LIABILITIES
                    AND STOCKHOLDERS’ DEFICIT**CURRENT
                    LIABILITIES:Accounts
                    payable and accrued liabilities
                $
                461,820Deferred
                    revenues
                
                10,000Accrued
                    registration rights damages
                
                203,689Liabilities
                    of discontinued telecom operations
                
                221,840Total
                    current liabilities
                
                897,349Senior
                    secured convertible promissory notes
                
                6,614,581Total
                    liabilities
                
                7,511,930COMMITMENTS
                    AND CONTINGENCIESSTOCKHOLDERS’
                    DEFICIT:Common
                    stock - $0.001 par value: 200,000,000 shares authorized;
                  3,829,028
                    shares issued and outstanding
                
                3,829Additional
                    paid-in capital
                
                19,103,385Deficit
                    accumulated during the development stage
                
                (24,862,513)Total
                    stockholders’ deficit
                
                (5,755,299)**TOTAL**
                $
                1,756,631
 
 See
          notes
          to consolidated financial statements.
  F-4
  **nFinanSe
          Inc.**
 **(A
          Development Stage Enterprise)**
 
 **CONSOLIDATED
          STATEMENTS OF OPERATIONS**
 
 **For
                    the year**
                  **ended**
                  **September
                    30,****2006**
                
                **For
                    the year ended September 30, 2005**
                
                **For
                    the period**
                  **July
                    10, 2000**
                  **(date
                    of**
                  **incorporation)
                    to**
                  **September
                    30, 2006**NET
                    SALES
                $
                77,833
                $
                485,834
                $
                1,153,887COST
                    OF GOODS SOLD
                
                583,762
                
                292,130
                
                1,192,054**GROSS
                    MARGIN (DEFICIENCY)**
                
                (505,929)
                
                193,704
                
                (38,167)**OTHER
                    OPERATING EXPENSES:**Employee
                    compensation and benefits:Stock
                    based
                
                1,272,263
                
                -
                
                1,272,263Other
                
                2,691,783
                
                2,367,270
                
                6,134,168Professional
                    and consulting fees:Stock
                    based
                
                679,966
                
                1,088,200
                
                2,780,452Other
                
                1,762,414
                
                958,580
                
                2,904,689Selling
                    and marketing
                
                137,928
                
                112,747
                
                346,256Occupancy
                    and equipment
                
                585,569
                
                379,987
                
                1,200,532Travel
                    and entertainment
                
                165,391
                
                99,494
                
                292,978Impairment
                    of assets
                
                -
                
                212,000
                
                255,154Purchased
                    in process research and development
                
                -
                
                -
                
                153,190Other
                
                497,186
                
                327,528
                
                895,091Total
                    Other Operating Expenses
                
                7,792,500
                
                5,545,806
                
                16,234,773**LOSS
                    FROM OPERATIONS**
                
                (8,298,429)
                
                (5,352,102)
                
                (16,272,940)**OTHER
                    INCOME (EXPENSE):**Derivative
                    income (expense)
                
                3,465,948
                
                (1,620,686)
                
                1,845,262Losses
                    on debt extinguishments
                
                (5,137,817)
                
                --
                
                (5,137,817)Interest
                    income
                
                17,737
                
                34,284
                
                88,231Interest
                    expense
                
                (1,499,630)
                
                (4,159)
                
                (1,516,527)Gain
                    from settlement of litigation
                
                -
                
                60,000
                
                4,000Registration
                    rights penalties
                
                (98,649)
                
                -
                
                (98,649)Other
                
                -
                
                (95,098)
                
                (95,098)Total
                    Other Expense -net
                
                (3,252,411)
                
                (1,625,659)
                
                (4,910,598)**LOSS
                    FROM CONTINUING OPERATIONS**
                
                (11,550,840)
                
                (6,977,761)
                
                (21,183,538)**LOSS
                    FROM DISCONTINUED OPERATIONS**
                
                (3,238,801)
                
                (440,174)
                
                (3,678,975)**NET
                    LOSS**
                $
                (14,789,641)
                $
                (7,417,935)
                $
                (24,862,513)**NET
                    LOSS PER SHARE - BASIC AND DILUTED:**Continuing
                    operations
                $
                (3.26)
                $
                (2.84)Discontinued
                    operations
                
                (0.92)
                
                (0.18)Total
                    Net Loss Per Share
                $
                (4.18)
                $
                (3.02)Weighted
                    Average Common Shares Outstanding
                
                3,531,210
                
                2,458,792
 
 See
          notes
          to consolidated financial statements.
 
  F-5
   **nFinanSe
          Inc.**
 **(A
          Development Stage Enterprise)**
 
 **CONSOLIDATED
          STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT** **)**
 
 **Deficit****Note**
                
                **Accumulated****Additional**
                
                **Common**
                
                **Receivable**
                
                **During
                    the****Common
                    Stock**
                
                **Paid-In**
                
                **Stock**
                
                **from**
                
                **Development****Shares**
                
                **Par
                    Value**
                
                **Capital**
                
                **Subscribed**
                
                **Stockholder**
                
                **Stage**
                
                **Total**Balances,
                    July 10, 2000 (date of incorporation)
                
                -
                $
                -
                $
                -
                $
                -
                $
                -
                $
                -
                $
                -Common
                    stock subscription
                
                -
                
                -
                
                -
                
                100
                
                -
                
                -
                
                100Net
                    loss
                
                -
                
                -
                
                -
                
                -
                
                -
                
                -
                
                -Balances,
                    December 31, 2000
                
                -
                
                -
                
                -
                
                100
                
                -
                
                -
                
                100Issuance
                    of common stock for cash:At
                    $0.177 per share
                
                2,547
                
                3
                
                447
                
                (100)
                
                -
                
                -
                
                350At
                    $0.126 per share
                
                39,802
                
                39
                
                4,961
                
                -
                
                -
                
                -
                
                5,000Issuance
                    of common stock for services -At
                    $1.57 per share
                
                77,853
                
                78
                
                122,172
                
                -
                
                -
                
                -
                
                122,250Net
                    loss
                
                -
                
                -
                
                -
                
                -
                
                -
                
                (216,982)
                
                (216,982)Balances,
                    December 31, 2001
                
                120,202
                
                120
                
                127,580
                
                -
                
                
                
                (216,982)
                
                (89,282)Issuance
                    of common stock for cash:At
                    $1.57 per share
                
                1,337
                
                1
                
                2,099
                
                -
                
                -
                
                -
                
                2,100At
                    $2.62 per share
                
                64,766
                
                65
                
                169,435
                
                -
                
                -
                
                -
                
                169,500At
                    $3.14 per share
                
                15,921
                
                16
                
                49,984
                
                -
                
                -
                
                -
                
                50,000Issuance
                    of common stock for services:At
                    $1.57 per share
                
                46,412
                
                46
                
                72,834
                
                -
                
                -
                
                -
                
                72,880At
                    $2.62 per share
                
                75,465
                
                75
                
                197,816
                
                -
                
                -
                
                -
                
                197,891At
                    $3.14 per share
                
                3,375
                
                3
                
                10,597
                
                -
                
                -
                
                -
                
                10,600Net
                    loss
                
                -
                
                -
                
                -
                
                -
                
                -
                
                (451,646)
                
                (451,646)Balances,
                    December 31, 2002
                
                327,478
                
                326
                
                630,345
                
                -
                
                -
                
                (668,628)
                
                (37,957)Issuance
                    of common stock for cash:At
                    $1.57 per share
                
                14,210
                
                14
                
                22,299
                
                -
                
                -
                
                -
                
                22,313At
                    $3.14 per share
                
                12,737
                
                13
                
                39,987
                
                -
                
                -
                
                -
                
                40,000Issuance
                    of common stock for services:At
                    $3.14 per share
                
                189,289
                
                189
                
                594,276
                
                -
                
                -
                
                -
                
                594,465Issuance
                    of common stock for assets of TyphoonTechnologies
                    at $3.14 per share
                
                71,068
                
                71
                
                223,119
                
                -
                
                -
                
                -
                
                223,190Net
                    loss
                
                -
                
                -
                
                -
                
                -
                
                -
                
                (954,974)
                
                (954,974)Balances,
                    December 31, 2003
                
                614,782
                
                613
                
                1.510,026
                
                -
                
                -
                
                (1,623,602)
                
                (112,963)
 
 *(Continued)*
  F-6
  
 **nFinanSe
                    Inc.**
                  **(A
                    Development Stage Enterprise)**
                  
                  **CONSOLIDATED
                    STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT****)**
                  *(Continued)***Deficit****Note**
                
                **Accumulated****Additional**
                
                **Common**
                
                **Receivable**
                
                **During
                    the****Common
                    Stock**
                
                **Paid-In**
                
                **Stock**
                
                **from**
                
                **Development****Shares**
                
                **Par
                    Value**
                
                **Capital**
                
                **Subscribed**
                
                **Stockholder**
                
                **Stage**
                
                **Total**Balances,
                    December 31, 2003
                
                614,782
                
                613
                
                1,510,026
                
                -
                
                -
                
                (1,623,602)
                
                (112,963)Issuance
                    of common stock for cash ($1.57 per share)
                
                13,183
                
                13
                
                20,687
                
                -
                
                -
                
                -
                
                20,700Issuance
                    of common stock held in escrow
                
                17,513
                
                18
                
                (18)
                
                
                
                
                
                
                
                -Common
                    stock issued for services at $3.14 per share
                
                4,521
                
                5
                
                14,195
                
                -
                
                -
                
                -
                
                14,200Issuance
                    of common stock in exchange for net assets in a recapitalization
                
                1,351,250
                
                1,351
                
                2,967,649
                
                -
                
                (3,000,000)
                
                -
                
                (31,000)Collections
                    on note receivable from stockholder through September 30,
                    2004
                
                -
                
                -
                
                -
                
                -
                
                971,051
                
                -
                
                971,051Collections
                    on note receivable from stockholder after September 30, 2004
                    (reflected as
                    a current asset)
                
                -
                
                -
                
                -
                
                -
                
                644,535
                
                -
                
                644,535Net
                    loss
                
                -
                
                -
                
                -
                
                -
                
                -
                
                (1,031,335)
                
                (1,031,335)Balances,
                    September 30, 2004
                
                2,001,249
                
                2,000
                
                4,512,539
                
                -
                
                (1,384,414)
                
                (2,654,937)
                
                475,188Issuance
                    of common stock and warrants for cash:At
                    $4.00 per share
                
                356,250
                
                356
                
                1,424,644
                
                -
                
                -
                
                -
                
                1,425,000At
                    $8.00 per share (net of stock issuance costs)
                
                618,125
                
                618
                
                4,882,996
                
                -
                
                -
                
                -
                
                4,883,614Allocation
                    of proceeds from sales of common stock to derivative financial
                    instruments
                    (warrants)
                
                -
                
                -
                
                (3,461,500)
                
                -
                
                -
                
                -
                
                (3,461,500)Allocation
                    of proceeds from sale of common stock to derivative financial
                    instruments
                    ( registration rights)
                
                -
                
                -
                
                (545,943)
                
                -
                
                -
                
                -
                
                (545,943)Value
                    attributable to consulting and director options
                
                -
                
                -
                
                1,074,700
                
                -
                
                -
                
                -
                
                1,074,700Issuance
                    of common stock for certain property and equipment of MTel
                
                43,183
                
                43
                
                748,157
                
                -
                
                -
                
                -
                
                748,200Collections
                    on note receivable from stockholder
                
                -
                
                -
                
                -
                
                -
                
                1,384,414
                
                -
                
                1,384,414Net
                    loss
                
                -
                
                -
                
                -
                
                -
                
                -
                
                (7,417,935)
                
                (7,417,935)Balances,
                    September 30, 2005
                
                3,018,807
                
                3,017
                
                8,635,593
                
                -
                
                -
                
                (10,072,872)
                
                (1,434,262)
 
 *(Continued)*
  F-7
  
 **nFinanSe
                    Inc.**
                  **(A
                    Development Stage Enterprise)**
                  
                  **CONSOLIDATED
                    STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT****)**
                  *(Continued)***Deficit****Note**
                
                **Accumulated****Additional**
                
                **Common**
                
                **Receivable**
                
                **During
                    the****Common
                    Stock**
                
                **Paid-In**
                
                **Stock**
                
                **from**
                
                **Development****Shares**
                
                **Par
                    Value**
                
                **Capital**
                
                **Subscribed**
                
                **Stockholder**
                
                **Stage**
                
                **Total**Balances,
                    September 30, 2005
                
                3,018,807
                
                3,017
                
                8,635,593
                
                -
                
                -
                
                (10,072,872)
                
                (1,434,262)Derivative
                    liability related to warrants exercised for
                  common
                    stock
                
                -
                
                -
                
                5,254,468
                
                -
                
                -
                
                -
                
                5,254,468Reclassify
                    derivative portion for registration rights damages
                
                -
                
                -
                
                (454,226)
                
                -
                
                -
                
                -
                
                (454,226)Warrants
                    exercised for common stock at $4.00 per share
                
                618,125
                
                618
                
                2,471,882
                
                -
                
                -
                
                -
                
                2,472,500Exercise
                    of vested stock options
                
                10,000
                
                10
                
                (10)
                
                -
                
                -
                
                -
                
                -Issuance
                    of additional common stock to principal of MTel
                
                7,000
                
                7
                
                (7)
                
                -
                
                -
                
                -
                
                -Issuance
                    of common stock to consultant
                
                10,000
                
                10
                
                (10)
                
                -
                
                -
                
                -
                
                -Issuance
                    of common stock in connection with registration rights
                    penalties
                
                101,345
                
                102
                
                652,523
                
                -
                
                -
                
                -
                
                652,625Issuance
                    of common stock for consultant services
                
                58,750
                
                59
                
                453,175
                
                -
                
                -
                
                -
                
                453,234Issuance
                    of warrants to consultants
                
                -
                
                -
                
                226,732
                
                -
                
                -
                
                -
                
                226,732Employee
                    stock based award activity
                
                -
                
                -
                
                1,272,263
                
                -
                
                -
                
                -
                
                1,272,263Cancellation
                    of common stock received in litigation settlement with former
                    employee
                
                (2,500)
                
                (2)
                
                2
                
                -
                
                -
                
                -
                
                -Correction
                    of stock certificate
                
                1
                
                -
                
                -
                
                -
                
                -
                
                -
                
                -Issuance
                    of common stock for shares in PBS
                
                7,500
                
                8
                
                83,992
                
                -
                
                -
                
                -
                
                84,000Reversal
                    of investment in PBS
                
                -
                
                -
                
                (83,992)
                
                -
                
                -
                
                -
                
                (83,992)Record
                    gain on warrants
                
                -
                
                -
                
                (9,000)
                
                -
                
                -
                
                -
                
                (9,000)Issuance
                    of additional investment rights
                
                -
                
                -
                
                600,000
                
                -
                
                -
                
                -
                
                600,000Net
                    loss
                
                -
                
                -
                
                -
                
                -
                
                -
                
                (14,789,641)
                
                (14,789,641)Balances,
                    September 30, 2006
                
                3,829,028
                $
                3,829
                $
                19,103,385
                $
                -
                $
                -
                $
                (24,862,513)
                $
                (5,755,299)
 
 See
          notes to consolidated financial statements.
 
 
  F-8
   
 **nFinanSe
          Inc.**
 **(A
          Development Stage Enterprise)**
 
 **CONSOLIDATED
          STATEMENTS OF CASH FLOWS**
 
 **For
                    the year ended September 30,**
                  **2006**
                
                **For
                    the year ended September 30, 2005**
                
                **For
                    the period**
                  **July
                    10, 2000**
                  **(date
                    of**
                  **incorporation)
                    to September 30, 2006****CASH
                    FLOWS FROM OPERATING ACTIVITIES:**Net
                    loss
                $
                (14,789,641)
                $
                (7,417,935)
                $
                (24,862,513)**Adjustments
                    to reconcile net loss to net cash used in operating
                    activities:**Depreciation
                    and amortization
                
                432,640
                
                145,881
                
                640,571Provision
                    for inventory obsolescence
                
                494,393
                
                -
                
                494,393Provision
                    for bad debts
                
                369,246
                
                90,000
                
                459,246Amortization
                    of intangible assets
                
                -
                
                8,850
                
                15,485Stock
                    based compensation and consulting
                
                1,952,229
                
                1,088,200
                
                4,052,715Purchased
                    in process research and development
                
                
                
                -
                
                153,190Derivative
                    (income) expense, net
                
                (3,465,948)
                
                1,620,686
                
                (1,845,262)Losses
                    on debt extinguishments
                
                5,137,817
                
                
                
                5,137,817Impairment
                    of assets
                
                741,401
                
                212,000
                
                996,555Forgiveness
                    of indebtedness as a result of litigation settlement
                
                -
                
                (50,000)
                
                (50,000)Amortization
                    of discount on convertible promissory note
                
                1,409,849
                
                -
                
                1,409,849Changes
                    in assets and liabilities, net:Decrease
                    (increase) in receivables
                
                103,978
                
                (417,141)
                
                (2,314,343)Decrease
                    (increase) in inventories
                
                (253,207)
                
                (102,500)
                
                (457,399)Decrease
                    (increase) in prepaid expenses and other current assets
                
                36,968
                
                (72,920)
                
                (52,263)Decrease
                    (increase) in other assets
                
                25,158
                
                (34,103)
                
                (40,914)Increase
                    (decrease) in assets of discontinued operations
                
                1,790,325
                
                (2,125,815)
                
                1,790,325Increase
                    (decrease) in accounts payable and accrued liabilities
                
                185,040
                
                (42,237)
                
                547,129Increase
                    (decrease) in accrued registration rights penalties
                
                98,649
                
                
                
                98,649Increase
                    (decrease) in deferred revenue
                
                10,000
                
                -
                
                1,920,467****Increase
                    (decrease) in liabilities of discontinued operations
                
                (1,749,026)
                
                1,967,867
                
                (1,749,026)**NET
                    CASH USED IN OPERATING ACTIVITIES**
                
                (7,470,129)
                
                (5,129,167)
                
                (13,655,329)**CASH
                    FLOWS FROM INVESTING ACTIVITIES:**Purchases
                    of property and equipment
                
                (491,991)
                
                (643,516)
                
                (1,283,756)Investment
                    in Product Benefits Systems Corporation
                
                (15,737)
                
                -
                
                (15,737)Notes
                    receivable
                
                -
                
                (202,000)
                
                (202,000)Initial
                    investment in Financial Services International, Inc.
                
                -
                
                (10,000)
                
                (10,000)Purchase
                    of assets from Typhoon Voice Technologies, Inc.
                
                -
                
                -
                
                (5,000)**NET****CASH
                    USED IN INVESTING ACTIVITIES**
                
                (507,728)
                
                (855,516)
                
                (1,516,493)**CASH
                    FLOWS FROM FINANCING ACTIVITIES:**Proceeds
                    from borrowings
                
                4,067,250
                
                -
                
                4,165,162Repayments
                    of notes payable
                
                (100,000)
                
                -
                
                (147,912)****Collections
                    on note receivable from stockholder
                
                -
                
                2,028,949
                
                3,000,000****Proceeds
                    from the issuance of common stock (including subscribed
                    stock)
                
                2,472,500
                
                6,308,614
                
                9,091,177**NET
                    CASH PROVIDED BY FINANCING ACTIVITIES**
                
                6,439,750
                
                8,337,563
                
                16,108,427*(Continued)*
 
  F-9
  **nFinanSe
          Inc.**
 **(A
          Development Stage Enterprise)**
 
 **CONSOLIDATED
          STATEMENTS OF CASH FLOWS**
 ( *Continued)*
 
 **For
                    the year ended September 30,**
                  **2006**
                
                **For
                    the year ended September 30,**
                  **2005**
                
                **For
                    the period**
                  **July
                    10, 2000**
                  **(date
                    of**
                  **incorporation)
                    to September 30, 2006****NET
                    INCREASE IN CASH AND CASH EQUIVALENTS**
                
                (1,538,107)
                
                2,352,880
                
                936,605**CASH
                    AND CASH EQUIVALENTS, BEGINNING OF PERIOD**
                
                2,474,712
                
                121,832
                
                -**CASH
                    AND CASH EQUIVALENTS, END OF PERIOD**
                $
                936,605
                $
                2,474,712
                $
                936,605**SUPPLEMENTAL
                    DISCLOSURE OF CASH FLOW INFORMATION:**Interest
                    paid
                $
                7,184
                $
                4,159
                $
                14,574Income
                    taxes paid
                $
                -
                $
                -
                $
                -**SUPPLEMENTAL
                    DISLOSURE OF NON-CASH INVESTING AND FINANCING
                    ACTIVITIES:**Acquisition
                    of discontinued assets by issuance of stock
                $
                -
                $
                748,200
                $
                818,200Reclassification
                    of proceeds from sales of common stock to derivative financial
                    instrument
                    liabilities
                $
                -
                $
                4,007,443
                $
                4,007,443Issuance
                    of common stock for net assets of Pan American Energy Corporation
                    in a
                  recapitalization
                    - see Note A
                $
                -
                $
                -
                $
                2,969,000Issuance
                    of common stock in lieu of cash payment of registration
                    penalties
                $
                652,625
                $
                -
                $
                652,625Reclassification
                    of long-lived assets to assets of discontinued telecom operations
                $
                100,000
                $
                -
                $
                100,000
 
 See            See
          notes to consolidated financial statements.
  F-10
  **nFinanSe
          Inc.**
 **(A
          Development Stage Enterprise)**
 
 **NOTES
          TO CONSOLIDATED FINANCIAL STATEMENTS**
 
 
 **NOTE
          A -**  **FORMATION,
          BACKGROUND AND OPERATIONS OF THE COMPANY**
 
 The
          accompanying consolidated financial statements include the accounts of
          nFinanSe
          Inc. (formerly Morgan Beaumont, Inc.) and those of its wholly owned subsidiary,
          MBI Services Group, LLC (collectively "we," "us," "our"). All significant
          intercompany accounts and balances have been eliminated in consolidation.
          We
          were incorporated under the laws of the state of Florida on July 10, 2000
          and
          are considered to be a development stage enterprise as defined in Financial
          Accounting Standard No. 7.
 
 In
          August
          2004, we consummated a merger and recapitalization with Pan American Energy
          Corp
          (“PAEC”), a publicly traded company that was incorporated under the laws of the
          State of Nevada on May 26, 2000. From a legal perspective, PAEC was the
          surviving company and thus continued its public reporting obligations,
          however
          for financial statement purposes, the transaction was treated as a reverse
          merger and a recapitalization whereby we were deemed to be the acquirer
          and no
          goodwill or other intangible assets were recorded.
 
 We
          were
          founded on July 10, 2000 and began developing a technology platform to
          enable us
          to sell debit cards to the unbanked and underbanked market. Typically,
          this
          market is primarily comprised of sub-prime, credit “challenged” consumers.
          Management identified that a major barrier to the acceptance and use of
          debit
          cards was the ability to load additional funds on the debit card. To address
          this issue, we shifted our focus during 2003 toward enhancing our network
          to
          enable customers to load funds directly onto their prepaid cards.
 
 In
          May
          2005, through our subsidiary, we commenced selling traditional prepaid
          phone
          cards in order to develop brand recognition within the sub-prime customer
          market. During fiscal 2006, we added Western Union and MoneyGram to our
          load
          network and signed an agreement with Discover **®**  Financial
          Services, LLC to issue branded stored value cards (“SVCs”). During the quarter
          ended September 30, 2006, we made the decision to discontinue the low-margin
          prepaid phone card business and focus strictly on selling SVCs and expanding
          our
          load Network.
 
 We
          currently operate two divisions: (i) the nFinanSe Card Division **,** which
          issues prepaid gift cards, reloadable general spend cards, payroll cards
          and
          promotional/incentive cards; and (ii) the nFinanSe Network, which is a
          network
          of load locations for SVCs.
 
 Subsequent
          to year end, we increased our authorized shares from 170,000,000 to 200,000,000,
          and reduced our outstanding common shares via a 20 to 1 reverse stock split.
          As
          a result of this stock split, every twenty shares of our common stock
          outstanding as of the opening of trading on such date were combined into
          one
          share of our common stock. The reverse stock split affects all shares of
          common
          stock including those shares underlying outstanding stock options and warrants.
          All references to the number of shares in the accompanying consolidated
          financial statements and notes thereto have been adjusted to reflect the
          changes
          as though they occurred at the date of our incorporation.
  F-11
  **Discontinued
          Operations and Reclassifications**
 
 We
          account for discontinued operations using the component-business approach
          in
          accordance with Financial Accounting Standard No. 144, “Accounting for the
          Impairment or Disposal of Long-Lived Assets”. Our financial statements for all
          periods presented have been restated to reflect the Prepaid Calling Card
          Business as a discontinued operation.
 
 **Revenue
          Recognition**
 
 We
          generate the following types of revenues:
 
 •  Wholesale
          fees, which arise from sales and activation of our stored value
          cards.
 •  Transaction
          fees, which arise from the use and loading of cash for stored value cards.
 •  Maintenance
          fees, which arise from keeping the cards active on a monthly basis.
 
 Our
          revenue recognition policy for fees and services arising from our products
          is
          consistent with the criteria set forth in SEC Staff Accounting Bulletin
          104, “
Revenue Recognition in Financial Statements” (“SAB 104”) for determining when
          revenue is realized or realizable and earned. In accordance with the
          requirements of SAB 104, we recognize revenue when (1) persuasive evidence
          of an
          arrangement exists; (2) delivery has occurred; (3) our price to the buyer
          is
          fixed or determinable; and (4) collectibility of the receivables is reasonably
          assured. Costs of revenue, including the cost of printing the cards, are
          recorded at the time revenue is recognized.
 
 **Accounts
          Receivable and Allowance for Doubtful Accounts**
 
 Our
          credit terms for stored value cards sold through retail distribution are
          typically two days after the sale and activation of the cards for the face
          amount of the gift card and the load amount of the reloadable general spend
          cards. Our wholesale fees for the cards are payable each Monday for the
          sales of
          the previous week. Paycards and rewards card loads and fees are usually
          paid in
          advance. Transaction fees earned on use of the cards are settled daily.
          Accounts
          receivable are determined to be past due if payment is not made in accordance
          with the terms of our contracts and receivables are written off when they
          are
          determined to be uncollectible. We perform ongoing credit evaluations of
          our
          customers, and with the exception of some minimum cash balances, generally
          do
          not require collateral.
 
 We
          evaluate the allowance for doubtful accounts on a regular basis for adequacy.
          The level of the allowance account, and related bad debts are based upon
          our
          review of the collectibility of our receivables in light of historical
          experience, adverse situations that may affect our customers’ ability to repay,
          estimated value of any underlying collateral and prevailing economic conditions.
          This evaluation is inherently subjective as it requires estimates that
          are
          susceptible to significant revision as more information becomes available.
 
 **Cash
          and Cash Equivalents**
 
 For
          purposes of the statement of cash flows, we consider all highly liquid
          investments with an original maturity of three months or less to be cash
          equivalents.
  F-12
  **Inventories**
 
 At
          September 30, 2005, inventories consisted primarily of prepaid phone cards,
          and
          reloadable stored value cards. During the year ended September 30, 2006,
          primarily because of our decision to discontinue
          the prepaid phone card business, and because we determined various other
          inventories were defective (we attempted to receive credit for these inventories
          from the vendor without success), we
          recorded a provision for obsolescence of approximately $494,900, and at
          September 30, 2006, the balance of our inventories is zero. Prior to these
          write
          offs, inventories were charged to cost of goods sold using the first in
          first
          out method.
 
 **Use
          of Estimates**
 
 The
          preparation of consolidated financial statements in conformity with accounting
          principles generally accepted in the United States of America requires
          us to
          make certain estimates and assumptions that affect the reported amounts
          of
          assets and liabilities and disclosure of contingent assets and liabilities
          at
          the date of the consolidated financial statements. The reported amounts
          of
          revenues and expenses during the reporting period may be affected by the
          estimates and assumptions we are required to make. Estimates that are critical
          to the accompanying consolidated financial statements arise from our belief
          that
          we will secure an adequate amount of cash to continue as a going concern,
          that
          all long-lived assets are recoverable and that the resolution of various
          contingencies will not materially impact our consolidated financial statements.
          In addition, the liability resulting from accrued registration rights damages
          arises from a significant estimate as discussed in Note J. The markets
          for our
          products are characterized by intense competition, rapid technological
          development, evolving standards, short product life cycles and price
          competition, all of which could impact the future realization of our assets.
          Estimates and assumptions are reviewed periodically and the effects of
          revisions
          are reflected in the period that they are determined to be necessary. It
          is at
          least reasonably possible that our estimates could change in the near term
          with
          respect to these matters.
 
 **Property
          and Equipment**
 
 Property
          and equipment are stated at cost. Major additions are capitalized, while
          minor
          additions and maintenance and repairs, which do not extend the useful life
          of an
          asset, are expensed as incurred. Depreciation and amortization are provided
          using the straight-line method over the assets' estimated useful lives,
          which
          range from three to ten years.
 
 **Long-Lived
          Assets**
 
 In
          accordance with Financial Accounting Standard No. 144, "Accounting for
          the
          Impairment or Disposal of Long-Lived Assets," (“FAS 144”) we evaluate the
          recoverability of long-lived assets and the related estimated remaining
          lives
          when events or circumstances lead management to believe that the carrying
          value
          of an asset may not be recoverable. During the years ended September 30,
          2006
          and 2005, we determined that certain impairment losses were necessary and
          charged operations for approximately $741,000 and $212,000, respectively.
          The
          2005 losses arose primarily from our determination that a note receivable
          was
          not recoverable, whereas the 2006 impairment charge (which reduced the
          carrying
          value of certain telecom property and equipment to its estimated fair value
          as
          determined by our management) resulted from our decision to
  F-13
  discontinue
          our prepaid phone card business as discussed above. In accordance with
          FAS 144,
          the 2006 impairment loss has been included in the loss from discontinued
          operations in the accompanying consolidated statement of operations. At
          September 30, 2006, we believe all of our remaining long-lived assets are
          recoverable.
 
 **Advertising
          Costs**
 
 We
          expense advertising costs as they are incurred. Advertising costs approximated
          $138,000 and $113,000 during the years ended September 30, 2006 and 2005,
          respectively.
 
 **Research
          and Development**
 
 Research
          and development costs, which approximated $642,000 and $303,000 during
          the
          years  ended
          September 30, 2006 and 2005, respectively, are expensed as incurred .
 
 **Net
          Loss Per Share**
 
 We
          compute net loss per share in accordance with Financial Accounting Standard
          No.
          128 “Earnings per Share” (“FAS No. 128”) and SEC Staff Accounting Bulletin No.
          98 (“SAB 98”). Under the provisions of FAS No. 128 and SAB 98, basic net loss
          per share is computed by dividing the net loss available to common stockholders
          for the period by the weighted average number of common shares outstanding
          during the period. Diluted net loss per share is computed by dividing the
          net
          loss for the period by the number of common and common equivalent shares
          outstanding during the period (common stock equivalent shares arise from
          options
          and warrants). Because of our net losses, none of these common stock equivalent
          shares have been dilutive at any time since our inception; accordingly
          basic and
          diluted net loss per share are identical for each of the periods in the
          accompanying consolidated statements of operations.
 
 **Income
          Taxes**
 
 We
          compute income taxes in accordance with Financial Accounting Standard No.
          109
“Accounting for Income Taxes” (“FAS 109”). Under FAS 109, deferred taxes are
          recognized for the tax consequences of temporary differences by applying
          enacted
          statutory rates applicable to future years to differences between the financial
          statement carrying amounts and the tax basis of existing assets and liabilities.
          Also, the effect on deferred taxes of a change in tax rates is recognized
          in
          income in the period that included the enactment date. Significant temporary
          differences arise primarily from accounts payable and accrued liabilities
          that
          are not deductible for tax reporting until they are paid.
 
 **Convertible
          Debt and Equity Instruments Issued with Registration Rights
          Agreements**
 
 In
          connection with the sale of debt or equity instruments, we may enter into
          Registration Rights Agreements that generally require us to file registration
          statements with the Securities and Exchange Commission to register common
          shares
          that may be issued on conversion of debt or preferred stock, to permit
          re-sale
          of common shares previously sold under an exemption from registration or
          to
          register common shares that may be issued on exercise of outstanding options
          or
          warrants. The agreements typically require us to pay damages, in the form
          of
          contractually
  F-14
  stipulated
          penalties, for any delay in filing the required registration statements
          or in
          the registration statements becoming effective, maintaining effectiveness
          or, in
          some instances, maintaining a listing of our common stock. These damages
          are
          usually expressed as a fixed percentage, per month, of the original proceeds
          we
          received on issuance of the debt, preferred stock, common shares, options
          or
          warrants. We account for these penalties as contingent liabilities, applying
          the
          accounting guidance of Financial Accounting Standard No. 5, “Accounting for
          Contingencies” (“FAS 5”). This accounting is consistent with views established
          by the Emerging Issues Task Force in its consensus set forth in EITF 05-04
          and
          FASB Staff Positions FSP EITF 00-19-2 “Accounting for Registration Payment
          Arrangements”, which was issued December 21, 2006. Accordingly, we recognize the
          damages when it becomes probable that they will be incurred and amounts
          are
          reasonably estimable.
 
 In
          connection with sales of our common stock during the fiscal year ended
          September
          30, 2005, we granted certain registration rights that provided for liquidated
          damages in the event we failed to timely register the common stock for
          re-sale
          or maintain the effectiveness of that registration. Although the registration
          rights agreement did not provide for net-cash settlement, the existence
          of
          liquidated damages provided for a defacto net-cash settlement option. As
          a
          result, a portion of the common stock proceeds were initially reclassified
          from
          equity and included as a derivative financial instrument liability until
          such
          time as the conditions were eliminated. At
          the time the required registration statement became effective on June 15,
          2006,
          the amount payable up to that date of approximately $206,000 was re-classified
          to Accrued Registration Rights Damages Payable and the portion of the estimated
          liability for future periods of approximately $454, 000 no longer payable
          as a
          result of effectiveness, was re-classified to equity. The liability is
          re-measured each reporting period and at September 30, 2006 the liability
          of
          approximately $204,000 relates to the estimated fair value of our liability
          related to our obligation to maintain the effectiveness of the
          registration.
 
 **Financial
          Instruments and Concentrations**
 
 Financial
          instruments, as defined in Financial Accounting Standard No. 107, “Disclosures
          about Fair Values of Financial Instruments”, consist of cash, evidence of
          ownership in an entity and contracts that both (i) impose on one entity
          a
          contractual obligation to deliver cash or another financial instrument
          to a
          second entity, or to exchange other financial instruments on potentially
          unfavorable terms with the second entity, and (ii) conveys to that second
          entity
          a contractual right (a) to receive cash or another financial instrument
          from the
          first entity or (b) to exchange other financial instruments on potentially
          favorable terms with the first entity. Accordingly, our financial instruments
          consist of cash and cash equivalents, accounts receivable, accounts payable,
          accrued liabilities, notes payable, derivative financial instruments, and
          convertible debt.
 
 The
          carrying values of our cash and cash equivalents, receivables and accounts
          payable and accrued and other liabilities approximate their respective
          fair
          values due to their short-term nature. The fair value of our Senior Secured
          Convertible Promissory Notes of $6,614,581 is also the carrying value of
          these
          instruments because they were recorded at their fair value when they were
          issued
          on September 29, 2006 in connection with the debt exchange transaction
          that is
          more fully discussed in Note K.
  F-15
  
 Financial
          instruments, which potentially subject us to significant concentrations
          of
          credit risk, consist primarily of accounts receivable, and cash and cash
          equivalents. At September 30, 2006, our net
          accounts receivable did not represent a material credit risk. With respect
          to
          cash and cash equivalents, we frequently maintain such balances in excess
          of
          federally insured limits. We have not experienced any losses in such
          accounts.
 
 Derivative
          financial instruments, as defined in Financial Accounting Standard No.
          133,
“Accounting for Derivative Financial Instruments and Hedging Activities”,
          consist of financial instruments or other contracts that contain a notional
          amount and one or more underlyings (e.g. interest rate, security price
          or other
          variable), require no or minimal initial net investment and permit net
          settlement. Derivative financial instruments may be free-standing or embedded
          in
          other financial instruments. Further, derivative financial instruments
          that are
          recorded as liabilities or, in rare instances, as assets are initially,
          and
          subsequently, measured at fair value.
 
 We
          generally do not use derivative financial instruments to hedge exposures
          to
          cash-flow, market or foreign-currency risks. However,  we
          review
          the terms of our convertible debt and equity instruments to determine whether
          there are embedded derivative instruments, including the embedded conversion
          option, that are required to be bifurcated and accounted for separately
          as a
          derivative financial instrument. In circumstances where the convertible
          instrument contains more than one embedded derivative instrument, including
          the
          conversion option, that is required to be bifurcated, the bifurcated derivative
          instruments are accounted for as a single, compound derivative instrument.
          Also,
          in connection with the sale of convertible debt and equity instruments,
          we may
          issue freestanding options or warrants that may, depending on their terms,
          be
          accounted for as derivative instrument liabilities, rather than as equity.
 
 For
          derivative financial instruments that are accounted for as liabilities,
          the
          derivative instrument is initially recorded at its fair value and is then
          re-valued at each reporting date, with changes in the fair value reported
          as
          charges or credits to operations. We estimate fair values of derivative
          financial instruments using various techniques (and combinations thereof)
          that
          are considered to be consistent with the objective of measuring fair value.
          In
          selecting the appropriate technique, we consider, among other factors,
          the
          nature of the instrument, the market risks that it embodies and the expected
          means of settlement. For less complex derivative instruments, such as
          freestanding warrants, we generally use the Black-Scholes-Merton option
          valuation model because it embodies all of the requisite assumptions (including
          trading volatility, estimated terms and risk free rates) necessary to fair
          value
          these instruments. For complex derivative instruments, such as embedded
          conversion options, we generally use the Flexible Monte Carlo valuation
          technique because it embodies all of the requisite assumptions (including
          credit
          risk, interest-rate risk and exercise/conversion behaviors) that are necessary
          to fair value these more complex instruments. For forward contracts that
          contingently require net-cash settlement as the principal means of settlement,
          we project and discount future cash flows applying probability-weighting
          to
          multiple possible outcomes. Estimating fair values of derivative financial
          instruments requires the development of significant and subjective estimates
          that may, and are likely to, change over the duration of the instrument
          with
          related changes in internal factors and external market indicators. In
          addition,
          option based techniques are highly volatile and sensitive to changes in
          our
          trading market price which has a high-historical volatility. Since derivative
          financial instruments are initially and subsequently carried at fair values,
          our
          income reflects the volatility in these estimate and assumption
          changes.
  F-16
  The
          following table illustrates the components of our derivative income (expense)
          during the years ended September 30, 2006 and 2005:
 
 2006
                
                2005Incremental
                    fair value adjustments to derivative financial instruments
                
                $
                5,502,444
                
                $
                (1,620,686
                )Day-one
                    derivative losses (See Note K)
                
                
                (2,036,496
                )
                
                --Totals
                
                $
                3,465,948
                
                $
                (1,620,686
                )
 
 **Stock
          - Based Compensation**
 
 Prior
          to January 1, 2006, we used Financial Accounting Standard No. 148 “Accounting
          for Stock-Based Compensation - Transition and Disclosure” (“FAS 148”) to account
          for our stock based compensation arrangements. It amended the disclosure
          provisions of FAS 123 to require prominent disclosure about the effects
          on
          reported net income of an entity’s accounting policy decisions with respect to
          stock-based employee compensation. Through December 31, 2005, as permitted
          by
          FAS No. 123 and amended by FAS No. 148, we used the intrinsic value method
          under
          Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to
          Employees,” to account for our stock-based employee compensation arrangements.
          Effective January 1, 2006, we began applying Financial Accounting Standards
          No.
          123 (“FAS 123 (Revised)”), “Share-Based Payments” (“FAS 123(R)”) to account for
          our stock based compensation arrangements. This statement requires us to
          recognize compensation expense in an amount equal to the fair value of
          shared-based payments such as stock options granted to employees. We have
          elected to apply FAS 123(R) on a modified prospective method. Under this
          method,
          we are required to record compensation expense (as previous awards continue
          to
          vest) for the unvested portion of previously granted awards that remain
          outstanding at the date of adoption. The effect of adopting this statement
          was
          to increase our net loss by approximately $1,272,000 during the year ended
          September 30, 2006.
 
 With
          respect to non-employee stock options that vest at various times and have
          no
          significant disincentives for non-performance and/or specific performance
          commitments, we follow the guidance in Emerging Issues Task Force Issue
          (“EITF”)
          No. 96-18. Pursuant to this standard, the value of these options is estimated
          at
          various reporting dates and finally measured at the respective vesting
          date(s)
          of the options (or the date on which the consultants’ performance is complete).
          The expense for each group of options is recognized ratably over the vesting
          period for each group, and the estimated value of any unvested options
          is
          updated at such time. As a result, under these arrangements, our initial
          and
          periodic recording of stock based compensation expense represents an estimate
          for which changes are reflected in the period that they are determined
          to be
          necessary.
 
 **Impact
          of Recently Issued Accounting Pronouncements**
 
 In
          May 2005, the Financial Accounting Standards Board issued Financial Accounting
          Standard No. 154, “Accounting Changes and Error Corrections” (“FAS 154”). The
          Statement applies to all voluntary changes in accounting principle and
          to
          changes required by an accounting pronouncement that do not include explicit
          transition provisions.  FAS 154 requires that changes in accounting
          principle be retroactively applied, instead of including the cumulative
          effect
          in the
  F-17
  income
          statement.  The correction of an error will continue to require financial
          statement restatement.  A change in accounting estimate will continue to be
          accounted for in the period of change and in subsequent periods, if
          necessary.  FAS 154 is effective for fiscal years beginning after December
          31, 2005.  The adoption of this Statement is not expected to have a
          material impact on our financial condition or results of
          operations.
 
 In
          June 2005, the EITF reached a consensus on Issue 05-6, “Determining the
          Amortization Period for Leasehold Improvements,” which requires that leasehold
          improvements acquired in a business combination or purchased subsequent
          to the
          inception of a lease be amortized over the lesser of the useful life of
          the
          assets or a term that includes renewals that are reasonably assured at
          the date
          of the business combination or purchase. EITF Issue 05-6 is effective for
          periods beginning after June 29, 2005. Earlier application is permitted in
          periods for which financial statements have not been issued. The adoption
          of
          this Issue did not have an impact on our financial statements
 
 In
          February 2006, the FASB issued Financial Accounting Standard No. 155,
“Accounting for Certain Hybrid Financial Instruments; an amendment of Financial
          Accounting Standard Nos. 133 and 140" (“FAS 155”), to simplify and make more
          consistent the accounting for certain financial instruments. FAS 155 amends
          FAS
          133, “Accounting for Derivative Instruments and Hedging Activities”, to permit
          fair value remeasurement for any hybrid financial instrument with an embedded
          derivative that otherwise would require bifurcation, provided that the
          whole
          instrument is accounted for on a fair value basis. FAS 155 amends FAS 140,
          “Accounting for the Impairment or Disposal of Long-Lived Assets”, to allow a
          qualifying special-purpose entity to hold a derivative financial instrument
          that
          pertains to a beneficial interest other than another derivative financial
          instrument. FAS 155 applies to all financial instruments acquired or issued
          after the beginning of an entity’s first fiscal year that begins after September
          15, 2006, with earlier application allowed. This standard is not expected
          to
          have a significant effect on our financials statements.
 
 In
          March
          2006, the FASB issued Financial Accounting Standard No. 156, “Accounting for
          Servicing of Financial Assets, an amendment of FASB Statement No. 140,
          Accounting for Transfers and Servicing of Financial Assets and Extinguishments
          of Liabilities” (“FAS 156”). This statement requires all separately recognized
          servicing assets and servicing liabilities to be initially measured at
          fair
          value, if practicable, and permits for subsequent measurement using either
          fair
          value measurement with changes in fair value reflected in earnings or the
          amortization and impairment requirements of FAS 140. The subsequent measurement
          of separately recognized servicing assets and servicing liabilities at
          fair
          value eliminates the necessity for entities that manage the risks inherent
          in
          servicing assets and servicing liabilities with derivatives to qualify
          for hedge
          accounting treatment and eliminates the characterization of declines in
          fair
          value as impairments or direct write-downs. FAS 156 is effective for
          an entity’s first fiscal year beginning after September 15,
          2006.  This statement is not expected to have a significant effect on
          our financial statements.
 
 In
          September 2006, the FASB issued Financial Accounting Standard No. 157,
“Fair
          Value Measurements” (“FAS 157”). This Statement defines fair value, establishes
          a framework for measuring fair value in accordance with generally accepted
          accounting principles and expands disclosures about fair value measurements.
          This statement applies under other accounting pronouncements that require
          or
          permit fair value measurements as the Board previously concluded in those
          accounting pronouncements that fair value is a relevant measurement attribute.
  F-18
  Accordingly,
          this Statement does not require us to develop or report any new fair value
          measurements. This Statement is effective for financial statements for
          fiscal
          years beginning after November 15, 2007. Earlier application is permitted
          provided that the reporting entity has not yet issued financial statements
          for
          that fiscal year. This statement is not expected to have a significant
          effect on
          our financial statements.
 
 In
          September 2006, the FASB issued Financial Accounting Standard No. 158
“Employers’ Accounting for Defined Benefit Pension and Other Postretirement
          Plans” - , an amendment of FASB Statements No. 87, 88, 106, and 132(R)” (“FAS
          158”). This Statement requires an employer that is a business entity and
          sponsors one or more single-employer defined benefit plans to (a) recognize
          the
          funded status of a benefit plan—measured as the difference between plan assets
          at fair value (with limited exceptions) and the benefit obligation—in its
          statement of financial position; (b) recognize as a component of other
          comprehensive income, net of tax, the gains or losses and prior service
          costs or
          credits that arise during the period but are not recognized as components
          of net
          periodic benefit cost pursuant to FAS 87, “Employers’ Accounting for Pensions”,
          or FAS 106, “Employers’ Accounting for Postretirement Benefits Other Than
          Pensions” ; (c) measure defined benefit plan assets and obligations as of the
          date of the employer’s fiscal year-end statement of financial position (with
          limited exceptions); and (d) disclose in the notes to financial statements
          additional information about certain effects on net periodic benefit cost
          for
          the next fiscal year that arise from delayed recognition of the gains or
          losses,
          prior service costs or credits, and transition asset or obligation. An
          employer
          with publicly traded equity securities is required to initially recognize
          the
          funded status of a defined benefit postretirement plan and to provide the
          required disclosures as of the end of the fiscal year ending after December
          15,
          2006. This statement is not expected to have a significant effect on our
          financial statements.
 
 In
          June
          2006, the FASB issued FASB Interpretation No. 48, "Accounting for Uncertainty
          in
          Income Taxes" (“FIN 48”) which clarifies the accounting for uncertainty in
          income taxes recognized in an enterprise's financial statements in accordance
          with FAS 109, "Accounting for Income Taxes". This interpretation prescribes
          a
          recognition threshold and measurement attribute for the financial statement
          recognition and measurement of a tax position taken or expected to be taken
          in a
          tax return. FIN 48 also provides guidance on derecognition, classification,
          interest and penalties, accounting in interim periods, disclosure and
          transition. FIN 48 is effective for fiscal years beginning after December
          15,
          2006. This statement is not expected to have a significant effect on our
          financial statements.
 
 **NOTE
          B - GOING CONCERN**
 
 Our
          consolidated financial statements are prepared using accounting principles
          generally accepted in the United States of America applicable to a going
          concern, which contemplate the realization of assets and liquidation of
          liabilities in the normal course of business. We have incurred significant
          losses and negative cash flows from operations since our inception, and
          we also
          have various contingent liabilities that could adversely impact our cash
          availability if they are not resolved in our favor. In addition, and while
          we
          raised approximately $4,000,000 through sales of our preferred stock on
          December
          28, 2006 (see Note N), we anticipate that we will need additional debt
          and/or
          equity capital to meet our operating commitments for the next twelve months.
          As
          such, our ability to continue as a going concern is contingent upon us
          being
          able to generate cash flow from operations and/or secure an adequate amount
          of
          debt or equity capital to enable us to
  F-19
  meet
          our operating cash requirements and successfully implement our business
          plan. In
          addition, our ability to continue as a going concern must be considered
          in light
          of the problems, expenses and complications frequently encountered by entrance
          into established markets and the competitive environment in which we operate.
          There can be no assurance that we will be able to generate adequate proceeds
          from financings or that any such financings will be available on terms
          suitable
          to us. These factors, among others, indicate that we may be unable to continue
          as a going concern for a reasonable period of time. Our consolidated financial
          statements do not include any adjustments relating to the recoverability
          and
          classification of recorded asset amounts or the amounts and classification
          of
          liabilities that might be necessary should we be unable to continue as
          a going
          concern.
 
 **NOTE
          C - INCOME TAXES**
 
 We
          recognized losses for both financial and tax reporting purposes during
          each of
          the periods in the accompanying consolidated statements of operations.
          Accordingly, no
          provisions for income taxes or deferred income taxes payable have been
          provided
          for in the accompanying consolidated financial statements.
 
 Assuming
          our net operating loss carryforwards are not disallowed by taxing authorities
          because of certain “change in control” provisions of the Internal Revenue Code,
          at September 30, 2006 we have net operating loss carryforwards of approximately
          $15.4 million for income tax purposes (the significant difference between
          our
          net operating carryforwards and our deficit arises primarily from the loss
          on
          derivative financial instruments and certain stock based and impairment
          expenses
          that are considered to be permanent differences between book and tax reporting
          ). These carryforwards expire in various years through the year ended September
          30, 2026. Components of our net current and non-current deferred income
          tax
          assets, assuming an effective income tax rate of 39.5%, are approximately
          as
          follows at September 30, 2006:
 
 Net
                    current deferred income tax asset:Accounts
                    payable and accrued liabilities
                $
                208,700Receivables
                    (net of deferred revenues)
                
                (4,500)Other
                
                (15,800)Subtotal
                
                188,400Less
                    valuation allowance
                
                (188,400)Net
                    current deferred income tax asset
                $
                **-**Non-current
                    deferred income tax asset:Intangibles
                $
                14,100Net
                    operating loss carry forward
                
                5,807,500Subtotal
                
                5,821,600Less
                    valuation allowance
                
                (5,821,600)Non-current
                    deferred income tax asset
                $
                -
 
 Our
          net
          current and non-current deferred income tax assets are not recorded in
          the
          accompanying consolidated balance sheet because we established valuation
          allowances to fully reserve such assets as their realization did not meet
          the
          required asset recognition standard established by FAS 109.
  F-20
  The
          total
          valuation allowance increased by approximately $3,601,000 during the year
          ended
          September 30, 2006.
 
 **NOTE
          D - PROPERTY AND EQUIPMENT**
 
 Property
          and equipment consists of the following at September 30, 2006:
 Furniture,
                    fixtures and equipment
                $
                583,295Computer
                    software
                
                206,812Leasehold
                    improvements
                
                74,391864,498Less
                    accumulated depreciation and amortization
                
                (298,090)Property
                    and equipment - net
                $
                566,408
 
 **NOTE
          E -** **OTHER
          RELATED PARTY TRANSACTIONS**
 
 At
          September 30, 2006, accounts payable and accrued liabilities include
          approximately $81,000 that is owed to various officers for accrued vacation
          and
          $38,000 owed to our directors.
 
 During
          the year ended September 30, 2005, we engaged a construction company to
          remodel
          our office facility. Total amounts paid to this entity, which was partially
          owned by our President at such time, for these leasehold improvements
          approximated $59,000.
 
 At
          September 30, 2005, property and equipment included telecommunications
          equipment
          having a cost of approximately $948,000 that was purchased from MTEL
          Communications, Inc (“MTEL”) on May 6, 2005. MTEL is a telecommunications
          provider that used the equipment to service its prepaid phone cards that
          were
          sold in foreign markets for calls back to the United States. We used the
          equipment to offer United States based prepaid phone cards. As consideration
          for
          the purchased assets, we paid $200,000 and issued 863,636 shares of our
          common
          stock, which stock had a value of $748,000. In connection with our decision
          to
          discontinue our prepaid phone card business (see Note A), we recognized
          an
          impairment loss of approximately $741,000 as of September 30, 2006. The
          remaining net book value of the assets of approximately $100,000 is included
          in
          Assets of discontinued telecom operations in the accompanying consolidated
          balance sheet. As discussed at Note I, this equipment was retuned to MTEL
          as
          part of a litigation settlement in December 2006.
 
 At
          the
          time of the purchase of the MTEL assets, we engaged the founder and President
          of
          MTEL to provide certain consulting services to us under a consulting agreement
          that requires, at a minimum, monthly payments of $7,000 for a period of
          at least
          eighteen months. During the year ended September 30, 2005 and 2006, we
          paid
          approximately $35,000 and $100,000, respectively under this arrangement.
 
 Subsequent
          to the date of the purchase of the MTEL assets we purchased approximately
          $690,000 of telecommunications services from MTEL.
  F-21
  
 **NOTE
          F -** **COMMITMENTS
          AND CONTINGENCIES**
 
 **Operating
          Leases**
 
 We
          are
          obligated under operating lease agreements for our facilities through December
          31, 2008. Future minimum lease payments under these leases are approximately
          as
          follows at September 30, 2006:
 
 Years
                    endingSeptember
                    30,
                
                
                Amounts2007
                
                $
                290,4002008
                
                
                198,9002009
                
                
                38,200Total
                
                $
                527,500
 
 Rent
          expense included in loss from continuing operations for the years ended
          September 30, 2006 and 2005 approximated $274,000 and $182,500, respectively.
 
 **Employment
          Agreements**
 
 At
          September 30, 2006, we are obligated under the following employment
          agreements:
 
 §  An
          employment agreement with our Chairman of the Board of Directors and former
          chief executive officer. Pursuant to the agreement, he is to receive base
          annual
          compensation of $225,000 through December 31, 2007, as well as various
          vacation
          and medical benefits, a car allowance of $750 per month and annual bonuses
          ranging from 2.5 to 3.0% of net income. The agreement contains a takeover
          provision that requires us to pay the greater of $750,000, or an amount
          equal to
          7.5% of any sale price in excess of $25,000,000 to him in the event a change
          in
          control occurs. If we terminate him without cause, we will be required
          to pay
          severance to him in the amount of compensation and benefits he would have
          otherwise earned for a period of twelve months.
 
 §  An
          employment agreement with our new Chief Executive Officer, which has a
          term from
          September 5, 2006 to December 31, 2008, pursuant to which he receives an
          annual
          salary of $235,000, and at the discretion of the Board of Directors, a
          bonus up
          to 75% of such salary. The agreement is to be automatically renewed indefinitely
          for succeeding terms of two years unless otherwise terminated in accordance
          with
          the agreement. Additionally, he received the right, privilege and option
          to
          purchase a number of shares of our common stock (the “Option Shares”) equal to
          4.25% of the outstanding shares of our total issued stock, options and
          warrants
          as of the earlier of the following: (a) the date five days following the
          date we
          complete our next round of permanent financing following August 31, 2006,
          at a
          strike price equal to the market price on that date (which permanent financing
          was completed on
  F-22
  December
          28, 2006 - see Note N); or (b) February 28, 2007, at a strike price equal
          to the
          market price on such date. The Option Shares are divided into 28 equal
          installments; the first six installments vesting on February 28, 2007,
          and an
          additional installment vesting on the final day of each month through December
          31, 2008. Notwithstanding this vesting schedule, the options will be immediately
          fully vested and exercisable in the event of a change in control (as defined
          in
          the agreement), and/or the death or total disability of the officer during
          the
          term of his employment. To the extent it is not previously exercised, the
          option
          terminates on the earlier of (i) the date five years following the grant
          date or
          (ii) at the date 12 months following the cessation of the officer’s employment
          with us. He also receives a performance-based bonus and certain medical
          and
          other benefits. If we terminate him without cause, we will be required
          to pay
          severance to him in the amount of compensation and benefits he would have
          otherwise earned for the shorter of the remaining term of the agreement,
          or
          twelve months.
 
 §  An
          employment agreement with our Chief Financial Officer, which has a term
          from
          September 5, 2006 to December 31, 2008, pursuant to which he receives an
          annual
          salary of $185,000. The executive received the right, privilege and option
          to
          purchase a number of shares of our common stock (the “Option Shares”) equal to
          2% of the outstanding shares of our total issued stock, options and warrants
          as
          of the earlier of the following: (a) the date five days following the date
          we
          complete our next round of permanent financing following August 31, 2006
          at a
          strike price equal to the market price on that date (which permanent financing
          was completed on December 28, 2006 - see Note N); or (b) February 28, 2007
          at a
          strike price equal to the market price on such date. The Option Shares
          are
          divided into 28 equal installments; the first six installments vesting
          on
          February 28, 2007, and an additional installment vesting on the final day
          of
          each month through December 31, 2008. Notwithstanding this vesting schedule,
          the
          options will be immediately fully vested and exercisable in the event of
          a
          change in control (as defined in the agreement), and/or the death or total
          disability of the officer during the term of his employment. To the extent
          it is
          not previously exercised, the option terminates on the earlier of (i) the
          date
          five years following the grant date or (ii) at the date 12 months following
          the
          cessation of the officer’s employment with us. He also receives a
          performance-based bonus and certain medical and other benefits. If we terminate
          him without cause, we will be required to pay severance to him in the amount
          of
          compensation and benefits he would have otherwise earned for the shorter
          of the
          remaining term of the agreement, or twelve months.
 
 **Service
          and Purchase Agreements**
 
 We
          have
          entered into three-year contracts with Discover, our card network, Palm
          Desert
          National Bank, our sponsoring bank and Metavante, our processor. Since
          the
          majority of the fees to be paid are contingent primarily on card volume,
          it is
          not possible to calculate the amount of the future commitment on these
          contracts. The Metavante agreement does call for a minimum payment of $5,000
          per
          month.
 
 **Pending
          or Threatened Litigation**
 
 We
          are
          involved in certain litigation in the normal course of business. We do
          not
          believe that the resolution of these matters will have a significant, adverse
          impact on our consolidated financial position and/or results of
          operations.
  F-23
  
 In
          addition, we have been threatened with litigation regarding certain matters.
          In
          one of these matters, counsel for the potential plaintiff provided us with
          a
          draft complaint and made a demand for $2,000,000, but then expressed an
          interest
          in settling for payment of $800,000. If litigation is ultimately filed,
          we will
          defend the matters vigorously. Because we do not believe these matters
          will have
          a material adverse effect on our consolidated financial position and/or
          results
          of operations, no effect has been given to any loss that may result from
          the
          resolution of these matters in the accompanying consolidated financial
          statements.
 
 **NOTE
          G - STOCK-BASED COMPENSATION**
 
 **Issuances
          of Options in Fiscal 2005**
 
 During
          the year ended September 30, 2005, we engaged various consultants and other
          professionals to assist us. Pursuant to the agreements, we granted an aggregate
          of 126,250 options to these consultants at various prices, and recognized
          stock
          based compensation expense of approximately $1,039,200 in fiscal
          2005.
 
 In
          October 2004, we also granted options to purchase 35,000 shares of our
          common
          stock for $4.00 per share to the members of our Board of Directors as
          consideration for their service during the year ended September 30, 2005.
          The
          options, which vested on the date of grant, had a fair value of approximately
          $1.40 in excess of the exercise price on such date; accordingly we recognized
          $49,000 of stock based compensation as a result of the grant of these options
          in
          fiscal 2005.
 
 **Restricted
          Stock Issuances in Fiscal 2006**
 
 Restricted
          stock was issued to certain key consultants pursuant to their consulting
          agreements during the year ended September 30, 2006. The stock vested over
          the
          consulting terms of approximately one year. Certain portions of restricted
          stock
          grants vested immediately upon grant. These agreements were terminated
          prior to
          September 30, 2006 and a portion of the grants were forfeited as provided
          by the
          agreements. The following table summarizes the activity related to restricted
          stock issued to consultants during the year ended September 30,
          2006:
 
 Restricted
                    stock outstanding as of September 30, 2005
                
                -Restricted
                    stock granted to consultants
                
                107,500Restricted
                    stock forfeited
                
                (48,750)Restricted
                    stock vested
                
                (58,750)Unvested
                    restricted stock as of September 30, 2006
                
                -
 
 Compensation
          expense related to restricted stock grants was approximately $453,000 for
          fiscal
          2006. At September 30, 2006, we have no unrecognized compensation expense
          related to restricted stock grants.
  F-24
  
 **Warrants
          issued to Consultants in 2006**
 
 During
          the year ended September 30, 2006, we issued 60,000 warrants to a consulting
          entity, which allow such entity to purchase a like number of our common
          shares
          for $5.00 per share. Subsequently, approximately 22,500 of these warrants
          were
          forfeited when we canceled the agreement (accordingly 37,500 warrants remain
          outstanding as of September 30, 2006; all of which are fully vested). The
          warrants expire at various times in 2011. We recognized approximately $226,700
          of stock based consulting expense under this agreement in fiscal 2006.
 
 **NOTE
          H - STOCK OPTIONS**
 
 **Issuance
          of Options**
 
 Our
          2004
          Stock Option Plan (the “2004 Plan”) provides for the issuance of up to 750,000
          shares of common stock through the granting of stock options to employees,
          officers, directors, consultants, and advisors. Our board of directors
          has
          authority to determine awards and establish the exercise price. As of September
          30, 2006, exclusive of 37,500 warrants discussed at Note G, there are a
          total of
          728,600 options outstanding under the 2004 Plan, consisting of 654,792
          options
          issued to employees and directors, and 73,808 options issued to consultants.
          Such options vest over various periods up to three years and expire on
          various
          dates through 2008.
 
 The
          fair
          value of each option grant is estimated on the date of the grant using
          the
          Black-Scholes option pricing model. Assumptions used in the fiscal year
          ended
          September 30, 2006 were: risk free interest rates range from 4.18% to 5.30%,
          expected lives of 2 and 5 years, a 0% dividend yield rate, and expected
          volatilities ranging between .77 and 2.07. Assumptions used in the fiscal
          year
          ended September 30, 2005 were: risk free interest rates of 4.0% and 2.23%,
          average expected lives of 2 years, a 0% dividend yield rate, and expected
          volatility of .934 and 1.923.
 
 On
          January 1, 2006, we adopted FAS 123(R) and, under modified prospective
          application, have included in stock-based compensation expense all new
          and
          modified awards and in addition compensation cost for the portion of existing
          awards for which requisite service had not been rendered. Had our compensation
          expense for stock-based awards previously been determined based upon fair
          values
          at the grant dates for awards under this plan, our net loss and net loss
          per
          share amounts for the year ended September 30, 2006, and 2005 would have
          been as
          follows:
  F-25
  
 For
                    the year ended
                  September
                    30, 2006
                
                For
                    the year ended
                  September
                    30, 2005Net
                    loss:
                  As
                    reported
                
                
                $
                (14,789,641)
                $
                (7,417,935)Pro
                    forma
                
                
                $
                  $
                (15,291,225)
                $
                  $
                (8,806,941)Loss
                    per share:As
                    reported
                
                
                $
                (4.18)
                $
                (3.02)Pro
                    forma
                
                
                $
                (4.33)
                $
                (3.58)
 
 The
          following table describes our stock option activity for
          our
          employees and directors during the years ended September 30, 2006 and 2005
          (see
          separate comments regarding consultant options below):
 
 Number
                    of Options
                
                Weighted
                    average exercise price per share
                  (priced
                    at date of grant)Outstanding
                    at September 30, 2004
                
                -
                
                -Granted
                
                643,250
                $
                8.98Cancelled
                
                (109,667)
                $
                (8.32)Outstanding
                    at September 30, 2005
                
                533,583
                $
                9.10Granted
                
                191,625
                $
                9.33Cancelled
                
                (70,417)
                $
                11.34Outstanding
                    at September 30, 2006
                
                654,791
                $
                7.51Options
                    granted at or above market value in 2006
                
                191,625
 
  F-26
  
 The
          following table summarizes information regarding options issued to employees
          and
          directors that are outstanding at September 30, 2006:
 
 Options
                    outstanding to employees and directors
                
                Options
                    exercisableRange
                    of exercise prices
                
                Number
                    outstanding
                
                Weighted
                    average remaining contractual life in years
                
                Weighted
                    average exercise price
                
                Number
                    exercisable
                
                Weighted
                    average exercise price per share$4.00-$
                    14.00
                
                628,541
                
                3.8
                $
                6.92
                
                618,958
                $
                6.89$14.01-$24.00
                
                20,000
                
                3.6
                $
                20.56
                
                20,000
                $
                20.56$24.01-$
                    32.00
                
                6,250
                
                2.0
                $
                26.40
                
                6,250
                $
                26.40654,791
                
                3.8
                $
                7.52
                
                645,208
                $
                7.51
 
 **Contingent
          Options**
 
 As
          discussed in Note F, we have also awarded share-based payment arrangements
          to
          our Chief Executive Officer and Chief Financial Officer. We follow the
          guidance
          of FAS 123(R) in our accounting for these awards. This standard provides
          that
          the grant-date fair value of these awards is to be recognized as compensation
          cost over the requisite service periods. Because we just completed permanent
          financing on December 28, 2006, the exercise price of the options will
          not be
          known until the first week of January 2007. Commencing on the grant date,
          we
          will recognize as compensation cost, over the period (if any) to February
          28,
          2007, 6/28 of the fair value as of the grant date of the actual number
          of
          options issued, with the remaining 22/28 being recognized ratably over
          each of
          the 22 months ending December 31, 2008.
 
 At
          September 30, 2006, we had a total of 4,610,069 shares of common stock
          and
          options and warrants outstanding.  Based on 6.25% of that number, the
          awards would provide options on 288,130 shares.  Since we completed a
          permanent financing on December 28, 2006 (see Note N), another 582,952
          options
          will be granted to these officers (6.25% of 9,327,230 preferred shares).
          The
          actual compensation that will result from these awards has not yet been
          definitively determined as the grant date will not occur until the first
          week of
          January 2007 ((i.e. five business days after the date the permanent financing
          was obtained), however based on the closing price of our stock on December
          28,
          2006, such compensation expense is expected to be at least $800,000 as
          a result
          of the options discussed herein.
 
 **Consultant
          Options**
 
 As
          mentioned at Note G, in addition to the employee and director options included
          in the table above, we have granted a total of 126,250 options to consultants.
          During the period ended June 30, 2006, one of these consultants exercised
          10,000
          options and as of September 30, 2006, there were 73,808 outstanding options
          that
          have been issued to consultants. The options are fully vested and have an average exercise price of $10.18.
  F-27
  
 **NOTE
          I - SETTLEMENT OF LITIGATION**
 
 On
          November 8, 2004, we settled certain litigation in which we were the plaintiff.
          As consideration for such settlement, we received forgiveness of notes
          payable
          totaling $50,000, cash of $10,000 and process management software certified
          for
          use by MasterCard International. The proceeds of the settlement were reflected
          as other income in the first quarter of fiscal 2005.
 
 At
          September 30, 2005, we were involved in litigation with a former employee.
          There
          were many issues between the parties, including the former employee's claim
          of
          damages in excess of $6,000,000. The former employee also made a claim
          outside
          of the litigation that he was entitled to pre-merger shares valued at
          approximately $5,200,000. We paid cash of $75,000 to settle this litigation
          in
          2006.
 
 At
          September 30, 2006 we were involved in litigation with MTEL Communications
          and
          Miguel Vasquez, its founder. The dispute involved an agreement to purchase
          assets and a consulting agreement, both related to the recently discontinued
          telecom operations. On November 22, 2006 the parties agreed to settle all
          matters and we agreed to return certain discontinued telecom operations
          assets
          which had a carrying value of $100,000 (after the impairment loss discussed
          at
          Note A). The value of this settlement is reflected as an expense in Discontinued
          Telecom Operations as of September 30, 2006.
 
 **NOTE
          J - PRIVATE PLACEMENTS OF COMMON STOCK**
 
 During
          the year ended September 30, 2005, we completed two private placements
          of our
          common stock as follows:
 
 §
                In
                    December 2004, we completed a private placement of 356, 250 of
                    shares of
                    our common stock (the “Shares”) to certain accredited investors for
                    $1,425,000.
 
 §
                In
                    July 2005, we completed the private placement of 618,125 shares
                    of our
                    common stock to certain accredited investors for $4,945,000 in
                    an
                    offering, agreed to on June 17, 2005. The purchasers also received
                    a
                    warrant exercisable for two years to purchase one (1) share of
                    common
                    stock for $12.00 per share for each share of common stock purchased.
                    This
                    price was subsequently decreased to $4.00 per share. All such
                    warrants
                    have been exercised as of September 30,
                    2006.
 
 We
          agreed
          to register the shares and the shares underlying the warrants, and also
          agreed
          to pay certain penalties if we failed to timely perform or provide for
          the
          registration of these shares and warrants. Because we were not successful
          in
          registering the shares in the agreed upon time frame, we have incurred
          cumulative penalties of $652,625 through September 30, 2006.
 
 The
          penalties incurred to date were settled as follows:
 
 §
              In
                  March 2006, we issued 39,531 unregistered shares of our common
                  stock in
                  settlement of $158,125 in accrued penalties for the common stock
                  sold by
                  us in December 2004. The agreement to issue these shares stipulated
                  that
                  penalties related to this issuance of stock will no longer accrue
                  after
                  February 17, 2006.  F-28
  
 §
              In
                  March 2006, we issued 61,814unregistered
                  shares of our common stock in settlement of $494,500 in accrued
                  penalties
                  for the common stock sold by us in June 2005. The agreement to
                  issue these
                  shares stipulated that penalties related to this issuance of stock
                  continued to accrue until such time that the shares and warrants
                  were
                  registered, which registration became effective in June 2006. 
 The
          agreements require that we maintain the effectiveness of the registration
          statement until two years after the shares were originally sold to the
          investors, at which point the shares may be freely sold by them without
          registration. As of September 30, 2006, the maximum potential penalties
          under
          such agreements were approximately $1,700,000. As discussed in Note A,
          approximately $204,000 has been reflected as a liability as of September
          30,
          2006 based on an estimate of the weighted probability of our failure to
          maintain
          effectiveness.
 
 **NOTE
          K - CONVERTIBLE PROMISSORY NOTES AND EXCHANGE TRANSACTIONS**
  **Interim
          Financing**
 
 During
          the third and fourth quarters of fiscal 2006, we issued $1,150,000 of 9.0%
          Convertible Promissory Notes, plus warrants to purchase 4,269,000 shares
          of our
          common stock, that was intended as interim financing (the “Interim Financing”).
 
 We
          evaluated the terms of the convertible promissory notes and warrants issued
          in
          connection with the Interim Financing and concluded that equity classification
          was not afforded the warrants and certain derivative features embedded
          in the
          convertible promissory notes. In these instances we are required to carry
          the
          financial instruments at fair values on our balance sheet and record fair
          value
          adjustments in our income. Accordingly, we allocated proceeds from the
          Interim
          Financing to the detachable warrants and to a compound derivative embedded
          in
          the convertible promissory notes in the amounts of $1,333,836 and $274,400,
          respectively, based upon the fair values of these financial instruments.
          This
          allocation resulted in a day-one loss amounting to $458,236 because the
          aggregate fair values of the derivative financial instruments of $1,608,236
          exceeded the gross proceeds received from the financing of $1,150,000.
          As a
          result, the convertible promissory notes were originally recorded at zero
          and
          the discount from the face amount of the convertible promissory notes is
          being
          amortized to operations through periodic charges to interest expense using
          the
          effective interest method. Amortization of this debt discount associated
          with
          the Interim Financing amounted to 1,085,340 during the period from transaction
          inception until the exchange transaction described below.
 
 **Additional
          Financing**
 
 On
          August
          11, 2006, we issued additional debt financing in the form of 9.0% Senior
          Secured
          Convertible Promissory Notes with a face value of $2,900,000, plus warrants
          to
          purchase 580,000 shares of our common stock (the “Additional Financing”).
          Additionally, $1,050,000 plus accrued interest of $17,250 related to the
          aforementioned Interim Financing were converted into the new financing
          for a
          total face value of $3,967,250. The remainder of the interim financing
          of
          $100,000 was repaid.
  F-29
  We
          evaluated the terms of the Senior Secured Convertible Promissory Notes
          and
          warrants issued in connection with the Additional Financing and concluded
          that
          equity classification was not afforded the warrants and certain derivative
          features embedded in the convertible promissory note. We also evaluated
          the
          exchange of the Interim Financing debt instruments for instruments issued
          in the
          Additional Financing and concluded that the Interim Financing balances
          required
          extinguishment. Accordingly, we allocated proceeds from Additional Financing
          to
          the detachable warrants and a compound derivative embedded in the promissory
          notes in the amounts of $3,207,860 and $1,270,400, respectively, based
          upon the
          fair values of these financial instruments. Because the aggregate fair
          values of
          these derivative instrument liabilities of $4,478,260 exceeded the gross
          proceeds of $2,900,000, we recognized a day-one loss amounting to $1,578,260.
 
 We
          also
          evaluated the exchange of the Interim Financing debt instruments for instruments
          issued in the Additional Financing and concluded that the Interim Financing
          balances required extinguishment. We recognized fair values for the new
          convertible debt, derivative warrants and a compound derivative embedded
          in the
          new note of $1,106,699, $1,238,864 and $512,280, respectively. Because
          the
          aggregate fair values of these instruments of $2,857,843 exceeded the carrying
          values of the Interim Financing notes and warrants that were exchanged,
          as well
          as the compound embedded derivative, we recognized an extinguishment loss
          of
          $482,814. The resulting discount from the face value of the Notes is (was)
          being
          amortized to operations through periodic charges to interest expense using
          the
          effective interest method until the date of their conversion to preferred
          stock
          in December 2006 - see Note N. Amortization of debt discount associated
          with the
          Additional Financing amounted to $348,398 during the period from inception
          until
          the exchange transaction described below.
 
 **Exchange
          Transaction**
 
 On
          September 29, 2006, we entered into an exchange agreement with the note
          holders
          whereby all the convertible promissory notes and warrants issued in the
          Additional Financing were exchanged for new 9.0% Senior Secured Convertible
          Promissory Notes with a face value of $3,967,250 and certain Additional
          Investment Rights (“AIR”) to purchase an additional $1,000,000 face value of
          Convertible Notes with the same terms and conditions as discussed below
          (the
“Exchange Transaction”). Prior to their exchange for preferred stock on December
          28, 2006 (see Note N), the notes had a maturity date of June 30, 2007.
          Because
          of this subsequent exchange the notes have been reflected as non-current
          in the
          accompanying consolidated balance sheet.
 
 As
          part
          of the Exchange Transaction, we also gave the investors the right, exercisable
          within 90 days, to acquire from us at face value, additional Senior Secured
          Convertible Promissory Notes, with the same terms and conditions as the
          existing
          notes, but with an aggregate face amount of $1,000,000 (the “Additional Notes”).
          The investors also gave us the right, exercisable within 90 days, to require
          the
          investors to purchase the Additional Notes. On November 8, 2006, the investors
          exercised their right to purchase the Additional Notes for their face amount
          of
          $1,000,000.
 
  F-30
  We
          entered into the Exchange Transaction in order to establish a fixed conversion
          price for the notes, remove the anti-dilution provisions of the notes and
          to
          eliminate the warrants that previously existed. Because the new notes are
          convertible into a fixed number of shares of our common stock, they are
          afforded
          the “Conventional Convertible Debt” exemption in EITF Issue 00-19 and,
          accordingly, the embedded conversion option is not required to be bifurcated
          and
          accounted for at fair value as a derivative instrument liability.
 
 Although
          the Exchange Transaction was affected with existing debt holders and similar
          face values and interest rates were present, we determined that other material
          changes to the financial instruments resulted in an extinguishment of the
          Additional Financing instruments as provided in current accounting standards.
          Accordingly, we have recorded the newly issued Convertible Notes and AIR
          at
          their fair values, which was estimated to be $6,614,583 and $600,000,
          respectively, and which resulted in an extinguishment loss of $4,655,003.
          The
          resulting premium will be amortized to income through periodic credits
          to
          interest expense using the effective interest method. No amortization of
          this
          premium was recorded in the accompanying financial statements, because
          the
          Exchange Transaction occurred at the end of our current fiscal
          year.
 
 **NOTE
          L - INVESTMENT IN PRODUCT BENEFITS SYSTEMS CORPORATION** ****
 
 At
          June
          30, 2006, we had a non-marketable investment of approximately $99,000 in
          a
          private company, Products Benefits Systems Corporation (“PBS”). As part of the
          arrangement, 150,000 shares of our common stock were exchanged for 700,000
          shares of PBS stock. Since this ownership position represented less than
          10% of
          the outstanding stock of PBS, and because we could not exercise significant
          influence over the finances and operations of PBS, we accounted for our
          investment using the cost method. Subsequent to September 30, 2006, the
          parties
          agreed to unwind the transaction, and each of us received a return of our
          common
          shares. As such, and because the conditions giving rise to this event existed
          at
          September 30, 2006, the investment, and related increase in additional
          paid in
          capital, have been eliminated in the accompanying September 30, 2006
          consolidated balance sheet.
 
 **NOTE** **M
          - DISCONTINUED OPERATIONS**
 
 We
          originally made the decision to enter the prepaid phone card business in
          order
          to gain exposure with the targeted consumer group for our stored value
          cards.
          The phone card operation struggled with low and non-existent margins and
          unacceptable operating losses which were draining resources from our core
          stored
          value card business, Additionally, we had re-directed our strategy on the
          retail
          sale of stored value cards by focusing on established prepaid card distributors
          who provide direct channels into large numbers of retail outlets for sale
          and
          loading of our stored value cards and making the continued offering of
          prepaid
          phone cards an unnecessary component of our sales strategy. Accordingly,
          we made
          the decision to abandon this line of business in the fourth quarter of
          2006. As
          a result, the results of telecom operations have been eliminated from ongoing
          operations for all periods presented and shown as a single line item on
          the
          statements of operations entitled “Loss from discontinued operations”. We
          recorded a $741,000 impairment loss on the assets of the discontinued operation
          and the assets are carried at estimated fair value on the balance sheet
          as a
          single line item entitled “Assets of discontinued telecom operations”. The
          liabilities associated with the discontinued operations are shown on the
          balance
          as “Liabilities of discontinued telecom operations”.
  F-31
  
 **NOTE** **N
          - OTHER SIGNIFICANT SUBSEQUENT EVENTS**
 
 Subsequent
          to September 30, 2006, we issued an additional $1,200,000 of Senior Secured
          Convertible Promissory Notes (the “Notes”). On December 28, 2006, we completed
          the exchange of these Notes, as well as those existing at September 30,
          2006, in
          the aggregate amount of $5,327,930 of principal and accrued interest, into
          5,327,930 shares of our Series A Convertible Preferred Stock. Pursuant
          to the
          terms of the exchange, all of these notes were surrendered and cancelled
          as
          consideration for the shares of such stock, which are convertible into
          one share
          of our common stock at a conversion rate of $1.00 per share. Because the
          Notes
          were converted to equity, we have reflected them as non-current in the
          accompanying consolidated balance sheet.
 
 Further,
          in a private placement occurring concurrently with the exchange, we sold
          an
          additional 4,000,000 shares of the aforementioned Series A Convertible
          Preferred
          Stock for aggregate gross proceeds of $4,000,000, to certain accredited
          investors, including investors who had been holders of the Notes.
 
 After
          the
          transactions described above, the outstanding balance of the Notes is zero
          and
          we have 9,327,930 shares of Series A Convertible Preferred Stock
          outstanding.
  
 
 **End
          of financial statements.**
  F-32