SECURITIES AND EXCHANGE COMMISSION

                             Washington, D.C. 20549

                                   FORM 10-KSB

                     ANNUAL REPORT UNDER SECTION 13 OR 15(D)
                     OF THE SECURITIES EXCHANGE ACT OF 1934
                      FOR THE YEAR ENDED DECEMBER 31, 2004

                        Commission File Number 001-31718

                           Q COMM INTERNATIONAL, INC.
                 (Name of small business issuer in its charter)

                        Utah                       87-0674277
                        ----                       ----------
             (State or other jurisdiction        (IRS Employer
           of incorporation or organization)   Identification No.)

              501 East Technology Ave, Building C, Orem, Utah 84097
              -----------------------------------------------------
                     (Address of principal executive office)

                    Issuer's telephone number: (801) 226-4222


Securities registered under Section 12(b) of the Exchange Act:

                                                    Name of Each Exchange
           Title of Each Class                       on Which Registered
           -------------------                  -----------------------------
 Common Stock, par value $.001 per share           American Stock Exchange

     Common Stock Purchase Warrants                American Stock Exchange

Securities Registered under Section 12(g) of the Exchange Act: Common Stock, par
value $.001 per share

Check whether the issuer:  (1) filed all reports required to be filed by Section
13 or 15(d) of the  Exchange  Act during the past 12 months (or for such shorter
period  that the issuer was  required  to file such  reports),  and (2) has been
subject to such filing requirements for the past 90 days.

                                Yes |X|   No |_|

Check  if no  disclosure  of  delinquent  filers  in  response  to  Item  405 of
Regulation S-B is contained in this form,  and no disclosure  will be contained,
to the best of the  issuer's  knowledge,  in  definitive  proxy  or  information
statements  incorporated  by  reference  in Part III of this Form 10- KSB or any
amendment to this Form 10-KSB. |X|

For  the  year  ended  December  31,  2004,  the  revenues  of the  issuer  were
$40,801,841.

As of March  21,  2005,  5,086,544  shares of the  issuer's  common  stock  were
outstanding.  The  aggregate  market value of the issuer's  common stock held by
non-affiliates  as of March 21, 2005, based on the closing price on the American
Stock Exchange of $5.48 on that date was approximately $26,170,688. See Footnote
(1) below.

                    Documents Incorporated by Reference: None


(1)   The information provided shall in no way be construed as an admission that
      any person whose  holdings are excluded from the figure is an affiliate or
      that any person whose  holdings  are included is not an affiliate  and any
      such admission is hereby  disclaimed.  The information  provided is solely
      for record keeping purposes of the Securities and Exchange Commission.



<PAGE>


                           Q COMM INTERNATIONAL, INC.
                               FORM 10-KSB REPORT

                                December 31, 2004

                                TABLE OF CONTENTS


                                                                            PAGE
PART I
 Item 1.  Description of Business                                              2
 Item 2.  Description of Property                                             12
 Item 3.  Legal Proceedings                                                   13
 Item 4.  Submission of Matters to a Vote of Security Holders                 13
PART II
 Item 5.  Market for Common Equity and Related Stockholder Matters            13
 Item 6.  Management's Discussion and Analysis or Plan of Operations          14
 Item 7.  Consolidated Financial Statements                                   24
 Item 8.  Changes in and Disagreements with Accountants on Accounting
           and Financial Disclosure                                           40
 Item 8A. Controls and Procedures                                             40
PART III
 Item 9.  Directors and Executive Officers                                    41
 Item 10. Executive Compensation                                              43
 Item 11. Security Ownership of Certain Beneficial Owners and Management
           and Related Stockholder Matters                                    45
 Item 12. Certain Relationships and Related Transactions                      46
 Item 13. Exhibits List and Reports on Form 8-K                               47
 Item 14. Principal Accountant Fees and Services                              48
SIGNATURES                                                                    49




 FORWARD-LOOKING STATEMENT INFORMATION
 Various   statements   made  in  this   Annual   Report  on  Form   10-KSB  are
 "forward-looking  statements"  (within the  meaning of the  Private  Securities
 Litigation Reform Act of 1995) regarding the plans and objectives of management
 for future  operations.  These  statements  involve  known and  unknown  risks,
 uncertainties and other factors that may cause our actual results,  performance
 or achievements to be materially different from any future results, performance
 or achievements expressed or implied by these forward-looking  statements.  The
 forward-looking  statements  included  in this  report  are  based  on  current
 expectations  that  involve  numerous  risks and  uncertainties.  Our plans and
 objectives are based, in part, on assumptions  involving judgments about, among
 other things,  future  economic,  competitive and market  conditions and future
 business  decisions,  all of which  are  difficult  or  impossible  to  predict
 accurately  and many of which are beyond our control.  Although we believe that
 our assumptions underlying the forward-looking  statements are reasonable,  any
 of these  assumptions could prove inaccurate and,  therefore,  we cannot assure
 you that the  forward-looking  statements included in this report will prove to
 be  accurate.  In  light  of  the  significant  uncertainties  inherent  in the
 forward-looking  statements  included in this  report,  the  inclusion of these
 statements  should not be  interpreted  by anyone that our objectives and plans
 will be achieved.  Factors that could cause actual results to differ materially
 and adversely  from those  expressed or implied by  forward-looking  statements
 include,  but are not  limited to, the  factors,  risks and  uncertainties  (i)
 identified or discussed herein,  (ii) set forth under Part I, Item 1; (iii) set
 forth  under  the  headings  "Legal   Proceedings"  in  Part  I,  Item  3;  and
 "Management's  Discussion  and Analysis or Plan of Operations" in Part II, Item
 6, of this Annual  Report on Form 10-KSB,  and (iv) set forth in the  Company's
 periodic  reports  on Forms  10-QSB and 8-K as filed  with the  Securities  and
 Exchange Commission since January 1, 2004. We undertake no obligation to revise
 or update publicly any forward-looking statements for any reason.


                                      -1-
<PAGE>


                                     PART I

Item 1. Description of Business

Overview

         Our   business   consists  of  the   purchase  and  resale  of  prepaid
telecommunication  products over a proprietary  electronic point of sale system.
Introduced  in September  2003,  our  proprietary  Qxpress  system  includes the
Qxpress 200  terminal or VeriFone  3700 series  terminal,  a data center and the
software  and  communication  protocols  that  manage,  operate and maintain the
system and that enable the  terminals to  communicate  with the data center.  We
expect  to  experience  substantial  growth  in our  historical  business  while
expanding  our product line to include a broad range of other  prepaid  products
and to provide  transaction  processing and information  management  services to
other vendors of prepaid products, both in the United States and abroad.

         The Qxpress system is designed to replace the traditional  distribution
system for prepaid products, which consists of vouchers and hard cards that must
be  purchased  by the  retail  merchant  and that  are  subject  to a number  of
problems,  including loss, theft and inventory  financing and management issues.
The Qxpress system can support the sale of a broad range of prepaid products, in
electronic format, from a single terminal placed in convenience stores and other
retail  establishments.  Using a Qxpress  terminal,  a retail  merchant can sell
wireless   telephone   time,   traditional   long  distance   service  or  other
telecommunication  products,  add credit to a prepaid  debit card,  add wireless
time to a customer's  account by  electronic  bill payment or sell other prepaid
products.  In  general,  the  prepaid  product is sold in the form of a personal
identification  number,  or "PIN,"  that the  customer  can use to add time to a
prepaid cellular handset,  make long distance calls or add funds to a debit card
by calling the provider of the product and  providing the PIN. The consumer pays
for the  product by paying the retail  establishment  in which the  terminal  is
located. The terminal records the transaction and sends the relevant information
to our data center where it is processed and accounting and transaction  records
are generated.

         Our system is designed to accommodate  transactions involving virtually
any prepaid  product  that can be delivered  electronically.  Within the prepaid
transaction market, our initial focus has been on the telecommunications market.
As a  distributor  of prepaid  products in this  market,  we purchase  PINs from
national and regional  telecommunication  carriers and distribute  these through
our established networks of retail outlets, such as convenience stores, wireless
product stores, check cashing stores, grocery stores and discount stores.

         The prepaid  transaction market is rapidly expanding into various types
of  non-telecommunications  products,  such as gift and loyalty  cards,  prepaid
debit  cards,  bill  payment and money  transfer.  In  addition to  distributing
traditional  telecommunication products, our system is currently used to provide
many of these products as well,  although they have not yet become a significant
source of revenue.

Electronic Processing of Prepaid Products

         Distribution  systems for prepaid  products such as wireless  telephone
service,  phone cards,  debit cards,  money transfers and currency exchange have
generally  failed to take full  advantage of advances in  electronic  processing
technology.  For example, prepaid telecommunication products have generally been
sold in the form of a card or voucher with a PIN number printed on it. Financial
transactions,  such as bill payment,  money  transfer or currency  exchange have
generally  required  the  consumer  to go to a bank,  telegraph  office or other
facility providing the required service.  Electronic  processing systems such as
our Qxpress system enable these  transactions  to be available  through a single
terminal  that can be  installed  at an almost  unlimited  number of  commercial
locations  and that can offer a wide range of  different  prepaid  options.  The
electronic  nature of the transaction  can offer a variety of efficiencies  when
compared  to  traditional   distribution  methods.  A  few  of  these  potential
efficiencies are described below.

         Reduction in distribution  costs,  carrying costs and shrinkage.  There
are three fundamental  problems with the traditional hard card or voucher system
for delivering prepaid wireless and wireline  telecommunication  products:  high
distribution  costs; high carrying costs; and shrinkage.  Carriers sell the hard
cards to brokers who resell them to the retail  outlets.  The carriers print the
cards and ship them to brokers  who,  in turn,  store the cards and ship them to
retail  stores.  The  retailers  depend on the  brokers to  provide  them with a
sufficient number of cards to meet their demand.  Both the brokers and retailers
have to allocate  valuable working capital to maintain an adequate  inventory of
cards. For example,  based on informal discussions we have had with distributors
and  merchants,  we have found that a convenience  store may stock up to $18,000
worth  of hard  cards  at any  given  time in  various  denominations  and  from
different  carriers.  A broker  may  service  hundreds  of  convenience  stores,
requiring  it to maintain  inventory  valued in the  millions  of dollars.  If a
retailer does not have a particular card in stock, it loses a potential sale. In
addition, theft is a significant problem for many retailers who carry hard cards
because the cards are usually  readily  accessible,  easy to conceal and have an
intrinsic  value.  An electronic  processing  system reduces theft risk. It also
permits  better   inventory   management  for   distributors  and  merchants  by
eliminating  the need to stock  cards  with a variety  of  denominations  and by
permitting a "just-in-time" inventory purchasing program.


                                      -2-
<PAGE>


         Improved  transactional  data.  Because  traditional  prepaid  wireless
transactions  are  virtually  anonymous  and because  carriers  are not involved
directly in the sale,  carriers have very little  information  regarding prepaid
wireless  transactions.  They do not know any demographic  information about the
buyers.  An electronic  system  maintains the anonymity of individual  users but
permits better  demographic data collection by creating an electronic  record of
each transaction showing the time, value and location of each purchase.

         Improved  distribution of financial services.  An appropriately enabled
point-of-sale  activation  system that can process a wide  variety of  financial
transactions,  including  replenishing prepaid debit cards, bill payment,  funds
transfers and currency exchanges,  permits the consumer to engage in these kinds
of transactions in his or her neighborhood and at almost all hours.

The Prepaid Wireless Market

         In a prepaid wireless transaction, the consumer pays for a fixed number
of minutes in  advance.  In the  traditional  distribution  format,  to purchase
prepaid  wireless  products,  a consumer  purchases  a card,  referred to in the
industry as a  "voucher",  "scratch  card" or "hard  card",  which  entitles the
holder to a specific  number of minutes based on the value of the card. In order
to activate his service,  the customer  must call the 800 number  printed on the
card and enter the PIN printed on the card. The carrier then credits the minutes
to the consumer's  phone number.  The carrier records usage and deducts the time
as the minutes are used.  Once all the  minutes are used up, the  consumer  must
purchase a new card.

         Many carriers  provide prepaid  wireless  services in the United States
and Canada.  They offer time  increments in values ranging from $10 to $200 with
most purchases  being in the $10 to $50 range.  Various  carriers  provide their
prepaid  plans  bundled with the purchase of a phone.  Prepaid  plans  typically
allow the end-user 30 to 90 days to use the allotted  airtime.  If not used, the
minutes are forfeited at the end of the period. However,  consumers can keep the
remaining  time by extending  their  service  before the existing  plan expires.
There can be significant differences between the carriers in terms of quality of
equipment,  quality of  service  and plan  features,  such as voice  mail,  call
waiting and three-way calling.

         The prepaid wireless market is the dominant  wireless market in most of
the world, however it has had limited use in the United States and Canada, where
it has been targeted  primarily at consumers  whose credit  history and economic
condition will not support an application  for post-paid  service.  Accordingly,
prepaid  wireless has been more  expensive on a per minute basis than  post-paid
wireless,  in part because the target market had no effective alternative and in
part  because  carriers  looking to build and  maintain a stable  customer  base
disfavored  prepaid  customers  who could more easily  discontinue  service than
could postpaid customers on a contract.

         As competition among wireless  carriers has intensified,  carriers have
become increasingly interested in prepaid service and have made changes in their
distribution  systems in an  attempt  to  attract to prepaid  plans not only the
credit  challenged  but also those with good credit  histories  who, for various
reasons, may prefer a prepaid plan. This has resulted,  among other things, in a
faster  reduction in per-minute  charges for prepaid  services than for postpaid
services and the narrowing of the cost gap between the two alternatives.  In its
2003 report on the U.S. prepaid wireless market, Frost & Sullivan projected that
the United  States  market for  prepaid  wireless  services  will grow from $5.7
billion in 2001 to $14.3  billion  in 2005,  a compound  annual  growth  rate of
25.85%,  and that the number of subscribers for prepaid  wireless  services will
grow from 13.3 million to 34.8 million during the same period.

         As a part of their effort to promote  prepaid plans,  the carriers have
generally been supportive of improvements in the  distribution  chain that allow
prepaid  wireless  products  to be more  widely and  conveniently  available  to
consumers. Electronic systems, such as our Qxpress system, have the potential to
promote  efficiency  in the  distribution  of  prepaid  products  generally  and
therefore have the potential to increase the  attractiveness of prepaid products
to  consumers  and  merchants  and to  reduce  distribution  costs  for  prepaid
products. At the same time, many carriers are experimenting with the Internet as
a medium to provide product replenishment to prepaid subscribers. The use of the
Internet may offer  various  advantages  to carriers,  including  the ability to
bypass the traditional  distribution  network. We view Internet based systems as
potentially  competitive with our system although internet distribution may also
present  an  opportunity  for us.  However,  we  believe  that  the  traditional
point-of-sale  distribution  networks  will  remain  robust in order to meet the
needs of consumers who do not have  Internet  access or credit cards or who have
an immediate need to replenish  telephone time when they are not able to connect
through the Internet.

         The market  for  wireless  telecommunication  products  in general  and
prepaid telecommunication  products in particular is in a state of rapid change.
In  order to  succeed  in the  prepaid  telecommunication  products,  we will be
required to anticipate and respond  appropriately to market developments as they
occur.

The Q Comm Solution

         Qxpress  is  an  integrated  electronic  point-of-sale  activation  and
management  information  system that  addresses  many of the  challenges  to the
prepaid products  distribution  system.  The Qxpress system provides  retailers,
brokers and suppliers with a system that facilitates and processes  transactions
for multiple prepaid products,  collections,  and custom reporting.  It includes


                                      -3-
<PAGE>

our proprietary point of sale terminal or VeriFone terminal,  a data center, the
software   to  run  the   terminals   and   the   data   center,   transactional
communications/protocols  that  enable  the  terminals  and the data  center  to
communicate with each other, and professional  services,  which include customer
and technical  support.  The combination of the data center and the terminal not
only processes  transactions but also provides a suite of information management
tools to assist  merchants,  brokers,  carriers  and others in the  distribution
chain.

         Terminal hardware. Our initial point-of-sale activation system terminal
was a commercially available product with limited  functionality.  It could only
support a limited  number of  products  and did not have the  ability to support
transaction  processing  services such as sales and management reports. We still
used this terminal in a decreasing  number of locations until October 2004, when
we discontinued  supporting the system and migrated  remaining  customers to our
new Qxpress 200 terminal.

         In the  third  quarter  of 2002,  we began  shipping  the  Qxpress  200
terminal,  our  custom-designed,  proprietary  point-of-sale  activation  system
terminal.  The Qxpress 200 terminal,  which is about the size of a telephone and
sits on the checkout counter, features a significantly improved aesthetic design
as well as additional  functionality  that significantly  improves  distribution
efficiencies  at the retail  counter and in the back  office.  The new  features
include a large  terminal  face that makes the operation of the Qxpress 200 unit
intuitive  for the first time user and even  faster for the  seasoned  employee.
Each terminal also  incorporates a 3-track  magnetic stripe reader,  multi-level
password security, unique entry, unique denomination, real-time PIN and PIN-less
transaction capability.  Each terminal can support multiple platforms,  methods,
suppliers,   categories,  products  and  foreign  currencies  and  languages.  A
streaming media display reads like a tiny,  electronic  billboard that consumers
view during  purchases - an effective  means to enhancing  brand awareness or to
introduce new products.

         All steps  required to  initiate a prepaid  transaction  are  contained
within a particular  sequence of  specifically  designed  screen  displays.  The
information that is displayed depends on the particular task or product sequence
initiated  by the  user.  The  sales  process  is  implemented  by the  retailer
inputting  product  selection,  language,  denomination,  password  and print or
cancel.  The retailer  enters all of the  relevant  information,  including  the
vendor and the transaction amount, by pressing various keys on the terminal. The
terminal prints the PIN, simple  activation  instructions and any other relevant
information on a blank card that the retailer keeps in stock.  The capability of
the terminal to store commonly used PINs allows for "offline" transactions to be
completed.  This is an important  feature given that stores  typically have only
one phone line to service several devices (e.g. ATM, debit/credit card terminal,
and telephone).  Transactions are stored on the terminal until it calls our data
center,  at which time the terminal  transfers stored  transactions and restocks
PINs.

         The  terminal's  media display  screen is designed to create a point of
purchase  awareness for the consumer.  The media display screen is positioned to
face the consumer as they  approach the checkout  counter in an effort to engage
additional  purchasing  behavior.  The prepaid product market changes frequently
with name changes, different rates, different destinations,  and specials of the
month. Currently,  any `product change' information,  special or other promotion
is handled in paper form or by using sales personnel to deliver the message. The
media display  messaging is managed solely at the data center where  proprietary
instructions customize the information that is sent to an individual terminal or
group of  terminals.  The  messaging  may have come from a  variety  of  sources
including the retailer,  broker, carrier or other advertiser. The display itself
is two rows of 40 characters configured in a Fluorescent Vacuum Display internal
to the terminal.  The messaging size is dynamic up to 256 characters per message
with  scrolling,  flashing,   top-to-bottom  movement  capability  that  can  be
implemented in an attempt to gain consumers' attention and action.

         In the first quarter of 2004,  we announced  that we have also modified
our software to run on a VeriFone 3700 series terminal. We began beta testing in
March 2004 and announced the  commercial  launch in the second  quarter of 2004.
This terminal is capable of providing both our prepaid application,  which calls
into our data center and  functions  much the same as our Qxpress 200  terminal,
and standard  debit/credit card processing through the merchant's  processor for
such  transactions.  The  ability to offer our  prepaid  solution  to the market
through this  alternative  hardware  option  provides us with an  opportunity to
expand our market  share.  While the  VeriFone  terminal  does not offer as many
options as our Qxpress terminal for selling prepaid products, it is an excellent
solution  for  customers  who prefer to have only one  terminal in their  retail
establishment.  In March  2005,  we  announced  that we had added  the  Ingenico
terminal  to our  Qxpress  system and would  begin  beta  testing  soon.  We are
currently  developing  our  software  to  enable  other  commercially  available
terminals to be used with our system,  which we believe will further  expand our
customer market.

         Data center.  The data center is the key to the overall function of the
Qxpress system, serving as an inventory and information hub for the distribution
of  prepaid  products.  At the same  time  that we  developed  the  Qxpress  200
terminal,   we  also  developed  new  software  for  our  data  center  and  new
communication  protocols that allow for two-way  communication  between the data
center and the terminals.  The data center  electronically  distributes  prepaid
products to the terminals and the terminals report all of their  transactions to
the data center where the information is stored. The  communications  protocols,
which work in conjunction with the Qxpress 200 terminals and data center, create
a flexible delivery platform for multiple services formats, including real-time,
just-in-time  and  batch  inventory  distribution,  PIN-based  transactions  and
PIN-less  transactions.  These methods enable efficient  restock,  quick product
additions, and reporting and management  capabilities.  Through our data center,
we are also able to offer electronic automated clearing house, or ACH, services,
which automatically transfers funds from the merchants' accounts to our account,
eliminating the need for billing and collecting, as well as detailed accounting,
inventory,  sales,  transaction and other management information reports for the
retailers,  brokers and  carriers or other  suppliers  of the products we resell
through our system. In addition,  the system controls the advertising message on

                                      -4-
<PAGE>


the back face of the terminal, can produce custom-designed text and graphics for
card  backs.  The system  also works as a mechanism  to process  magnetic  swipe
transactions.   Finally,  the  data  center  and  communication   protocols  are
TCP/IP-enabled  to allow the  system to  connect  to all  types of  devices  and
communications  and  enterprise  systems.  As a result,  our  system can also be
integrated with  third-party  point-of-sale  hardware/communications  systems to
provide an interface with installed legacy equipment.

         The  Qxpress  system has the  ability to  produce  terminal  reports on
demand and in real-time. The data center keeps all sales, product inventory, and
terminal  metrics  current in its database.  When a retailer  initiates a report
request, the terminal processes this request and passes it to the communications
server. The  communications  server validates the request and passes the request
to the reports  engine,  which  gathers the request  data from its  database and
returns the  requested  information  back to the  terminal.  The  terminal  then
formats the  information  into a report and prints the report  using the onboard
thermal printer.

         Communications between the terminal and data center are accomplished by
using a proprietary  transmission protocol.  This transmission protocol involves
communicating  to and from the  communications  server  and the  terminal.  Each
transaction is handled in its entirety with no parsing to multiple destinations.
There are three  communications  modes that can be  initiated  by the  terminal:
batch,  just-in-time  and real-time.  Each product has a unique code  associated
with it denoting the communication methodology for the product.

         The  just-in-time  communications  protocol  supports our  just-in-time
solution.  Just in time provides for dynamic  assessment  and  deployment of PIN
inventory  versus  the  standard  batch-to-batch  based  on time or  level.  The
just-in-time process is not limited to the product type only, but rather applies
also to the denomination  level,  allowing Qxpress to establish a history of PIN
sales  by  denomination.  This  is  used  to  determine  the  number  of PINs an
individual  terminal should stock,  with the objective of allowing a terminal to
complete a typical day's transactions  without having to call the data center to
restock.  In this  environment,  the  terminal  is able to call the data  center
during early morning hours when phone line requirements are at a minimum. As our
number of terminals in service increases,  inventory  requirements for PINs will
continue to escalate.  The  just-in-time  methodology  allows us to  effectively
manage our PIN inventory while establishing additional benefits to the merchants
and carriers by providing the ideal inventory of PIN or product on demand.

         The ability for real-time  communications supports any transaction that
needs to have a real-time element to it. A real-time process is usually required
in PIN-less or immediate crediting  environments,  such as bill payment or debit
card.

         Transaction  Processing.  We currently  process  transactions  from one
primary data center with one remote data center as backup.  We administer all of
our data  centers from our  headquarters.  Our primary data center is located in
Lindon,  Utah in a bunkered,  redundant,  certified hosting center with multiple
backup power sources,  peered networking,  secure biometric and  card-controlled
access.  Our secondary facility is located in our headquarters in Orem, Utah. To
ensure  redundancy,  our Lindon and Orem data centers use different physical and
network  infrastructures.  Both centers have adequate  telephone and data access
and we purchase  telephone and network  services from multiple  vendors.  Either
center  is  capable  of acting as the sole  processing  facility  for all of our
transactions  in the event of a failure of the other center and all  transaction
data is reported to both locations.

         Our transaction  processing  facilities run on industry  standard Intel
based  hardware.   We  use  Debian  Linux  for  our  operating  system.  We  use
multiprocessor,  RAM laden  servers  with RAID  Level 5 or RAID Level 1 on every
system.  We use MySQL as the database  platform and PHP scripting in conjunction
with Java servlets for the  administration  tools.  All information is stored in
the back end data  store  that is also  fully  encrypted  and  secure.  Our high
availability  infrastructure  employs hot-standby,  instant failover services to
ensure  greater than 99.99% service  uptime.  All data is backed up a minimum of
once per day. The data store is replicated across physical platforms  constantly
so that there are always at least  three  copies of  critical  data at any given
point  in  time.  Backups  are  stored  off  site  in  a  secure  facility.  The
administration  web site uses 128-bit SSL running on an Apache web server.  Java
servlets  and  applications  are run  using the JBoss  application  server.  Our
networks are secured using Redundant Devil Linux servers which employ Department
of Defense,  triple-layered DMZs. We use VPN technology to securely connect data
centers.

         All Q Comm  production  systems and servers are  monitored in real time
24x7x365.  IT  personnel  are notified  promptly of any problems or  performance
degradations.   The  monitoring  system   aggressively  tests  the  system  from
end-to-end  to determine  that all  terminals in the field can sell products and
report  transactions.  Software,  hardware and network  engineers are on call 24
hours a day, 7 days a week.

Growth Strategy

         Our goal is to become the leading  provider of  transaction  processing
and information  management  services for prepaid products.  In order to achieve
this goal we must expand our distribution  network of brokers and  distributors,
increase  the number of  products  and  services  that we sell and  develop  new
applications for our technology.

         We will seek to expand our  presence in the prepaid  telecommunications


                                      -5-
<PAGE>


market. We believe that the prepaid telecommunications market by itself presents
an  attractive   opportunity   for  us.   Currently,   we  distribute   wireless
telecommunications  products from 20 carriers and distribute  Qxpress  terminals
through more than 70 brokers, agents and other intermediaries. We believe we can
expand  our  existing   relationships   with  carriers  and  independent   sales
organizations as well as enter into relationships  with additional  carriers and
independent  sales  organizations.  In  addition,  we intend  to  pursue  direct
strategic  relationships with large retail chains to distribute prepaid products
and services through their stores.

         We will  develop  new  products  and  applications.  Until  now we have
focused  almost  exclusively  on  prepaid  telecommunication   services  market,
particularly prepaid wireless products.  However,  Qxpress 200 can be adapted to
accommodate  almost any other  prepaid  product.  For example,  we are currently
active  with two  large  distributors  of  prepaid  MasterCards.  We have  begun
offering  several new prepaid  products  during the last year and  developed  an
application for a gift card program.  We will continue to seek new products that
will add to our current product  library and provide value for the  distribution
channel.

         We will develop new revenue models.  Currently, we derive substantially
all of our revenue from reselling prepaid products. The margins under this model
are  relatively  small  after  taking  into  account  our cost to acquire  these
products  and the  commissions  and  fees we  have to pay to  intermediaries  in
connection with each transaction. In order to address new markets and offer more
flexibility  to our  customers,  in March 2003, we  introduced a second  revenue
model,  which we call the "service  bureau" model. In this scenario,  we license
our technology and the licensee is responsible for buying the prepaid  products,
reselling  them,  deploying  the  terminals,   customer  support  and  providing
management information reports. In addition to generating one-time revenues from
the  sale  of  terminals,  we  earn  revenue  from  transaction  fees  for  each
transaction  effected over the Qxpress  system on an ongoing  basis.  While this
model results in lower revenue per transaction, the gross margins are higher. We
established  our first service bureau in Canada in March 2003 and currently have
a total of four with a fifth in  progress,  with all but one of them outside the
U.S. We plan to offer both models to our  domestic  clients and only the service
bureau  model to our  foreign  customers.  We  anticipate  that this will be our
primary model in connection with our international expansion.

         We will seek to expand internationally.  Historically,  we derived less
than one percent of our annual revenues from  international  operations.  In the
first quarter of 2003, we commenced operations in Canada, establishing a service
bureau  for  a  Canadian  distributor.   Our  international   opportunities  are
significant since the prepaid  telecommunications  market is much larger outside
the United States than in the United States.  For example,  in some European and
Asian countries  prepaid wireless accounts for up to 80% of the wireless market.
Given the maturity of the prepaid  market in Europe,  it is a natural market for
our point-of-sale  activation  system. The same would be true for Asia and Latin
America.  During  2003,  we  entered  into  agreements  with new  customers  and
installed  data  centers in France,  Australia,  the  Bahamas,  and  Canada.  We
anticipate  continuing to add service  bureau  customers in strategic  locations
during 2005.  During 2004, we acquired Point de Vente (PDV),  our service bureau
customer in Canada and now operate PDV as a wholly owned subsidiary.

         We will expand our technology to include other distribution methods. In
2004,  we modified  our system to run on a VeriFone  terminal  and in March 2005
announced  that we  would  begin  beta  testing  on the  Ingenico  terminal.  We
anticipate adding two more commercially available terminals during 2005. We will
seek other  opportunities  to further develop our system to interface with other
debit/credit  card  terminal  models,  ATM  machines,  electronic  cash register
systems and PC based point-of-sale systems.

         We will consider strategic  acquisitions.  At the present time, we have
no plans to make additional  acquisitions.  However,  we will consider  specific
acquisition  opportunities if we believe they have strategic value. The types of
acquisitions that we would consider as having strategic value include businesses
with  technology  that  complements  our  technology,  businesses  with  prepaid
products that we could add to our  portfolio or businesses  that would enable us
to expand our distribution channels or expand geographically.

Competition

         Transaction  processing and management information services for prepaid
products are relatively  new markets.  However,  we anticipate  that this market
will grow rapidly as the demand for prepaid products grows.  Competition for our
services may come from a variety of sectors,  including companies, such as First
Data Corporation, that provide transaction processing and management information
services to the credit card market,  companies,  such as HyperCom and  VeriFone,
that supply electronic point-of-sale activation equipment, as well as companies,
such as 9278 Communications,  Blackstone Calling Card,  Pre-Solutions,  Debisys,
Advanced  Payment  Systems,  Incom,  Euronet and LDC Direct,  that  distribute a
variety of prepaid  telecommunication  products and have developed or are in the
process of developing electronic point-of-sale  activation systems.  Competition
may also come from technology  companies and e-commerce solution providers.  The
technology for point-of-sale  activation systems is rapidly evolving.  Increased
competition  could  result in reduced  operating  margins,  as well as a loss of
market  share  and  brand  recognition.  Although  most of our  competitors  are
privately held  companies,  some have  substantially  greater  resources  and/or
pre-existing  market share that enable them to establish a stronger  competitive
position than we have, in part through greater marketing opportunities.

         Because our system is focused on point-of-sale  purchases, we also face
competition from systems that offer prepaid products over the Internet. Internet
based  commerce  has  increased  dramatically  in recent  years as more and more


                                      -6-
<PAGE>


people have access to the Internet,  as e-commerce becomes generally accepted as
safe, reliable and efficient, and as access speed and convenience increase. Most
or all of the prepaid  products  that we can offer can also be offered  over the
Internet,  either by the suppliers themselves or by intermediaries or both. Many
of the advantages of our system over traditional  distribution systems will also
be available through the Internet.  However,  online purchases require access to
the  Internet  and a  credit  card or  other  type  of  credit  account.  We are
evaluating  internet-based  distribution  opportunities  to determine  whether a
strategic fit with our distribution model exists.

         We believe that the principal competitive factors in our market include
the following:

          -    Cost efficiencies;
          -    Breadth and depth of product offering;
          -    Quality of service;
          -    Convenience;
          -    Breadth of geographic presence;
          -    Customer service;
          -    Use of technology;
          -    Reliability; and
          -    Availability of enhanced services.

         We believe our competitive strengths include the following:
          -    Ease of use. We believe that our Qxpress 200 terminal is the only
               one in the market  designed  specifically  for prepaid  products.
               Other terminals are generally  adaptations of terminals  designed
               for other purposes,  such as processing credit card transactions.
               In designing a terminal for the prepaid transaction  industry, we
               were  able  to take  into  account  the  specific  needs  of that
               industry.  For  example,  our  terminal  includes an  advertising
               display  screen facing the  customer,  hot keys for commonly sold
               products,  and a user training  module  included in the terminal.
               The success of this strategy has already begun to manifest itself
               by the strong market response to our new terminal.
          -    Versatility and flexibility. We are able to offer our customers a
               wide array of products, both with a large number of product types
               and with several  different  carriers for products.  Our business
               model allows  customers  to sell their own  products  through our
               terminals as well, while several of our competitors require their
               customers to only sell products  supplied by the  competitor.  We
               are  also  able  to  offer  our  products  and  services  through
               alternative terminals.
          -    Turn-key  solution.  We are  one of the  few  companies  in  this
               industry  that  have   developed  a  proprietary   terminal  that
               communicates  directly with an accompanying data center to record
               and  process  transactions.  This  gives us total  control of the
               transaction  from  beginning  to end,  which  allows us to ensure
               service quality for our customers.
          -    Ability to customize. Since we own the "front end" (terminal) and
               "back end" (data  center) of the process,  we are able to develop
               custom  applications  for  customers in a  relatively  short time
               frame.  We employ  several  experienced  programmers  in order to
               quickly  respond to such  requests.  Examples  of these  requests
               include items ranging from custom  reporting of  transactions  to
               enabling the terminal to process different types of transactions,
               such as debit/credit card transactions and PIN-less magnetic card
               swipes. We are also able to adapt our system to utilize alternate
               delivery  methods,  such  as  ATM's,  cash  registers  and  other
               terminal devices.
          -    Scalable,  efficient  operating  structure.  As a  result  of our
               technology,   we  can  easily  expand  our   operations   without
               significantly   increasing   our   fixed   costs.   Because   all
               transactions  are processed  through our data center,  we believe
               that  our  existing  infrastructure  can  support  a much  higher
               revenue base.  We believe this will be a significant  competitive
               advantage as our business grows.

         We believe that Qxpress  will allow us to compete  successfully  in the
market for prepaid transaction  processing and management  information services.
Nevertheless,  our ability to compete successfully will depend on our ability to
support the  distribution  channels that are in fact used for prepaid  products,
our financial  condition and our related ability to form strategic alliances and
joint ventures with third-party  telecommunications service providers. We cannot
assure  you  that we will be able to  compete  successfully,  and a  failure  to
successfully  compete would have a material adverse effect on our revenue growth
and earnings. See "Risk Factors" below for a more in-depth discussion of various
risks associated with our business.

Suppliers and Customers

         We distribute prepaid telecommunication products,  primarily PINs, from
a number of sources,  including national carriers such as Verizon Wireless, AT&T
Wireless, Cingular and T-Mobile, as well as regional and local carriers, such as
Hargray Wireless and Iowa Wireless. We have direct purchase agreements with some
of these carriers.  In other cases we purchase products from secondary  sources.
The  carriers  determine  prices for their  products  and we do not  control the
frequency or the quantity of the sales.  To date,  we have not  experienced  any
supply side issues, meaning we have been able to purchase a sufficient number of
products to meet customer demand.  Some of our suppliers require that we pay for
their  products  immediately,  others  extend us terms and some  provide us with
product on consignment.


                                      -7-
<PAGE>


         We frequently add new wireless  products as the demand  arises.  During
2004, we have added a number of private label wireless  products offered through
Mobile Virtual Network Operators  (MVNOs).  These products include Boost Mobile,
Tracfone,  Omni  Wireless,  Page Plus, O Mobile,  Platinum Tel and Locus Mobile.
Revenues from such products were approximately $3.4 million during 2004, up from
$280,000 in 2003.  While these  products  generally  offer better  margins,  the
wireless  market is highly  competitive  and  historically  MVNOs  have a higher
failure rate than national wireless  carriers.  We will continue to evaluate new
MVNO products and selectively add products with proven market demand.

         We have entered into agreements with  approximately  70 brokers who, we
believe,  service over 100,000 retail  locations  throughout  the country.  Each
broker and each retailer is required to execute a Services and Rental  Agreement
and an ACH Agreement  under which they authorize us to withdraw funds from their
accounts to pay for the  products  they sell.  In 2004,  sales of Iowa  Wireless
products  accounted  for 46% of our  revenues.  In 2003,  sales of Iowa Wireless
products  accounted  for 59% of our  revenues  and  sales  of  Hargray  Wireless
products  accounted for 14% of our  revenues.  Our  strategies  for 2005 include
diversification of our products and customers by broadening our account base.

         The  Qxpress 200  terminal is  manufactured  to our  specifications  by
Universal  Electronics,  Inc.,  Milwaukee,  Wisconsin,  and by Shera  Technology
located in Shanghai,  China. We purchased the original Qxpress terminal from LDC
Direct,  which  also  provided  us  with  transaction  processing  services.  We
discontinued  use of the LDC system in 2004.  We have  entered into an agreement
with VeriFone to allow us to purchase terminals directly from them.

Sales and Marketing

         Our sales and marketing  strategy is designed to attract new customers,
increase  the number of  retailers  that use the Qxpress  system,  increase  the
volume of  transactions  per unit and  develop new  applications.  Our sales and
marketing department has 11 people including our vice president of sales and our
marketing  director.  We plan to hire at least one  additional  territory  sales
manager  in  addition  to the  five we  presently  employ.  Our  sales  staff is
responsible  for soliciting  prospective  new customers as well as for providing
technical  and training  advice and  customer  support.  Finally,  our sales and
marketing staff is also  responsible for  identifying new  applications  for the
Qxpress system.  Once these  applications have been identified,  our engineering
department develops the new applications.

         We market our system directly to relatively large independent  brokers,
agents,  distributors  and other  intermediaries  who  service  multiple  retail
locations.  In addition to independent  brokers,  our current marketing strategy
also focuses on relatively large chains with either  franchised or company owned
stores.  We are also marketing our system in foreign countries where the prepaid
transaction  market is quite large.  We use the same strategy,  i.e.,  targeting
relatively  large  brokers  rather  than  retailers.  As part  of our  marketing
strategy we offer our domestic clients the option of our broker model or service
bureau model. For our foreign clients, we only offer our service bureau model.

         In  support  of  our  sales  effort,  we  use  comprehensive,  targeted
marketing  programs that include  direct mail,  public  relations,  advertising,
trade show participation and ongoing customer communication programs.

Intellectual Property

         Proprietary  rights are  important  to our success and our  competitive
position. To protect our proprietary rights, we rely on a combination of patent,
copyright,   common  law  trademark,  and  trade  secret  laws,  confidentiality
procedures and contractual provisions.

         We have filed multiple  provisional  patent  applications in the United
States  relating to our  proprietary  technology,  including,  i) design  patent
application,  serial  number  29/169,739,  filed on October  25,  2003,  for our
"point-of-sale-activation   device,"  ii)  patent  application,   serial  number
10/351,493,  filed on  January  23,  2003,  covering:  "system  and  method  for
distributing  inventory  for  point-of-sale-activation  services,"  iii)  patent
application,  serial  number  10/350,198,  filed on January 23, 2003,  covering:
"point-of-sale-activation  device," and iv) patent  application,  serial  number
10/350,203,  filed on  January  23,  2003,  covering:  "system  and  method  for
point-of-sale   training  concerning  prepaid  service  transactions."  We  were
recently  awarded  a patent  on the  first  application  for the  design  of our
terminal.  The other patent applications are currently pending. We cannot assure
you that any allowed patent claims will result from these applications, that any
patents that may issue will protect our intellectual property or that any issued
patents will not be challenged by third parties. Furthermore,  other parties may
independently  develop  similar or competing  technologies  or design around any
patents  that may be issued to us. It is possible  that any patent  issued to us
may not  provide any  competitive  advantages,  that we may not  develop  future
proprietary  products or technologies that are patentable,  and that the patents
of others may  seriously  limit our ability to do business.  In this regard,  we
have not  performed  any  comprehensive  analysis  of patents of others that may
limit our ability to do business.

         We license our software and  technology to  distributors  and merchants
who agree to sell our products  through our system.  The license  agreements are
limited in scope in that the  software  and the  technology  may only be used in
connection with the Qxpress system in order to facilitate  transaction  over the
system. The license agreements contain explicit language  prohibiting the use of


                                      -8-
<PAGE>


our intellectual  property for any other purpose and prohibiting the licensee or
any of its  affiliates  from  copying or  duplicating  any aspect of the Qxpress
system, including the software, in any way.

         We have not applied to register  any of the  trademarks  that we use in
our business,  including  "Qxpress" and "Qxpress 200", in any  jurisdiction.  At
this time, we are not planning to register these trademarks and we cannot assure
you that we will be able to continue  to use them.  Even if we apply to register
these marks,  there can be no assurance  that we will be successful in obtaining
the trademarks for which we have applied or, if these applications are approved,
that the trademarks will not be challenged by others or invalidated.

         We seek to avoid  disclosure of our trade  secrets  through a number of
means,  including but not limited to, requiring those persons with access to our
proprietary  information  to  execute  confidentiality  agreements  with  us and
restricting  access  to our  source  code.  We seek  to  protect  our  software,
documentation and other written materials under trade secret and copyright laws,
which  afford  only  limited  protection.  We cannot  assure you that any of our
proprietary rights with respect to our products or services will be viable or of
value in the future since the validity, enforceability and type of protection of
proprietary rights such as the ones we have are uncertain and still evolving.

         Despite  our efforts to protect our  proprietary  rights,  unauthorized
parties  may  attempt  to copy  aspects  of our  products  or to obtain  and use
information  that we regard as  proprietary.  Policing  unauthorized  use of our
products is difficult,  and while we are unable to determine the extent to which
piracy of our  software  may  exist,  software  piracy can be  expected  to be a
persistent  problem.  In  addition,  the laws of some  foreign  countries do not
protect  proprietary  rights to as great an extent as do the laws of the  United
States, and effective  copyright,  trademark and trade secret protection may not
be available in those  jurisdictions.  Our means of protecting  our  proprietary
rights  may  not  be   adequate   to  protect  us  from  the   infringement   or
misappropriation of our rights by others.

         In recent years,  there has been  significant  litigation in the United
States involving patents and other intellectual property rights, particularly in
the software and technology industries.  We could become subject to intellectual
property  infringement  claims as the  number of our  competitors  grows and our
products and services overlap with competitive offerings.  These claims, even if
not  meritorious,  could be expensive  to defend and could  divert  management's
attention  from  our  operations.  If we  become  liable  to third  parties  for
infringing their  intellectual  property  rights,  we could be required to pay a
substantial award of damages and to develop noninfringing  technology,  obtain a
license or cease selling the products that contain the  infringing  intellectual
property.  We may be  unable to  develop  noninfringing  technology  or obtain a
license on commercially reasonable terms, if at all.

Government Regulation

         There are no significant governmental approvals directly related to our
products or services  and we are not aware that any  significant  regulation  is
contemplated.

Employees

         As of March 21, 2005, we had 34 employees,  all of whom were  full-time
employees.

Corporate Information

Q Comm International,  Inc. was incorporated in Utah in 1998. On March 20, 2000,
we acquired 100% of Azore Acquisition,  Inc., a corporation  organized under the
laws of the  State  of  Nevada.  Azore  was  afterwards  merged  into Q Comm and
dissolved.  Azore had no  operations  at the time of the merger.  Our  principal
executive offices are located at 510 East Technology Ave, Building C, Orem, Utah
84097.  The telephone  number is (801) 226-4222 and the internet website address
is  www.qcomm.com.  The  information on the website is not  incorporated in this
report as a result of this  reference.  We make  available  on the  website  all
materials  filed with the  Securities  and Exchange  Commission,  including  the
Annual Report on Form 10-KSB,  Quarterly Reports on Form 10-QSB, Current Reports
on Form 8-K and  amendments to these reports as soon as such materials have been
filed with the Securities and Exchange Commission.

                                  RISK FACTORS

         You should carefully  consider the risks described below, our financial
statements  and the notes to those  statements,  before you  purchase any of our
securities.

We have no history of profitable operations. Continuing losses could exhaust our
capital resources and force us to discontinue operations.

         From  the  date on which we  became  a C  corporation  in 1998  through
December 31, 2004, we incurred cumulative losses of $19.8 million. For the years
ended  December 31, 2004 and 2003 net losses were $6.5 million and $5.7 million,
respectively.  Unless we can  significantly  increase  the number of our Qxpress
terminals in use, we will continue to incur losses for the  foreseeable  future.


                                      -9-
<PAGE>


Our  working  capital  may not be  sufficient  to  sustain  us  until  we  reach
profitability.

Our gross profit margins have historically been low, which makes it difficult to
achieve profitability.

         Our margins,  after  taking into account the cost of the products  sold
through the Qxpress system and the fees and commissions payable to distributors,
brokers and retailers,  were  approximately  3.5% in 2004 and 2.3% in 2003. As a
consequence, for us to be profitable to any meaningful extent, we must do one or
more of the following:
          -    increase our revenue per terminal;
          -    increase the number of revenue generating terminals;
          -    add new products with higher profit margins to our portfolio; or
          -    develop new revenue models.

         In order to increase our revenue from our historical business,  we must
increase the number of terminals in use. In order to expand our product line, we
must enter into  relationships  with the suppliers of these products,  establish
new  sales  channels  or  expand  existing   channels  and  develop   processing
applications  to handle the new products.  Finally,  new revenue  models must be
accepted  by the market and may have  ancillary  adverse  consequences,  such as
recognizing  revenue on a "net" basis rather than a "gross"  basis as we do now.
We cannot assure you that we will be able to achieve any of the above goals.

The future success of our business will require a substantial  marketing  effort
on our part,  including  expending  significant  amounts of  capital  that could
otherwise be used to purchase or develop new products.

         Our future success  depends on our ability to  successfully  market our
point-of-sale  activation system as the preferred distribution method. This will
require us to allocate a significant  amount of our working capital to sales and
marketing.  This will reduce the amount of working capital  available to develop
new products and services. There is no assurance that our marketing efforts will
be successful.

Most of our revenue  growth is derived from a single class of product -- prepaid
wireless  -- which  makes us  particularly  vulnerable  to changes  in  consumer
preferences and market saturation.

         Although we currently offer a variety of prepaid  products,  90% of our
revenue for the year ended December 31, 2004 was generated from sales of prepaid
wireless products.  The market for prepaid wireless has experienced  substantial
growth in past years.  Our revenues  have grown as this market has developed and
expanded  in the  United  States.  We cannot  assure you that this  market  will
continue to grow. If it does not and we do not develop new products, our rate of
revenue growth could decline rapidly, resulting in higher net losses.

Most of our business is placed  through a small  number of brokers.  The loss of
any one of these accounts could reduce our revenues.

         A  small  number  of  brokers  account  for a large  percentage  of our
revenue.  One aspect of our growth  strategy is to  increase  the breadth of our
account base. However, a high level of customer concentration could continue for
the  foreseeable  future.  In 2004,  our three largest  customers  accounted for
approximately  64% of revenues.  We cannot assure you that the level of sales to
these brokers will be sustained from year to year and there is a risk that these
principal  brokers may not continue to sell our  products in the future.  To the
extent that any  significant  broker reduces its reliance on us,  terminates its
relationship  with us, or defaults on  payments,  our  revenues in the  relevant
fiscal  period  could  decline  substantially,  which would  result in lower net
profits or a greater net loss.

The  industry  in which we operate is highly  competitive,  has low  barriers to
entry and has rapidly changing technology. Increased competition could result in
margin erosion, which would make profitability even more difficult to achieve.

         The  market  for  prepaid   transaction   processing  and   information
management  services  is  becoming   increasingly   competitive  and  is  highly
fragmented.  This market  includes  companies that provide either  point-of-sale
activation  terminals  only,  such as  HyperCom  and  VeriFone,  or  information
management services only, such as Blackstone,  PreSolutions and DebiSys, as well
as companies that provide integrated solutions,  such as LDC Direct. In addition
to companies that are focused solely on the prepaid transactions market, we also
face competition from companies,  such as First Data  Corporation,  that provide
transaction  processing  and  information  management  services to the  postpaid
market.  We could also face  competition  from  e-commerce  solution  providers.
Finally,  we may  in  the  future  face  competition  from  suppliers,  such  as
telecommunication  companies  who may  decide to  provide  electronic  solutions
directly to brokers and merchants.

         The  industry in which we compete is  characterized  by low barriers to
entry,  rapidly changing technology,  evolving industry standards,  frequent new
product and service  introductions,  and changing customer demands.  Some of our
competitors have substantially  greater financial  resources and/or pre-existing
market share that may enable them to establish a stronger  competitive  position
than  we  have,  in  part  through  better  marketing   opportunities.   Current
competitors or new market entrants could  introduce  products with features that


                                      -10-
<PAGE>


may render our system obsolete or uncompetitive. To be competitive and serve our
customers  effectively,  we must respond on a timely and cost-efficient basis to
changes  in  technology,   industry  standards,   and  procedures  and  customer
preferences.  The cost to modify our  products,  services or  infrastructure  in
order to adapt to these  changes could be  substantial  and we cannot assure you
that we will have the  financial  resources  to fund these  expenses.  Increased
competition  could  result in reduced  operating  margins,  as well as a loss of
market share and brand recognition.

We depend on brokers and other  intermediaries  to distribute our  point-of-sale
terminals.   Our  relationships  with  these  brokers  are  usually  short-term,
nonexclusive  arrangements,  which can be terminated  at will.  As a result,  we
cannot prevent them from selling  competitive  products or  discontinuing  their
relationship with us.

         We rely on independent  brokers,  distributors,  wholesalers  and other
intermediaries  to  distribute  our  point-of-sale  activation  system to retail
merchants.  Currently,  we distribute through approximately 70 brokers. In order
for  us  to  achieve  a  meaningful  level  of  market   penetration,   we  must
significantly  increase  this  number.  Until now,  our  relationships  with our
brokers have generally been on a short-term,  non-exclusive  basis allowing them
to reduce or cancel their  business  with us without  penalty and with little or
short  notice.  The prepaid  products that we sell are widely  available  from a
number  of  sources.  We are not  able to  offer  exclusive  products  or  price
advantages to our brokers.  Rather, we rely on the quality of our Qxpress system
to  induce  brokers  to  contract  with  us.  If we do  not  continue  to  offer
performance and service advantages,  our brokers may not aggressively market our
system to their retail networks or may terminate their  relationship with us. We
cannot assure you that we will continue to derive revenue, at current levels, or
at all,  from  our  existing  brokers,  or that we will be able to  successfully
establish relationships with new brokers.

We have no control over the prices suppliers charge us for their products and we
may not always be able to pass through price  increases to our  customers.  As a
result,  price  increases  could  have a  negative  impact  on our  margins  and
profitability.

         We depend on suppliers to provide us with prepaid  products that we can
resell.  We have no control  over the prices  they charge us.  Depending  on the
competitive  environment,  increases in the costs of our products may reduce our
margins.

If we do not protect our proprietary technology and intellectual property rights
against  infringement  or  misappropriation,  and defend  against  third parties
assertions  that we have infringed on their  intellectual  party rights,  we may
lose our competitive position in the markets in which we operate.

         We believe that our proprietary  software and hardware provides us with
a competitive  advantage.  While we have filed patent  applications  relating to
various  features of the Qxpress 200 terminal  and  proprietary  technology,  we
cannot  assure you that these  applications  will be  approved,  or that even if
approved, they will provide us with meaningful protection. Other than our patent
applications  described  above,  we rely on trade  secret  laws and  common  law
principles  to  protect  our  proprietary  rights.  For  example,  we  have  not
registered or applied to register either "Qxpress" or "Qxpress 200" or any other
trademarks,  trade names, service marks, service names or copyrights that we may
own or use.

         Despite our efforts to protect  our  rights,  unauthorized  parties may
attempt to copy aspects of our point-of-sale terminals or the source code to our
software  or to obtain or use  information  that we regard as  proprietary.  The
scope  of any  proprietary  rights  that  we may  have is  uncertain  and is not
sufficient to prevent others from developing and selling competing  products and
services,  which  could  have a  material  adverse  effect on our  business.  In
addition,  third parties may assert infringement claims against us or claim that
we have violated their intellectual  property rights.  While we know of no basis
for any claims of this type,  the  existence of and  ownership  of  intellectual
property can be difficult to verify and we have not made an exhaustive search of
all patent filings.  If any of our proprietary rights are  misappropriated or we
are  forced to defend our  intellectual  property  rights,  we may have to incur
substantial  costs.  We may not have the  financial  resources to prosecute  any
infringement  claims  we may have or defend  any  infringement  claims  that are
brought  against us. Even if we do,  defending or  prosecuting  our  proprietary
rights will divert  valuable  working  capital and  management's  attention from
business and operational issues.

If we cannot  raise  capital at a time when we need to do so, we may not be able
to adequately and timely respond to competitive developments.

         In the  future,  we may need to raise  additional  capital  to meet the
capital  requirements  of our  business or to take  advantage  of  expansion  or
acquisition  opportunities.  If we are  unable  to do so,  we may not be able to
increase  our revenues or achieve  profitability.  Even if we are able to secure
additional  capital  by  selling  equity  or  equity-linked  securities,   these
securities could dilute the ownership  percentage of our existing  stockholders.
The  securities  that we might  sell  could  also have  rights,  preferences  or
privileges  senior to those of our common  stock.  We cannot  assure you that we
will be able to obtain  additional  financing when needed on acceptable terms or
at all. We have a guaranteed  commitment for up to $2.9 million from a member of
the board of directors to finance current  operations,  if necessary.  If we are
unable to obtain additional  financing on terms  satisfactory to us when needed,
our  operations  could be  substantially  curtailed  and the price of our common
stock could decline significantly.


                                      -11-
<PAGE>


Significant rapid growth could strain our internal  resources,  which could lead
to a lower quality of customer service, reporting problems and delays in meeting
important  deadlines.  If we do not upgrade our internal systems and controls we
may not be able to manage this growth properly.

         Any significant  revenue growth will strain our existing  financial and
operating  resources.  For example,  the  accounting  system we currently use is
limited in its financial  reporting  and we may need to purchase new  accounting
software and to hire additional  qualified people for our accounting  department
as we grow.  Expanding  our  operations  will increase the demands on our senior
management  and our customer  service  departments.  We will need to continually
improve our management,  operational,  financial and other departments to manage
our growth properly and any failure to do so may lead to  inefficiencies  and/or
redundancies  and  may  impair  our  ability  to  provide  accurate  and  timely
information and reports to our stockholders.

The market  price of our common  stock has been  volatile  and may  continue  to
fluctuate significantly because of various factors, some of which are beyond our
control.

         Our stock price has been extremely volatile,  fluctuating over the last
two years between $2.00 and $14.85. These fluctuations have been unrelated to or
disproportionately  affected by our operating  performance.  The market price of
our common  stock could  continue to  fluctuate  significantly  in response to a
variety of factors,  some of which may be beyond our control.  These factors may
include one or more of the following:
          -    Quarterly   operating   results   falling   below  or   exceeding
               expectations in any given period;
          -    Changes   in   economic   conditions    generally   or   in   the
               telecommunications or banking industries;
          -    Market  fluctuations  relating  to  markets  generally  or market
               sectors  that  include our  competitors,  which may or may not be
               based  on   earnings  or  other   announcements   by  us  or  our
               competitors;
          -    Fluctuations  in our  revenue  which may or may not be related to
               changes in the way we conduct our business;
          -    Announcements   by   our   competitors   of   new   technological
               innovations,   service  offerings,  contracts,   acquisitions  or
               strategic relationships;
          -    Departures of key personnel; and
          -    Changes in business or regulatory conditions.

         In the past, following periods of market volatility,  stockholders have
instituted  securities class action litigation.  While we have not been involved
in  securities  litigation  to date,  if we were to be  involved  in  securities
litigation,  we could  incur a  substantial  cost and  experience  diversion  of
resources  and the attention of  management  away from our  business.  We cannot
predict the future  performance of the capital  markets in general and stocks in
our market sector in particular, and we cannot assure you that the price for our
common stock will not drop significantly in the future.

The existence of outstanding  options,  warrants and convertible  securities may
preclude us from obtaining additional equity financing.

         The  existence  of  outstanding   options,   warrants  and  convertible
securities  could  make it more  difficult  to  obtain or  increase  the cost of
additional equity financing.  The holders of these options and warrants have the
opportunity  to profit  from a rise in the value or market  price of our  common
stock and to exercise them at a time when we could obtain equity capital on more
favorable terms than those contained in these securities.

We have a limited number of stockholders and our stock is thinly traded.

         As of December 31, 2004, there were  approximately  320 stockholders of
record and our average  daily share volume for the year ended  December 31, 2004
was 17,000 shares.  The relatively low number of stockholders and trading volume
may create  significant  volatility in our share price or other  adverse  market
conditions that negatively affect stockholders.


Item 2. Description of Property

         In February 2004, we moved our executive  offices,  warehouse and other
property to a new location in Orem, Utah. We lease 6,094 sq. ft. of space at 510
East Technology Avenue,  Building C, Orem, Utah from TCU Properties I, LLC under
a lease  agreement dated as of December 23, 2003. The base monthly rent for 2005
will be $7,061 including all utilities,  cleaning and security. The lease is for
a five-year period, however, we may cancel the lease after three years.

         We also lease space for our Canadian office. The rental agreement
requires a monthly payment of $2,070 and expires in November 2008.

                                      -12-
<PAGE>


Item 3. Legal Proceedings

         As of March  21,  2005,  we are not a party to any  legal  proceedings,
except as set forth below.

         In  January  2002,  we  filed  an  action  against  an  individual  for
non-payment of funds owed relating to the purchase of common stock. We have been
awarded  summary  judgment in the amount of  $135,000  and expect to receive the
remaining outstanding amount, which was $10,768 at December 31, 2004.

         In January 2004,  Dial-Thru  International  Corporation filed a lawsuit
against  us in the  Superior  Court of the  State of  California,  County of Los
Angeles,  claiming  damages  of $4  million  as a  result  of our  breach  of an
agreement  that was signed in October  2000.  It is our  position  that claim is
without  merit as we properly  exercised a  contractual  right to terminate  the
agreement.  In  February  2004,  we filed a motion  to  dismiss  the case on the
grounds that under the  agreement in question the proper venue for this case was
the federal or state courts in Orem,  Utah. In April 2004, the California  court
issued a tentative  ruling  granting our motion for dismissal.  The  proceedings
were  stayed  pending  the  outcome of the matter in the state of Utah.  In July
2004,  Dial-Thru  filed  substantially  the same suit  against  us in the United
States  District  Court in the State of Utah.  We will  vigorously  contest  the
claim. At this point, we do not believe that the eventual  outcome of the matter
will have a  material  adverse  impact on our  financial  position,  results  of
operations or liquidity.

Item 4. Submission of Matters to a Vote of Security Holders

None

                                     PART II

Item 5. Market for Common Equity and Related Stockholder Matters

Market Information

         Our common stock has traded on the American  Stock  Exchange  under the
symbol "QMM" since June 2003.  Before then, it traded on the OTC Bulletin  Board
of the National Association of Securities Dealers, Inc. under the symbol "QCCM".
The following table sets forth, for the periods indicated, the range of high and
low sales and bid prices for our common stock.  Bid prices reflect  inter-dealer
prices,  without  retail  mark-up,  markdown or commission and may not represent
actual   transactions.   The   sales   information   is   available   online  at
http://finance.yahoo.com.

                              Sales Price           Bid Price
                            ---------------     -----------------
                             High     Low        High       Low
                            -------  ------     -------    ------
     2003
     ----
     First Quarter          $ 14.85  $ 7.50     $ 13.50    $ 7.05
     Second Quarter
     (as of June 24)        $ 10.95  $ 4.65     $ 10.95    $ 4.65
     Third Quarter          $  8.04  $ 5.25      Not Applicable*
     Fourth Quarter         $  7.70  $ 2.00      Not Applicable*

     2004
     ----
     First Quarter          $  7.37  $ 3.63      Not Applicable*
     Second Quarter         $  4.68  $ 2.60      Not Applicable*
     Third Quarter          $  5.50  $ 3.75      Not Applicable*
     Fourth Quarter         $  6.00  $ 3.35      Not Applicable*

     2005
     ----
     January 1, 2005-
     March 21, 2005         $  5.58  $ 3.41      Not Applicable*


         *On June 25, 2003 our common stock began trading on the American  Stock
Exchange.

Holders

         As of March 21, 2005, we had approximately 320 stockholders of record.


                                      -13-
<PAGE>


Dividends

         We have not declared or paid any dividends and do not intend to pay any
dividends in the foreseeable future. We intend to retain any future earnings for
use in the operation and expansion of our business.  Any future  decision to pay
dividends  on common stock will be at the  discretion  of our board of directors
and will  depend  on our  financial  position,  results  of  operations, capital
requirements, and other factors our board of directors may deem relevant.

Recent Sales of Unregistered Securities

         In 2004, we sold 850,000 shares of common stock to accredited investors
for $3,500,000 in cash.

         In 2004,  we issued  12,127 shares of common stock valued at $50,000 in
an acquisition of a subsidiary.

         In 2004,  we issued 1,667 shares of common stock valued at $7,668 for a
stock bonus granted in 2003.

         In 2003, we sold 3,333 shares of common stock to an accredited investor
for $20,000 in cash

         In 2003,  we sold a 12%  unsecured  convertible  note in the  principal
amount of $200,000 and 24,242 shares of common stock to an  accredited  investor
for an aggregate purchase price of $200,000 in cash.

         In 2003, we sold 12% secured convertible  debentures due March 31, 2004
in the  aggregated  principal  amount of $1.5 million,  169,231 shares of common
stock and  warrants to purchase  169,231  shares of common  stock to  accredited
investors. The gross proceeds to us from the sale of all of these securities was
$1,500,000. The debentures were repaid in March 2004 on their scheduled maturity
date.

         The  foregoing  securities  were issued in reliance  upon the exemption
from the  registration  requirements  of the Securities Act of 1933, as amended,
provided in Section 4(2) thereof,  as a transaction by an issuer not involving a
public offering.  We reasonably  believed that each purchaser had such knowledge
and experience in financial and business matters to be capable of evaluating the
merits and risks of the investment,  each purchaser  represented an intention to
acquire the securities for investment  only and not with a view to  distribution
thereof  and  appropriate  legends  were  affixed to the stock  certificates  or
warrants. No commissions were paid in connection with such issuances.

Item 6. Management's Discussion and Analysis or Plan of Operations

         Pursuant to the "safe  harbor"  provisions  of the  Private  Securities
Litigation  Reform Act of 1995,  readers of this  report are  advised  that this
document  contains  both  statements  of  historical  facts and forward  looking
statements.  Forward looking  statements are subject to risks and uncertainties,
which could cause our actual results to differ  materially  from those indicated
by the  forward  looking  statements.  Examples  of forward  looking  statements
include,  but are not limited to (i)  projections  of revenues,  income or loss,
earnings per share, capital expenditures, dividends, capital structure and other
financial items,  (ii) statements  regarding our plans and objectives  including
product  enhancements,  or estimates  or  predictions  of actions by  customers,
suppliers,  competitors or regulatory  authorities,  (iii)  statements of future
economic  performance,  and (iv)  statements  of  assumptions  underlying  other
statements.

         This  report also  identifies  important  factors  that could cause our
actual results to differ  materially from those indicated by the forward looking
statements.  These risks and uncertainties  include, but are not limited to, the
factors,  risks and uncertainties  (i) identified or discussed herein,  (ii) set
forth  under  Part I,  Item  1;  (iii)  set  forth  under  the  headings  "Legal
Proceedings"  in Part I, Item 3; and  "Management's  Discussion  and Analysis or
Plan of  Operations"  in Part II, Item 6, of this Annual  Report on Form 10-KSB,
and (iv) set forth in the Company's  periodic reports on Forms 10-QSB and 8-K as
filed with the Securities and Exchange Commission since January 1, 2004.

Overview

         The following is a discussion of certain factors  affecting our results
of operations,  liquidity and capital  resources.  You should read the following
discussion  and  analysis  in  conjunction  with  our   consolidated   financial
statements and related notes that are included herein.

         Our   business   consists  of  the   purchase  and  resale  of  prepaid
telecommunication   and  other  products  through  our  proprietary   electronic
point-of-sale system,  Qxpress. The key components of the Qxpress system include
the Qxpress 200 terminals, our data center, the software that runs the terminals
and the data center and the  communication  protocols that connect the terminals
to the data center.  The Qxpress system was introduced in September 2002.  Prior
to that  date,  we used  third  party  equipment  and  software.  We  expect  to
experience  substantial  growth in our historical  business while  expanding our
product line to include a broad range of other  prepaid  products and to provide


                                      -14-
<PAGE>


transaction  processing and information  management services to other vendors of
prepaid products, both in the United States and abroad.

         Historically, revenues from international operations have accounted for
less than 1% of annual  revenues.  In 2003,  we began  generating  revenues from
customers in Canada, France, the Bahamas and Australia.  We expect that revenues
from  international  operations  will  grow  over the next  few  years  and will
represent a more  meaningful  portion of our overall  revenues,  particularly as
prepaid  wireless  is much more common and  accepted  in Europe,  Asia and Latin
America than it is in North America.

         The Qxpress system is designed to replace the traditional  distribution
system for prepaid products, which consists of vouchers and hard cards that must
be  purchased  by the  retail  merchant  and that  are  subject  to a number  of
problems,  including loss, theft and inventory  financing and management issues.
The new Qxpress system can support the sale of a broad range of prepaid products
in electronic  format from a single  terminal  placed in convenience  stores and
other retail  establishments.  Using a Qxpress  terminal,  a retail merchant can
sell  wireless  telephone  time,  traditional  long  distance  service  or other
telephone  products,  add credit to a prepaid debit card, add wireless time to a
customer's  account by electronic bill payment and sell other prepaid  products.
In general, the prepaid product is sold in the form of a personal identification
number,  or "PIN," that the customer  can use to add time to a prepaid  cellular
handset,  make long  distance  calls or add funds to a debit card by calling the
provider of the product and providing the PIN. The consumer pays for the product
by paying  the  retail  establishment  in which the  terminal  is  located.  The
terminal records the transaction and sends the relevant  information to our data
center  where  it is  processed  and  accounting  and  transaction  records  are
generated.  Revenue from these purchases is split among the retail merchant, the
broker that placed the terminal  with the retail  merchant,  the provider of the
prepaid product and us.

         Our system is designed to accommodate  transactions involving virtually
any prepaid  product  that can be delivered  electronically.  Within the prepaid
transaction market, our initial focus has been on the telecommunications market.
As a  distributor  of prepaid  products in this  market,  we purchase  PINs from
national and regional  telecommunication  carriers and distribute  these through
our established networks of retail outlets, such as convenience stores, wireless
product stores,  check cashing stores,  grocery stores and discount stores.  The
prepaid   transaction   market  is  rapidly  expanding  into  various  types  of
non-telecommunications  products,  such as gift and loyalty cards, prepaid debit
cards, bill payment and money transfer. In addition to distributing  traditional
telecommunication  products,  our system is  currently  used to provide  many of
these products as well.

         In the first quarter of 2004,  we announced  that we have also modified
our software to run on a VeriFone 3700 series terminal. We began beta testing in
March 2004 and announced the  commercial  launch in the second  quarter of 2004.
This terminal is capable of providing both our prepaid application,  which calls
into our data center and  functions  much the same as our Qxpress 200  terminal,
and standard  debit/credit card processing through the merchant's  processor for
such  transactions.  The  ability to offer our  prepaid  solution  to the market
through this  alternative  hardware  option  provides us with an  opportunity to
expand our market  share.  While the  VeriFone  terminal  does not offer as many
options as our Qxpress terminal for selling prepaid products, it is an excellent
solution  for  customers  who prefer to have only one  terminal in their  retail
establishment.  In 2005, we plan to further expand the devices  through which we
distribute prepaid products,  such as additional  debit/credit  terminal models,
ATMs,  electronic cash register systems, and PC based point-of-sale  systems. We
believe  that  expanding  the number and type of devices that can connect to our
data center and sell our prepaid  products  will  provide  access to  additional
customers and increased revenues to us in the future.

Sources of Revenue

         Our  principal  source  of  revenue  has been  the  resale  of  prepaid
telecommunication products, including wireless, long distance and other products
that we purchase  directly  from carriers or indirectly  from  distributors  who
purchase these products from the carriers.

         Our standard business model is referred to as our broker model. In this
model,  we provide a full  range of  products  and  services  to our  customers,
including our product  library,  PIN  management,  transaction  processing,  and
customer  service to the retail  locations.  We recognize  revenues at the gross
sales  price of the  products  and record cost of goods sold for the cost of the
products.  Commissions  and fees paid to brokers and  retailers  are recorded as
operating expense.

         Beginning in 2003, we began offering our service bureau business model.
Under this model,  our customers  license our data center  software and purchase
Qxpress terminals from us. These customers are responsible for functions such as
inventory  management,  product  ownership,  report  generation,  and ACH  funds
transfer.  Our agreements  with these  customers  also provide  ongoing fees for
software maintenance and transactions processed through their system. Because we
do not provide or control the products sold, we do not meet the  requirements to
record these sales at "gross".  Transaction processing,  license and maintenance
fees are all recorded on a "net" basis.  Sales of terminals  are recorded at the
sales price and a corresponding cost of sale is recognized.


                                      -15-
<PAGE>


         The table below  illustrates the revenues we derived from our principal
products and services and the percentage of total  revenues  represented by this
amount.  The discussion  that follows  focuses on the sources of revenue that we
believe are the most important to our present and future results of operations.

                                        Year ended December 31,
                          --------------------------------------------------
                                    2004                      2003
                          ------------------------  ------------------------
                             Amount     Percentage    Amount      Percentage
                          -----------   ----------  -----------   ----------
   Wireless               $36,634,392      89.8%    $23,702,199      92.3%
   Debit Card               1,532,249       3.8         295,641       1.1
   Long Distance              892,670       2.2         537,975       2.1
   Fees                       525,780       1.3         407,132       1.6
   Service Bureau             347,273       0.8         414,123       1.6
   Wholesale Products         199,241       0.5         126,732       0.5
   Wireless Phone Features    184,479       0.4            --         0.0
   Terminal Sales             125,442       0.3         127,325       0.5
   Gift Card                  100,019       0.3          22,844       0.1
   Home Dial Tone              90,901       0.2          35,385       0.1
   Other                      169,395       0.4          17,021       0.1
                          -----------     ------    -----------     ------

                Totals    $40,801,841     100.0%    $25,686,377     100.0%
                          ===========     ======    ===========     ======

         Prepaid  wireless  continues to be our largest  source of revenue.  The
prepaid  wireless  industry is projected  to continue to grow and we  anticipate
that it will continue to be our largest  revenue  source.  Our prepaid  wireless
products  include  many  major  national  carriers  and  many  smaller  regional
carriers. We frequently add new wireless products as the demand arises.

         Prepaid  debit  card  is a  relatively  new  product  for  the  prepaid
industry. This product allows a user to load funds onto a stored value card that
will then  function the same as a typical  debit card.  We generate  revenues by
receiving a share of the load fee charged to the  consumer.  We currently  offer
two products  that bear the  MasterCard  logo. We believe the  convenience  of a
stored value card for the cash-based  consumer and increased market awareness of
this product will result in increased revenues to us in the future.

         Prepaid  long  distance  revenue  was a  focus  of ours  in  2004.  Our
marketing  analysis suggests that we can increase prepaid long distance revenues
by improving our product  offering and by providing  informative  and attractive
point of sale advertising materials to our brokers and merchants.

         We offer the  brokers  through  whom we deploy the  Qxpress  system the
option  either to buy the  Qxpress  terminals  at a fixed price or to lease them
under a rental  program.  The sale of the terminal  will result in the immediate
recognition of revenue,  the immediate  recovery of capital for the terminal and
gross  profit from the sale.  The rental  program has the  advantage  of ongoing
rental  income  over the life of the  contract  and  higher  margins  due to the
premium we are able to charge under this  alternative.  Our ability to offer the
rental option over the long-term  depends on the availability of capital to fund
the cost of the  terminals.  Substantially  all of the  terminals  in our broker
model are currently under the rental program.  Other types of fee income include
performance fees that are charged when weekly rentals from a terminal fall below
the agreed-upon  minimum level and other miscellaneous fees. Our fee income will
continue to increase as we deploy more terminals into the market.

         We first began setting up service  bureau  customers in 2003.  While we
make this business model available to all our customers,  we expect the majority
of revenues from service bureau  customers  will be from  customers  outside the
United States since that is the only business model we offer them.  This revenue
model will provide higher margins than our traditional  broker model since there
are few direct costs to offset against the fee revenues. We acquired our service
bureau  customer  in Canada in July 2004,  which  contributed  to the decline in
service bureau  revenues.  Also, the mix of our service bureau revenues  changed
significantly  from  2004 to 2003.  In  2003,  over  90% of our  service  bureau
revenues  were from the sale of  terminals.  In 2004,  this  source  of  revenue
decreased  to  43%  while   transaction  and  software  license  fees  increased
substantially over the 2003 amounts.

         Wholesale  products are items such as PINs and cellular  phones that we
sell to other distributors  outside our customer network. We are able to use our
supplier  relationships  to provide certain  products to distributors who do not
have such access.  Margins for these sales in our industry are typically 1% over
cost.  These  revenues  are all cash  based and we do not incur  costs for these
product sales besides the cost of the product.  These  transactions are recorded
at  gross.   We  do  not  emphasize  this  source  of  revenue  but  respond  to
opportunities that present themselves.

         Wireless phone  features  include custom ring tones that are downloaded
to a wireless  handset and email/text  messaging  capabilities.  We expect these
custom features to continue to provide an increased source of revenues in 2005.


                                      -16-
<PAGE>


         Gift and loyalty cards are an emerging  sector in the prepaid  services
industry.  In  particular,  merchant chain stores are seeking  opportunities  to
offer branded gift cards to their  customers.  We are presently  evaluating gift
card  processing  companies to determine  if an existing  solution  will fit our
customers' needs. Given the market demand for these products, we anticipate that
this  source of revenue  will  continue  to grow in terms of both  dollars and a
percentage of revenue in 2005.

         Historically,  our results of  operations  have been  characterized  by
relatively  high revenues but  relatively  low gross  profits.  Under our broker
model,  we book the entire value of the  transaction  as  revenues.  Our cost of
sales  includes the amount we pay for the product;  it does not include the fees
and commissions we pay the broker and the retailer who participated in the sale.
Our gross profit margin was approximately  25.6% for the year ended December 31,
2004  and  24.8%  for  the  comparable  year in  2003.  However,  after  further
subtracting the  commissions  and fees paid to the brokers and retailers  (which
vary  substantially  directly with revenues in our historical sales model),  our
margins were  approximately  3.5% for the year ended  December 31, 2004 and 2.4%
for the comparable period in 2003.  Because of these relatively small margins, a
minor  change in the price that we pay for  products  would  have a  substantial
effect on our  margins  and  profit  if we were not able to (or,  in the case of
price decreases, were not required to) pass the difference on to our customers.

         The resale of prepaid telecommunication  products has historically been
a commodity  market with most price  increases or decreases being passed through
the distribution chain to the end user. However,  the amount of margin available
to each  participant  in the  distribution  chain  can be  affected  by  various
factors,  such as the functions provided and risk assumed by the participant and
the volume and payment  terms on which the  participant  can  purchase  product.
Historically,  our ability to purchase  products  at  attractive  rates has been
negatively  impacted by our inability to purchase in volume and our status as an
uncertain  credit,  which,  in some  cases,  has  resulted in our  inability  to
purchase product  directly from the supplier.  In those cases, we have purchased
product from a reseller at a markup from the supplier price. We believe that, as
our business expands and our financial condition becomes more stable,  there may
be opportunities to increase margins in our historical  business by purchasing a
greater percentage of our product directly from the carrier and by purchasing in
greater volume.  However,  the  telecommunications  business in general, and the
wireless business in particular,  are changing rapidly and it is not possible to
anticipate  potential changes that may occur in the distribution chain. There is
no assurance that we will be successful in realizing these opportunities.

         Substantially  all of our  revenues  are  collected  through  automated
clearinghouse,  or ACH, transactions initiated by us within 72 hours of the sale
of the product. In an ACH transaction, funds are electronically transferred from
the  merchants'  accounts to our  accounts.  As a result,  we have  virtually no
receivables  from retailers and we do not have expenses  associated with billing
and collection. In most cases, the brokers through whom we distribute our system
are responsible for any unpaid ACH transactions  from retailers so we experience
relatively little bad debt expense from our product sales through terminals.  We
generate  receivables  from  sales  of  terminals  and  from  license  fees  and
consulting  services  provided to assist service bureau  customers in setting up
and operating data centers.

Operating Metrics

         We monitor our  business and measure  performance  in a number of ways.
Several  of these  key  measures  are shown in the table  below  along  with the
results for 2004 and 2003.

                                         For the Year Ended  For the Year Ended
Broker Model                              December 31, 2004  December 31, 2003
------------                              -----------------  -----------------
 Terminals activated                            1,807             1,030
 Terminals canceled                              (824)             (405)
                                              -------           -------
 Net terminals activated                          983               625
 Terminals acquired                               200(3)           --
 Total activated terminals                      2,325             1,142
 Average activated terminals                    1,734               830

 Average monthly net revenue
  per terminal                                $    68(1)        $    58(1)
 Average monthly net revenue
  per terminal for terminals
  activated more than 60 days                 $    79(1)        $    68(1)

Service Bureau Model
--------------------
 Terminals shipped                                503             1,009
 Terminals canceled                              --                --
 Net terminals placed                             503             1,009
 Terminals acquired                              (200)(3)          --
 Total terminals in service                     1,312             1,009
 Activated terminals                              712               409
 Average monthly net revenue per terminal     $    14(2)        $     7(2)
 Average monthly net revenue per terminal
  for terminals in service more than 60 days  $    14(2)        $     7(2)


                                      -17-
<PAGE>


         (1) Includes  gross  revenues  less cost of goods sold and  commissions
         paid to brokers and retailers.
         (2) Excludes one-time  revenues from terminal sales,  installation fees
         and license fees.
         (3) In July 2004,  we acquired our service  bureau  customer,  Point de
         Vente.

         The exact timing of earnings before interest,  taxes,  depreciation and
amortization   (EBITDA)   break  even  depends  on  many  items   including  how
aggressively  we add to our sales  organization,  which increases our short-term
burn rate,  our actual  sales  results,  the pace of our growth and the relative
numbers of in service broker terminals and in service bureau terminals. Based on
our current sales organization growth plans, we believe our cash flow break even
point will likely be at approximately 6,000-7,000 broker units. We will continue
to reevaluate the market  potential and implications for our break-even point as
time progresses.

         Our broker model revenues depend on the following factors: i) number of
terminals in service,  ii) average gross sales per terminal,  iii) net margin on
product sales,  and iv) fees and other  ancillary  charges.  The first factor is
shown in the data on units  shipped,  exchanged,  canceled and net units placed.
The other  factors  are  captured  in the  measurement  of average  revenue  per
terminal (referred to as "ARPU").

          During 2004, we had a higher rate of returned units than  anticipated,
which was due to the bankruptcy of a significant  broker. We anticipate that the
rate of canceled  units will be lower as a percentage  of total units shipped in
2005.

         Regarding  units  in  service,   our  goal  for  2005  is  to  activate
substantially more terminals.  Our strategy to achieve this includes  increasing
our sales force in order for us to gain more market  exposure.  During the first
quarter  of 2004,  we  hired a new vice  president  of sales  and six new  sales
personnel over the course of the year. We anticipate adding more sales personnel
in the next four months.  We anticipate that our selling  expenses will increase
more rapidly than revenues in the near term, but that the long-term  benefits of
the additional sales personnel will outweigh the costs.

         As discussed above, we plan to develop other  distribution  methods for
distributing  products  using our back-end data center.  As we add customers who
use distribution  methods other than our Qxpress terminal (e.g.  electronic cash
registers)  our focus  will  shift from  terminals  in  service to total  retail
locations regardless of the method of product distribution.

         Our strategy  with  average  revenue per terminal is to focus our sales
efforts on quality  brokers and retail  chains with  established  prepaid  sales
history,  maintain or better the pricing in our contracts with new brokers, gain
better  discounts from  suppliers by securing  direct  relationships  and buying
larger quantities, and continue to charge rental and minimum performance fees on
all terminals placed. We show ARPU for terminals outstanding during the year and
for  terminals  excluding  those  shipped  within  the  last 60 days  since  our
experience shows that it generally takes 60-90 days for a terminal to ramp up to
full revenue potential.

         We evaluate  our  service  bureau  model in  different  ways.  While we
measure ARPU for these  customers,  the revenues  from  software  licensing  and
profits  from  terminal  sales  are  likely  to be  more  significant  than  the
transaction fees from sales of products.  The total net profit on a per-customer
basis is the measure we focus on rather than  transaction  fees per unit. As our
service bureau  customers  continue to grow we will have more meaningful data of
this nature to report.  Our strategy with respect to service bureau  revenues is
to selectively choose opportunities that will bring us the most net revenues.

Critical Accounting Policies and Estimates

         The discussion  and analysis of our financial  condition and results of
operations  are  based on our  financial  statements  that  have  been  prepared
according to U.S. generally accepted accounting  principles.  In preparing these
financial  statements,  we are required to make  estimates  and  judgments  that
affect the reported  amounts of assets,  liabilities,  revenues and expenses and
related  disclosures  of contingent  assets and  liabilities.  We evaluate these
estimates on an on-going basis. We base these estimates on historical experience
and on various  other  assumptions  that we  believe  are  reasonable  under the
circumstances,  the results of which form the basis for making  judgments  about
the carrying  values of assets and  liabilities.  Actual results may differ from
these  estimates  under  different  assumptions or  conditions.  We consider the
following  accounting  policies to be the most important to the portrayal of our
financial condition and that require the most subjective judgment.


                                      -18-
<PAGE>


         Revenue recognition

         We record  revenue at the time of  product  sale or when  services  are
provided.  Under our broker model,  sales of our prepaid  products are generally
made directly to end-users. There is no right of return for products sold and we
are  not  obligated  for  further   performance  after  the  sale.  These  sales
transactions  are  accounted  for at "gross"  since  they meet the  requirements
specified by Securities and Exchange  Commission Staff  Accounting  Bulletin No.
101 -- Revenue  Recognition  in Financial  Statements  and Emerging  Issues Task
Force No. 99-19. Revenues generated from other sources, such as from the sale or
rental of  terminals,  minimum  performance  fees and software  license fees are
recorded  when  earned,  net of any sales  discounts.  Under our service  bureau
model,  software  license,  transaction  processing and maintenance fees are all
recorded on a net basis when earned.

         Cost of goods sold

         Cost of  goods  sold  primarily  represents  the  cost of the  personal
identification  number,  or PIN, or other product sold. The cost of a PIN is set
by the carrier  and is  expressed  in terms of a  percentage  discount  from the
denomination  value.  This discount ranges from 12% to 25% for cellular and home
dial tone  products and 40% to 50% for long  distance  products.  We do not have
minimum  purchase   contracts  or  exclusivity   agreements  with  any  carrier.
Historically,  price  increases  are passed on to customers in the form of lower
broker and merchant  commissions,  which are  recognized  as operating  expenses
under the caption "commissions and fees" on our statement of operations. Cost of
goods sold and resulting  gross  profits  fluctuate due to changes in the mix of
our products and discount rates offered by carriers. As already noted, we expect
to experience  greater  fluctuations in revenues and margins as we introduce our
service bureau revenue model.

         Software development costs

         We have invested a  considerable  amount of capital in our  proprietary
Qxpress  200  terminal  and data  center.  We  account  for this  investment  in
accordance  with  Statement  of  Position  98-1,  "Accounting  for the  Costs of
Computer  Software  Developed  or Obtained for  Internal  Use" and  Statement of
Financial  Accounting Standards No. 142, "Goodwill and Other Intangible Assets."
Costs  incurred  before we  established  the  technological  feasibility  of the
project were recorded as research and development  expenses.  Once technological
feasibility was established,  costs incurred to develop the data center software
and the embedded software in the terminal were capitalized.  These costs include
salaries  paid to  software  engineers  employed  by us and  fees  paid to third
parties  for  software  development.  Once the new system was placed in service,
maintenance  costs and nominal upgrades are expensed while costs of new software
projects  under   development  are  capitalized   upon  reaching   technological
feasibility.  Capitalized  costs are amortized over the estimated useful life of
the software of three years. We periodically  evaluate the recoverability of our
capitalized  software  development costs based on the expected future cash flows
from this asset.

         Impairment of long-lived assets

         In accordance with Statement of Financial Accounting Standards No. 144,
"Accounting  for the  Impairment or Disposal of Long-Lived  Assets,"  long-lived
assets,  such as property and equipment,  and purchased  intangibles  subject to
amortization,  are  reviewed  for  impairment  whenever  events  or  changes  in
circumstances  indicate  that  the  carrying  amount  of an  asset  may  not  be
recoverable.  Recoverability  of  assets  to be held and used is  measured  by a
comparison  of the  carrying  amount  of an asset or  asset  group to  estimated
undiscounted  future cash flows  expected to be generated  by the asset.  If the
carrying  amount of an asset or asset group  exceeds its  estimated  future cash
flows,  an impairment  charge is recognized for the amount by which the carrying
amount of the asset exceeds the fair value of the asset.


         Stock options and warrants

         We have  adopted  the  disclosure-only  requirements  of  Statement  of
Financial   Accounting   Standards   No.  123,   "Accounting   for   Stock-Based
Compensation,"  as provided by Statement of Financial  Accounting  Standards No.
148, "Accounting for Stock-Based Compensation -- Transition and Disclosure -- an
amendment to FASB  Statement No. 123." As a result,  no  compensation  costs are
recognized  for stock  options  granted to  employees,  officers and  directors.
Options and warrants granted to non-employees  are recorded as an expense on the
date of grant based on the then estimated fair value of the option or warrant.

         Income taxes

         At December 31, 2004,  we had an  accumulated  net  operating  loss for
federal and state corporate income tax purposes of approximately  $15.7 million.
Because our  ability to use this net  operating  loss  depends on our ability to
earn future taxable income,  we have established a valuation  allowance equal to
the net  deferred  tax asset.  The  amount of and  ultimate  realization  of the
benefits  from these  deferred  tax assets for income tax purposes  depends,  in
part, on applicable tax laws in effect,  our future  earnings,  and other future
events,  the  effects  of which  cannot be  determined.  Our  ability to use our
accumulated net operating loss against future taxable income,  if any, may cause
our future reported  earnings and profitability to be greater than they would be
if fully taxable.


                                      -19-
<PAGE>


Results of Operations

         The following  table sets forth for the years  presented,  statement of
operations data as a percentage of revenues.  The trends suggested by this table
may not be indicative  of future  operating  results.  As noted  earlier,  these
percentages  can  be  expected  to  change  substantially  as a  result  of  our
implementation of different sales models and other factors.

                                                   Year ended December 31,
                                                   -----------------------
                                                     2004          2003
                                                    -----         -----

        Revenues                                    100.0%        100.0%
        Cost of goods sold                           74.1          75.2
                                                    -----         -----
        Gross profit                                 25.9          24.8
        Commissions and fees .                       22.4          22.5
        Selling expenses                              1.9           1.7
        General and administrative expenses          10.4           8.1
        Depreciation and amortization                 4.2           3.7
        Litigation settlements                        0.0           0.8
        Impairment of assets                          1.6           0.0
                                                    -----         -----
        Loss from operations                        (14.6)        (12.0)
        Other income (expense) - net                 (1.3)        (10.1)
                                                    -----         -----
        Net loss before income taxes                (15.9)        (22.1)
        Income tax expense                            0.1           0.0
                                                    -----         -----
        Net loss                                    (16.0)%       (22.1)%
                                                    -----         -----

The following  table  presents our statement of  operations,  showing dollar and
percentage changes from 2004 to 2003.

                               Year ended December 31,     Increase (Decrease)
                             --------------------------  ----------------------
                                 2004           2003           $            %
                             ------------  ------------  ------------    ------

Revenues                     $ 40,801,841  $ 25,686,377  $ 15,115,464     58.9%
Cost of goods sold             30,218,818    19,313,019    10,905,799     56.5
                             ------------  ------------  ------------    ------
Gross profit                   10,583,023     6,373,358     4,209,665     66.1
Commissions and fees            9,158,905     5,777,723     3,381,182     58.5
Selling expenses                  757,588       432,075       325,513     75.3
General and
 administrative expenses        4,252,494     2,076,111     2,176,383    104.8
Depreciation and amortization   1,740,226       962,116       778,110     80.9
Litigation settlements               --         211,513      (211,513)     --
Impairment of assets              653,303          --         653,303    100.0
Non-cash compensation                --           6,667        (6,667)     --
                             ------------  ------------  ------------    ------
Total operating expense        16,562,516     9,466,205     7,096,311     74.9
Loss from operations           (5,979,493)   (3,092,847)    2,886,646     93.3
Other income (expense) - net     (543,310)   (2,601,471)   (2,058,161)   (79.1)
                             ------------  ------------  ------------    ------
Net loss before income taxes   (6,522,803)   (5,694,318)     (828,485)   (14.6)
Income tax expense                 25,000          --          25,000    100.0
                             ------------  ------------  ------------    ------
Net loss                     $ (6,547,803) $ (5,694,318) $   (853,485)   (15.0)%
                             ------------  ------------  ------------    ------

Years ended December 31, 2004 and 2003

         Revenues.  Our 2004 revenues increased over the 2003 amount due to both
an increased number of terminals in the field and to an increase in revenues per
terminal  during  2004.  The  acquisition  of Point de Vente in July 2004  added
approximately  $2 million in gross  revenues  to the 2004  total.  Most  revenue
categories  experienced increases during 2004 compared to 2003, with the largest
increases  coming from  wireless  ($12.9  million) and prepaid  debit card ($1.2
million). We expect the following factors to positively impact revenues in 2005:
i) our installed base of terminals at the beginning of 2005,  many of which have
been recently installed and therefore only marginally contributed to revenues in
2004; ii) our expanded  sales force that will be in place for all of 2005;  iii)
the  advantages we are able to offer the market with our  proprietary  system as
previously  described;  iv) the  addition of new means of product  distribution,
such as  debit/credit  card terminals and PC-based  delivery of product;  v) the
addition of new products to our  library,  such as  gift/loyalty  cards and bill
pay; and vi) the continued growth of the prepaid  wireless  market.  There is no
assurance that these factors will positively affect revenues in 2005.


                                      -20-
<PAGE>


         Cost of goods sold.  Our cost of goods sold for the year ended December
31,  2004 as  percentage  of revenues  was 74.1%  compared to 75.2% for the year
ended December 31, 2003. This decrease was a result of several new wireless MVNO
carriers we added in 2004 who offer higher discounts on their products.  Changes
in cost of goods sold as a percentage of revenues are also  attributable  to our
mix of sales. In the future,  we expect our gross margin to fluctuate as changes
occur in our product mix,  level of fees charged and discount  rates  offered by
carriers.   Gross  margin  will  also  be  influenced  by  the  relative  growth
experienced in our two business  models,  the  traditional  broker model and the
service bureau model.

         Commissions and fees.  These expenses are principally  commissions paid
to retailers and brokers for product sales through the Qxpress terminals and are
a fixed percentage of the product sales price. Commissions and fees for the year
ended December 31, 2004 increased in terms of absolute  dollars while  remaining
constant as a percentage of revenues when compared to 2003.  Our contracts  with
brokers generally protect us from any price decreases from carriers. A component
of  commissions  and  fees  is a  transaction  processing  fee  paid  to LDC for
transactions processed through the LDC terminals.  These fees were approximately
$22,000 in 2004 compared to $146,000 in 2003. These fees have been  consistently
in the range of 1% of gross  revenues  processed  through that system.  Since we
were able to transfer all remaining  customers to our new Qxpress  system during
2004, we will no longer incur fees of this nature.

         After  subtracting  the  commissions  and fees paid to the  brokers and
retailers,  our margins were  approximately 3.5% for the year ended December 31,
2004 and 2.4% for the comparable  period in 2003. This increase of over one full
percentage  point is due to i) an increase in fees  charged  during  2004.  Fees
impact the margin after  commissions  and fees on a  "dollar-for-dollar"  basis,
unlike product sales;  and ii) an increase in the net margin we are able to keep
on our newer  accounts  compared  to the margins on older  accounts.  One of our
primary  strategies  in  2005  is to  further  improve  this  net  margin  after
commissions and fees by obtaining more direct contracts with PIN providers, thus
avoiding the mark-up added by primary  distributors and by obtaining more direct
contracts with retail chains where we would not have to pay a broker commission.
There is no assurance  that we will be  successful in improving our margin after
commissions and fees in 2005. Our market is increasingly  competitive and we may
have to discount fees to gain market share;  this and other factors could result
in lower margins in 2005.

         Selling expenses. Selling expenses for the year ended December 31, 2004
increased by  approximately  $325,000 when compared to 2003.  Components of this
increase are  increased  expenses for base salaries of $210,000  which  resulted
from adding five additional sales personnel and an increase of $115,000 in sales
commissions  from a  commission  plan  instituted  in 2004.  We may  continue to
experience  increases in selling costs from additional sales staff and increased
advertising expenses in 2005.

         General  and  administrative.   General  and  administrative   expenses
increased  during 2004 compared to 2003 both in terms of the gross dollar amount
of expenses and as a percentage  of revenues.  This  increase in expenses can be
attributed to a number of factors.  Our general and administrative  salaries and
benefits  increased  by  $297,000  for the year  ended  December  31,  2004 when
compared to 2003. This increase is due to higher gross salaries paid of $58,000,
an increase in benefit costs of $113,000  resulting from higher health insurance
costs and to $126,000 less in salaries  eligible to be  capitalized  as software
development  costs in 2004. We anticipate  that amounts  capitalized as software
development costs will continue to decrease in the future.

         Additional  factors causing the increase  include i) a $160,000 accrual
toward a team bonus  payment  due in March 2005 for 2004  performance,  while no
expense of this nature was recorded in 2003;  ii)  increases in corporate  costs
such as board fees and expenses  ($90,000),  directors  and  officers  insurance
($75,000), recruiting costs for board members and management positions ($43,000)
and  professional  services  ($105,000);  iii)  a  provision  for  bad  debt  of
$1,195,000  in 2004  resulting  primarily  from faulty  product  received from a
supplier. The supplier has accepted responsibility for the product and is making
good faith  efforts to  reimburse  us for the amount  owed of  approximately  $1
million.  Because we have no assurance of receiving  payment we have recorded an
allowance  against the receivable;  iv) an increase in office costs such as rent
and telephone of $130,000; and v) an allowance for potential loss we recorded in
2004 in the amount of  $169,000  for  expired  pins.  These pins were on the LDC
system which we discontinued using in 2004 after remaining  customers were moved
to our Qxpress system.  This system sells pins on a random basis as opposed to a
first-in,  first-out  basis,  allowing  some  of the  pins to age  beyond  their
expiration  date. We are negotiating with the carrier for replacement but do not
have assurance of such. In order to support  expanded  operations,  we expect to
increase  general and  administrative  expense.  As gross profit  increases,  we
expect general and administrative  expenses to decrease as a percentage of gross
profit,  thereby  significantly  improving  operating margins.  However,  in the
immediate  future,  we expect to incur costs in advance of the  business  growth
that they are intended to support. Accordingly,  operating margins may initially
decrease and will not achieve the expected improvement unless and until business
in fact expands on a profitable basis.

         Depreciation and amortization.  Depreciation and amortization  expenses
for the year ended  December 31, 2004 increased by  approximately  $778,000 when
compared  to  2003.  These  increases  are  attributable   primarily  to  higher
amortization of software  development  costs in 2004 and to higher  depreciation
expenses  from an increased  number of  terminals in service.  As we continue to
amortize  software  development costs and we increase the number of terminals in
service,  we expect  depreciation and  amortization  expenses to increase in the
future.


                                      -21-
<PAGE>


         Litigation  settlements.   For  2003,  we  recorded  a  net  litigation
settlement expense of $211,523. This amount relates to two separate actions that
were fully resolved in 2003. No expenses of this nature were recorded in 2004.

         Impairment  of assets.  We recorded an  impairment  of $653,000 in 2004
related to the  purchase  of Point de Vente  (PDV) in July  2004.  In the fourth
quarter,  we assessed the  recoverability  of the  intangible  assets of PDV and
inasmuch as we have not yet realized  expected  increases  in sales  volumes and
cash flows, we determined to write off all intangible  assets that were recorded
at the time of  purchase.  Our  primary  reason for  purchasing  PDV was to gain
access to the Canadian market.  Canadian telecom carriers generally do not grant
direct distribution  agreements to U.S.-based customers.  We remain committed to
achieving growth in this market in 2005 and beyond.

         Other  expense - net.  Other income and expense  consists  primarily of
interest income and expense.  Net other expense for the years ended December 31,
2004 and 2003 were  $543,000  and $2.6  million,  respectively.  In 2003,  $2.64
million of other expense  represents  interest  expense related to the unsecured
note,  convertible  note and  debentures we sold in 2003.  $2.35 million of this
interest  expense  is in the form of  amortization  of  discount  on these  debt
instruments  and  therefore  does not  represent an amount paid in cash. In July
2003, we repaid over $570,000 of debt  intruments  prior to their maturity dates
in order to reduce interest  expense in future  quarters.  The interest rates on
these debt instruments  ranged from 10% to14%. In 2004, we recorded  $301,000 as
interest  expense from the discount on debt  discussed  above and an  additional
$118,000  in  interest  expense  on a  related  party  note  and  capital  lease
obligations. Also, in 2004 we recorded a loss on disposal of assets of $153,000.
This amount was a result of terminals  that had been  installed by a broker that
went out of business in 2004. Many of the terminals from this broker were unable
to be recovered and written off.

         Income tax  expense.  At  December  31,  2004,  we had  operating  loss
carryforwards of approximately  $15.7 million that may be applied against future
taxable income, if any, in years through 2024. The loss  carryforwards and other
items result in net deferred tax assets of approximately $4 million.  The amount
of and ultimate  realization  of the benefits from these deferred tax assets for
income tax purposes  depends,  in part,  on applicable  tax laws in effect,  our
future earnings, if any, and other future events, the effects of which cannot be
determined.  As a result of the  uncertainty  surrounding the realization of the
deferred tax assets,  at year-end we established a valuation  allowance equal to
the net deferred tax assets and no income tax benefit  from our  operating  loss
has been  recognized  for any of the periods  presented.  A $25,000  expense was
recorded for taxes due in various  states with  minimum  taxes or taxes based on
assets or revenues.

Liquidity and Capital Resources

         Historically, we have financed our working capital requirements through
cash  flows  from  operations,  the sale of  equity,  proceeds  from  short-term
borrowings, and proceeds from the sale of convertible debentures and notes.

         In 2004, we entered into a number of financing transactions,  including
$3.5 million in private  placements  of our common stock and $850,000 in capital
leases.

         As of December 31, 2004, we had working capital of  approximately  $1.6
million and a current ratio of 1.7 to 1.

         Existing   commitments  for  cash  in  2005  include  payments  to  the
manufacturers  of our  Qxpress  terminals  in the amount of  $650,000  for 3,800
terminals to be delivered in the first quarter of 2005 and another  $225,000 for
terminals already received and included in accounts  payable,  total payments of
$640,000  toward our  capital  and  operating  leases and a $200,000  payment to
employees  for a bonus plan  instituted  in 2004.  At December 31, 2004,  we had
approximately  6,500 Qxpress terminals  available for placement,  5,900 of which
have  been  paid  for.  This  inventory  will  provide  us  the  means  to  grow
substantially  in 2005 without the associated  capital costs. We anticipate that
our  inventory  of PINs,  which was $1.4  million at  December  31,  2004,  will
continue to grow as our business  expands.  Due to the short order time required
for these  products,  we are able to keep our inventory in the range of 14 day's
sales.  Our future  capital  requirements  will also  depend both on the rate of
growth of our business and the mix of revenue models that we employ. Models that
require us to maintain a large  inventory of prepaid  products or to continue to
own terminals and/or to invest in transaction processing facilities will require
relatively large amounts of capital.  The capital requirements of a pure service
bureau model are, in comparison, substantially less.

         We expect to raise  additional  funds in 2005, which may be in the form
of equity, debt or convertible  securities.  We have a guaranteed commitment for
up to $2.9  million  in  funding  from a memeber  of the board of  directors  if
additional cash is required.






                                      -22-
<PAGE>


Recent Accounting Pronouncements

         The  Emerging  Issues Task Force has issued EITF 03-1,  "The Meaning of
Other-Than-Temporary Impairment and Its Application to Certain Investments." The
issue is to determine  the meaning of  other-than-temporary  impairment  and its
application  to debt and equity  securities.  We do not expect this statement to
have a material impact on us.

         In December  2004,  the  Financial  Accounting  Standards  Board (FASB)
issued SFAS No. 153,  "Exchanges  of  Nonmonetary  Assets--an  amendment  to APB
Opinion No. 29." This statement  requires exchanges of similar productive assets
to now be  accounted  for at fair value,  the basic  principle  for  nonmonetary
transactions,  unless the exchange lacks commercial substance.  We do not expect
the adoption of SFAS No. 153 to have a material impact on us.

         In December  2004,  the FASB issued two Staff  Positions  that  provide
accounting  guidance for the effects of the American  Jobs  Creation Act of 2004
that was signed into law on October 22, 2004.  SFAS 109-1,  "Application of FASB
Statement  No.  109,  `Accounting  for Income  Taxes,' to the Tax  Deduction  on
Qualified  Production  Activities  Provided by the American Jobs Creation Act of
2004" states the  manufacturers'  deduction  provided for under this legislation
should be  accounted  for as a special  deduction  instead of a tax rate change.
SFAS  109-2,  "Accounting  and  Disclosure  Guidance  for the  Foreign  Earnings
Repatriation  Provision  within the American Jobs Creation Act of 2004",  allows
additional time to evaluate the effects of the  legislation for  repatriation of
foreign earnings. We do not expect these statements to have a material impact on
us.

         In  December  2004,  the  FASB  issued  SFAS  No.  123R,   "Share-Based
Payments".  SFAS No. 123R is a revision of SFAS No. 123,  "Accounting  for Stock
Based  Compensation",  and supersedes  APB 25. Among other items,  SFAS No. 123R
eliminates the use of APB 25 and the intrinsic  value method of accounting,  and
requires  companies  to  recognize  the cost of  employee  services  received in
exchange for awards of equity instruments, based on the grant date fair value of
those awards, in the financial  statements.  The effective date of SFAS No. 123R
is the first reporting  period beginning after June 15, 2005, which is the third
quarter  of the our year  ending  December  31,  2005.  We  currently  utilize a
standard option pricing model (Black-Scholes) to measure the fair value of stock
options  granted to  employees  for  disclosure  purposes.  While SFAS No.  123R
permits  entities to continue to use such a model, the standard also permits the
use of a "lattice" model. We have not yet determined which model will be used to
measure the fair value of awards of equity  instruments  to  employees  upon the
adoption of SFAS No. 123R.

         The  impact of SFAS No.  123R on our  results of  operations  cannot be
predicted  at this time  because it will  depend on the number of equity  awards
granted in the future,  as well as the model and  assumptions  used to value the
awards.





















                                      -23-
<PAGE>


Item 7. Consolidated Financial Statements

             REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM


To the Board of Directors
Q COMM INTERNATIONAL, INC. AND SUBSIDIARIES


We  have  audited  the  accompanying   consolidated  balance  sheet  of  Q  Comm
International,  Inc. and  Subsidiaries  as of December 31, 2004, and the related
consolidated  statements of operations  and  comprehensive  loss,  stockholders'
equity  and cash flows for the year then  ended.  These  consolidated  financial
statements   are  the   responsibility   of  the   Company's   management.   Our
responsibility  is to express an opinion on these financial  statements based on
our audit.

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

In our opinion, the consolidated  financial statements referred to above present
fairly, in all material respects,  the consolidated financial position of Q Comm
International, Inc. and Subsidiaries as of December 31, 2004, and the results of
their operations and their cash flows for the year then ended in conformity with
U.S. generally accepted accounting principles.


Tanner LC


Salt Lake City, Utah
March 24, 2005
Except for Note 16 which is dated March 29, 2005

















                                      -24-
<PAGE>


REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM



To the Board of Directors
Q COMM INTERNATIONAL, INC. AND SUBSIDIARY
Orem, Utah

We have audited the  accompanying  consolidated  statements  of  operations  and
comprehensive loss, stockholders' equity and cash flows of Q Comm International,
Inc. and  Subsidiary for the year ended  December 31, 2003.  These  consolidated
financial  statements are the  responsibility of the Company's  management.  Our
responsibility  is to express an opinion on these financial  statements based on
our audit.

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

In our opinion,  the  consolidated  financial  statements  audited by us present
fairly, in all material respects,  the results of operations and cash flows of Q
Comm International,  Inc. and Subsidiary for the year ended December 31, 2003 in
conformity with accounting principles generally accepted in the United States of
America.




PRITCHETT, SILER & HARDY, P.C.

Salt Lake City, Utah
February 7, 2004






















                                      -25-
<PAGE>


                   Q COMM INTERNATIONAL, INC. AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEET
                                                                    December 31,
                                                                        2004
                                                                    ------------
                                     ASSETS
Current Assets:
  Cash                                                             $  1,698,052
  Trade accounts receivable, net                                        895,388
  Other receivables, net                                                 61,434
  Inventory, net                                                      1,081,637
  Prepaid expenses                                                      156,375
                                                                   ------------
     Total Current Assets                                             3,892,886
                                                                   ------------
 Property and Equipment, net                                          4,382,953
                                                                   ------------
Other Assets:
  Restricted cash                                                       510,692
  Capitalized software development costs, net                         1,052,344
  Goodwill, net                                                         144,580
  Intangible assets, net                                                166,667
  Deposits                                                              149,179
                                                                   ------------
     Total Other Assets                                               2,024,002
                                                                   ------------
     Total Assets                                                  $ 10,299,841
                                                                   ============

                      LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
  Accounts payable                                                 $  1,525,634
  Accrued expenses                                                      281,302
  Capital lease obligations - current portion                           490,374
                                                                   ------------
     Total Current Liabilities                                        2,297,310


Capital Lease Obligations                                               382,745
                                                                   ------------
     Total Liabilities                                                2,680,055
                                                                   ------------
Commitments and Contingencies (notes 2,8,9 and 14)

Stockholders' Equity:
  Common stock, $.001 par value, 50,000,000 shares
     authorized, 4,859,044 shares issued and outstanding                  4,859
  Additional paid-in capital                                         27,333,779
  Accumulated deficit                                               (19,775,223)
  Accumulated other comprehensive income                                 67,139
  Stock subscription receivable                                         (10,768)
                                                                   ------------
     Total Stockholders' Equity                                       7,619,786
                                                                   ------------
     Total Liabilities and Stockholders' Equity                    $ 10,299,841
                                                                   ============



          See accompanying notes to consolidated financial statements.



                                      -26-
<PAGE>


                   Q COMM INTERNATIONAL, INC. AND SUBSIDIARIES
          CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS






                                                           For the Years
                                                        Ended December 31,
                                                   ----------------------------
                                                       2004             2003
                                                   ------------    ------------

Revenues                                           $ 40,801,841    $ 25,686,377

Cost of Goods Sold                                   30,218,818      19,313,019
                                                   ------------    ------------
Gross Profit                                         10,583,023       6,373,358
                                                   ------------    ------------
Operating Expenses:
  Commissions and fees                                9,158,905       5,777,723
  Selling                                               757,588         432,075
  General and administrative                          4,252,494       2,076,111
  Depreciation and amortization                       1,740,226         962,116
  Impairment of assets                                  653,303            --
  Litigation settlements                                   --           211,513
  Non-cash compensation                                    --             6,667
                                                   ------------    ------------
    Total Operating Expenses                         16,562,516       9,466,205
                                                   ------------    ------------
Loss from Operations                                 (5,979,493)     (3,092,847)
                                                   ------------    ------------

Other Income (Expense):
  Interest income                                        32,092          51,984
  Interest and other expense                           (422,382)     (2,642,864)
  Loss on disposal of assets                           (153,020)        (10,591)
                                                   ------------    ------------
    Total Other Expense, net                           (543,310)     (2,601,471)
                                                   ------------    ------------
Loss before Income Taxes                             (6,522,803)     (5,694,318)

Provision for State Income Taxes                         25,000            --
                                                   ------------    ------------

Net Loss                                           $ (6,547,803)   $ (5,694,318)
                                                   ============    ============

Basic and Diluted Net Loss per Common Share        $      (1.51)   $      (2.12)
                                                   ============    ============

Basic and Diluted Weighted Average Common
   Shares Outstanding                                 4,345,016       2,691,118
                                                   ============    ============
Other Comprehensive Income (Loss):
  Net loss                                         $ (6,547,803)   $ (5,694,318)
  Foreign currency translation adjustment                67,139            --
                                                   ------------    ------------
Comprehensive Loss                                 $ (6,480,664)   $ (5,694,318)
                                                   ============    ============









          See accompanying notes to consolidated financial statements.


                                      -27-
<PAGE>


<TABLE>
<CAPTION>
                                     Q COMM INTERNATIONAL, INC. AND SUBSIDIARIES
                                    CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
                                    FOR THE YEARS ENDED DECEMBER 31, 2004 AND 2003

                                                                                          Accumulated
                                               Common Stock     Additional     Stock         Other
                                            ------------------   Paid-in    Subscription  Comprehensive Accumulated
                                             Shares    Amount    Capital     Receivable      Income       Deficit
                                            --------- -------- ------------ ------------  ------------ ------------
<S>                                         <C>       <C>      <C>          <C>           <C>          <C>
BALANCE, January 1, 2003                    1,268,443 $  1,268 $  7,511,857 $   (130,950) $       --   $ (7,533,102)

Issuance of common stock for cash, at
  $6.00 to $6.50 per share, net of offering
  costs of $2,807,185                       2,533,333    2,533   13,655,282         --            --           --

Issuance of common stock in connection
  with notes  payable, valued at $8.44 to
  $8.86 per share                             193,474      194    1,645,261         --            --           --

Issuance of warrants issued in connection
  with notes payable                             --       --      1,000,000         --            --           --

Cash received for subscription receivable        --       --           --         71,725          --           --

Net loss                                         --       --           --           --            --     (5,694,318)
                                            --------- -------- ------------ ------------  ------------ ------------
BALANCE, December 31, 2003                  3,995,250    3,995   23,812,400      (59,225)         --    (13,227,420)

Issuance of common stock for cash, at
  $4.00 to $5.00 per share, net of offering
  costs of $35,425                            850,000      850    3,463,725         --            --           --

Issuance of common stock for services, at
  $4.60 per share                               1,667        2        7,666         --            --           --

Issuance of common stock for acquisition,
  at $4.12 per share                           12,127       12       49,988         --            --           --

Cash received for subscription receivable        --       --           --         48,457          --           --

Foreign currency translation adjustment          --       --           --           --          67,139         --

Net loss                                         --       --           --           --            --     (6,547,803)
                                            --------- -------- ------------ ------------  ------------ ------------
BALANCE, December 31, 2004                  4,859,044 $  4,859 $ 27,333,779 $    (10,768) $     67,139 $(19,775,223)
                                            ========= ======== ============ ============  ============ ============


















                            See accompanying notes to consolidated financial statements.
</TABLE>

                                                        -28-
<PAGE>


                   Q COMM INTERNATIONAL, INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS

                                                           For the Years
                                                         Ended December 31,
                                                    ---------------------------
                                                        2004           2003
                                                    ------------   ------------
Cash Flows from Operating Activities:
 Net loss                                           $ (6,547,803)  $ (5,694,318)
 Adjustments to reconcile net loss to
  net cash used by operating activities:
   Loss on disposal of property and equipment            153,020         10,591
   Depreciation and amortization                       1,740,226        962,116
   Amortization of discount on debentures and notes      300,947      2,344,507
   Provision for doubtful accounts                     1,196,585           --
   Impairment of assets                                  653,303           --
   Non-cash compensation                                   1,001          6,667
   Change in operating assets and liabilities,
    excluding the effects of acquisition:
    Accounts receivable                                 (527,038)      (392,310)
    Other receivables                                 (1,061,434)          --
    Inventory                                           (261,480)      (551,625)
    Prepaid expenses                                    (156,139)        (9,741)
    Accounts payable                                    (192,507)      (440,845)
    Accrued liabilities                                   76,448        (58,438)
    Unearned revenue                                     (80,000)        80,000
    Contingent liabilities                               (70,000)      (289,235)
                                                    ------------   ------------
     Net Cash Used by Operating Activities            (4,774,871)    (4,032,631)
                                                    ------------   ------------
Cash Flows from Investing Activities:
 Change in restricted cash                               939,891     (1,450,583)
 Investment in note receivable                              --         (150,000)
 Collection of note receivable                           150,000           --
 Purchase of intangible assets                          (265,397)          --
 Cash from acquisition                                    86,157           --
 Proceeds from sales of property and equipment             3,955         23,966
 Purchase of property and equipment                   (2,300,003)    (2,248,551)
 Capitalized software development costs                 (286,737)      (811,281)
 Increase in deposits                                   (114,992)          --
                                                    ------------   ------------
     Net Cash Used by Investing Activities            (1,787,126)    (4,636,449)
                                                    ------------   ------------
Cash Flows from Financing Activities:
 Issuance of common stock                              3,500,000     16,465,000
 Cash received from subscription receivable               48,457         71,725
 Payment of stock offering costs                         (35,425)    (2,740,069)
 Proceeds from notes and debentures                         --        2,700,000
 Payments on convertible notes payable                (1,230,000)      (681,247)
 Payment on notes payable                                   --       (1,031,350)
 Proceeds from capital leases                            711,971         66,992
 Payments on capital lease obligations                   (66,175)       (27,262)
 Payments on related party obligations                  (260,692)      (150,000)
 Decrease in bank overdraft                                 --         (595,544)
                                                    ------------   ------------
     Net Cash Provided by Financing Activities         2,668,136     14,078,245
                                                    ------------   ------------
Net Increase (Decrease) in Cash                       (3,893,861)     5,409,165
Effect of foreign exchange rates on cash                  67,139           --
Cash, Beginning of Year                                5,524,774        115,609
                                                    ------------   ------------
Cash, End of Year                                   $  1,698,052   $  5,524,774
                                                    ============   ============
Supplemental Disclosures of Cash Flow Information:
 Cash paid during the year for:
 Interest                                           $    106,191   $    113,087
 Income taxes                                       $        200   $        100


                                      -29-
<PAGE>


                   Q COMM INTERNATIONAL, INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                   (Continued)

         Supplemental Schedule of Non-cash Investing and Financing Activities:


                      For the year ended December 31, 2004:

         The Company  obtained  equipment with a value of $878,918 under capital
lease arrangements, of which $166,947 was paid directly to the equipment vendor.

         The Company issued common stock with a value of $7,668 for services of
which $6,667 had been accrued in 2003.

         The  Company  amortized  discount  on debt to  interest  expense in the
amount of $300,947.

         The  Company  recorded a foreign  currency  translation  adjustment  of
$67,139.

         The Company  acquired a  subsidiary  by issuing  common stock valued at
$50,000. In connection with the acquisition,  the Company acquired assets with a
fair value of $1,015,942 as shown below:

                  Cash                               $  86,157
                  Inventory                            103,041
                  Prepaid expenses                         236
                  Accounts receivable                  252,822
                  Allowance for doubtful accounts     (131,896)
                  Property and equipment                61,209
                  Intangible assets                    301,812
                  Goodwill                             341,649
                  Other assets                             912
                  Accounts payable                    (929,285)
                  Accrued expense                      (36,657)
                                                     ---------
                  Common stock issued                $  50,000
                                                     =========

                      For the year ended December 31, 2003:

         The  Company  issued  169,231  shares of common  stock and  warrants to
purchase  169,231  shares  of  common  stock  in  connection  with  the  sale of
convertible  debentures.  The stock and warrants  were valued at an aggregate of
$1,500,000.  Of this amount, $1,199,053 was amortized to interest expense during
the year and $300,947 was unamortized.

         The Company issued 24,242 shares of common stock in connection with the
sale of a convertible  note.  The common stock was valued at $145,454.  The note
was repaid during the year and the amount was recorded as interest expense.

         The Company issued warrants to purchase  238,095 shares of common stock
in connection with a note payable.  The warrants were valued at $1,000,000.  The
note was repaid during the year and the amount was recorded as interest expense.

















          See accompanying notes to consolidated financial statements.


                                      -30-
<PAGE>


                  Q COMM INTERNATIONAL, INC. AND  SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

         Nature of Business - The Company's  business  involves  purchasing  and
reselling  prepaid  telecommunication  and other products  through a proprietary
electronic  point-of-sale  activation  system  known  as  Qxpress.  The  Company
provides  its  products  to end users  throughout  the United  States as well as
Canada,  France,  Australia  and the  Bahamas.  The  Company  has not  paid  any
dividends and any dividends  that may be paid in the future will depend upon the
financial requirements of the Company and other relevant factors. The Company is
headquartered  in Orem,  Utah.  During 2004, the Company acquired Point de Vente
(PDV), a company  located in Quebec,  Canada through the  acquisition of 100% of
its  stock  (see  Note  5).  Approximately  95% of the  Company's  revenues  are
generated in the United States.

         Consolidation  - The  consolidated  financial  statements  include  the
accounts of Q Comm  International,  Inc.  and its wholly owned  subsidiaries,  Q
Comm,  Inc.  and PDV.  All  intercompany  balances  and  transactions  have been
eliminated in consolidation.

         Accounting  Estimates - The  preparation  of  financial  statements  in
conformity  with  U.S.  generally  accepted   accounting   principles   requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities,  the disclosures of contingent assets and liabilities at
the date of the financial  statements,  and the reported amounts of revenues and
expenses  during the reporting  periods.  Actual results could differ from those
estimates.

         Key estimates in the  accompanying  consolidated  financial  statements
include, among others, allowances for doubtful accounts, allowances for obsolete
inventory,  impairments  of  long-lived  tangible  and  intangible  assets,  and
accruals for litigation and contingencies.

         Cash  Equivalents  - For purposes of financial  reporting,  the Company
considers all highly liquid debt investments purchased with an original maturity
of three months or less to be cash equivalents.

         Receivables - Accounts  receivable consist of trade receivables arising
in the normal course of business.  At December 31, 2004, the Company established
an allowance for doubtful accounts of approximately $317,000, which reflects the
Company's  best  estimate of probable  losses for  uncollectible  accounts.  The
Company  determines  the allowance  based on the status and age of the accounts,
historical experience,  and other currently available evidence.  Amounts written
off as bad debt for the years presented are insignificant.

         Other  receivables  consist of an amount due from a provider of product
the  Company  distributes.  The  product  was  faulty  and was  returned  to the
distributor.  The  distributor has not reimbursed the Company for the product to
date. While the distributor  remains  committed to reimburse the Company for the
amount owed of  approximately  $1,000,000,  there is no assurance that this will
take  place.  Accordingly,  the  Company  has  recorded  an  allowance  for this
receivable as of December 31, 2004.

         Inventory - Inventory  consists of prepaid  telecommunication  products
sold by the  Company  and is carried at the lower of cost or market  value using
the  first-in,  first-out  method.  Inventory is carried net of an allowance for
obsolescence of $377,000.

         Depreciation - Depreciation of property and equipment is provided using
the straight-line  method over the estimated useful lives of the assets of three
to five years.  The Company had been  depreciating  its point of sale  terminals
(see Note 2) over an  estimated  useful  life of five  years.  During the fourth
quarter of 2003, the Company  determined that a depreciable  life of three years
would more appropriately reflect the expected useful life of the equipment. This
was accounted for as a "change in accounting  estimate"  and,  accordingly,  the
effect of the  decrease in useful life has been  recognized  prospectively  from
that quarter  forward.  The additional  depreciation  expense  recognized in the
fourth quarter of 2003 due to this change in estimate was $140,828.

         Intangible Assets - The Company accounts for intangible assets under
the provisions of Statement of Financial Accounting Standards No. 142, "Goodwill
and Other Intangible Assets" (SFAS No. 142). The Company does not record
amortization on goodwill. The Company assesses the recoverability of goodwill on
an annual basis and writes the asset down as necessary.

         The Company recorded other intangible assets related to the acquisition
of PDV in 2004,  including a covenant not to compete,  customer lists,  supplier
relationships  and  goodwill.  At December  31, 2004,  the Company  assessed the
recoverability  of these assets due to less than  expected  sales and cash flows
and determined  these assets to be impaired.  An impairment loss of $653,303 was
recorded in the  accompanying  2004  statement of operations  and  comprehensive
loss.

         The Company  purchased  approximately  300 customer  accounts in August
2004 for $200,000. The accounts are being amortized over two years on a straight
line basis and have accumulated amortization of $33,333 at December 31, 2004.


                                      -31-
<PAGE>


                  Q COMM INTERNATIONAL, INC. AND  SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

          The Company capitalizes software development costs incurred to develop
certain of the Company's  products and services in accordance  with Statement of
Position  98-1,  "Accounting  for the Costs of Computer  Software  Developed  or
Obtained  for Internal  Use" (SOP 98-1).  Costs are  capitalized  only after the
technological  feasibility  of the project has been  established.  In accordance
with SFAS No. 142, the Company has recorded its software  development costs as a
definite-lived   intangible  asset  and  is  amortizing  these  costs  over  the
three-year estimated useful life of the software.

         Impairment  of  Long-lived  Assets - In  accordance  with SFAS No. 144,
"Accounting  for the  Impairment or Disposal of Long-Lived  Assets,"  long-lived
assets,  such as property and equipment,  and purchased  intangibles  subject to
amortization,  are  reviewed  for  impairment  whenever  events  or  changes  in
circumstances  indicate  that  the  carrying  amount  of an  asset  may  not  be
recoverable.  Recoverability  of  assets  to be held and used is  measured  by a
comparison  of the  carrying  amount  of an asset or  asset  group to  estimated
undiscounted  future cash flows  expected to be generated  by the asset.  If the
carrying  amount  of an  asset or  asset  group  exceeds  its  estimated  future
undiscounted  cash flows,  an impairment  charge is recognized for the amount by
which the carrying amount of the asset exceeds the fair value of the asset.

         Fair Value of Financial  Instruments - The carrying amounts reported in
the  accompanying  consolidated  financial  statements for accounts  receivable,
other  receivables and accounts  payable  approximate fair values because of the
immediate or short-term maturities of these financial instruments.  The carrying
value of capital leases obligations also approximates their fair value.

         Revenue Recognition - The Company uses two models to generate revenues:
the broker model and the service bureau model. Under the broker model, which has
been and continues to be the dominant alternative, the Company sells its prepaid
products  through retail  locations.  Revenue is recognized at the time products
are sold.  Sales of the  Company's  products  are  generally  made  directly  to
end-users.  There is no right of return for products sold and the Company is not
obligated for further  performance after the sale. These sales  transactions are
accounted for at "gross" since the Company meets the  requirements  specified by
Securities and Exchange  Commission Staff Accounting  Bulletin No. 104 (SAB 104)
and  Emerging  Issues  Task Force No.  99-19  (EITF  99-19).  In cases where the
Company does not own the product sold and another  entity  retains such risk and
reward of product  ownership or where certain other  requirements  of SAB 104 or
EITF 99-19 are not met, the Company records revenues on a "net" basis.

         The Company uses the service bureau model primarily with  international
customers.  In this model,  the Company  licenses its  proprietary  software and
sells its point-of-sale  terminals. The customer is responsible for operation of
the system and providing  services to its retail stores. The Company receives an
ongoing transaction fee for all sales through the system, which is recorded on a
"net" basis.

         The  Company  also  generates  revenue  from  the  sale  or  rental  of
terminals, minimum performance fees and sales of other products. These sales are
recorded net of sales discounts and allowances when billed.

         Cost of Goods Sold - Cost of goods sold consists of primarily the costs
of the prepaid telecommunication and other miscellaneous products sold at retail
and terminals  sold to customers.  The full cost of the product,  as well as all
direct costs associated with the sale of the product, is recorded at the time of
sale.  Cost of goods sold does not include  commissions and fees paid to brokers
and other intermediaries and transaction  processing fees paid to a third party.
Those costs are recorded separately in operating expenses.

         Net Loss Per Common  Share - The Company  computes  net loss per common
share in accordance  with Statement of Financial  Accounting  Standards No. 128,
"Earnings Per Share," which  requires the Company to present basic  earnings per
share and dilutive  earnings per share when the effect of  options/warrants  and
convertible notes is dilutive. Because the Company incurred losses for the years
ended December 31, 2004 and 2003, the effect of options/warrants and convertible
notes totaling 2,557,160 and 2,216,307 equivalent shares, respectively, has been
excluded from the net loss per common share  computation  since its impact would
be antidilutive.

         Income Taxes - The Company accounts for income taxes in accordance with
Statement of Financial  Accounting  Standards  No. 109,  "Accounting  for Income
Taxes." This statement  requires an asset and liability  approach for accounting
for income taxes (see Note 12).

         Advertising - Advertising  costs are expensed as incurred.  Advertising
costs  totaled  $113,687  and $62,377 for the years ended  December 31, 2004 and
2003, respectively.


                                      -32-
<PAGE>


                  Q COMM INTERNATIONAL, INC. AND  SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

         Restricted  Cash - Restricted  cash of $510,692 at December 31, 2004 is
maintained to support letters of credit covering capital lease  arrangements and
to  secure  a  bank  account  used  for   processing   automated   clearinghouse
transactions.  In order to secure the bank account,  the Company must maintain a
balance of 2% of the previous month's total  transactions  processed through the
account.

         Stock Options - In December  2003, the Financial  Accounting  Standards
Board (FASB) issued SFAS No. 148,  "Accounting for  Stock-Based  Compensation --
Transition  and  Disclosure,  an amendment of FASB  Statement No. 123" (SFAS No.
148).  This  Statement  amends  SFAS No. 123 to provide  alternative  methods of
transition  for a voluntary  change to the fair value method of  accounting  for
stock-based  employee  compensation.  In  addition,  SFAS  No.  148  amends  the
disclosure requirements of SFAS No. 123 to require prominent disclosures in both
annual and interim financial statements.

         The  Company  has stock  option  plans  that  provide  for  stock-based
employee  compensation,  including the granting of stock options, to certain key
employees.  The plans are more fully described in Note 11. The Company  accounts
for grants to employees and directors under its stock option plans in accordance
with  the  recognition  and  measurement  principles  of  APB  Opinion  No.  25,
"Accounting for Stock Issued to Employees",  and related Interpretations.  Under
this method,  compensation  expense is recorded on the date of grant only if the
current market price of the underlying stock exceeded the exercise price.

         During the years presented in the  accompanying  financial  statements,
the Company  has granted  options  under its 2000,  2003 and 2004 Stock  Options
Plans. The Company has adopted the  disclosure-only  provisions of SFAS No. 123.
Accordingly,  no compensation  cost has been recognized for grants of options to
employees  and  directors in the  accompanying  statements  of  operations.  Had
compensation  cost for the  Company's  stock  option plans and  agreements  been
determined based on the fair value at the grant date for awards in 2004 and 2003
consistent with the provisions of SFAS No. 123, the Company's net loss and basic
net loss per  common  share  would have been  reduced  to the pro forma  amounts
indicated below:

                                                           For the Years
                                                        Ended December 31,
                                                     ------------------------
                                                         2004         2003
                                                     -----------  -----------
 Net loss, as reported                               $(6,547,803) $(5,694,318)
 Plus stock-based employee compensation
   expense included in reported net income,
   net of related tax effects                                --           --
 Less total stock-based employee compensation
   expense determined under fair value based
   method for all awards, net of related tax effects  (1,159,438)  (1,193,831)
                                                     -----------  -----------
 Pro forma net loss                                  $(7,707,241) $(6,888,149)
                                                     -----------  -----------

 Basic loss per share, as reported                   $     (1.51) $     (2.12)
 Pro forma net loss per share                        $     (1.77) $     (2.55)

         Translation of Foreign  Currencies - The Company transacts  business in
Canadian  dollars  through  its  wholly-owned  subsidiary,  Point de Vente.  The
foreign  subsidiary  uses  its  local  currency  as  the  functional   currency.
Consequently,  assets  and  liabilities  of the  foreign  subsidiary  have  been
translated to U.S. dollars using period-end  exchange rates.  Income and expense
items have been  translated  at the average rate of exchange  during the period.
Any  adjustment  resulting  from  translating  the  financial  statements of the
foreign  subsidiary  is  reflected  as  other  comprehensive  income  which is a
component of stockholders' equity.

         Reverse Stock Split - All  references  to the number of common  shares,
price per common  share,  and net loss per common share have been  retroactively
adjusted to reflect a 1-for-15  reverse stock split that was  effective  June 4,
2003.

         Reclassifications - Certain  reclassifications to the 2003 amounts have
been made to conform to the 2004 presentation.


                                      -33-
<PAGE>


                   Q COMM INTERNATIONAL, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 2 - PROPERTY AND EQUIPMENT

         The following is a summary of property and equipment:

                                                               December 31,
                                                                   2004
                                                               -----------
  Point of sale terminals and related items - in service       $ 2,987,184
  Office and computer equipment                                    341,140
                                                               -----------
  Total cost of depreciable equipment                            3,328,324
  Accumulated depreciation and amortization                     (1,280,770)
                                                               -----------
  Property and equipment in service, net                         2,047,554
  Point of sale terminals and related items -not
    placed in service                                            2,054,643
  Parts deposit held by manufacturers                              280,756
                                                               -----------
  Net property and equipment                                   $ 4,382,953
                                                               -----------

         Point of sale  terminals  held by the Company in property and equipment
will either be sold to customers or placed in service with the Company retaining
ownership.  The Company begins  depreciating  terminals it owns at the time they
are shipped to the broker or retailer.  Depreciation expense for the years ended
December 31, 2004 and 2003 was $855,620 and $382,107, respectively (see Note 1).

         At December  31, 2004,  the Company had  noncancelable  commitments  to
purchase 3,800 point of sale terminals at a cost of approximately $650,000.

NOTE 3 - GOODWILL

         Goodwill consisted of the following at December 31, 2004:

         Goodwill related to acquisition in 2000                 $ 224,561
         Less accumulated amortization recorded prior to
           adoption of SFAS No. 142                                (79,981)
                                                                  --------
         Net goodwill                                            $ 144,580
                                                                 =========

         In accordance with SFAS No. 142, goodwill is no longer amortized.

NOTE 4 - CAPITALIZED SOFTWARE DEVELOPMENT

         Information  related  to  capitalized  software  development  costs  at
December 31, 2004 is as follows:

    Capitalized software development costs, January 1, 2004     $ 2,262,249
    Additional costs capitalized during the year                    286,737
                                                                -----------
    Capitalized software development costs, December 31, 2004     2,548,986
    Accumulated amortization                                     (1,496,642)
                                                                -----------
    Capitalized software development costs, net                 $ 1,052,344
                                                                ===========

         Of the balance at December 31, 2004,  approximately $1,100,000 was paid
to a third-party  software  development company and other outside entities.  The
remaining  costs  represent  capitalized  internal  costs,  which are  primarily
employee   salaries  and   benefits,   and  related   capitalized   interest  of
approximately   $100,000   recorded  during  the  time  the  project  was  under
development.

         The Company regularly tests capitalized  software development costs for
impairment  in  accordance  with SFAS No. 142.  The Company  uses the  estimated
future cash flows related to its capitalized  software development costs and has
determined  that these costs were not impaired as of December 31, 2004 and 2003.
The Company  amortizes  capitalized  software  costs over a  three-year  period.
During  the years  ended  December  31,  2004 and  2003,  the  Company  recorded
amortization expense of $829,051 and $580,009, respectively.


                                      -34-
<PAGE>


                  Q COMM INTERNATIONAL, INC. AND  SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 5 - ACQUISITION

         On July 7, 2004,  the Company  acquired Point de Vente (PDV), a company
located in Quebec,  Canada,  by issuing  12,127 shares of common stock valued at
$50,000. Prior to the date of acquisition,  PDV was a service bureau customer of
the Company.  The Company acquired  tangible assets with an estimated fair value
of  approximately  $372,000,  intangible  assets with an estimated fair value of
approximately  $643,000 and assumed  liabilities of approximately  $965,000.  At
December 31, 2004, the Company  determined the intangible  assets to be impaired
and recorded a loss of $653,303 in the accompanying 2004 statement of operations
and  comprehensive  loss.  PDV's  results  of  operations  are  included  in the
accompanying  consolidated 2004 statement of operations and  comprehensive  loss
from July 8,  2004.  Comparative  pro forma  financial  information  for the PDV
acquisition  as though it had taken  place at  January  1, 2004 is not  provided
because  the  results  of   operations   were  not  material  to  the  Company's
consolidated financial statements.

NOTE 6 - RELATED PARTY OBLIGATION

         On January 1,  2004,  the  Company  owed its then CEO an  aggregate  of
$260,692,  primarily  for  advances he had made to the Company and for  deferred
salary.  The  unsecured  note  required  monthly  payments of $7,382  (including
interest  at 10%) and was due the  earlier of  December  31,  2007,  a change in
control of the Company or a sale or  liquidation  of the Company's  assets.  The
Company  elected to repay the note in full  during the year ended  December  31,
2004.

         During the years ended December 31, 2004 and 2003, the Company recorded
interest expense on this obligation of $21,462 and $33,569, respectively.

NOTE 7 - CONVERTIBLE DEBENTURES

         During 2003, the Company issued (i) 12% secured convertible  debentures
due March 31,  2004 in the  aggregate  principal  amount of $1.5  million,  (ii)
169,231 shares of restricted common stock and (iii) warrants to purchase 169,231
shares of common stock for the total cash proceeds of $1.5 million. The value of
the shares of common stock and  warrants of $1.5 million was offset  against the
outstanding  balance of the  debentures.  At December 31, 2003, the  outstanding
principal balance of the debentures was $1,230,000 and the unamortized  discount
was $300,947.  The debentures were repaid in March 2004 according to their terms
and the remaining discount was amortized to interest expense.

NOTE 8 - LEASE OBLIGATIONS

         Certain computer equipment and point of sale terminals are leased under
capital lease  arrangements and are presented in the  accompanying  consolidated
balance  sheet as property  and  equipment.  At  December  31,  2004,  the total
carrying cost of equipment held under capital lease and the related  accumulated
amortization was approximately $970,000 and $40,000, respectively.

       Total  future  minimum  lease  payments  for  capital  leases,  including
interest and other costs, are as follows:

         2005                                                   $551,490
         2006                                                    397,502
                                                                --------
         Total                                                   948,992
         Less interest and other costs                           (75,873)
                                                                --------
         Present value of future minimum lease payments          873,119
         Less current portion                                   (490,374)
                                                                --------
         Long-term portion                                      $382,745
                                                                ========

         Two capital lease arrangements  require the Company to maintain letters
of credit  equal to 50% of the  original  lease  amounts  during the term of the
lease.  The Company secures the letters of credit with a restricted cash account
at a financial institution totaling approximately $440,000 at December 31, 2004.

         The Company is  committed  under  non-cancelable  operating  leases for
office  space and  office  equipment.  Rent  expense  paid for the  years  ended
December 31, 2004 and 2003 was approximately $70,000 and $55,000,  respectively.
The Company's  future minimum rental payments under  operating  leases amount to
approximately $90,000 annually through 2008.


                                      -35-
<PAGE>


                  Q COMM INTERNATIONAL, INC. AND  SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 9 - LITIGATION AND CONTINGENCIES

         The  Company  was  party  to a suit  from a bank  claiming  damages  of
$175,477  related to a merchant  credit card  account.  Management  disputed the
bank's claim.  During the year ended  December 31, 2004,  the parties  reached a
settlement  wherein the Company paid $70,000 in  satisfaction of the claim which
was accrued at December 31, 2003.

         On January 23, 2004, a complaint was filed against the Company claiming
that it had  breached an Asset  Purchase  Agreement  between the Company and the
plaintiff  dated October 31, 2000.  The plaintiff  asserts that the Company owes
$4,000,000 in consideration  for assets purchased and earn-out fees for referral
services.  In February  2004,  the Company filed a motion to dismiss the case on
the grounds that under the  agreement in question the proper venue for this case
was the federal or state courts in Orem,  Utah.  In April 2004,  the  California
court issued a tentative ruling granting the Company's motion for dismissal. The
proceedings  were stayed pending the outcome of the matter in the state of Utah.
In July 2004, Dial-Thru filed substantially the same suit against the Company in
the United States District Court in the State of Utah.  Management  believes the
Company  appropriately  exercised  its  right  of  recission  specified  in  the
agreement  and  returned  the items to the  seller,  and that no amounts are due
under  the  contract.  The  Company  plans  to  vigorously  contest  the  claim.
Management  believes that the ultimate outcome of this matter,  if any, will not
have a material adverse affect on the Company's financial  position,  results of
operations, or liquidity.

         In January 2002,  the Company filed an action against an individual for
non-payment  of funds  owed for the  purchase  of common  stock in the amount of
$135,000.  The  Company  has been  awarded  summary  judgment in this matter and
expects to receive the  remaining  outstanding  amount,  which was $10,768 as of
December 31, 2004. This receivable is reflected in the accompanying consolidated
balance sheet as a reduction to stockholders' equity.

NOTE 10 - CAPITAL STOCK

         A summary of common stock transactions for the years ended December 31,
2004 and 2003 is as follows:

                          Year Ended December 31, 2004

         The Company sold 850,000 shares of restricted  common stock at $4.00 to
$5.00 per share  through  private  placements  for an aggregate of $3,500,000 in
cash.

         The Company  issued 12,127  shares of restricted  common stock at $4.12
per share in an acquisition of a subsidiary (see Note 5).

         The Company issued 1,667 shares of restricted common stock at $4.60 per
share as payment for a stock bonus granted in 2003.

                          Year Ended December 31, 2003

         The Company sold 1,265,000 units in an underwritten public offering for
$16,445,000 in cash, or $13.00 per unit. Underwriter discount and offering costs
of $2,807,185 were recorded in connection with the offering. Each unit consisted
of two  shares of common  stock and a warrant  to  purchase  one share of common
stock for $9.75 per share, expiring in 2008. The stock and the warrants included
in the units traded only as a unit for the first 30 days following the effective
date of the  offering,  after  which the units were  delisted  and the stock and
warrants included in the units began trading separately.

         The Company sold 3,333 shares of  restricted  common stock at $6.00 per
share through a private placement for $20,000 in cash.

         The  Company  issued  24,242  shares  of  restricted  common  stock  in
connection  with a convertible  note in the amount of $200,000.  The shares were
valued at $6.00 per share, or $145,454.

         The  Company  issued  169,231  shares of  restricted  common  stock and
warrants to purchase 169,231 shares of restricted common stock in connection the
sale of $1,500,000  of  debentures  (see Note 7). The shares of common stock and
the warrants were valued at an aggregate of $1,500,000.






                                      -36-
<PAGE>


                  Q COMM INTERNATIONAL, INC. AND  SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 11 - STOCK OPTIONS AND WARRANTS

         The Company is authorized  to issue stock options under three  existing
stock option plans  approved by  stockholders.  The 2000 plan (133,333  shares),
2003 plan  (100,000  shares)  and 2004  plan  (500,000  shares)  allow for up to
733,333 shares to be issued under substantially  similar terms. A summary of the
status of options  granted at December 31, 2004 and 2003, and changes during the
years then ended are as follows:
                                       2004                      2003
                             ------------------------  -------------------------
                                     Weighted Average           Weighted Average
                             Shares   Exercise Price   Shares    Exercise Price
                             -------  --------------   -------   --------------
Outstanding at
 beginning of year           304,250       $10.00      204,688        $15.45
Granted                      502,500       $ 4.65      190,667        $ 6.75
Exercised                         -        $    -           -         $    -
Forfeited                    274,083       $ 8.16       86,105        $15.00
Expired                           -        $    -        5,000        $15.00
                             -------                   -------
Outstanding at end of year   532,667       $ 5.95      304,250        $10.00
                             -------                   -------
Exercisable at end of year   296,998       $ 6.68      102,000        $15.78
                             =======                   =======
Weighted average fair
 value of options granted    502,500       $ 4.65      190,667        $ 6.26
                             =======                   =======

         The fair value of each option  granted is estimated on the date granted
using the Black-Scholes option pricing model with the following weighted-average
assumptions  used for grants during the years ended  December 31, 2004 and 2003:
expected dividend yields of zero, expected life of 10 years, expected volatility
of 124% and 140%,  respectively,  and risk-free interest rates of 4.3% and 3.1%,
respectively.

         A summary of the status of stock  options  outstanding  at December 31,
2004 is presented below:

<TABLE>
<CAPTION>
                            Options Outstanding                    Options Exercisable
             -----------------------------------------------  -----------------------------
 Range of                 Weighted Average  Weighted Average               Weighted Average
 Exercise      Number        Remaining          Exercise        Number         Exercise
  Prices     Outstanding  Contractual Life        Price       Exercisable        Price
-----------  -----------  ----------------  ----------------  ----------    --------------
<S>          <C>          <C>               <C>               <C>           <C>
$4.12-$4.87    335,500        4.8 years         $  4.56         155,665         $  4.59
   $6.50       155,000        6.5 years         $  6.50         100,000         $  6.50
   $15.00       42,167        1.7 years         $ 15.00          41,333         $ 15.00
------------   -------        ---------         -------         -------         -------
$4.12-$15.00   532,667        5.0 years         $  5.95         296,998         $  6.68
============   =======        =========         =======         =======         =======
</TABLE>

         At December 31, 2004, the Company had outstanding  warrants to purchase
2,044,493 shares of common stock (including  1,265,000 publicly traded warrants,
see Note 10) that were issued to  non-employees  under various  agreements  with
exercise  prices  ranging from $5.25 to $24.75 per share and a weighted  average
exercise  price of $9.14 per share,  expiring  between  April 2005 and  November
2008.  The  warrants  were valued on the date of issue  using the  Black-Scholes
pricing  model and the  following  assumptions:  exercise  price of the  warrant
stated in the agreements,  $6.00 underlying stock price,  140% volatility,  five
year expected life, 2.9% risk free interest rate and expected  dividend yield of
zero.  During the year ended  December 31, 2004, no warrants were issued,  8,333
warrants  with a  weighted  average  exercise  price of  $17.85  expired  and no
warrants were exercised.

         Subsequent  to December 31, 2004,  employee  stock  options for 127,500
shares at $4.58 were  exercised  and warrants  for 100,000  shares at $5.25 were
exercised.

         A summary of all stock options and warrants outstanding at December 31,
2004 is presented below:
                                        Compensatory  Non-Compensatory   Total
                                        ------------  ----------------   -----
Stock options issued to employees and
 board members under stock option plans    487,333          --          487,333
Stock options issued to employees
 outside stock option plans                 45,334          --           45,334
                                           -------       ---------     ---------
  Total                                    532,667          --          532,667
Warrants issued to non-employees           355,833       1,688,660     2,044,493
                                           -------       ---------     ---------
  Total options and warrants outstanding   888,500       1,688,660     2,577,160
                                           =======       =========     =========


                                      -37-
<PAGE>


                  Q COMM INTERNATIONAL, INC. AND  SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 12 - INCOME TAXES

         The Company  accounts for income taxes in accordance with SFAS No. 109,
"Accounting  for Income  Taxes".  SFAS No. 109 requires the Company to provide a
net deferred tax asset or liability  equal to the expected future tax benefit or
expense of temporary  reporting  differences between book and tax accounting and
any available net operating loss or tax credit carryforwards.

         The  amount  of and  ultimate  realization  of the  benefits  from  the
deferred tax assets for income tax purposes is dependent,  in part, upon the tax
laws in effect,  the Company's  future  earnings,  and other future events,  the
effects of which cannot be determined.  Because of the  uncertainty  surrounding
the  realization  of the  deferred  tax assets,  the Company has  established  a
valuation  allowance of approximately  $6,086,000 and $3,763,000 at December 31,
2004 and 2003, respectively.

         The Company had  available  at December 31, 2004,  net  operating  loss
carryforwards of approximately $15,650,000,  which may be applied against future
taxable income and which expire in various years through 2024.

         The components of income tax expense from continuing operations for the
years ended December 31, 2004 and 2003 consist of the following:

                                                        2004            2003
                                                     -----------    -----------
Current income tax expense:
  Federal                                            $      --      $      --
  State                                                   25,000           --
                                                     -----------    -----------
     Current tax expense                             $    25,000    $      --
                                                     ===========    ===========
Deferred tax expense (benefit) arising from:
  Depreciation and amortization                      $  (404,000)   $   188,000
  Impairment of assets                                  (240,000)          --
  Allowance for doubtful accounts                       (476,000)          --
  Allowance for inventory                               (139,000)          --
  Net operating loss                                  (1,059,000)    (1,874,000)
  Deferred compensation                                     --          104,000
  Settlement reserve                                        --           75,000
  Other                                                   (5,000)        (6,000)
  Valuation allowance                                  2,323,000      1,513,000
                                                     -----------    -----------
     Net deferred tax expense                        $      --      $      --
                                                     ===========    ===========

         A reconciliation of income tax expense at the federal statutory rate to
income tax expense at the company's effective rate is as follows:

                                                        2004            2003
                                                     -----------    -----------
Computed at the expected statutory rate              $(2,115,000)   $(1,839,000)
State and local income taxes, net of federal benefit    (328,000)      (285,000)
Interest expense due to issuance of warrants             120,000        611,000
Other                                                     25,000           --
Change in valuation allowance                          2,323,000      1,513,000
                                                     -----------    -----------
                                                     $    25,000    $      --
                                                     ===========    ===========

         The temporary  differences,  tax credits and carryforwards gave rise to
the following deferred tax asset at December 31, 2004:

                                                        2004            2003
                                                     -----------    -----------
Net operating loss carryforwards                     $ 5,237,000    $ 4,485,000
Allowance for loss                                       491,000         15,000
Inventory allowance                                      140,000           --
Depreciation and impairment of assets                    262,000       (737,000)
Other                                                    (44,000)          --
Less valuation allowance                              (6,086,000)    (3,763,000)
                                                     -----------    -----------
Deferred tax asset net of valuation allowance        $      --      $      --
                                                     ===========    ===========


                                      -38-
<PAGE>


                  Q COMM INTERNATIONAL, INC. AND  SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 13 - CONCENTRATION OF REVENUES

         The Company has one customer that accounted for 46% of revenues for the
year ended  December 31, 2004,  and two customers that accounted for 59% and 14%
of total revenues for the year ended December 31, 2003. Also,  approximately 90%
of the  Company's  revenue for the years ended  December  31, 2004 and 2003 were
from the sale of prepaid wireless products.

NOTE 14 - EMPLOYMENT AGREEMENTS

         The  Company  had an  employment  agreement  with its  Chief  Financial
Officer (CFO), which expires on December 31, 2005. If the Company terminates the
agreement without cause, or if the CFO terminates the agreement for good reason,
the CFO is  entitled  to  receive  the  lesser of one  year's  salary or payment
through the  expiration  date of the agreement.  In addition,  any stock options
would vest  immediately.  The agreement was terminated  during 2004. The Company
and the CFO have an  arrangement  that provides the CFO a retention  bonus if he
remains employed by the Company through May 31, 2005.

         The Company has an employment  agreement with its President/CEO,  which
expires on December  31, 2006.  The  agreement  may be extended  for  successive
one-year periods.  If the Company  terminates the agreement without cause, or if
the President/CEO terminates the agreement for good reason, the President/CEO is
entitled to receive the greater of one year's  salary plus any target cash bonus
he would be  eligible  to  receive  during  that  year or  payment  through  the
expiration  date of the  agreement.  In addition,  any stock  options would vest
immediately.  The  President/CEO  was also granted an option to purchase 150,000
shares of common  stock at the $3.59 market price per share on the date of grant
in January 2005.

NOTE 15 - RECENTLY ENACTED ACCOUNTING STANDARDS

         The  Emerging  Issues Task Force has issued EITF 03-1,  "The Meaning of
Other-Than-Temporary Impairment and Its Application to Certain Investments." The
issue is to determine  the meaning of  other-than-temporary  impairment  and its
application  to debt and equity  securities.  The  Company  does not expect this
statement  to have a  material  impact on its  financial  position,  results  of
operations or liquidity.

         In December  2004,  the  Financial  Accounting  Standards  Board (FASB)
issued SFAS No. 153,  "Exchanges  of  Nonmonetary  Assets--an  amendment  to APB
Opinion No. 29." This statement  requires exchanges of similar productive assets
to now be  accounted  for at fair value,  the basic  principle  for  nonmonetary
transactions,  unless the exchange lacks commercial substance.  The Company does
not  expect  the  adoption  of SFAS No.  153 to have a  material  impact  on its
financial position, results of operations or liquidity.

         In December  2004,  the FASB issued two Staff  Positions  that  provide
accounting  guidance for the effects of the American  Jobs  Creation Act of 2004
that was signed into law on October 22, 2004.  SFAS 109-1,  "Application of FASB
Statement  No.  109,  `Accounting  for Income  Taxes,' to the Tax  Deduction  on
Qualified  Production  Activities  Provided by the American Jobs Creation Act of
2004" states the  manufacturers'  deduction  provided for under this legislation
should be  accounted  for as a special  deduction  instead of a tax rate change.
SFAS  109-2,  "Accounting  and  Disclosure  Guidance  for the  Foreign  Earnings
Repatriation  Provision  within the American Jobs Creation Act of 2004",  allows
additional time to evaluate the effects of the  legislation for  repatriation of
foreign  earnings.  The  Company  does not  expect  these  statements  to have a
material impact on its financial position, results of operations or liquidity.

         In  December  2004,  the  FASB  issued  SFAS  No.  123R,   "Share-Based
Payments".  SFAS No. 123R is a revision of SFAS No. 123,  "Accounting  for Stock
Based  Compensation",  and supersedes  APB 25. Among other items,  SFAS No. 123R
eliminates the use of APB 25 and the intrinsic  value method of accounting,  and
requires  companies  to  recognize  the cost of  employee  services  received in
exchange for awards of equity instruments, based on the grant date fair value of
those awards, in the financial  statements.  The effective date of SFAS No. 123R
is the first reporting  period beginning after June 15, 2005, which is the third
quarter of the Company's year ending  December 31, 2005. The Company has not yet
determined  the model it will use to measure  the fair value of awards of equity
instruments  to employees upon the adoption of SFAS No. 123R. The impact of SFAS
No. 123R on the Company's results of operations cannot be predicted at this time
because it will depend on the number of equity awards granted in the future,  as
well as the model and assumptions used to value the awards.

NOTE 16 - SUBSEQUENT EVENTS

         Through March 29, 2005,  127,500 employee stock options with a price of
$4.58 were exercised and 100,000  warrants with a price of $5.25 were exercised.
Gross proceeds to the Company in these transactions totaled $1,108,950.

         On March 29, 2005, the Company received a guaranteed  commitment from a
member of the board of directors for up to $2.9 million of funding through debt,
equity or guarantees.


                                      -39-
<PAGE>


Item 8. Change in and Disagreements with Accountants on Accounting and Financial
Disclosure.

         On July 30, 2004, our Audit  Committee  determined to engage Tanner LC,
Salt Lake City, Utah, as the Company's independent  registered public accounting
firm. Previously, we had engaged Pritchett, Siler & Hardy, P.C., Salt Lake City,
Utah as the Company's  independent  auditor.  The report of  Pritchett,  Siler &
Hardy, P.C. on the Company's consolidated balance sheet as of December 31, 2003,
and the related  consolidated  statements of operations and comprehensive  loss,
stockholders'  equity,  and cash  flows for each of the two years in the  period
ended  December 31, 2003,  did not contain an adverse  opinion or  disclaimer of
opinion and was not  qualified  or modified  as to  uncertainty,  audit scope or
accounting principles.

         In  connection  with our two most  recent  fiscal  year  audits and any
subsequent  interim period  preceding the  disengagement  of Pritchett,  Siler &
Hardy, P.C., there were no disagreements with Pritchett,  Siler & Hardy, P.C. or
reportable events on any matter of accounting principles or practices, financial
statement disclosure, or auditing scope or procedure, which disagreement, if not
resolved to the satisfaction of the former  accountant,  would have caused it to
make reference to the subject matter of the  disagreement in connection with its
report. In connection with its audit of the Company's 2003 financial statements,
Pritchett,  Siler & Hardy,  P.C. noted no matters involving the internal control
structure and operations that they considered to be material weaknesses.

         No consultations occurred between the Company and Tanner LC. during the
two most recent fiscal years and any  subsequent  interim period prior to Tanner
LC's appointment  regarding either (i) the application of accounting  principles
to a specific completed or contemplated  transaction,  the type of audit opinion
that  might  be  rendered  on  the  Company's  financial  statements,  or  other
information  provided that was  considered by the Company in reaching a decision
as to an accounting,  auditing, or financial reporting issue, or (ii) any matter
that was the subject of disagreement or a reportable event requiring  disclosure
under Item 304(a)(1)(v) of Regulation S-K.

Item 8A. Control and Procedures

         We maintain  disclosure controls and procedures designed to ensure that
financial  information  required to be disclosed in our reports  filed under the
Securities  Exchange Act of 1934,  as amended (the  Exchange  Act), is recorded,
processed,  summarized,  and reported within the required time periods, and that
such  information is accumulated and  communicated to our management,  including
our Chief Executive  Officer and Chief  Financial  Officer,  as appropriate,  to
allow for timely decisions regarding disclosure.

         In connection  with the completion of its audit of, and the issuance of
its report on, our consolidated financial statements for the year ended December
31,  2004,  Tanner LC  identified  deficiencies  that  existed  in the design or
operation of our internal control over financial reporting that it considered to
be "material  weaknesses."  The Public Company  Accounting  Oversight  Board had
defined a material  weakness as a  "significant  deficiency  or  combination  of
significant  deficiencies  that results in more than a remote  likelihood that a
material  misstatement of the annual or interim  financial will not be prevented
or detected."

         The   deficiencies  in  our  internal  control  relate  to  the  timely
reconciliation of general ledger accounts,  controls over inventory,  accounting
for  acquisitions,  and  impairment  of  intangible  assets.  Additionally,  the
deficiency in our internal control over certain  disclosures in the footnotes to
the financial statements was related to the stock option disclosures required by
SFAS  No.  148 and  income  taxes  required  by SFAS  No.  109.  The  unrecorded
transactions and disclosure  deficiencies were detected in the audit process and
have been  appropriately  recorded and disclosed in this Form 10-KSB.  We are in
the process of improving  our internal  control in an effort to remediate  these
deficiencies  through improved supervision and training of our accounting staff.
These deficiencies have been disclosed to our Audit Committee. Additional effort
is needed to fully remedy these  deficiencies  and we are continuing our efforts
to improve and strengthen our control  processes and procedures.  Our management
and Audit Committee will continue to work with our auditors and outside advisors
to ensure that our controls and procedures are adequate and effective.

         There  has  been no  change  in our  internal  control  over  financial
reporting  during the fourth quarter ended December 31, 2004 that has materially
affected,  or is reasonably  likely to materially  affect,  our internal control
over financial reporting.







                                      -40-
<PAGE>


                                    PART III

Item 9. Directors and Executive Officers

         Our executive  officers and directors and their  respective ages, as of
March 21, 2005, are as follows:

        Name              Age   Position
        -----             ---   -------
        Michael Keough     48   Chief executive officer, president and director
        Michael Openshaw   46   Chief financial officer, secretary and treasurer
        Darin Hunsaker     38   Vice president, sales
        Fred Schade        39   Vice president, engineering
        Charles Callis     49   Vice president, business development
        William Jurika     65   Chairman of the board of directors
        Gary Crook         52   Director
        Harry Hargens      50   Director
        Steven Phillips    50   Director
        Thomas Tesmer      58   Director

         Each   director   holds  office  until  the  next  annual   meeting  of
stockholders  and until his or her successor is elected and qualified.  Officers
are elected to service subject to the discretion of the board of directors.

         Set forth below is a brief  description  of the background and business
experience of our executive officers and directors.

         Michael Keough joined us in December 2004,  taking the role  previously
held by Terry  Kramer.  Prior to  joining  Q Comm,  Mr.  Keough  served as Chief
Executive   Officer,   President,   and  Chief  Strategy   Officer  of  ClearOne
Communications, a publicly traded company specializing in audio, video, and web-
based conferencing  products and services.  From 1998 to 2002, Mr. Keough served
as Senior Vice  President of World Wide Sales for Tempo, a company that provides
web-based  training,  and for  Learnframe,  a Company  specializing  in  testing
equipment for the telecom industry.

         Michael  Openshaw  has been with us since  November  2000 and was named
chief  financial  officer  in April  2001 and our  secretary  and  treasurer  in
February  2003.  From 1996 to November 2000,  Mr.  Openshaw  served as the chief
financial  officer of The  University  of Utah  Hospital.  He also has 10 years'
experience  with the accounting  firm of Deloitte & Touche LLP where he attained
the level of senior manager.  Mr. Openshaw is a Certified Public  Accountant and
has a Bachelor of Arts degree in accounting from the University of Utah.

         Darin  Hunsaker  joined us in January  2004.  He has held various sales
positions  over the past 13 years,  including  positions  with  WordPerfect  and
PowerQuest.  From January 1996 through January 2004 he served as senior director
of enterprise  sales,  vice president of global accounts,  managing director and
senior director of European  sales,  and director of channel sales and marketing
at PowerQuest,  a high growth computer storage management company.  Mr. Hunsaker
earned a bachelor's  degree in German and business  management  from Weber State
University.

         Fred Schade  joined us in June 2004.  Mr.  Schade  comes to Q Comm with
over 21 years of  experience  in IT and software  development.  Most recently he
served as the CTO and Vice  President of R&D for  MediConnect.net  Inc. where he
joined  the  company  in 2000 and was  responsible  for all  phases  of  product
development  and R&D  strategies.  From  1997 to  1999  he was the  Director  of
Software Development for NetSchools Corporation,  where he directed a 170-member
team  that  performed  most of the  company's  engineering,  quality  assurance,
design, operations, maintenance, and support.

         Charles Callis brings over 17 years of executive-level technology sales
and marketing  experience.  From 2002 to 2004,  Mr.  Callis was Vice  President,
Worldwide  Sales and  Marketing  for  ClearOne  Communications  where he built a
global partner network of distributors and value-added  resellers.  From 2001 to
2002,  Mr.  Callis  served as Vice  President of Sales for  e-learning  platform
company  Learnframe,  and from 1997 to 2001 as Vice President of Worldwide Sales
and Alliances for Altiris,  Inc. In nearly a decade with Novell, Inc. Mr. Callis
held  numerous  executive   positions  including  Vice  President  of  Marketing
responsible  for $1.5  billion  in product  revenue,  and as Vice  President  of
Enterprise  Customers.  Mr.  Callis  was a key  executive  in  driving  Novell's
European business from $25 million to over $500 million annually.

         William  Jurika  was  appointed  to our  board  in  April  2004 and was
subsequently  elected  chairman.   Mr.  Jurika  is  a  past  vice  president  of
institutional sales for E. F. Hutton.  Since January 2000, Mr. Jurika has been a
private  investor.  From 1998 to 2000,  he was  Chairman  of Jurika & Voyles,  a
company engaged in the business of investment services. Mr. Jurika is a director
of QuadraMed,  a company that provides  information  technology solutions to the
healthcare industry.


                                      -41-
<PAGE>


         Gary Crook joined our board of  directors in April 2004.  Since 2000 he
has been the senior vice  president,  operations  of The INTEQ  Group,  Inc.,  a
pharmacy benefit management company.  From 1995 to 2000, Mr. Crook served as the
senior vice president,  chief financial officer for SOS Staffing Services, Inc.,
which was a NASDAQ listed company providing  temporary  staffing and information
technology consulting.  Mr. Crook has an MBA and a Bachelor of Science degree in
business economics from the University of Utah.

         Steven  Phillips  joined our board of directors in April 2004. He is an
attorney who gained a broad legal  background while practicing for 15 years, the
last eight years as a partner  with  Morrison & Foerster  LLP in San  Francisco,
California,  including  experience  in  mergers  and  acquisitions,   regulatory
practice and litigation.  Since May 1996, he has been assistant  general counsel
with CMS Enterprises Company, a subsidiary of CMS Energy Corporation,  a holding
company with  subsidiaries that provide utility services in Michigan and operate
international energy generation facilities. Mr. Phillips has a Juris Doctor from
the  University of  California,  Hastings  College of Law and a Bachelor of Arts
degree from the University of California, Santa Cruz.

         Thomas  Tesmer has been on our board of directors  since June 2004.  He
has over 25 years in the  transaction  processing  industry,  in particular with
electronic funds transfer and point-of-sale payments. Presently he serves as the
Senior Vice  President of Processing  with ITC  Financial  Services a pioneer in
electronic  payment solutions using stored value cards.  Most recently,  he also
served as Executive  Vice  President of Front End Systems for Heartland  Payment
Systems  Inc,  one  of  the  largest  independent  merchant   payment-processing
organizations in the United States.  He also was the President and CEO of Access
Services Inc, a credit card merchant payments processing corporation.

         Harry Hargens joined our board of directors in August 2004. He has been
active in the  payments/transaction  processing industry since 1981, having held
senior  management  positions  responsible  for sales,  marketing,  and  product
development,  at  Omron,  VeriFone,  TransNet  (now part of  Paymentech),  HONOR
(STAR),  and National  Data (Global  Payments).  Presently,  he serves as a CEO,
President,  and Director of InstaPay  Systems Inc.  (OTCBB:  IPYS),  the holding
company of Kryptosima LLC, which he founded in 2000. He holds an MBA with honors
from The University of Chicago,  and a BSEE with honors from Illinois  Institute
of Technology.

Key Employees

         John  Hickey,  director  of  marketing,  joined  Q  Comm's  predecessor
companies in 1993 where he served in various positions  including Vice President
of Marketing  and  Operations.  He has been a consultant  to companies in direct
marketing  including iMall (now part of Excite@Home),  HomeStar  Communications,
and Borges Lamont.  He currently sits on Intele-Card News' advisory board and is
a two-time  winner of the  Intele-Card  Editor's  Choice  Award.  He  received a
Bachelor  of Science  degree  from  Brigham  Young  University  and a Masters in
Business  Administration  with a  specialization  in  Entrepreneurship  from the
University of Arizona.

         Aaron  Kesler,  director  of  operations,  came to Q Comm in 2003.  Mr.
Kesler has over 13 years of experience in outsourced  customer  service centers.
From  2002 to 2003,  Mr.  Kesler  served  Teleperformance  USA as  International
Account Director where he led the technical  development and  implementation  of
Chase  Manhattan  Bank services and sales centers  located in New Delhi,  India.
From 1999 to 2002 he was the Director of Member Services and Business  Retention
at UCN,  where he created new  processes and call centers to manage the business
relations and services required by UCN business partners.  From 1992 to 1999, as
National  Account  Manager for  Convergys he directed  more than 1,300  customer
service representatives in delivering premier customer support services to large
accounts like AT&T, Federal Express, and Sprint PCS.

Committees of the Board of Directors

         Our board of directors has an audit committee consisting of Gary Crook,
Harry Hargens and Steven Phillips, and a compensation committee and a nominating
committee  consisting of William  Jurika,  Steven  Phillips and Tom Tesmer.  The
audit  committee meets with  management and our  independent  registered  public
accounting  firm to determine  the  adequacy of our internal  controls and other
financial  reporting matters and review related party transactions for potential
conflict of interest situations. The nominating committee reviews and recommends
nominees for the board of  directors.  The  compensation  committee  reviews and
recommends the compensation and benefits payable to our chief executive  officer
and approves supplemental  compensation programs, such as bonus awards and stock
options.

Audit Committee Financial Expert

      The Board has determined  that the chairman of the committee,  Gary Crook,
is an "audit committee financial expert," as that term is defined in Item 401(e)
of   Regulation   S-B,   and   "independent"   for   purposes   of  current  and
recently-adopted American Stock Exchange listing standards and Section 10A(m)(3)
of the Securities Exchange Act of 1934.


                                      -42-
<PAGE>


Section 16(a) Beneficial Ownership Reporting Compliance

         Section  16(a) of the  Securities  Exchange  Act of 1934  requires  the
Company's officers and directors, and persons who own more than ten percent of a
registered class of the Company's equity securities to file reports of ownership
and changes in ownership with the Securities  and Exchange  Commission  ("SEC").
Officers,  directors and greater than ten percent  stockholders  are required by
SEC  regulations  to furnish the Company with copies of all Section  16(a) forms
they file. To the best of our knowledge, based solely on review of the copies of
such forms furnished to us, or written  representations that no other forms were
required,  we believe that all Section 16(a) filing  requirements  applicable to
our officers,  directors and greater than ten percent stockholders were complied
with during 2004.

Code of Ethics

      We have adopted a code of ethics that applies to our  principal  executive
officer,  principal  financial  officer  and other  persons  performing  similar
functions,  as well as all of our other  employees and  directors.  This code of
ethics is posted on our website at www.qcomm.com.

Item 10. Executive Compensation

         Summary  compensation.  The  following  table  sets  forth  information
regarding  compensation  awarded to,  earned by, or paid to our chief  executive
officer  and  our  other  most  highly  compensated   executive  officers  whose
compensation  exceeded  $100,000 in 2004 for all services  rendered to us in all
capacities during the last three completed fiscal years.
                                                                     Long-term
                                                                   Compensation
                                            Annual Compensation    ------------
                                           ---------------------    Securities
                                                      Commission    Underlying
Name and principal position         Year   Salary      and Bonus      Options
---------------------------         ----   -------     ---------      -------
Terry Kramer, president and         2004  $201,731    $      -        255,000(1)
 chief executive officer (1)        2003  $ 17,500(2)        -         45,000(1)
                                    2002        -            -             -

Michael Keough,president and        2004  $ 15,385(3)        -             -
 chief executive officer            2003        -            -             -
                                    2002        -            -             -


Michael Openshaw, chief             2004  $125,000    $   7,668(4)         -
 financial officer,secretary        2003  $110,586    $  30,000        40,000(5)
and treasurer                       2002  $110,000    $  10,000(6)      6,667(7)


Darin Hunsaker, vice president,     2004  $120,192    $  36,390        35,000(8)
 sales                              2003        -            -             -
                                    2002        -            -             -


(1) Terry Kramer resigned effective December 31, 2004 and 127,500 unvested stock
    options  expired on that date.  Vested  stock  options  expire 90 days after
    termination of employment.  Mr. Kramer exercised  127,500 options in January
    2005.
(2) Terry Kramer was hired in November 2003.
(3) Michael Keough was hired in December 2004.
(4) Represents 1,667 shares granted June 30, 2004 valued at $4.60 per share.
(5) As of December 31, 2004, 20,000 shares were vested.
(6) Represents  25,000  shares  granted  December  31, 2002 valued at $0.40 per
    share.
(7) As of  December  31,  2003,  1,250  options  were vested and the balance was
    forfeited.
(8) As of December 31, 2004, 15,625 options were vested.

Options held by Named Executives

         The following tables provide  information with respect to stock options
granted during the year ended December 31, 2004 to each of the executives  named
in the summary  compensation  table above and the number and aggregate  value of
unexercised  options held by those  executives as of December 31, 2004.  The per
share exercise  price of all options was equal to, or above,  the estimated fair
market value of a share of common stock on the date of grant. No options granted
to any named executives have been exercised.


                                      -43-
<PAGE>


      Option Grants in the Year Ended December 31, 2004 (Individual Grants)

                   Number of
                   Securities    Percent of Total
                   Underlying    Options Granted to   Exercise  Expiration
Name                Options      Employees in 2004      Price      Date
--------------      -------      -----------------    --------   ----------
Terry Kramer        255,000            64.2%          $   4.58   5/16/14(1)
Darin Hunsaker       20,000             5.0%          $   6.50   1/5/14(2)
Darin Hunsaker       15,000             3.8%          $   4.65   6/1/14(2)

(1) Terry Kramer resigned effective December 31, 2004 and 127,500 unvested stock
options  expired  on that  date.  Vested  stock  options  expire  90 days  after
termination of employment.
(2) These options are earned quarterly over 2004 and 2005 based on the continued
employment of the officer.

                           2004 Year-End Option Values
                                                         Value of Unexercised
                                                             In-the-Money
                Number of Shares Underlying Unexercised  Options At December 31,
                    Options at December 31, 2004 (#)         2004 ($)(1)
                    --------------------------------   -------------------------
Name                Exercisable        Unexercisable   Exercisable Unexercisable
----------------    -----------        -------------   ----------- -------------
Terry Kramer         172,500(2)              - (3)          -            -
Michael Openshaw      31,333(4)          20,000(5)          -            -
Darin Hunsaker        15,625(5)          19,375(6)          -            -

(1) Based on a $3.71 closing price of our stock on the American  Stock  Exchange
on December 31, 2004.
(2)  Includes  127,500  options  with an  exercise  price of $4.58 per share and
45,000 options with an exercise price of $6.50 per share.
(3) See footnote (1) in the preceding table.
(4) Includes  11,333  options with an exercise price of $15 per share and 20,000
options with an exercise price of $6.50 per share.
(5) Having an exercise price of $6.50 per share.
(6) Includes  10,000 options with an exercise price of $6.50 per share and 5.625
options with an exercise price of $4.65 per share.
(7) Includes  10,000 options with an exercise price of $6.50 per share and 9,375
options with an exercise price of $4.65 per share.  None of the options referred
to above had been exercised as of December 31, 2004.

Employment Agreements

         We have  entered into  employment  agreements  with Michael  Keough and
Michael Openshaw.

         Mr. Keough's agreement, which terminates December 31, 2006, pays him an
annual salary of $200,000. The agreement may be extended for successive one-year
periods.  If  we  terminate  the  agreement  without  cause,  or if  Mr.  Keough
terminates  the  agreement  for good reason,  the  President/CEO  is entitled to
receive the greater of one year's  salary plus any target cash bonus he would be
eligible to receive during that year or payment  through the expiration  date of
the agreement. In addition, any stock options would vest immediately.  Under the
terms of his  employment  contract,  Mr.  Keough  was also  granted an option to
purchase  150,000  shares of common  stock at the market  price per share on the
date of grant in January 2005.

         Mr. Openshaw's agreement,  which terminates December 31, 2005, pays him
an annual  salary  of  $125,000  plus  bonus  based on  individual  and  company
performance.  If we terminate the agreement without "cause",  or if Mr. Openshaw
terminates the agreement for "good reason",  he is entitled to the lesser of one
year's  salary or  payment  through  the  expiration  date of the  contract.  In
addition,  any stock  options  held by him will  vest  immediately.  During  the
contract term and for one year following its  termination  or expiration,  he is
prohibited  from  soliciting  our employees and customers and competing with us,
provided we have not  terminated  the employment  contract  without  cause.  The
agreement was terminated  during 2004. We have an arrangement  with Mr. Openshaw
that  provides  him the  continuation  of his base  wages,  the  right to retain
existing stock option agreements and a retention bonus if he remains employed by
the Company through May 31, 2005.


Compensation of Directors

         Our outside  directors  receive a  quarterly  payment of $4,125 and are
reimbursed for travel costs.  Committee chairs receive an additional  $1,250 per
quarter.

Limitation of Directors' Liability and Indemnification

         Our  articles  of  incorporation  limit  the  liability  of  individual
directors for specified  breaches of their  fiduciary  duty.  The effect of this
provision  is to eliminate  the  liability  of  directors  for monetary  damages
arising out of their failure, through negligent or grossly negligent conduct, to


                                      -44-
<PAGE>


satisfy their duty of care,  which requires them to exercise  informed  business
judgment.  The liability of directors  under the federal  securities laws is not
affected.  A director may be liable for monetary  damages only if a claimant can
show  receipt  of  financial  benefit  to which the  director  is not  entitled,
intentional  infliction  of harm on us or on our  stockholders,  a violation  of
section  16-10a-842 of the Utah Revised  Business  Corporation Act (dealing with
unlawful  distributions to stockholders effected by vote of directors),  and any
amended or successor provision thereto, or an intentional  violation of criminal
law.

         Our articles of incorporation  also provide that we will indemnify each
of our directors or officers,  and their heirs,  administrators,  successors and
assigns  against any and all expenses,  including  amounts paid upon  judgments,
counsel fees, and amounts paid or to be paid in settlement  before or after suit
is commenced,  actually and  necessarily  incurred by such persons in connection
with the defense or  settlement of any claim,  action,  suit or  proceeding,  in
which they,  or any of them are made parties,  or which may be asserted  against
them or any of them by reason of being, or having been, directors or officers of
the  corporation,  except in relation to such  matters in which the  director or
officer is adjudged to be liable for his or her own  negligence or misconduct in
the  performance  of his or her duty. We have also entered into  indemnification
agreements  with our directors and our senior  executive  officers.  Under these
agreements,  we  have  agreed  to  indemnify  each of  them  for  all  expenses,
judgments,  fines and settlement  amounts they actually and reasonably  incur in
connection with any proceeding,  actual or threatened,  to which they are party,
relating  to any  action  taken by them or their  failure  to take any action in
their  capacity as an officer or director.  We have also agreed to advance these
expenses if they provide us with written  affirmation of their good faith belief
that they have met the  standard  of  conduct  required  under the Utah  Revised
Business Corporation Act and other applicable law.

         We have  provided a directors'  and officers'  insurance  policy in the
amount of $5,000,000, which expires November 2005.

         There is no  pending  litigation  or  proceeding  involving  any of our
directors,  officers,  employees or agents in which we are required or permitted
to  provide  indemnification.  We are also not  aware  of any  other  threatened
litigation or proceeding that may result in a claim for such indemnification.

         Insofar as indemnification for liabilities arising under the Securities
Act may be permitted for directors,  officers or  controlling  persons under our
articles of  incorporation,  we have been  informed  that, in the opinion of the
SEC, indemnification is against public policy as expressed in the Securities Act
and is unenforceable.

Item 11.  Security  Ownership of Certain  Beneficial  Owners and  Management and
          Related Stockholder Matters

         SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

         The following  table sets forth  information  regarding the  beneficial
ownership of our common  stock as of March 21, 2005 by:
         -        each person, or group of affiliated persons, known by us to be
                  the beneficial owner of more than 5% of our outstanding common
                  stock;
         -        each of our directors;
         -        each executive officer named in the summary compensation table
                  above; and
         -        all of our directors and executive officers as a group.

         Except as  otherwise  indicated,  the  persons  listed  below have sole
voting and  investment  power with  respect to all of the common  stock owned by
them.

Name and address of                   Common Stock       Percent of Common Stock
 beneficial owner (1)             Beneficially Owned(2)     Beneficially Owned
---------------------             ---------------------     ------------------
Terry Kramer                             45,000                    *
Michael Keough                           12,500(3)                 *
Michael Openshaw                         35,732                    *
William Jurika                          921,050                  18.1%
Pike Capital Partners, LP             1,303,800                  25.6%
All directors and executive
 officers as a group (10 persons)       310,871(4)               20.7%

* Less than 1%
(1) All addresses are c/o Q Comm  International,  Inc., 510 East Technology Ave,
Building C, Orem, Utah 84097.
(2) According to the rules and  regulations of the SEC, shares that a person has
a right to  acquire  within 60 days of the date of this  report are deemed to be
outstanding for the purpose of computing the percentage ownership of that person
but are not deemed  outstanding  for the  purpose of  computing  the  percentage
ownership of any other person.
(3) Exercisable within 60 days of this report.
(4) Includes 65,000 shares underlying options exercisable within 60 days of this
report.


                                      -45-
<PAGE>


Securities Authorized for Issuance under Equity Compensation Plans

         To attract and retain the personnel  necessary for our success, in 2000
we adopted a stock option plan and reserved  133,333  shares of stock for future
grants under that plan.  Only employees are eligible for grants under this plan.
In February  2003 and May 2004, we adopted stock option plans under which we may
grant  options  covering  up to  100,000  and  500,000  shares of common  stock,
respectively,  to our employees,  directors and  consultants.  The  compensation
committee  established  by the board of  directors  administers  all  plans.  In
addition, each plan provides that the maximum term for options granted under the
plan is 10 years and that the  exercise  price for the  options  may not be less
than the fair  market  value of the common  stock on the date of grant.  Options
granted to stockholders  owning more than 10% of our  outstanding  common shares
must be  exercised  within  five years  from the date of grant and the  exercise
price must be at least 110% of the fair market  value of the common stock on the
date of the grant.  As of December  31,  2004,  we had issued  options  covering
131,833  shares of common stock under the 2000 stock option plan with a weighted
average exercise price of $8.23, we had issued options covering 50,000 shares of
common stock under the 2003 stock option plan with a weighted  average  exercise
price of $6.50,  and we had issued  options  covering  305,500  shares of common
stock under the 2004 stock option plan with a weighted average exercise price of
$4.61.

         The following  table sets forth,  as of December 31, 2004,  information
concerning  our 2000,  2003 and 2004 stock option plans,  as well as information
relating to other equity compensation plans that we have adopted.

                                Number of                        Number of
                             securities to be  Weighted     securities remaining
                               issued upon      average        available for
                               exercise of   exercise price   future issuance
                               outstanding   of outstanding     under equity
                               options and    options and      compensation
                                warrants        warrants           plans
                               ----------       --------          -------
Equity compensation plans
 approved by stockholders (1)  487,333          $   5.78          246,000
Equity compensation plans
 not approved by
 stockholders (2)              401,167(3)       $   9.42              --
                               -------                            -------
Total                          888,500          $   7.35          246,000
                               =======                            =======

(1) The 2000, 2003 and 2004 stock option plans.
(2) Includes options granted to employees,  consultants and underwriters outside
our stock option plans and stock bonuses.
(3)  Includes  options  covering  355,833  shares of  common  stock  granted  to
consultants and underwriters, and options covering 45,334 shares of common stock
granted to  employees  outside our stock  option  plan.  The options  granted to
consultants vested  immediately,  those granted to underwriters vested after one
year. The options granted to consultants and underwriters and are for terms that
range from three to five years from the date of grant.  The  options  granted to
our  employees  expire at the end of five years  from date of grant.  All of the
employees' options have vested.


Item 12. Certain Relationships and Related Transactions

         As of December 31, 2003, we owed Paul Hickey, our principal stockholder
and chief  executive  officer,  an aggregate  amount of $260,692,  consisting of
loans from him to cover cash  shortfalls  and deferred  salary.  This amount was
reflected in a note which was to mature  December 31, 2007.  The note was repaid
during the year ended December 31, 2004.

         We have  adopted a policy  that the audit  committee  must  review  all
transactions with any officer, director or 5% stockholder.










                                      -46-
<PAGE>


Item 13. Exhibits List and Reports on Form 8-K

         (a) Exhibits:
Exhibit
No.                Description
--------           -----------
 3.1(i)   Articles of Incorporation (1)
 3.1(ii)  Amendment to Articles of Incorporation (2)
 3.2      Amended and Restated Bylaws (2)
 4.1      Specimen Stock Certificate (2)
 4.2      Form of warrant agreement, including form of warrant (2)
 4.3      Form of unit certificate (2)
 4.4      Form of representative's warrant (2)
10.1      2000 Stock Option Plan (2)
10.2      2003 Stock Option Plan (2)
10.3      Securities Purchase Agreement, dated February 10, 2003 (2)
10.4      Form of 12% Secured Convertible Debentures due March 31, 2004 (2)
10.5      Form of Stock Purchase Warrant (2)
10.6      Form of Lock-Up Agreement executed by all officers, directors and 5%
          shareholders (2)
10.7      Form of Lock-Up Agreements for 12% Secured Convertible Debenture
          holders (2)
10.8      Employment Agreement between Q Comm International, Inc. and
          Paul C. Hickey (2)
10.9      Employment Agreement between Q Comm International, Inc. and
          Terry D. Kramer (3)
10.10     Employment Agreement between Q Comm International, Inc. and
          Michael K. Openshaw (3)
10.10     Employment Agreement between Q Comm International, Inc. and
          Michael D. Keough*
10.10     Securities Purchase Agreement, dated May 20, 2003 (2)
10.11     Form of 12% Unsecured Promissory Note, due August 31, 2004, dated
          May 20, 2003 (2)
10.12     Form of Stock Purchase Warrant, dated May 20, 2003 (2)
10.13     Service Agreements  between Q Comm  International,  Inc. and each of
          Cellcards of Illinois,  Iowa Wireless and Hargray Wireless (2)
10.14     Agreement between Q Comm International, Inc. and PreCash
          Corporation (2)
10.15     WGR Ltd. Agreement (2)
10.16     Marceco Ltd. Agreement (2)
10.17     Success Concepts Enterprises Inc. Agreement (2)
10.18     510 East Technology Avenue Lease (3)
10.19#    Agreement between Q Comm International, Inc. and Cricket
          Communications, Inc.
14        Code of Ethics (2)
21        Subsidiary schedule (3)

31.1      Chief Executive Officer Certification pursuant to section
          302 of the Sarbanes-Oxley Act of 2002*
31.2      Chief Financial Officer Certification pursuant to section
          302 of the Sarbanes-Oxley Act of 2002*
32.1      Chief Executive Officer Certification pursuant to section
          906 of the Sarbanes-Oxley Act of 2002*
32.2      Chief Financial Officer Certification pursuant to section
          906 of the Sarbanes-Oxley Act of 2002*
----------------------------------
* Included as an exhibit herein.

(1) Previously  filed on February 24, 2000, as an exhibit to Form 10-SB,  and on
March 20, 2000,  as an exhibit in the Company's  Current  Report on Form 8-K and
incorporated herein by reference.
(2) Previously  filed as an exhibit to the Company's  Registration  Statement on
Form SB-2 (File No. 333-104232) and incorporated herein by reference.
(3) Previously  filed  as  an  exhibit  to Form  10-KSB  on March  31,  2003 and
incorporated herein by reference.
 #  Application has been made to the Securities and Exchange  Commission to seek
confidential treatment of certain portions of this exhibit under Rule 406 of the
Securities  Act of 1933 or Rule  24(b)-2  under the  Securities  Exchange Act of
1934. Omitted material for which  confidential  treatment has been requested has
been filed separately with the Securities and Exchange Commission.

         (b) Reports on Form 8-K:

A current report was filed on Form 8-K on December 21, 2004 under item 1.01.
A current report was filed on Form 8-K on December 03, 2004 under item 7.01.
A current report was filed on Form 8-K on November 16, 2004 under item 5.02(b).
A current report was filed on Form 8-K on November 16, 2004 under item 2.02.
A current report was filed on Form 8-K on November 15, 2004 under item 7.01.



                                      -47-
<PAGE>


 Item 14. Principal Accountant Fees and Services

         The aggregate fees billed by the principal  accounting firms we used in
2004 and 2003, Tanner LC and Pritchett, Siler & Hardy, P.C., are as follows:

                                              2004            2003
                                           ---------        -------
Audit fees                                 $ 90,000         $24,942
Audit related fees                           10,434          12,576
                                           ---------        -------
  Total audit and audit related fees        100,434          37,518
                                           ---------        -------
Tax fees                                      9,825             446
All other fees                                    -               -
                                           ---------        -------
  Total fees                               $110,259         $37,964
                                           ========         =======

         Audit  related fees were for reviews of our filings on Forms 10-QSB for
2004 and 2003, and for work required by our registered public offering in 2003.

         Each of the permitted  non-audit  services has been pre-approved by the
Audit  Committee  or  the  Audit  Committee's  Chairman  pursuant  to  delegated
authority by the Audit Committee,  other than de minimus non-audit  services for
which the pre-approval  requirements are waived in accordance with the rules and
regulations of the SEC.

Audit Committee Pre-Approval Policies and Procedures

         The Audit  Committee  charter  provides that the Audit  Committee  will
pre-approve  audit  services  and  non-audit  services  to be  provided  by  our
independent  registered  public  accounting  firm before that firm is engaged to
render these  services.  The Audit  Committee may consult with management in the
decision-making process, but may not delegate this authority to management.  The
Audit  Committee  may delegate its authority to  pre-approve  services to one or
more committee members, provided that the designees present the pre-approvals to
the full committee at the next committee meeting.



























                                      -48-
<PAGE>


SIGNATURES

Pursuant to the  requirements of Section 13 or 15(d) of the Securities  Exchange
Act of 1934,  the  registrant  has duly  caused  this report to be signed on its
behalf by the undersigned, thereunto duly authorized.

Q Comm International, Inc.


By:  /s/Michael D. Keough
        -----------------------
        Michael D. Keough,
        Chief Executive Officer

Date:   April 12, 2005

         In accordance  with the Exchange Act, this report has been signed below
by the  following  persons  on behalf of the  Registrant  and in the  capacities
indicated on April 12, 2005.

                                           Title
Principal Executive Officer

         /s/ Michael D. Keough             Chief Executive Officer
         ---------------------
           Michael D. Keough

Principal Financial Officer

         /s/ Michael K. Openshaw           Chief Financial Officer
         -----------------------           (Principal Accounting Officer)
           Michael K. Openshaw

Directors

         /s/ William Jurika                Chairman of the Board
         ---------------------
             William Jurika

         /s/ Gary Crook                    Director
         ---------------------
             Gary Crook

         /s/ Harry Hargens                 Director
         ---------------------
         Harry Hargens

         /s/ Steven Phillips               Director
         ---------------------
         Steven Phillips

         /s/ Thomas Tesmer                 Director
         ---------------------
         Thomas Tesmer

























                                      -49-