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, 2003

                        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.)

              510 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 there is no disclosure of delinquent  filers in response to Item 405 of
Regulation  S-B is not  contained  in  this  form,  and no  disclosure  will  be
contained,  to the  best of the  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,  2003,  the  revenues  of the  issuer  were
$25,686,377.

As of  March 8,  2004,  3,995,250  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 8, 2004,  based on the closing price on the American
Stock Exchange of $6.05 on that date was approximately $22,290,493.



<PAGE>

                           Q COMM INTERNATIONAL, INC.
                               FORM 10-KSB REPORT

                                December 31, 2003

                                TABLE OF CONTENTS

                                                                            PAGE
                                                                            ----
PART I

     Item 1.  Description of Business                                          2
     Item 2.  Description of Property                                         13
     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        14
     Item 6.  Management's Discussion and Analysis or Plan of Operations      15
     Item 7.  Consolidated Financial Statements                               24
     Item 8.  Changes in and Disagreements With Accountants on Accounting
              and Financial Disclosure                                        41
     Item 8A. Controls and Procedures                                         41

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                  47
     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 or 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, 2003. We undertake no obligation to revise
or update publicly any forward-looking statements for any reason.


<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  2002,  our  proprietary  Qxpress  system  includes the
Qxpress  200  terminals,  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 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 an appropriately enabled Qxpress
200 terminal,  a retail merchant can sell wireless telephone time, wireline long
distance service or other  telecommunication  products,  add credit to a prepaid
credit  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  telephone  time or credit card credit by calling the provider of the
product or to transfer cash by providing the PIN to the recipient.  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.

     Transaction processing and information management services are used by many
different  businesses  in a  variety  of  contexts.  For  example,  credit  card
companies are  significant  users of these services for post-paid  transactions.
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.
National  telecommunication  carriers,  such as  Verizon,  Cingular,  AT&T and T
Mobile,  as well  as  regional  carriers,  such as  Iowa  Wireless  and  Hargray
Wireless,  sell their  prepaid  wireless  services  either  directly  or through
distributors who purchase these products at rates significantly lower than those
that could be obtained  by  individual  consumers  and small  businesses.  These
distributors  often purchase prepaid  telecommunication  products from different
carriers,  then resell these products in smaller quantities to their established
networks of retail outlets,  such as convenience  stores,  check cashing stores,
newsstands, grocery stores and discount stores. Qxpress can also be used to sell
and reload  prepaid  credit cards and to pay  wireless  phone bills for selected
carriers that do not offer PIN-based prepaid programs.

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 to 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.  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  variety  of  specific  numbers  of  minutes  and by
permitting "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 credit 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.

     Several 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 $30 to $75 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,  a consumer can keep the remaining
time if he extends 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,  although the dominant wireless market in most
of the world, 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
2002 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
competitive  with  our  system.   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.



                                      3
<PAGE>


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 our proprietary
point of sale 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 does not have the ability to support
transaction  processing  services such as sales and management reports. We still
use this terminal in approximately  300 locations but plan to gradually  replace
all of the original terminals with 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  and an  interactive
training  module.  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,  and  128-bit  encryption
technology  in  concert  with  TCP/IP  and   proprietary   protocols.   TCP/IP--
Transmission  Control  Protocol/Internet  Protocol -- are the Internet  standard
communication  protocols  that have been  adopted  so devices  connected  to the
Internet,  principally computers, can communicate with one another.  Security is
enhanced by efficient and speedy  two-way  information  flow.  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  transaction is reported to our data
center on either a  just-in-time  or real-time  basis over a standard  telephone
line.  PINs are  transferred  from the data  center to the  terminal at the same
time.

     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.

     Dynamically  allocated interactive training is available on the Qxpress 200
terminal via the merchant display screen. When the retailer initiates a training
session,  the terminal  sends a training  request to the data  center.  The data
center  queries its  database and gathers  information  on products and services
that  are  currently  supported  by  the  terminal  making  the  request.   This
information  is  compiled  into a series of  interactive  display  screens  with
training  scripts  focusing on only the current  product line of that  terminal.
This  real-time  dynamic  allocation of  information  means that the retailer is
exposed  only to training  material  pertaining  to products  being sold at that
location. The training is timely and focused, rather than generalized and dated.

     In the first  quarter of 2004 we announced  that we have also  modified our
software to run on a VeriFone 3700 series  terminal.  We will begin beta testing
in March 2004.  We have not yet announced  the date of full  commercial  launch,
although it is anticipated to be in the third 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.


                                      4
<PAGE>


     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 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 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  traditional  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 terminal
keys off of the  type of  product  being  requested  in  order  to  successfully
complete the communication requirements.

     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 for a queue and dynamic assessment to
be  established  for the lowest  level in the product  tree.  Qxpress is able to
establish a queue of PINs by  denomination.  This queue is dynamic in the number
of PINs that may be deployed to each queue based on an activity assessment. This
queue is  adjusted  to meet the  demands of the  retailer  and the  just-in-time
inventory methodology.  Each denomination queue provides the PIN that is printed
on demand at the point of sale. Following the completion of the transaction, the
terminal  establishes a connection to the data center and downloads all relevant
data  needed to capture and report this  individual  transaction  to all parties
involved. In addition,  during the download connection, a PIN of equal value and
type is sent from the data center to the queue. As prepaid services  inventories
continue to escalate, the just-in-time  methodology  establishes some additional
benefits to the merchant  and the  carriers by  providing  the PIN or product on
demand while  allowing for  diminishing  number of PINs required at the point of
purchase.

     The real-time  communications supports any transaction that needs to have a
real-time  element to it. A real-time  process is usually required in PINless or
immediate crediting environments. This process marries the terminal and the data
center to  accomplish  the  transaction.  The VeriFone  terminal  solution  also
requires a real-time connection in order to sell prepaid products.

     Transaction Processing.  We currently process transactions from one primary
and two remote data  centers.  We  administer  all of our data  centers from our
headquarters.  Our  primary  data  center is  located  in  Lindon,  Utah and has
multiple  backup  power  sources.  Our  secondary  facility  is  located  in our
headquarters  in Orem,  Utah.  We process  transactions  originating  on our LDC
terminals  at a data center  maintained  by LDC Direct in Atlanta,  Georgia.  In
addition,  a data  center that we  recently  set up for a customer in  Montreal,
Canada  is  fully  capable  of  functioning  as a  backup  facility.  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 SUSE Linux for our operating system. We use multiprocessor, RAM
laden  servers with RAID Level 5 on every  system.  We use MySQL as the platform
for the back end data store 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.  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 two 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 Tomcat application  server. Our networks



                                      5
<PAGE>


are secured by Cisco's Netscreen product.  We use VPN technology to connect data
centers and secure data transfer between hosts and Cisco Netscreen technology to
facilitate and manage VPN's.  All information is secured from the terminal using
128-bit Blowfish encryption.

     The  Qxpress  system is  monitored  each  minute  by at least two  stations
outside  our  network.  Engineers  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
market. We believe that the prepaid telecommunications market by itself presents
an  attractive   opportunity   for  us.   Currently,   we  distribute   wireless
telecommunications  products from 12 carriers and distribute Qxpress 200 through
more than 50 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,  we recently 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.  We earn revenue from transaction  fees for each  transaction  effected
over  the  Qxpress  system.  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 five,  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 2004.

     We will expand our  technology to include other  distribution  methods.  As
discussed above, we recently modified our system to run on a VeriFone  terminal.
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 any acquisitions.  However, we will consider specific  acquisition
opportunities  if we feel 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.


                                      6
<PAGE>


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

     o    Cost efficiencies;
     o    Scope of service;
     o    Quality of service;
     o    Convenience;
     o    Breadth of geographic presence;
     o    Customer service;
     o    Reliability; and
     o    Availability of enhanced services.

     We believe our competitive strengths include the following:

     o    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.
     o    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 will also be able to offer our
          products and services through VeriFone terminals beginning in 2004.
     o    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.
     o    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 PINless  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.
     o    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


                                      7
<PAGE>


joint ventures with third-party  telecommunications service providers. We cannot
assure  you that we will be able to  compete  successfully,  and a failure to so
successfully  compete would have a material adverse effect on our revenue growth
and earnings.

Suppliers and Customers

     We purchase  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
Cincinnati Bell, Telefyne  Incorporated,  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.

     We have  entered  into  agreements  with  approximately  50 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 2003,  sales of Iowa  Wireless
products  accounted  for 59% of our  revenues  and  sales  of  Hargray  Wireless
products  accounted  for 14% of our  revenues.  In 2002,  sales of Iowa Wireless
products  accounted  for 30% of our  revenues,  sales of  Cellcards  of Illinois
products  accounted  for 28% of our  revenues  and  sales  of  Hargray  Wireless
products  accounted  for  13% of our  revenues.  In  2002,  our  agreement  with
Cellcards  of  Illinois  was   terminated.   Our  strategies  for  2004  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.  We purchased  the original  Qxpress
terminal  from LDC Direct,  which also provided us with  transaction  processing
services.  We are no longer  purchasing  the  original  terminal,  although  LDC
continues to provide  transaction  processing  services for those terminals that
are still in use. We expect to replace those original  terminals  gradually over
the next year.  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 seven people  including our vice  president of sales,
Darin  Hunsaker,  and our marketing  director,  John Hickey.  We plan to hire at
least two additional  sales people in addition to the four we presently  employ,
one of whom  will  focus  on  international  distribution.  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 staff is
also responsible for identifying new  applications for the Qxpress system.  Once
these applications have been identified,  our technology 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.  Our  marketing
director is also a monthly  contributor to Intelecard  News, a publication  that
focuses exclusively on the telecommunication industry.

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,  2002,  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


                                      8
<PAGE>


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
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 8,  2004,  we had 26  employees,  all of whom  were  full-time
employees.


                                       9
<PAGE>

                                  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, 2003,  we incurred  cumulative  losses of $13  million.  For the years ended
December  31,  2003 and 2002 net  losses  were $5.7  million  and $2.3  million,
respectively. Unless we can significantly increase the number of our Qxpress 200
terminals in use, we will continue to incur losses for the  foreseeable  future.
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  2.3% in 2003 and 2.2% in 2002. As a
consequence, for us to be profitable to any meaningful extent, we must do one or
more of the following:

          o    increase our revenue significantly;
          o    add new products with higher profit margins to our portfolio; or
          o    develop new revenue models.

     We cannot assure you that we will be able to achieve any of these goals. In
order to increase our revenue from our historical business, we must increase the
number of Qxpress 200 units 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 experienced a higher rate of returned terminals than expected during 2002 and
2003. It may be difficult for us to expand our business at an acceptable rate if
we continue to experience this same level of returns.

     When we first released our Qxpress 200 terminal in late 2002 and continuing
into early 2003, we experienced service problems with the terminal.  This led to
returns that were higher than expected and to a delayed rollout of our terminal.
While we believe that we have addressed the initial service issues,  the Qxpress
200 terminal is still  relatively  new and further  problems  may develop  which
could  cause our rate of  returns  to remain  high.  If these  service  problems
persist  or new ones  arise,  our  ability  to  achieve  profitability  would be
adversely affected.

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.

     Currently, the established delivery method for prepaid products is vouchers
and hard cards. 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 that might have a greater  positive  impact on
our revenue.

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,  92% of our
revenue for the year ended December 31, 2003 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 breath of our account base.
However,  a  high  level  of  customer  concentration  could  continue  for  the
foreseeable   future.  In  2003,  our  two  largest   customers   accounted  for
approximately 59% and 13%, respectively, of revenues. In 2002, our three largest
customers accounted for 30%, 28% and 13%,  respectively,  of revenues. We cannot



                                       10
<PAGE>


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  customer  that  accounted  for 28% of our  revenue in 2002  terminated  its
distribution  agreement  with us. As a  result,  our  revenue  for the third and
fourth  quarters  of 2002 and the first  half of 2003 was much lower and our net
loss higher than we had anticipated.

The industry in which we operate is highly  competitive  and has low barriers to
entry.  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
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 50  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.  For example,
in 2002,  our then  largest  customer,  CellCards of  Illinois,  terminated  its
distribution  agreement  with us. 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  vendors  charge us for their products and we
cannot always pass through price increases to our customers.  As a result, price
increases usually have a depressive 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. For example, Verizon,
one of our largest suppliers,  reduced the discount that they offer to resellers
on their prepaid  wireless  products.  While, in this case, we were able to pass
along this reduction to the brokers and merchants,  this is not always possible.
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.



                                      11
<PAGE>


     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 no
commitments for any additional financing.  If we are unable to obtain additional
financing   when  needed,   the  price  of  our  common   stock  could   decline
significantly.

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 sales
and marketing resources.  For example, the accounting system we currently use is
adequate  for  financial  reporting  purposes  but we may need to  purchase  new
accounting  software and to hire new people for our accounting  department as we
grow.  We are also  planning to increase our sales  department  from its current
level.  Qualified  sales  personnel are in great demand and we cannot assure you
that we will be able to hire a sufficient  number of competent sales people in a
short amount of time.  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  $4.95  and  $31.20.  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:

     o    Quarterly operating results falling below or exceeding expectations in
          any given period; o Changes in economic conditions generally or in the
          telecommunications or banking industries;
     o    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;
     o    Fluctuations in our revenue which may or may not be related to changes
          in the way we conduct our business;
     o    Announcements  by our  competitors of new  technological  innovations,
          service offerings, contracts, acquisitions or strategic relationships;
     o    Departures of key personnel; and
     o    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.




                                       12
<PAGE>


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.

Item 2. Description of Property

In February 2004 we moved our executive offices,  plants 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 2004
will be $6,856 including all utilities,  cleaning and security. The lease is for
a five-year period, however, we may cancel the lease after three years.

Item 3. Legal Proceedings

     As of March 8, 2004, we are not a party to any legal proceedings, except as
set forth below.

     On October 10, 2000, First Security Bank, N.A. filed suit against us in the
Fourth  Judicial  District Court of Utah County,  claiming  breach of a Merchant
Agreement and seeking damages in the amount of $175,477.  The complaint  relates
to charge-backs of customer credit card purchases,  which resulted in overdrafts
of our merchant account with First Security.  In March 2004 we settled this suit
with First Security for $70,000, which resulted in a recovery of $89,477.

     The matter of Dallin Bagley v. Paul Hickey was filed on October 22, 2001 in
the Third  District Court in Salt Lake County,  Utah. We indemnified  Mr. Hickey
because  the  plaintiff's  allegations  related to a matter in which Mr.  Hickey
acted in our interest.  During the year ended  December 31, 2003,  the plaintiff
was awarded damages in the amount of $500,748, including interest, which we paid
on Mr.  Hickey's  behalf  pursuant to our  agreement  to  indemnify  him. We had
previously recorded a reserve for loss for this claim in the amount of $200,000.
Therefore,  we recorded an additional  expense of $300,748 in the fourth quarter
of 2003.

     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 $59,225 at December 31, 2003.

     On January 23,  2004,  a  complaint  was filed by  Dial-Thru  International
Corporation  claiming  breach of an Asset Purchase  Agreement  dated October 31,
2000.  Dial-Thru  claims that the Company owes $4,000,000 in  consideration  for
assets  purchased  and earn-out fees for referral  services.  We believe that we
appropriately  exercised  our right of recision  specified  in the  contract and
returned  the  items  to the  seller,  and that no  amounts  are due  under  the
contract.  We plan to vigorously contest the claim on several issues,  including
that the suit was filed in California  Superior Court when the contract requires
it to have been filed in Utah.

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

None



                                       13
<PAGE>

                                     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
                                     ----    ----          ----     ----
         2002
         First Quarter              $ 31.20  $ 18.75      $ 36.75  $ 18.75
         Second Quarter             $ 30.00  $ 19.20      $ 29.55  $ 18.90
         Third Quarter              $ 23.55  $  6.60      $ 22.95  $  5.40
         Fourth Quarter             $ 14.55  $  7.65      $ 13.80  $  7.65

         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 $ 5.30         Not Applicable*

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

Holders

     As of March 8, 2004, we had approximately 370 stockholders of record.

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  fiscal  condition,  results  of  operations  capital
requirements, and other factors our board of directors may deem relevant.

Recent Sales of Unregistered Securities

     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.

     In  2002,  we sold an  aggregate  of  272,523  shares  of  common  stock to
accredited investors for an aggregate of $2,621,775 in cash.

     In 2002,  we issued  an  aggregate  of  121,590  shares of common  stock to
consultants  for  services.  These shares had an aggregate  value at the time of
issuance equal to $689,117.


                                       14
<PAGE>


     In 2002,  we  issued  an  aggregate  of 6,683  shares  of  common  stock in
connection  with the  exercise  of stock  options  for  $15,000  in cash and the
cancellation of options to purchase 5,280 shares of common stock.

     In 2002, we issued an aggregate of 21,667 shares to four executives and key
employees.  These  shares  had an  aggregate  value at the time of  issuance  of
$130,000.

     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 thos 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, capaital structures and other financial
items,  (ii)  statements  regarding  our plans and  objectives  include  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 Companh's  periodic reports on Forms 10-QSB and 8-K as
filed with the Securities and Exchange Commission since January 1, 2003.

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 condensed 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
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  an  appropriately  enabled  Qxpress  200
terminal,  a retail  merchant can sell wireless  telephone  time,  wireline long
distance  service or other  telephone  products,  add credit to a prepaid credit
card, add wireless time to a customer's account by electronic bill payment, sell
other prepaid products or process  debit/credit card  transactions.  In general,
the prepaid product is sold in the form of a personal  identification number, or
"PIN," that the customer can use to add telephone  time or credit card credit by
calling the provider of the product or to transfer  cash by providing the PIN to
the  recipient.  The  consumer  pays  for  the  product  by  paying  the  retail
establishment in which the terminal is located.  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.
National  telecommunication  carriers,  such as  Verizon,  Cingular,  AT&T and T
Mobile,  as well  as  regional  carriers,  such as  Iowa  Wireless  and  Hargray
Wireless,  sell their  prepaid  wireless  services  either  directly  or through
distributors who purchase these products at rates significantly lower than those
that could be obtained  by  individual  consumers  and small  businesses.  These
distributors  often purchase prepaid  telecommunication  products from different
carriers,  then resell these products in smaller quantities to their established
networks of retail outlets,  such as convenience  stores,  check cashing stores,
newsstands, grocery stores and discount stores. Qxpress can also be used to sell
and reload  prepaid  credit cards and to pay  wireless  phone bills for selected
carriers that do not offer PIN-based prepaid programs.

     In the first  quarter of 2004 we announced  that we have also  modified our
software to run on a VeriFone 3700 series  terminal.  We will begin beta testing
in March 2004.  We have not yet announced  the date of full  commercial  launch,
although it is anticipated to be in the third quarter of 2004.  This terminal is
capable of  providing  both our prepaid  application,  which calls into our data
center,  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.  In 2004 we plan to further  expand the



                                       15
<PAGE>


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,  cost of goods sold  representing  the cost of the
products and commission expenses paid to brokers and retailers.

     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.

     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,
                      --------------------------------------------------------
                                2003                          2002
                      --------------------------     -------------------------
                        Amount       Percentage        Amount      Percentage
                      ----------    ------------     -----------  ------------

Wireless             $23,632,456          92.0%     $21,796,716       90.7%
Long distance            537,975            2.1         789,943        3.3
Credit card              295,641            1.2          10,436          -
Home dial tone            35,385            0.1         270,611        1.1
Fees                     407,132            1.6         171,536        0.7
Service bureau           414,123            1.6               -          -
Wholesale products       126,732            0.5         761,891        3.2
Other                    236,933            0.9         226,869        1.0
                      ----------    ------------     -----------  ------------

Totals               $25,686,377         100.0%      $24,028,002     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 long  distance  revenue is a focus of ours in 2004. We believe that
our revenues  from this source should grow both in terms of gross dollars and as
a percentage of total revenues in the future.  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. These enhancements will be ready for the
market by the end of the first quarter of 2004.

     Prepaid credit 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, which ranges from $4.95 to $9.95.
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.

     We offer the brokers  through whom we deploy the Qxpress  system the option
either to buy the Qxpress 200  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



                                       16
<PAGE>


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 units 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.  Accordingly, even if gross
profit remains  relatively  stable,  or increases at a relatively  constant rate
from  period  to  period,  revenues  and gross  profit  margins  may  experience
substantial  volatility  based on  changes  in the  percentage  of our  business
undertaken  on a service fee basis  compared to the  percentage  undertaken as a
product  reseller.  We anticipate this source of revenue to increase in 2004 and
beyond.  We  recently  set up  service  bureaus  for new  customers  in  France,
Australia and the Bahamas. We established a service bureau customer in Canada in
early 2003.  Most of the revenue we have  recorded  from our service  bureaus in
2003 was for sales of terminals.  We have $80,000 in unearned  software  license
fees from  service  bureau  customers  at December  31, 2003 that we  anticipate
recording as revenues during the first quarter of 2004.

     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.  We do not emphasize  this source
of revenue but respond to opportunities that present themselves.

     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  24.8% for the year ended December 31,
2003  and  26.7%  for  the  comparable  year in  2002.  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  2.4% for the year ended  December 31, 2003 and 2.3%
for the comparable period in 2002.  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.

     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.   The  brokers  through  whom  we  distribute  our  system  are
responsible  for any unpaid ACH  transactions  from  retailers so we  experience
virtually no bad debt expense.  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.



                                       17
<PAGE>


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 2003.

<TABLE>


                                                    For the Year Ended       For the Quarter Ended
      Broker Model                                  December 31, 2003           December 31, 2003
      ------------                                  -----------------        ---------------------

                                                <c>                       <c>
        Qxpress terminals shipped                         2,046                         889
        Qxpress terminals canceled                         (605)                       (172)
                                                           -----                       -----
        Net Qxpress terminals placed                      1,441                         717
        Ending Qxpress terminals in service               1,843                       1,843
        LDC terminals in service                            280                         280
                                                           ----                        ----
        Total terminals in service                        2,123                       2,123

        Average monthly net revenue per terminal            $31(1)                      $39(1)
        Average monthly net revenue per terminal for
          terminals in service more than 60 days            $34(1)                      $41(1)

      Service Bureau Model
      -------------------
        Terminals shipped                                 1,009                         625
        Terminals canceled                                   -                             -
        Net terminals placed                              1,009                         625
        Total terminals in service                        1,009                        1,009

      Average monthly net revenue per terminal               $7(2)                        $4(2)
      Average monthly net revenue per terminal for
          terminals in service more than 60 days             $7(2)                        $4(2)

      Blended average monthly net revenue per terminal      $30                          $38
      Acquisition cost per broker units shipped             $66                          $61
      Acquisition cost per total units shipped              $44                          $34
      Cash cost per unit in service                         $12                          $10


</TABLE>

          (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.

     The exact  timing of cash flow 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  service bureau
terminals.  Based on our current sales organization growth plans, we believe our
cash flow break even point will likely be at approximately  9,000-10,000  broker
units plus  4,000-5,000  service  bureau units in service.  Given the  differing
economics of these two models,  different  combinations  of these two in service
unit numbers will yield different cash flow break-even  points. 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 2003 we had a higher rate of returned units than  anticipated  which
was due to service  issues  related to the  terminals.  These  issues  have been
addressed  and, we believe,  resolved.  We anticipate  that the rate of canceled
units will be lower as a percentage of total units shipped in 2004.

     Regarding units in service, our goal for 2004 is to ship substantially more
terminals.  Our strategy to achieve this includes  significantly  increasing our
sales  force in order  for us to gain more  market  exposure.  During  the first
quarter  of 2004 we have hired a new vice  president  of sales and two new sales
personnel.  We anticipate adding more sales personnel in the next six 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 to continue to charge rental and minimum performance fees
on all  terminals  placed.  We show  average  revenue per  terminal  for average
terminals  outstanding during the year and for average 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




                                       18
<PAGE>


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.  We plan to add
one   full-time   sales   position  to  focus   exclusively   on   international
opportunities.  In  addition,  our  former  CEO  who is now our  executive  vice
president of business  development will be devoting a significant  amount of his
effort on expanding our international presence.

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 accounting  principles  generally  accepted in the United States of
America.  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.

     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 (SAB 101) and Emerging Issues
Task Force No. 99-19 (EITF 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 Financial  Accounting Standards No. 86, "Accounting
for the Costs of Computer Software to Be Sold,  Leased,  or Otherwise  Marketed"
and Statement of 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 are expensed while costs of new software projects
under  development  are  capitalized.  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.

     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  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.  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 security in question.




                                       19
<PAGE>

     Income taxes

     At September 30, 2003, we had an accumulated net operating loss for federal
and state corporate  income tax purposes of approximately  $12 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.  However,  our  ability  to offset our
accumulated  net  operating  loss against  future  taxable  income may cause our
future reported  earnings and  profitability to be greater than they would be if
fully taxable.

Results of Operations

     The  following  table sets forth for the periods  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,
                                                 2003             2002
                                                 ----             ----

        Revenues                                 100.0%           100.0%
        Cost of goods sold                       75.2             73.3
                                                 ----             ----

        Gross profit                             24.8             26.7
        Commissions and fees.                    22.5             24.5
        Selling expenses                          1.7              1.3
        General and administrative expenses       8.1              5.0
        Depreciation and amortization             3.7              1.1
        Litigation settlements                    0.8              0.8
        Non-cash compensation                     0.0              3.5
                                                  ---              ---

        Loss from operations                    (12.0)            (9.5)
        Other income (expense) - net            (10.1)            (0.1)
                                                ------            -----

        Net loss                                (22.1)            (9.6)
                                                ------            -----

The following  table  presents our statement of  operations,  showing dollar and
percentage changes from 2002 to 2003.


<TABLE>
<CAPTION>
                                        Year ended December 31,     Increase (Decrease)
                                        -----------------------    --------------------
                                          2003          2002          $           %
                                       ----------    ----------    ---------     -----
<S>                                  <C>           <C>           <C>           <C>
 Revenues                            $ 25,686,377  $ 24,028,002  $ 1,658,375      6.9%
 Cost of goods sold                    19,313,019    17,611,023    1,701,996      9.7
                                       ----------    ----------    ---------     -----
 Gross profit                           6,373,358     6,416,979      (43,621)     (.7)
 Commissions and fees                   5,777,723     5,880,793     (103,070)    (1.8)
 Selling expenses                         432,075       307,734      124,341     40.4
 General and administrative expenses    2,076,111     1,175,982      900,129     76.5
 Depreciation and amortization            962,116       258,076      704,040    272.8
 Litigation settlements                   211,513       200,000       11,513      5.8
 Non-cash compensation                      6,667       842,986     (836,319)   (99.2)
                                       ----------    ----------    ---------     -----
 Total operating expense                9,466,205     8,665,571      800,634      9.2
 Loss from operations                  (3,092,847)   (2,248,592)    (844,255)    37.5
 Other income (expense) - net          (2,601,471)      (48,973)  (2,552,498)    --
                                       ----------    ----------    ----------    -----
 Net loss                            $ (5,694,318) $ (2,297,565) $(3,396,753)   147.8%
                                       ----------    ----------    ---------     -----
</Table>

                                       20
<PAGE>


Years ended December 31, 2003 and 2002

     Revenues.  Our 2003 revenues  increased  over the 2002 amount due to higher
revenues in the fourth quarter of 2003 compared to 2002 ($7.25 million vs. $4.96
million,  respectively).  Our fourth  quarter  revenues  were the highest in our
history.  Through the first three  quarters of 2003,  revenues for that year had
trailed  the  levels  experienced  in 2002.  Much of our  revenues  in 2003 were
negatively  impacted by the loss of a significant  customer that  terminated its
relationship  with us in the  third  quarter  of 2002.  We had  hoped  that this
revenue  loss  would have been  offset by the  rollout  of our new  Qxpress  200
terminal in the third quarter of 2002. However,  the development of the terminal
and related software took longer than expected. When the development was finally
completed,  our lack of  liquidity  prevented us from  contract-manufacturing  a
sufficient  number of the  terminals  that would have enabled us to increase our
revenues  significantly.  In the first half of 2003 we addressed  our  liquidity
issue through the sale of various debt and equity  securities that yielded gross
proceeds  of in excess of $19  million.  As a result,  we were able to order and
take  delivery of  approximately  5,000  terminals and during the latter half of
2003 we placed  more than  2,300  terminals  compared  to just under 500 for the
first half of the year.  We expect the following  factors to  positively  impact
revenues in 2004: i) our  installed  base of terminals at the beginning of 2004,
many of which  have  been  recently  installed  and  therefore  only  marginally
contributed  to revenues in 2003;  2) our  expanded  sales force that will be in
place for much of 2004; iii) the advantages we are able to offer the market with
our  proprietary  system as  previously  described;  and iv) the addition of new
means of product distribution,  such as debit/credit card terminals,  electronic
cash registers, etc.

     Cost of goods sold.  Our cost of goods sold for the year ended December 31,
2003 as percentage of revenues was 75.2% compared to 73.3%.  This increase was a
result of several national wireless carriers  decreasing the discount offered on
their products. However, we more than offset this margin decrease by passing the
price  increase  onto our brokers in the form of lower  commissions.  Changes in
cost of goods sold as a percentage of revenues are also  attributable to our mix
of sales.  Wireless products generally carry lower discounts than long distance.
In the  future,  we expect our gross  margin to  fluctuate  as our  product  mix
changes,  our level of fees  charged and as discount  rates  offered by carriers
change.  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, 2003  decreased  both in terms of absolute  dollars and as a
percentage of revenues as a result of lower overall wireless  discounts as noted
above. 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  $146,000 in 2003  compared to $225,000 in 2002.  These fees
have been  consistently in the range of 1% of gross revenues  processed  through
that  system.  Since  most of our  revenue  growth  will come from  transactions
generated by the new Qxpress 200  terminal,  these  expenses are not expected to
increase from their  current level in terms of absolute  dollars and will likely
continue to decrease as existing customers are transitioned to our new terminal.

     Selling  expenses.  Selling  expenses for the year ended  December 31, 2003
increased by  approximately  $125,000 when compared to 2002.  Components of this
increase  are payroll  expenses  ($61,000  increase),  travel  related  expenses
($46,000  increase)  and the  cost  of  advertising  and  trade  shows  ($18,000
increase).  These  increases are due to the cost of a new employee  added to our
sales  force in 2003 and to  increasing  our  corporate  visibility.  We  expect
selling  expenses to increase  significantly in 2004 as we add several new sales
personnel to our staff.

     General and administrative.  General and administrative  expenses increased
during 2003 compared to 2002, both as a percentage of revenues and in the amount
of  expenditures.  This increase can be  attributed to a number of factors.  The
first  factor is an  increase in our general  and  administrative  salaries  and
benefits of  approximately  $295,000  for the year ended  December 31, 2003 when
compared to 2002.  However,  this  increase is not due to higher gross  salaries
paid but to lower salaries  eligible to be  capitalized as software  development
costs in 2003.  As  previously  noted,  we placed our data  center in service in
December 2002. While we are still developing new applications for our system and
some of the  salaries  of  software  engineers  are  capitalized,  the amount of
capitalized  salaries in 2003 was $290,000 less than in 2002. A second factor is
a consulting  expense of $150,000  that we recorded in the first quarter of 2003
relating  to  financial  advisory  services.  We do not expect to incur  similar
expenses  during future  periods.  Additional  factors  causing the increase not
explained above include  increases in legal and consulting  services  ($100,000)
investor  relation  expenses  ($76,000),   telephone  ($48,000)  directors'  and
officers'  insurance  from a new  policy  added  in 2003  ($35,000),  recruiting
expenses  principally  related to hiring a new vice president of sales ($31,000)
and  postage  and  delivery  expenses  ($33,000).  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.




                                       21
<PAGE>

     Depreciation and amortization.  Depreciation and amortization  expenses for
the year ended  December  31, 2003  increased  by  approximately  $700,000  when
compared to 2002. These increases are attributable primarily to the amortization
of software  development costs, which began in the fourth quarter of 2002 and to
higher depreciation expenses from Qxpress 200 units deployed since that time. In
2002, we recognized amortization of our software development costs in the amount
of $121,000 while in 2003 these expenses were $580,000,  reflecting not only the
effect of a full year's  amortization of capitalized  costs at December 31, 2002
but also amortization on development  projects  completed in 2003.  Depreciation
expense for 2003 was $387,000 compared to $137,000 for 2002. The increase is due
to a higher number of Qxpress  terminals placed in service during the year and a
determination  we made in the fourth quarter of 2003 to decrease in the expected
useful life of our point of sale terminals  from five years to three years,  the
effect of which was to record additional  depreciation expense of $140,828 above
what would have  otherwise been  recorded.  As we continue to amortize  software
development costs and we increase  significantly the number of Qxpress 200 units
in service, we expect depreciation and amortization  expenses to increase in the
future.

     Non-cash  compensation.  In December  2002,  we granted a bonus  payable in
stock to four executives and key employees. Of the total grant of 43,333 shares,
50% of those were for past services and accrued as expense in 2002 in the amount
of $130,000.  The other 50% is payable in June 2004  provided  that the employee
has been  continuously  employed  by us. At  December  31,  2003 only one of the
employees  is still  employed by us.  During 2003 we accrued  $6,667  toward the
contingent  issuance  of stock to this  employee  in June 2004.  During the year
ended  December 31, 2002,  we granted a total of 116,442  shares of common stock
for services that were valued at $614,000 and options to purchase  11,167 shares
of common stock valued at $98,986.

     Litigation  settlements.  For 2003, we recorded a net litigation settlement
expense of $211,523.  This amount  relates to two  separate in actions,  both of
which are fully described above under "Item 3. Legal Proceedings".  In Bagley v.
Hickey,  a  judgment  was  rendered  in  favor of  plaintiff  in the  amount  of
approximately  $501,000. At the time the action was filed we agreed to indemnify
Mr. Hickey  because the  transaction to which it related was one that Mr. Hickey
had entered into for our benefit. In 2002, we accrued a contingent liability for
this  matter in the amount of  $200,000.  In 2003,  we  recorded  an  additional
expense of $301,000 at the time the decision  became final.  Second,  we settled
the action brought by First Security Bank out of court for $70,000. Since we had
recorded a contingent liability for this claim in the amount of $159,235 we were
able to record a recovery of nearly $90,000.

     Other  expense - net.  Other  income  and  expense  consists  primarily  of
interest income and expense.  Net other expense for the years ended December 31,
2003 and 2002 were $2.6 million and $49,000,  respectively. The increases in net
other  expense  represent  interest  expense  related  to  the  unsecured  note,
convertible note and debentures we sold in 2003. Most of this interest  expense,
$2.35 million for year ended  December 31, 2003, is in the form of  amortization
of discount on these debt instruments and therefore does not represent an amount
to be paid in cash.  The  remainder  of the  amount  is  related  to the  actual
interest  either  paid or to be paid on our debt.  In July  2003 we repaid  over
$570,000 of debt prior to their maturity dates in order to save interest expense
in future  quarters.  The interest rates on these debt  instruments  ranged from
10-14%. In addition, on June 31, 2003 we transferred $1.725 million to an escrow
account as cash collateral for the repayment of $1.5 million aggregate principal
amount, and accrued interest thereon, of our 12% secured convertible  debentures
due March 31,  2004.  As of July 1, 2003,  the interest  rate on the  debentures
decreased  to the  prime  rate,  currently  4%.  At  December  31,  2003 we have
approximately   $301,000  in  remaining  discount  on  our  secured  convertible
debentures to be expensed  during the first  quarter of 2004.  Also, in November
2003 we prepaid a 12%,  $1,000,000  note due August 2004. The combined effect of
these factors should result in significantly less interest expense in 2004.

     Income  tax  expense.   At  December  31,  2003  we  had   operating   loss
carryforwards  of  approximately  $12 million that may be applied against future
taxable  income in years through 2023.  The loss  carryforwards  and other items
result in net deferred tax asset of  approximately  $4.5 million.  The amount of
and ultimate realization of the benefits from this deferred tax asset 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. As
a result of the  uncertainty  surrounding  the  realization  of the deferred tax
asset,  at  year-end  we  established  a  valuation  allowance  equal to the net
deferred  tax asset and no income tax benefit from our  operating  loss has been
recognized for any of the periods presented.


                                       22
<PAGE>


Liquidity and Capital Resources

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

     In 2003 we  entered  into a  number  of  financing  transactions,  the most
significant of which was a registered  public  offering.  The offering closed in
June 2003 and was for 1,265,000 units including the overallotment  option,  each
unit  consisting  of two shares of common  stock and one common  stock  purchase
warrant.  The units were priced at $13.00  each,  yielding us gross  proceeds of
$16.445  million.  Net proceeds to us after  underwriter  discount and estimated
offering costs were approximately $13.6 million.

     Before completing this offering,  we raised a total of $2.7 million through
the sale of (a) a $200,000 unsecured  convertible note due February 28, 2004 and
bearing interest at 12%; (b) $1.5 million aggregate  principal amount of secured
convertible  debentures due March 31, 2004; and (c) an unsecured promissory note
in the  original  principal  amount of  $1,000,000  due August 31, 2004  bearing
interest at 12%.

     We used these funds to repay and cash  collateralize  debt in the aggregate
amount of $3.59 million,  decrease  current  liabilities  by $1.1 million,  fund
purchases of capital  equipment and software  development in the amount of $3.09
million,  fund an increase in inventory and accounts  receivable of $974,000 and
fund our operations.

     As of December  31, 2003,  we had working  capital of  approximately  $6.18
million  and a  working  capital  ratio of 3.9 to 1. We have  $1.45  million  in
restricted  cash that is pledged  to pay our  convertible  debentures  when they
mature on March 31, 2004.  To the extent the holders of the  debentures  convert
them into  common  stock,  the cash that  would have been used to repay the debt
will become unrestricted and available to us for general use.

     Commitments for cash in 2004 include another 5,000 Qxpress terminals in the
amount of $1.89  million,  total  payments  of  $120,000  toward our capital and
operating leases and payments on a note payable to our executive vice president,
business  development in the amount of $78,000. We anticipate that our inventory
of PINs,  which was $690,000 at December 31, 2003,  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 10  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.

     At this time we believe our available  resources are sufficient to fund our
operations and capital requirements through the end of 2004.

Recent Accounting Pronouncements

     Statement of Financial  Accounting  Standards  SFAS No. 149,  "Amendment of
Statement 133 on Derivative  Instruments and Hedging  Activities",  and SFAS No.
150, "Accounting for Certain Financial  Instruments with Characteristics of both
Liabilities  and Equity",  were  recently  issued.  SFAS No, 149 and 150 have no
current  applicability  to us or their effect on the financial  statements would
not have been significant.



                                       23
<PAGE>


Item 7. Consolidated Financial Statements

                          INDEPENDENT AUDITORS' REPORT



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

We  have  audited  the  accompanying   consolidated  balance  sheet  of  Q  Comm
International,  Inc.  and  Subsidiary  at  December  31,  2003,  and the related
consolidated  statements of operations,  stockholders' equity and cash flows for
the years  ended  December  31,  2003 and  2002.  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 audits.

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

In our opinion,  the  consolidated  financial  statements  audited by us present
fairly,   in  all  material   respects,   the  financial   position  of  Q  Comm
International,  Inc. and  Subsidiary as of December 31, 2003, and the results of
its  operations  and its cash flows for the years  ended  December  31, 2003 and
2002, in conformity with generally accepted accounting  principles in the United
States of America.


PRITCHETT, SILER & HARDY, P.C.

February 7, 2004, except for Note 17
  as to which the date is March 4, 2004
Salt Lake City, Utah



                                       24
<PAGE>


                    Q COMM INTERNATIONAL, INC. AND SUBSIDIARY
                           CONSOLIDATED BALANCE SHEET
                                                                    December 31,
                                                                       2003
                                                                   ------------
                                     ASSETS
Current Assets:
  Cash in bank                                                     $  5,524,774
  Restricted cash                                                     1,450,583
  Accounts receivable, net                                              444,009
  Inventory                                                             717,116
  Note receivable                                                       150,000
                                                                   ------------
     Total Current Assets                                             8,286,482
                                                                   ------------
 Property & Equipment, net                                            2,867,389

Other Assets:
  Capitalized software development costs, net                         1,561,325
  Goodwill, net                                                         144,580
  Deposits                                                               33,815
                                                                   ------------
     Total Other Assets                                               1,739,720
                                                                   ------------
     Total Assets                                                  $ 12,893,591
                                                                   ============

                      LIABILITIES AND STOCKHOLDERS' EQUITY

Current Liabilities:
  Accounts payable                                                 $    788,856
  Accrued expenses                                                      174,864
  Unearned revenue                                                       80,000
  Convertible notes and debentures - net of $300,947 discount           929,053
  Capital lease obligations - current portion                            29,766
  Related party obligations - current portion                            31,916
  Contingent liabilities                                                 70,000
                                                                   ------------
     Total Current Liabilities                                        2,104,455
                                                                   ------------
Long-term Obligations:
  Capital lease obligations                                              30,610
  Related party obligations                                             228,776
                                                                   ------------
     Total Long-term Obligations                                        259,386
                                                                   ------------
     Total Liabilities                                                2,363,841
                                                                   ------------
Stockholders' Equity:
  Common stock, $.001 par value, 50,000,000 shares
     authorized, 3,995,250 shares issued and outstanding                  3,995
  Capital in excess of par value                                     23,812,400
  Retained deficit                                                  (13,227,420)
                                                                   ------------
                                                                     10,588,975
  Less stock subscription receivable                                    (59,225)
                                                                   ------------
     Total Stockholders' Equity                                      10,529,750
                                                                   ------------
     Total Liabilities and Stockholders' Equity                    $ 12,893,591
                                                                   ============



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


                                       25
<PAGE>


                    Q COMM INTERNATIONAL, INC. AND SUBSIDIARY

                      CONSOLIDATED STATEMENTS OF OPERATIONS


                                                           For the Years
                                                        Ended December 31,
                                                 ------------------------------
                                                     2003              2002
                                                 ------------      ------------

Revenues                                         $ 25,686,377      $ 24,028,002

Cost of Goods Sold                                 19,313,019        17,611,023
                                                 ------------      ------------
Gross Profit                                        6,373,358         6,416,979
                                                 ------------      ------------
Operating Expenses:
  Commissions and fees                              5,777,723         5,880,793
  Selling expenses                                    432,075           307,734
  General and administrative expenses               2,076,111         1,175,982
  Depreciation and amortization                       962,116           258,076
  Litigation expenses                                 211,513           200,000
  Non-cash compensation                                 6,667           842,986
                                                 ------------      ------------
    Total Operating Expenses                        9,466,205         8,665,571
                                                 ------------      ------------
Loss from Operations                               (3,092,847)       (2,248,592)
                                                 ------------      ------------

Other Income (Expense):
  Interest income                                      51,983             3,950
  Interest and other expense                       (2,642,864)          (34,802)
  Loss on disposal of assets                          (10,591)          (18,121)
                                                 ------------      ------------
    Total Other Income (Expense)                   (2,601,471)          (48,973)
                                                 ------------      ------------
Loss Before Income Taxes                           (5,694,318)       (2,297,565)

Income Tax Expense                                       --                --
                                                 ------------      ------------

Net Loss                                         $ (5,694,318)     $ (2,297,565)
                                                 ============      ============

Basic Loss per Common Share                      $      (2.12)     $      (2.24)
                                                 ============      ============





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


                                       26
<PAGE>
<TABLE>
<CAPTION>

                                             Q COMM INTERNATIONAL, INC. AND SUBSIDIARY

                                          CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY

                                          FOR THE YEARS ENDED DECEMBER 31, 2003 AND 2002

                                                              Common Stock               Capital in     Stock
                                                       ----------------------------      Excess of    Subscription      Retained
                                                          Shares          Amount         Par Value     Receivable       Deficit
                                                       ------------    ------------    ------------   ------------   ------------
<S>                                                   <C>              <C>             <C>             <C>           <C>
BALANCE, January 1, 2002                                    872,648    $        873    $  4,106,490   $   (135,000)  $ (5,235,537)

Issuance of common stock for cash, at $4.50
  to $15.00 per share, net of offering costs of
  149,116                                                   274,189             274        2,636,501           --            --

Issuance of common stock for services, at $4.50
  to $28.95 per share                                       143,257             143         669,858           --             --

Issuance of common stock upon exercise of
  warrants under cashless exercise option                     5,016               5              (5)          --             --

Cancellation of common stock issued as
  collateral for a loan                                     (26,667)            (27)             27           --             --

Issuance of 11,167 options/warrants to
  purchase  common shares at $22.50 to
  $27.00 per share                                             --              --            98,986           --             --

Cash received for subscription receivable                      --              --              --            4,050           --

Net loss for the year ended December 31, 2002                  --              --              --             --       (2,297,565)
                                                       ------------    ------------    ------------   ------------   ------------
BALANCE, December 31, 2002                                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 for the year ended December 31, 2003                  --              --              --             --       (5,694,318)
                                                       ------------    ------------    ------------   ------------   ------------
BALANCE, December 31, 2003                                3,995,250    $      3,995    $ 23,812,400   $    (59,225)  $(13,227,420)
                                                       ============    ============    ============   ============   ============


The accompanying notes are an integral part of this consolidated financial statement.


                                                                   27

<PAGE>


                       Q COMM INTERNATIONAL, INC. AND SUBSIDIARY

                         CONSOLIDATED STATEMENTS OF CASH FLOWS

                                                                  For the Years
                                                                Ended December 31,
                                                          ----------------------------
                                                              2003            2002
                                                          ------------    ------------
Cash Flows from Operating Activities:
   Net loss                                               $ (5,694,318)   $ (2,297,565)
   Adjustments to reconcile net loss to
     net cash used by operating activities:
       Loss on disposal of property and equipment               10,591          18,121
       Depreciation and amortization                           962,116         258,076
       Amortization of discount on debentures and notes      2,344,507            --
       Non-cash compensation                                     6,667         842,986
       Change in assets and liabilities:
         Increase in accounts receivable                      (392,310)        (22,386)
         Increase in inventory                                (551,625)       (142,982)
         Increase in other assets                               (9,741)        (20,516)
         Increase in deferred stock offering costs                --           (67,115)
         Increase (decrease) in accounts payable              (440,845)        471,275
         Decrease in accrued liabilities                       (58,438)        (26,633)
         Increase in unearned revenue                           80,000            --
         Increase (decrease) in contingent liabilities        (289,235)        200,000
                                                          ------------    ------------
           Net Cash Used by Operating Activities            (4,032,631)       (786,739)
                                                          ------------    ------------
Cash Flows from Investing Activities:
   Increase in restricted cash                              (1,450,583)           --
   Investment in note receivable                              (150,000)           --
   Decrease in certificates of deposit                            --           100,000
   Proceeds from sales of property and equipment                23,966          30,327
   Purchase of property and equipment                       (2,248,551)       (573,428)
   Capitalized software development costs                     (811,281)       (814,748)
                                                          ------------    ------------
           Net Cash Used by Investing Activities            (4,636,449)     (1,257,849)
                                                          ------------    ------------
Cash Flows from Financing Activities:
   Issuance of common stock                                 16,465,000       2,636,775
   Cash received from subscription receivable                   71,725           4,050
   Payment of stock offering costs                          (2,740,069)        (73,999)
   Proceeds from notes and debentures                        2,700,000            --
   Payments on convertible notes payable                      (681,247)       (237,900)
   Payment on notes payable                                 (1,031,350)       (570,124)
   Proceeds from capital leases                                 66,992            --
   Payments on capital lease obligations                       (27,262)         (5,043)
   Payments on related party obligations                      (150,000)         (2,608)
   Increase (decrease) in bank overdraft                      (595,544)        406,624
                                                          ------------    ------------
           Net Cash Provided by Financing Activities        14,078,245       2,157,775
                                                          ------------    ------------
Net Increase in Cash                                         5,409,165         113,187

Cash and Cash Equivalents, Beginning of Year                   115,609           2,422
                                                          ------------    ------------
Cash and Cash Equivalents, End of Year                    $  5,524,774    $    115,609
                                                          ------------    ------------
Supplemental Disclosures of Cash Flow Information:
   Cash paid during the year for:
   Interest expense                                       $    113,087    $      9,205
   Capitalized interest                                   $       --      $     73,710
   Income taxes                                           $        100    $        100

</table>

                                       28
<PAGE>


                    Q COMM INTERNATIONAL, INC. AND SUBSIDIARY

                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                   (Continued)

Supplemental Schedule of Non-cash Investing and Financing Activities:


                      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 is 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.


                      For the year ended December 31, 2002:

The Company issued 121,590 shares of common stock to non-employees  for services
rendered valued at $689,117, including stock offering costs of $75,117.

The Company issued  warrants/options  to purchase  11,167 shares of common stock
valued at $98,986 in exchange for services.

The Company  issued 21,667  shares of common stock to employees  with a value of
$130,000.

The Company issued 5,016 shares of common stock in cashless  exercises of common
stock options.

The Company  canceled  26,667 shares of common  stock,  which had been issued as
collateral for a loan.



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




                                       29
<PAGE>


                    Q COMM INTERNATIONAL, INC. AND SUBSIDIARY

                   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.  Substantially  all operations are conducted through the Company's
     wholly owned subsidiary, Q Comm, Inc. The Company is headquartered in Orem,
     Utah.

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

     Accounts  Receivable - Accounts  receivable  consists of trade  receivables
     arising in the normal course of business. At December 31, 2003, the Company
     has  established  an  allowance  for  doubtful  accounts  of  approximately
     $30,000,  which reflects the Company's best estimate of probable  losses in
     the accounts receivable balance. 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.

     Inventory - Inventory consists of prepaid  telecommunication  products sold
     by the Company  and is carried at the lower of cost or market  value on the
     first-in, first-out method.

     Depreciation  -  Depreciation  of property and equipment is provided on 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
     equipment (see Note 2) over a 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 has been accounted for as a "change in accounting estimate"
     and,  accordingly,  the  effect  of the  decrease  in  useful  life will be
     recognized prospectively. The additional depreciation expense recognized in
     the fourth quarter of 2003 due to this change in estimate was $140,828.

     Intangible  Assets - During the year ended  December 31, 2002,  the Company
     adopted Statement of Financial  Accounting Standards No. 142, "Goodwill and
     Other  Intangible  Assets" (SFAS No. 142).  The Company has  classified its
     goodwill as an indefinite-life intangible asset and accordingly has stopped
     recording amortization.

     The Company  capitalizes  software  development  costs  incurred to develop
     certain of the Company's products and services in accordance with Statement
     of Financial  Accounting  Standards  No. 86,  "Accounting  for the Costs of
     Computer  Software to Be Sold,  Leased, or Otherwise  Marketed".  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-life  intangible  asset is
     amortizing  these costs over the  estimated  useful life of the software of
     three years.

     The Company regularly  reviews the carrying value of intangible  assets. At
     the  time  a  determination  is  made  that  capitalized  amounts  are  not
     recoverable  based on the  estimated  cash flows to be  generated  from the
     asset, the difference  between the carrying amount and the estimated valued
     based on cash flows are written off (See Notes 3 and 4).

     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. 101 - Revenue  Recognition in Financial  Statements
     (SAB 101) and  Emerging  Issues Task Force No. 99-19 (EITF  99-19).  In the
     event of sales where the  Company  does not have  ownership  of the product
     sold and  another  entity  has such risk and  reward of  product  ownership
     and/or where  certain other  requirements  of SAB 101 or EITF 99-19 are not
     met, the Company records revenues on a "net" basis.

     In  2003  the  Company  introduced  the  service  bureau  model  to be used
     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.  Software
     license  revenue is recorded at the time the  installation  is complete and
     the  customer  accepts  the  product.  The  Company had $80,000 in unearned
     revenue for software license fees at December 31, 2003.


                                       30
<PAGE>


                    Q COMM INTERNATIONAL, INC. AND SUBSIDIARY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

     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.

     Cost of Goods  Sold - The cost of goods sold is  primarily  the cost of the
     prepaid  telecommunication and other miscellaneous  products sold at retail
     as well as the cost of terminals  sold to  customers.  The full cost of the
     product,  as well as all  direct  costs  associated  with  the  sale of the
     product,  are  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.

     Loss Per Share - The Company  computes  loss per 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. (See Note 13).

     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.)

     Stock Options - In December 2002, 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
     148).  This  Statement  amends SFAS 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 148 amends the
     disclosure  requirements  of SFAS 123 to require  prominent  disclosures in
     both annual and interim  financial  statements.  Certain of the  disclosure
     modifications  are required for fiscal years ending after December 15, 2002
     and are included in the notes to these consolidated 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 the stock options 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 the 2000 and 2002 Stock  Options  Plans.
     The Company has adopted the  disclosure-only  provisions  of  Statement  of
     Financial   Accounting  Standards  No.  123,  "Accounting  for  Stock-Based
     Compensation."  Accordingly,  no  compensation  cost under SFAS No. 123 has
     been  recognized  for the stock  option  plans or other  agreements  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 2003 and 2002  consistent  with
     the  provisions  of SFAS No. 123, the Company's net loss and basic loss per
     share would have been reduced to the pro forma amounts indicated below:

                                                        For the Years
                                                      Ended December 31,
                                                 ------------------------------
                                                    2003               2002
                                                 ----------       --------------
             Net Loss             As reported    $ (5,694,318)    $  (2,297,565)
                                  Pro forma      $ (6,888,149)    $  (2,698,369)

             Basic loss per share As reported        $(2.12)           $(2.24)
                                  Pro forma          $(2.56)           $(2.55)

     Consolidation  - All  intercompany  balances and  transactions  between the
     parent and subsidiary have been eliminated in consolidation.

     Accounting   Estimates  -  The  preparation  of  financial   statements  in
     conformity  with  generally  accepted  accounting  principles in the United
     States of America  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  period.  Actual  results  could  differ from those  estimated by
     management.


                                       31
<PAGE>


                    Q COMM INTERNATIONAL, INC. AND SUBSIDIARY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)


     Recently Enacted Accounting  Standards - Statement of Financial  Accounting
     Standards  SFAS  No.  149,   "Amendment  of  Statement  133  on  Derivative
     Instruments  and Hedging  Activities",  and SFAS No. 150,  "Accounting  for
     Certain Financial  Instruments with Characteristics of both Liabilities and
     Equity",  were  recently  issued.  SFAS  No,  149 and 150  have no  current
     applicability  to the Company or their effect on the  financial  statements
     would not have been significant.

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

NOTE 2 - PROPERTY & EQUIPMENT

     The following is a summary of property and equipment:

                                                      December 31,  December 31,
                                                         2003          2002
                                                     -----------    -----------
        Point of sale terminals - in service          $1,518,205     $1,134,961
        Point of sale terminals - in inventory         1,738,855             -
        Office and computer equipment                    194,264        140,349
                                                     -----------    -----------
        Total cost                                     3,451,324      1,275,310
        Accumulated depreciation                        (583,935)      (239,808)
                                                     -----------    -----------
        Property & equipment, net                     $2,867,389     $1,035,502
                                                     -----------    -----------

     Depreciation  expense  for the years ended  December  31, 2003 and 2002 was
     $382,107 and $137,161, respectively (see Note 1).

     Point of sale  terminals in  inventory  will either be sold to customers or
     placed in service with the Company retaining ownership.  The Company begins
     depreciating  terminals  on which it  retains  ownership  at the time it is
     placed in service.

     Included in the cost of property  and  equipment  at December 31, 2003 is a
     deposit in the amount of  approximately  $14,000 for various  components of
     point of sale  terminals to be  manufactured  for the Company.  The deposit
     will be offset  against  the cost of the  terminals  to the  Company as the
     point of sale equipment is purchased.

NOTE 3 - GOODWILL

     At December 31, 2003, the Company had $144,580 in goodwill remaining from a
     purchase acquisition classified as an indefinite-life  intangible asset. In
     accordance  with SFAS No. 142,  the Company  completed  its initial test of
     goodwill for impairment during the year ended December 31, 2002 and updated
     this test during the year ended  December  31,  2003.  The Company used the
     quoted market price of its common stock to test the remaining  goodwill for
     impairment  and  determined  that the Company's  goodwill was not impaired.
     Accordingly,  there was no amortization  expense  recorded during the years
     ended December 31, 2003 and 2002.

NOTE 4 - CAPITALIZED SOFTWARE DEVELOPMENT

     Information related to capitalized  software  development costs at December
     31, 2003 is as follows:

            Capitalized software, January 1, 2003                  $1,450,968
            Capitalized during the year                               811,281
                                                                  -----------
            Capitalized software, December 31, 2003                 2,262,249
            Accumulated amortization                                (700,924)
                                                                  -----------
            Capitalized software, net                              $1,561,325
                                                                  -----------

     Of the balance at December 31, 2003,  approximately  $885,000 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.




                                       32
<PAGE>

                    Q COMM INTERNATIONAL, INC. AND SUBSIDIARY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 4 - CAPITALIZED SOFTWARE DEVELOPMENT (Continued)

     During the year ended December 31, 2002, the Company  completed its initial
     test of capitalized  software development costs in accordance with SFAS No.
     142 and updated  this test during the year ended  December  31,  2003.  The
     Company used the  estimated  future cash flows  related to its  capitalized
     software  development  costs  and  determined  that  such  costs  were  not
     impaired.  The Company has classified its capitalized  software development
     costs as a  definite-life  intangible  asset.  The  project  was  placed in
     service during September 2002, and the Company began recording amortization
     expense.  During the year ended  December  31,  2003 and 2002,  the Company
     recorded amortization expense of $580,009 and 120,915, respectively.

NOTE 5 - NOTE RECEIVABLE

     During 2003, the Company loaned $150,000 to an unrelated  third party.  The
     note bears  interest  at 10% per  annum,  payable  monthly,  and is due the
     earlier of  December  31, 2004 or the date on which the  borrower  receives
     gross  proceeds  of at least  $750,000  from the sale of its debt or equity
     securities.  The Company has the option to convert the note, in whole or in
     part, into common stock of the borrower at anytime before the due date at a
     conversion price of $.15 per share.

NOTE 6 - RELATED PARTY OBLIGATIONS

     At January 1, 2003,  the Company owed its then CEO an aggregate of $420,692
     comprised  of unpaid  equipment  lease  expenses,  deferred  salary,  notes
     payable and accrued  interest.  The amounts were  aggregated  into a single
     note in February  2003. The note is due the earlier of December 31, 2007, a
     change in control of the Company or a sale or  liquidation of the Company's
     assets. Interest on the note is at 10% and is calculated on the outstanding
     amount.  Pursuant to the terms of the note, $150,000 was paid to the CEO in
     July 2003 out of the proceeds  from the public  offering that was effective
     June 24, 2003 (see Note 15). In addition,  all accrued but unpaid  interest
     on the note through  June 30, 2004 will be due on that date and,  beginning
     July 31, 2004  monthly  principal  and  interest  payments in the amount of
     $7,382 are  required in order to fully  amortize  the  remaining  principal
     amount of the note by December 31, 2007.

     During the years ended  December  31, 2003 and 2002,  the Company  recorded
     interest expense on this obligation of $33,569 and $14,873, respectively.

      A summary of maturities of related party obligations is as follows:

                  2004                                       $   31,916
                  2005                                           68,803
                  2006                                           76,007
                  2007                                           83,966
                                                             ----------
                  Total                                         260,692
                  Less current portion                          (31,916)
                                                             ----------
                  Long-term portion                          $  228,776
                                                             ----------

NOTE 7 - LONG-TERM DEBT

     NOTES PAYABLE

     During  May  2003,  the  Company  issued a note  payable  in the  amount of
     $1,000,000  with interest at 12%, due August 31, 2004.  In connection  with
     the note,  the  Company  issued  warrants  to  purchase  238,095  shares of
     restricted  common  stock,  which  were  valued  at  $1,264,285  using  the
     Black-Scholes pricing model and the following  assumptions:  $5.25 exercise
     price,  $6.50  underlying stock price,  132% volatility,  3.5 year expected
     life,  1.67% risk free interest rate and expected  dividend  yield of zero.
     The value of the  warrants  was reduced to the  $1,000,000  note amount and
     recorded  as a  discount  against  the note.  The  Company  repaid the note
     together with accrued  interest  totaling $63,781 and recorded the discount
     as interest expense during the year ended December 31, 2003.


                                       33
<PAGE>


                    Q COMM INTERNATIONAL, INC. AND SUBSIDIARY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 7 - LONG-TERM DEBT (Continued)

     CONVERTIBLE NOTES AND DEBENTURES

     In January 2003, the Company issued a 12% unsecured convertible note with a
     principal  amount of $200,000,  due  February  28,  2004.  The Company also
     issued  24,242  shares of  restricted  common  stock,  which were valued at
     $145,454 or $6.00 per share, the value of similar  restricted common shares
     sold for cash. The Company  repaid the note together with accrued  interest
     totaling  $211,769 and recorded the discount as interest expense during the
     year ended December 31, 2003.

     From  February  through  April  2003,  the  Company  issued (a) 12% secured
     convertible debentures due March 31, 2004 in the aggregate principal amount
     of $1.5  million,  (b) 169,231  shares of  restricted  common stock and (c)
     warrants to  purchase  169,231  shares of common  stock.  The total  amount
     raised by the Company from the sale of these  securities  was $1.5 million.
     The  debentures are secured by a lien on all of the Company's  assets.  The
     conversion  price on the  debentures is $6.50 and the exercise price of the
     warrants is $9.75.  The exercise  price and the number of shares covered by
     the  warrants  will  be  adjusted  in  the  case  of  stock  splits,  stock
     combinations,   stock  dividends,  mergers  and  consolidations  and  stock
     issuances at a discount to the market price of the stock.

     The  Company may prepay the  debentures  without  premium or penalty  after
     giving the holders thereof 90 days prior written notice. Such notice may be
     given at any time  after the  debentures  have been  outstanding  for year.
     Alternatively,  the Company has the right to prepay the  debentures  at any
     time by  paying a 35%  premium.  The  completion  of the  Company's  public
     offering gave the holders the right to demand prepayment at any time out of
     the  escrow  described  below.  During the year ended  December  31,  2003,
     $280,000  of the  debentures  was  repaid  under  the  holder's  right  for
     prepayment.  Subsequent  to December 31, 2003,  an  additional  $12,000 was
     repaid  under  such  rights.  The  outstanding  principal  balance  of  the
     debentures was $1,230,000 at December 31, 2003.

     On July 1, 2003, in accordance with the terms of the agreements relating to
     the issuance of the convertible debentures,  the Company transferred $1.725
     million out of the proceeds of the public  offering that was effective June
     24, 2003 to an escrow agent as collateral security for the repayment of the
     debentures.  This amount is shown as "Restricted  cash" in the accompanying
     balance  sheet.  As a result,  interest on the  debentures is accruing at a
     rate equal to the prime rate, currently 4%. The Company also agreed to file
     a  registration  statement  on  behalf  of the  holders  of the  debentures
     covering the shares  issuable upon  conversion of the debentures as well as
     the  shares  issued  to them  in  connection  with  their  purchase  of the
     debentures and the shares  issuable upon exercise of the warrants issued in
     connection  with the debentures.  A registration  statement on Form S-3 was
     filed by the Company on July 9, 2003 and was  declared  effective on August
     4,  2003.  As a result,  the lien on the  Company's  assets in favor of the
     debenture holders was terminated.

     The 169,231  restricted  common shares were valued at $1,015,386,  or $6.00
     per share, the value of similar restricted common shares sold for cash. The
     169,231  warrants were valued at $845,562 using the  Black-Scholes  pricing
     model  and  the  following   assumptions:   $14.63  exercise  price,  $6.00
     underlying stock price, 140% volatility, five year expected life, 2.9% risk
     free interest rate and expected  dividend  yield of zero.  The value of the
     shares and warrants were reduced on a pro-rata basis to the $1.5 million in
     debentures and recorded as a discount  against the debentures,  and will be
     amortized  as  interest  expense  over  the  term  of the  debentures.  The
     unamortized  discount  at  December  31,  2003 was  $300,947  and is offset
     against  the  outstanding  balance of the  debentures  in the  accompanying
     balance sheet.

NOTE 8 - LEASES

     During 2001,  the Company  entered into a capital lease for the purchase of
     certain  computer  equipment.  The lease requires  monthly payments of $820
     through September 2005 and has an outstanding principal balance at December
     31,  2003 of  $14,000.  The lease is  collateralized  by  equipment  with a
     remaining  book  value of  approximately  $14,300  at  December  31,  2003.
     Depreciation expense of $5,289 was recognized on this equipment during each
     of the years ended December 31, 2003 and 2002.

     In January  2003,  the  Company  entered  into a capital  lease for certain
     equipment.  The lease requires  monthly  payments of $2,842 through January
     2006 and has an  outstanding  principal  balance of $46,376 at December 31,
     2003. The lease is  collateralized by equipment with a remaining book value
     of  approximately  $45,000 at December  31, 2003.  Depreciation  expense of
     $13,398 was recognized on this equipment during the year ended December 31,
     2003.




                                       34
<PAGE>


                    Q COMM INTERNATIONAL, INC. AND SUBSIDIARY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 8 - LEASES (Continued)

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

              2004                                                   $ 39,851
              2005                                                     35,710
                                                                     --------
              Total                                                    75,561
              Less interest and other costs                           (15,185)
                                                                     --------
              Present value of future minimum lease payments           60,376
              Less current portion                                    (29,766)
                                                                     --------
              Long-term portion                                      $ 30,610
                                                                     --------

     In December  2003,  the Company  entered into a five-year  lease for office
     space under an operating  lease  agreement.  The lease is cancelable  after
     three years with  120-written  notice.  The Company's future minimum rental
     under this operating lease amounts to $246,800.

NOTE 9 - LITIGATION AND CONTINGENCIES

     In 1999,  the Company  sold  certain  services to a third party who in turn
     sold these services to consumers. When the third party failed to deliver as
     anticipated,  some of the consumers reversed the charges that had been made
     on their credit card  accounts to purchase the  services.  These  reversals
     were ultimately  covered by charges made to the Company's  merchant account
     with a bank, resulting in an overdraft of that account. The Company,  under
     the agreement with the third party, is entitled to be reimbursed 50% of the
     amount of the  charge-backs.  During  2000,  the bank filed  suit  claiming
     damages of $175,477.  Management  believes the bank  reversed  charges that
     should  not have  been  reversed  under the  terms  and  conditions  of the
     consumers' agreement and therefore disputes the bank's claim. Subsequent to
     December  31, 2003,  the parties  agreed to settle the claim for a lump sum
     payment of $70,000, which was made during March 2004.

     The Company's  former CEO was party to a suit in which the plaintiff claims
     the  former  CEO  agreed  to sell to the  plaintiff  20,000  shares  of the
     Company's  common  stock at $.45 per share.  The former  CEO  disputed  the
     plaintiff's claim that this option is valid. Since the former CEO's actions
     were for the  benefit  of the  Company,  the Board of  Directors  agreed to
     indemnify  the  former  CEO for any  monetary  loss  if the  plaintiff  was
     successful  in his claim.  During the year ended  December  31,  2003,  the
     plaintiff  was  awarded  damages  in  the  amount  of  $500,748,  including
     interest, which was paid by the Company in November 2003.

     As a result of resolution to the litigation  described  above,  the Company
     recorded an additional litigation expense of $211,513 during the year ended
     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.  Management believes the Company  appropriately
     exercised its right of recision  specified in the contract and returned the
     items to the seller,  and that no amounts are due under the  contract.  The
     Company plans to vigorously contest the claim.

     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 $59,255 at
     December 31, 2003.  This amount is  reflected in the  accompanying  balance
     sheet as an offset to stockholders' equity.

     In  December  2002,  the  Company  granted  a total  of  43,334  shares  of
     restricted  common  stock as a bonus  payable  to four  executives  and key
     employees.   21,667  of  the  shares  were  for  past   services  and  were
     distributable  anytime  after  January  31,  2003  at the  election  of the
     employee.  These  21,667  shares were valued at  $130,000  and  recorded as
     non-cash  compensation  during  the  year  ended  December  31,  2002.  The
     remaining  21,667 shares were to be issued in June 2004 or upon a change in
     control  of the  Company.  The  employees  were  required  to remain in the
     continuous  employment  of the  Company  until the time the  shares  become
     distributable in order to receive them.  During the year ended December 31,
     2003, three of the employees  terminated  employment with the Company.  The
     Company  has  accrued  $6,667  in  non-cash  compensation  related  to  the
     remaining  agreement based on a price per share of common stock at the time
     of grant of $6.00.




                                       35
<PAGE>


                    Q COMM INTERNATIONAL, INC. AND SUBSIDIARY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 10 - CAPITAL STOCK

     A summary of common  stock  transactions  for the years ended  December 31,
2003 and 2002 is as follows:

                          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.  (See  Note  15).  Underwriter
     discount and offering costs of $2,807,185 were recognized on the sale. 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 (see Note 7). 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.

                          Year Ended December 31, 2002

     The  Company  sold  142,244  shares of  restricted  common  stock at prices
     ranging  from  $4.50 to $6.00  per share  through  private  placements  for
     $667,600  in cash.  Stock  offering  costs of  approximately  $27,000  were
     recorded in connection with the sale.

     The Company sold 130,278  shares of  restricted  common stock at $15.00 per
     share through  private  placements for  $1,954,175 in cash.  Stock offering
     costs of approximately  $125,000 were recorded in connection with the sale,
     including  4,948  shares of  restricted  common  stock valued at $15.00 per
     share.

     The Company  issued  116,442  shares of restricted  common stock for legal,
     consulting and investor relations services valued at $614,000.

     The  Company  issued  1,667  shares of  restricted  common  stock  upon the
     exercise of common of stock options for $15,000 in cash.

     The Company issued an aggregate of 5,016 shares of restricted  common stock
     in cashless  exercises of common stock options.  The underlying  agreements
     were for a total of  10,296  common  stock  options  with  exercise  prices
     ranging from $9.00 to $15.00 per share.

     The  Company  issued  21,667  shares  of  restricted  common  stock to four
     executives  and key employees for services  rendered  during the year.  The
     shares were valued at $130,000 and recorded as non-cash compensation in the
     accompanying statement of operations.

     The Company  canceled 26,667 shares of common stock,  which had been issued
    as collateral for a loan.

     The Company  recorded  $98,986 in non-cash  compensation in accordance with
     Statement  of  Financial  Accounting  Standards  No. 123,  "Accounting  for
     Stock-Based Compensation", for the issuance of options/warrants to purchase
     11,167 shares of common stock at $22.50 to $27.00 per share for  consulting
     services.



                                       36
<PAGE>

                    Q COMM INTERNATIONAL, INC. AND SUBSIDIARY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 11 - STOCK OPTIONS AND WARRANTS

     A summary of the status of options  granted to  employees  at December  31,
     2003 and 2002, and changes during the years then ended are as follows:

<Table>
<Caption>
                                                2003                         2002
                                        -----------------------     -------------------------
                                                 Weighted Average              Weighted Average
                                         Shares   Exercise Price     Shares     Exercise Price
                                         -------  --------------     -------   ---------------
<S>                                      <C>      <C>               <C>        <C>
       Outstanding at beginning of year  204,688       $15.45        252,667         $16.20
       Granted                           190,667       $ 6.75         21,667         $15.00
       Exercised                               -       $    -              -         $    -
       Forfeited                          86,105       $15.00         26,000         $16.80
       Expired                             5,000       $15.00         43,646         $15.00
                                         -------                     -------
       Outstanding at end of year        304,250       $10.00        204,688         $15.45
                                         -------                     -------
       Exercisable at end of year        102,000       $15.78         68,667         $16.20
                                         -------                     -------
       Weighted average fair value of
         options granted                 190,667       $  6.26        21,667         $  8.55
                                         -------                     -------


     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, 2003 and 2002: expected dividend yields of zero, expected life
     of 5 years,  expected  volatility of 140%, and risk-free  interest rates of
     3.1% and 4.6%, respectively.

     A summary of the status of stock  options  outstanding  to employees of the
     Company at December 31, 2003 is presented below:

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

          $  6.50             185,000         10.0 years              $6.50                    -       $       -
      $15.00-$16.50           119,250          2.94 years             $15.31              102,000      $   15.63
                              -------                                                    -------
                              304,250                                                     102,000
                              -------                                                    -------

</table>

     At December 31, 2003, the Company had  outstanding  options and warrants to
     purchase  1,722,826  shares of common stock (including  1,265,000  publicly
     traded  warrants,  see Notes 10 and 15) that were  issued to  non-employees
     under various  agreements with exercise prices ranging from $5.25 to $27.00
     per share,  expiring  between June 2004 and November 2008.  During the year
     ended December 31, 2003,  options and warrants to purchase 1,672,326 shares
     were issued, 88,578 options and warrants expired and no options or warrants
     were exercised.

NOTE 12 - INCOME TAXES

     The Company  accounts  for income  taxes in  accordance  with  Statement of
     Financial Accounting Standards No. 109, "Accounting for Income Taxes" (SFAS
     No.  109).  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.  At December 31,
     2003, the total of all deferred tax assets was approximately $4,501,000 and
     the total of the deferred tax liabilities was approximately  $737,000.  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  $3,763,000 and $2,250,000 at December
     31, 2003 and 2002, respectively.  The change in the valuation allowance for
     the year ended December 31, 2003 was approximately $1,513,000.

     The  Company had  available  at  December  31,  2003,  net  operating  loss
     carryforwards  of approximately  $12,025,000,  which may be applied against
     future taxable income and which expire in various years through 2023.



                                       37
<PAGE>


                    Q COMM INTERNATIONAL, INC. AND SUBSIDIARY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 12 - INCOME TAXES (Continued)

     The  components of income tax expense from  continuing  operations  for the
     years ended December 31, 2003 and 2002 consist of the following:

<table>
<caption>
                                                                 2003           2002
                                                              -----------    -----------
     
                                                      <c>            <c>
     Current income tax expense:
       Federal                                                $      --      $      --
       State                                                         --             --
                                                              -----------    -----------
          Current tax expense                                 $      --      $      --
                                                              -----------    -----------
     Deferred tax expense (benefit) arising from:
       Excess of tax over financial accounting depreciation   $   187,743    $   290,960
       Deferred compensation                                      104,550        (67,124)
       Net operating loss carryforwards                        (1,874,139)    (1,019,614)
       Valuation allowance                                      1,513,318        868,565
       Settlement reserve                                          74,600        (74,600)
       Other                                                       (6,072)         1,813
                                                              -----------    -----------
          Net deferred tax expense                            $      --      $      --
                                                              -----------    -----------

     Deferred  income  tax  expense  results  primarily  from  the  reversal  of
     temporary timing differences between tax and financial statement income.

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

                                                               2003       2002
                                                             -------    -------
     Computed at the expected statutory rate                   34.0%     34.0%
     State and local income taxes, net of federal benefit       3.3       3.3
     Valuation allowance                                      (26.58)   (37.8)
     Compensation due to issuance of options/warrants         (10.12)     1.06
     Other                                                      (.6)      (.56)
                                                             -------    -------
          Income tax expense                                   -%        -%
                                                             -------    -------

     The temporary  differences,  tax credits and carryforwards gave rise to the
     following deferred tax asset and liability at December 31, 2003:

       Deferred tax asset:
                     Net operating loss carryforwards                    $ 4,485,440
                     Deferred compensation and other                          15,250
                                                                         -----------
                       Total deferred tax asset                          $ 4,500,690
                     Less valuation allowance                             (3,763,252)
                                                                         -----------
                         Deferred tax asset net of valuation allowance   $   737,438

       Deferred tax liability:
         Excess of tax over financial accounting depreciation            $   737,438
                                                                         -----------
     Net deferred tax asset (liability)                                         --
                                                                         -----------
</table>

                                       38
<PAGE>

                    Q COMM INTERNATIONAL, INC. AND SUBSIDIARY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 13 - LOSS PER SHARE

     The  following  data show the amounts used in computing  loss per share and
     the weighted  average number of shares of common stock  outstanding for the
     years presented:

                                                         For the Years Ended
                                                             December 31,
                                                       -----------------------
                                                          2003           2002
                                                       ---------       --------
        Loss from continuing operations available
           to common shareholders (numerator)         $(5,694,318)  $(2,297,565)

        Weighted average number of common
          shares outstanding during the year used
          in per share calculations (denominator)        2,691,118    1,027,975


     Because the Company  incurred  losses for the years ended December 31, 2003
     and 2002, the effect of  options/warrants  and  convertible  notes totaling
     2,216,307 and 357,849  equivalent shares,  respectively,  has been excluded
     from the loss per share computation since its impact would be antidilutive.

NOTE 14 - SIGNIFICANT CUSTOMERS

     The Company has two  customers  that  accounted for 59% and 14% of revenues
     for the year ended  December 31, 2003,  and three  customers that accounted
     for 30%, 28% and 13% of the revenues for the year ended December 31, 2002.

NOTE 15 - PUBLIC OFFERING

     In June 2003 the Company sold 1,100,000  units and in July 2003 the Company
     sold an additional 165,000 units in a registered public offering. Each unit
     consisted  of two  shares of stock and one  warrant.  Net  proceeds  to the
     Company  were  approximately  $13,635,000  after  underwriter  discount and
     offering expenses.

     In connection  with the  offering,  the  Company's  issued and  outstanding
     securities,  including common stock, warrants and units, were listed on the
     American Stock Exchange.

     In connection with  authorizing the sale of the units,  the Company's Board
     of Directors also authorized,  subject to stockholder  approval,  a reverse
     split of the Company's  common  stock.  On May 19, 2003,  the  stockholders
     authorized  the Board to determine  the precise  ratio of the split and the
     timing  thereof.  The Board  approved a 1-for-15  reverse  stock split that
     became effective on June 4, 2003.

NOTE 16 - EMPLOYMENT AGREEMENTS

     The  Company  entered  into an  employment  agreement  with its then  chief
     executive officer, which expires on December 31, 2005. The agreement may be
     extended for successive  one-year  periods.  If the Company  terminates the
     agreement  without  cause,  or if the officer  terminates the agreement for
     good reason, the officer is entitled to a lump sum payment equal to the sum
     of two times his annual salary plus the average cash incentive pay received
     over the previous  three years.  In addition,  any stock options would vest
     immediately. If the agreement is terminated by the Company without cause or
     if the officer  terminates the agreement for good reason, or if the Company
     does not extend the  agreement  beyond its original  expiration  date,  the
     officer will be released from any  obligations  he has with the Company and
     any amounts due from the Company will be  immediately  due and payable (see
     Note 6). In March, the officer  voluntarily  agreed to relinquish the title
     of CEO  and  will  continue  to  serve  as  the  Company's  executive  vice
     president.

     The Company has 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.


                                       39
<PAGE>


                    Q COMM INTERNATIONAL, INC. AND SUBSIDIARY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 16 - EMPLOYMENT AGREEMENTS (Continued)

     Subsequent  to December 31, 2003,  the Company  entered into an  employment
     agreement  with its  President,  which  expires  on  March  31,  2006.  The
     agreement may be extended for successive one-year periods.  Under the terms
     of the  agreement,  the President will also assume the role of CEO from the
     date of the  agreement  forward.  If the Company  terminates  the agreement
     without  cause,  or if the  President  terminates  the  agreement  for good
     reason,  the  President  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 officer was also
     granted,  subject to shareholder  approval,  an option to purchase  225,000
     shares  of  common  stock  at the  market  price  per  share on the date of
     approval.

NOTE 17 - SUBSEQUENT EVENTS

     The Company settled certain litigation in March 2004 (see Note 9).

     The Company entered into an employment agreement with a new chief executive
     officer in March 2004. As part of the  agreement,  the Company  granted the
     officer  options to purchase  common stock subject to shareholder  approval
     (see Note 16).




                                       40

<PAGE>


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

     None.

Item 8A. Control and Procedures

     Evaluation of Disclosure Controls and Procedures

     Our management,  with the  participation of our chief executive officer and
chief  financial  officer,  has evaluated the  effectiveness  of our  disclosure
controls  and  procedures  (as  such  term is  defined  in Rules  13a-15(e)  and
15d-15(e)  under the Securities  Exchange Act of 1934, as amended (the "Exchange
Act"))  as of the end of the  period  covered  by  this  report.  Based  on that
evaluation,  our chief  executive  officer  and  chief  financial  officer  have
concluded  that,  as of the end of such  period,  our  disclosure  controls  and
procedures are effective.

     Changes in Internal Controls

     There have not been any  changes in our  internal  control  over  financial
reporting (as such term is defined in Rules  13a-15(f)  and 15d-15(f)  under the
Exchange Act) during our fiscal fourth quarter that have materially affected, or
are reasonably likely to materially  affect, our internal control over financial
reporting.


                                    PART III

Item 9. Directors and Executive Officers

     Our executive officers and directors and their respective ages, as of March
8, 2004, are as follows:

  Name                      Age      Position
  -----                     ---      -------
  Terry D. Kramer            44      Chief executive officer, president and
                                       director
  Paul C. Hickey             44      Executive vice president and chairman of
                                       the board
  Michael K. Openshaw        45      Chief financial officer, chief operating
                                       officer, secretary and treasurer
  Brae Burbidge              37      Director
  Lamond Woods               37      Director
  Brent Bingham              37      Director
  Vicky Johnson              38      Director

         Each   director   holds  office  until  the  next  annual   meeting  of
shareholders  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.

         Terry Kramer,  our chief  executive  officer and president,  joined the
company as interim president and board member in November 2003. In March 2004 he
accepted  appointment as chief executive  officer and president.  Mr. Kramer has
more than 15 years of experience in building,  developing, and advising wireless
technology   organizations.   From  1988  through   2000,  he  was  employed  by
Vodafone/AirTouch  and PacTel Corp.  in various  executive  positions  including
president  of  AirTouch  Paging,  vice  president  and  general  manager  of the
southwest market for AirTouch Cellular,  vice president of business  development
for AirTouch Europe, vice president of corporate strategy and executive director
of investor relations and corporate  communications for AirTouch Communications.
His other  experience  includes  working  as an  associate  with  Booz,  Allen &
Hamilton  from 1986  through 1988 and as chief  operating  officer of the Banana
Republic Division of Gap Inc. in 2001. He earned an MBA from Harvard  University
in 1986 and a Bachelor of Arts in economics from UCLA in 1982.

     Paul Hickey is our founder and our  executive  vice  president and has been
chairman of our board of  directors.  He was our chief  executive  officer until
March 2004.  Mr.  Hickey has a Bachelor of Science  degree  from  Brigham  Young
University.  Mr.  Hickey will continue to serve as an executive  vice  president
with responsibilities for international  business  development.  Mr. Hickey will
also remain a director on our board.

     Michael  Openshaw  joined us in November 2000 and was named chief financial
officer  in April  2001,  our  chief  operating  officer  in April  2002 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  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.



                                       41
<PAGE>


     Brae Burbidge has been a member of our board of directors  since June 2000.
He has also been, since October 2002, president of i-Power Inc., a marketing and
design  company.  From  1996  until  June  2002 he was the  president  and chief
executive  officer and a director of Global Web, Inc., a reporting company based
in Utah that provides web design services. He has a Bachelor of Arts degree from
the University of Utah.

     Lamond Woods has been a member of our board of  directors  since June 2000.
He has also been,  since 1996,  the  president of SWIS  Insurance,  a Utah-based
insurance agency.

     Brent  Bingham has been a member of our board of  directors  since  January
1999. He has also been, since 1992, the president and chief executive officer of
Eclipse  Marketing,  a  Utah-based  direct  sales  company.  He is a graduate of
Brigham Young University.

     Vicky  Johnson  joined our board of directors in January  2003.  Since June
2002  she has  been the  international  accounting  manager  of  Cadence  Design
Systems,  Inc.,  a New York  Stock  Exchange  reporting  company  that  provides
comprehensive software,  design and methodology services for product development
to leading  electronics  companies.  From April 1999 to March 2002,  Ms. Johnson
served as the controller of Inari,  Inc., a computer  networking  company.  From
September 1995 to March 1999 she was the accounting  manager of American  Stores
Company,  a retail food and drug store  operator.  Ms. Johnson is a licensed CPA
and has a degree in  accounting  and  business  administration  from Peru  State
College, Nebraska.

Key Employees

     Darin Hunsaker,  vice president of sales, 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.

     Marko Viitanen  joined Q Comm in 2002 as senior  software  engineer and was
promoted to director of information  technology in November  2003.  Prior to his
affiliation  with Q Comm Mr.  Viitanen held the position of Software and Quality
Assurance  Engineer at Next Page,  Inc. Mr.  Viitanen has a background in patent
applications,  speaks six  languages and has  extensive  programming  experience
including:  Java,  Linux/UNIX,  Cryptography,  SSL,  C++,  Visa  Net  and  other
server-to-server  protocols. Mr. Viitanen earned a Bachelor of Science degree in
Computer Science from Utah Valley State College.

     John Hickey, director of marketing,  joined Q Comm's predecessor companies,
Teleshare  900 and  Teleconnect,  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.  To  compliment  Q Comm's  public
relations efforts,  he also serves as Prepaid Wireless  Contributing  Writer for
Intele-Card  News,  the leading  prepaid  telecom  publication  in the U.S.  His
articles are published in the Intele-Card magazine each month. He currently sits
on  Intele-Card's  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.

Committees of the Board of Directors

     Our board of directors has an audit committee consisting of Brae Burbidge,
Lamond Woods and Vicky Johnson, and a compensation committee and nominating
committee consisting of Brae Burbidge, Lamond Woods and Brent Bingham. The audit
committee meets with management and our independent public accountants 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.

Audit Committee Financial Expert

     The Board has determined that the chairman of the committee, Vicky Johnson,
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.


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  (10%) 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 (10%) stockholders are required



                                       42
<PAGE>


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
its officers,  directors and greater than ten percent  (10%)  shareholders  were
complied with during 2003.

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  and is filed as Exhibit 14 to
this report.

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 2003 for all services  rendered to us in all  capacities  during the
last three completed fiscal years.

<table>
<caption>
                                                                                               Long-term
                                                                                              Compensation
                                                                  Annual Compensation          Securities
                                                                  -------------------          Underlying
 Name and principal position                           Year       Salary         Bonus          Options
 ---------------------------                           ----       -------        -----          -------
 <S>                                                   <C>        <C>          <C>             <C>
 Paul Hickey, chairman of the board and                2003       $120,000                       50,000(3)
 chief executive officer (1)                           2002       $120,000                       33,333(4)

 Stephen Flaherty, president (2)                       2003       $120,000
                                                       2002       $120,000     $100,000(5)       68,000(2)

 Michael Openshaw, chief financial officer,            2003       $110,586     $  30,000         40,000(3)
 chief operating officer, secretary and treasurer      2002       $110,000     $  10,000(5)       6,667(6)


(1)  Paul Hickey  resigned  as  chief executive officer in  March 2004.  He will
     continue as executive vice president.
(2)  Stephen Flaherty resigned as president of the company effective November 1,
     2003. Stock options were forfeited upon resignation.
(3)  Represents  options  granted  in  December  2003.  Vesting  is based on the
     company meeting specific financial targets.
(4)  As of December  31,  2003,  22,917  options were vested and the balance was
     forfeited.
(5)  Represents  stock  bonus  declared  December  31,  2002 valued at $0.40 per
     share.
(6)  As of December  31,  2002,  1,250  options  were vested and the balance was
     forfeited.

</table>

Options held by Named Executives

     The  following  tables  provide  information  with respect to stock options
granted during the fiscal year ended December 31, 2003 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, 2003. 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.

    Option Grants in Fiscal Year Ended December 31, 2003 (Individual Grants)

                   Number of
                   Securities       Percent of Total
                  Underlying       Options Granted to       Exercise  Expiration
Name                Options      Employees in Fiscal Year    Price        Date
-----              --------      ------------------------    -----        ----
Paul Hickey          50,000             26.2%                $6.50      12/31/13
Michael Openshaw     40,000             21.0%                $6.50      12/31/13

These  options  are  earned  quarterly  over 2004 and 2005  based on us  meeting
specified targets and on the continued employment of the officers.




                                       43
<PAGE>
<table>
<caption>

                           2003 Year-End Option Values

                 Number of Shares Underlying Unexercised   Value of Unexercised In-the-Money
                      Options at Fiscal Year End (#)        Options At Fiscal Year End ($)(1)
                      ------------------------------        ---------------------------------
Name                   Exercisable    Unexercisable            Exercisable   Unexercisable
----                   -----------    -------------            -----------   -------------

                    <c>            <c>                     <c>            <c>
Paul Hickey               86,667(2)      50,000(3)                  -             -
Michael Openshaw             -           51,333(4)                  -             -

(1)  Based on a $6.39 closing price of our stock on the American  Stock Exchange
     on December 31, 2003.
(2)  Includes  53,333  options  with an  exercise  price of $16.50 per share and
     33,333 options with an exercise price of $15 per share.
(3)  Having an exercise price of $6.50 per share.
(4)  Includes  11,333 options with an exercise price of $15 per share and 40,000
     options with an exercise price of $6.50 per share.
</table>

None of the options  referred  to above had been  exercised  as of December  31,
2003.

Employment Agreements

     We have entered into employment  agreements  Paul Hickey,  Terry Kramer and
Michael Openshaw.

     Mr. Hickey's agreement is for an initial three-year term ending on December
31, 2005.  The  agreement is  automatically  extended  for  successive  one-year
periods unless either party gives the other 180 days prior notice that it elects
not to extend the agreement.  Under the agreement, Mr. Hickey receives an annual
base salary of $120,000,  which may be increased in the sole  discretion  of the
compensation  committee,  plus  incentive  compensation,  which  also  is at the
discretion of the compensation committee. We may terminate this agreement at any
time for "cause".  If we terminate  the  agreement  without  "cause",  or if Mr.
Hickey terminates the agreement for "good reason", including following a "change
in control",  he is entitled to a lump sum payment equal to two times the sum of
(a) his then base salary and (b) the average cash  incentive  compensation  over
the immediately  preceding  three years. In addition,  any stock options held by
him will vest  immediately.  In the event of his death,  we will continue to pay
his base  salary to his  estate  for 12  months.  If we elect not to extend  the
employment  agreement,  or we terminate the agreement  without  "cause",  or Mr.
Hickey  terminates  the  agreement for "good  reason",  we agreed to release Mr.
Hickey  from any  obligations  he may have to us at that time and any amounts we
owe to him will become immediately due and payable.  In addition,  if Mr. Hickey
is still a guarantor of any of our  obligations  we must pay him, in a lump sum,
an amount  equal to his average  annual  compensation  for the last three years.
During the term of the agreement and for one year  following its  termination or
expiration,  Mr. Hickey is prohibited  from competing with us so long as we have
not  terminated  the agreement  without cause or that he has not  terminated the
agreement for good reason.

     Under Mr.  Kramer's  agreement,  which  terminates  March 31,  2006,  he is
entitled to an annual base salary of $225,000 plus bonus based on individual and
company  performance.  The  agreement  may be extended for  successive  one-year
periods.  If we  terminate  the  agreement  without  "cause",  or if Mr.  Kramer
terminates the agreement for "good reason", he is entitled to the greater of one
year's  salary plus any target  cash bonus he would be eligible to receive  that
year 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.  Under the contract,  we
will  indemnify  Mr.  Kramer to the maximum  extent  permitted  by law,  for all
expenses  incurred  by  him  in  connection  with  any  proceedings  brought  or
threatened  upon him in connection  with his service as our officer.  Mr. Kramer
was also granted, subject to shareholder approval, an option to purchase 225,000
shares of common stock at the market price per share on the date of approval.

     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.

Compensation of Directors

     Our directors  receive $500 for each board or committee meeting they attend
and are not otherwise reimbursed for travel expenses.




                                       44
<PAGE>


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 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  shareholders,  a  violation  of  section
16-10a-842 of the Utah Revised  Business  Corporation Act (dealing with unlawful
distributions to shareholders 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 $3,000,000, which expires November 2004.

     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 8, 2004 by:

     o    each person,  or group of  affiliated  persons,  known by us to be the
          beneficial owner of more than 5% of our outstanding common stock;
     o    each of our directors;
     o    each executive officer named in the summary  compensation table above;
          and
     o    all of our directors and executive officers as a group.



                                       45
<PAGE>



     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
  ---------------------           ---------------------    ------------------
  Paul Hickey                          296,272(3)               6.9%
  Stephen Flaherty                         -                      -
  Michael Openshaw                      14,066(4)                 *
  Brent Bingham                            533                    *
  Brae Burbidge                            -                      -
  Lamond Woods                             -                      -
  Vicky Johnson                            -                      -
  All directors and executive
  officers as a group (7 persons)      310,871(5)               7.2%

* 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)  Includes  8,867  shares  held by family  members  and an option to purchase
     76,250 shares exercisable within 60 days of the date of this report.
(4)  Includes 11,333 shares underlying options exercisable within 60 days of the
     date of this report.
(5)  Includes 87,583 shares  underlying  options  exercisable  within 60 days of
     this report.

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,  we adopted a new stock  option plan under which we may grant
options  covering  up to  133,333  shares  of  common  stock  to our  employees,
directors and consultants.  The compensation  committee established by the board
of directors  administers  both 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,
2003, we issued options  covering  127,667 shares of common stock under the 2000
stock option plan. These options have a weighted  exercise price of $8.34. As of
December 31, 2003,  we issued  options  covering  85,000  shares of common stock
under the 2003 stock option plan.  These options have a weighted  exercise price
of $6.50.  In 2002, we entered into stock bonus  agreements  with two executives
and two key employees.  Under these agreements, we agreed to issue 33,333 shares
of common  stock to Steve  Flaherty  and 3,333 shares of common stock to each of
Michael  Openshaw,  Chris  Leonard  and Bruce  Siskonen.  Under the terms of the
agreements,  each  employee  received 50% of his shares on or after  January 31,
2003 and will receive the balance of the shares on June 30, 2004, if he is still
employed by us on that date.  As of December  31, 2003,  only  Michael  Openshaw
remains employed by us.

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

<table>
<caption>
                                                               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
                                                                --------          --------            --------

                                                             <c>             <c>                  <c>
Equity compensation plans approved by stockholders (1)           212,667           $ 7.61             53,999
Equity compensation plans not approved by stockholders (2)      125,750(3)         $16.55              1,667(4)
                                                                --------          --------            --------
Total                                                            338,417           $10.93             55,666
                                                                --------          --------            --------




                                       46
<PAGE>


(1)  The 2000 and 2003 stock option plans.
(2)  Includes  options  granted to employees and  consultants  outside our stock
     option plans and stock bonuses.
(3)  Includes  options  covering  34,167  shares  of  common  stock  granted  to
     consultants  and options  covering 91,583 shares of common stock granted to
     employees outside our stock option plan. The options granted to consultants
     vest immediately 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.
(4)  Stock bonus payable on June 30, 2004.

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, past due lease payments, and deferred salary.
This amount is  reflected  in a note that bears  interest at 10%,  which is less
than Mr. Hickey's cost of funds,  and which matures  December 31, 2007. The note
required  that we pay Mr.  Hickey  $150,000  out of the  proceeds  of our public
offering. On June 30, 2004, we are required to pay Mr. Hickey all unpaid accrued
interest.  Also,  beginning  July 31,  2004,  we are  obligated  to begin making
monthly payments in an amount  sufficient to fully amortize the note by December
31, 2007.

     In 2002 we agreed to indemnify Mr. Hickey for any damages  awarded  against
him and any costs he incurred in connection with the matter of Bagley v. Hickey.
In that suit the  plaintiff  argued that he had suffered  damages as a result of
Mr.  Hickey's  refusal to sell him shares of our common  stock as set forth in a
written  agreement  that he and Mr.  Hickey  had  entered  into.  We  agreed  to
indemnify Mr. Hickey  because Mr. Hickey had entered into this agreement for our
benefit.  In December  2003,  the court awarded  damages to the plaintiff in the
amount of $501,000,  which we paid  pursuant to our  agreement to indemnify  Mr.
Hickey.

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

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*
     10.10        Employment Agreement between Q Comm International, Inc. and Michael K. Openshaw*
     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*
     14           Code of Ethics*
     21           Subsidiary schedule (3)


</TABLE>

                                       47
<PAGE>


     21           Subsidiary schedule (3)
     23.1         Consent of Pritchett, Siler & Hardy P.C.*
     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.

     (b) Reports on Form 8-K: No reports on Form 8-K were filed  during the last
quarter of the period covered by this report.

 Item 14. Principal Accountant Fees and Services

     The aggregate fees billed by our principal accounting firm, PRITCHETT,
SILER & HARDY, P.C., for fees billed for fiscal years ended December 31, 2003
and 2002 are as follows:

                                              2003                   2002
                                              ----                   ----
Audit fees                                  $24,942               $15,460
Audit related fees                           12,576                 4,460
    Total audit and audit related fees      $37,518               $19,920
Tax fees                                        446                  None
All other fees                                 None                  None
      Total fees                            $37,964               $19,920

     Audit related fees were for reviews of our filings for Form 10-QSB for 2003
and 2002, 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  auditors before the accountant 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/Terry D. Kramer
     -------------------
     Terry D. Kramer,
     Chief Executive Officer

Date:    March 10, 2004

     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 March 10, 2004.

          Signature                         Title
          ---------                         -----
Principal Executive Officer

         /s/ Terry D. Kramer                Chief Executive Officer
         ---------------------
         Terry D. Kramer

Principal Financial Officer

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

Directors

         /s/ Paul C. Hickey                 Chairman of the Board
         ---------------------
             Paul C. Hickey

         /s/ Brae Burbidge                  Director
         ---------------------
             Brae Burbidge

         /s/ Lamond Woods                   Director
         ---------------------
         Lamond Woods

         /s/ Brent Bingham                  Director
         ---------------------
         Brent Bingham

         /s/ Vicky Johnson                  Director
         ---------------------
         Vicky Johnson




                                       49
<PAGE>


                                  EXHIBIT 31.1

                                  CERTIFICATION

     I, Terry D. Kramer, certify that:

     1.   I  have  reviewed  this  annual  report  on  Form  10-KSB  of  Q  Comm
          International, Inc.;

     2.   Based on my  knowledge,  this  report  does  not  contain  any  untrue
          statement of material fact or omit to state a material fact  necessary
          to make the statements made, in light of the circumstances under which
          such  statements  were made, not misleading with respect to the period
          covered by this report;

     3.   Based on my knowledge,  the financial statements,  and other financial
          information  included in this report,  fairly  present in all material
          respects the financial condition, results of operations and cash flows
          of the  registrant  as of,  and for,  the  periods  presented  in this
          report;

     4.   The registrant's other certifying officer(s) and I are responsible for
          establishing  and maintaining  disclosure  controls and procedures (as
          defined  in  Exchange  Act  Rules  13a-15(e)  and  15d-15(e))  for the
          registrant and have:

          a)   Designed such disclosure controls and procedures,  or caused such
               disclosure  controls  and  procedures  to be  designed  under our
               supervision,  to ensure that material information relating to the
               registrant,  including  its  consolidated  subsidiaries,  is made
               known to us by others within those entities,  particularly during
               the period in which this report is being prepared; and

          b)   Evaluated  the  effectiveness  of  the  registrant's   disclosure
               controls  and   procedures  and  presented  in  this  report  our
               conclusions  about the  effectiveness of the disclosure  controls
               and  procedures,  as of the  end of the  period  covered  by this
               report based on such evaluation; and

          c)   Disclosed in this report any change in the registrant's  internal
               control  over  financial   reporting  that  occurred  during  the
               registrant's most recent fiscal quarter (the registrant's  fourth
               fiscal  quarter  in  the  case  of an  annual  report)  that  has
               materially  affected,  or  is  reasonably  likely  to  materially
               affect,   the   registrant's   internal  control  over  financial
               reporting; and


     5.   The  registrant's  other  certifying  officer(s) and I have disclosed,
          based on our most recent evaluation of internal control over financial
          reporting, to the registrant's auditors and the audit committee of the
          registrant's  board of directors (or persons performing the equivalent
          functions):

          a)   All  significant  deficiencies  and  material  weaknesses  in the
               design or operation of internal control over financial  reporting
               which are reasonably  likely to adversely affect the registrant's
               ability  to  record,  process,  summarize  and  report  financial
               information; and

          b)   Any fraud,  whether or not material,  that involves management or
               other employees who have a significant  role in the  registrant's
               internal control over financial reporting.

        Date: March 10, 2004
                                                     /s/ Terry D. Kramer
                                                     -----------------------
                                                     Terry D. Kramer
                                                     Chief Executive Officer




<PAGE>



                                  EXHIBIT 31.2

                                  CERTIFICATION

     I, Michael K. Openshaw, certify that:

     1.   I  have  reviewed  this  annual  report  on  Form  10-KSB  of  Q  Comm
          International, Inc.;

     2.   Based on my  knowledge,  this  report  does  not  contain  any  untrue
          statement of material fact or omit to state a material fact  necessary
          to make the statements made, in light of the circumstances under which
          such  statements  were made, not misleading with respect to the period
          covered by this report;

     3.   Based on my knowledge,  the financial statements,  and other financial
          information  included in this report,  fairly  present in all material
          respects the financial condition, results of operations and cash flows
          of the  registrant  as of,  and for,  the  periods  presented  in this
          report;

     4.   The registrant's other certifying officer(s) and I are responsible for
          establishing  and maintaining  disclosure  controls and procedures (as
          defined  in  Exchange  Act  Rules  13a-15(e)  and  15d-15(e))  for the
          registrant and have:

          a)   Designed such disclosure controls and procedures,  or caused such
               disclosure  controls  and  procedures  to be  designed  under our
               supervision,  to ensure that material information relating to the
               registrant,  including  its  consolidated  subsidiaries,  is made
               known to us by others within those entities,  particularly during
               the period in which this report is being prepared; and

          b)   Evaluated  the  effectiveness  of  the  registrant's   disclosure
               controls  and   procedures  and  presented  in  this  report  our
               conclusions  about the  effectiveness of the disclosure  controls
               and  procedures,  as of the  end of the  period  covered  by this
               report based on such evaluation; and

          c)   Disclosed in this report any change in the registrant's  internal
               control  over  financial   reporting  that  occurred  during  the
               registrant's most recent fiscal quarter (the registrant's  fourth
               fiscal  quarter  in  the  case  of an  annual  report)  that  has
               materially  affected,  or  is  reasonably  likely  to  materially
               affect,   the   registrant's   internal  control  over  financial
               reporting; and

     5.   The  registrant's  other  certifying  officer(s) and I have disclosed,
          based on our most recent evaluation of internal control over financial
          reporting, to the registrant's auditors and the audit committee of the
          registrant's  board of directors (or persons performing the equivalent
          functions):

          a)   All  significant  deficiencies  and  material  weaknesses  in the
               design or operation of internal control over financial  reporting
               which are reasonably  likely to adversely affect the registrant's
               ability  to  record,  process,  summarize  and  report  financial
               information; and

          b)   Any fraud,  whether or not material,  that involves management or
               other employees who have a significant  role in the  registrant's
               internal control over financial reporting.

        Date: March 10, 2004
                                                  /s/ Michael K. Openshaw
                                                  -----------------------
                                                  Michael K. Openshaw
                                                  Chief Financial Officer





<PAGE>

                                  Exhibit 32.1

                            CERTIFICATION PURSUANT TO
                             18 U.S.C. SECTION 1350,
                             AS ADOPTED PURSUANT TO
                  SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

         In connection with the Annual Report of Q Comm International, Inc. (the
"Company") on Form 10-KSB for the period ending  December 31, 2003 as filed with
the  Securities  and  Exchange  Commission  ("SEC")  on  the  date  hereof  (the
"Report"), I, Terry D. Kramer, Chief Executive Officer of the Company,  certify,
pursuant  to  18  U.S.C.   ss.1350,   as  adopted  pursuant  to  ss.906  of  the
Sarbanes-Oxley Act of 2002, that:

     (1) The Report fully  complies  with the  requirements  of section 13(a) or
     15(d) of the Securities Exchange Act of 1934; and

     (2)  The  information  contained  in the  Report  fairly  presents,  in all
     material respects, the financial condition and results of operations of the
     Company.

         A signed  original of this written  statement  has been provided to the
Company and will be retained  by the  Company  and  furnished  to the SEC or its
staff upon request.


/s/ Terry D. Kramer
-----------------------
Terry D. Kramer
Chief Executive Officer

March 10, 2004








<PAGE>



                                  Exhibit 32.2

                            CERTIFICATION PURSUANT TO
                             18 U.S.C. SECTION 1350,
                             AS ADOPTED PURSUANT TO
                  SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

     In  connection  with the Annual Report of Q Comm  International,  Inc. (the
"Company") on Form 10-KSB for the period ending  December 31, 2003 as filed with
the  Securities  and  Exchange  Commission  ("SEC")  on  the  date  hereof  (the
"Report"),  I,  Michael K.  Openshaw,  Chief  Financial  Officer of the Company,
certify,  pursuant to 18 U.S.C.  ss.1350,  as adopted  pursuant to ss.906 of the
Sarbanes-Oxley Act of 2002, that:

     (1) The Report fully  complies  with the  requirements  of section 13(a) or
     15(d) of the Securities Exchange Act of 1934; and

     (2)  The  information  contained  in the  Report  fairly  presents,  in all
     material respects, the financial condition and results of operations of the
     Company.

     A signed  original  of this  written  statement  has been  provided  to the
Company and will be retained  by the  Company  and  furnished  to the SEC or its
staff upon request.


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

March 10, 2004