**SECURITIES
      AND EXCHANGE COMMISSION**





Washington,
      D.C. 20549





**FORM
      10-KSB/A**








ANNUAL
      REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT


OF
      1934
      FOR THE YEAR ENDED DECEMBER 31, 2004





Commission
      File Number 001-31718





**Q
      COMM INTERNATIONAL, INC.**


(Name
      of
      small business issuer in its charter)





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





501
      East Technology Ave, Building C, Orem, Utah 84097


(Address
      of principal executive office)





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








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





Title
                of Each Class
            Name
                of Each Exchange on Which RegisteredCommon
                Stock, par value $.001 per share
            American
                Stock ExchangeCommon
                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 Section13
      or
      15(d) of the Exchange Act during the past 12 months (or for such shorter period
      that the issuer was required to file such reports), and (2) has been subject
      to
      such filing requirements for the past 90 days.





Yes
            |X|
            No
            |_|





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





For
      the
      year ended December 31, 2004, the revenues of the issuer were
      $16,576,323.





As
      of
      August 8, 2005, 5,914,794 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 August 8, 2005, based on the closing price on the American Stock Exchange
      of $3.76 on that date was approximately $19,482,793. See Footnote(1)
      below.





Documents
      Incorporated by Reference: None








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











Q
      COMM INTERNATIONAL, INC.


FORM
      10-KSB/A REPORT








December
      31, 2004





TABLE
      OF
      CONTENTS








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







FORWARD-LOOKING
      STATEMENT INFORMATION





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





1
 Table
          of Contents





**PART
      I**


*Restatement
      Overview*





The
      Company has filed this amended Form 10-KSB (“Form 10-KSB/A”) for the year ended
      December 31, 2004 for the following reasons: (1)in response to a comment from
      the SEC alerting us that our revenue recognition policy relating to sales of
      consigned PINs was not in accordance with Emerging Issues Task Force Issue
      No.99-19, (2)in response to a comment from the SEC requiring us to separately
      identify the amount of terminal depreciation and software development
      amortization included in the caption “Cost of Goods Sold” in the Statements of
      Operations, and (3)corrections required as a result of the facts described
      in
      the Company’s Form 8 filed on June 22, 2005 and as described further below.





Revenue
      Recognition for Consigned PIN Sales. The Company has restated revenue for all
      consigned PIN-based products from a “gross” to “net” basis in accordance with
      Revenue Recognition in Financial Statements and Emerging Issues Task Force
      Issue
      No.99-19. As a result, revenue was reduced by $24,225,518 from $40,801,841
      to
      $16,576,323 for 2004 and revenue was reduced by $18,979,140 from $25,686,377
      to
      $6,707,237 for 2003. The reduction in revenue has no impact on our net loss,
      net
      loss per common share, or stockholders’ equity in the years presented because
      there is a corresponding reduction reflected in the captions “Cost of Goods
      Sold” and “Commissions and Fees” in the same years. Cost of Goods Sold for 2004
      and 2003 was reduced by $19,959,600 and $15,358,129, respectively. Commissions
      and Fees for 2004 and 2003 was reduced by $4,265,918 and $3,620,921,
      respectively.





Cost
      of
      Goods Sold Clarification. In the Company’s Statements of Operations, it has
      separately identified the terminal depreciation and software amortization costs
      attributable to Cost of Goods Sold. These costs are referenced in a footnote
      to
      the Statements of Operations. This change to provide additional information
      had
      no impact on net loss, net loss per common share, or stockholders’ equity.
      Terminal depreciation and software development amortization totaled
      approximately $1,534,000 and $924,000 for 2004 and 2003, respectively.





During
      2004, the Company’s former CFO entered into a transaction without authorization
      and acted to hide the transaction from the Company’s CEO and other members of
      management, the Board of Directors, and the Company’s auditors by knowingly
      making false statements and intentionally altering documents. This transaction
      included using Company funds to make a $1,525,000 deposit with a third-party
      vendor for the purchase of 30,000 Nokia 3300 handsets. Company records were
      falsified to present $925,000 of this deposit as cash and $600,000 as a
      receivable. The remaining $600,000 was reserved for at year-end as the Company
      then believed that portion of the receivable would not be recovered. The
      consolidated balance sheet at December 31, 2004 has been restated to reclassify
      $925,000 of cash as a deposit to the vendor. Only 20,650 of the handsets were
      actually received by the Company and the corresponding loss of $600,000 has
      been
      reclassified from General and Administrative Expense to Cost of Goods Sold
      in
      the restated consolidated financial statements.





In
      the
      Course of this unauthorized transaction, the $1,525,000 deposit was never
      repaid. On July 1, 2005, the Company formally took ownership of the 20,650
      handsets. Also subsequent to December 31, 2004, the vendor to whom the deposit
      was made sold or took possession of approximately 9,000 of the handsets without
      reimbursing the Company. The Company is taking legal action to recover the
      value
      of these handsets and all losses sustained by the Company in this transaction.
      There can be no assurance the Company will successfully recover these losses
      from either the vendor or the former CFO. Subsequent to taking possession of
      the
      handsets, the Company has sold 6,650 handsets at $31 per headset and has firm
      commitments to sell the remaining 14,000 handsets at $31 per headset. No
      additional losses are expected from this transaction. The Company’s Audit
      Committee, after consultation with the legal council, hired a forensic
      investigator to inquire into all of these matters. The Company’s Audit Committee
      believes a thorough and complete investigation has been undertaken.





At
      December 31, 2004, and for the two years then ended, these restatements had
      no
      effect on total assets, net loss, net loss per common share, and stockholders’
      equity. They did have the following effect on revenue, cost of goods sold,
      general and administrative expenses, cash and deposits:





As
                Previously
              Reported
              December
                31,
              2004
            
            Restated
              December
                31,
              2004
            
            As
                Previously
              Reported
              December
                31,
              2003
            
            Restated
              December
                31,
              2003Revenues
            
            $
            40,801,841
            
            $
            16,576,323
            
            $
            25,686,377
            
            $
            6,707,327







**Item
      1. Description of Business**





*Overview*





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





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





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





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





*Electronic
      Processing of Prepaid Products*





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





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








2
 Table
          of Contents





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





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





*The
      Prepaid Wireless Market*





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





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





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





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





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





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





*The
      Q
      Comm Solution*





Qxpress
      is an integrated electronic point-of-sale activation and management information
      system that addresses many of the challenges to the prepaid products
      distribution system. The Qxpress system provides retailers, brokers and
      suppliers with a system that facilitates and processes transactions for multiple
      prepaid products, collections, and custom reporting. It includes our proprietary
      point of sale terminal or VeriFone terminal, a data center, the software to
      run
      the terminals and the data center, transactional communications/protocols that
      enable the terminals and the data center to communicate with each other, and
      professional services, which include customer and technical support. The
      combination of the data center and the terminal not only processes transactions
      but also provides a suite of information management tools to assist merchants,
      brokers, carriers and others in the distribution chain.





3
 Table
          of Contents




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





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





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





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





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





*Data
      center* .
      The
      data center is the key to the overall function of the Qxpress system, serving
      as
      an inventory and information hub for the distribution of prepaid products.
      At
      the same time that we developed the Qxpress 200 terminal, we also developed
      new
      software for our data center and new communication protocols that allow for
      two-way communication between the data center and the terminals. The data center
      electronically distributes prepaid products to the terminals and the terminals
      report all of their transactions to the data center where the information is
      stored. The communications protocols, which work in conjunction with the Qxpress
      200 terminals and data center, create a flexible delivery platform for multiple
      services formats, including real-time, just-in-time and batch inventory
      distribution, PIN-based transactions and PIN-less transactions. These methods
      enable efficient restock, quick product additions, and reporting and management
      capabilities. Through our data center, we are also able to offer electronic
      automated clearing house, or ACH, services, which automatically transfers funds
      from the merchants' accounts to our account, eliminating the need for billing
      and collecting, as well as detailed accounting, inventory, sales, transaction
      and other management information reports for the retailers, brokers and carriers
      or other suppliers of the products we resell through our system. In addition,
      the system controls the advertising message on the back face of the terminal,
      can produce custom-designed text and graphics for card backs. The system also
      works as a mechanism to process magnetic swipe transactions. Finally, the data
      center and communication protocols are TCP/IP-enabled to allow the system to
      connect to all types of devices and communications and enterprise systems.
      As a
      result, our system can also be integrated with third-party point-of-sale
      hardware/communications systems to provide an interface with installed legacy
      equipment.


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          of Contents





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





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





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





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





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





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





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





*Growth
      Strategy*





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


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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 20 carriers and distribute Qxpress terminals through more than
      70
      brokers, agents and other intermediaries. We believe we can expand our existing
      relationships with carriers and independent sales organizations as well as
      enter
      into relationships with additional carriers and independent sales organizations.
      In addition, we intend to pursue direct strategic relationships with large
      retail chains to distribute prepaid products and services through their stores.





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





We
      will
      develop new revenue models. Currently, we derive substantially all of our
      revenue from reselling prepaid products. The margins under this model are
      relatively small after taking into account our cost to acquire these products
      and the commissions and fees we have to pay to intermediaries in connection
      with
      each transaction. In order to address new markets and offer more flexibility
      to
      our customers, in March 2003, we introduced a second revenue model, which we
      call the "service bureau" model. In this scenario, we license our technology
      and
      the licensee is responsible for buying the prepaid products, reselling them,
      deploying the terminals, customer support and providing management information
      reports. We established our first service bureau in Canada in March 2003 and
      currently have a total of four with a fifth in progress, with all but one of
      them outside the U.S. The Company will explore new service bureau opportunities
      both domestically and internationally as appropriate but anticipates service
      bureau will continue to be a small portion of the Company’s business mix.





We
      will
      continue to explore internationally opportunities. 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. During
      2004, we acquired Point de Vente (PDV), our service bureau customer in Canada
      and now operate PDV as a wholly owned subsidiary.





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





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





*Competition*





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





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


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





·
            Cost
                efficiencies;


·
            Breadth
                and depth of product offering;


·
            Quality
                of service;


·
            Convenience;


·
            Breadth
                of geographic presence;


·
            Customer
                service;


·
            Use
                of technology;


·
            Reliability;
                and


·
            Availability
                of enhanced services.





We
      believe our competitive strengths include the following:


·
            Ease
                of use. We believe that our Qxpress 200 terminal is the only one
                in the
                market designed specifically for prepaid products. Other terminals
                are
                generally adaptations of terminals designed for other purposes, such
                as
                processing credit card transactions. In designing a terminal for
                the
                prepaid transaction industry, we were able to take into account the
                specific needs of that industry. For example, our terminal includes
                an
                advertising display screen facing the customer, hot keys for commonly
                sold
                products, and a user training module included in the terminal. The
                success
                of this strategy has already begun to manifest itself by the strong
                market
                response to our new terminal.


·
            Versatility
                and flexibility. We are able to offer our customers a wide array
                of
                products, both with a large number of product types and with several
                different carriers for products. Our business model allows customers
                to
                sell their own products through our terminals as well, while several
                of
                our competitors require their customers to only sell products supplied
                by
                the competitor. We are also able to offer our products and services
                through alternative terminals.


·
            Turn-key
                solution. We are one of the few companies in this industry that have
                developed a proprietary terminal that communicates directly with
                an
                accompanying data center to record and process transactions. This
                gives us
                total control of the transaction from beginning to end, which allows
                us to
                ensure service quality for our customers.


·
            Ability
                to customize. Since we own the "front end" (terminal) and "back end"
                (data
                center) of the process, we are able to develop custom applications
                for
                customers in a relatively short time frame. We employ several experienced
                programmers in order to quickly respond to such requests. Examples
                of
                these requests include items ranging from custom reporting of transactions
                to enabling the terminal to process different types of transactions,
                such
                as debit/credit card transactions and PIN-less magnetic card swipes.
                We
                are also able to adapt our system to utilize alternate delivery methods,
                such as ATM's, cash registers and other terminal devices.


·
            Scalable,
                efficient operating structure. As a result of our technology, we
                can
                easily expand our operations without significantly increasing our
                fixed
                costs. Because all transactions are processed through our data center,
                we
                believe that our existing infrastructure can support a much higher
                revenue
                base. We believe this will be a significant competitive advantage
                as our
                business grows.





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





*Suppliers
      and Customers*





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


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





We
      have
      entered into agreements with approximately 70 brokers who, we believe, service
      over 100,000 retail locations throughout the country. Each broker and each
      retailer is required to execute a Services and Rental Agreement and an ACH
      Agreement under which they authorize us to withdraw funds from their accounts
      to
      pay for the products they sell.





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





*Sales
      and Marketing*





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





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





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





*Intellectual
      Property*





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





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





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


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          of Contents





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





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





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





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





*Government
      Regulation*





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





*Employees*





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





*Corporate
      Information*





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





**RISK
      FACTORS**





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





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





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


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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.





We
      had
      negative margins, after taking into account the cost of the products sold
      through the Qxpress system, the fees and commissions payable to distributors,
      brokers and retailers, and including depreciation and software amortization
      expenses, of approximately (4.3%) in 2004 and (4.9%) in 2003. Our margins,
      excluding depreciation and software amortization expenses our margins were
      approximately 5.0% in 2004 and 8.9% in 2003. As a consequence, for us to be
      profitable to any meaningful extent, we must do one or more of the
      following:


·
            increase
                our revenue per terminal;


·
            increase
                the number of revenue generating
                terminals;


·
            add
                new products with higher profit margins to our portfolio;
                or


·
            develop
                new revenue models.





In
      order
      to increase our revenue from our historical business, we must increase the
      number of terminals in use. In order to expand our product line, we must enter
      into relationships with the suppliers of these products, establish new sales
      channels or expand existing channels and develop processing applications to
      handle the new products. We cannot assure you that we will be able to achieve
      any of the above goals.





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





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





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





Although
      we currently offer a variety of prepaid products, 87% of our revenue for the
      year ended December 31, 2004 was generated from sales of prepaid wireless
      products. The market for prepaid wireless has experienced substantial growth
      in
      past years. Our revenues have grown as this market has developed and expanded
      in
      the United States. We cannot assure you that this market will continue to grow.
      If it does not and we do not develop new products, our rate of revenue growth
      could decline rapidly, resulting in higher net losses.





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





A
      small
      number of brokers account for a large percentage of our revenue. One aspect
      of
      our growth strategy is to increase the breadth of our account base. However,
      a
      high level of customer concentration could continue for the foreseeable future.
      In 2004, three largest customers accounted for approximately 45% of revenue.
      We
      cannot assure you that the level of revenue to these brokers will be sustained
      from year to year and there is a risk that these principal brokers may not
      continue to sell our products in the future. To the extent that any significant
      broker reduces its reliance on us, terminates its relationship with us, or
      defaults on payments, our revenues in the relevant fiscal period could decline
      substantially, which would result in lower net profits or a greater net loss.





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





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





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


10
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          of Contents





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





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





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





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





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





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





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





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





In
      the
      future, we may need to raise additional capital to meet the capital requirements
      of our business or to take advantage of expansion or acquisition opportunities.
      If we are unable to do so, we may not be able to increase our revenues or
      achieve profitability. Even if we are able to secure additional capital by
      selling equity or equity-linked securities, these securities could dilute the
      ownership percentage of our existing stockholders. The securities that we might
      sell could also have rights, preferences or privileges senior to those of our
      common stock. We cannot assure you that we will be able to obtain additional
      financing when needed on acceptable terms or at all.





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





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





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





Our
      stock
      price has been extremely volatile, fluctuating over the last two years between
      $2.00 and $14.85. These fluctuations have been unrelated to or
      disproportionately affected by our operating performance. The market price
      of
      our common stock could continue to fluctuate significantly in response to a
      variety of factors, some of which may be beyond our control. These factors
      may
      include one or more of the following:


·
            Quarterly
                operating results falling below or exceeding expectations in any
                given
                period;


·
            Changes
                in economic conditions generally or in the telecommunications or
                banking
                industries;


·
            Market
                fluctuations relating to markets generally or market sectors that
                include
                our competitors, which may or may not be based on earnings or other
                announcements by us or our
                competitors;


·
            Fluctuations
                in our revenue which may or may not be related to changes in the
                way we
                conduct our business;


·
            Announcements
                by our competitors of new technological innovations, service offerings,
                contracts, acquisitions or strategic
                relationships;


·
            Departures
                of key personnel; and


·
            Changes
                in business or regulatory conditions.





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





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





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




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




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




**Item
      2. Description of Property**





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





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


12
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          of Contents





**Item
      3. Legal Proceedings**





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





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





In
      January 2004, Dial-Thru International Corporation filed a lawsuit against us
      in
      the Superior Court of the State of California, County of Los Angeles, claiming
      damages of $4 million as a result of our breach of an agreement that was signed
      in October 2000. It is our position that claim is without merit as we properly
      exercised a contractual right to terminate the agreement. In February 2004,
      we
      filed a motion to dismiss the case on the grounds that under the agreement
      in
      question the proper venue for this case was the federal or state courts in
      Orem,
      Utah. In April 2004, the California court issued a tentative ruling granting
      our
      motion for dismissal. The proceedings were stayed pending the outcome of the
      matter in the state of Utah. In July 2004, Dial-Thru filed substantially the
      same suit against us in the United States District Court in the State of Utah.
      On August 2, 2005, the parties mediated the dispute and reached a settlement
      whereby the Company paid Dial-Thru $225,000 on August 9, 2005.





In
      March
      2005, the Company filed an action against a PIN provider, as the Company
      believed it was owed approximately $1 million in deactivated PINs which it
      received in the fourth quarter of 2004. Subsequent to April 2005, the
      Company determined the obligation includes a mix of deactivated PINs and
      handsets paid for by the Company that were sold or are in the possession of
      the
      vendor. The Company is taking the appropriate legal action to recover the value
      due, however there is no assurance of repayment, and management recorded an
      allowance against the full amount of the receivable in the fourth quarter of
      2004.








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




None





**PART
      II**





**Item
      5.Market for Common Equity and Related Stockholder
      Matters**





*Market
      Information*





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





Sales
                Price
            
            Bid
                PriceHigh
            
            Low
            
            High
            
            Low2003First
                Quarter
            
            $
            14.85
            
            $
            7.50
            
            $
            13.50
            
            $
            7.05Second
                Quarter (as of June 24)
            
            $
            10.95
            
            $
            4.65
            
            $
            10.95
            
            $
            4.65Third
                Quarter
            
            $
            8.04
            
            $
            5.25
            
            Not
                Applicable*Fourth
                Quarter
            
            $
            7.70
            
            $
            2.00
            
            Not
                Applicable*2004First
                Quarter
            
            $
            7.37
            
            $
            3.63
            
            Not
                Applicable*Second
                Quarter
            
            $
            4.68
            
            $
            2.60
            
            Not
                Applicable*Third
                Quarter
            
            $
            5.50
            
            $
            3.75
            
            Not
                Applicable*Fourth
                Quarter
            
            $
            6.00
            
            $
            3.35
            
            Not
                Applicable*2005January
                1, 2005-March 21, 2005
            
            $
            5.58
            
            $
            3.41
            
            Not
                Applicable*








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





*Holders*





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


13
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          of Contents


*Dividends*





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





*Recent
      Sales of Unregistered Securities*





Subsequent
      to December 31, 2004 we completed the following:





In
      April
      2005, we issued 400,000 shares of unrestricted common stock at $5.00 per share
      in through a private placement for an aggregate of $2,000,000 in cash.





In
      July
      2005, we issued 427,000 restricted common shares at $3.07 per share for an
      aggregate of $1,311,000 in cash.





In
      July
      2005, we issued a promissory note in the amount of $611,000. This note has
      an
      interest rate of 5% per year and is payable in full on or before July 7, 2007.
      In connection with the issuance of this note, we also issued warrants for
      230,000 shares of common stock exercisable for a period of five years at a
      price
      of $3.51 per share.





Prior
      to
      January 1, 2005 we completed the following:





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





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





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





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





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





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





The
      foregoing securities were issued to accredited and/or sophisticated in investors
      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**





The
      Company has filed this amended Form 10-KSB (“Form 10-KSB/A”) for the year ended
      December 31, 2004 for the following reasons: (1)in response to a comment from
      the SEC alerting us that our revenue recognition policy relating to sales of
      consigned PINs was not in accordance with Emerging Issues Task Force Issue
      No.99-19, (2)in response to a comment from the SEC requiring us to separately
      identify the amount of terminal depreciation and software development
      amortization included in the caption “Cost of Goods Sold” in the Statements of
      Operations, and (3)corrections required as a result of the facts described
      in
      the Company’s Form 8 filed on June 22, 2005 and as described further below.





Revenue
      Recognition for Consigned PIN Sales. The Company has restated revenue for all
      consigned PIN-based products from a “gross” to “net” basis in accordance with
      Revenue Recognition in Financial Statements and Emerging Issues Task Force
      Issue
      No.99-19. As a result, revenue was reduced by $24,225,518 from $40,801,841
      to
      $16,576,323 for 2004 and revenue was reduced by $18,979,050 from $25,686,377
      to
      $6,707,327 for 2003. The reduction in revenue has no impact on our net loss,
      net
      loss per common share, or stockholders’ equity in the years presented because
      there is a corresponding reduction reflected in the captions “Cost of Goods
      Sold” and “Commissions and Fees” in the same years. Cost of Goods Sold for 2004
      and 2003 was reduced by $19,959,600 and $15,358,129, respectively. Commissions
      and Fees for 2004 and 2003 was reduced by $4,265,918 and $3,620,921,
      respectively.





Cost
      of
      Goods Sold Clarification. In the Company’s Statements of Operations, it has
      separately identified the terminal depreciation and software amortization costs
      attributable to Cost of Goods Sold. These costs are referenced in a footnote
      to
      the Statements of Operations. This change to provide additional information
      had
      no impact on net loss, net loss per common share, or stockholders’ equity.
      Terminal depreciation and software development amortization totaled
      approximately $1,534,000 and $924,000 for 2004 and 2003, respectively.





During
      2004, the Company’s former CFO entered into a transaction without authorization
      and acted to hide the transaction from the Company’s CEO and other members of
      management, the Board of Directors, and the Company’s auditors by knowingly
      making false statements and intentionally altering documents. This transaction
      included using Company funds to make a $1,525,000 deposit with a third-party
      vendor for the purchase of 30,000 Nokia 3300 handsets. Company records were
      falsified to present $925,000 of this deposit as cash. The remaining $600,000
      was included in receivables and was reserved for at year-end as the Company
      believed that portion of the receivable would not be recovered. The consolidated
      balance sheet at December 31, 2004 has been restated to reclassify $925,000
      of
      cash as a deposit to the vendor. Only 20,650 of the handsets were actually
      received by the Company and the corresponding loss of $600,000 has been
      reclassified from General and Administrative Expense to Cost of Goods Sold
      in
      the restated consolidated financial statements.





In
      the
      Course of this unauthorized transaction, the $1,525,000 deposit was never
      repaid. On July 1, 2005, the Company formally took ownership of the 20,650
      handsets. Also subsequent to December 31, 2004, the vendor to whom the deposit
      was made sold or took possession of approximately 9,000 of the handsets without
      reimbursing the Company. The Company is taking legal action to recover the
      value
      of these handsets and all losses sustained by the Company in this transaction.
      There can be no assurance the Company will successfully recover these losses
      from either the vendor or the former CFO. Subsequent to taking possession of
      the
      handsets, the Company has sold 6,650_handsets at $31 per headset and has firm
      commitments to sell the remaining 14,000 handsets at $31 per headset. No
      additional losses are expected from this transaction. The Company’s Audit
      Committee, after consultation with the legal council, hired a forensic
      investigator to inquire into all of these matters. The Company’s Audit Committee
      believes a thorough and complete investigation has been undertaken.





At
      December 31, 2004, and for the two years then ended, these restatements had
      no
      effect on total assets, net loss, net loss per common share, and stockholders’
      equity. They did have the following effect on revenue, cost of goods sold,
      general and administrative expenses, cash and deposits:




As
                  Previously
                Reported
                December
                  31,
                2004
              
              Restated
                December
                  31,
                2004
              
              As
                  Previously
                Reported
                December
                  31,
                2003
              
              Restated
                December
                  31,
                2003Revenues
              
              $
              40,801,841
              
              $
              16,576,323
              
              $
              25,686,377
              
              $
              6,707,327


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





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





*Overview*





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





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


14
 Table
          of Contents





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. Given prepaid wireless is much more common
      and accepted in Europe, Asia and Latin America than it is in North America,
      we
      will continue to explore new international opportunities.





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





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





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





*Sources
      of Revenue*





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





Our
      standard business model is referred to as our broker model. In this model,
      we
      provide a full range of products and services to our customers, including our
      product library, PIN management, transaction processing, and customer service
      to
      the retail locations. Revenue is recognized on a “gross” basis for our prepaid
      products and a ”net” basis for all consigned products. Commissions and fees paid
      to brokers and retailers are recorded as operating expense.





Beginning
      in 2003, we began offering our service bureau business model. Under this model,
      our customers license our data center software and purchase Qxpress terminals
      from us. These customers are responsible for functions such as inventory
      management, product ownership, report generation, and ACH funds transfer. Our
      agreements with these customers also provide ongoing fees for software
      maintenance and transactions processed through their system. On an on-going
      basis, we expect service bureau to be a diminishing portion of our business
      as a
      percent of total revenue.


15
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          of Contents


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.





RESTATED
              Year
                ended December 31,2004
            
            2003Amount
            
            Percentage
            
            Amount
            
            PercentageWireless
            
            $
            14,474,142
            
            
            87.3
            %
            $
            5,323,490
            
            
            79.4
            %Fees
            
            
            462,580
            
            
            2.8
            
            
            407,132
            
            
            6.1Long
                Distance
            
            
            449,761
            
            
            2.7
            
            
            197,374
            
            
            2.9Service
                Bureau
            
            
            347,273
            
            
            2.1
            
            
            414,123
            
            
            6.2Wireless
                Phone Features
            
            
            184,479
            
            
            1.1
            
            
            -
            
            
            0.0Debit
                Card
            
            
            151,824
            
            
            0.9
            
            
            35,908
            
            
            0.5Terminal
                Sales
            
            
            125,442
            
            
            0.8
            
            
            127,325
            
            
            1.9Gift
                Card
            
            
            100,019
            
            
            0.6
            
            
            22,844
            
            
            0.3Home
                Dial Tone
            
            
            90,901
            
            
            0.6
            
            
            35,385
            
            
            0.5Wholesale
                Products
            
            
            20,507
            
            
            0.1
            
            
            126,732
            
            
            1.9Other
            
            
            169,395
            
            
            1.0
            
            
            17,021
            
            
            0.3Totals
            
            $
            16,576,323
            
            
            100.0
            %
            $
            6,707,334
            
            
            100.0
            %





Prior
      to
      this restatement revenue Iowa Wireless and Hargray were our two largest
      customers. Prior to the restatement, revenue for these customers were recognized
      on a “gross” versus the current “net” basis. The aggregate revenue for these two
      customer at “net” totals approximately $286,000 and $245,000 for 2004 and 2003,
      respectively.





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





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





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





We
      offer
      the brokers through whom we deploy the Qxpress system the option either to
      buy
      the Qxpress terminals at a fixed price or to lease them under a rental program.
      The rental program has the advantage of ongoing rental revenue 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 revenue 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 revenue will continue to increase
      as
      we deploy more terminals into the market.





We
      first
      began setting up service bureau customers in 2003. While we make this business
      model available to all our customers, we expect the majority of revenues from
      service bureau customers will be from customers outside the United States since
      that is the only business model we offer them. This revenue model will provide
      higher margins than our traditional broker model since there are few direct
      costs to offset against the fee revenues. We acquired our service bureau
      customer in Canada in July 2004, which contributed to the decline in service
      bureau revenues. Also, the mix of our overall service bureau revenues relative
      to our broker model changed significantly from 2004 to 2003 and continues to
      diminish as a percent of our total business.





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





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


16
 Table
          of Contents


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





Historically,
      our results of operations have been characterized by relatively high revenues
      but relatively low gross margins. Our gross margin, including terminal
      depreciation and software amortization expenses was approximately 27.3% for
      the
      year ended December 31, and 25.2% for the comparable year in 2003. Our gross
      margin, excluding terminal depreciation and software amortization expenses
      was
      approximately 34.5% for the year ended December 31, and 41.0% for the comparable
      year in 2003.





After
      further subtracting the commissions and fees paid to the brokers and retailers
      (which vary substantially directly with revenues in our historical sales model),
      we incurred negative margins of approximately (4.3%) for the year ended December
      31, 2004 and (4.9%) for the comparable period in 2003. Excluding terminal
      depreciation and amortization our margin was 5.0% for the year ended December
      31, 2004 and 8.9% for the comparable period in 2003. With thin margins, a minor
      change in the price that we pay for products would have a substantial effect
      on
      our margins and net income (loss) if we were not able to (or, in the case of
      price decreases, were not required to) pass the difference on to our customers.





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





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





*Operating
      Metrics*





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




Broker
                Model
            
            For
                the Year Ended
              December
                31, 2004
              (Restated)
            
            For
                the Year Ended
              December
                31, 2003
                (Restated)Terminals
                activated
            
            
            1,807
            
            
            1,030Terminals
                canceled
            
            
            (824
            )
            
            (405
            )Net
                terminals activated
            
            
            983
            
            
            625Terminals
                acquired
            
            
            200(1
            )
            
            -Total
                activated terminals
            
            
            2,325
            
            
            1,142Average
                activated terminals
            
            
            1,734
            
            
            830Average
                monthly net revenue per terminal
            
            $
            28(2
            )
            $
            15(2
            )Average
                monthly net revenue per terminal for terminals activated more than
                60 days
            
            $
            32(2
            )
            $
            18(2
            )





(1)
            In
                July 2004, we acquired our service bureau customer, Point de Vente.


(2)
            Includes
                revenues less cost of goods sold and commissions paid to brokers
                and
                retailers.


17
 Table
          of Contents





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





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





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





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





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





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








**Critical
      Accounting Policies and Estimates**





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


18
 Table
          of Contents





*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 (“SAB”) No.104 --
      Revenue Recognition in Financial Statements and Emerging Issues Task Force
      Issue
      No.99-19. Sales of our consigned prepaid products are also made direct to
      end-users. There is no right of return for products sold and we are not
      obligated for future performance after sale. These sales transactions are
      accounted for at “net” in accordance with SAB No.104 -- Revenue Recognition in
      Financial Statements and Emerging Issues Task Force Issue No.99-19. Revenues
      generated from other sources, such as from the sale or rental of terminals,
      minimum performance fees and software license fees are recorded when earned,
      net
      of any sales discounts. Under our service bureau model, software license,
      transaction processing and maintenance fees are all recorded on a net basis
      when
      earned.





*Cost
      of goods sold*





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





*Software
      development costs*





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





*Impairment
      of long-lived assets*





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





*Stock
      options and warrants*





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





*Income
      taxes*





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


19
 Table
          of Contents


**Results
      of Operations**





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





RESTATED
              Year
                ended December 31,2004
            
            2003Revenues
            
            
            100.0
            %
            
            100.0
            %Expenses:Cost
                of goods sold (exclusive of items shown separately below
                (1))
            
            
            65.5
            
            
            59.0Commissions
                and fees
            
            
            29.5
            
            
            32.2Selling
                expenses
            
            
            4.6
            
            
            6.4General
                and administrative expenses
            
            
            22.0
            
            
            31.0Depreciation
                and amortization
            
            
            10.5
            
            
            14.3Litigation
                settlements
            
            
            0.0
            
            
            3.2Impairment
                of assets
            
            
            3.9
            
            
            0.0Loss
                from operations
            
            
            (36.1
            )
            
            (46.1
            )Other
                income (expense) - net
            
            
            (3.3
            )
            
            (38.8
            )Net
                loss before income taxes
            
            
            (39.4
            )
            
            (84.9
            )Income
                tax expense
            
            
            0.1
            
            
            0.0Net
                loss
            
            
            (39.5
            )%
            
            (84.9
            )%





(1)
            Excludes
                cost of goods sold related to depreciation on terminals and amortization
                of capitalized software development. For 2004 and 2003 these costs
                totaled
                9.3% and 13.8% of revenue, respectively.





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





RESTATED
              Year
                ended December 31,
            
            Increase
                (Decrease)2004
            
            2003
            
            $
            
            %Revenues
            
            $
            16,576,323
            
            $
            6,707,237
            
            $
            9,868,096
            
            
            147.1
            %Expenses:Cost
                of goods sold (exclusive of items shown separately below
                (1))
            
            
            10,859,218
            
            
            3,954,890
            
            
            6,
                904,328
            
            
            174.6Commissions
                and fees
            
            
            4,892,987
            
            
            2,156,802
            
            
            2,736,185
            
            
            126.9Selling
                expenses
            
            
            757,588
            
            
            432,075
            
            
            325,513
            
            
            75.3General
                and administrative expenses
            
            
            3,652,494
            
            
            2,076,111
            
            
            1,576,383
            
            
            75.9Depreciation
                and amortization
            
            
            1,740,226
            
            
            962,116
            
            
            778,110
            
            
            80.9Litigation
                settlements
            
            
            -
            
            
            211,513
            
            
            (211,513
            )
            
            -Impairment
                of assets
            
            
            653,303
            
            
            -
            
            
            653,303
            
            
            100.0Non-cash
                compensation
            
            
            -
            
            
            6,667
            
            
            (6,667
            )
            
            -Total
                operating expense
            
            
            22,555,816
            
            
            9,800,174
            
            
            12,755,642
            
            
            130.2Loss
                from operations
            
            
            (5,979,493
            )
            
            (3,092,847
            )
            
            2,886,646
            
            
            93.3Other
                income (expense) - net
            
            
            (543,310
            )
            
            (2,601,471
            )
            
            2,058,161
            
            
            79.1Net
                loss before income taxes
            
            
            (6,522,803
            )
            
            (5,694,318
            )
            
            828,485
            
            
            14.6Income
                tax expense
            
            
            25,000
            
            
            -
            
            
            25,000
            
            
            100.0Net
                loss
            
            $
            (6,547,803
            )
            $
            (5,694,318
            )
            $
            853,485
            
            
            15.0
            %








(1)
            Excludes
                $1,534,000 and $924,000 of depreciation on terminals and amortization
                of
                capitalized software development applicable to cost of goods sold
                for the
                years ended December 31, 2004 and 2003, respectively.








Years
      ended December 31, 2004 and 2003





*Revenues* .
      Our
      2004 revenues increased over the 2003 amount due to both an increased number
      of
      terminals in the field and to an increase in revenues per terminal during 2004.
      The acquisition of Point de Vente in July 2004 added approximately $2 million
      in
      revenues to the 2004 total. Most revenue categories experienced increases during
      2004 compared to 2003, with the largest increases coming from wireless ($9.1
      million). We expect the following factors to positively impact revenues in
      2005:
      i) our installed base of terminals at the beginning of 2005, many of which
      have
      been recently installed and therefore only marginally contributed to revenues
      in
      2004; ii) our expanded sales force that will be in place for all of 2005; iii)
      the advantages we are able to offer the market with our proprietary system
      as
      previously described; iv) the addition of new means of product distribution,
      such as debit/credit card terminals and PC-based delivery of product; v) the
      addition of new products to our library, such as gift/loyalty cards and bill
      pay; and vi) the continued growth of the prepaid wireless market. There is
      no
      assurance that these factors will positively affect revenues in 2005.


20
 Table
          of Contents





*Cost
      of goods sold* .
      Our
      cost of goods sold (including terminal depreciation and amortization) for the
      year ended December 31, 2004 as percentage of revenues was 74.8% compared to
      72.7% for the year ended December 31, 2003. This increase was attributable
      to a
      $600,000 (a 3.6% cost of goods sold impact) loss resulting from handsets that
      were not received by the Company in connection with the previously discussed
      deposit made to a vendor inventory write down related to telecommunications
      products, and our mix of sales. The increase is offset in part by several new
      wireless MVNO carriers we added in 2004 who offer higher discounts on their
      products. In the future, we expect our margin to fluctuate as changes occur
      in
      our product mix, level of fees charged and discount rates offered by carriers.





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





After
      subtracting the commissions and fees paid to the brokers and retailers, we
      had
      negative margins (including terminal depreciation and software amortization
      expenses) of approximately (4.3%)for the year ended December 31, 2004 and (4.9%)
      for the comparable period in 2003. The decrease is primarily attributable to
      a
      $600,000 (a 3.6% cost of goods sold impact) loss resulting from handsets that
      were not received by the Company in connection with the previously discussed
      deposit to a vendor, and our mix of sales. This decrease was offset in part
      by
      i) an increase in fees charged during 2004. Fees impact the margin after
      commissions and fees on a "dollar-for-dollar" basis, unlike product sales;
      and
      ii) an increase in the margin we are able to keep on our newer accounts compared
      to the margins on older accounts. One of our primary strategies in 2005 is
      to
      further improve this margin after commissions and fees by obtaining more direct
      contracts with PIN providers, thus avoiding the mark-up added by primary
      distributors and by obtaining more direct contracts with retail chains where
      we
      would not have to pay a broker commission. There is no assurance that we will
      be
      successful in improving our margin after commissions and fees in 2005. Our
      market is increasingly competitive and we may have to discount fees to gain
      market share; this and other factors could result in lower margins in 2005.





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





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





Additional
      factors causing the increase include i) a $160,000 accrual toward a team bonus
      payment due in March 2005 for 2004 performance, while no expense of this nature
      was recorded in 2003; ii) increases in corporate costs such as board fees and
      expenses ($90,000), directors and officers insurance ($75,000), recruiting
      costs
      for board members and management positions ($43,000) and professional services
      ($105,000); and iii) an increase in office costs such as rent and telephone
      of
      $130,000. In order to support expanded operations, we expect to increase general
      and administrative expense. As margins improve, we expect general and
      administrative expenses to decrease as a percentage of those margins. However,
      in the immediate future, we expect to incur costs in advance of the business
      growth that they are intended to support. Accordingly, margins may initially
      decrease and will not achieve the expected improvement unless and until business
      in fact expands to the anticipated levels.





*Depreciation
      and amortization.* Depreciation and amortization expenses for the year ended December 31, 2004
      increased by approximately $778,000 when compared to 2003. Of this increase,
      approximately $624,000 is attributable to higher amortization of software
      development costs in 2004 and to higher depreciation expenses from an increased
      number of terminals in service. As we continue to amortize software development
      costs and we increase the number of terminals in service, we expect depreciation
      and amortization expenses to increase in the future.


21
 Table
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*Litigation
      settlements* .
      For
      2003, we recorded litigation settlement expense of $211,523. This amount relates
      to two separate actions that were fully resolved in 2003. No expenses of this
      nature were recorded in 2004.





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





*Other
      expense - net* .
      Other
      income and expense consists primarily of interest income and expense. Net other
      expense for the years ended December 31, 2004 and 2003 were $543,000 and $2.6
      million, respectively. In 2003, $2.64 million of other expense represents
      interest expense related to the unsecured note, convertible note and debentures
      we sold in 2003. $2.35 million of this interest expense is in the form of
      amortization of discount on these debt instruments and therefore does not
      represent an amount paid in cash. In July 2003, we repaid over $570,000 of
      debt
      instruments prior to their maturity dates in order to reduce interest expense
      in
      future quarters. The interest rates on these debt instruments ranged from 10%
      to
      14%. In 2004, we recorded $301,000 as interest expense from the discount on
      debt
      discussed above and an additional $118,000 in interest expense on a related
      party note and capital lease obligations. Also, in 2004, we recorded a loss
      on
      disposal of assets of $153,000. This amount was a result of terminals that
      had
      been installed by a broker that went out of business in 2004. Many of the
      terminals from this broker were unable to be recovered and written off.





*Income
      tax expense* .
      At
      December 31, 2004, we had operating loss carryforwards of approximately $16.1
      million that may be applied against future taxable income, if any, in years
      through 2024. The net operating loss carryforwards and other items result in
      net
      deferred tax assets of approximately $4 million. The amount of and ultimate
      realization of the benefits from these deferred tax assets for income tax
      purposes depends, in part, on applicable tax laws in effect, our future
      earnings, if any, and other future events, the effects of which cannot be
      determined. As a result of the uncertainty surrounding the realization of the
      deferred tax assets, at year-end we established a valuation allowance equal
      to
      the net deferred tax assets and no income tax benefit from our operating loss
      has been recognized for any of the periods presented. A $25,000 expense was
      recorded for taxes due in various states with minimum taxes or taxes based
      on
      assets or revenues.





**Liquidity
      and Capital Resources**





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





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





As
      of
      December 31, 2004, we had working capital of approximately $1.5 million and
      a
      current ratio of 1.5 to 1.





Existing
      commitments for cash in 2005 include payments to the manufacturers of our
      Qxpress terminals in the amount of $650,000 for 3,800 terminals delivered in
      the
      first quarter of 2005 and another $225,000 for terminals already received and
      included in accounts payable, total payments of $640,000 toward our capital
      and
      operating leases and a $200,000 payment to employees for a bonus plan instituted
      in 2004. At December 31, 2004, we had approximately 6,500 Qxpress terminals
      available for placement. This inventory will provide us the means to grow
      substantially in 2005 without the associated capital costs. Subsequently, on
      May
      12, 2005, the Company reviewed its strategic plan and determined it may have
      a
      surplus of terminals needed to support growth.





Inventory
      of PINs was $1.4 million at December 31, 2004. We anticpate PIN demand will
      increase but we plan to employ better sourcing practices to increase PIN
      inventory turns and that will help reduce capital outlay required to support
      PIN
      inventory during 2005. 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
      Company is reviewing it’s capital requirements and expects to raise additional
      funds in 2005 or early 2006. The additional funds may be in the form of equity,
      debt or convertible securities.







22
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          of Contents


**Recent
      Accounting Pronouncements**





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





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





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





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





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











23
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**Item
      7. ConsolidatedFinancial Statements**




**REPORT
        OF INDEPENDENT REGISTERED**
 **PUBLIC
        ACCOUNTING FIRM**
 
    To
        the
        Board of Directors
 Q
        Comm
        International, Inc. and Subsidiaries
 
 
 We
        have
        audited the accompanying consolidated balance sheet of Q Comm International,
        Inc. and Subsidiaries as of December 31, 2004, and the related consolidated
        statements of operations and comprehensive loss, stockholders’ equity and cash
        flows for the year then ended. These consolidated financial statements are
        the
        responsibility of the Company’s management. Our responsibility is to express an
        opinion on these financial statements based on our audit.
 
 We
        conducted our audit in accordance with the standards of the Public Company
        Accounting Oversight Board (United States). Those standards require that
        we plan
        and perform the audit to obtain reasonable assurance about whether the financial
        statements are free of material misstatement. An audit includes examining,
        on a
        test basis, evidence supporting the amounts and disclosures in the financial
        statements. An audit also includes assessing the accounting principles used
        and
        significant estimates made by management, as well as evaluating the overall
        financial statement presentation. We believe that our audit provides a
        reasonable basis for our opinion.
 
 In
        our
        opinion, the consolidated financial statements referred to above present
        fairly,
        in all material respects, the consolidated financial position of Q Comm
        International, Inc. and Subsidiaries as of December 31, 2004, and the results
        of
        their operations and their cash flows for the year then ended in conformity
        with
        U.S generally accepted accounting principles.
 
 As
        described in Note 17 to the consolidated financial statements, Q Comm
        International, Inc. and Subsidiaries has restated its consolidated financial
        statements for the years ended December 31, 2004 and 2003 to correct its
        accounting for revenue recognition for sales of consigned inventory and to
        reclassify amounts from cash to deposits and general and administrative expenses
        to cost of goods sold.
 
 Tanner
        LC
 
 
 
 
 
 March
        29,
        2005 except for Notes 9, 14, 16 and 17,
 which
        are
        dated August 9, 2005






24
 Table
          of Contents


REPORT
        OF
        INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
 
 
 To
        the
        Board of Directors
 **Q
        COMM INTERNATIONAL, INC. AND SUBSIDIARY**
 Orem,
        Utah
 
 We
        have
        audited the accompanying consolidated statements of operations and comprehensive
        loss, stockholders' equity and cash flows of Q Comm International, Inc. and
        Subsidiary for the year ended December 31, 2003. These consolidated financial
        statements are the responsibility of the Company's management. Our
        responsibility is to express an opinion on these financial statements based
        on
        our audit.
 
 We
        conducted our audit in accordance with the standards of the Public Company
        Oversight Board (United States). Those standards require that we plan and
        perform the audit to obtain reasonable assurance about whether the financial
        statements are free of material misstatement. An audit includes examining,
        on a
        test basis, evidence supporting the amounts and disclosures in the financial
        statements. An audit also includes assessing the accounting principles used
        and
        significant estimates made by management, as well as evaluating the overall
        financial statement presentation. We believe that our audit provides a
        reasonable basis for our opinion.
 
 In
        our
        opinion, the consolidated financial statements audited by us present fairly,
        in
        all material respects, the results of operations and cash flows of Q Comm
        International, Inc. and Subsidiary for the year ended December 31, 2003 in
        conformity with accounting principles generally accepted in the United States
        of
        America.
 
 As
        discussed in Note 17, the financial statements have been restated to reflect
        revenues for consigned PIN based products on a “net” basis instead of a “gross”
        basis. The presentation of the statement of operations has also been changed
        to
        separately identify terminal depreciation and software
        amortization.
 
 
 **PRITCHETT,
        SILER & HARDY, P.C.**
 
 Salt
        Lake
        City, Utah
 February
        7, 2004, except for Note 17 as
 to
        which
        the date is August 5, 2005




25
 Table
          of Contents








Q
      COMM
      INTERNATIONAL, INC. AND SUBSIDIARIES


CONSOLIDATED
      BALANCE SHEET


RESTATED


December
                31,2004ASSETSCurrent
                Assets:Cash
            
            $
            773,052Trade
                accounts receivable, net
            
            
            895,388Other
                receivables, net
            
            
            61,434Inventory,
                net
            
            
            1,081,637Deposit
                on handsets
            
            
            925,000Prepaid
                expenses
            
            
            156,375Total
                Current Assets
            
            
            3,892,886Property
                and Equipment, net
            
            
            4,382,953Other
                Assets:Restricted
                cash
            
            
            510,692Capitalized
                software development costs, net
            
            
            1,052,344Goodwill,
                net
            
            
            144,580Intangible
                assets, net
            
            
            166,667Deposits
            
            
            149,179Total
                Other Assets
            
            
            2,024,002Total
                Assets
            
            $
            10,299,841LIABILITIES
                AND STOCKHOLDERS' EQUITYCurrent
                Liabilities:Accounts
                payable
            
            $
            1,525,634Accrued
                expenses
            
            
            281,302Capital
                lease obligations - current portion
            
            
            490,374Total
                Current Liabilities
            
            
            2,297,310Capital
                Lease Obligations
            
            
            382,745Total
                Liabilities
            
            
            2,680,055Commitments
                and Contingencies (notes 2,8,9, 14, 16, and 17)Stockholders'
                Equity:Common
                stock, $.001 par value, 50,000,000 shares authorized, 4,859,044 shares
                issued and outstanding
            
            
            4,859Additional
                paid-in capital
            
            
            27,333,779Accumulated
                deficit
            
            
            (19,775,223
            )Accumulated
                other comprehensive income
            
            
            67,139Stock
                subscription receivable
            
            
            (10,768
            )Total
                Stockholders' Equity
            
            
            7,619,786Total
                Liabilities and Stockholders' Equity
            
            $
            10,299,841











See
      accompanying notes to consolidated financial statements.








26
 Table
          of Contents








Q
      COMM
      INTERNATIONAL, INC. AND SUBSIDIARIES


CONSOLIDATED
      STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS


RESTATED





For
                the YearsEnded
                December 31,2004
            
            2003Revenues
            
            $
            16,576,323
            
            $
            6,707,237Operating
                Expenses:Cost
                of Goods Sold (exclusive of items shown separately below
                (1)
            
            
            10,859,218
            
            
            3,954,890Commissions
                and fees
            
            
            4,892,987
            
            
            2,156,802Selling
            
            
            757,588
            
            
            432,075General
                and administrative
            
            
            3,652,494
            
            
            2,076,111Depreciation
                and amortization
            
            
            1,740,226
            
            
            962,116Impairment
                of assets
            
            
            653,303
            
            
            -Litigation
                settlements
            
            
            -
            
            
            211,513Non-cash
                compensation
            
            
            -
            
            
            6,667Total
                Operating Expenses
            
            
            22,555,816
            
            
            9,800,174Loss
                from Operations
            
            
            (5,979,493
            )
            
            (3,092,847
            )Other
                Income (Expense):Interest
                income
            
            
            32,092
            
            
            51,984Interest
                and other expense
            
            
            (422,382
            )
            
            (2,642,864
            )Loss
                on disposal of assets
            
            
            (153,020
            )
            
            (10,591
            )Total
                Other Expense, net
            
            
            (543,310
            )
            
            (2,601,471
            )Loss
                before Income Taxes
            
            
            (6,522,803
            )
            
            (5,694,318
            )Provision
                for State Income Taxes
            
            
            25,000
            
            
            -Net
                Loss
            
            $
            (6,547,803
            )
            $
            (5,694,318
            )Basic
                and Diluted Net Loss per Common Share
            
            $
            (1.51
            )
            $
            (2.12
            )Basic
                  and Diluted Weighted Average CommonShares
                  Outstanding
            
            
            4,345,016
            
            
            2,691,118Other
                Comprehensive Income (Loss):Net
                loss
            
            $
            (6,547,803
            )
            $
            (5,694,318
            )Foreign
                currency translation adjustment
            
            
            67,139
            
            
            -Comprehensive
                Loss
            
            $
            (6,480,664
            )
            $
            (5,694,318
            )




(1)
            Excludes
                $1,534,000 and $924,000 of depreciation on terminals and amortization
                of
                capitalized software development applicable to cost of goods sold
                for the
                years ended December 31, 2004 and 2003, respectively.





See
      accompanying notes to consolidated financial statements.








27
 Table
          of Contents


Q
      COMM
      INTERNATIONAL, INC. AND SUBSIDIARIES


CONSOLIDATED
      STATEMENTS OF STOCKHOLDERS' EQUITY


FOR
      THE
      YEARS ENDED DECEMBER 31, 2004 AND 2003





AccumulatedAdditional
            
            Stock
            
            OtherCommon
                Stock
            
            Paid-in
            
            Subscription
            
            Comprehensive
            
            AccumulatedShares
            
            Amount
            
            Capital
            
            Receivable
            
            Income
            
            DeficitBALANCE,
                January 1, 2003
            
            
            1,268,443
            
            $
            1,268
            
            $
            7,511,857
            
            $
            (130,950
            )
            $
            -
            
            $
            (7,533,102
            )Issuance
                of common stock for cash, at $6.00 to $6.50 per share, net of offering
                costs of $2,807,185
            
            
            2,533,333
            
            
            2,533
            
            
            13,655,282
            
            
            -
            
            
            -
            
            
            -Issuance
                of common stock in connection with notes payable, valued at $8.44
                to $8.86
                per share
            
            
            193,474
            
            
            194
            
            
            1,645,261
            
            
            -
            
            
            -
            
            
            -Issuance
                of warrants issued in connection with notes payable
            
            
            -
            
            
            -
            
            
            1,000,000
            
            
            -
            
            
            -
            
            
            -Cash
                received for subscription receivable
            
            
            -
            
            
            -
            
            
            -
            
            
            71,725
            
            
            -
            
            
            -Net
                loss
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            (5,694,318
            )BALANCE,
                December 31, 2003
            
            
            3,995,250
            
            
            3,995
            
            
            23,812,400
            
            
            (59,225
            )
            
            -
            
            
            (13,227,420
            )Issuance
                of common stock for cash, at $4.00 to $5.00 per share, net of offering
                costs of $35,425
            
            
            850,000
            
            
            850
            
            
            3,463,725
            
            
            -
            
            
            -
            
            
            -Issuance
                of common stock for services, at $4.60 per share
            
            
            1,667
            
            
            2
            
            
            7,666
            
            
            -
            
            
            -
            
            
            -Issuance
                of common stock for acquisition, at $4.12 per share
            
            
            12,127
            
            
            12
            
            
            49,988
            
            
            -
            
            
            -
            
            
            -Cash
                received for subscription receivable
            
            
            -
            
            
            -
            
            
            -
            
            
            48,457
            
            
            -
            
            
            -Foreign
                currency translation adjustment
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            67,139
            
            
            -Net
                loss
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            (6,547,803
            )BALANCE,
                December 31, 2004
            
            
            4,859,044
            
            $
            4,859
            
            $
            27,333,779
            
            $
            (10,768
            )
            $
            67,139
            
            $
            (19,775,223
            )











See
      accompanying notes to consolidated financial statements.








28
 Table
          of Contents








Q
      COMM
      INTERNATIONAL, INC. AND SUBSIDIARIES


CONSOLIDATED
      STATEMENTS OF CASH FLOWS


RESTATED


For
                the YearsEnded
                December 31,2004
            
            2003Cash
                Flows from Operating Activities:Net
                loss
            
            $
            (6,547,803
            )
            $
            (5,694,318
            )Adjustments
                to reconcile net loss to net cash used by operating
                activities:Loss
                on disposal of property and equipment
            
            
            153,020
            
            
            10,591Depreciation
                and amortization
            
            
            1,740,226
            
            
            962,116Amortization
                of discount on debentures and notes
            
            
            300,947
            
            
            2,344,507Provision
                for doubtful accounts
            
            
            596,585
            
            
            -Loss
                of partial deposit on handsets
            
            
            600,000
            
            
            -Impairment
                of assets
            
            
            653,303
            
            
            -Non-cash
                compensation
            
            
            1,001
            
            
            6,667Change
                in operating assets and liabilities, excluding the effects of
                acquisition:Accounts
                receivable
            
            
            (527,038
            )
            
            (392,310
            )Other
                receivables
            
            
            (1,061,434
            )
            
            -Inventory
            
            
            338,520
            
            
            (551,625
            )Deposit
                on handsets
            
            
            (1,525,000
            )
            
            -Prepaid
                expenses
            
            
            (156,139
            )
            
            (9,741
            )Accounts
                payable
            
            
            (192,507
            )
            
            (440,845
            )Accrued
                liabilities
            
            
            76,448
            
            
            (58,438
            )Unearned
                revenue
            
            
            (80,000
            )
            
            80,000Contingent
                liabilities
            
            
            (70,000
            )
            
            (289,235
            )Net
                Cash Used by Operating Activities
            
            
            (5,699,871
            )
            
            (4,032,631
            )Cash
                Flows from Investing Activities:Change
                in restricted cash
            
            
            939,891
            
            
            (1,450,583
            )Investment
                in note receivable
            
            
            -
            
            
            (150,000
            )Collection
                of note receivable
            
            
            150,000
            
            
            -Purchase
                of intangible assets
            
            
            (265,397
            )
            
            -Cash
                from acquisition
            
            
            86,157
            
            
            -Proceeds
                from sales of property and equipment
            
            
            3,955
            
            
            23,966Purchase
                of property and equipment
            
            
            (2,300,003
            )
            
            (2,248,551
            )Capitalized
                software development costs
            
            
            (286,737
            )
            
            (811,281
            )Increase
                in deposits
            
            
            (114,992
            )
            
            -Net
                Cash Used by Investing Activities
            
            
            (1,787,126
            )
            
            (4,636,449
            )Cash
                Flows from Financing Activities:Issuance
                of common stock
            
            
            3,500,000
            
            
            16,465,000Cash
                received from subscription receivable
            
            
            48,457
            
            
            71,725Payment
                of stock offering costs
            
            
            (35,425
            )
            
            (2,740,069
            )Proceeds
                from notes and debentures
            
            
            -
            
            
            2,700,000Payments
                on convertible notes payable
            
            
            (1,230,000
            )
            
            (681,247
            )Payment
                on notes payable
            
            
            -
            
            
            (1,031,350
            )Proceeds
                from capital leases
            
            
            711,971
            
            
            66,992Payments
                on capital lease obligations
            
            
            (66,175
            )
            
            (27,262
            )Payments
                on related party obligations
            
            
            (260,692
            )
            
            (150,000
            )Decrease
                in bank overdraft
            
            
            -
            
            
            (595,544
            )Net
                Cash Provided by Financing Activities
            
            
            2,668,136
            
            
            14,078,245Net
                Increase (Decrease) in Cash
            
            
            (4,818,861
            )
            
            5,409,165Effect
                of foreign exchange rates on cash
            
            
            67,139
            
            
            -Cash,
                Beginning of Year
            
            
            5,524,774
            
            
            115,609Cash,
                End of Year
            
            $
            773,052
            
            $
            5,524,774Supplemental
                Disclosures of Cash Flow Information:Cash
                paid during the year for:Interest
            
            $
            106,191
            
            $
            113,087Income
                taxes
            
            $
            200
            
            $
            100








See
      accompanying notes to consolidated financial statements.








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Q
      COMM
      INTERNATIONAL, INC. AND SUBSIDIARIES


CONSOLIDATED
      STATEMENTS OF CASH FLOWS


(Continued)





Supplemental
      Schedule of Non-cash Investing and Financing Activities:








For
      the
      year ended December 31, 2004:





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





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





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





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





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





Cash
            
            $
            86,157Inventory
            
            
            103,041Prepaid
                expenses
            
            
            236Accounts
                receivable, net
            
            
            120,926Property
                and equipment
            
            
            61,209Intangible
                assets
            
            
            301,812Goodwill
            
            
            341,649Other
                assets
            
            
            912Accounts
                payable
            
            
            (929,285
            )Accrued
                expense
            
            
            (36,657
            )Common
                stock issued
            
            $
            50,000





For
      the
      year ended December 31, 2003:





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





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





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










See
      accompanying notes to consolidated financial statements.


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      COMM
      INTERNATIONAL, INC. AND SUBSIDIARIES


NOTES
      TO
      CONSOLIDATED FINANCIAL STATEMENTS





NOTE
      1 -
      SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES





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





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





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





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





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





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





Other
      Receivables - Other receivables consist of an amount due from a providers of
      products the Company distributes. The product were faulty and were returned
      to
      the distributors. The distributors have not reimbursed the Company for the
      products to date. The Company has recorded an allowance for this receivable
      for
      the amount owed of approximately $400,000.





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





Deposit
      on Handsets - Deposit on handsets consists of advance payments made for 30,000
      Nokia 3300 handsets less a $600,000 reserve taken against cost of goods sold
      for
      approximately 9,000 headsets the distributor sold or not received by the
      Company.





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





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





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





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








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      COMM
      INTERNATIONAL, INC. AND SUBSIDIARIES


NOTES
      TO
      CONSOLIDATED FINANCIAL STATEMENTS





NOTE
      1 -
      SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)





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





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





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





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





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





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





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





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





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





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Q
      COMM
      INTERNATIONAL, INC. AND SUBSIDIARIES


NOTES
      TO
      CONSOLIDATED FINANCIAL STATEMENTS





NOTE
      1 -
      SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)





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





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





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





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





For
                the YearsEnded
                December 31,2004
            
            2003Net
                loss, as reported
            
            $
            (6,547,803
            )
            $
            (5,694,318
            )Plus
                stock-based employee compensation expense included in reported net
                loss,
                net of related tax effects
            
            
            -
            
            
            -Less
                total stock-based employee compensation expense determined under
                fair
                value based method for all awards, net of related tax
                effects
            
            
            (1,159,438
            )
            
            (1,193,831
            )Pro
                forma net loss
            
            $
            (7,707,241
            )
            $
            (6,888,149
            )Basic
                loss per common share, as reported
            
            $
            (1.51
            )
            $
            (2.12
            )Pro
                forma net loss per common share
            
            $
            (1.77
            )
            $
            (2.55
            )





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





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





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





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Q
      COMM
      INTERNATIONAL, INC. AND SUBSIDIARIES


NOTES
      TO
      CONSOLIDATED FINANCIAL STATEMENTS





NOTE
      2 -
      PROPERTY AND EQUIPMENT





The
      following is a summary of property and equipment:





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




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





At
      December 31, 2004, the Company had non-cancelable commitments totaling $650,000
      to purchase 3,800 point of sale terminal. Subsequently, these terminals were
      delivered in the first quarter of 2005.





NOTE
      3 -
      GOODWILL





Goodwill
                consisted of the following at December 31, 2004:Goodwill
                related to acquisition in 2000
            
            $
            224,561Less
                accumulated amortization recorded prior to adoption of SFAS
                No.142
            
            
            (79,981
            )Net
                goodwill
            
            $
            144,580





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





NOTE
      4 -
      CAPITALIZED SOFTWARE DEVELOPMENT





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





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





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





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





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      COMM
      INTERNATIONAL, INC. AND SUBSIDIARIES


NOTES
      TO
      CONSOLIDATED FINANCIAL STATEMENTS





NOTE
      5 -
      ACQUISITION





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





NOTE
      6 -
      RELATED PARTY OBLIGATION





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





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





NOTE
      7 -
      CONVERTIBLE DEBENTURES





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





NOTE
      8 -
      LEASE OBLIGATIONS





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





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





2005
            
            $
            551,4902006
            
            
            397,502Total
            
            
            948,992Less
                interest and other costs
            
            
            (75,873
            )Present
                value of future minimum lease payments
            
            
            873,119Less
                current portion
            
            
            (490,374
            )Long-term
                portion
            
            $
            382,745





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





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


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      COMM
      INTERNATIONAL, INC. AND SUBSIDIARIES


NOTES
      TO
      CONSOLIDATED FINANCIAL STATEMENTS





NOTE
      9 -
      LITIGATION AND CONTINGENCIES





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





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





On
      January 23, 2004, Dial-Thru International filed a complaint against the Company
      claiming that it had breached an Asset Purchase Agreement between the Company
      and the plaintiff dated October 31, 2000. The plaintiff asserts that the Company
      owes $4,000,000 in consideration for assets purchased and earn-out fees for
      referral services. In February 2004, the Company filed a motion to dismiss
      the
      case on the grounds that under the agreement in question the proper venue for
      this case was the federal or state courts in Orem, Utah. In April 2004, the
      California court issued a tentative ruling granting the Company's motion for
      dismissal. The proceedings were stayed pending the outcome of the matter in
      the
      state of Utah. In July 2004, Dial-Thru filed substantially the same suit against
      the Company in the United States District Court in the State of Utah. On August
      2, 2005, the parties mediated the dispute and reached a settlement whereby
      the
      Company paid Dial-Thru $225,000 on August 9, 2005.





In
      March
      2005, the Company filed an action against a PIN provider, due to approximately
      $1 million in deactivated PINs received in the fourth quarter of 2004.
      Subsequent to March 31, 2005, the Company determined the obligation includes
      a
      mix of deactivated PINs and handsets paid for by the Company that were sold
      or
      are in the possession of the vendor. The Company is taking the appropriate
      legal
      action to recover the value due, however there is no assurance of repayment,
      and
      management recorded an allowance against the full amount of the receivable
      in
      the fourth quarter of 2004 .








NOTE
      10 -
      CAPITAL STOCK





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





Year
      Ended December 31, 2004





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





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





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





Year
      Ended December 31, 2003





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





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





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





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











36
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          of Contents


Q
      COMM
      INTERNATIONAL, INC. AND SUBSIDIARIES


NOTES
      TO
      CONSOLIDATED FINANCIAL STATEMENTS





NOTE
      11 -
      STOCK OPTIONS AND WARRANTS





The
      Company is authorized to issue stock options under three existing stock option
      plans approved by stockholders. The 2000 plan (133,333 shares), the 2003 plan
      (100,000 shares) and the 2004 plan (500,000 shares) allow for up to 733,333
      shares to be issued under substantially similar terms. A summary of the status
      of options granted at December 31, 2004 and 2003, and changes during the years
      then ended are as follows:





2004
            
            2003Shares
            
            Weighted
                Average
              Exercise
                Price
            
            Shares
            
            Weighted
                Average
              Exercise
                PriceOutstanding
                at beginning of year
            
            
            304,250
            
            $
            10.00
            
            
            204,688
            
            $
            15.45Granted
            
            
            502,500
            
            $
            4.65
            
            
            190,667
            
            $
            6.75Exercised
            
            
            -
            
            $
            -
            
            
            -
            
            $
            -Forfeited
            
            
            274,083
            
            $
            8.16
            
            
            86,105
            
            $
            15.00Expired
            
            
            -
            
            $
            -
            
            
            5,000
            
            $
            15.00Outstanding
                at end of year
            
            
            532,667
            
            $
            5.95
            
            
            304,250
            
            $
            10.00Exercisable
                at end of year
            
            
            296,998
            
            $
            6.68
            
            
            102,000
            
            $
            15.78Weighted
                average fair value of options granted
            
            
            502,500
            
            $
            4.65
            
            
            190,667
            
            $
            6.26





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





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





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





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





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





A
      summary
      of all stock options and warrants outstanding at December 31, 2004 is presented
      below:





Compensatory
            
            Non-Compensatory
            
            TotalStock
                options issued to employees and board members under stock option
                plans
            487,333
            
            -
            
            487,333Stock
                options issued to employees outside stock option plans
            45,334
            
            -
            
            45,334Total
            532,667
            
            -
            
            532,667Warrants
                issued to non-employees
            355,833
            
            1,688,660
            
            2,044,493Total
                options and warrants outstanding
            888,500
            
            1,688,660
            
            2,577,160


37
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          of Contents





Q
      COMM
      INTERNATIONAL, INC. AND SUBSIDIARIES


NOTES
      TO
      CONSOLIDATED FINANCIAL STATEMENTS





NOTE
      12 -
      INCOME TAXES





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





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





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





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





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





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





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





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





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





38
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          of Contents





Q
      COMM
      INTERNATIONAL, INC. AND SUBSIDIARIES


NOTES
      TO
      CONSOLIDATED FINANCIAL STATEMENTS





NOTE
      13 -
      CONCENTRATION OF REVENUES





The
      Company has one customer that accounted for 29% of revenues for the year ended
      December 31, 2004, and two customers that accounted for 56% and 14% of total
      revenues for the year ended December 31, 2003. Also, approximately 87.3% of
      the
      Company's revenue for the years ended December 31, 2004 and 2003 were from
      the
      sale of prepaid wireless products.





NOTE
      14 -
      EMPLOYMENT AGREEMENTS





The
      Company had an employment agreement with Mike Openshaw, its Chief Financial
      Officer (CFO), which expires on December 31, 2005. If the Company terminates
      the
      agreement without cause, or if the CFO terminates the agreement for good reason,
      the CFO is entitled to receive the lesser of one year's salary or payment
      through the expiration date of the agreement. In addition, any stock options
      would vest immediately. The agreement was terminated during 2004. The Company
      and the CFO have an arrangement that provides the CFO a retention bonus if
      he
      remains employed by the Company through May 31, 2005. Mike Openshaw resigned
      and
      is not longer employed with the Company on May 31, 2005. Subsequent to May
      31,
      2005, Mike Openshaw has agreed to forgo the retention bonus.





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





NOTE
      15 -
      RECENTLY ENACTED ACCOUNTING STANDARDS





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





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





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





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





NOTE
      16 -
      SUBSEQUENT EVENTS





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





On
      April
      12, 2005, as reported in a Form 8-K on that date, we issued 400,000 shares
      of
      unrestricted common stock at $5.00 per share through a private placement for
      an
      aggregate of $2,000,000 in cash.





On
      May
      31, 2005, as reported in a Form 8-K dated June 6 2005, the former Chief
      Financial Officer resigned. On that same day, the Company hired Mark W. Robinson
      as Chief Financial Officer, Treasurer and Secretary.





On
      July
      11, 2005, as reported in a Form 8-k on that date, the Company issued 427,000
      restricted common shares at $3.07 per share for an aggregate of $1,311,000
      in
      cash.





On
      July
      11, 2005, as reported in a Form 8-K on that date, the Company issued a note
      in
      the amount of $611,000. The note bears interest at an annual rate of 5% and
      is
      payable in full on or before July 7, 2007. The Company also issued options?
      to
      purchase 230,000 shares of common stock exercisable for a period of five years
      at a price of $3.51 per share.





On
      August
      2, 2005, the Company and Dial-Thru International completed mediation of the
      dispute described above in Note 9 and reached a settlement whereby the Company
      paid Dial-Thru $225,000.





NOTE
      17 -
      RESTATEMENTS





The
      Company has filed this amended Form 10-KSB (“Form 10-KSB/A”) for the year ended
      December 31, 2004 for the following reasons: (1)in response to a comment from
      the SEC alerting us that our revenue recognition policy relating to sales of
      consigned PINs was not in accordance with Emerging Issues Task Force Issue
      No.99-19, (2)in response to a comment from the SEC requiring us to separately
      identify the amount of terminal depreciation and software development
      amortization included in the caption “Cost of Goods Sold” in the Statements of
      Operations, and (3)corrections required as a result of the facts described
      in
      the Company’s Form 8K filed on June 22, 2005 and as described further below.





Revenue
      Recognition for Consigned PIN Sales. The Company has restated revenue for all
      consigned PIN-based products from a “gross” to “net” basis in accordance with
      Revenue Recognition in Financial Statements and Emerging Issues Task Force
      Issue
      No.99-19. As a result, revenue was reduced by $24,225,518 from $40,801,841
      to
      $16,576,323 for 2004 and revenue was reduced by $18,979,140 from $25,686,377
      to
      $6,707,237 for 2003. The reduction in revenue has no impact on our net loss,
      net
      loss per common share, or stockholders’ equity in the years presented because
      there is a corresponding reduction reflected in the captions “Cost of Goods
      Sold” and “Commissions and Fees” in the same years. Cost of Goods Sold for 2004
      and 2003 was reduced by $19,959,600 and $15,358,129, respectively. Commissions
      and Fees for 2004 and 2003 was reduced by $4,265,918 and $3,620,921,
      respectively.




Cost
      of
      Goods Sold Clarification. In the Company’s Statements of Operations, it has
      separately identified the terminal depreciation and software amortization costs
      attributable to Cost of Goods Sold. These costs are referenced in a footnote
      to
      the Statements of Operations. This change to provide additional information
      had
      no impact on net loss, net loss per common share, or stockholders’ equity.
      Terminal depreciation and software development amortization totaled
      approximately $1,534,000 and $924,000 for 2004 and 2003, respectively.





During
      2004, the Company’s former CFO entered into a transaction without authorization
      and acted to hide the transaction from the Company’s CEO and other members of
      management, the Board of Directors, and the Company’s auditors by knowingly
      making false statements and intentionally altering documents. This transaction
      included using Company funds to make a $1,525,000 deposit with a third-party
      vendor for the purchase of 30,000 Nokia 3300 handsets. Company records were
      falsified to present $925,000 of this deposit as cash. The remaining $600,000
      was presented as a receivable and was reserved for at year-end as the Company
      believed that portion of the receivable would not be recovered. The consolidated
      balance sheet at December 31, 2004 has been restated to reclassify $925,000
      of
      cash as a deposit to the vendor. Only 20,650 of the handsets were actually
      subsequently received by the Company and the corresponding loss of $600,000
      has
      been reclassified from General and Administrative Expense to Cost of Goods
      Sold
      in the restated consolidated financial statements.





In
      the
      course of this unauthorized transaction, the $1,525,000 deposit was never
      repaid. On July 1, 2005, the Company formally took ownership of the 20,650
      handsets. Also subsequent to December 31, 2004, the vendor to whom the deposit
      was made sold or took possession of approximately 9,000 of the handsets without
      reimbursing the Company. The Company is taking legal action to recover the
      value
      of these handsets and all losses sustained by the Company in this transaction.
      There can be no assurance the Company will successfully recover these losses
      from either the vendor or the former CFO. Subsequent to taking possession of
      the
      handsets, the Company has sold 6,650 handsets at $31 per headset and has firm
      commitments to sell the remaining 14,000 handsets at $31 per headset. No
      additional losses are expected from this transaction.  The Company's
      audit
      committee, after consultation with legal counsel, hired a forensic investigator
      to inquire into all of these matters.  The Company's audit committee
      believes a thorough and complete investigation has been undertaken.





At
      December 31, 2004, these restatements had no effect on total assets, net loss,
      net loss per common share, and stockholders’ equity. They did have the following
      effect on revenue, cost of goods sold, general and administrative expenses,
      cash
      and deposits:




As
                  Previously
                Reported
                December
                  31,
                2004
              
              Restated
                December
                  31,
                2004
              
              As
                  Previously
                Reported
                December
                  31,
                2003
              
              Restated
                December
                  31,
                2003Revenues
              
              $
              40,801,841
              
              $
              16,576,323
              
              $
              25,686,377
              
              $
              6,707,327


39
 Table
          of Contents





**Item
      8. Changein and Disagreements with Accountants on
      Accounting and Financial Disclosure.**





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





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





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





**Item
      8A. Controland Procedures**





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





In
      connection with the completion of its audit of, and the issuance of its report
      on, our consolidated financial statements for the year ended December 31, 2004,
      Tanner LC identified deficiencies that existed in the design or operation of
      our
      internal control over financial reporting that it considered to be "significant
      deficiencies” or material weaknesses." The Public Company Accounting Oversight
      Board (“PCAOB”) has defined “significant deficiency” as a control deficiency, or
      a combination of control deficiencies, that adversely affects the company’s
      ability to initiate, authorize, record, process, or report external financial
      data reliably in accordance with generally accepted accounting principles such
      that there is more than a remote likelihood that the misstatement of the
      company’s annual or interim financial statements that is more than
      inconsequential will not be detected. The PCAOB has defined a “material
      weakness” as a "significant deficiency or combination of significant
      deficiencies that results in more than a remote likelihood that a material
      misstatement of the annual or interim financial will not be prevented or
      detected."





The
      significant deficiencies or material weakness in our internal controls relate
      to
      segregation of incompatible duties, the timely reconciliation of general ledger
      accounts (including cash), controls over inventory (including the potential
      for
      employees to purposefully or inadvertently delete PIN’s without authorization or
      systems control), accounting for acquisitions, and impairment of intangible
      assets. Additionally, significant deficiencies or material weakness in our
      internal control over certain disclosures in the footnotes to the financial
      statements was related to the stock option disclosures required by SFAS No.148
      and income taxes required by SFAS No.109. We have disclosed these significant
      deficiencies and material weaknesses to the Audit Committee of our Board of
      Directors





As
      disclosed at the beginning of “Management’s Discussion and Analysis or Plan of
      Operation,” which is set forth as Item 6 of this report above, the Company’s
      former CFO entered into an unauthorized transaction and thereafter knowingly
      made false statements and intentionally altered documents to hide the
      transaction from the other members of the Company’s management, from the Board
      of Directors, and from the Company’s outside auditors. The opportunity for this
      former CFO to enter into such a transaction was the result of insufficient
      segregation of duties. The Company is in the process of implementing appropriate
      segregation of duties, among other things, as described below. We have disclosed
      this unauthorized transaction and the subsequent misrepresentations by our
      former CFO to the Audit Committee of our Board of Directors.





We
      are in
      the process of improving our internal controls in an effort to remediate these
      significant deficiencies and material weaknesses through the hiring of
      additional accounting staff and through improved supervision and training of
      our
      accounting staff. Additional effort is needed to fully remedy these significant
      deficiencies material weaknesses and we are continuing our efforts to improve
      and strengthen our internal controls over financial reporting. Our management
      and Audit Committee will continue to work with our management and outside
      advisors with the goal to implement internal controls over financial reporting
      that are adequate and effective.




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








40
 Table
          of Contents





**PART
      III**





**Item
      9.Directors and Executive Officers**





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





Name
            Age
            PositionMichael
                Keough
            48
            Chief
                executive officer, president and directorMichael
                Openshaw
            46
            Chief
                financial officer, secretary and treasurer (1)Darin
                Hunsaker
            38
            Vice
                president, salesFred
                Schade
            39
            Vice
                president, engineeringCharles
                Callis
            49
            Vice
                president, business developmentWilliam
                Jurika
            65
            Chairman
                of the board of directorsGary
                Crook
            52
            DirectorHarry
                Hargens
            50
            DirectorSteven
                Phillips
            50
            DirectorThomas
                Tesmer
            58
            Director





(1)
            Mike
                Openshaw employment with Q Comm was terminated on May 31, 2005. Mark
                W.
                Robinson became the Chief Financial Officer, Secretary and Treasurer
                on
                that same day.





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





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





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





Michael
      Openshaw was terminated as our CFO on May 31, 2005. Prior to that date, Mr.
      Openshaw had been with us since November 2000 and was named chief financial
      officer in April 2001 and our secretary and treasurer in February 2003. From
      1996 to November 2000, Mr. Openshaw served as the chief financial officer of
      The
      University of Utah Hospital. He also has 10 years' experience with the
      accounting firm of Deloitte & Touche LLP where he attained the level of
      senior manager. Mr. Openshaw is a Certified Public Accountant and has a Bachelor
      of Arts degree in accounting from the University of Utah.





On
      May
      31, 2005, the Company named Mark W. Robinson chief financial officer, secretary
      and treasurer. Prior to joining Q comm, Mr. Robinson was chief financial officer
      and chief operating officer of Clickguard Corporation which was acquired by
      Danka Corporation in 2003. From 1996 to 2000, Mr. Robinson was Chief Financial
      Officer of Bluecurve Corporation, a start-up software company, which was
      acquired by Red Hat Corporation in 2000. From 1992 to 1996, Mr. Robinson was
      the
      Corporate Controller for Prometrix Corporation, and following the acquisition
      of
      Prometrix by KLA-Tencor in 1994 became the Prometrix Division Controller. Mr.
      Robinson also held accounting and financial management positions at Hewlett
      Packard and Ford Aerospace and Communications Corporation from 1983 to 1992.
      Mr.
      Robinson earned both an MBA and Bachelor of Administration from the University
      of Utah.





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





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





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





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





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          of Contents





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





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





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





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





*Key
      Employees*





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





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





*Committees
      of the Board of Directors*





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





*Audit
      Committee Financial Expert*





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





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          of Contents





*Section
      16(a) Beneficial Ownership Reporting Compliance*





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





*Code
      of Ethics*





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





**Item
      10. ExecutiveCompensation**





*Summary
      compensation* .
      The
      following table sets forth information regarding compensation awarded to, earned
      by, or paid to our chief executive officer and our other most highly compensated
      executive officers whose compensation exceeded $100,000 in 2004 for all services
      rendered to us in all capacities during the last three completed fiscal years.





Annual
                Compensation
            
            Long-term
              CompensationName
                and principal position
            
            Year
            
            Salary
            
            Commission
              and
                Bonus
            
            Securities
              Underlying
                OptionsTerry
                Kramer, president and
            
            
            2004
            
            $
            201,731
            
            $
            -
            
            
            255,000(1
            )Chief
                Executive Officer (1)
            
            
            2003
            
            $
            17,500(2
            )
            
            -
            
            
            45,000(1
            )2002
            
            
            -
            
            
            -
            
            
            -Michael
                Keough,president and
            
            
            2004
            
            $
            15,385(3
            )
            
            -
            
            
            -Chief
                Executive Officer
            
            
            2003
            
            
            -
            
            
            -
            
            
            -2002
            
            
            -
            
            
            -
            
            
            -Michael
                Openshaw, Chief
            
            
            2004
            
            $
            125,000
            
            $
            7,668(4
            )
            
            -Financial
                Officer, Secretary
            
            
            2003
            
            $
            110,586
            
            $
            30,000
            
            
            40,000(5
            )and
                Treasurer
            
            
            2002
            
            $
            110,000
            
            $
            10,000(6
            )
            
            6,667(7
            )Darin
                Hunsaker, Vice President,
            
            
            2004
            
            $
            120,192
            
            $
            36,390
            
            
            35,000(8
            )sales
            
            
            2003
            
            
            -
            
            
            -
            
            
            -2002
            
            
            -
            
            
            -
            
            
            -





(1)
            Terry
                Kramer resigned effective December 31, 2004 and 127,500 unvested
                stock
                options expired on that date. Vested stock options expire 90 days
                after
                termination of employment. Mr. Kramer exercised 127,500 options in
                January
                2005.


(2)
            Terry
                Kramer was hired in November 2003.


(3)
            Michael
                Keough was hired in December 2004.


(4)
            Represents
                1,667 shares granted June 30, 2004 valued at $4.60 per share. Board
                to
                cancel these - added appropriate
                language)


(5)
            As
                of December 31, 2004, 20,000 shares were vested.


(6)
            Represents
                25,000 shares granted December 31, 2002 valued at $0.40 per share.
                Board
                to cancel these - added appropriate
                language)


(7)
            As
                of December 31, 2003, 1,250 options were vested and the balance was
                forfeited. Board to cancel these - added appropriate
                language)


(8)
            As
                of December 31, 2004, 15,625 options were vested.





*Options
      held by Named Executives*





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





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





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





(1)
            Terry
                Kramer resigned effective December 31, 2004 and 127,500 unvested
                stock
                options expired on that date. Vested stock options expire 90 days
                after
                termination of employment.


(2)
            These
                options are earned quarterly over 2004 and 2005 based on the continued
                employment of the officer.





2004
      Year-End Option Values


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





(1)
            Based
                on a $3.71 closing price of our stock on the American Stock Exchange
                on
                December 31, 2004.


(2)
            Includes
                127,500 options with an exercise price of $4.58 per share and 45,000
                options with an exercise price of $6.50 per share.


(3)
            See
                footnote (1) in the preceding table.


(4)
            Includes
                11,333 options with an exercise price of $15 per share and 20,000
                options
                with an exercise price of $6.50 per share.


(5)
            Having
                an exercise price of $6.50 per share. (Board to cancel these - added
                appropriate language)


(6)
            Includes
                10,000 options with an exercise price of $6.50 per share and 5,625
                options
                with an exercise price of $4.65 per share.


(7)
            Includes
                10,000 options with an exercise price of $6.50 per share and 9,375
                options
                with an exercise price of $4.65 per share. None of the options referred
                to
                above had been exercised as of December 31, 2004.





*Employment
      Agreements*





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





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





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





*Compensation
      of Directors*





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





*Limitation
      of Directors' Liability and Indemnification*





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


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





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





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





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





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





SECURITY
      OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT





The
      following table sets forth information regarding the beneficial ownership of
      our
      common stock as of March 21, 2005 by:





·
            each
                person, or group of affiliated persons, known by us to be the beneficial
                owner of more than 5% of our outstanding common
                stock;


·
            each
                of our directors;


·
            each
                executive officer named in the summary compensation table above;
                and


·
            all
                of our directors and executive officers as a group.





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





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


*
      Less
      than 1%




(1)
            All
                addresses are c/o Q Comm International, Inc., 510 East Technology
                Ave,
                Building C, Orem, Utah 84097.


(2)
            According
                to the rules and regulations of the SEC, shares that a person has
                a right
                to acquire within 60 days of the date of this report are deemed to
                be
                outstanding for the purpose of computing the percentage ownership
                of that
                person but are not deemed outstanding for the purpose of computing
                the
                percentage ownership of any other person.


(3)
            Exercisable
                within 60 days of this report.


(4)
            Includes
                65,000 shares underlying options exercisable within 60 days of this
                report.





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*Securities
      Authorized for Issuance under Equity Compensation Plans*





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





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





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





(1)
            The
                2000, 2003 and 2004 stock option plans.


(2)
            Includes
                options granted to employees, consultants and underwriters outside
                our
                stock option plans and stock bonuses.


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








**Item
      12. CertainRelationships and Related
      Transactions**





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





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




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          of Contents





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





(a)
      Exhibits:





ExhibitNo.
            Description3.1(i)
            Articles
                of Incorporation (1)3.1(ii)
            Amendment
                to Articles of Incorporation (2)3.2
            Amended
                and Restated Bylaws (2)4.1
            Specimen
                Stock Certificate (2)4.2
            Form
                of warrant agreement, including form of warrant (2)4.3
            Form
                of unit certificate (2)4.4
            Form
                of representative's warrant (2)10.1
            2000
                Stock Option Plan (2)10.2
            2003
                Stock Option Plan (2)10.3
            Securities
                Purchase Agreement, dated February 10, 2003 (2)10.4
            Form
                of 12% Secured Convertible Debentures due March 31, 2004
                (2)10.5
            Form
                of Stock Purchase Warrant (2)10.6
            Form
                of Lock-Up Agreement executed by all officers, directors and 5%
                shareholders (2)10.7
            Form
                of Lock-Up Agreements for 12% Secured Convertible Debenture holders
                (2)10.8
            Employment
                Agreement between Q Comm International, Inc. and Paul C. Hickey
                (2)10.9
            Employment
                Agreement between Q Comm International, Inc. and Terry D. Kramer
                (3)10.10
            Employment
                Agreement between Q Comm International, Inc. and Michael K. Openshaw
                (3)10.10
            Employment
                Agreement between Q Comm
                International, Inc. and Michael D. Keough*10.10
            Securities
                Purchase Agreement, dated May 20, 2003 (2)10.11
            Form
                of 12% Unsecured Promissory Note, due August 31, 2004, dated May
                20, 2003
                (2)10.12
            Form
                of Stock Purchase Warrant, dated May 20, 2003 (2)10.13
            Service
                Agreements between Q Comm International, Inc. and each of Cellcards
                of
                Illinois, Iowa Wireless and Hargray Wireless (2)10.14
            Agreement
                between Q Comm International, Inc. and PreCash Corporation
                (2)10.15
            WGR
                Ltd. Agreement (2)10.16
            Marceco
                Ltd. Agreement (2)10.17
            Success
                Concepts Enterprises Inc. Agreement (2)10.18
            510
                East Technology Avenue Lease (3)10.19#
            Agreement
                between Q Comm International, Inc. and Cricket Communications,
                Inc.14
            Code
                of Ethics (2)21
            Subsidiary
                schedule (3)31.1
            Chief
                Executive Officer Certification
                pursuant to section 302 of the Sarbanes-Oxley Act of
                2002*31.2
            Chief
                Financial Officer Certification
                pursuant to section 302 of the Sarbanes-Oxley Act of
                2002*32.1
            Chief
                Executive Officer Certification
                pursuant to section 906 of the Sarbanes-Oxley Act of
                2002*32.2
            Chief
                Financial Officer Certification
                pursuant to section 906 of the Sarbanes-Oxley Act of
                2002*


*
        Included as an exhibit herein.





(1)
            Previously
                filed on February 24, 2000, as an exhibit to Form 10-SB, and on March
                20,
                2000, as an exhibit in the Company's Current Report on Form 8-K and
                incorporated herein by reference.


(2)
            Previously
                filed as an exhibit to the Company's Registration Statement on Form
                SB-2
                (File No.333-104232) and incorporated herein by reference.


(3)
            Previously
                filed as an exhibit to Form 10-KSB on March 31, 2003 and incorporated
                herein by reference.


#
            Application
                has been made to the Securities and Exchange Commission to seek
                confidential treatment of certain portions of this exhibit under
                Rule 406
                of the Securities Act of 1933 or Rule 24(b)-2 under the Securities
                Exchange Act of 1934. Omitted material for which confidential treatment
                has been requested has been filed separately with the Securities
                and
                Exchange Commission.





(b)
      Reports on Form 8-K:





A
      current
      report was filed on Form 8-K on December 21, 2004 under item 1.01.


A
      current
      report was filed on Form 8-K on December 03, 2004 under item 7.01.


A
      current
      report was filed on Form 8-K on November 16, 2004 under item
      5.02(b).


A
      current
      report was filed on Form 8-K on November 16, 2004 under item 2.02.


A
      current
      report was filed on Form 8-K on November 15, 2004 under item 7.01.








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 Table
          of Contents





**Item
      14.Principal Accountant Fees and
      Services**





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





2004
            
            2003Audit
                fees
            
            $
            159,000
            
            $
            24,942Audit
                related fees
            
            
            10,434
            
            
            12,576Total
                audit and audit related fees
            
            
            169,434
            
            
            37,518Tax
                fees
            
            
            9,825
            
            
            446All
                other fees
            
            
            -
            
            
            -Total
                fees
            
            $
            179,259
            
            $
            37,964





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





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





Audit
      Committee Pre-Approval Policies and Procedures





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
















48
 Table
          of Contents





**SIGNATURES**





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





Q
      Comm
      International, Inc.








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








Date:
      August 10, 2005 [to change] [Tanner needs to receive and review the 906 and
      302
      Certifications] [We will need signed versions for our files]





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
      August 10, 2005.





TitlePrincipal
                Executive Officer/s/
                Michael D. Keough
            Chief
                Executive OfficerMichael
                D. KeoughPrincipal
                Financial Officer/s/
                Mark W. Robinson
            Chief
                Financial OfficerMark
                W. Robinson
            (Principal
                Accounting Officer)Directors/s/
                William
                Jurika
            Chairman
                of the BoardWilliam
                Jurika/s/
                Gary
                Crook
            DirectorGary
                Crook/s/
                Harry
                Hargens
            DirectorHarry
                Hargens/s/
                Steven
                Phillips
            DirectorSteven
                Phillips/s/
                Thomas
                Tesmer
            DirectorThomas
                Tesmer




49