**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**


**Washington,
      D.C. 20549**




**Form
      10-KSB Amendment Number 2**




(Mark
      One)




x
            ANNUAL
                REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
                1934




For
      the
      fiscal year ended December
      31, 2005 .




o
            TRANSITION
                REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
                1934




For
      the
      transition period from __________________   To
      __________________





Commission
      file number    001-15383





**Cardinal
      Communications, Inc.**


(Name
      of
      small business issuer in its charter)





**Nevada**
            
            **91-2117796**(State or other jurisdiction of incorporation or
                organization)
            
            (I.R.S. Employer Identification No.)12301
                North Grant Street, Suite 230**,
                Thornton Colorado**
            
            **80241**(Address of principal executive offices)
            
            (Zip Code)




Issuer’s
      telephone number **(303)
      285-5379**




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




Title of each class
            
            Name of each exchange on which registeredNone
            
            None




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





Common
      Stock, $0.0001 Par Value


(Title
      of
      class)






(Title
      of
      class)




Check
      whether the issuer is not required to file reports pursuant to Section 13 or
      15
      (d) of the Exchange Act. o




**Note** -Checking the box above will not relieve any registrant required to file reports
      pursuant to Section 13 or 15(d) of the Exchange Act from their obligations
      under
      those sections.









Check
      whether the issuer (1) filed all reports required to be filed by Section 13
      or
      15(d) of the Exchange Act during the past 12 months (or for such shorter period
      that the registrant was required to file such reports), and (2) has been subject
      to such filing requirements for the past 90 days.   Yes x No o





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




Indicate
      by check mark whether the registrant is a shell company (as defined in Rule
      12b-2 of the Exchange Act).


YesoNox





State
      issuer’s revenues for its most recent fiscal year $25,864,395  .





State
      the
      aggregate market value of the voting and non-voting common equity held by
      non-affiliates computed by reference to the price at which the common equity
      was
      sold, or the average bid and asked price of such common equity, as of a
      specified date within the past 60 days. (See definition of affiliate in Rule
      12b-2 of the Exchange Act.)





**At
      March 10, 2006 there were 282,455,511 Shares held by non-affiliates with an
      aggregate market value of $6,496,477.**




Note:
      If
      determining whether a person is an affiliate will involve an unreasonable effort
      and expense, the issuer may calculate the aggregate market value of the common
      equity held by non-affiliates on the basis of reasonable assumptions, if the
      assumptions are stated.




**(ISSUERS
      INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PAST FIVE
      YEARS)**




Check
      whether the issuer has filed all documents and reports required to be filed
      by
      Section 12, 13 or 15(d) of the Exchange Act after the distribution of securities
      under a plan confirmed by a court.   Yes o No o




**(APPLICABLE
      ONLY TO CORPORATE REGISTRANTS)**




State
      the
      number of shares outstanding of each of the issuer’s classes of common equity,
      as of the latest practicable date.





**As
      of December 31, 2005, there were 298,286,941 shares of the issuer's common
      stock
      issued and outstanding; 8,750 shares of the issuer's Series A Convertible
      Preferred Stock issued and outstanding; and 100,000 shares of the issuer's
      Series B Convertible Preferred Stock issued and outstanding. As of March 31,
      2006, there were 413,413,174 shares of the issuer's common stock issued and
      outstanding; 8,750 shares of the issuer's Series A Convertible Preferred Stock
      issued and outstanding; and 100,000 shares of the issuer's Series B Convertible
      Preferred Stock issued and outstanding.**




**DOCUMENTS
      INCORPORATED BY REFERENCE**




**None.**




Transitional
      Small Business Disclosure Format (Check one): Yes o No x





**EXPLANATORY
      NOTE**








Cardinal
      Communications, Inc. (the “Company,” “we,” “us,” or “our”) is filing this
      Amendment No. 2 on Form 10-KSB/A to our Annual Report on Form 10-KSB for the
      fiscal year ended December 31, 2005, as filed with the Securities and Exchange
      Commission on April 17, 2006 and our amended Annual Report on Form 10-KSB/A
      for
      the fiscal year ended December 31, 2005, as filed with the Securities and
      Exchange Commission on December 1, 2006 (collectively the “Report”), for the
      purpose of improving our public disclosure including information that was to
      be
      furnished with our proxy materials sent to security holders of Cardinal
      Communications.





This
      report includes amendments to items:




Item
      15  As
      required by Rule 12b-15 under the Securities Exchange Act of 1934, as amended,
      new certifications by the Company’s principal executive officer and principal
      financial officer are being filed as exhibits to this Form 10-KSB/A under Item
      15;




In
      the
      Notes to Consolidated Financial Statements for the years ended December 31,
      2005
      and 2004: Report of Independent Registered Public Accounting Firm and Note
      3
      Correction of an Error in Previously Issued Financial Statements;




To
      correct typographical errors and to make certain tabular changes in the
      Registrant’s consolidated financial statements and notes thereto;
      and




References
      to the location of the Company throughout this report have been updated to
      reflect the relocation of the Company’s headquarters to the offices of Cardinal
      Broadband, LLC at 12301 North Grant Street, Suite 230, Thornton,
      Colorado.





Except
      as
      described above, this amendment does not update or modify in any way the
      disclosures in the Registrant’s Annual Report on Form 10-KSB for the fiscal
      year ended December 31, 2005, and does not purport to reflect any
      information or events subsequent to the filing thereof.










**PART
      I**





**Item
      1.****Description
      of Business**





**The
      Company**





The
      Company was incorporated on November 1, 1996, under the name "Media
      Entertainment, Inc." In July 1999 the name was changed to "USURF America, Inc.",
      and in 2005 the name was changed to “Cardinal Communications, Inc.” Our
      headquarters are located at 12301 North Grant Street, Suite 230, Thornton,
      Colorado 80241; our telephone number is (303) 285-5379.





The
      Company is a publicly-traded diversified communications organization with a
      highly synergistic set of core assets and capabilities. The Company includes
      Cardinal Broadband, Connect Paging Inc. d/b/a Get-A-Phone, and Sovereign
      Companies (Sovereign Homes, Sovereign Realty and Lighthouse
      Lending).





These
      vertically integrated companies provide full-service solutions for residential
      and business applications including the delivery of next-generation voice,
      video, and data broadband networks to communities and cities throughout the
      United States; the construction and development of luxury single and
      multi-family homes, condominiums and apartment communities; home finance, real
      estate and title services.





**Current
      Overview**





During
      2005 we acquired Sovereign Partners, LLC which we now own and operate as a
      subsidiary in the residential and planned community (real estate and
      communications infrastructure) development industry. We consolidated our
      Colorado telecommunication operations under a single subsidiary named “Cardinal
      Broadband, LLC” which continues to provide voice (telephone), video (cable
      television) and data (Internet) services to business and residential customers.
      In Texas, our subsidiary Connect Paging, Inc. d/b/a Get A Phone (“GAP”) provides
      voice (telephone) services to residential customers.





**Company
      Employees**





At
      December 31, 2005 we had 115 employees, including five officers. As of December
      31, 2005, only one of our officers has an employment agreement and one of our
      managers has an employment agreement. In addition, we contract for the services
      of a few consultants for marketing, construction, engineering and installation
      services.





**SOVEREIGN
      PARTNERS, LLC**





Sovereign
      Partners has multiple divisions dedicated to providing award-winning development
      of residential homes and quality home-buying related services for
      consumers.





Sovereign
      Homes of Colorado offers a wide range of affordable, yet luxurious, multi-family
      and single-family homes along Colorado's front range. Prices start in the low
      $100's for the multi-family line and low $200's for the single-family line.
      The
      Sovereign division also has residential developments in Minnesota and Wisconsin,
      and is currently developing a project in Arizona. In total, nine residential
      and
      one commercial project are currently underway.




Sovereign
      Realty provides real estate brokerage services that assist customers in buying
      and/or selling homes; Western Title Funding, LLC helps consumers through the
      real estate title process and coordinates all the details with realtors, brokers
      and lenders; and, Lighthouse Lending, LLC helps consumers arrange mortgage
      financing. Sovereign primarily distributes its products through Real Estate
      brokers.





The
      company recently announced it has broken ground on The Shoppes at Settler’s
      Chase, a 24,000-square-foot commercial development adjacent to Sovereign’s
      completed 216-unit Heritage condominium project. The Shoppes are located in
      Thornton, Colorado, and will be anchored by 3 Margaritas Mexican
      Restaurant.





In
      December 2005 the Company announced that its Sovereign Homes division has been
      selected as a preferred builder at a 1,600-home master-planned community under
      development in northwest Arizona’s Mohave Valley. Sovereign has commenced
      construction on the first of four model homes at the El Rio Country Club
      development, a 640-acre gated community anchored by an 18-hole championship
      golf
      course. Sovereign expects to build three additional models by the fall of 2006.
      Homes will be priced between $225,000 and $350,000.










In
      Golden, Colorado, the first of three urban-style luxury condominium buildings,
      called Millstone at Clear Creek Square, is nearing completion. The total number
      of luxury units in the three buildings is planned for 78. The market has openly
      accepted this product type, which is new to the local market.





In
      addition, four other multi-family and one single-family developments are
      in-process throughout the front-range of Colorado.




**Competitive
      Business Conditions and Sovereign’s Competitive Position in the
      Industry**





The
      markets where developments are being built are highly competitive with national,
      regional, and local builders all competing for the same buyer. The division
      differentiates itself with superior product, priced competitively. Traditional
      methods of marketing, including print ads, radio, and printed collateral are
      utilized by us.





**Sources
      and Availability of Raw Materials and the Names of Principal
      Suppliers**





Specific
      suppliers, local to the developments, and their source of materials, are
      primarily used for building. Due to several factors, such as hurricane Katrina,
      some raw materials, such as steel, drywall, and concrete have been in short
      supply, causing price increases. The market sales prices have not kept in-step
      with the material cost increases.





Several
      of the largest suppliers of materials to the Company during 2005 have been:
      Concrete Management, Creative Electric, Platte River Plumbing, Cal-Tec Air,
      BMC
      West, and CFC Framing, all which have supplied materials for multiple
      projects.





**Patents,
      Trademarks, Licenses, Franchises, Concessions, Royalty Agreements or Labor
      Contracts**





We
      do not
      own or utilize intellectual property in this business. We are not subject to
      any
      organized labor contracts.





**Governmental
      Regulations on the Business**





Our
      operations are subject to building, environmental and other regulations of
      various federal, state, and local governing authorities. For our homes to
      qualify for Federal Housing Administration (“FHA”) or Veterans Administration
      (“VA”) mortgages, we must satisfy valuation standards and site, material and
      construction requirements of those agencies. Our compliance with federal, state,
      and local laws relating to protection of the environment has had, to date,
      no
      material effect upon capital expenditures, earnings or competitive position.
      More stringent requirements could be imposed in the future on homebuilders
      and
      developers, thereby increasing the cost of compliance.





**CONNECT
      PAGING, INC. D/B/A GET A PHONE**





At
      December 31, 2005 we principally provide telephone service in Texas through
      our
      subsidiary Connect Paging, Inc. d/b/a Get A Phone (GAP). GAP is a Competitive
      Local Exchange Carriers (CLECs) and is subject to regulation by the Texas Public
      Utilities Commissions (PUC).





**GAP
      Principal Products and Services and their Markets**





The
      principal product sold is local landline dial tone services resold from
      Southwestern Bell and Bellsouth. Services are marketed primarily to credit
      challenged consumer markets. The markets served are all of the Bellsouth and
      Southwestern Bell footprints in Texas and Florida, and soon to be added Georgia
      and Kentucky.





**GAP
      Distribution Methods of the Products and Services**





Get
      A
      Phone uses a network of distributors to place home phone activation cards in
      convenience stores, check cashers, 99 cent stores, and various retailers on
      consignment. Also, radio, print, and television ads are run to solicit customers
      directly to Get A Phone’s call center for solicitation of services. Payments are
      received by mail, credit card, Western Union, and Ace Checks
      Cashed.





**GAP
      - Status of Any Publicly Announced New Product or Service**





There
      have been no new products announced.





**GAP
      Competitive Business Conditions and Competitive Position in the Industry and
      Methods of Competition**





The
      telecommunications industry is highly competitive. There are many CLEC’s
      offering similar services to the credit challenged market. Also, wireless,
      WiMax, cellular and PCS services are competing for the same customer base and
      the market is highly volatile. Our distribution network of convenience stores
      gives us a competitive advantage over other companies that ignore this
      distribution channel.










**Sources
      and Availability of Our Products and the Names of Principal
      Suppliers**





Dial
      tone
      is provided to Get A Phone from the incumbent local service provider, or ILEC.
      Currently, GAP is reselling dial tone services from Bellsouth and Southwestern
      Bell.





**Dependence
      on One or a Few Major Customers**





GAP
      has
      13,000 individual residential customers. There is no concentration of business
      from any one particular source.




**Patents,
      Trademarks, Licenses, Franchises, Concessions, Royalty Agreements or Labor
      Contracts**





We
      do not
      own or utilize intellectual property in this business. We are not subject to
      any
      organized labor contracts.





**Need
      for Government Approval of Principal Products or Services.**





Government
      approval is necessary in each state. Get A Phone has obtained a license in
      each
      state in which we are currently doing business. The license is called an SPCOA
      or service provider certificate of operating authority and is awarded by each
      state’s Public Utilities Commissions after an extensive application and
      requirements process. We believe all such licenses are in good
      standing.





**Governmental
      Regulation on the Business**





As
      a
      general matter, we are subject to significant state and federal regulation,
      including requirements and restrictions arising under the Communications Act
      of
      1934, as amended, or the Communications Act, as modified in part by the
      Telecommunications Act of 1996, or the Telecommunications Act, state utility
      laws, and the rules and policies of the Federal Communications Commission,
      or
      FCC, state regulators and other governmental entities. Federal laws and FCC
      regulations generally apply to regulated interstate telecommunications
      (including international telecommunications that originate or terminate in
      the
      United States), while state regulatory authorities generally have jurisdiction
      over regulated telecommunications services that are intrastate in nature. The
      local competition aspects of the Telecommunications Act are subject to FCC
      rulemaking, but the state regulatory authorities play a significant role in
      implementing some FCC rules. Generally, we must obtain and maintain service
      provider certificate of operating authority.





The
      FCC
      is continuing to interpret the obligations of ILECs (Incumbent Local Exchange
      Carriers) under the Telecommunications Act to interconnect their networks with
      and make UNEs (unbundled network elements) available to other telecommunications
      providers. On February 5, 2005, the FCC issued new unbundling rules to replace
      the unbundling rules that earlier were vacated by the D.C. Circuit Court of
      Appeals. The new rules, among other things: (i) require ILECs to provide
      unbundled access to certain medium to high capacity transport services in the
      vast majority of their wire centers; and (ii) allow CLECs to convert certain
      medium to high capacity transport services to UNEs or combinations of UNEs,
      as
      long as the CLECs meet applicable qualification requirements. These rules
      require somewhat less unbundling than the unbundling rules they replaced. QCII
      and other regional bell operating companies filed a petition for review of
      this
      order with the D.C. Circuit Court of Appeals, asserting that the FCC’s new
      unbundling rules are overly broad. Petitions for review filed by other parties
      claim that the FCC should have adopted more extensive unbundling requirements.
      A
      decision is expected mid-year 2006.




On
      September 15, 2003, the FCC released a notice of proposed rulemaking,
      instituting a comprehensive review of the rules pursuant to which UNEs are
      priced and on how the discounts to CLECs are established for their intended
      resale of our services. In particular, the FCC indicated that it will
      re-evaluate the rules and principles surrounding Total Element Long Run
      Incremental Cost, which is the basis upon which UNE prices are set. The outcome
      of this rulemaking could have a material effect on the revenue and margins
      associated with our provision of UNEs from ILECs.





**Research
      and Development Activities**





None.





**Costs
      and Effects of Compliance with Environmental Laws**





None.










**CARDINAL
      BROADBAND**





Cardinal
      Broadband is committed to providing Video, Voice and Data services to Private
      Development Communities, Multiple Dwelling Units, Towns and Municipalities
      via
      leading edge technologies from Fiber to the Home, to HFC and
      Wireless.





Cardinal
      Broadband provides Developers, Home Owners, and Property Managers
      with communications technologies to provide the very best in Video, Voice
      and Data services. We provide the infrastructure, local service, support, and
      maintenance. We manage our projects from the initial design through the
      construction phase and finally to customer implementation of every project.
      We
      bring our wealth of experience to create communities that are not only user
      friendly, but also provide the services that today’s technology savvy consumers
      desire.





The
      following is a list of services that Cardinal Broadband, LLC provides to our
      partner communities:


·
              Analog
                  Video Services
  ·
              Digital
                  Video Solutions
  ·
              HDTV
  ·
              Traditional
                  Voice Communications
  ·
              Local
                  Telephone Service
  ·
              VOIP
                  Digital Telephone Service
  ·
              High-Speed
                  Internet Access
  ·
              DSL,
                  Cable Modem and Wireless
                  Technologies





Our
      business plan involves obtaining, through internal growth, as many video, voice
      and data customers as possible. Our growth strategy also includes acquisitions
      of telecommunications-related businesses and/or properties which would provide
      an immediate or potential customer base for our services.





**Cardinal
      Broadband’s Sales and Marketing Strategy**





For
      our
      bundled (voice, video and/or data) telecommunications services, we target MDU
      properties and planned community developments and the residents living there.
      Our selling cycle for obtaining "right-of-entry" (ROE) agreements that will
      permit us to offer our services to MDU tenants includes proposal presentation,
      contract negotiations and service implementation, a cycle that can require
      up to
      nine months. While we plan to bolster our growth through acquisitions, securing
      new ROE agreements through direct marketing efforts is an integral part of
      our
      strategy to grow and achieve operating efficiencies and positive cash
      flow.





While
      royalty arrangements encourage property owners to enter into ROE agreements
      with
      us, we believe that delivery of competitive products and superior customer
      service that are targeted to our MDU niche market are the key to obtaining
      ROE
      agreements. We use a marketing strategy whereby we concentrate on entering
      into
      ROE agreements with the large national owners of high-quality MDU properties
      that own properties in our markets, in conjunction with marketing our services
      to smaller owners whose properties typically lie within a single geographic
      market.





We
      offer
      property owners and management companies a great amenity that promotes increased
      occupancy, as well as an attractive new revenue source in the form of royalties.
      Under the ROE agreements, property owners generally are paid a percentage of
      net
      monthly receipts collected for services delivered to subscribers on a property.
      The percentage paid to property owners under this arrangement typically varies,
      depending upon the total number of subscribers to our services in relation
      to
      the total number of dwelling units on a property. We attempt to focus our
      efforts on negotiating long-term ROE agreements with owners of MDU portfolios,
      because we believe that strategic relationships with these owners are critical
      to market penetration and long-term success. These ROE agreements, to date,
      generally provide for a term of seven to 20 years and give us the right to
      be
      the preferred provider of voice, video and/or data services on the subject
      property. The property owner typically agrees to market and promote our services
      on a property.





Once
      we
      have obtained the ROE agreement and services have been activated on the
      property, we utilize the on-site leasing personnel to market the services to
      the
      residents, which typically takes place at the time the residents sign their
      leases. The services are packaged at competitive prices, with discounts for
      signing-up for two or more services. For the resident, this easy sign-up process
      eliminates the need for them to contact several different service providers,
      and
      saves them money and time. In addition, we attempt to schedule service
      installations prior to the move-in date of the resident. This eliminates the
      inconvenience for the resident of having to meet the installation technicians,
      as is the case with the competition. All of our services are billed on a single
      invoice, and the resident only has one company to contact for any questions
      or
      concerns. We believe that the combination of convenience, savings, and quality
      service presented to the resident at the time of move-in is a very powerful
      marketing advantage. Additionally, the leasing agents are given an incentive
      to
      sell the services, since we pay them commissions (directly or through the
      property owner's management company) for signing up residents. The leasing
      agents are trained by us and are provided with marketing and other support
      literature to facilitate sales of the products and services.










Our
      acquisition strategy is to pursue properties that we can acquire for costs
      comparable to or below those of a standard build-out. These generally tend
      to be
      ROE agreements held by small, private telecommunications providers.





**Cardinal
      Broadband Distribution Methods of the Products and
      Services**





Our
      services are delivered over a combination of methods. First we build a backbone
      infrastructure capable of delivering Video, Voice and Data services to the
      end
      user. The backbone can be coax cable, twisted pair copper and/or fiber optic
      cable. The distribution network uses traditional delivery methods to provide
      the
      services. We use RG6 coax, cat3 & cat5 twisted pair to allow the end user a
      traditional interface to the network. As the networks develop we are able to
      offer services that will grow with the needs and demands of the
      customers.





**Cardinal
      Broadband - Recently Announced New Products**





Our
      most
      recent product is our Digital Telephone service. The service is based on a
      state
      of the art Voice over Internet Protocol (VoIP). We have partnered with a local
      Public Switched Telephone Network (PSTN) provider to give us access to the
      local
      switched network, and use Broadsoft Software for all our feature sets that
      we
      provide to our customers. With these partners and software, we are able to
      provide our customers E911 services, competitive pricing, and all the features
      they’ve come to expect from telephone service providers.




**Cardinal
      Broadband’s Competitive Business Conditions and Competitive Position in the
      Industry and Methods of Competition**





The
      United States cable and telecommunications industry is large and robust. In
      recent years the industry has changed from a provider of a single product,
      analog CATV, into a competitive provider of multiple entertainment, information
      and telecommunications services. The new broadband infrastructure has allowed
      companies to expand into services such as telephony, high-speed Internet access
      and digital CATV.





As
      a
      result of technological and regulatory changes that have occurred over the
      past
      few years, smaller companies have been able to compete more effectively in
      the
      CATV and telephony markets traditionally dominated by larger companies. This
      shift has enabled companies like ours to become effective competitors to the
      franchised local cable television operators in the cable television and
      telephony markets. In particular, the potential market for servicing MDU's,
      MTU's and MPC's remains largely undeveloped, creating significant opportunities
      for alternative providers, like us, with the technological, operational,
      marketing and administrative ability to manage growth effectively. Based on
      its
      industry experience, our management has determined that there is a growing
      market for alternative telecommunications providers to obtain agreements with
      property owners and developers.





**Cable
      Television (Video) Services**





The
      Company currently operates as a private cable operator (PCO) whereby it is
      not
      subject to franchise regulations.





We
      deliver our cable television services by re-transmitting programming signals
      via
      antenna and principal head-end electronic equipment that receive and process
      signals from satellites, via both analog and digital transmissions. Currently,
      we obtain our programming through program access agreements with DirecTV, Dish
      Network and direct contracts with other content providers. We also process
      and
      distribute off-air transmission signals from local network affiliates and
      independent television stations. For analog services, our system architecture
      generally eliminates the need for set-top converter boxes when it is connected
      to cable-ready television sets, and enables us to activate service for
      subscribers without entering into an apartment. For digital services, a set-top
      converter box is required. In the future, we plan to employ the technology
      that
      provides the most attractive return on invested capital without compromising
      service.





We
      offer
      our subscribers a complete array of popular cable television programming at
      competitive prices. Our expanded basic retail prices generally approximate
      the
      rates charged by the incumbent franchise CATV operators, and includes
      uninterrupted full-length motion pictures, regional sports channels, sporting
      events, concerts and other entertainment programming. Premium channels,
      including HBO(TM), Cinemax(TM) and Showtime(TM) are generally offered
      individually or in discounted packages with basic or other services. Digital
      service can be added and includes additional expanded basic channels, music
      channels, multiplex premium channels, pay-per-view availability and an
      interactive programming guide.





**Internet
      (Data) Services**




Internet
      services are deployed via three methods, DSL, Cable Modem, and Wireless. We
      continue to investigate new technologies and will deploy these technologies
      as
      they fit our future business models.










**Current
      Markets**





We
      are
      currently developing a network backbone and support infrastructure that will
      serve the front range of Colorado from Greeley to Parker including the large
      municipalities of Denver and Boulder. Our progress has been slowed due to our
      need to create the required network and systems to provide a quality service.
      We
      currently provide video (cable TV) and high-speed, broadband internet access
      to
      multiple MDUs and MTUs in Denver and the Front Range. We have begun to market
      these services to office building owners and property managers who may be
      interested in providing our internet access service to their tenants on a
      building-wide basis.





In
      addition to our Denver and Front Range operations, we have entered into
      agreements with developers to provide video, voice and data services to
      properties in northern Colorado.





**Cable
      Access**





We
      are
      able to offer high-speed internet dedicated service via cable modems using
      the
      existing cable infrastructure at certain MDU properties. The properties are
      connected to the internet via T-1 telephone lines leased from bandwidth
      providers.





**Key
      Suppliers**





We
      currently have agreements with Echostar (Dish Network) and DirecTV for cable
      television programming. While alternative suppliers do exist for analog and
      digital cable programming, these alternatives are either not as robust and/or
      are not as economically advantageous as the product(s) offered by these
      programming suppliers. As a result, if we were required to replace Echostar
      and
      DirecTV for any reason, it is likely we would not be able to offer our current
      programming packages to tenants or that the cost of providing these packages
      would significantly increase.




**Customer
      Service and Support**





We
      are
      committed to the highest levels of customer satisfaction. We believe that
      maintaining high levels of customer satisfaction will remain as a key
      competitive factor. Currently, we provide customer support during normal
      business hours and after hours support through a third party, ensuring that
      our
      customers will always be able to reach support services.





**Competition**





The
      market for cable television, internet and telephony services is extremely
      competitive. Under the terms of our ROE agreements, we generally are required
      to
      provide products and services that are competitive with those offered by other
      providers. We compete for customers on the basis of price, services offered
      and
      customer service. Local franchised cable television providers, such as Comcast
      and Adelphia, represent our principal competition. These competitors are
      typically very large companies with significantly greater resources than
      ours.





While
      technology and regulatory changes have allowed companies like us to compete
      more
      effectively with the incumbents, there is no assurance that we will be able
      to
      develop and execute upon financially viable business models. As is the case
      with
      us, telecommunications service providers like us have greater flexibility to
      customize their products and services than their competition, but they typically
      pay higher programming costs than the local franchise cable television providers
      and do not have the scale of those businesses to absorb fixed administrative,
      customer service and field operations costs. Additionally, companies like us
      that serve MDUs incur the higher churn associated with these residents (the
      average life cycle of an apartment resident is 18 months vs. seven years for
      a
      single-family housing resident), which results in a greater percentage of
      marketing costs and customer service calls than those of the incumbent
      providers.





We
      believe that the primary competitive factors determining success are: a
      reputation for reliability and high-quality service; effective customer support;
      access speed; pricing; effective marketing techniques for customer acquisition;
      ease of use; and scope of geographic coverage. We believe that we will be able
      to address adequately all of these factors, except that we will not be able
      to
      offer scope of geographic coverage for the foreseeable future. It is also
      possible that we will not address any of these competitive factors successfully.
      Should we fail to do so, our business would likely never earn a
      profit.





**General
      Regulation**





Our
      future telecommunications business is subject to regulations under both state
      and federal telecommunications laws which are fluid and rapidly changing. On
      the
      state level, rules and policies are set by each state's Public Utility
      Commission or Public Service Commission (collectively, PUC). At the federal
      level, the Federal Communication Commission (FCC), among other agencies,
      dictates the rules and policies which govern interstate communications
      providers. The FCC is also the main agency in charge of creating rules and
      regulations to implement the 1996 Telecommunications Act (the "1996
      Act").










The
      PUC
      reviews and must approve all CLEC transfers, which may impact all of our
      potential CLEC acquisitions.





**Telephony
      Regulation**





As
      previously discussed for Get A Phone, the 1996 Act opened the local
      telecommunications markets to competition by mandating the elimination of many
      legal, regulatory, economic and operational barriers to competitive entry.
      These
      changes provided us with new opportunities to provide local telephone services
      on a more cost-effective basis. During 2004 certain court decisions were
      rendered that adversely affect the ability of CLEC's to purchase unbundled
      network element platforms (UNE-P).





**Cable
      Television Regulation**





*Regulatory
      Status and Regulation of Private Cable Operators* .
      Franchise cable operators are subject to a wide range of FCC regulations
      regarding such matters as the rates charged for certain services, transmission
      of local television broadcast signals, customer service standards/procedures,
      performance standards and system testing requirements. In addition, the
      operator's franchise, which can be issued at the municipal, county or state
      level, typically imposes additional requirements for operation. These relate
      to
      such matters as construction, provision of channel capacity and production
      facilities for public educational and government use, and the payment of
      franchise fees and the provision of other "in kind" benefits to the
      city.





The
      operator of a video distribution system that serves subscribers without using
      any public right-of-way, as we do, referred to generally as a private cable
      operator (PCO), is exempt from the majority of FCC regulations applicable to
      franchised systems which do use public rights-of-way. Moreover, a state or
      local
      government cannot impose a franchise requirement on such operators.





*Access
      to Property* .
      Federal law provides franchise cable operators access to public rights-of-way
      and certain private easements. These provisions generally have been limited
      by
      the courts to apply only to external easements and franchise operators have
      not
      been able to use these rights to access the interior of MDUs without owner
      consent. In some jurisdictions, franchise operators have been able to use state
      or local access laws to gain access to property over the owner's objection
      and
      in derogation of a competing provider's exclusive contractual right to serve
      the
      property. These "mandatory access" statutes typically empower only franchise
      cable operators to force access to an MDU and provide residential service
      regardless of the owner's objections. Thus, in jurisdictions where a mandatory
      access provision has been enacted, a franchise operator would be able to access
      an MDU and provide service in competition with us regardless of whether we
      have
      an exclusive ROE with the owner. The ability of franchise operators to force
      access to an MDU and take a portion of the subscriber base could negatively
      affect our operating margin at a particular property. It is often the case,
      particularly at the local level, that the mandatory access provision is suspect
      under constitutional principles because, for example, it does not provide the
      MDU owner compensation for the "taking" of its property.




The
      FCC
      has granted direct broadcast satellite (DBS) and multi-channel, multi-point
      distribution service (MMDS) operators rights on a national basis similar to
      the
      mandatory access provided to franchise cable operators in some state and local
      jurisdictions. The FCC has adopted rules prohibiting homeowners associations,
      manufactured housing parks and state and local governments from imposing any
      restriction on a property owner that impairs the owner's installation,
      maintenance or use of DBS and MMDS antennas one meter or less in diameter or
      diagonal measurement. We do not believe our business will be significantly
      impacted by these rights.





*Inside
      Wiring* . In
      1998, the FCC issued rules governing the disposition of inside wiring by
      incumbent operators in MDUs upon termination of service when the incumbent
      operator owns the wiring. In some instances, a provider, such as us, faces
      difficulty in taking over a property because the ownership of the wiring is
      uncertain or contested and the property owner is hesitant to allow installation
      of additional wiring. These rules, in general, were designed to foster
      competition from new providers and require the incumbent operator to choose
      between sale, removal or abandonment of the wiring within certain time
      constraints.





*Regulation
      of Franchise Cable Television Rates* . The
      FCC, through local governments, regulates the rates that franchised cable
      systems can charge for basic monthly service and certain customer premises
      equipment, unless "effective competition" exists in a local market. This general
      requirement does not apply to charges for pay services. Further, the regulations
      allow certain bulk discounts to MDU customers, enabling franchised cable systems
      to be more competitive with private cable operators such as us.





*Copyright.* The
      broadcast programming to be distributed by us contains copyrighted material.
      Accordingly, we pay copyright fees for use of that material (copyright liability
      for satellite-delivered programming is typically assumed by the supplier).
      The
      U.S. Copyright Office has ruled that private systems located in "contiguous
      communities" (or operating from one head-end) will be treated as one system
      and
      that the revenue for such systems must be combined in the calculation of
      copyright fees. If the combined revenue figure is high enough, it results in
      more complicated fee calculations and higher fees. We intend to structure our
      programming to minimize the revenue associated with retransmission of television
      and radio broadcasts in an effort to maintain a simplified filing status and
      to
      reduce our copyright liability in the event we must file under the more
      complicated formula.










**Wireless
      Internet Regulation**





Our
      wireless Internet access products operate in unregulated spectra, the 2400
      MHz,
      5200 MHz and 5800 MHz being the primary frequencies, and we expect that such
      spectra will remain unregulated.





**Regulation
      of Internet Access Services**





We
      provide Internet access, in part, using telecommunications services provided
      by
      third-party carriers. Terms, conditions and prices for telecommunications
      services are subject to economic regulation by state and federal agencies.
      As an
      Internet access provider, we are not currently subject to direct economic
      regulation by the FCC or any state regulatory body, other than the type and
      scope of regulation that is applicable to businesses generally. In April 1998,
      the FCC reaffirmed that Internet access providers should be classified as
      unregulated "information service providers" rather than regulated
      "telecommunications providers" under the terms of the 1996 Act. As a result,
      we
      are not subject to federal regulations applicable to telephone companies and
      similar carriers merely because we provide our services using telecommunications
      services provided by third-party carriers. To date, no state has attempted
      to
      exercise economic regulation over Internet access providers.





Governmental
      regulatory approaches and policies to Internet access providers and others
      that
      use the Internet to facilitate data and communication transmissions are
      continuing to develop and, in the future, we could be exposed to regulation
      by
      the FCC or other federal agencies or by state regulatory agencies or bodies.
      In
      this regard, the FCC has expressed an intention to consider whether to regulate
      providers of voice and fax services that employ the Internet, or IP, switching
      as "telecommunications providers", even though Internet access itself would
      not
      be regulated. The FCC is also considering whether providers of Internet-based
      telephone services should be required to contribute to the universal service
      fund, which subsidizes telephone service for rural and low income consumers,
      or
      should pay carrier access charges on the same basis as applicable to regulated
      telecommunications providers. To the extent that we engage in the provision
      of
      Internet or Internet protocol-based telephony or fax services, we may become
      subject to regulations promulgated by the FCC or states with respect to such
      activities. We cannot assure you that these regulations, if adopted, would
      not
      adversely affect our ability to offer certain enhanced business services in
      the
      future.





**Regulation
      of the Internet**





Due
      to
      the increasing popularity and use of the Internet by broad segments of the
      population, it is possible that laws and regulations may be adopted with respect
      to the Internet pertaining to content of Web sites, privacy, pricing, encryption
      standards, consumer protection, electronic commerce, taxation, and copyright
      infringement and other intellectual property issues. No one is able to predict
      the effect, if any, that any future regulatory changes or developments may
      have
      on the demand for our Internet access or other Internet-related services.
      Changes in the regulatory environment relating to the Internet access industry,
      including the enactment of laws or promulgation of regulations that directly
      or
      indirectly affect the costs of telecommunications access or that increase the
      likelihood or scope of competition from national or regional telephone
      companies, could materially and adversely affect our business, operating results
      and financial condition.




**Recent
      Developments - Acquisition of GalaVu Technology**





With
      the
      recent acquisition of a license to use the technology of GalaVu Entertainment
      and the ability to use their Digital delivery solution to provide a true Video
      On Demand (VOD), we are ideally positioned to set ourselves apart from our
      competition. With the implementation of VOD, we will be able to offer a total
      solution that puts us on par with the Franchise cable operators, take us to
      a
      level above any other private cable operator.





**Cardinal
      Broadband Sources and Availability of Raw Materials and the Names of Principal
      Suppliers**





All
      materials are standard and are provided via companies such as Graybar, Toner
      and
      Anixter. We work closely with these suppliers to make sure they know our
      deployment schedules and have the stock for the products we use.





**Dependence
      on One or a Few Major Customers**





We
      have
      been diversifying our products and services and are not reliant on any one
      customer as a major source of revenue.










**Patents,
      Trademarks, Licenses, Franchises, Concessions, Royalty Agreements or Labor
      Contracts**





We
      have a
      Technology and Trademark License Agreement with GalaVu Entertainment Networks,
      Inc., of Toronto, Ontario, Canada “GalaVu”. The term of the License is ten (10)
      years and the License grants Cardinal a non-exclusive, royalty-free, fully
      paid
      up, worldwide license to make, use, sell, offer to sell, manufacture, market,
      and distribute the finished products and technology incorporated into GalaVu’s
      video on demand system. Under the License, we have the right to bundle products
      incorporating the GalaVu Technology with other products. We also have the right
      to sublicense the rights granted under the License to third
      parties.





**Government
      Approval of Principal Products or Services**





None.





**Governmental
      Regulations on Cardinal Broadband**





There
      is
      currently under review by the FCC a proposal for a Federal Franchise agreement,
      which could allow us to apply for a Federal Franchise to provide video services
      to any property anywhere in the country without the need for a local Franchise
      agreement. This would greatly simplify our access to new markets.





**Estimate
      of the amount spent during each of the last two fiscal years on research and
      development activities**





Our
      research and development activities have been limited to dealing with certain
      manufacturers and industry groups which have provided us information and test
      products that we use in our lab. This allows us to test products which we will
      eventually be deployed in our systems. By utilizing these free test products
      and
      gaining knowledge through our affiliations with these industry experts, we
      eliminate the need for costly equipment and research.





**Compliance
      with Environmental Laws**





Our
      Cardinal Broadband business is not subject to any environmental laws or
      regulations.





**Recent
      Developments Concerning our Various Businesses and Material
      Contracts**





*Surrender
      and Exchange Agreement*





In
      February 2005 and in connection with the Sovereign Partners, LLC acquisition,
      we
      restructured an investment arrangement with Evergreen Venture Partners, LLC
      ("Evergreen"). Evergreen and the Company had been parties to a certain
      Convertible Loan and Security Agreement dated as of December 23, 2003 (the
      "Loan
      Agreement") pursuant to which the Company issued a convertible promissory note
      to Evergreen in the principal amount of $600,000 (the "Old Note"). In addition,
      on September 19, 2003, we entered into a Letter Agreement with Evergreen,
      pursuant to which we issued to Evergreen a warrant to purchase 3,816,667 shares
      of Common Stock. The Company and Evergreen also were parties to a certain Stock
      Purchase Agreement dated February 27, 2004 (the "Stock Agreement"). Under the
      terms of the Stock Agreement, we issued 10,000,000 shares of Common Stock to
      Evergreen and a warrant to purchase 12,500,000 shares of Common Stock. On or
      about April 23, 2004, the Company and Evergreen terminated the Old Note issued
      under the Loan Agreement and we issued 5,000,000 shares of Common Stock to
      Evergreen and a warrant to purchase 10,000,000 shares of Common
      Stock.




Effective
      as of February 18, 2005, on the Closing of the Acquisition, the Company and
      Evergreen entered into the Surrender and Exchange Agreement dated as of January
      31, 2005. Under the terms of the Surrender and Exchange Agreement Evergreen
      surrendered 17,000,000 shares of Common Stock owned by it (the "Surrendered
      Shares"). Evergreen also surrendered warrants to purchase 15,316,667 shares
      of
      Common Stock (the "Surrendered Warrants"). The Surrendered Shares and the
      Surrendered Warrants have been canceled and are of no further force or effect.
      In consideration of the Surrendered Shares and Surrendered Warrants, we issued
      to Evergreen a new promissory note in the principal amount of $750,000.00 (the
      "New Note"). The New Note provides for the lump sum payment of the principal
      amount of the New Note on July 1, 2006. However, should the trading price of
      our
      Common Stock be greater than $0.21 per share for a consecutive thirty day
      period, the New Note shall terminate and we shall have no further obligation
      to
      Evergreen under the New Note.





*Waiver,
      Consent, Surrender and Modification Agreement*





Also
      in
      connection with the Sovereign Partners, LLC acquisition, we restructured an
      investment arrangement with Crestview Capital and certain of Crestview's
      affiliated investment entities (collectively, "Crestview"). We had entered
      into
      a series of Purchase Agreements (the "Purchase Agreements") with Crestview
      during the year 2004, whereby the Company issued and sold to Crestview (and
      certain other participating investors) convertible notes (the "Crestview
      Debentures"), warrants to purchase Common Stock (the "Crestview Warrants")
      and
      shares of Common Stock of the Company.










Effective
      as of February 18, 2005, on the Closing of the Acquisition, the Company and
      Crestview entered into the Waiver, Consent, Surrender and Modification Agreement
      dated as of January 21, 2005. Under the terms of the Agreement, Crestview
      surrendered warrants to purchase an aggregate of 31,626,372 shares of Common
      Stock (the "Surrendered Crestview Warrants"). In addition, the Purchase
      Agreements as between Crestview and the Company were terminated with respect
      to
      the Surrendered Crestview Warrants, except for the registration requirements
      of
      the Agreements with respect to any surviving shares or warrants owned by
      Crestview. The Surrendered Crestview Warrants were canceled and are of no
      further force or effect.





In
      addition, the conversion features of the Debentures were modified such that
      the
      maximum number of shares issuable upon conversion of the Debentures is now
      limited to 40,000,000 shares of Common Stock. The payment terms of the
      Debentures were also modified such that the principal amount of the Debentures,
      approximately $4,420,000 plus accrued but unpaid interest shall be due and
      payable on July 1, 2006. However, should the trading price of our Common Stock
      be greater than $0.25 per share for a consecutive thirty-day period up to
      $2,250,000 of the Debentures shall terminate and we shall have no further
      obligation to Crestview under the Debentures.





Subsequent
      to Year End, the Company entered into a Restructure and Amendment Agreement
      with
      the original members of Sovereign Partners, LLC. This agreement was created
      to
      resolve operating conflicts between the Company and Sovereign Partners, LLC.
      Under the terms of the agreement the original Stock Purchase Agreement was
      modified to eliminate the EBITDA and NOI provisions. All
      subsequent-to-purchase-date issuances of the Company’s stock in consideration of
      the original Stock Purchase Agreement were amended to the following. The
      guaranteed shares were modified to equal 500,000 shares of the Company
      Convertible Series B Preferred Stock issued as 250,000 shares with the execution
      of the agreement and the balance of 250,000 shares to be issued on July 1,
      2006.
      Incentive shares shall equal 1,000,000 shares of the Company’s Convertible
      Series B Preferred Stock and will be issued as 500,000 shares on January 1,
      2007
      and 500,000 shares on July 1, 2007. Bonus shares shall equal 1,000,000 shares
      of
      the Company’s Convertible Series B Preferred stock and will be issued as 500,000
      shares on January 1, 2008 and 500,000 shares on July 1, 2008. In addition,
      the
      Company shall distribute Balance Shares in two equal installments on January
      1,
      2009 and July 1, 2009. The Balance Shares shall be shares of the Company’s
      Convertible Series B Preferred Stock which shall equal such number of such
      preferred stock as shall provide the Members with ownership of at least, but
      not
      more than 49.99% of the issued and outstanding shares of the Common Stock of
      the
      Company on an as converted and fully diluted capitalization basis as measured
      on
      the Measurement Date. The Measurement Date shall be the last day of the first
      consecutive 10 day period, wherein the shares of the Company’s common stock have
      had a closing bid price of at least $0.10 per share on each day in that period,
      as adjusted for any stock splits, dividends, or similar adjustments. The Balance
      Shares calculation shall not include, and shall be adjusted for any shares
      or
      securities issued with respect to any mergers, acquisitions, conversion of
      debt
      to equity, obligations of Sovereign existing as of February 18, 2005 or any
      options or warrants that expire, unexercised prior to January 1, 2009 which
      may
      have been outstanding on the Measurement Date.





**Item
      1a. Risk Factors**





**RISK
      FACTORS CONCERNING US AND OUR COMMON STOCK**





The
      most
      significant risks and uncertainties associated with our business are described
      below; however, they are not the only risks we face. If any of the following
      risks actually occur, our business, financial condition, or results or
      operations could be materially adversely affected, the trading of our common
      stock could decline, and an investor may lose all or part of his or her
      investment.





**OUR
      INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM EXPRESSED IN THEIR AUDIT REPORT
      RELATED TO OUR FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 2005,
      SUBSTANTIAL DOUBT ABOUT OUR ABILITY TO CONTINUE AS A GOING
      CONCERN.**




In
      their
      opinions on our financial statements for the years ended December 31, 2004
      and
      2005, our independent auditor, AJ. Robbins PC, expressed substantial doubt
      about
      our ability to continue as a going concern because of our recurring losses
      and
      negative working capital.





**WE
      HAVE A HISTORY OF SIGNIFICANT LOSSES AND WE MAY NEVER ACHIEVE OR SUSTAIN
      PROFITABILITY. IF WE ARE UNABLE TO BECOME PROFITABLE, OUR OPERATIONS WILL BE
      ADVERSELY EFFECTED.**





We
      have
      incurred annual operating losses since our inception. As a result, at December
      31, 2005, we had an accumulated deficit of $72,564,773 . Our gross revenues
      for
      the years ended December 31, 2005 and 2004, were $25,864,395 and $6,479,419
      ,
      with losses from operations of $9,767,314  and
      $10,916,382 and net losses of $11,400,077  and
      $17,302,850 respectively.










As
      we
      pursue our business plan, we expect our operating expenses to increase
      significantly. We will need to generate increased revenues to become profitable.
      Accordingly, we cannot assure you that we will ever become or remain profitable.
      If our revenues fail to grow at anticipated rates or our operating expenses
      increase without a commensurate increase in our revenues, our financial
      condition will be adversely affected. Our inability to become profitable on
      a
      quarterly or annual basis would have a materially adverse effect on our business
      and financial condition. Also, the market price for our stock could
      fall.





**WE
      ARE DEPENDENT UPON LONG-TERM FINANCING. IF WE ARE UNABLE TO RAISE CAPITAL AS
      WE
      NEED IT, OUR OPERATIONS COULD BE JEOPARDIZED**





Our
      ability to implement our business plan and grow is dependent on raising a
      significant amount of capital. We have sustained our operations in large part
      from sales of our equity. We may not be able to successfully generate revenues
      or raise additional funds sufficient to finance our continued operations. In
      the
      long term, failure to generate sufficient revenues or obtain financing would
      have a material adverse effect on our business and would jeopardize our ability
      to continue our operations.





**WE
      HAVE IN THE PAST AND MAY IN THE FUTURE ENGAGE IN ACQUISITIONS, WHICH WILL CAUSE
      US TO INCUR A VARIETY OF COSTS AND WHICH MAY NOT ACHIEVE ANTICIPATED OR DESIRED
      RESULTS. WE MAY NOT ACHIEVE THE RESULTS WE ANTICIPATE AND DESIRE FROM OUR
      ACQUISITION OF THE SOVEREIGN COMPANIES,**





From
      time
      to time we engage in discussions with third parties concerning potential
      acquisitions of businesses, products, technologies and other assets.
      Acquisitions may require us to make considerable cash outlays and can entail
      the
      need for us to issue equity securities, incur debt and contingent liabilities,
      incur amortization expenses related to intangible assets, and can result in
      the
      impairment of goodwill, which could harm our profitability. Acquisitions involve
      a number of additional risks, including:





·
            difficulties
                in and costs associated with the assimilation of the operations,
                technologies, personnel and products of the acquired
                companies,





·
            assumption
                of known or unknown liabilities or other unanticipated events or
                circumstances,





·
            risks
                of entering markets in which we have limited or no experience,
                and





·
            potential
                loss of key employees.





Any
      of
      these risks could harm our ability to achieve profitability of acquired
      operations or to realize other anticipated benefits of an
      acquisition.





On
      February 18, 2005 we acquired Sovereign Partners, LLC which we now own and
      operate as a subsidiary in the residential and planned community (real estate
      and communications infrastructure) development industry. In connection with
      the
      acquisition, we issued common stock and newly created Series B preferred stock.
      That issuance was dilutive to our shareholders. We are obligated to issue more
      shares of preferred stock, which is convertible to common stock on a hundred
      for
      one basis, under the terms of the acquisition agreement with Sovereign. All
      such
      issuances will be dilutive to our shareholders. In addition, the preferred
      stock
      we are issuing is senior to the rights of our common stock holders upon
      liquidation. If we are unable to assimilate Sovereign's management and
      operations, or if we incur unforeseen liabilities, or if the operations of
      Sovereign do not continue to grow or if they diminish, we will not obtain
      recognizable benefits from the acquisition and our shareholders will have
      suffered material dilution.





**WE
      HAVE SENIOR SECURED CONVERTIBLE DEBENTURES TOTALING $4,420,000 DUE IN 2006,
      COLLATERALIZED BY ALL OUR ASSETS. WE DO NOT HAVE THE FUNDS AVAILABLE TO PAY
      THESE DEBENTURES IF NOT CONVERTED INTO COMMON STOCK. IF THE DEBENTURES ARE
      NOT
      PAID OR CONVERTED, THE DEBENTURE HOLDERS COULD FORECLOSE ON OUR
      ASSETS.**




During
      2004, we entered into a series of private placements totaling $4,420,000 in
      senior secured debentures, convertible into common stock. If not converted,
      the
      debentures are due on July 1, 2006. The debentures bear interest at rates from
      six percent (6%) to twelve percent (12%) and are collateralized by our assets.
      We do not currently have the funds to pay these debentures and we cannot assure
      you that we will have the funds to pay them on the due dates. If the debentures
      are not paid or converted, the debenture holders could foreclose on our
      assets.










In
      March
      2005 the terms of the agreements were modified such that a maximum of 40,000,000
      shares are to be issued upon conversion of the debentures. If our common share
      price exceeds $0.25 per share for 30 consecutive days, payment of debentures
      totaling $2,250,000 shall be forgiven by the debenture holders.





**WE
      HAVE A NOTE PAYABLE TO EVERGREEN VENTURE PARTNERS, LLC DUE IN 2006. WE CURRENTLY
      DO NOT HAVE THE FUNDS AVAILABLE TO PAY THIS NOTE WHEN DUE.**





In
      2005
      we entered into an agreement with Evergreen Venture Partners, LLC to purchase
      17,000,000 unregistered shares of our common stock for a $750,000 note payable.
      The terms of the agreement call for payment of the note plus accrued interest
      in
      July 2006, provided however, if our common share price exceeds $0.21 per share
      for 30 consecutive days, payment of the note shall be forgiven.





**WE
      RELY ON LOCAL TELEPHONE COMPANIES AND OTHER COMPANIES TO PROVIDE CERTAIN
      TELECOMMUNICATIONS SERVICES. A DISRUPTION OF THESE SERVICES COULD HAVE AN
      ADVERSE EFFECT ON OPERATIONS.**





Our
      wholly owned subsidiary, Connect Paging, Inc. d/b/a Get-A-Phone is a Texas-based
      communications company operating as a local exchange carrier in areas currently
      served by SBC and Verizon Southwest. We buy certain telecommunications from
      SBC
      and Verizon and resell these to our customers. If we were not able to buy these
      services or if we experienced a disruption of these services, it would adversely
      affect our ability to operate in these areas.





**WE
      HAVE THE ABILITY, WITHOUT SHAREHOLDER APPROVAL, TO ISSUE PREFERRED STOCK AND
      DESIGNATE THE RIGHTS, PREFERENCES AND PRIVILEGES THAT MAY BE SENIOR TO COMMON
      STOCK.**





In
      November 2004, we issued 10,000 shares of Series A Convertible Preferred Stock
      ("Series A Stock") at $100.00 per share, for a total consideration of
      $1,000,000. The Series A Stock is convertible into our common stock at a
      conversion price ranging from $0.05 to $0.075 as calculated in accordance with
      the Certificate of Designation. The Series A Stock has a liquidation preference
      ahead of the common stock in the event of any dissolution or winding up of
      our
      Company and is entitled to any dividends that may be declared from time to
      time
      by the Board of Directors. In 2005, 1,250 Series A preferred shares were
      converted into 2,500,000 shares of common stock.





In
      February 2005, we issued 35,000,000 shares of our common stock and 100,000
      shares of our newly created Series B Convertible Preferred Stock in the
      acquisition of the Sovereign Partners LLC. The Series B Preferred Stock is
      convertible into our common stock at a conversion rate of one hundred (100)
      shares of common stock for each one (1) share of Series B Preferred Stock,
      in
      accordance with the Certificate of Designation. The Series B Preferred Stock
      has
      a liquidation preference ahead of the common stock in the event of any
      dissolution or winding up of our Company and is entitled to any dividends that
      may be declared from time to time by our Board of Directors.





We
      have a
      total of 100,000,000 authorized shares of preferred stock. The Board of
      Directors may determine, without shareholder approval, the rights, preferences
      and privileges of the preferred stock. Depending on the rights, preferences
      and
      privileges granted when the preferred stock is issued, it may have the effect
      of
      delaying, deferring or preventing a change in control without further action
      by
      the shareholders, may discourage bids for our common stock at a premium over
      the
      market price of the common stock and may adversely affect the market price
      of
      and the voting and other rights of the holders of our common stock.





**WE
      CAN ISSUE COMMON STOCK WITHOUT SHAREHOLDER APPROVAL THAT MAY CAUSE DILUTION
      TO
      EXISTING SHAREHOLDERS.**





We
      have
      800,000,000 authorized shares of common stock that can be issued by the Board
      of
      Directors. At December 31, 2005, we had 363,382,430 shares of common stock
      available for issue. Under most circumstances the Board of Directors has the
      right to issue these shares. If all of these shares were issued, it would
      substantially dilute the existing shareholders.





**OUR
      COMMON STOCK HAS EXPERIENCED SIGNIFICANT PRICE VOLATILITY IN THE PAST AND WE
      EXPECT IT TO EXPERIENCE HIGH VOLATILITY IN THE FUTURE. THIS HIGH VOLATILITY
      SUBSTANTIALLY INCREASES THE RISK OF LOSS TO PERSONS OWNING OUR COMMON
      STOCK.**





The
      trading price for our common stock has been, and we expect it to continue to
      be,
      highly volatile. For example, the closing bid price of our stock has fluctuated
      between $0.02 and $0.35 per share since January 1, 2003. The price at which
      our
      common stock trades depends upon a number of factors, including our historical
      and anticipated operating results and general market and economic conditions,
      which are beyond our control. In addition, the stock market has, from time
      to
      time, experienced extreme price and volume fluctuations. These broad market
      fluctuations may lower the market price of our common stock. Moreover, during
      periods of stock market price volatility, share prices of many
      telecommunications companies have often fluctuated in a manner not necessarily
      related to their operating performance. Accordingly, our common stock may be
      subject to greater price volatility than the stock market as a
      whole.









**FUTURE
      SALES OF COMMON STOCK MAY CAUSE THE PRICE OF OUR COMMON STOCK TO
      DECLINE.**





Future
      sales of substantial amounts of common stock pursuant to Rule 144 under the
      Securities Act of 1933 or otherwise by certain shareholders could have a
      material adverse impact on the market price for the common stock at the time.
      As
      of the date of this report, there are 153,952,899 outstanding shares of our
      common stock held by shareholders which are deemed "restricted securities"
      as
      defined by Rule 144 under the Securities Act. Under certain circumstances,
      these
      shares may be sold without registration pursuant to the provisions of Rule
      144.
      In general, under Rule 144, a person (or persons whose shares are aggregated)
      who has satisfied a one-year holding period may, under certain circumstances,
      sell within any three-month period a number of restricted securities which
      does
      not exceed the greater of one (1%) percent of the shares outstanding or the
      average weekly trading volume during the four calendar weeks preceding the
      notice of sale required by Rule 144. In addition, Rule 144 permits, under
      certain circumstances, the sale of restricted securities without any quantity
      limitations by a person who is not an affiliate of ours and has satisfied a
      two-year holding period. Any sales of shares by shareholders pursuant to Rule
      144 may cause the price of our common stock to decline.





**SOVEREIGN
      PARTNERS, LLC IS ROUTINELY INVOLVED IN LITIGATION MATTERS ARISING FROM ACCIDENTS
      AND WARRANTY RELATED CLAIMS; ALTHOUGH WE STRIVE TO KEEP THE LITIGATION COSTS
      AND
      PAYMENTS IF ANY, TO A MINIMUM, AND WE MAINTAIN LIABILITY INSURANCE, WE CANNOT
      BE
      ASSURED THAT LITIGATION WILL NOT HAVE AN ADVERSE IMPACT ON THE OPERATIONS AND
      FINANCIAL PERFORMANCE OF THE COMPANY TAKEN AS A WHOLE.**





Sovereign
      Partners, LLC (“Sovereign”), a wholly owned subsidiary of the Company, performs
      residential and commercial construction activities directly and through
      sub-contractors. Such activities frequently give rise to warranty claims and
      personal injury claims against Sovereign and other job contractors. Although
      Sovereign has procedures in place to assist in the prevention of such claims,
      litigation arising from accidents and warranty issues are an inevitable part
      of
      the business. While Sovereign maintains insurance for such claims in reasonable
      amounts to protect it from losses, we cannot predict if any pending or future
      claims will have an adverse impact on our financial condition and results of
      operations. Also, we cannot be certain that liability insurance will continue
      to
      be available to Sovereign on terms acceptable to Sovereign, if at all. Loss
      of
      Sovereign’s liability insurance could have an adverse impact on our financial
      condition and results of operations.





**OUR
      COMMON STOCK IS SUBJECT TO PENNY STOCK RULES WHICH MAY BE DETRIMENTAL TO
      INVESTORS.**





Our
      common stock has traded at a price substantially below $5.00 per share,
      subjecting trading in the stock to certain SEC rules requiring additional
      disclosures by broker-dealers. These rules generally apply to any non-NASDAQ
      equity security that has a market price of less than $5.00 per share, subject
      to
      certain exceptions, commonly referred to as a "penny stock." Such rules require
      the delivery, prior to any penny stock transaction, of a disclosure schedule
      explaining the penny stock market and the risks associated therewith and impose
      various sales practice requirements on broker-dealers who sell penny stocks
      to
      persons other than established customers and institutional or wealthy investors.
      For these types of transactions, the broker-dealer must make a special
      suitability determination for the purchaser and have received the purchaser's
      written consent to the transaction prior to the sale. The broker-dealer also
      must disclose the commissions payable to the broker-dealer, current bid and
      offer quotations for the penny stock and, if the broker-dealer is the sole
      market maker, the broker-dealer must disclose this fact and the broker-dealer's
      presumed control over the market. Such information must be provided to the
      customer orally or in writing before or with the written confirmation of trade
      sent to the customer. Monthly statements must be sent disclosing recent price
      information for the penny stock held in the account and information on the
      limited market in penny stocks. The additional burdens imposed upon
      broker-dealers by such requirements could discourage broker-dealers from
      effecting transactions in our common stock. These disclosure requirements may
      have the effect of reducing the level of trading activity in the secondary
      market for a stock that becomes subject to the penny stock rules.





**WE
      OPERATE IN A HIGHLY COMPETITIVE MARKET, AND WE MAY NOT BE ABLE TO COMPETE
      EFFECTIVELY AGAINST ESTABLISHED COMPETITORS WITH GREATER FINANCIAL RESOURCES
      AND
      MORE DIVERSE STRATEGIC PLANS.**





We
      face
      competition from many communications providers with significantly greater
      financial, technical and marketing resources, longer operating histories,
      well-established brand names, larger customer bases and diverse strategic plans
      and technologies. Intense competition has led to declining prices and margins
      for many communications services. We expect this trend to continue as
      competition intensifies in the future. We expect significant competition from
      traditional and new communications companies, including local, long distance,
      cable modem, Internet, digital subscriber line, fixed and mobile wireless and
      satellite data service providers, some of which are described in more detail
      below. If these potential competitors successfully focus on our market, we
      may
      face intense competition which could harm our business. In addition, we may
      also
      face severe price competition for building access rights, which could result
      in
      higher sales and marketing expenses and lower profit margins.










**OUR
      BUSINESS IS CYCLICAL AND IS SIGNIFICANTLY IMPACTED BY CHANGES IN GENERAL AND
      LOCAL ECONOMIC CONDITIONS.**




Our
      Real
      Estate business is cyclical and is significantly impacted by changes in national
      and general economic factors outside of our control, such as short and long
      term
      interest rates, the availability of financing for homebuyers, consumer
      confidence (which can be substantially affected by external conditions,
      including international hostilities, federal mortgage financing programs, and
      federal income tax provisions. The cyclicality of our business is also highly
      sensitive to changes in economic conditions that can occur on a local or
      regional basis, such as changes in housing demand, population growth, employment
      levels and job growth, and property taxes. Weather conditions and natural
      disasters such as earthquakes, hurricanes, tornadoes, floods, droughts, fires
      and other environmental conditions can harm our homebuilding business on a
      local
      or regional basis. Civil unrest can also have an adverse effect on our
      homebuilding business. Fluctuating lumber prices and shortages, as well as
      shortages or price fluctuations in other important building materials, can
      have
      an adverse effect on our homebuilding business. Similarly, labor shortages
      or
      unrest among key trades, such as carpenters, roofers, electricians and plumbers,
      can delay the delivery of our homes and increase our costs. Rebuilding efforts
      underway in the gulf coast region of the United States following the destruction
      caused by the two devastating hurricanes there in the summer of 2005 may cause
      or exacerbate shortages of labor and/or certain materials. The difficulties
      described above can cause demand and prices for our homes to diminish or cause
      us to take longer and incur more costs to build our homes. We may not be able
      to
      recover these increased costs by raising prices because the price of each home
      is usually set several months before the home is delivered, as our customers
      typically sign their home purchase contracts before construction has even begun
      on their homes. In addition, some of the difficulties described above could
      cause some homebuyers to cancel their home purchase contracts
      altogether.





**THE
      HOMEBUILDING INDUSTRY HAS NOT EXPERIENCED A DOWNTURN IN MANY YEARS, AND NEW
      HOMES MAY BE OVERVALUED.**





Although
      the homebuilding business can be cyclical, it has not experienced a downturn
      in
      many years. Some have speculated that the prices of new homes, and the stock
      prices of companies like ours that build new homes, are inflated and may decline
      if the demand for new homes weakens. A decline in the prices for new homes
      would
      have an adverse effect on our homebuilding business. If new home prices decline,
      interest rates increase or there is a downturn in the economy, some homebuyers
      may cancel their home purchases because the required deposits are small and
      generally refundable. If the prices for new homes begin to decline, interest
      rates increase or there is a downturn in local or regional economies or the
      national economy, homebuyers may have financial incentive to terminate their
      existing sales contracts in order to negotiate for a lower price or to explore
      other options. Such a result could have an adverse effect on our homebuilding
      business and our results of operations.





**OUR
      SUCCESS DEPENDS ON THE AVAILABILITY OF IMPROVED LOTS AND UNDEVELOPED LAND THAT
      MEET OUR LAND INVESTMENT CRITERIA.**





The
      availability of finished and partially developed lots and undeveloped land
      for
      purchase that meet our internal criteria depends on a number of factors outside
      our control, including land availability in general, competition with other
      homebuilders and land buyers for desirable property, inflation in land prices,
      and zoning, allowable housing density and other regulatory requirements. Should
      suitable lots or land become less available, the number of homes we may be
      able
      to build and sell could be reduced, and the cost of land could be increased,
      perhaps substantially, which could adversely impact our results of
      operations.




**HOME
      PRICES AND SALES ACTIVITY IN THE PARTICULAR MARKETS AND REGIONS IN WHICH WE
      DO
      BUSINESS IMPACT OUR RESULTS OF OPERATIONS BECAUSE OUR BUSINESS IS CONCENTRATED
      IN THESE MARKETS.**





Home
      prices and sales activity in some of our key markets have declined from time
      to
      time for market-specific reasons, including adverse weather or economic
      contraction due to, among other things, the failure or decline of key industries
      and employers. If home prices or sales activity decline in one or more of the
      key markets in which we operate, our costs may not decline at all or at the
      same
      rate and, as a result, our overall results of operations may be adversely
      impacted.





**INTEREST
      RATE INCREASES OR CHANGES IN FEDERAL LENDING PROGRAMS COULD LOWER DEMAND FOR
      OUR
      HOMES.**





Nearly
      all of our customers finance the purchase of their homes, and a significant
      number of these customers arrange their financing through our subsidiary
      Lighthouse Lending, LLC. Increases in interest rates or decreases in
      availability of mortgage financing would increase monthly mortgage costs for
      our
      potential homebuyers and could therefore reduce demand for our homes and
      mortgages. Increased interest rates can also hinder our ability to realize
      our
      backlog because our sales contracts provide our customers with a financing
      contingency. Financing contingencies allow customers to cancel their home
      purchase contracts in the event they cannot arrange for financing at interest
      rates that were prevailing when they signed their contracts. Because the
      availability of Fannie Mae, FHLMC, FHA and VA mortgage financing is an important
      factor in marketing many of our homes, any limitations or restrictions on the
      availability of those types of financing could reduce our home
      sales.










**WE
      ARE SUBJECT TO SUBSTANTIAL LEGAL AND REGULATORY REQUIREMENTS REGARDING THE
      DEVELOPMENT OF LAND, THE HOMEBUILDING PROCESS AND PROTECTION OF THE ENVIRONMENT,
      WHICH CAN CAUSE US TO SUFFER DELAYS AND INCUR COSTS ASSOCIATED WITH COMPLIANCE
      AND WHICH CAN PROHIBIT OR RESTRICT HOMEBUILDING ACTIVITY IN SOME REGIONS OR
      AREAS.**




Our
      homebuilding business is heavily regulated and subject to increasing local,
      state and federal statutes, ordinances, rules and regulations concerning zoning,
      resource protection, other environmental impacts, building design, construction
      and similar matters. These regulations often provide broad discretion to
      governmental authorities that regulate these matters, which can result in
      unanticipated delays or increases in the cost of a specified project or a number
      of projects in particular markets. We may also experience periodic delays in
      homebuilding projects due to building moratoria in any of the areas in which
      we
      operate. We are also subject to a variety of local, state and federal statutes,
      ordinances, rules and regulations concerning the environment. These laws and
      regulations may cause delays in construction and delivery of new homes, may
      cause us to incur substantial compliance and other costs, and can prohibit
      or
      severely restrict homebuilding activity in certain environmentally sensitive
      regions or areas. In addition, environmental laws may impose liability for
      the
      costs of removal or remediation of hazardous or toxic substances whether or
      not
      the developer or owner of the property knew of, or was responsible for, the
      presence of those substances. The presence of those substances on our properties
      may prevent us from selling our homes and we may also be liable, under
      applicable laws and regulations or lawsuits brought by private parties, for
      hazardous or toxic substances on properties and lots that we have sold in the
      past. The mortgage brokering operations of Lighthouse Lending, LLC are heavily
      regulated and subject to the rules and regulations promulgated by a number
      of
      governmental and quasi-governmental agencies. There are a number of federal
      and
      state statutes and regulations which, among other things, prohibit
      discrimination, establish underwriting guidelines which include obtaining
      inspections and appraisals, require credit reports on prospective borrowers
      and
      fix maximum loan amounts. A finding that we materially violated any of the
      foregoing laws could have an adverse effect on our results of
      operations.





**WE
      BUILD HOMES IN HIGHLY COMPETITIVE MARKETS, WHICH COULD HURT OUR FUTURE OPERATING
      RESULTS.**





We
      compete in each of our markets with a number of homebuilding companies for
      homebuyers, land, financing, raw materials and skilled management and labor
      resources. Our competitors include large national homebuilders, as well as
      other
      smaller regional and local builders that can have an advantage in local markets
      because of long-standing relationships they may have with local labor or land
      sellers. We also compete with other housing alternatives, such as existing
      homes
      and rental housing. These competitive conditions can make it difficult for
      us to
      acquire desirable land which meets our land buying criteria, cause us to offer
      or to increase our sales incentives or price discounts, and result in reduced
      sales. Any of these competitive conditions can adversely impact our revenues,
      increase our costs and/or impede the growth of our local or regional
      homebuilding businesses.





**CHANGING
      MARKET CONDITIONS MAY ADVERSELY IMPACT OUR ABILITY TO SELL HOMES AT EXPECTED
      PRICES.**





There
      is
      often a significant amount of time between when we initially acquire land and
      when we can make homes on that land available for sale. The market value of
      a
      proposed home can vary significantly during this time due to changing market
      conditions. In the past, we have benefited from increases in the value of homes
      over time, but if market conditions were to reverse, we may need to sell homes
      at lower prices than we anticipate. We may also need to take write-downs of
      our
      home inventories and land holdings if market values decline.





**BECAUSE
      OF THE SEASONAL NATURE OF OUR REAL ESTATE BUSINESS, OUR QUARTERLY OPERATING
      RESULTS FLUCTUATE.**





We
      have
      experienced seasonal fluctuations in quarterly operating results. We typically
      do not commence significant construction on a home before a sales contract
      has
      been signed with a homebuyer. A significant percentage of our sales contracts
      are made during the spring and summer months. Construction of our homes
      typically requires approximately four months and weather delays that often
      occur
      during late winter and early spring may extend this period. As a result of
      these
      combined factors, we historically have experienced uneven quarterly results,
      with lower revenues and operating income generally during the first and second
      quarters of our fiscal year.










**OUR
      LEVERAGE MAY PLACE BURDENS ON OUR ABILITY TO COMPLY WITH THE TERMS OF OUR
      INDEBTEDNESS, MAY RESTRICT OUR ABILITY TO OPERATE AND MAY PREVENT US FROM
      FULFILLING OUR OBLIGATIONS.**





The
      amount of our debt could have important consequences. For example: it could
      limit our ability to obtain future financing for working capital, capital
      expenditures, acquisitions, debt service requirements or other requirements;
      require us to dedicate a substantial portion of our cash flow from operations
      to
      the payment of our debt and reduce our ability to use our cash flow for other
      purposes; impact our flexibility in planning for, or reacting to, changes in
      our
      business; place us at a competitive disadvantage because we have more debt
      than
      some of our competitors; and make us more vulnerable in the event of a downturn
      in our business or in general economic conditions. Our ability to meet our
      debt
      service and other obligations will depend upon our future performance. We are
      engaged in businesses that are substantially affected by changes in economic
      cycles. Our revenues and earnings vary with the level of general economic
      activity in the markets we serve. Our businesses could also be affected by
      financial, political, business and other factors, many of which are beyond
      our
      control. The factors that affect our ability to generate cash can also affect
      our ability to raise additional funds through the sale of debt and/or equity
      securities, the refinancing of debt or the sale of assets. Changes in prevailing
      interest rates may also affect our ability to meet our debt service obligations,
      because borrowings under our bank credit facilities bear interest at floating
      rates. A higher interest rate on our debt could adversely affect our operating
      results. Our business may not generate sufficient cash flow from operations
      and
      borrowings may not be available to us under our bank credit facilities in an
      amount sufficient to enable us to pay our debt service obligations or to fund
      our other liquidity needs. We may need to refinance all or a portion of our
      debt
      on or before maturity, which we may not be able to do on favorable terms or
      at
      all. The indentures governing our outstanding debt instruments and our bank
      credit facilities include various financial covenants and restrictions,
      including restrictions on debt incurrence, sales of assets and cash
      distributions by us. Should we not comply with any of those restrictions or
      covenants, the holders of those debt instruments or the banks, as appropriate,
      could cause our debt to become due and payable prior to maturity.




**WE
      MAY HAVE DIFFICULTY IN CONTINUING TO OBTAIN THE ADDITIONAL FINANCING REQUIRED
      TO
      OPERATE AND DEVELOP OUR BUSINESS.**





Our
      construction operations require significant amounts of cash and/or available
      credit. It is not possible to predict the future terms or availability of
      additional capital. Our bank credit facilities limit our ability to borrow
      additional funds by placing a maximum cap on our leverage ratio. If conditions
      in the capital markets change significantly, it could reduce our sales and
      may
      hinder our future growth and results of operations.





**OUR
      FUTURE GROWTH MAY BE LIMITED BY CONTRACTING ECONOMIES IN THE MARKETS IN WHICH
      WE
      CURRENTLY OPERATE, AS WELL AS OUR INABILITY TO ENTER
      MARKETS.**





Our
      future growth and results of operations could be adversely affected if the
      markets in which we currently operate do not continue to support the expansion
      of our existing business or if we are unable to identify new markets for entry.
      Our inability to grow organically in existing markets or to expand into new
      markets would limit our ability to achieve our growth objectives and would
      adversely impact our future operating results.





**REGULATION
      OF THE INTERNET.**





Due
      to
      the increasing popularity and use of the Internet by broad segments of the
      population, it is possible that laws and regulations may be adopted with respect
      to the Internet pertaining to content of Web sites, privacy, pricing, encryption
      standards, consumer protection, electronic commerce, taxation, and copyright
      infringement and other intellectual property issues. No one is able to predict
      the effect, if any, that any future regulatory changes or developments may
      have
      on the demand for our Internet access or other Internet-related services.
      Changes in the regulatory environment relating to the Internet access industry,
      including the enactment of laws or promulgation of regulations that directly
      or
      indirectly affect the costs of telecommunications access or that increase the
      likelihood or scope of competition from national or regional telephone
      companies, could materially and adversely affect our business, operating results
      and financial condition.





**Item
      1B. Unresolved Staff Comments**





None.




**Item
      2. Description of Property**





**General**





Our
      headquarters are located in Broomfield, Colorado and are leased through 2015.
      We
      are currently paying $7,437 per month for the space, however in June our rent
      will increase to $15,320 per month. With this facility we believe that our
      leased office space will be adequate for the Company's needs for the foreseeable
      future. Our operations or conducted from leased premises located in Thornton,
      Greeley and Windsor Colorado and Fort Worth, Texas. The Thornton premise has
      a
      three year lease and currently we are paying $1,767 per month. The Thornton
      and
      Greeley offices have a 60 month lease and we are currently paying $14,000 per
      month for these offices. The Fort Worth premise has a 38 month lease and
      currently we are paying $3,496 per month. We believe that such properties,
      including the equipment located therein, are suitable and adequate to meet
      the
      requirements of our businesses.










Because
      of the nature of our homebuilding operations, significant amounts of property
      are held as inventory in the ordinary course of our homebuilding business.
      Such
      properties are not included in response to this Item.




**Intellectual
      Property**





We
      have
      received authorization to use the products of each manufacturer of software
      that
      is bundled in its software for users with personal computers operating on the
      Windows or Macintosh platforms. While certain of the applications included
      in
      our start-up kit for Internet access services subscribers are shareware that
      we
      have obtained permission to distribute or that are otherwise in the public
      domain and freely distributable, certain other applications included in our
      start-up kit have been licensed where necessary. We currently intend to maintain
      or negotiate renewals of all existing software licenses and authorizations
      as
      necessary. We may also enter into licensing arrangements for other applications
      in the future.




**Item3.****Legal
      Proceedings**




Cardinal
      Communications, Inc. (the “Company”) is a defendant in a proceeding styled
      Exceleron Software, Inc. v. Cardinal Communications, Inc., Cause No.
      DV05-8334-J, filed in the Dallas County, Texas District Court on August 22,
      2005. Exceleron is seeking damages of $240,000 together with interest and
      attorney’s fees for early termination of a billing software contract. The
      Company intends to vigorously defend this action, however, the Company cannot
      control the outcome and the extent of the losses, if any, that may be
      incurred.





Usurf
      TV,
      formerly known as Neighborlync, a wholly owned subsidiary of the Company that
      ceased operations in early 2005, was sued by Platte Valley Bank in Scotts Bluff,
      Nebraska County Court. The case is styled Platte Valley Bank v. Usurf TV, f/k/a/
      Neighborlync, Inc., Case No. CI O5-1050 and was filed on September 12, 2005.
      The
      Plaintiff obtained judgment for $45,000 in or around October 2005. The
      Defendant, however, does not have any assets and is no longer in business.
      The
      Company will vigorously defend itself against any attempts to enforce the
      judgment against the Company, but has recorded a $45,000 liability in connection
      with this lawsuit.





On
      September 29, 2000, an involuntary bankruptcy petition was filed against
      CyberHighway, Inc. in the Idaho Federal Bankruptcy Court, styled In Re:
      CyberHighway, Inc., Case No. 00-02454. CyberHighway is a non-operating
      subsidiary of the Company that operated as an internet service provider. During
      2004, the final order of bankruptcy and discharge was entered.





In
      June
      2003 one of the Company’s subsidiaries, USURF Telecom, Inc., was named as a
      defendant in a lawsuit filed by Qwest Corporation. This case was styled: Qwest
      Corporation vs. Maxcom, Inc. (f/k/a Mile High Telecom, CLEC for Sale, Inc.
      and
      Mile High Telecom, Inc.), et. al., District Court, City and County of Denver,
      Colorado, Case No. 03-CV-1676. In December 2005, this suit was dismissed with
      prejudice and the Company incurred no losses in relation to the
      suit.





Rocky
      Mountain Panel, LLC (a dissolved wholly-owned subsidiary of Sovereign Partners,
      LLC, a wholly-owned subsidiary of the Company), was a defendant in a lawsuit
      known as Baker Commons HOA v. Nicholas Construction, Inc., Case No. 04-CV-6967
      pending in the District Court, Denver County, Colorado. In March 2006, this
      suit
      was dismissed with prejudice and the Company incurred no losses in relation
      to
      the suit.





King
      Concrete, LLC (a dissolved wholly-owned subsidiary of Sovereign Partners, LLC,
      a
      wholly-owned subsidiary of the Company), was a defendant in a proceeding known
      as ABCO Development Corporation v. Systems Contractors, Inc., Case Nos. Case
      Nos. BC316119 and BC313338 pending in the Superior Court for the County of
      Los
      Angeles, California. The lawsuit alleged defective construction claims with
      respect to certain concrete components performed by King Concrete at a project
      site in Lakewood, Colorado. In February 2006, this suit was settled and the
      Company incurred no losses in relation to the suit.





The
      Company is a defendant in an arbitration proceeding styled Douglas O. McKinnon
      v. Cardinal Communications, Inc. pending before the American Arbitration
      Association in Denver, Colorado. The demand for arbitration was filed on July
      29, 2005. Mr. McKinnon is seeking $360,000, representing two years salary
      pursuant to an employment agreement with the Company. The Company intends to
      vigorously defend this action; however, the Company cannot control the outcome
      and extent of losses, if any, that may be incurred.










Sovereign
      Companies, LLC (“Sovereign”), a wholly owned subsidiary of the Company, is
      involved in litigation surrounding a condominium development project in Greeley,
      Colorado known as Mountain View at T-Bone. In October 2005, Sovereign, Mountain
      View at T-Bone, LLC (“Mountain View”), and Mr. Edouard A. Garneau filed a
      declaratory relief action against certain members of Mountain View seeking
      a
      determination of the various rights and obligations of the members. The action
      is styled Sovereign Companies, LLC et al. v. Yale King et al., Case No.
      05-CV-649 and is pending in Larimer County District Court in Colorado. The
      declaratory relief action seeks to clarify the roles and responsibilities of
      certain members and the operational authority of individual managers of Mountain
      View and asserts claims against certain of its members. Mr. Garneau is a member
      of the Company’s Board of Directors and indirectly owns and controls shares of
      the Company’s common and preferred stock




In
      a
      related action, Sovereign and Mr. Garneau, in his capacity as Manager of
      Sovereign and Mountain View, were named in a lawsuit brought by several
      individual members of Mountain View, claiming unspecified damages for breach
      of
      contract by Sovereign and Mr. Garneau, and for other causes of action against
      Mr. Garneau individually. That case is styled Yale King et al. v. Sovereign
      Companies, LLC et al., Case No. 2005-CV-1008 and was filed in June 2005 in
      Weld
      County District Court in Colorado. This action was subsequently dismissed for
      improper venue and transferred to Denver County District Court. Both related
      cases have been stayed pending a determination as to where the two cases should
      proceed. Sovereign disputes the allegations of the other Mountain View members
      and intends to vigorously defend the action. However, the Company cannot control
      the outcome and extent of the losses, if any, that may be incurred. Mr. Garneau
      is a member of the Company’s Board of Directors and indirectly owns and controls
      shares of the Company’s common and preferred stock.





Sovereign
      Companies, LLC (“Sovereign”), a wholly owned subsidiary of the Company, was
      involved in trademark litigation in the Trademark Trial & Appeals Board
      styled Sovereign Bank v. Sovereign Companies, LLC, Cancellation No. 92043948,
      filed on December 2, 2004. Following a negotiated resolution of the matter,
      the
      petitioner withdrew its petition to cancel on September 15, 2005. Sovereign
      incurred no losses in relation to the suit.





Since
      the
      close of the Company’s 2005 fiscal year, Colorado River KOA, LLC (“CRKOA”), a
      partially owned subsidiary of the Company, has been sued by WHR Properties,
      Inc.
      in a case styled WHR Properties, Inc. v. Colorado River KOA, LLC and is
      currently pending in Gunnison County District Court in Colorado. The action
      was
      filed on March 17, 2006 and alleges breach of an agreement for the purchase
      of
      real property and seeks specific performance of the alleged contract and,
      alternatively, an unspecified claim for damages. CRKOA disputes the allegations
      and intends to vigorously defend the action. However, the Company cannot control
      the outcome and extent of the losses, if any, that may be incurred.





Since
      the
      close of the Company’s 2005 fiscal year, Sovereign Companies, LLC and Sovereign
      Developments, LLC, (collectively “Sovereign”), wholly owned subsidiaries of the
      Company, have been sued by Jech Excavating, Inc. in a case styled Jech
      Excavating, Inc. v. Riverplace Condominiums, LLC et al., Case No. 55-CV-06-2-28
      pending in Olmstead County District Court in Minnesota. The action was filed
      on
      February 22, 2006 and alleges breach of contract under a promissory note
      relating to the performance of excavating work at the Riverplace development.
      The action also asserts a claim against Mr. Garneau individually. The Plaintiff
      is seeking damages of $664,000 together with interest and attorney’s fees. The
      parties are currently engaging in settlement negotiations. Sovereign intends
      to
      vigorously defend the action. However, Sovereign cannot control the outcome
      and
      extent of the losses, if any, that may be incurred.





Since
      the
      close of the Company’s 2005 fiscal year, Sovereign Homes, a wholly owned
      subsidiary of the Company, has been sued by third-party plaintiff, Jech
      Excavating, Inc. in a case styled Falcon Drilling & Blasting, Inc. v. Jech
      Excavating, Inc. et al., Case No. 55-C4-05-005151, pending in Olmstead County
      District Court in Minnesota. The third-party complaint against Sovereign Homes
      was filed on March 9, 2006 and seeks enforcement of a mechanics lien, alleges
      breach of contract, and asserts other claims relating to the performance of
      excavating work at the Rocky Creek development. The Plaintiff is seeking damages
      of $263,000 together with interest and attorney’s fees. The parties are
      currently engaging in settlement negotiations. Sovereign Homes intends to
      vigorously defend the action. However, Sovereign Homes cannot control the
      outcome and extent of the losses, if any, that may be incurred.





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




There
      were no annual or special meetings of our common or preferred shareholders,
      and
      no actions by written consent of our common or preferred shareholders were
      taken, during the fourth quarter ended December 31, 2005.





**PART
      II**





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




Market
      Information




Until
      March 9, 2004, our common stock traded on the American Stock Exchange, under
      the
      symbol "UAX". The table below sets forth, for the periods indicated, the high
      and low closing sales prices for our common stock, as reported by the American
      Stock Exchange:





Quarter/Period
                Ended
            
            High
            
            LowDecember
                23, 2003
            
            
            0.35
            
            
            0.15March
                4, 2004
            
            
            0.24
            
            
            0.20









On
      March
      5, 2004 we were notified by the American Stock Exchange ("AMEX") that, following
      a hearing on March 4, 2004, a Listing Qualifications Panel of the AMEX Committee
      on Securities affirmed a decision by the AMEX staff to delist our common stock.
      On March 9, 2004, AMEX suspended trading of our common stock. On March 10,
      2004,
      our common stock began trading on the "pink sheets" and on March 22, 2004,
      began
      trading "over the counter" on the Over the Counter Bulletin Board ("OTC BB")
      under the symbol "USUR.OB." The table below shows the range of high and low
      bid
      information for the period March 10, 2004 through June 23, 2005.





Quarter/Period
                Ended
            
            High
            
            LowMarch
                31, 2004
            
            
            0.11
            
            
            0.06June
                30, 2004
            
            
            0.19
            
            
            0.06September
                30, 2004
            
            
            0.09
            
            
            0.05December
                31, 2004
            
            
            0.13
            
            
            0.06March
                31, 2005
            
            
            0.10
            
            
            0.07June
                23, 2005
            
            
            0.08
            
            
            0.05




On
      June
      24, 2005 we received a new stock symbol “CDNC.OB”. The stock symbol change was
      in response to our name change from Usurf America, Inc. to Cardinal
      Communications, Inc. The table below shows the range of high and low bid
      information for the period June 24, 2005 through March 31, 2006.




Quarter/Period
                Ended
            
            High
            
            LowJune
                30, 2005
            
            
            0.05
            
            
            0.05September
                30, 2005
            
            
            0.06
            
            
            0.03December
                31, 2005
            
            
            0.04
            
            
            0.02March
                31, 2006
            
            
            0.03
            
            
            0.02




**Holders**





On
      March
      23, 2006 there were approximately 1,271 holders of record of our common
      stock.





**Derivative
      Securities Authorized for Issuance**





As
      of
      December 31, 2005, there were 7,150,000 common shares to be issued upon the
      exercise of outstanding options. The weighted average exercise price of these
      options is $0.10.





As
      of
      December 31, 2005, there were 60,393,129 common shares to be issued upon the
      exercise of outstanding warrants. The weighted average exercise price of these
      warrants is $0.10.





**2005
      Employee Stock Ownership Plan**





As
      of
      December 31, 2005 there were 37,488,597 shares available for future issuance
      under the 2005 Employee Stock Ownership Plan.





**Convertible
      Preferred Stock**





As
      of
      December 31, 2005 we had 8,750 shares of convertible Series A Preferred Stock
      outstanding. These shares are convertible into 17,500,000 shares of common
      stock.





As
      of
      December 31, 2005 we had 100,000 shares of convertible Series B Preferred Stock
      outstanding. These shares are convertible into 10,000,000 shares of common
      stock.










**Dividends**





We
      have
      never paid cash dividends on our common stock. We intend to re-invest any future
      earnings into the Company for the foreseeable future.





**Authorized
      Shares Increase**





On
      June
      9, 2005, our stockholders approved an amendment to our certificate of
      incorporation increasing the number of authorized shares of our common stock
      from 400 million to 800 million.





**Recent
      Issuances of Unregistered Securities**





During
      the three months ended December 31, 2005, we issued the following
      securities:





1.
      (a)
      Securities Issued. In November 2005, 2,500,000 shares of the Company's common
      stock were issued.





(b)
      Underwriter, Purchaser or Recipient. Such shares of stock were issued to Monarch
      Pointe Fund, Ltd..





(c)
      Consideration, such shares were issued pursuant to the conversion of 1,250
      shares of convertible Series A Preferred Stock into common stock.





(d))
      Exemption from Registration. These securities are exempt from registration
      under
      the Securities Act of 1933, as amended, pursuant to the provisions of Section
      4(2) thereof, as a transaction not involving a public offering. This purchaser
      is a sophisticated investor capable of evaluating an investment in the
      Company.





Information
      regarding issuance of unregistered securities during the first nine months
      of
      2004 has been disclosed in each of the Quarterly Report on Form 10-QSB filed
      by
      the Company during 2004.




**Item
      6. Management’s Discussion, Analysis and Plan of
      Operation.**





Cardinal
      Communications, Inc is a “Developer of Connected Communities”. As such, we
      design, construct, and operate diversified communication systems. The systems
      include voice, video, internet, wireless, and video-on-demand services to
      customers in multiple dwelling units (MDU), newly constructed housing
      developments, commercial properties, and the hospitality industry. One of our
      divisions builds residential and commercial properties, insuring a steady stream
      of telecommunication customers. Another of our divisions concentrates on selling
      “land line” services on a prepaid basis. Our newest division sells
      video-on-demand to the hospitality industry, and will be selling video-on-demand
      to the residential industry very soon. We currently have operations in multiple
      states, 5 countries, and 4 continents.





Our
      plan
      for the next twelve months includes obtaining as many telecommunications
      customers as we can. We intend to grow our customer base through internal growth
      whenever possible, but we may acquire customers by acquiring related businesses
      or properties. If operational cash flow is insufficient to fund this growth,
      we
      will attempt to raise capital throughout the year.




Our
      future research and development is primarily performed in our newly acquired
      video-on-demand division, at the R&D facility in Halifax, Nova Scotia. These
      R&D efforts include the development and deployment of a fully digital
      video-on demand platform for the hospitality and the residential markets. We
      expect these efforts to be ongoing throughout the year.




We
      are
      not planning on any significant additions to plant, equipment, or employee
      counts throughout the year .





**Critical
      Accounting Policies**





Management's
      Discussion and Analysis discusses the results of operations and financial
      condition as reflected in our consolidated financial statements, which have
      been
      prepared in accordance with accounting principles generally accepted in the
      United States. The preparation of financial statements in conformity with
      accounting principles generally accepted in the United States requires
      management to make estimates and assumptions that affect the reported amounts
      of
      assets and liabilities, disclosure of contingent assets and liabilities at
      the
      date of the financial statements and reported amounts of revenues and expenses
      during the reporting period. On an ongoing basis, management evaluates its
      estimates and judgments, including those related to accounts receivable,
      inventory valuation, amortization and recoverability of long-lived assets,
      including goodwill, litigation accruals and revenue recognition. Management
      bases its estimates and judgments on its historical experience and other
      relevant factors, the results of which form the basis for making judgments
      about
      the carrying values of assets and liabilities that are not readily apparent
      from
      other sources.










While
      we
      believe that the historical experience and other factors considered provide
      a
      meaningful basis for the accounting policies applied in the preparation of
      our
      consolidated financial statements, we cannot guarantee that our estimates and
      assumptions will be accurate. If such estimates and assumptions prove to be
      inaccurate, we may be required to make adjustments to these estimates in future
      periods.





**Plan
      of Operation**





Our
      plan
      for the next twelve months includes obtaining as many telecommunications
      customers as we can. We intend to grow our customer base through internal growth
      whenever possible, but we may acquire customers by acquiring related businesses
      or properties. If operational cash flow is insufficient to fund this growth,
      we
      will raise capital throughout the year.





Our
      future research and development is primarily performed in our newly acquired
      video-on-demand division, at the R&D facility in Halifax, Nova Scotia. These
      R&D efforts include the development and deployment of a fully digital
      video-on demand platform for the hospitality and the residential markets. We
      expect these efforts to be ongoing throughout the year.





We
      are
      not planning on any significant additions to plant, equipment, or employee
      counts throughout the year.





**2004
      Acquisitions**





Connect
      Paging, Inc. d/b/a Get A Phone




In
      April
      2004 the Company acquired Connect Paging, Inc. d/b/a Get A Phone ("GAP"). The
      purchase price consisted of $2,000,000 in cash and 15,000,000 shares of common
      stock of the Company. GAP operates as a competitive local exchange carrier
      (CLEC) in Texas offering local and long distance telephone services. GAP has
      acquired approximately 13,000 customers that could generate over $7.0 million
      in
      annual revenues. The transaction was subject to the approval of the Texas Public
      Utilities Commission and such approval was received in April 2004.





Sovereign
      Assets




In
      February 2004 the Company acquired certain assets of certain LLC's controlled
      by
      the Sovereign Companies, LLC for stock. The purchase price under the various
      agreements was $479,770, generally for subscribers, equipment and other assets.
      In connection with theses agreements, we issued a total of 5,203,870 shares
      of
      common stock





**2005
      Acquisitions and Important Transactions**





***Sovereign
      Companies***




On
      February 18, 2005, the Company closed on the acquisition with Sovereign
      Partners, LLC (“Sovereign”) to acquire 100% of the membership interests of
      Sovereign from the Members in exchange for the issuance of 35,000,000 shares
      of
      the Company’s common stock and 100,000 shares of the Company’s newly created
      Series B Convertible Preferred Stock. Under the terms of the Acquisition
      Agreement the members are to be issued an additional 125,000 shares of Series
      B
      Preferred Stock on January 1, 2006 and July 1, 2006. As a result of the
      acquisition, Sovereign is now owned and operated as a wholly owned subsidiary
      of
      the Company. Sovereign operations include real estate development and the
      related communications infrastructure for residential, multiple dwelling unit
      (apartment) and planned community developments.




Conditionally,
      the original Members of Sovereign may earn an additional 250,000 shares of
      Preferred Stock at such time as the Net Operating Income of Sovereign after
      January 1, 2005 is equal to or greater than $6,000,000; and 400,000 shares
      of
      Preferred Stock if the Net Operating Income of Sovereign ending on the period
      twenty-four months following the closing of the acquisition is equal to or
      greater than $5,000,000. For the purposes of the Acquisition Agreement, Net
      Operating Income means for any period the “EBITDA” on a consolidated basis for
      Sovereign and all of its subsidiaries, in accordance with generally accepted
      accounting principles. “EBITDA” means earnings before interest, taxes,
      depreciation and amortization.





The
      Members may earn additional shares of Common Stock or Preferred Stock if the
      average annualized Net Operating Income for the period commencing on the closing
      and ending on the twenty-four month anniversary date of the closing is: (A)
      greater than $5,000,000, but less than or equal to $6,000,000, then the Members
      will receive in the aggregate an additional 0.05 shares of Preferred Stock
      for
      each dollar that the average annualized Net Operating Income for that period
      exceeds $5,000,000; (B) greater than $6,000,000 but less than or equal to
      $7,000,000, then the Members will receive in the aggregate an additional 0.10
      shares of Preferred Stock for each dollar that the average annualized Net
      Operating Income for that period exceeds $5,000,000; (C) greater than $7,000,000
      but less than or equal to $8,000,000, then the Members will receive in the
      aggregate 0.15 shares of Preferred Stock for each dollar that the average
      annualized Net Operating Income for that period exceeds $5,000,000; or (D)
      greater than $8,000,000 for that period, then the Members will receive in the
      aggregate 0.20 shares of Preferred Stock for each dollar that the average
      annualized Net Operating Income for that period exceeds $5,000,000
      (collectively, the “Twenty-Four Month Issuances”).










In
      addition, the Members may earn additional shares of Common Stock or Preferred
      Stock as follows: if the average annualized Net Operating Income for the period
      commencing on the Closing and ending on the thirty-six month anniversary date
      of
      the closing is: (A) greater than $5,000,000, but less than or equal to
      $6,000,000, the Members will receive in the aggregate an additional 0.10 shares
      of Preferred Stock for each dollar that the average annualized Net Operating
      Income for that period exceeds $5,000,000; (B) greater than $6,000,000 but
      less
      than or equal to $7,000,000, then the Members will receive in the aggregate
      an
      additional 0.20 shares of Preferred Stock for each dollar that the average
      annualized Net Operating Income for that period exceeds $5,000,000; (C) greater
      than $7,000,000 but less than or equal to $8,000,000, then the Members will
      receive in the aggregate 0.30 shares of Preferred Stock for each dollar that
      the
      average annualized Net Operating Income for that period exceeds $5,000,000;
      or
      (D) greater than $8,000,000 for that period, then the Members will receive
      in
      the aggregate 0.40 shares of Preferred Stock for each dollar that the average
      annualized Net Operating Income for that period exceeds $5,000,000. Such
      issuances will be reduced by the number of shares of Common Stock or Preferred
      Stock received pursuant to the Twenty-Four Month Issuances, if any.





Under
      the
      terms of the Acquisition Agreement, the aggregate number of shares of capital
      stock of the Company issuable to the Members is limited to 300,000,000 shares
      of
      Common Stock or such number of shares of Preferred Stock that is convertible
      into 300,000,000 shares of Common Stock, or any combination of Preferred Stock
      and Common Stock which does not exceed 300,000,000 shares of Common Stock in
      total.





The
      Company may suspend the issuance of additional shares of Common Stock or
      Preferred Stock upon certain “breaches” by Sovereign defined in the Acquisition
      Agreement. In the event of a breach, any shares that have not yet been issued
      to
      the Members under the terms of the Acquisition Agreement may be withheld by
      the
      Company until the earlier of (i) twelve months from the date such shares would
      have otherwise been issued to the Members or (ii) such time as any such breach
      has been cured by Sovereign.





This
      transaction was accounted for using the purchase method and, accordingly, the
      purchase price has been allocated to net assets acquired based on their
      estimated fair values at the date of acquisition. The preliminary allocation
      resulted in goodwill totaling approximately $6,688,207 . Goodwill was recorded
      at its purchase price and is not being amortized. Pursuant to SFAS 142
      (“Goodwill and Other Intangible Assets”) and SFAS 144 Accounting for the
      Impairment or Disposal of Long-Lived Assets the Company evaluates its goodwill
      for impairment annually. Pro forma results of operations are presented on a
      Current Report on Form 8-K by amendment filed August 4, 2005. Financial
      statements for years ended 2002, 2003 and 2004 are included in the August 4,
      2005 Current Report on Form 8-K/A.





**Subsequent
      Events Concerning the Sovereign Acquisition Agreement
      Restructuring**





Subsequent
      to December 31, 2005 the Company entered into a Restructure and Amendment
      Agreement with the original members of Sovereign Partners, LLC. This agreement
      was created to resolve operating conflicts between the Company and Sovereign
      Partners, LLC. Under the terms of the agreement the original Stock Purchase
      Agreement was modified to eliminate the EBITDA and NOI provisions. All
      subsequent-to-purchase-date issuances of the Company’s stock in consideration of
      the original Stock Purchase Agreement were amended to the following. The
      guaranteed shares were modified to equal 500,000 shares of the Company
      Convertible Series B Preferred Stock issued as 250,000 shares with the execution
      of the agreement and the balance of 250,000 shares to be issued on July 1,
      2006.
      Incentive shares shall equal 1,000,000 shares of the Company’s Convertible
      Series B Preferred Stock and will be issued as 500,000 shares on January 1,
      2007
      and 500,000 shares on July 1, 2007. Further bonus shares shall equal 1,000,000
      shares of the Company’s Convertible Series B Preferred stock and will be issued
      as 500,000 shares on January 1, 2008 and 500,000 shares on July 1, 2008. In
      addition, the Company shall distribute Balance Shares in two equal installments
      on January 1, 2009 and July 1, 2009. The Balance Shares shall be shares of
      the
      Company’s Convertible Series B Preferred Stock which shall equal such number of
      such preferred stock as shall provide the Members with ownership of at least,
      but not more than 49.99% of the issued and outstanding shares of the Common
      Stock of the Company on an as converted and fully diluted capitalization basis
      as measured on the Measurement Date. The Measurement Date shall be the last
      day
      of the first consecutive 10 day period, wherein the shares of the Company’s
      common stock have had a closing bid price of at least $0.10 per share on each
      day in that period, as adjusted for any stock splits, dividends, or similar
      adjustments. The Balance Shares calculation shall not include, and shall be
      adjusted for any shares or securities issued with respect to any mergers,
      acquisitions, conversion of debt to equity, obligations of Sovereign existing
      as
      of February 18, 2005 or any options or warrants that expire, unexercised prior
      to January 1, 2009 which may have been outstanding on the Measurement Date.
      Exhibit 10.22 filed herewith includes the February 2006 Restructure and
      Amendment Agreement with the original members of Sovereign Partners,
      LLC.




***Technology
      License***





On
      February 17, 2006, the Company (or “Cardinal”) signed a Technology and Trademark
      License Agreement (the “License”) with GalaVu Entertainment Networks, Inc., of
      Toronto, Ontario, Canada (“GalaVu”). The term of the License is ten (10) years.
      Among other things, the License grants Cardinal a non-exclusive, royalty-free,
      fully paid up, worldwide license to make, use, sell, offer to sell, manufacture,
      market, and distribute the finished products and technology incorporated into
      GalaVu’s video on demand system (the “GalaVu Technology”). Under the License
      Cardinal has the right to bundle products incorporating the GalaVu Technology
      with other products distributed by Cardinal. Cardinal also has the right to
      sublicense the rights granted under the License to third parties, provided
      that
      Cardinal enters into sublicense agreements with each such sublicensee consistent
      with the terms set forth in the License. The rights provided to Cardinal under
      the License shall apply equally to existing and future products of similar
      or
      like functionality as those currently offered by GalaVu. The License requires
      GalaVu to provide Cardinal within five (5) days of the date of execution of
      the
      License, all technical information (including, but not limited to product
      specifications, blueprints and schematics, circuit diagrams, software,
      middleware, and firmware) required to manufacture GalaVu’s products and/or
      comprising the GalaVu Technology.










In
      addition, provisions in the License grant Cardinal the right, but not the
      obligation, to purchase products incorporating or comprising the GalaVu
      Technology from GalaVu (the “Purchased Products”). Cardinal shall pay only the
      actual costs of manufacturing and shipping the Purchased Products to Cardinal
      (or as directed by Cardinal); GalaVu shall not be entitled to any mark-up or
      profit on such products for the first 5,000 units of such products (the “Initial
      Units”). Orders for any products in excess of the Initial Units shall be
      marked-up by the lowest amount charged by GalaVu to any of its customers or
      partners.




The
      License also grants to Cardinal a non-exclusive, royalty-free, fully paid up,
      worldwide license to use GalaVu’s trademarks, service marks, and logos (the
“Marks”) for (i) the sale of GalaVu branded products (the “Branded Products”),
      (ii) the use and display for marketing, advertising and promotion according
      to
      certain usage standards, and (iii) incorporating the Marks into the Branded
      Products. Any uses of the Marks shall be submitted in writing for review by
      GalaVu in advance and shall not be distributed or used in any manner without
      prior written approval of the Licensor or its authorized representative, which
      approval shall not be unreasonably withheld or delayed. No license is granted
      for the use, display, or incorporation of the Marks on products other than
      the
      Branded Products. Cardinal has the right to bundle the Branded Products with
      other products or services distributed by Cardinal (such Branded Products when
      bundled with such other products, the “Bundled Products”), provided that
      Cardinal uses the Marks solely on and in conjunction with that portion of
      Bundled Products that constitute the Branded Products. Cardinal has the right
      to
      sublicense these rights to its partners, resellers, OEMs, distributors and
      sales
      representatives that market and distribute Branded Products (each, a
“Sublicensee”) solely for the purpose of advertising, marketing, selling and
      distributing the Branded Products in accordance with the terms of the License;
      provided that Cardinal enters into agreements with each such Sublicensee
      consistent with the terms set forth in the License.





The
      parties to the License acknowledge and agree that the License does not create
      a
      fiduciary relationship among or between them; that each shall remain an
      independent business; and that nothing in the License is intended to constitute
      either party as an agent, legal representative, subsidiary, joint venturer,
      partner, employee or servant of the other for any purpose whatsoever. The
      foregoing summary of the License is qualified in its entirety be reference
      to
      the License as attached as an exhibit to this Current Report.





*Purchase
      and Exchange Agreement*





On
      February 17, 2006, the Company, Livonia Pty Limited (an Australian corporation)
      and Entertainment Media & Telecoms Corporation Limited (“EMT”), executed an
      agreement regarding the purchase and the exchange of certain debt owed by EMT
      and/or its subsidiaries (collectively, “EMT”) for equity in EMT, and including
      provisions for a loan for working capital from Cardinal to GalaVu (the “EMT
      Agreement”).




Pursuant
      to the EMT Agreement, Cardinal agreed to purchase the balance of the debt owed
      by EMT to Alleasing Finance Australia Limited (“Alleasing”), in the principal
      amount of two million twenty thousand Australian dollars (A$2,020,000.00) (the
      “Debt”) in exchange for an assignment of the Debt and all security interests
      securing repayment of the Debt. The purchase price to be paid by the Company
      for
      the Debt is seven hundred two thousand five hundred Australian dollars
      (A$702,500.00).


In
      addition, the Company has agreed to provide a bridge loan for working capital
      of
      seven hundred ninety seven thousand five hundred Australian dollars
      (A$797,500.00) to GalaVu (the “Loan”). The definitive terms, conditions, and
      interest rate in respect of such Loan shall be agreed between Cardinal and
      Livonia. Notwithstanding the generality of the foregoing, Cardinal’s
      representative shall have sole discretion as to the use of proceeds from the
      Loan, including how, to whom, and when the Loan proceeds are
      dispersed.




The
      Debt
      and the Loan are to be secured by the assets of EMT’s subsidiaries. The Debt
      purchased from Alleasing shall remain secured by the assets of EMT’s
      subsidiaries, including GalaVu. Also, Livonia shall assign to Cardinal six
      hundred and forty eight thousand two hundred and fifty Australian dollars
      (A$648,250.00) of the secured debt that Livonia previously purchased from
      Alleasing in a separate transaction, such that the total secured debt held
      by
      Cardinal shall total three million four hundred sixty five thousand seven
      hundred fifty Australian dollars (A$3,465,750.00) (the “Cardinal Secured Debt”).
      All such Cardinal Secured Debt is and will remain secured by all the EMT’s
      subsidiaries’ assets.










Cardinal
      also agreed that, to the extent permissible under Australian law and subject
      to
      the approval of the shareholders of EMT, should the same be necessary, Cardinal
      shall: (a) convert five hundred thirty two thousand five hundred Australian
      dollars (A$532,500.00) of the Cardinal Secured Debt into 53,250,000 shares
      in
      free-trading, common stock of EMT at a conversion rate of 1 cent per share;
      and
      (b) at a date to be agreed between the parties, convert two million nine hundred
      thirty three thousand seven hundred and fifty Australian dollars
      (A$2,933,750.00) of the Cardinal Secured Debt into shares of free-trading EMT
      common stock at a conversion rate of one half cent ($.005) per share, equating
      to 586,250,000 shares in EMT. In addition, Livonia agreed that, to the extent
      permissible under Australian law and subject to approval of the shareholders
      of
      EMT, should same be necessary, Livonia shall: (a) convert A$425,000.00 owing
      to
      it by EMT into 42,500,000 shares in EMT at a conversion rate of 1 cent per
      share; and (b) at a date to be agreed between the parties, convert A$733,750.00
      owing to it by EMT into shares in EMT at a conversion rate of one half cent
      (A$.005) per share, equating to 146,750,000 shares in EMT. The Parties agreed
      to
      take all acts necessary to ensure that, following both the Cardinal conversion
      and the Livonia conversion, Cardinal shall own 64% of the outstanding shares
      of
      EMT, accounted for on a fully diluted basis. EMT has historically traded on
      the
      Australian stock exchange under the symbol ETC.





Livonia
      and EMT agreed that should: (a) the shareholders of EMT not agree to the
      conversion by Cardinal of its Cardinal Secured Debt into equity in EMT, or
      (b)
      EMT does not regain trading status on the Australian Stock Exchange within
      one
      hundred and twenty (120) days of the date of the EMT Agreement, Livonia and
      EMT
      shall do all acts, matters or things to facilitate the transfer of the assets
      constituting the security (including but not limited to the assets of GalaVu)
      to
      Cardinal free and clear of all liens, claims, and encumbrances, in exchange
      for
      Cardinals’ agreement to extinguish the Cardinal Secured Debt. Cardinal agreed
      that, in the event that the GalaVu assets are transferred to Cardinal in
      exchange for the Cardinal Secured Debt, Livonia shall be entitled to acquire
      shares of Cardinal as follows: first, Livonia shall cause EMT to be sold;
      second, the purchase price obtained by Livonia from such sale (the “Purchase
      Price”) shall be paid directly to Cardinal in its entirety in exchange for
      shares of Cardinal common stock. The number of shares shall be determined by
      dividing the dollar amount of the Shell Purchase Price, converted to United
      States dollars, by the lower of 80% of the price per share for the five (5)
      trading days preceding the date of issuance, or two cents (U.S.
      $0.02).





*Assignment
      Deed*





Effective
      February 20, 2006, the Company signed an Assignment Deed with Alleasing Finance
      Australia Limited, an Australian company (formerly Rentworks Limited)
      (“Alleasing”) (the “Assignment”). Pursuant to the Assignment, Alleasing agreed
      to Cardinal all of its right, title, and interest in the debt owing by the
      Entertainment Media & Telecoms Corporation Limited (“EMT”) and/or EMT’s
      subsidiaries, including GalaVu Entertainment Networks, Inc. (“GalaVu”) to
      Cardinal in the amount of two million twenty thousand Australian dollars
      (A$2,020,000.00) (the “Debt”). The purchase price paid by Cardinal for the debt
      is seven hundred two thousand five hundred Australian dollars
      (A$702,500.00).


The
      Debt
      is secured by the (a) Pledge Agreement between Entertainment Media &
Telecoms Corporation (Canada), Inc., (registered in Canada) (“EMT (Canada)”),
      and Rentworks Limited dated 31 March 2005; (b) Security Agreement between EMT
      (Canada) and Rentworks Limited dated 31 March 2005; (c) Security Agreement
      between GalaVu and Rentworks Limited dated 31 March 2005; (d) Guaranty between
      EMT (Canada), Inc., and Rentworks Limited dated 31 March 2005; and (e) Guaranty
      between GalaVu and Rentworks Limited dated 31 March 2005.





*Interested
      Director*





A
      member
      of the Company’s Board of Directors, David A. Weisman, and certain entities
      affiliated with Mr. Weisman are shareholders of GalaVu’s parent corporation,
      Entertainment Media & Telecoms Corporation Limited. Mr. Weisman did not
      participate in the vote by Cardinal’s Board of Directors approving the License,
      the Assignment Deed, or the Purchase and Exchange Agreement (collectively,
      the
“Agreements”). The remaining members of Cardinal’s Board of Directors voted
      unanimously to approve the Agreements.





**Financing
      Activities in 2004 and 2005**





In
      March
      2004, the Company completed a private placement with Crestview Capital Master
      Fund, LLC and other affiliates of Crestview totaling $2,095,000 represented
      by
      convertible debentures convertible into common stock at $0.10 per share, with
      125% warrant coverage with an exercise price of $0.12 per share. The convertible
      debentures, if not converted, are due July 1, 2006 and bear interest at six
      percent (6%) payable quarterly. The entire proceeds from the convertible
      debentures were allocated to the warrants and the beneficial conversion feature
      based on a calculation using the Black-Scholes model. The interest expense
      related to the accretion of the convertible debentures to their face value
      totals $934,798 and is being amortized over eighteen months, the term of the
      convertible note. As of September 30, 2004 interest expense of $207,733 was
      amortized and recorded as additional interest expense. The $2,095,000 and
      related warrants were included in the 2005 Modification described
      above.









During
      the second quarter of 2004, the Company completed the closing of additional
      private placements totaling $1,575,000, consisting of $1,575,000 in convertible
      debentures convertible into common stock at $0.08 per share, with 75% warrant
      coverage at an exercise price of $0.12 per share. The convertible debentures,
      if
      not converted, are due June, 2006 and bear interest at eight percent (8.0%)
      payable quarterly. Under the terms of these private placements, the investors
      have the right to purchase up to an amount equal to, at the election of such
      investors, $1,500,000 principal amount of additional debentures. Any additional
      investment will be on terms identical those set forth in the private placements.
      The entire proceeds from the convertible debentures were allocated to the
      warrants and the beneficial conversion feature based on a calculation using
      the
      Black-Scholes model. The interest expense related to the accretion of the
      convertible debentures to their face value totals $491,830 and will be amortized
      over 24 months, the term of the convertible note. The $1,575,000 and related
      warrants were included in the 2005 Modification described
      above.





The
      company was has been notified that certain affiliated purchasers in both the
      March 2004 private placement and the second quarter 2004 private placement
      expect additional penalty interest and liquidated damages when their notes
      are
      satisfied. The Company believes that when the terms of the private placements
      were modified in February 2005 (described below), the default interest and
      liquidated damages were eliminated. However as of December 31, 2005 the Company
      has recorded additional accrued interest expense of $111,307 comprised of
      $32,569 of penalty interest and 78,738 of liquidated damages until such time
      this issue is resolved.





The
      Company and Evergreen Venture Partners, LLC (“Evergreen”) entered into a
      Surrender and Exchange Agreement effective as of February 18, 2005, the Closing
      date of the acquisition of Sovereign. Under the terms of the Surrender and
      Exchange Agreement, Evergreen surrendered 17,000,000 shares of the Company’s
      common stock owned by it (the “Surrendered Shares”). Evergreen also surrendered
      warrants to purchase 15,316,667 shares of common stock (the “Surrendered
      Warrants”). The Surrendered Shares and the Surrendered Warrants have been
      canceled and are of no further force or effect. In consideration of the
      Surrendered Shares and Surrendered Warrants, the Company issued to Evergreen
      a
      new promissory note in the principal amount of $750,000 (the “Note”). The Note
      provides for the lump sum payment of the principal amount of the Note on July
      1,
      2006. However, should the trading price of the Company’s common stock be greater
      than $0.21 per share for a consecutive thirty day period, the Note shall
      terminate and the Company will have no further obligation to Evergreen under
      the
      Note.





Additionally,
      in February 2005 the Company modified the terms of its 2004 private placement
      agreements with Crestview Capital Master, LLC (Crestview”) and other affiliates
      of Crestview totaling $4,420,000 (the “Modification”) such that a maximum of
      40,000,000 shares are to be issued upon conversion of the debentures and the
      warrants issued in connection with the private placements to purchase an
      aggregate of 31,626,372 shares of common stock were surrendered and canceled.
      If
      the Company’s common share price exceeds $0.25 per share for 30 consecutive
      days, payment of debentures totaling $2,250,000 shall be forgiven by the
      debenture holders.





In
      September 2005, the Company entered into a Secured Promissory Note with
      Crestview Capital Master, LLC. The principal amount of the note was $500,000
      bearing interest at the rate of LIBOR plus 6%. The note is due August 1, 2006.
      As partial consideration for the note, the Company issued to the Payee a five
      year warrant to purchase 1,666,666 shares of common stock at an exercise price
      of $0.07. A note origination fee of $10,000 was recorded in relation this note
      and a debt discount value was calculated based upon the Black-Scholes model
      applied to the warrants; and over the life of the note $34,972 of additional
      interest will be recorded relating to the accretion of the note to its face
      value. For the Black-Scholes model the average risk free interest rate used
      was
      5%, volatility was estimated at 83% and the expected life was five
      years.





In
      December 2005, the Company entered into a Secured Promissory Note with Crestview
      Capital Master, LLC and The Elevation Fund, LLC (collectively the “Payee”). The
      principal amount of the note was $750,000 bearing interest at the rate of 10%.
      The note is due December 17, 2006. As partial consideration for the note, the
      Company issued to the Payee five year warrants to purchase 7,500,000 shares
      of
      common stock at an exercise price of $0.05. A note origination fee of $ 35,882
      was recorded in relation this note and a debt discount value was calculated
      based upon the Black-Scholes model applied to the warrants; and over the life
      of
      the note $66,917 of additional interest will be recorded relating to the
      accretion of the note to its face value. For the Black-Scholes model the average
      risk free interest rate used was 5%, volatility was estimated at 70% and the
      expected life was five years. Also in December 2005, the Company entered into
      a
      Convertible Debenture Loan Agreement with Crestview Capital Master, LLC and
      The
      Elevation Fund, LLC. The agreement set the interest rate for both the September
      2005 Secured Promissory Note and the December Secured Promissory note at 10%
      and
      extended an additional amount of credit for $250,000 bringing the total
      available for loan under the agreement to $1,500,000. Currently only $1,250,000
      has been borrowed on these agreements. The holders of the Notes have the right,
      at any time, to convert up to forty percent (40%) of the principal owed to
      the
      holder to shares of Common Stock at a rate of $.025 per shares. There is no
      intrinsic value to the beneficial conversion feature as the conversion is at
      $.025 per share and the company’s stock was trading at $.021 when the agreement
      was signed. Exhibit 10.20 filed herewith includes the December 2005 Loan
      Agreement and Documents with Crestview Master, LLC and The Elevation Fund,
      LLC.





At
      December 31, 2005 total notes payable under the above is $5,670,000 with
      unamortized debt discount of $232,858 netted against the balance resulting
      in a
      senior, secured notes payable balance of $5,437,142.









Construction
      Lines-of-Credit





Through
      the Company’s subsidiary Sovereign Partners, LLC, the Company maintains secured
      revolving construction lines-of-credit with several lending institutions for
      its
      construction projects. At December 31, 2005 the aggregate borrowings under
      the
      lines-of-credit total $17,171,642. Borrowings on the lines are repaid in
      connection with the sale of completed units. The lines-of-credit are secured
      by
      the project being constructed. Each construction line is personally guaranteed
      by individual members of each development entity. Interest rates range from
      5.75% to 9.0%, and have maturity dates ranging from March 2006 through November
      2006, with two exceptions with maturities in May 2011 and July 2034, unless
      extended. As of December 31, 2005, the construction lines-of-credit outstanding
      amounts range from $143,000 to $2,973,294, utilizing eight different
      lenders.





*Notes
      Payable and Related Party Debt*





In
      May
      2005 the Company and a related party, Jantaq, Inc. entered into a $50,000 note.
      A principal of Jantaq, Inc. John Weisman is the brother of our former CEO David
      Weisman. The terms of the agreement were for 12% per annum interest and the
      note
      was due June 8, 2005. On June 1, 2005 we amended the note to increase the
      balance due to $125,000. This note was satisfied in June 2005 with 4,166,667
      shares of the Company’s common stock. Interest of $1,125 was recorded in
      relation to this note and financing expense of $119,708 was recorded in relation
      to the stock conversion.





In
      June
      2005, the Company entered into a $500,000 note payable agreement with a related
      party, Ed Buckmaster. Mr. Buckmaster is the general partner of AEJM Enterprises
      Limited Partnership, a shareholder of the Company and father-in-law of the
      current CEO, Mr. Edouard Garneau. The terms of the agreement are for 12% simple
      interest over the life of the note and the note was due September 1, 2005.
      The
      Company is currently negotiating an amendment and extension on the balance
      of
      this note.





In
      July
      2005, the Company secured a $10 million credit line from Jantaq, Inc. No
      borrowings were made on this line of credit and in September 2005, the Board
      of
      Directors voted to close this line of credit.





In
      August
      2005 the Company and a related party, Jantaq, Inc. entered into a $150,000
      note.
      A principal of Jantaq, Inc. John Weisman is the brother of our former CEO David
      Weisman. The terms of the agreement were for 10% per annum interest and the
      note
      was due September 1, 2005. In September, the company satisfied the note with
      5,505,000 shares of the Company’s common stock. Financing expense of $75,705 was
      recorded in relation to the stock conversion.





Through
      the Company’s subsidiary Sovereign Partners, LLC the Company has both debt
      collateralized by real estate and other unsecured term debt. These notes payable
      totaled $39,647,282 at December 31, 2005. Interest rates range from 5% to
      10.75%, and have maturity dates ranging from January 2006 through February
      2020.
      As of December 31, 2005, the notes payable outstanding amounts range from
      $43,000 to $4,172,052, utilizing thirteen different lenders. Currently the
      Company is renegotiating a matured debt in the amount of $2,010,349 which is
      included in the above total.





The
      Company has related party debt of $4,384,284 at December 31, 2005. Interest
      rates range from 4.25% to 16.00%, and have maturity dates ranging from October
      2006 through November 2007, with three exceptions. Two notes amortize over
      thirty years maturing April 2033 and February 2034, and one note is interest
      only, with no stated maturity date. As of December 31, 2005, the related party
      debts outstanding amounts range from $1,000 to $811,060.





In
      December, 2005, the Company and a related party, Ronald Bass, the Principal
      Accounting Officer entered into a $10,000 note. The terms of the agreement
      were
      for any unpaid balance after 30 days from the made date to accrue interest
      at an
      annual rate of 24%. This note was satisfied in December 2005 and $100 of
      document preparation fee was recorded in relation to this note.





*Financings
      Subsequent to Year End*





In
      the
      first quarter of 2006, the Company and a related party, Ronald Bass the
      Principal Accounting Officer entered into a series of Short-Term notes totaling
      $14,500. The terms of the agreements were for any unpaid balance after 30 days
      from the made date to accrue interest at an annual rate of 24%. These notes
      were
      satisfied in the first quarter of 2006 and $300 of document preparation fees
      were recorded in relation to these notes.





In
      the
      first quarter of 2006, the Company entered into a series of Convertible Loan
      Agreements with ISP V, LLC totaling $1,500,000. The final terms of the
      agreements is for the total $1,500,000 to be due in January 2008 and over the
      course of the loan the principal shall accrue interest at a rate of 12% per
      year
      calculated monthly. As partial consideration for the note, the Company issued
      to
      the Payee five year warrants to purchase 2,400,000 shares of common stock at
      an
      exercise price of $0.05. A debt discount value was calculated based upon the
      Black-Scholes model applied to the warrants; and over the life of the note
      $16,825 of additional interest will be recorded relating to the accretion of
      the
      note to its face value. For the Black-Scholes model the average risk free
      interest rate used was 5%, volatility was estimated at 69% and the expected
      life
      was five years. The holders of the Notes have the right, at any time, to convert
      the principal owed to the holder to shares of Common Stock at a rate of $.025
      per share. There is no intrinsic value to the beneficial conversion feature
      as
      the conversion is at $.025 per share and the company’s stock was trading at
      $.0181 when the agreement was signed. Exhibit 10.21 filed herewith includes
      the
      2006 Loan Agreements and Documents with ISP V, LLC.









In
      March
      2006, the Board of Directors for Cardinal Communications, Inc. (the “Company”)
      approved on its behalf and the behalf of its wholly owned subsidiary, Sovereign
      Companies, LLC (“Sovereign”), the execution of a Convertible Loan Agreement,
      Promissory Note (the “Note”), and Pledge and Security Agreement with Thunderbird
      Management Limited Partnership (“Thunderbird”). Each of these agreements have
      been included in Registrant's Current Report on Form 8-K filed with the SEC
      on
      April 3, 2006 and are described below.





*Convertible
      Loan Agreement*





The
      Company is currently indebted to Thunderbird pursuant to existing two promissory
      notes. The first, dated September 12, 2000, is in the original principal amount
      of seven hundred two thousand dollars ($702,000.00), with interest on the
      principal balance from time to time remaining at the rate of twelve percent
      (12%) per annum; the second, dated August 24, 2004, is in the original principal
      amount of eight hundred thousand dollars ($800,000.00) with interest on the
      principal balance from time to time remaining at the rate of ten percent (10%)
      per annum (collectively, the “Prior Notes”).





The
      Convertible Loan Agreement consolidates for certain purposes the Prior Notes
      and
      a third, new note (described in the next section, below) in the original
      principal amount of nine hundred ninety eight thousand and No/100 Dollars
      ($998,000.00) (collectively, the “Thunderbird Notes”). The total principal
      amount owed under the Thunderbird Notes is two million five hundred thousand
      dollars ($2,500,000.00) (the “Principal Amount”).





The
      Thunderbird Notes are consolidated for the purposes of setting a single interest
      rate and certain conversion rights for the Principal Amount. Interest on the
      Principal Amount outstanding shall accrue at the rate of twelve percent (12%)
      per annum, which interest shall be paid monthly, with the first installment
      payable on April 17, 2006, and subsequent payments at the seventeenth day of
      the
      month beginning each month thereafter. Overdue principal and interest on the
      Thunderbird Notes shall bear interest, to the extent permitted by applicable
      law, at a rate of twelve percent (12%) per annum. If not sooner redeemed or
      converted, the Thunderbird Notes shall mature on the fifth anniversary of the
      execution of the Convertible Loan Agreement, at which time all the remaining
      unpaid principal, interest and any other charges then due under the agreement
      shall be due and payable in full.





The
      Thunderbird Notes shall be convertible, at either party’s option, into shares of
      the Company’s common stock at four separate conversion prices. Up to twenty five
      percent (25%) of the Principal Amount may be converted at two and a half cents
      ($0.025) per share; up to twenty five percent (25%) of the Principal Amount
      may
      be converted at seven and a half cents ($0.075) per share; up to twenty five
      percent (25%) of the Principal Amount may be converted at twelve and a half
      cents ($0.125) per share; and the final twenty five percent (25%) of the
      Principal Amount may be converted at seventeen and a half cents ($0.175) per
      share (collectively, such converted stock is referred to as the “Registerable
      Securities”).





In
      the
      Convertible Loan Agreement, the Company has agreed to register all or any
      portion of the Registerable Securities any time it receives a written request
      from Thunderbird that the Company file a registration statement under the 1933
      Act covering the registration of at least a majority of the Registerable
      Securities then outstanding. The Company has agreed, subject to the limitations
      in the Convertible Loan Agreement, to use its best lawful efforts to effect
      as
      soon as reasonably possible, and in any event (if legally possible, and as
      allowed by the SEC, and if no factor outside the Company’s reasonable control
      prevents it) within 150 days of the receipt of the initial written registration
      request, to effect the registration under the 1933 Act of all Registerable
      Securities which the Thunderbird has requested.





Notwithstanding
      the foregoing, in lieu of registration, the Company may provide Thunderbird
      with
      a certificate signed by the President of the Company stating that in the good
      faith judgment of the Board of Directors, it would be materially detrimental
      to
      the Company and its shareholders for such registration statement to be filed
      at
      that time, and it is therefore essential to defer the filing of such
      registration statement. Thereafter, the Company shall have the right to defer
      the commencement of such a filing for a period of not more than 180 days after
      receipt of the request; provided, however, that at least 12 months must elapse
      between any two such deferrals.





*Promissory
      Note*





Pursuant
      to a Promissory Note, dated March 24, 2006 (the “Note”), the Company and
      Sovereign (collectively, the “Borrower”), borrow and promise to repay to
      Thunderbird (the “Payee”), the principal sum of Nine Hundred Ninety Eight
      Thousand and No/100 Dollars ($998,000.00), with interest at the rate of twelve
      percent (12%) per annum on the unpaid principal balance until paid or until
      default. All past due installments of principal and, if permitted by applicable
      law, of interest shall bear interest at the highest lawful rate, or, if no
      such
      maximum rate is established by applicable law, then at the rate of eighteen
      percent (18%) per annum.









The
      full
      amount of principal and interest due under the Note is due on the first business
      day five years after the date of its execution. The interest shall be due and
      payable in monthly payments, to be paid on the 17th day of every month and
      applied to the interest that accrued during the preceding month.





Upon
      the
      occurrence of any “Event of Default,” the Payee may declare the remainder of the
      debt immediately due and payable. An “Event of Default” includes, failure to
      make payment on the Note when due, and such failure shall continue for fifteen
      (15) business days from receipt by Borrower of written notice of such failure;
      Borrower files any voluntary petition seeking relief under federal bankruptcy
      law or under any other act or law related to insolvency or debtor relief,
      whether state or federal; the filing against Borrower of any involuntary
      petition seeking relief under federal bankruptcy law or under any other act
      or
      law related to insolvency or debtor relief, whether state or federal, if such
      petition is not dismissed within thirty (30) days of filing; or a custodian,
      trustee, receiver or assignee for the benefit of creditors is appointed or
      takes
      possession of any of Borrower’s assets.




The
      Note
      is secured by the pledge of certain assets by Borrower to the Payee pursuant
      to
      the Pledge and Security Agreement.


Pledge
      and Security Agreement





The
      Pledge and Security Agreement (“PSA”) secures payment of (i) all amounts now or
      hereafter payable by the Company and Sovereign (jointly “Pledgors”) to
      Thunderbird on the Thunderbird Notes, and (ii) all obligations and liabilities
      now or hereafter payable by the Pledgors under, arising out of or in connection
      with the PSA (all such indebtedness, obligations and liabilities being herein
      called the “Obligations”).





Pursuant
      to the PSA, the Pledgors pledge and grant to Thunderbird a security interest
      in
      the shares of stock and partnership interests comprising Pledgors’ interests in
      Sovereign Pumpkin Ridge, LLC, and, contingent upon Pledgors’ formation of a
      limited liability company for the purpose of developing the project, Pledgors’
future interest in “Sovereign El Rio, LLC” (collectively, the “Pledged
      Interests”). The Pledged Interests also include without limitation all of
      Pledgors’ right, title and interest in and to (i) all dividends or distributions
      arising from the Pledged Interests, payable thereon or distributable in respect
      thereof, whether in cash, property, stock or otherwise, and whether now or
      hereafter declared, paid or made, and the right to receive and receipt
      therefore; (ii) all Pledged Interests into which any of the Pledged Interests
      are split or combined; and (iii) all other rights with respect to the Pledged
      Interests; provided, however, that Secured Party hereby agrees that, if and
      so
      long as Pledgors shall not be in default under this Agreement, Pledgors shall
      have the right to vote, or to give any approval or consent in respect of, the
      Pledged Interests for all purposes not inconsistent with the provisions of
      this
      Agreement.





Upon
      the
      full and final payment of the Thunderbird Notes, the security interests in
      the
      Pledged Interests shall terminate and all rights to the Pledged Interests shall
      revert to the Pledgors. In addition, at any time and from time to time prior
      to
      such termination of the security interests, the Secured Party may release any
      of
      the Pledged Interests. Upon any such termination of the security interests
      or
      any release of the Pledged Interests, the Secured Party will, at the Pledgors’
expense, execute and deliver to the Pledgors such documents as the Pledgors
      shall reasonably request to evidence the termination of the security interests
      or the release of the Pledged Interests.





*Interested
      Director*





A
      member
      of the Company’s Board of Directors and our Chief Executive Officer, Edouard A.
      Garneau, is related (as son-in-law) to the General Partner of Thunderbird
      Management. Mr. Garneau did not participate in the vote by Cardinal’s Board of
      Directors approving the Promissory Note, Pledge and Security Agreement, or
      Convertible Loan Agreement (collectively, the “Agreements”). The remaining
      members of Cardinal’s Board of Directors voted unanimously to approve the
      Agreements.





*Recent
      Accounting Pronouncements*





In
      December 2004 the FASB issued SFAS No.123 (revised 2004), "Share-Based Payment"
      ("SFAS 123(R)"). SFAS 123(R) will provide investors and other users of financial
      statements with more complete and neutral financial information by requiring
      that the compensation cost relating to share-based payment transactions be
      recognized in financial statements. That cost will be measured based on the
      fair
      value of the equity or liability instruments issued. SFAS 123(R) covers a wide
      range of share-based compensation arrangements including share options,
      restricted share plans, performance-based awards, share appreciation rights,
      and
      employee share purchase plans. SFAS 123(R) replaces SFAS No. 123, "Accounting
      for Stock-Based Compensation", and supersedes APB Opinion No. 25, "Accounting
      for Stock Issued to Employees". SFAS 123, as originally issued in 1995,
      established as preferable a fair-value-based method of accounting for
      share-based payment transactions with employees. However, that Statement
      permitted entities the option of continuing to apply the guidance in Opinion
      25,
      as long as the footnotes to financial statements disclosed what net income
      would
      have been had the preferable fair-value-based method been used. Public entities
      (filing as small business issuers) will be required to apply SFAS 123(R) as
      of
      the first interim or annual reporting period that begins after December 15,
      2005. The Company has evaluated the impact of the adoption of SFAS 123(R),
      and
      believes that it could have an impact to the Company's overall results of
      operations depending on the number of stock options granted in a given
      year.










In
      December 2004 the FASB issued SFAS No.153, "Exchanges of Nonmonetary Assets,
      an
      amendment of APB Opinion No. 29, Accounting for Nonmonetary Transactions."
      The
      amendments made by SFAS 153 are based on the principle that exchanges of
      nonmonetary assets should be measured based on the fair value of the assets
      exchanged. Further, the amendments eliminate the narrow exception for
      nonmonetary exchanges of similar productive assets and replace it with a broader
      exception for exchanges of nonmonetary assets that do not have commercial
      substance. Previously, Opinion 29 required that the accounting for an exchange
      of a productive asset for a similar productive asset or an equivalent interest
      in the same or similar productive asset should be based on the recorded amount
      of the asset relinquished. Opinion 29 provided an exception to its basic
      measurement principle (fair value) for exchanges of similar productive assets.
      That exception required that some nonmonetary exchanges, although commercially
      substantive, to be recorded on a carryover basis. By focusing the exception
      on
      exchanges that lack commercial substance, the FASB believes SFAS No.153 produces
      financial reporting that more faithfully represents the economics of the
      transactions. SFAS No.153 is effective for nonmonetary asset exchanges occurring
      in fiscal periods beginning after June 15, 2005. Earlier application is
      permitted for nonmonetary asset exchanges occurring in fiscal periods beginning
      after the date of issuance. The provisions of SFAS No.153 shall be applied
      prospectively. The Company has evaluated the impact of the adoption of SFAS
      153,
      and does not believe the impact will be significant to the Company's overall
      results of operations or financial position.




In
      December 2004 the FASB issued SFAS No.152, "Accounting for Real Estate
      Time-Sharing Transactions-an amendment of FASB Statements No. 66 and 67" ("SFAS
      152") SFAS 152 amends SFAS No. 66, "Accounting for Sales of Real Estate", to
      reference the financial accounting and reporting guidance for real estate
      time-sharing transactions that is provided in AICPA Statement of Position (SOP)
      04-2, "Accounting for Real Estate Time-Sharing Transactions". SFAS 152 also
      amends SFAS No. 67, "Accounting for Costs and Initial Rental Operations of
      Real
      Estate Projects", to state that the guidance for (a) incidental operations
      and
      (b) costs incurred to sell real estate projects does not apply to real estate
      time-sharing transactions. The accounting for those operations and costs is
      subject to the guidance in SOP 04-2. SFAS 152 is effective for financial
      statements for fiscal years beginning after June 15, 2005, with earlier
      application encouraged. The Company has evaluated the impact of the adoption
      of
      SFAS 152, and does not believe the impact will be significant to the Company's
      overall results of operations or financial position.





In
      November 2004 the FASB issued SFAS No. 151 "Inventory Costs, an amendment of
      ARB
      No. 43, Chapter 4 (" SFAS No. 151". The amendments made by SFAS 151 clarify
      that
      abnormal amounts of idle facility expense, freight, handling costs, and wasted
      materials (spoilage) should be recognized as current-period charges and require
      the allocation of fixed production overheads to inventory based on the normal
      capacity of the production facilities. The guidance is effective for inventory
      costs incurred during fiscal years beginning after June 15, 2005. Earlier
      application is permitted for inventory costs incurred during fiscal years
      beginning after November 23, 2004. The Company has evaluated the impact of
      the
      adoption of SFAS 151, and does not believe the impact will be significant to
      the
      Company's overall results of operations or financial position.





In
      March
      2005, the SEC released Staff Accounting Bulletin No. 107, “Share-Based Payment”
(“SAB No. 107”). SAB No. 107 provides the SEC staff position regarding the
      application of SFAS No. 123(R) and certain SEC rules and regulations, as well
      the staff’s views regarding the valuation of share-based payment arrangements
      for public companies. Additionally, SAB No. 107 highlights the importance of
      disclosures made related to the accounting for share-based payment transactions.
      We do not expect the adoption of SAB No. 107 to have a material impact on our
      financial position or results of operations.





In
      June
      2005, the Emerging Issues Task Force (“EITF”) released Issue No. 04-5
“Determining Whether a General Partner, or the General Partners as a Group,
      Controls a Limited Partnership or Similar Entity When the Limited Partners
      Have
      Certain Rights” (“EITF 04-5”). EITF 04-5 provides guidance in determining
      whether a general partner controls a limited partnership and therefore should
      consolidate the limited partnership. EITF 04-5 states that the general partner
      in a limited partnership is presumed to control that limited partnership and
      that the presumption may be overcome if the limited partners have either (1)
      the
      substantive ability to dissolve or liquidate the limited partnership or
      otherwise remove the general partner without cause, or (2) substantive
      participating rights. The effective date for applying the guidance in EITF
      04-5
      was (1) June 29, 2005 for all new limited partnerships and existing limited
      partnerships for which the partnership agreement was modified after that date,
      and (2) no later than the beginning of the first reporting period in fiscal
      years beginning after December 15, 2005 for all other limited partnerships.
      Implementation of EITF 04-5 did not have a material impact on our financial
      position or results of operations for the year ended December 31,
      2005.





*Controls
      and Procedures*





Material
      Weaknesses in Collecting And Processing Financial Information





Management
      has determined that certain material weaknesses in our internal controls over
      the financial reporting process existed at December 31, 2005.
      Specifically, management has determined that there is a material weakness in
      the
      controls over recording, processing, classes of transactions and disclosure
      and
      related assertions included in the financial statements from our subsidiaries
      and incorporating and consolidating that information into the holding company’s
      financial records.










Management
      did not identify the appropriate accounting treatment for certain transactions
      involving the sale and subsequent leaseback of residential units as it relates
      to the timing of revenue and expense recognition. Management was not aware
      of
      the material impact of the specific transactions on the consolidated financial
      statements and may have inadvertently not provided our auditors with the
      specific lease agreements for these transactions. We believe this weakness
      is
      attributable to the fact that we experienced a high degree of employee turnover
      at the time of acquisition of our Sovereign subsidiary. At the time of the
      acquisition, certain policies and procedures to assure that all transactions
      had
      proper documentation had not been implemented. Contributing factors include
      the
      fact that we inherited these accounting systems when we acquired these
      businesses, the information processing problems have been aggravated by the
      turnover of staff and we had a decentralized accounting department. Management
      believes that this situation reflects a material weakness in our internal
      controls and procedures insofar as there is a more than remote likelihood that
      our inability to identify the proper accounting treatment and assess the impact
      on the financial statements in conjunction with consolidating our financial
      statements could lead to a material misstatement of our financial statements.
       Management has identified a material misstatement in our financial
      statements through the year ended December 31, 2005 as a result of this
      weakness, we have restated prior periods accordingly (See Note 3 of the
      financial statements). We advised our auditors when we became aware of the
      weakness in our accounting systems due to the nature of the documentation
      related to a specific set of transactions.   We have taken specific steps
      to correct this weakness in regards to the documentation and we have restated
      the prior period financial statements accordingly. We have recently implemented
      a centralized accounting team, including a Controller and a Chief Financial
      Officer. We have also implemented additional procedures regarding the
      requirements of increased level of documentation related to all transactions.
      We
      believe that these actions will address our concerns.





The
      occurrence of material misstatements in our financial statements by reason
      of a
      material weakness in our internal controls and procedures or any other reason
      could harm our operating results, cause us to fail to meet our reporting
      obligations, subject us to increased risk of errors and fraud related to our
      financial statements or result in material misstatements in our financial
      statements.  Any such failure also could adversely affect the results of
      the periodic management evaluations and annual independent certified public
      accountant attestation reports regarding the effectiveness of our “internal
      control over financial reporting” that will be required when the Securities and
      Exchange Commission’s rules under Section 404 of the Sarbanes-Oxley Act
      of 2002 become applicable to us.  Inadequate internal controls could
      also expose the officers and directors of our company to securities laws
      violations and also cause investors to lose confidence in our reported financial
      information, which could have a negative effect on the trading price of our
      stock.





*Revenue
      Recognition*





The
      Company recognizes revenue from the sale of real estate when cash is received,
      title possession and other attributes of ownership have been transferred to
      the
      buyer and the Company is not obligated to perform significant additional
      services after sale and delivery. During construction, all direct material
      and
      labor costs and those indirect costs related to acquisition and construction
      are
      capitalized, and all customer deposits are treated as liabilities. Capitalized
      costs are charged to earnings upon revenue recognition. Closing costs incurred
      in connection with completed homes and selling, general and administrative
      costs
      are charged to expense as incurred. Provision for estimated losses on
      uncompleted contracts and on speculative projects is made in the period in
      which
      such losses are determined.





The
      Company charges its video and data customers monthly service fees and recognize
      the revenue in the month the services are provided or equipment is sold.
      Allowances for estimated returns and discounts are recognized when sales are
      recorded and are based on our experience. Significant management judgments
      and
      estimates must be made and used in connection with establishing these allowances
      in any accounting period. Material differences may result in the amount and
      timing of revenues for any period if management makes different judgments or
      utilizes different estimates.




The
      Company recognizes incremental revenue from incidental operations in excess
      of
      incremental costs of incidental operations as a reduction of its capitalized
      project costs. Incremental costs in excess of incremental revenue are expensed
      as incurred.





For
      its
      mortgage operations, the Company recognizes revenue on fees received from
      mortgage lenders when the loan is closed. The Company receives a percentage
      of
      the loan closing from a third party sponsor based on the interest rate charged
      to the consumer. The Company may also recognize loan origination fees from
      the
      borrowers.





The
      Company recognizes revenue from non-development service activities when
      performed and there are no remaining service obligations to be
      performed.





*Asset
      Impairment - Goodwill*





In
      accordance with Statement of Financial Accounting Standards (“SFAS”) No. 142,
      annually and when events or changes in circumstances indicate the carrying
      amount may not be recoverable, management evaluates the recoverability of
      goodwill by comparing the carrying value of the Company’s subsidiaries to their
      fair value. Fair value is determined based on discounted future cash flows.
      The
      Company performed its annual impairment test during the fourth quarter of 2005
      and determined there to be no impairment of goodwill.










**Results
      of Operations Years Ended December 31, 2005 and 2004.**





*Revenues*





For
      the
      year ended December 31, 2005 Cardinal had $25,864,395 in revenue compared to
      $6,479,419 for the years ended December 31, 2004. During the year ended December
      31, 2005, In 2005 revenues were primarily derived from sales of residential
      real
      property. In 2004, Cardinal's revenues were derived primarily from the sale
      of
      voice services from it wholly owned subsidiary Connect Paging Inc. These
      revenues are recognized and recorded on an accrual basis. In 2006 we expect
      the
      revenues to still be primarily derived from sales of residential real property;
      however we do expect sales to increase as new communities are ready for
      sale.





*Operating
      Expenses*





For
      the
      years ended December 31, 2005 and 2004, operating expenses were
      $16,670,963  and
      $13,808,100  ,
      respectively. During the years ended December 31, 2005 and 2004, operating
      expenses consisted primarily of professional and consulting fees of $3,099,242
      and $5,149,546, respectively, salaries and commissions of $4,324,625 and
      $1,566,196, respectively, and other general and administrative expenses of
      $4,038,702 and $2,637,952 respectively, consisting primarily of $1,512,916
      and
      $1,063,313 respectively in amortization and depreciation and $548,612 and
      $117,835 respectively in rent. The increase in these expenses was directly
      related to the Company’s acquisition of Sovereign Partners, LLC. The Company is
      not expecting significant changes in its operating expenses in
      2006.





*Net
      loss*





For
      the
      year ended December 31, 2005, Cardinal had a net loss of $11,400,077  or
 
      $0.04 net loss per share. For the year ended December 31, 2004, Cardinal had
      a
      net loss of $18,152,850, or $0.11net loss per share. The Company is expecting
      to
      continue reducing its net loss and at some point in 2006 become profitable,
      however it is uncertain if the Company will be profitable for the year ended
      December 31, 2006.




*Liquidity
      and Capital Resources*





Historical
      information regarding sources of cash and capital expenditures





We
      assess
      our liquidity in terms of our ability to generate cash to fund our operating
      and
      investing activities. Historically, we have funded our construction and
      telecommunication activities with internally generated cash flows, existing
      credit agreements, and equity financing. At December 31, 2005, we had cash
      and
      equivalents of $1,079,117 and $11,694,658 of senior notes outstanding. Other
      financing included land and construction loans totaling $34,188,216 and related
      party debt of $4,384,284 . Operating, investing and financing activities
      provided net cash of $348,745 in 2005; in 2004 these activities provided net
      cash of $657,775





Our
      debt-to-total capitalization was approximately 96% at December 31, 2005. As
      a
      result our independent auditors have issued a going concern opinion. We
      routinely monitor current operational requirements and financial market
      conditions to evaluate the use of available financing sources, including
      securities offerings. Currently, Cardinal believes that it will have sufficient
      cash from the private placements of its securities and operations, including
      cash generated from our Sovereign subsidiary, to continue its current business
      operations.





*Cash
      Used in Operating Activities*





During
      the year ended December 31, 2005, the Company's operations used cash of
      $4,767,098 compared to $4,013,532 used during the year ended December 31, 2004.
      In the year 2005, the Company's net loss of $11,400,077  is
      offset
      by various non-cash expenses of $6,766,129 . For each year reported, the use
      of
      cash was a direct result of the lack of revenues compared to operating
      expenses.




*Cash
      Used in Investing Activities*





In
      2005
      we generated cash of $994,066 through our investing activities compared to
      using
      $5,542,807 during 2004. For the year 2005, this primarily consisted of cash
      acquired in the acquisition of Sovereign Partners, LLC, while in 2004 cash
      was
      used in purchasing property and equipment and acquisitions..










*Cash
      Provided by Financing Activities*





During
      the year ended December 31, 2005, the total net contribution from the Company's
      financing activities was $4,121,777 compared to $10,214,114 in 2004. During
      2005, $4,674,541 was provided by debt. Currently we have $34,188,216 in
      construction related debt and as our construction projects increase,
      construction related loans are expected to increase.


Future
      Obligations





The
      following table sets forth contractual obligations as of December 31,
      2005:




**2
                  Years**
              
              
              
              **More
                  than****Contractual
                  Obligations**
              
              **Total**
              
              **or
                  less**
              
              **3-5
                  years**
              
              **5
                  years**Land
                  and construction loans
              
              $
              34,188,216
              
              $
              28,597,916
              
              $
              617,006
              
              $
              4,973,294Related
                  party debt
              
              
              4,384,284
              
              
              3,573,224
              
              
              -
              
              
              811,060Notes
                  payable, net of $232,858 debt discount
              
              
              11,694,658
              
              
              11,092,071
              
              
              60,000
              
              
              542,587Lease
                  Obligations
              
              
              2,746,990
              
              
              908,128
              
              
              843,780
              
              
              995,082Total
              
              $
              53,014,148
              
              $
              44,171,339
              
              $
              1,520,786
              
              $
              7,322,023


The
      majority of our obligations over the next 2 years consist of revolving land
      and
      construction loans which are paid off as real estate inventory is sold and
      extended as new construction is performed. We are working with both our notes
      payable and related party debt holders to extend their terms. If the debentures
      are not extended, paid or converted; the debenture holders could foreclose
      on
      our assets. The lease obligations will be paid through operating cash
      flow.





Future
      Cash Flow





Our
      telecommunications subsidiaries: Cardinal Broadband and Connect Paging, Inc.
      d/b/a Get A Phone receive monthly recurring revenues provided by their
      subscriber base. The costs associated with these subscribers has historically
      exceeded revenues, however we are striving to increase our subscriber base
      and
      lowering our costs in an attempt to generate excess cash flow. If we are
      unsuccessful at increasing our cash flow generated from these subsidiaries
      our
      operations may be curtailed or ceased all together.





When
      analyzing our operational cash flow one should bear in mind that as we develop
      real estate inventory, the expense is reflected in operations, however the
      construction loans directly related to this expense are reflected in our
      financing activities. The costs of construction loans as well as other forms
      of
      financing are not forecasted to increase dramatically. We expect real estate
      sales to increase as new communities are ready for sale.





We
      have
      minimum cash on hand to meet the current operational needs of the business.
      We
      are actively seeking additional sources of cash through additional financing
      and
      equity transactions in order to meet the short term cash needs of the business.
      If we are unsuccessful in these efforts, we may not be able to fund the
      operational needs of the business through fiscal year 2006. Our auditors have
      issued a going concern opinion for our Company which means that given our
      current operations our auditors believe there is a possibility we will not
      continue in operation long enough to realize our investment in assets through
      operations (as opposed to sale). In order to mitigate this possibility, we
      constantly monitor current operational requirements and financial market
      conditions to evaluate the use of available financing sources, including debt
      and securities offerings.





Future
      acquisitions may require additional cash investment. When possible we will
      finance future acquisitions through operational cash flow, however if needed
      we
      will also utilize private placements of our securities and debt.





**Item
      7. Financial Statements**





The
      financial statements required to be furnished under this Item 7 are attached
      at
      the end of this Annual Report on Form 10-KSB. An index to our financial
      statements is also included below in Item 13(a).





**Item
      8. Changes In and Disagreements With Accountants on Accounting and Financial
      Disclosure.**





None.










**Controls
      and Procedures.**





Material
      Weaknesses in Collecting And Processing Financial Information





Management
      has determined that certain material weaknesses in our internal controls over
      the financial reporting process existed at December 31, 2005.
      Specifically, management has determined that there is a material weakness in
      the
      controls over recording, processing, classes of transactions and disclosure
      and
      related assertions included in the financial statements from our subsidiaries
      and incorporating and consolidating that information into the holding company’s
      financial records.





Management
      did not identify the appropriate accounting treatment for certain transactions
      involving the sale and subsequent leaseback of residential units as it relates
      to the timing of revenue and expense recognition. Management was not aware
      of
      the material impact of the specific transactions on the consolidated financial
      statements and may have inadvertently not provided our auditors with the
      specific lease agreements for these transactions. We believe this weakness
      is
      attributable to the fact that we experienced a high degree of employee turnover
      at the time of acquisition of our Sovereign subsidiary. At the time of the
      acquisition, certain policies and procedures to assure that all transactions
      had
      proper documentation had not been implemented. Contributing factors include
      the
      fact that we inherited these accounting systems when we acquired these
      businesses, the information processing problems have been aggravated by the
      turnover of staff and we had a decentralized accounting department. Management
      believes that this situation reflects a material weakness in our internal
      controls and procedures insofar as there is a more than remote likelihood that
      our inability to identify the proper accounting treatment and assess the impact
      on the financial statements in conjunction with consolidating our financial
      statements could lead to a material misstatement of our financial statements.
       Management has identified a material misstatement in our financial
      statements through the year ended December 31, 2005 as a result of this
      weakness, we have restated prior periods accordingly (See Note 3 of the
      financial statements). We advised our auditors when we became aware of the
      weakness in our accounting systems due to the nature of the documentation
      related to a specific set of transactions.   We have taken specific steps
      to correct this weakness in regards to the documentation and we have restated
      the prior period financial statements accordingly. We have recently implemented
      a centralized accounting team, including a Controller and a Chief Financial
      Officer. We have also implemented additional procedures regarding the
      requirements of increased level of documentation related to all transactions.
      We
      believe that these actions will address our concerns.





The
      occurrence of material misstatements in our financial statements by reason
      of a
      material weakness in our internal controls and procedures or any other reason
      could harm our operating results, cause us to fail to meet our reporting
      obligations, subject us to increased risk of errors and fraud related to our
      financial statements or result in material misstatements in our financial
      statements.  Any such failure also could adversely affect the results of
      the periodic management evaluations and annual independent certified public
      accountant attestation reports regarding the effectiveness of our “internal
      control over financial reporting” that will be required when the Securities and
      Exchange Commission’s rules under Section 404 of the Sarbanes-Oxley Act
      of 2002 become applicable to us.  Inadequate internal controls could
      also expose the officers and directors of our company to securities laws
      violations and also cause investors to lose confidence in our reported financial
      information, which could have a negative effect on the trading price of our
      stock.




**Item
      8B. Other Information**




In
      December 2005, the Company entered into a Secured Promissory Note with Crestview
      Capital Master, LLC and The Elevation Fund, LLC (collectively the “Payee”). The
      principal amount of the note was $750,000 bearing interest at the rate of 10%.
      The note is due December 17, 2006. As partial consideration for the note, the
      Company issued to the Payee five year warrants to purchase 7,500,000 shares
      of
      common stock at an exercise price of $0.05. A note origination fee of $ 35,882
      was recorded in relation this note and a debt discount value was calculated
      based upon the Black-Scholes model applied to the warrants; and over the life
      of
      the note $66,917 of additional interest will be recorded relating to the
      accretion of the note to its face value. For the Black-Scholes model the average
      risk free interest rate used was 5%, volatility was estimated at 70% and the
      expected life was five years. Also in December 2005, the Company entered into
      a
      Convertible Debenture Loan Agreement with Crestview Capital Master, LLC and
      The
      Elevation Fund, LLC. The agreement set the interest rate for both the September
      2005 Secured Promissory Note and the December Secured Promissory note at 10%
      and
      extended an additional amount of credit for $250,000 bringing the total
      available for loan under the agreement to $1,500,000. Currently only $1,250,000
      has been borrowed on these agreements. The holders of the Notes have the right,
      at any time, to convert up to forty percent (40%) of the principal owed to
      the
      holder to shares of Common Stock at a rate of $.025 per shares. There is no
      intrinsic value to the beneficial conversion feature as the conversion is at
      $.025 per share and the company’s stock was trading at $.021 when the agreement
      was signed. Exhibit 10.20 filed herewith includes the December 2005 Loan
      Agreement and Documents with Crestview Master, LLC and The Elevation Fund,
      LLC.




In
      the
      first quarter of 2006, the Company and a related party, Ronald Bass the
      Principal Accounting Officer entered into a series of Short-Term notes totaling
      $14,500. The terms of the agreements were for any unpaid balance after 30 days
      from the made date to accrue interest at an annual rate of 24%. These notes
      were
      satisfied in the first quarter of 2006 and $300 of document preparation fees
      were recorded in relation to these notes.










In
      the
      first quarter of 2006, the Company entered into a series of Convertible Loan
      Agreements with ISP V, LLC totaling $1,500,000. The final terms of the
      agreements is for the total $1,500,000 to be due in January 2008 and over the
      course of the loan the principal shall accrue interest at a rate of 12% per
      year
      calculated monthly. As partial consideration for the note, the Company issued
      to
      the Payee five year warrants to purchase 2,400,000 shares of common stock at
      an
      exercise price of $0.05. A debt discount value was calculated based upon the
      Black-Scholes model applied to the warrants; and over the life of the note
      $16,825 of additional interest will be recorded relating to the accretion of
      the
      note to its face value. For the Black-Scholes model the average risk free
      interest rate used was 5%, volatility was estimated at 69% and the expected
      life
      was five years. The holders of the Notes have the right, at any time, to convert
      the principal owed to the holder to shares of Common Stock at a rate of $.025
      per share. There is no intrinsic value to the beneficial conversion feature
      as
      the conversion is at $.025 per share and the company’s stock was trading at
      $.0181 when the agreement was signed. Exhibit 10.21 filed herewith includes
      the
      2006 Loan Agreements and Documents with ISP V, LLC.





Subsequent
      to year end, the Company entered into a Restructure and Amendment Agreement
      with
      the original members of Sovereign Partners, LLC. This agreement was created
      to
      resolve operating conflicts between the Company and Sovereign Partners, LLC.
      Under the terms of the agreement the original Stock Purchase Agreement was
      modified to eliminate the EBITDA and NOI provisions. All
      subsequent-to-purchase-date issuances of the Company’s stock in consideration of
      the original Stock Purchase Agreement were amended to the following. The
      guaranteed shares were modified to equal 500,000 shares of the Company
      Convertible Series B Preferred Stock issued as 250,000 shares with the execution
      of the agreement and the balance of 250,000 shares to be issued on July 1,
      2006.
      Incentive shares shall equal 1,000,000 shares of the Company’s Convertible
      Series B Preferred Stock and will be issued as 500,000 shares on January 1,
      2007
      and 500,000 shares on July 1, 2007. Further bonus shares shall equal 1,000,000
      shares of the Company’s Convertible Series B Preferred stock and will be issued
      as 500,000 shares on January 1, 2008 and 500,000 shares on July 1, 2008. In
      addition, the Company shall distribute Balance Shares in two equal installments
      on January 1, 2009 and July 1, 2009. The Balance Shares shall be shares of
      the
      Company’s Convertible Series B Preferred Stock which shall equal such number of
      such preferred stock as shall provide the Members with ownership of at least,
      but not more than 49.99% of the issued and outstanding shares of the Common
      Stock of the Company on an as converted and fully diluted capitalization basis
      as measured on the Measurement Date. The Measurement Date shall be the last
      day
      of the first consecutive 10 day period, wherein the shares of the Company’s
      common stock have had a closing bid price of at least $0.10 per share on each
      day in that period, as adjusted for any stock splits, dividends, or similar
      adjustments. The Balance Shares calculation shall not include, and shall be
      adjusted for any shares or securities issued with respect to any mergers,
      acquisitions, conversion of debt to equity, obligations of Sovereign existing
      as
      of February 18, 2005 or any options or warrants that expire, unexercised prior
      to January 1, 2009 which may have been outstanding on the Measurement
      Date.





Subsequent
      to year end, , the Company reported on a Current Report on Form 8-K filed with
      the SEC on March 30, 2004 that during 2004 and 2005 the Company retained certain
      debt consultants to assist the Company in resolving the issues related to the
      Company’s working capital shortages. The method under these contracts involved
      the debt consultants writing checks payable to the Company’s creditors, and the
      Company paying the debt consultants a fee based on the amount of debt resolved.
      The ‘fee’ was paid in shares of the Company common stock and was calculated at a
      discount from the then-current market price for those shares. The Company issued
      such shares under its equity incentive plans pursuant to the Company’s
      registration statements on Form S-8, resulting in the debt consultants receiving
      unrestricted shares. The Company’s Board of Directors has since reached the
      conclusion that the issuance of the shares to the debt consultants pursuant
      to
      Form S-8 Registration Statements may have been improper with respect to the
      use
      of shares registered on the S-8 Registration Statements, and the shares should
      have been issued as restricted shares pursuant to an exemption from
      registration.





During
      2004 and 2005, the Company issued a total of 54,213,206 shares to four debt
      consultants for services in connection with the resolution of corporate debts
      in
      a total amount of $2,121,167. The value of the shares (based on the market
      price
      of the shares when issued) was $3,301,660. The Company also attempted to
      negotiate a resolution of the outstanding issues with the four debt consultants.
      In these negotiations, the Company received a return to it of 17,178,340 shares
      that were previously issued without a restrictive legend and reissued to those
      debt consultants 25,346,303 shares with a restrictive legend. Of the remaining
      37,034,866 shares, the Company believes that most, if not all of them, have
      been
      resold into the public market and are no longer owned by the debt
      consultants.





The
      possibly improper issuance of the unrestricted shares to the debt consultants
      and use of the S-8 Registration Statement may result in potential liability
      to
      the Company for failure to comply with specific federal securities laws and
      regulations regulating the use of S-8 registration statements. If this is
      proven, the Company may have liability for fines, penalties, and damages. To
      date, neither the Securities and Exchange Commission, nor any shareholder has
      threatened litigation or an investigation related to the use of the S-8
      Registration Statements. Jantaq Investments, Inc. has made a written demand
      for
      amounts allegedly due to it under its debt consulting agreement with the
      Company. It is not clear from Jantaq’s demand the amount that Jantaq is
      claiming, but the Company has included a reserve of $303,057.53 as a liability
      in its balance sheet for this potential obligation, although the Company is
      considering with its counsel whether to contest the amount due and, if suit
      is
      brought by Jantaq, to file counterclaims against Jantaq.









Certain
      members of management had personal or business relationships with the debt
      consultants. The four consultants were: Jantaq Investments, Inc. (“Jantaq”);
      Jango Capital, LLC (“Jango”); Ms. Beatrice Welles, and Mr. Ed
      Buckmaster.





The
      value
      of the shares issued to Jantaq during 2004 and 2005 was $2,230,252 amounting
      to
      32,799,126 shares issued to Jantaq during 2004 and 2005. One of the associates
      of Jantaq is Mr. John Weisman, Vice President Settlements, the brother of Mr.
      David Weisman who was at the time a member of our Board of Directors and
      Chairman we entered into the agreement with Jantaq. Mr. Weisman subsequently
      resigned as Chief Executive Officer and Chairman in November 2005, as reported
      in a Form 8-K report filed at the time, but remains a director of the Company.
      Jantaq has refused to return any shares issued to it, has rejected the Company’s
      attempts to settle this issue by receiving restricted shares in return for
      the
      S-8 shares, and recently has made a written demand for amounts allegedly due
      to
      it under its debt consulting agreement with the Company.





The
      value
      of the shares issued to Jango during 2004 and 2005 was $551,673 with 9,860,650
      shares issued to Jango during 2004 and 2005. Jango returned 5,625,000 shares
      (about 57% of the total issued to it) in exchange for 9,974,288 shares of
      restricted stock.





The
      value
      of the shares issued to Ms. Beatrice Welles during 2005 was $90,366 with
      2,126,270 shares issued to Ms. Welles during 2005. Ms. Welles was a personal
      friend of Mr. David Weisman at the time the contracts were negotiated. Upon
      notification of the possibly improperly issued shares, Ms. Welles immediately
      returned all of the shares we issued to her, although we have not reached
      settlement with her.





The
      value
      of the shares issued to Mr. Ed Buckmaster during 2005 was $429,639 with
      9,427,160 shares issued to Mr. Buckmaster during 2005. Mr. Buckmaster is the
      father-in-law of Edouard Garneau, currently our Chief Executive Officer and
      a
      Director. Mr. Buckmaster is also a shareholder of the Company. Upon notification
      of the possibly improperly issued shares, Mr. Buckmaster immediately returned
      all of the shares we issued to him in exchange for 15,372,015 shares of
      restricted stock.


PART
      III





**Item
      9.**  **Directors,
      Executive Officers, Promoters and Control Persons; Compliance With Section
      16(a)
      of the Exchange**  ****  **Act.**





Directors
      and Executive Officers




The
      following table sets forth certain information regarding each of our Directors
      and executive officers as of December 31, 2005.




NAME
            
            AGE
            
            TITLE(S)Ed
                Garneau (1)(2)(5)(7)
            
            43
            
            Director,
                Chief Executive OfficerRichard
                E. Wilson (1)(2)(4)(5)(6)
            
            64
            
            Director,
                Chairman of the Board of DirectorsByron
                Young (2) (6)
            
            32
            
            DirectorDavid
                A. Weisman
            
            43
            
            DirectorJeffrey
                Fiebig (4)(6)
            
            45
            
            DirectorRonald
                S. Bass (3)
            
            39
            
            Principal
                Accounting OfficerCraig
                A. Cook (3)
            
            59
            
            Chief
                Administrative Officer




(1)
      Member of the Executive Committee of the Board of Directors.





(2)
      Member of the Audit Committee of the Board of Directors.





(3)
      Member of the Disclosure Committee of the Board of Directors.





(4)
      Member of the Nominating Committee of the Board of Directors.





(5)
      Member of the Compensation Committee of the Board of Directors.





(6)
      Member of the Special Committee of the Board of Directors.










(7)
      Mr.
      Garneau entered into an Employment Agreement with the Company effective as
      of
      February 21, 2005 whereby Mr. Garneau was appointed the position of Chief
      Operating Officer of the Company. On November 4, 2005, Mr. Garneau was appointed
      Chief Executive Officer of the Company.





Our
      officers serve at the discretion of our Board of Directors. Mr. Garneau has
      an
      executive employment agreement. Our Directors serve until the next annual
      meeting of shareholders or until their respective successors are elected and
      qualified. There exists no family relationship between our officers and
      Directors. Certain information regarding the backgrounds of each of our officers
      and Directors is set forth below.




RICHARD
      E. WILSON. Mr. Wilson has served as a member of our Board of Directors since
      March 2003. In November 2005 he was appointed as the Chairman of our Board
      of
      Directors. Since 2002, Mr. Wilson has served as a principal and executive vice
      president of business development of NetPort-Datacom, Inc., a privately held
      Mukilteo, Washington-based provider of international voice service. Mr. Wilson
      was co-founder of The Association of Communications Enterprises (ASCENT)
      (formerly the Telecommunications Resellers Association), a leading trade group
      representing entrepreneurial and small business communications companies. He
      served on that organization's Board of Directors in 1992 and 1993. During 2001
      and 2002, Mr. Wilson was a principal in SigBioUSA, LLC, a Mulkiteo,
      Washington-based telecommunications consulting firm with expertise in both
      wireline and wireless telecommunications applications. From May 2000 to April
      2001, Mr. Wilson was president and chief executive officer of Open
      Telecommunications North America, a wholly owned subsidiary of Open
      Telecommunications Australia, a publicly traded company in Australia that
      provides telecommunications-network-infrastructure related products and
      services. Also, from 2000 through January 2002, Mr. Wilson served as a Director
      of GlobalNet International Telecommunications, Inc., an Illinois-based provider
      of global telecommunications services. GlobalNet was publicly traded under
      the
      symbol GBNE, until acquired by Titan Corporation in 2002.





ED
      GARNEAU. Mr. Garneau joined our Board of Directors December 20, 2004. In
      February 2005 Mr. Garneau was appointed the position of Chief Operating Officer
      of the Company and in November 2005, Mr. Garneau was appointed as Chief
      Executive Officer of the Company. Mr. Garneau is the founder and, since 1994,
      has been the Chief Executive Officer of Sovereign Companies (recently acquired
      by the Company on February 18, 2005), a diversified real estate development
      company with broadband telecommunications installation and operations in 4
      states currently representing 10 major developments or approximately 1100 homes.
      Prior to founding Sovereign, Mr. Garneau served eight years in the US Air Force
      as a fighter pilot.





JEFFREY
      W. FIEBIG. Mr. Fiebig joined us as a member of our Board of Directors March
      2005. Mr. Fiebig joined the Sovereign Companies (recently acquired by the
      Company on February 18, 2005) as Vice President in August of 2004 and in
      September 2005 he was promoted to President of the Sovereign Companies. Mr.
      Fiebig has spent the last sixteen years in the US Air Force on active duty
      or in
      the reserves. From January 2001 to January 2004, Mr. Fiebig was the Supervisor
      and Commander of six Squadrons and over 500 personnel at Luke Air Force Base,
      Arizona. In addition to his US Air Force duties Mr. Fiebig was an instructor
      and
      evaluator for United Airlines from May of 1997 to September 2004.





BYRON
      YOUNG. Mr. Young joined us as a member of our Board of Directors in August
      2004.
      Concurrently, Mr. Young will remain active as President of the Company’s Texas
      subsidiary, Connect Paging Inc. d/b/a/ Get-A-Phone ("GAP"). Mr. Young purchased
      GAP in 2000, sold off all paging assets and refocused the company on dial tone.
      GAP has grown to over 13,000 customers to date and revenues exceeding $8.6
      million annually. Prior to Connect Paging, Young founded Phone America in 1997
      which was merged with Trans National Telecommunications, Inc. in 1999 and prior
      to Phone America, founded Paging Express, Inc. in 1994.





DAVE
      WEISMAN. Mr. Weisman joined us in October 2004 as the Chairman of the Company’s
      Board of Directors. For a period in 2005, Mr. Weisman was Chief Executive
      Officer of the Company. Currently he is a Director. Mr. Weisman also served
      as
      Chairman and CEO of a broadband and communications technology and services
      company, Eagle Broadband. Before Eagle Broadband, he was: Vice President, Sales
      & Marketing for IP Dynamics; co-founder and Vice President, Sales and
      Marketing for Canyon Networks; Vice President, Marketing and Customer Service
      for ACT Networks; co-founder and Vice President, Sales & Marketing for
      Thomson Enterprise Networks. Mr. Weisman also served as a pilot with the United
      States Air Force Reserve. He holds a B.A. in Economics and International
      Relations from U.C.L.A.





RONALD
      S.
      BASS. Mr. Bass joined us as principal accounting officer in November 2003.
      Prior
      to joining us, Mr. Bass served as chief financial officer of Phantom Group
      from
      January 2002 to October 2003, chief financial officer of Knovada from May 2001
      to October 2003, Director of finance and operations at Vista Travel Ventures
      from March 1999 to May 2001, and manager administration at Group Voyagers from
      July 1993 to March 1999. Mr. Bass brings more than 13 years of executive finance
      and operations experience including experience in equity funding, treasury
      management, financial analysis, tax planning, accounting system design and
      implementation, process engineering and risk management.





CRAIG
      A.
      COOK. Mr. Cook has been the Company’s Chief Administrative Officer since
      February 2005. Mr. Cook joined us as Vice President of Operations starting
      in
      December 2004. He comes to Cardinal from Sovereign Companies, having served
      as
      the Chief Operating Officer from 2001 to 2004. Previously, he was the Chief
      Operating Officer for Denver Public Schools from 1994 to 2001 and the Assistant
      Superintendent of Kansas City Public Schools, Kansas City, Missouri from 1988
      to
      1994. A retired Lieutenant Colonel in the U.S. Army, Cook served in various
      accounting and finance positions during his military service. He brings the
      discipline of an MBA from the University of Nevada, Reno, combined with a BSBA
      from the University of Idaho to his job.










Our
      full
      Board of Directors met three times during 2005, had over 12 telephonic meetings
      and it took action by unanimous written consent in lieu of a meeting on numerous
      occasions. On October 13, 2005 the Board of Directors established a Special
      Committee described below.




*Executive
      Committee*





Our
      Board
      of Directors created an executive committee to facilitate management between
      meetings of the full Board of Directors. The executive committee is composed
      of
      Ed Garneau, and Richard E. Wilson. Pursuant to our Bylaws, between meetings
      of
      the full Board of Directors, the executive committee has the full power and
      authority of the Board of Directors in the management of our business and
      affairs, except to the extent limited by Nevada law. Pursuant to the Bylaws
      of
      the executive committee, as adopted by the full Board of Directors, the
      executive committee has the authority to exercise all powers of the Board of
      Directors, except the power:





·
            to
                declare dividends;




·
            to
                sell or otherwise dispose of all or substantially all of our
                assets;




·
            to
                recommend to our shareholders any action requiring their approval;
                and




·
            to
                change the membership of any committee, fill the vacancies thereon
                or
                discharge any committee.





During
      2005 the Executive Committee did not meet in person; however, it took action
      by
      unanimous written consent in lieu of a meeting on numerous
      occasions.





*Audit
      Committee*





The
      audit
      committee of our Board of Directors is now composed of Richard E. Wilson, Byron
      Young and Ed Garneau. Our Board of Directors has determined that the audit
      committee does not have a member with the requisite education, background or
      experience to be considered an "audit committee financial expert" as that term
      is defined by the SEC. The purposes of the audit committee are:




·
            to
                oversee the quality and integrity of the financial statements and
                other
                financial information we provide to any governmental body or the
                public;




·
            to
                oversee the independent auditors' qualifications and
                independence;




·
            to
                oversee the performance of our independent
                auditors;




·
            to
                oversee our systems of internal controls regarding
                finance,




·
            accounting,
                legal compliance and ethics that management and the Board of Directors
                has
                established or will establish in the
                future;




·
            to
                establish procedures for the receipt, retention and treatment
                of




·
            complaints
                regarding accounting, internal controls, and other auditing matters
                and
                for the confidential, anonymous submission by our employees of concerns
                regarding questionable accounting or auditing
                matters;




·
            to
                provide an open avenue of communication among the independent auditors,
                financial and senior management, the internal auditing department,
                and the
                Board of Directors, always emphasizing that the independent auditors
                are
                accountable to the audit committee;
                and




·
            to
                perform such other duties as are directed by the Board of
                Directors.





*Compensation
      and Stock Committee*





The
      compensation and stock committee is composed of Richard Wilson and Ed Garneau.
      The general purposes of the committee are:




·
            to
                assist the Board of Directors in discharging the Board of Directors'
                responsibilities relating to compensation of the Company's
                executives;




·
            to
                make recommendations to the Board of Directors with respect to all
                compensation plans, including equity-based plans for employees and
                Directors; and




·
            to
                produce an annual report on executive compensation for inclusion
                in the
                Company's proxy statement, in accordance with applicable rules and
                regulations.




*Nominating
      Committee*





The
      nominating committee is composed of Jeffrey Fiebig and Richard Wilson. The
      general purposes of the committee are:




·
            to
                assist the Board of Directors by identifying individuals qualified
                to
                become Board of Directors members, and to recommend to the Board
                of
                Directors the Director nominees for the next annual meeting of
                stockholders;









·
            to
                develop and recommend to the Board of Directors the corporate governance
                guidelines applicable to the
                Company;




·
            to
                lead the Board of Directors in its annual review of the Board of
                Directors' performance;




·
            to
                conduct an annual assessment of each committee;
                and




·
            to
                recommend to the Board of Directors Director nominees for each
                committee.





*Disclosure
      Committee*





The
      disclosure committee is composed of Craig Cook and Ron Bass. The general purpose
      of the committee is to design, establish and maintain a system of controls
      and
      other procedures to ensure that information required to be disclosed in the
      reports and statements filed by the Company pursuant to the Exchange Act, is
      recorded, processed, summarized and reported in conformity with the rules and
      forms of the Securities and Exchange Commission










*Special
      Committee*





The
      Special Committee is composed of Richard E. Wilson, Byron T. Young and Jeffery
      W. Fiebig. Mr. Wilson, as a non-employee director receives monthly compensation
      for his work on this committee. The purpose of the committee is to conduct
      a
      thorough investigation of the Company’s compliance with federal and state
      securities laws relating to sales of securities of the company and other items
      of interest. The results of this committee’s findings are reported on the
      Company’s Current Report on Form 8-K filed with the SEC on March 30,
      2006.




*Code
      of Ethics*





We
      have
      adopted a code of ethics that applies to our executive and financial officers.
      A
      copy of our code of ethics is available on our website:


www.CardinalComms.com.





*Insider
      Trading*





We
      have
      adopted an Insider Trading Compliance Program that applies to our officers,
      Directors, employees and other individuals that have access to inside
      information.





*Compensation
      of Directors*





Non-employee
      Directors do not receive annual payments for their service as Directors, nor
      has
      our Board of Directors established a per-meeting stipend. At such time as our
      cash position improves, it is likely that the Board of Directors will begin
      to
      compensate non-employee Directors. However, no determination of the amount
      of
      any such payment amounts has been made. Directors who are also employees
      currently receive no additional compensation for their service on the Board
      of
      Directors and its committees.





For
      his
      services on the Special Committee Richard E. Wilson received 1,399,540 shares
      of
      our common stock, valued at $30,000.





Indemnification
      of Directors and Officers Article X of the Articles of Incorporation of Cardinal
      Communications, Inc. provides that no Director or officer shall be personally
      liable to Cardinal Communications or its shareholders for damages for breach
      of
      fiduciary duty as a Director officer; provided, however, that such provision
      shall not eliminate or limit the liability of a Director or officer for (1)
      acts
      or omissions which involve intentional misconduct, fraud or a knowing violation
      of law or (2) the payment of dividends in violation of law. Any repeal or
      modification of Article X shall be prospective only and shall not adversely
      affect any right or protection of a Director or officer of Cardinal
      Communications existing at the time of such repeal or modification for any
      breach covered by Article X which occurred prior to any such repeal or
      modification. The effect of Article X is that Directors and officers will
      experience no monetary loss for damages arising out of actions taken (or not
      taken) in such capacities, except for damages arising out of intentional
      misconduct, fraud or a knowing violation of law, or the payment of dividends
      in
      violation of law.





As
      permitted by Nevada law, our Bylaws provide that we will indemnify our Directors
      and officers against expense and liabilities they incur to defend, settle or
      satisfy any civil, including any action alleging negligence, or criminal action
      brought against them on account of their being or having been Directors or
      officers unless, in any such action, they are judged to have acted with gross
      negligence or willful misconduct. Insofar as indemnification for liabilities
      arising under the Securities Act of 1933, as amended, may be permitted to
      Directors, officers or control persons pursuant to the foregoing provisions,
      we
      have been informed that, in the opinion of the SEC, such indemnification is
      against public policy as expressed in the Securities Act of 1933 and is,
      therefore, unenforceable.





**Compliance
      with Section 16(a) of the Securities Exchange Act**





The
      Company's executive officers and Directors, and beneficial owners of more than
      10% of the Common Stock, are required to file initial reports of ownership
      and
      reports of changes of ownership of the Common Stock with the SEC. The SEC's
      rules require such person to furnish the Company with copies of all Section
      16(a) reports they file. The Company has determined that not all of the reports
      required to have been filed during 2005 were filed on a timely basis. Based
      solely on a review of Forms 3, 4 and 5 and amendments thereto furnished to
      the
      Company under Rule 16a-3(e) of the Exchange Act, the Company has determined
      that
      all officers and Directors have filed reports as follows:





Name
            
            Form
            
            Last
                Date Filed before 3/31/2006Ronald
                Bass
            
            Form
                4
            
            3/24/2006Craig
                A. Cook
            
            Form
                4
            
            3/24/2006Jeffrey
                Fiebig
            
            Form
                4
            
            3/24/2006Ed
                Garneau
            
            Form
                4
            
            3/24/2006









**Item
      10. Executive Compensation**





*Executive
      Compensation*





The
      following table sets forth in summary form the compensation received during
      each
      of the last three completed fiscal years by our Chief Executive Officer and
      each
      executive officer who received total salary and bonus exceeding $100,000 during
      any of the last three fiscal years.




*Compensation*


Annual
                  Compensation
              
              Long-term
                  CompensationName
                  and principal position
              
              Year
              
              Salary
                $
              
              Bonus
                $
              
              Other
                  Annual Compensation $
              
              AwardsRestricted
                  Stock Awards
                $
              
              Securities
                  Underlying options/SARs #
              
              PayoutsLTIP
                  Payouts $
              
              All
                  Other CompensationEdouard
                  A. Garneau (a)
              
              2005
              
              $
              185,000
              (1)
              
              
              $
              76,800
              (7)Chief
                  Executive OfficerDavid
                  Weisman (b)
              
              2005
              
              $
              205,000
              (2)Former
                  Chairman ofthe
                  Board and FormerChief
                  Executive OfficerDouglas
                  McKinnon (c)
              
              2005
              
              $
              180,000Former
                  Chief ExecutiveOfficerCraig
                  Cook
              
              2005
              
              $
              150,000
              (3)Chief
                  AdministrativeOfficerJeffrey
                  Fiebig
              
              2005
              
              $
              180,000
              (4)Director
                  and President ofSovereign
                  Partners, LLCByron
                  Young
              
              2005
              
              $
              120,000
              (5)
              
              
              $
              1,277Director
                  and President ofConnect
                  Paging, Inc.Terry
                  Zinsli
              
              2005
              
              $
              150,000
              (6)Chief
                  Financial OfficerSovereign
                  Partners, LLC




(a),
      Mr.
      Garneau was appointed Chief Executive Officer of the Company on November 4,
      2005.










(b)
      Mr.
      Weisman was appointed Chief Executive Officer on April 18, 2005. Mr. Weisman
      resigned his positions as Chairman of the Board of Directors and Chief Executive
      Officer effective November 4, 2005.





(c)
      Mr.
      McKinnon left the company in July 2005.





(1)
      $24,998 of Mr. Garneau’s salary amount was paid by the issuance of 1,503,170
      shares of our common stock, an average per share value of $.02 per share, the
      last closing price of our common stock less a 10% discount, as reported by
      the
      Over-The-Counter Bulletin Board, on the date of issuance.





(2)
      $89,690 of Mr. Weisman’s salary amount was paid by the issuance of 4,529,794
      shares of our common stock, an average per share value of $.02 per share, the
      last closing price of our common stock less a 10% discount, as reported by
      the
      Over-The-Counter Bulletin Board, on the date of issuance.




(3)
      $23,709 of Mr. Cook’s salary amount was paid by the issuance of 1,171,840 shares
      of our common stock, an average per share value of $.02 per share, the last
      closing price of our common stock less a 10% discount, as reported by the
      Over-The-Counter Bulletin Board, on the date of issuance.





(4)
      $30,471 of Mr. Fiebig’s salary amount was paid by the issuance of 1,519,378
      shares of our common stock, an average per share value of $.02 per share, the
      last closing price of our common stock less a 10% discount, as reported by
      the
      Over-The-Counter Bulletin Board, on the date of issuance.





(5)
      $16,879 of Mr. Young’s salary amount was paid by the issuance of 840,149 shares
      of our common stock, an average per share value of $.02 per share, the last
      closing price of our common stock less a 10% discount, as reported by the
      Over-The-Counter Bulletin Board, on the date of issuance.





(6)
      Approximately $32,150 of Mr. Zinsli’s salary amount was paid by the issuance of
      1,607,490 shares of our common stock, an average per share value of $.02 per
      share, the last closing price of our common stock less a 10% discount, as
      reported by the Over-The-Counter Bulletin Board, on the date of
      issuance.





(7)
      Commissions earned as licensed Real Estate Broker.





Employment
      Contracts and Termination of Employment and Change-in-Control
      Agreements





The
      following table summarizes certain provisions of the employment
      agreements.




Name
                of Officer
            
            Positions
            
            Term
            
            Annual
                SalaryDateDouglas
                O. McKinnon
            
            
            Former
                President and
            
            
            3
                Years
            
            $
            180,0004/15/2002
            
            
            Chief
                Executive OfficerEdouard
                Garneau
            
            
            Chief
                Executive Officer
            
            
            3
                Years
            
            $
            185,0002/21/2005





In
      connection with each of their respective employment agreements, the executive
      officers entered into confidentiality agreements and agreements not to compete
      with the Company during the term of employment and for a period of one year
      thereafter.





Under
      Mr.
      McKinnon's employment agreement, should the Company (1) experience a change
      in
      control or (2) change Mr. McKinnon's responsibilities with the Company, Mr.
      McKinnon has the right, in his sole discretion, to terminate his employment
      with
      the Company and the Company would be liable for all compensation remaining
      to be
      paid during the then-current term of his employment agreement, plus an
      additional period of one year.










Under
      each employment agreement, if the executive is terminated by the Company other
      than for cause, he will be entitled to continue to receive his base salary
      for
      the unexpired term of his employment contract.





**Stock,
      Options, and SAR Grants in Last Two Fiscal Years**





*2004
      Stock Ownership Plan*





In
      February 2004, our Board of Directors adopted a stock ownership plan for our
      officers, Directors and consultants known as the 2004 Stock Ownership Plan.
      The
      2004 Plan was established by the Board of Directors as a means to promote our
      success and enhance our value by linking the personal interests of participants
      to our shareholders, and by providing participants with an incentive for
      outstanding performance. The 2004 Plan is further intended to aid us in
      attracting and retaining the services of persons upon whose judgment, interest
      and special efforts our successful operation and our subsidiaries' operations
      is
      dependent. Persons who are either officers, directors or consultants are
      eligible to participate in the 2004 Plan. The Board of Directors may, at any
      time and from time to time, grant shares of our common stock in such amounts
      and
      upon such terms and conditions as it may determine, to include the granting
      of
      shares of the Common Stock and the granting of options to purchase shares of
      the
      common stock. A total of 15,000,000 shares of our common stock have been
      reserved for issuance under the 2004 Plan registration statement on Form S-8
      (SEC File No.333-115558) relating to the 2004 Plan, as amended, have been filed
      with the SEC. At March 31, 2006, no shares of our common stock remain unissued
      under the Plan.





*2005
      Stock Ownership Plan*





In
      December 2004, our Board of Directors adopted a stock ownership plan for our
      officers, Directors and consultants known as the 2005 Stock Ownership Plan.
      The
      2005 Plan was established by the Board of Directors as a means to promote our
      success and enhance our value by linking the personal interests of participants
      to our shareholders, and by providing participants with an incentive for
      outstanding performance. Persons who are officers, directors or consultants
      are
      eligible to participate in the 2005 Plan. The Board of Directors may, at any
      time and from time to time, grant shares of our common stock in such amounts
      and
      upon such terms and conditions as it may determine, to include the granting
      of
      shares of the Common Stock and the granting of options to purchase shares of
      the
      common stock. A total of 110,000,000 shares of our common stock have been
      reserved for issuance under the 2005 Plan registration statement on Form S-8
      (SEC File No.333-121916) relating to the 2005 Plan, as amended, have been filed
      with the SEC. At March 31, 2006, 7,655,560 shares of our common stock remain
      unissued under the Plan.




*Stock
      Appreciation Rights*





We
      have
      never granted any stock appreciation rights (SARs), nor do we expect to grant
      any SARs in the foreseeable future.




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




*Common
      Stock*





The
      following table sets forth certain information known to us regarding beneficial
      ownership of our common stock as of March 31, 2006 by (i) each person who is
      known to us to be beneficial owners of more than 5% of our common stock, (ii)
      each of our Directors and the executive officers named in the Summary
      Compensation Table above, and (iii) our executive officers and Directors as
      a
      group. Except as otherwise noted below, the address of each persons is 390
      Interlocken Crescent, Suite 900, Broomfield, Colorado 80021.





NAME
                AND ADDRESS OF BENEFICIAL OWNER
            
            NUMBER
                OF SHARES
              BENEFICIALLY
                OWNED(1)
            
            PERCENTAGE
                OF SHARES
              BENEFICIALLY
                OWNED(1)Ed
                Buckmaster
            
            
            83,547,992
            
            
            20.2
            %Crestview
                Capital Master LLC (2)
            
            
            47,666,666
            
            
            11.5
            %Evergreen
                Venture Partners, LLC(3)
            
            
            15,000,000
            
            
            3.6
            %Monarch
                Pointe Fund, Ltd. (4)
            
            
            25,400,000
            
            
            6.1
            %David
                A. Weisman(5)
            
            
            17,500,000
            
            
            4.2
            %Richard
                E. Wilson(6)
            
            
            2,207,180
            
            
            *Ed
                Garneau(7)
            
            
            18,744,463
            
            
            4.5
            %Byron
                T. Young
            
            
            6,139,909
            
            
            1.5
            %Jeff
                Fiebig(8)
            
            
            3,003,547
            
            
            *Craig
                Cook(9)
            
            
            1,538,506
            
            
            *Ron
                Bass (10)
            
            
            844,730
            
            
            *221,592,993
            
            
            53.6
            %Supplemental
                Beneficial Ownership InformationAll
                executive officers and
              Directors
                as a group (7 persons)
            
            
            49,978,335
            
            
            12.1
            %





*
      Represents beneficial ownership of less than 1%.










(1)
      Beneficial ownership is determined in accordance with the rules of the
      Securities and Exchange Commission and generally includes voting or investment
      power with respect to securities. Shares of common stock subject to options
      and
      warrants currently exercisable or convertible, or exercisable or convertible
      within 60 days of March 31, 2006, are deemed outstanding for computing the
      percentage of the person holding such option or warrant but are not deemed
      outstanding for computing the percentage of any other person. Except as pursuant
      to applicable community property laws, the persons named in the table have
      sole
      voting and investment power with respect to all shares of common stock
      beneficially owned. Percentages are based on 413,413,174 shares of common stock
      outstanding as of March 31, 2006.





(2)
      Includes 40,000,000 shares issuable upon conversion of convertible debentures
      held by Crestview Capital Master LLC. Crestview's business address is 95 Revere
      Dr., Suite A, Northbrook, Illinois, 60062.





(3)
      Evergreen Venture Partners, LLC's business address is 1535 Grant Street, Suite
      140, Denver, CO 80203.





(4)
      Includes 17,500,000 shares issuable upon conversion of Series A Preferred Shares
      and 5,400,000 shares issuable upon exercise of warrants held by Monarch Pointe
      Fund, Ltd .Monarch's business address is 555 South Flower St., Suite 4500,
      Los
      Angeles, California 90071.





(5)
      Includes 17,500,000 shares issuable upon exercise of warrants.





(6)
      Includes 750,000 shares issuable upon exercise of options. Mr. Wilson's address
      is 6252 Harbour Heights Parkway, Makilteo, Washington 98275.




(7)
      Includes: (i) 5,203,870 shares were issued to, and a owned by five affiliated
      limited liability companies for which Mr. Garneau serves as Manager, and in
      his
      capacity as Manager, Mr. Garneau exercises voting control over the 5,203,870
      common shares. Mr. Garneau disclaims beneficial ownership of all such shares:
      (ii) 600,000 shares and 200,000 shares issuable upon exercise of two warrants
      issued in a private placement transaction to September Serenade Ltd., a family
      owned partnership of which Mr. Garneau serves as a general partner and in which
      he shares voting control over the shares with his wife. Each of Mr. Garneau
      and
      his wife own a 0.5% interest in the partnership. Mr. Garneau disclaims
      beneficial ownership of all but 0.5% of the shares and warrants owned by the
      partnership; and (iii) 9,721,950 common shares and 2,777,700 common shares
      issuable upon conversion of Series B Preferred Stock issued to and owned by
      DD
      Family Properties LLC, a family owned LLC of which Mr. Garneau owns a 21%
      interest and for which he serves as Manager. Mr. Garneau exercises voting
      control over all of the common shares and preferred shares owned by the LLC.
      Mr.
      Garneau disclaims beneficial ownership of all but 21% of the common shares
      and
      preferred shares owned by the family LLC.





(8)
      Includes 320,100 shares issuable upon conversion of Series B Preferred Shares
      and 66,667 shares issuable upon exercise of warrants.





(9)
      Includes 100,000 shares issuable upon conversion of Series B Preferred Shares
      and 66,667 shares issuable upon exercise of warrants.





(10)
      Includes 400,000 shares issuable upon conversion of options.





**Item
      12. Certain Relationships and Related Transactions**




In
      connection with the acquisition of Sovereign Partners, LLC, we issued common
      shares and series B preferred shares to the former members of Sovereign. On
      February 18, 2005 at the closing of the Acquisition, 9,721,950 shares of common
      stock and 27,777 shares of Series B preferred stock were issued by us to
      entities in which Mr. Garneau has an economic interest. These entities were
      members of Sovereign as of the closing of the Acquisition. Specifically, the
      common shares and preferred shares were issued to, and are owned by, DD Family
      Properties LLC, a family owned LLC of which Mr. Garneau owns a 21% interest
      and
      for which he serves as Manager. Mr. Garneau exercises voting control over all
      of
      the common shares and preferred shares owned by the LLC. Under the terms of
      the
      Acquisition described under Item 1, additional shares of common stock and
      preferred stock will be issued to the former Sovereign members, including DD
      Family Properties LLC over the next several years.










In
      2004,
      we entered into an acquisition transaction whereby we acquire certain assets
      of
      the "Sovereign Companies." As part of that transaction, we issued 2,854,167
      shares of common stock on March 8, 2004 and 2,349,703 shares of common on
      November 22, 2004 to five affiliated limited liability companies (the owners
      of
      the Sovereign Company assets) over which Mr. Garneau served as Manager as of
      those dates. Mr. Garneau continues to serve as Manager of those entities and
      in
      his capacity as Manager, Mr. Garneau exercises voting control over the 5,203,870
      common shares. The acquisition of the assets closed before Mr. Garneau became
      a
      Director or officer of our Company.





In
      addition, 600,000 shares of common stock and warrants to purchase 200,000 shares
      of common stock were issued by us on November 22, 2004 as part of a private
      placement transaction. All of the foregoing common shares and warrants to
      purchase common shares were acquired by, and are owned by, September Serenade
      Ltd., a family owned partnership of which Mr. Garneau serves as a general
      partner. He shares voting control over the shares with his wife. Each of Mr.
      Garneau and his wife own a 0.05% interest in the partnership. The private
      placement and the sale of the shares and warrants closed before Mr. Garneau
      became a Director or officer of our Company.





*Related
      Party Debt*





In
      May
      2005 the Company and a related party, Jantaq, Inc. entered into a $50,000 note.
      A principal of Jantaq, Inc. John Weisman is the brother of our former CEO David
      Weisman. The terms of the agreement were for 12% per annum interest and the
      note
      was due June 8, 2005. On June 1, 2005 we amended the note to increase the
      balance due to $125,000. This note was satisfied in June 2005 with 4,166,667
      shares of the Company’s common stock. Interest of $1,125 was recorded in
      relation to this note and financing expense of $119,708 was recorded in relation
      to the stock conversion.





In
      June
      2005, the Company entered into a $500,000 note payable agreement with a related
      party, Ed Buckmaster. Mr. Buckmaster is the general partner of AEJM Enterprises
      Limited Partnership, a shareholder of the Company and father-in-law of the
      current CEO, Mr. Edouard Garneau. The terms of the agreement are for 12% simple
      interest over the life of the note and the note was due September 1, 2005.
      The
      Company is currently negotiating an amendment and extension on the balance
      of
      this note.





In
      August
      2005 the Company and a related party, Jantaq, Inc. entered into a $150,000
      note.
      A principal of Jantaq, Inc. John Weisman is the brother of our former CEO David
      Weisman. The terms of the agreement were for 10% per annum interest and the
      note
      was due September 1, 2005. In September, the company satisfied the note with
      5,505,000 shares of the Company’s common stock. Financing expense of $75,705 was
      recorded in relation to the stock conversion.





The
      Company has related party debt of $4,384,284 at December 31, 2005. Interest
      rates range from 4.25% to 16.00%, and have maturity dates ranging from September
      2005 through October 2007, with three exceptions. Two notes amortize over thirty
      years maturing April 2033 and February 2034, and one note is interest only,
      with
      no stated maturity date. As of December 30, 2005, the related party debts
      outstanding amounts range from $1,000 to $811,060.





**Item
      13. Exhibits**





(a)(1)
      Financial Statements





**Index
      to Financial Statements of Cardinal Communications**





Description
            
            PageReport
                of Independent Registered Public Accounting Firm
            
            F-2Consolidated
                Balance Sheet - December 31, 2005
            
            F-3Consolidated
                Statements of Operations - For the YearsEnded
                December 31, 2005 and 2004
            
            F-5Consolidated
                Statements of Changes in Stockholders'Equity
                (Deficit)- For the Years Ended December 31, 2005 and 2004
            
            F-6Consolidated
                Statements of Cash Flows - For the YearsEnded
                December 31, 2005 and 2004
            
            F-8Notes
                to Consolidated Financial Statements
            
            F-9









(a)(2)
      Exhibits





**ITEM
      27. EXHIBITS**





EXHIBIT
                NO.
            
            DESCRIPTION(1)
            3.1
            
            Articles
                of Incorporation of Registrant(10)
            3.2
            
            Bylaws
                of Registrant, as amended to date.(3)
            3.5
            
            Articles
                of Amendment to Articles of Incorporation  of
                Registrant.(4)
            3.6
            
            Articles
                of Amendment to Articles of Incorporation of
                Registrant.(8)
            3.7
            
            Certificate
                of Designation of Series A Convertible Preferred Stock(6)
            3.8
            
            Certificate
                of Designation of Series B Convertible Preferred Stock(2)
            4.1
            
            Specimen
                Common Stock Certificate.(10)
            4.2
            
            Specimen
                Series A Preferred Stock Certificate(10)
            4.3
            
            Specimen
                Series B Preferred Stock Certificate(5)
            10.1
            
            Stock
                Purchase Agreement, dated April 20, 2004 by and among Registrant
                and
                Brandon Young, Brian Young and Byron Young, as shareholders of Connect
                Paging, Inc.(6)
            10.2
            
            Securities
                Purchase Agreement dated as of January 26 2005 by and among Registrant,
                Sovereign Partners, LLC and each of the members of Sovereignlisted
                on the signature pages thereto.(6)
            10.3
            
            Registration
                Rights Agreement dated as of February 18, 2005 by and among Registrant,
                Sovereign Partners, LLC and each of the Members of Sovereign listed
                on the
                signature pages thereto(6)
            10.4
            
            Management
                Agreement dated as of February 18, 2005 by and among Registrant and
                each
                of the Members of Sovereign listed on the signature pages
                thereto(6)
            10.5
            
            Investor
                Rights Agreement dated as of February 18, 2005 by and among Registrant,
                each member of its Board of Directors, and each of the Members of 
                Sovereign listed on the signature pages thereto(6)
            10.6
            
            Employment
                Agreement dated as of February 18,2005 by and between Registrant
                and Mr.
                Ed Garneau(6)
            10.7
            
            Surrender
                and Exchange Agreement dated as of  January 31, 2005 by and between
                Registrant and Evergreen Venture Partners, LLC(6)
            10.8
            
            Promissory
                Note in the Principal Amount of
                $750,000











(6)
            10.9
            
            Waiver,
                Consent, Surrender and Modification Agreement dated as of January
                21, 2005
                by and between Registrant and Crestview Capital Master
                LLC(7)
            10.10
            
            Subscription
                Agreement dated October 29, 2004, by and between Registrant, Mercator
                Momentum Fund, LP, Mercator Momentum Fund III, LP, Monarch Point
                Fund,  Ltd and Mercator Advisory Group(7)
            10.11
            
            Warrant
                to Purchase Common Stock issued to Mercator Advisory Fund,
                Ltd(7)
            10.12
            
            Warrant
                to Purchase Common Stock issued to Monarch Point Fund,
                Ltd.(7)
            10.13
            
            Registration
                Rights Agreement, dated October 29, 2004, by and between Registrant,
                Mercator Momentum Fund, LP, Mercator Momentum Fund III, LP, Monarch
                Point
                Fund, Ltd and Mercator Advisory Group(8)
            10.14
            
            Asset
                Purchase Agreement Dated February 6, 2004 by and between Registrant
                and
                SunWest Communication, Inc.(9)
            10.15
            
            Agreement
                and Plan of Reorganization between Registrant and UTEL, Inc. and
                SunWest
                Communications, Inc. effective February 5, 2004(10)
            10.16
            
            Colorado
                Office Lease Agreement(10)
            10.17
            
            Texas
                Office Lease Agreement(11)
            10.18
            
            Technology
                and Trademark License Agreement by and between the Registrant and
                GalaVu
                Entertainment Networks, Inc., of Toronto, Ontario,
                Canada(12)
            10.19
            
            Results
                of Special Committee findings regarding use of  S-8 Registration
                Statements#
            10.20
            
            Pledge
                and Security Agreement by and between Registrant and Crestview Master,
                LLC
                and The Elevation Fund, LLC#
            10.21
            
            Convertible
                Debenture Loan Agreement by and between Sovereign Partners, LLC and
                ISP V,
                LLC#
            10.22
            
            Restructure
                and Amendment Agreement dated February 18, 2006 by and between Registrant
                and the original members of Sovereign Partners, LLC.10
            21.1
            
            Subsidiaries
                of Registrant.#
            31.1
            
            Certification
                Pursuant to 18 U.S.C. Section 1350 of President and CEO#
            31.2
            
            Certification
                Pursuant to 18 U.S.C. Section 1350 of Chief Financial
                Officer




(1)
      Incorporated by reference from Registrant's Registration Statement on Form
      S-1,
      Commission File No. 333-26385.





(2)
      Incorporated by reference from Registrant's Registration Statement on Form
      S-1,
      Commission File No. 333-96027.





(3)
      Incorporated by reference from Registrant's Current Report on Form 8-K filed
      with the SEC on July 29, 1998.





(4)
      Incorporated by reference from Registrant's Current Report on Form 8-K filed
      with the SEC on July 13, 1999 .





(5)
      Incorporated by reference from Registrant's Current Report on Form 8-K filed
      with the SEC on May 5, 2004 and amended on Form 8-K/A filed with the SEC on
      July
      27, 2005.





(6)
      Incorporated by reference from Registrant's Current Report on Form 8-K filed
      with the SEC on February 22, 2005 and amended on Form 8-K/A filed with the
      SEC
      on August 4, 2005.





(7)
      Incorporated by reference from Registrant's Current Report on Form 8-K filed
      with the SEC on November 4, 2004





(8)
      Incorporated by reference from Registrant's Current Report on Form 8-K filed
      with the SEC on February 20, 2004





(9)
      Incorporated by reference from Registrant's Current Report on Form 8-K filed
      with the SEC on April 21, 2004










(10)
      Incorporated by reference from Registrant’s Annual Report on Form 10-KSB filed
      with the SEC on April 6, 2005





(11)
      Incorporated by reference from Registrant's Current Report on Form 8-K filed
      with the SEC on February 22, 2006




(12)
      Incorporated by reference from Registrant's Current Report on Form 8-K filed
      with the SEC on March 30, 2006




**#
      Filed Herewith**





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





The
      following table sets forth fees billed to us by our auditors during the fiscal
      years ended December 31, 2005 and December 31, 2004 for: (i) services rendered
      for the audit of our annual financial statements and the review of our quarterly
      financial statements, (ii) services by our auditor that are reasonably related
      to the performance of the audit or review of our financial statements and that
      are not reported as Audit Fees, (iii) services rendered in connection with
      tax
      compliance, tax advice and tax planning, and (iv) all other fees for services
      rendered.





December
                31, 2005
            
            December
                31, 2004(i)
                Audit fees
            
            $
            809,357
            
            $
            55,065(ii)
                Audit related fees
            
            $
            254,518
            
            $
            5,000(iii)
                Tax
            
            $
            78,998
            
            $
            0(iv)
                All other fees
            
            $
            0
            
            $
            0










**SIGNATURES**




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





Cardinal
                Communications,
                Inc.(Registrant)By:
            /s/ EDOUARD
                A. GARNEAU- Chief Executive Officer(Signature
                and Title)October 5, 2007
                (Date)




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





By:





/s/ EDOUARD
                A. GARNEAU
            
            Director
                and Chairman of the Board
            
            October 5, 2007Richard
                E. Wilson/s/
                  RONALD S. BASS
            
            Secretary
                and Principal Accounting Officer
            
            October 5, 2007Ronald Bass




*
      Print
      the name and title of each signing officer under his signature.




Supplemental
      Information to be Furnished With Reports Filed Pursuant to Section 15(d) of
      the
      Exchange Act by Non-reporting Issuers.










**CARDINAL
      COMMUNICATIONS, INC. AND SUBSIDIARIES**





**INDEX
      TO CONSOLIDATED FINANCIAL STATEMENTS**




Description
            
            PageReport
                of Independent Registered Public Accounting Firm
            
            F-2Consolidated
                Balance Sheet - December 31, 2005
            
            F-3Consolidated
                Statements of Operations - For the YearsEnded
                December 31, 2005 and 2004
            
            F-5Consolidated
                Statements of Changes in Stockholders'Equity
                (Deficit) - For the Years Ended December 31, 2005 and 2004
            
            F-6Consolidated
                Statements of Cash Flows - For the YearsEnded
                December 31, 2005 and 2004
            
            F-8Notes
                to Consolidated Financial Statements
            
            F-9





F-1




**AJ.
      ROBBINS, PC**


**216
      SIXTEENTH STREET**


**SUITE
      600**


**DENVER,
      COLORADO 80206**





**REPORT
      OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM**





To
      the
      Audit Committee


Cardinal
      Communications, Inc.


Thornton,
      Colorado





We
      have
      audited the accompanying consolidated balance sheet of Cardinal Communications,
      Inc. as of December 31, 2005, and the related consolidated statements of
      operations, changes in stockholders' equity (deficit), and cash flows for each
      of the years in the two year period then ended. These consolidated financial
      statements are the responsibility of the Company's management. Our
      responsibility is to express an opinion on these consolidated financial
      statements based on our audits.





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





In
      our
      opinion, the consolidated financial statements referred to above present fairly,
      in all material respects, the financial position of Cardinal Communications,
      Inc. as of December 31, 2005, and the results of its operations and its cash
      flows for each of the years in the two year period then ended, in conformity
      with generally accepted accounting principles in the United States of
      America.





The
      accompanying consolidated financial statements have been prepared assuming
      that
      the Company will continue as a going concern. As discussed in Note 3 to the
      consolidated financial statements, the Company has experienced recurring losses
      and negative cash flows from operations and has both a working capital and
      a
      capital deficit at December 31, 2005, that raise substantial doubt about its
      ability to continue as a going concern. Management's plans in regard to these
      matters are also described in Note 3. The consolidated financial statements
      do
      not include any adjustments that might results from the outcome of this
      uncertainty.





**AJ.
      ROBBINS, PC**


**CERTIFIED
      PUBLIC ACCOUNTANTS**





DENVER,
      COLORADO


MARCH
      7,
      2006, Except for Note 3 which is dated December 1, 2006





F-2


CARDINAL
                  COMMUNICATIONS, INC. AND SUBSIDIARIESCONSOLIDATED
                  BALANCE SHEETDecember
                  31, 2005ASSETS
  Cash
                  and cash equivalents
              
              $
              1,079,117Marketable
                  securities
              
              
              12,800Accounts
                  receivable, net
              
              
              582,420Other
                  receivables
              
              
              627,118Unamortized
                  financing costs
              
              
              140,152Deposits
                  and prepaid expenses
              
              
              829,621Property
                  and equipment, net
              
              
              3,036,175Real
                  estate and land inventory
              
              
              44,636,529Deferred
                  costs of goods sold
              
              
              1,860,660Intangibles,
                  net
              
              
              8,579,933Other
                  assets
              
              
              281,165Total
                  Assets
              
              $
              61,665,690


The
        accompanying notes are an integral part of these statements.
  F-3




CARDINAL
                  COMMUNICATIONS, INC. AND SUBSIDIARIESCONSOLIDATED
                  BALANCE SHEET (Continued)December
                  31, 2005LIABILITIES
                  AND STOCKHOLDERS' EQUITY (DEFICIT)
  Accounts
                  payable
              
              $
              2,860,492Accrued
                  expenses and other liabilities
              
              
              3,979,128Deferred
                  revenue
              
              
              2,656,020Land
                  and construction loans
              
              
              34,188,216Related
                  party debt
              
              
              4,384,284Notes
                  payable, net of $232,858 debt discount
              
              
              11,694,658Total
                  Liabilities
              
              
              59,762,798Commitments
                  and ContingenciesStock
                  Committed
              
              
              2,804,837Minority
                  Interest
              
              
              2,329,234Stockholders'
                  equity (deficit):Preferred
                  stock; par value $0.0001; issuable in series; authorized
                  100,000,000Series
                  A Convertible Preferred stock; issued and outstanding
                  8,750
              
              
              1Series
                  B Convertible Preferred stock; issued and outstanding
                  100,000
              
              
              10Common
                  stock; par value $0.0001; authorized 800,000,000; issued and
                  outstanding298,286,941
              
              
              29,828Additional
                  paid-in capital
              
              
              69,321,768Deferred
                  consulting
              
              
              (18,013
              )Accumulated
                  (deficit)
              
              
              (72,564,773
              )Total
                  Stockholders' Equity (Deficit)
              
              
              (3,231,179
              )Total
                  Liabilities and Stockholders' Equity (Deficit)
              
              $
              61,665,690
  The
        accompanying notes are an integral part of these statements.
  F-4


CARDINAL
                  COMMUNICATIONS, INC. AND SUBSIDIARIESBROOMFIELD,
                  COLORADOCONSOLIDATED
                  STATEMENTS OF OPERATIONSFOR
                  THE YEARS ENDED DECEMBER 31 2005 AND 2004
  2005
              
              2004REVENUESRevenues
              
              $
              25,864,395
              
              $
              6,479,419Cost
                  of sales
              
              
              (18,960,746
              )
              
              (3,587,701
              )Gross
                  profit
              
              
              6,903,649
              
              
              2,891,718OPERATING
                  EXPENSESDepreciation
                  and amortization
              
              
              1,512,916
              
              
              1,063,313Asset
                  Impairment
              
              
              3,146,866Professional
                  fees
              
              
              3,099,242
              
              
              5,149,546Rent
              
              
              548,612
              
              
              117,835Salaries
                  and commissions
              
              
              4,324,625
              
              
              1,566,196Failed
                  acquisition costs
              
              
              -
              
              
              3,273,258Selling,
                  general and administrative
              
              
              4,038,702
              
              
              2,637,952Total
                  operating expenses
              
              
              16,670,963
              
              
              13,808,100(LOSS)
                  FROM OPERATIONS
              
              
              (9,767,314
              )
              
              (10,916,382
              )OTHER
                  INCOME (EXPENSE)Other
                  income (expense)
              
              
              (67,875
              )
              
              (402,119
              )Accretion
                  of interest (expense) on convertible debt
              
              
              (701,528
              )
              
              (5,575,105
              )Accounts
                  Payable Settlements
              
              
              (396,801
              )
              
              -Loss
                  on Debt Modification
              
              
              -
              
              
              (100,001
              )Gain
                  (loss) on disposition of assets
              
              
              (32,750
              )
              
              (39,825
              )Loss
                  on Marketable Securities
              
              
              (587,200
              )
              
              -Interest
                  (expense)
              
              
              (625,573
              )
              
              (269,418
              )Total
                  other (expense)
              
              
              (2,411,727
              )
              
              (6,386,468
              )(LOSS)
                  BEFORE MINORITY INTEREST
              
              
              (12,179,041
              )
              
              (17,302,850
              )Loss
                  attributable to minority interest
              
              
              778,964
              
              
              -NET
                  (LOSS) before imputed dividend
              
              
              (11,400,077
              )
              
              (17,302,850
              )Imputed
                  Dividend
              
              
              -
              
              
              (850,000
              )NET
                  (LOSS)
              
              $
              (11,400,077
              )
              $
              (18,152,850
              )Net
                  (loss) per common share
              
              $
              (0.04
              )
              $
              (0.11
              )Weighted
                  average number of shares outstanding
              
              
              258,985,141
              
              $
              165,552,450
  The
        accompanying notes are an integral part of these statements.
  F-5





CARDINAL
      COMMUNICATIONS, INC. AND SUBSIDIARIES




CONSOLIDATED
      STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)


YEARS
      ENDED DECEMBER 31, 2005 AND 2004


Common
              
              Preferred
                  A
              
              Preferred
                  BShares
              
              Stock
              
              Shares
              
              Stock
              
              Shares
              
              StockBalance
                  December 31, 2003
              
              
              114,684,486
              
              $
              11,468
              
              
              0
              
              $
              -
              
              
              0
              
              $
              -Issuance
                  of Common Stock for:Cash
              
              
              38,500,000
              
              
              3,850Legal
                  Fees
              
              
              600,000
              
              
              60Consulting
                  Fees
              
              
              2,798,917
              
              
              280Compensation
              
              
              2,355,000
              
              
              236Services
              
              
              18,001,097
              
              
              1,800Acquisitions
              
              
              25,835,688
              
              
              2,584Issuance
                  of Preferred Stock for Cash
              
              
              
              
              
              
              
              
              10,000
              
              
              1Amortization
                  of Deferred ConsultingNet
                  LossComprehensive
                  IncomeLoss
                  on Debt ConversionFAS
                  123 AdjustmentBalance
                  December 31, 2004
              
              
              202,775,188
              
              $
              20,278
              
              
              10,000
              
              $
              1
              
              
              -
              
              $
              -Issuance
                  of Common Stock for:Return
                  of stock for issuance of Note Payable
              
              
              (17,000,000
              )
              
              (1,700
              )Stock
                  issued settlement of notes payable
              
              
              9,671,667
              
              
              967Legal
                  Fees
              
              
              2,250,000
              
              
              225Consulting
                  Fees
              
              
              7,857,504
              
              
              786Other
                  Services
              
              
              31,052,459
              
              
              3,104Acquisitions
              
              
              35,000,000
              
              
              3,500Compensation
              
              
              24,180,123
              
              
              2,418Conversion
                  Of Preferred Stock
              
              
              2,500,000
              
              
              250
              
              
              (1,250
              )Issuance
                  of Preferred Stock for Acquisitions
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              100,000
              
              
              10Collection
                  of Subscription ReceivableAmortization
                  of Deferred ConsultingNet
                  LossCompensation
                  for Subscription ReceivableFAS
                  123 AdjustmentBalance
                  December 31, 2005
              
              
              298,286,941
              
              $
              29,828
              
              
              8,750
              
              $
              1
              
              
              100,000
              
              $
              10


The
      accompanying notes are an integral part of these statements.





F-6





CARDINAL
      COMMUNICATIONS, INC. AND SUBSIDIARIES




CONSOLIDATED
      STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT) CONTINUED


YEARS
      ENDED DECEMBER 31, 2005 AND 2004





Paid-In
            
            Subscription
            
            Deferred
            
            
            
            ComprehensiveCapital
            
            Receivable
            
            Consulting
            
            Deficit
            
            Income
            
            TotalBalance
                December 31, 2003
            
            $
            47,159,317
            
            $
            -
            
            $
            (1,608,373
            )
            $
            (43,861,846
            )
            $
            (160,000
            )
            $
            1,540,566Issuance
                of Common Stock for:Cash
            
            
            2,346,149
            
            
            (44,585
            )
            
            
            
            
            
            
            
            
            
            
            2,305,414Legal
                Fees
            
            
            59,940
            
            
            
            
            
            (50,000
            )
            
            
            
            
            
            
            
            10,000Consulting
                Fees
            
            
            712,243
            
            
            
            
            
            (43,042
            )
            
            
            
            
            
            
            
            669,481Compensation
            
            
            192,565
            
            
            13,273
            
            
            
            
            
            
            
            
            
            
            
            206,074Services
            
            
            2,176,176
            
            
            (13,273
            )
            
            (813,889
            )
            
            
            
            
            
            
            
            1,350,814Acquisitions
            
            
            2,654,415
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            2,656,999Issuance
                of Preferred Stock for Cash
            
            
            999,999
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            1,000,000Amortization
                of Deferred Consulting
            
            
            
            
            
            
            
            
            2,497,804
            
            
            
            
            
            
            
            
            2,497,804Net
                Loss
            
            
            
            
            
            
            
            
            
            
            
            (17,302,850
            )
            
            
            
            
            (17,302,850
            )Comprehensive
                Income
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            160,000
            
            
            160,000Loss
                on Debt Conversion
            
            
            100,000
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            100,000FAS
                123 Adjustment
            
            
            6,421,486
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            6,421,486Balance
                December 31, 2004
            
            $
            62,822,290
            
            $
            (44,585
            )
            $
            (17,500
            )
            $
            (61,164,696
            )
            $
            -
            
            $
            1,615,788Issuance
                of Common Stock for:Return
                of stock for issuance of Note Payable
            
            
            (748,300
            )
            
            
            
            
            
            
            
            
            
            
            
            
            
            (750,000
            )Stock
                issued settlement of notes payable
            
            
            470,571
            
            
            (276,125
            )
            
            
            
            
            
            
            
            
            
            
            195,413Legal
                Fees
            
            
            138,775
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            139,000Consulting
                Fees
            
            
            218,336
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            219,122Other
                Services
            
            
            83,250
            
            
            (1,049,514
            )
            
            (65,190
            )
            
            
            
            
            
            
            
            (1,028,350
            )Acquisitions
            
            
            2,849,000
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            2,852,500Compensation
            
            
            515,592
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            518,010Conversion
                Of Preferred Stock
            
            
            (250
            )
            
            
            
            
            
            
            
            
            
            
            
            
            
            -Issuance
                of Preferred Stock for Acquisitions
            
            
            2,852,240
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            2,852,250Collection
                of Subscription Receivable
            
            
            
            
            
            44,585
            
            
            
            
            
            
            
            
            
            
            
            44,585Amortization
                of Deferred Consulting
            
            
            
            
            
            
            
            
            64,677
            
            
            
            
            
            
            
            
            64,677Net
                Loss
            
            
            
            
            
            
            
            
            
            
            
            (11,400,077
            )
            
            
            
            
            (11,400,077
            )Compensation
                for Subscription Receivable
            
            
            
            
            
            1,325,639
            
            
            
            
            
            
            
            
            
            
            
            1,325,639FAS
                123 Adjustment
            
            
            120,264
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            120,264Balance
                December 31, 2005
            
            $
            69,321,768
            
            $
            -
            
            $
            (18,013
            )
            $
            (72,564,773
            )
            $
            -
            
            $
            (3,231,179
            )




The
      accompanying notes are an integral part of these statements.




F-7





CARDINAL
                      COMMUNICATIONS, INC. AND SUBSIDIARIESCONSOLIDATED
                      STATEMENTS OF CASH FLOWS
  Year
                      Ended2005
                  
                  2004CASH
                      FLOWS FROM (TO) OPERATING ACTIVITIESNet
                      (loss) before minority interest
                  
                  $
                  (12,179,041
                  )
                  $
                  (17,302,850
                  )Adjustments
                      to reconcile net (loss) to net cash provided by(used)
                      in operating activities:Depreciation
                      and amortization
                  
                  
                  1,512,916
                  
                  
                  1,063,313Stock
                      issued for consulting, fees and compensation
                  
                  
                  318,807
                  
                  
                  4,734,172Stock
                      options issued for consulting services
                  
                  
                  18,375
                  
                  
                  -Stock
                      committed for personal guarantees of debt
                  
                  
                  260,616Accretion
                      of interest expense on convertible debt
                  
                  
                  701,528
                  
                  
                  5,575,105Loss
                      on debt modification
                  
                  
                  -
                  
                  
                  100,000Write
                      off advances
                  
                  
                  -
                  
                  
                  1,830,000Minority
                      interest loss of subsidiaries attributable to parent
                  
                  
                  779,021
                  
                  
                  -(Gain)
                      Loss on sale of assets
                  
                  
                  28,000
                  
                  
                  -Asset
                      Impairment
                  
                  
                  3,146,866
                  
                  
                  402,121Comprehensive
                      Income
                  
                  
                  -
                  
                  
                  160,000Changes
                      in Operating Assets and Liabilities:Accounts
                      receivable
                  
                  
                  230,962
                  
                  
                  (131,894
                  )Financing
                      costs
                  
                  
                  -
                  
                  
                  (702,403
                  )Accounts
                      payable
                  
                  
                  777,892
                  
                  
                  212,545Accrued
                      expenses and other liabilities
                  
                  
                  2,664,455
                  
                  
                  163,135Deferred
                      revenue
                  
                  
                  2,408,970
                  
                  
                  (156,283
                  )Other
                      assets and liabilities
                  
                  
                  (411,125
                  )
                  
                  39,507Deferred
                      costs of goods sold
                  
                  
                  (1,860,660
                  )
                  
                  -Real
                      estate and land inventory
                  
                  
                  (3,164,680
                  )
                  
                  -Net
                      cash (used in) operating activities
                  
                  
                  (4,767,098
                  )
                  
                  (4,013,532
                  )CASH
                      FLOWS FROM (TO) INVESTING ACTIVITIESPurchases
                      of property and equipment
                  
                  
                  (179,100
                  )
                  
                  (637,772
                  )Marketable
                      Securities and securities receivable
                  
                  
                  -
                  
                  
                  (220,153
                  )Cash
                      paid for acquisitions
                  
                  
                  (294,765
                  )
                  
                  (1,025,000
                  )Purchases
                      of intangibles & other assets
                  
                  
                  -
                  
                  
                  (3,560,032
                  )Cash
                      acquired through acquisition
                  
                  
                  1,352,147
                  
                  
                  -Proceeds
                      from sale of assets
                  
                  
                  115,784
                  
                  
                  (99,850
                  )Net
                      cash provided by (used in) investing activities
                  
                  
                  994,066
                  
                  
                  (5,542,807
                  )CASH
                      FLOWS FROM (TO) FINANCING ACTIVITIESProceeds
                      from notes payable
                  
                  
                  17,484,103
                  
                  
                  4,420,000Proceeds
                      from related party notes payable
                  
                  
                  1,089,391
                  
                  
                  -Payments
                      on notes payable
                  
                  
                  (13,396,345
                  )
                  
                  (168,300
                  )Payments
                      on related party notes payable
                  
                  
                  (502,608
                  )
                  
                  -Collections
                      on subscriptions receivable
                  
                  
                  44,585
                  
                  
                  (44,585
                  )Issuance
                      of stock for cash
                  
                  
                  -
                  
                  
                  6,006,999Contributions
                      by minority interest members
                  
                  
                  105,000
                  
                  
                  -Disbursements
                      to minority interest memebers
                  
                  
                  (702,349
                  )
                  
                  -Net
                      cash provided by (used in) financing activities
                  
                  
                  4,121,777
                  
                  
                  10,214,114Net
                      increase in cash
                  
                  
                  348,745
                  
                  
                  657,775Cash
                      and cash equivalents, beginning of period
                  
                  
                  730,372
                  
                  
                  72,597Cash
                      and cash equivalents, end of period
                  
                  $
                  1,079,117
                  
                  $
                  730,372SUPPLEMENTAL
                      DISCLOSURE OF CASH FLOW INFORMATIONCash
                      paid for interest
                  
                  $
                  625,573
                  
                  $
                  3,019Stock
                      issued for acquisition of assets
                  
                  $
                  5,705,000
                  
                  $
                  2,656,999Stock
                      issued for satisfaction of debt
                  
                  $
                  471,538
                  
                  
                  -
 The
            accompanying notes are an integral part of these statements.
 F-8


**CARDINAL
        COMMUNICATIONS, INC. AND SUBSIDIARIES**
 
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 **FOR
        THE YEARS ENDED DECEMBER 31, 2005 AND 2004**


1.
      BUSINESS AND BACKGROUND





*Overview
      of The Company’s Business*





The
      Company was incorporated on November 1, 1996 in Nevada, under the name "Media
      Entertainment, Inc." In July, 1999 the name was changed to "USURF America,
      Inc.", and in 2005 the name was changed to “Cardinal Communications, Inc.” The
      Company’s headquarters are located in Thornton, Colorado. The Company includes
      Cardinal Broadband, Get-A-Phone, and Sovereign Partners, LLC.





These
      vertically integrated companies provide full-service solutions for residential
      and business applications including the delivery of next-generation voice,
      video, and data broadband networks to communities and cities throughout the
      United States; the construction and development of luxury single and
      multi-family homes, condominiums and apartment communities; home finance and
      real estate.





During
      2005 the Company acquired Sovereign Partners, LLC, which operates in the
      residential and planned community (real estate and communications
      infrastructure) development industry. The Company consolidated its Colorado
      operations under a single subsidiary named “Cardinal Broadband, LLC” which
      continues to provide voice (telephone), video (cable television) and data
      (Internet) services to business and residential customers. In Texas and Florida,
      the Company’s wholly-owned subsidiary Connect Paging, Inc. d/b/a Get A Phone
      (“GAP”) provides voice (telephone) services to residential
      customers.





*Correction
      of an Error in Previously Issued Financial Statements*





The
      Company determined it had an accounting error recording sales when the Company
      still had obligations. In this error, the company had recognized $2,041,670
      in
      sales for December 31, 2005. Please see Correction of an Error in Previously
      Issued Financial Statements under Note 3 for more details.





2.
      SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES





*Principles
      of Consolidation*





The
      accompanying consolidated financial statements include all the accounts of
      the
      Company and its subsidiaries. Intercompany transactions and balances have been
      eliminated. The Company consolidates all operations of subsidiaries due to
      a
      controlling financial interest or a controlling management
      interest.





The
      entities consolidated are outlined below.




Direct
                Subsidiaries of Cardinal Communications, Inc.
            
            %
                Ownership
            
            Date
                Established/
              AcquiredUSURF
                TV, Inc.
            
            
            100.00
            %
            
            07/26/2002Connect
                Paging, Inc. dba Get A Phone
            
            
            100.00
            %
            
            04/01/2004Cardinal
                Broadband, LLC
            
            
            100.00
            %
            
            04/07/2005Sovereign
                Group Holdings, Inc.
            
            
            100.00
            %
            
            03/01/2005USURF
                Communications, Inc.
            
            
            100.00
            %
            
            12/17/2002Sovereign
                Partners, LLC
            
            
            100.00
            %
            
            02/18/2005





Direct
                Subsidiaries of Sovereign Partners, LLC
            
            %
                Ownership
            
            Date
                Established/
              AcquiredSovereign
                Pumpkin Ridge, LLC
            
            
            100.00
            %
            
            02/18/2005Millstone
                Development, LLC
            
            
            83.50
            %
            
            02/18/2005Legacy
                of Shorewood, LLC
            
            
            100.00
            %
            
            02/18/2005Lighthouse
                Lending, LLC
            
            
            50.00
            %
            
            02/18/2005SovCo
                Holdings, LLLP
            
            
            100.00
            %
            
            02/18/2005Sovereign
                Homes of Arizona, LLC
            
            
            100.00
            %
            
            12/22/2005Sovereign
                Homes of Minnesota, LLC
            
            
            100.00
            %
            
            02/18/2005Sovereign
                Homes of Wisconsin, LLC
            
            
            100.00
            %
            
            02/18/2005





F-9


**CARDINAL
        COMMUNICATIONS, INC. AND SUBSIDIARIES**
 
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 **FOR
        THE YEARS ENDED DECEMBER 31, 2005 AND 2004**


Subsidiaries
                of SovCo Holdings LLLP
            
            SovCo
                Holdings Ownership %
            
            Date
                Established/ Acquired
            
            Date
                Dissolved/SoldSovereign
                Development, LLC
            
            
            100.00
            %
            
            02/18/2005Colony
                Ridge Development, LLC
            
            
            59.25
            %
            
            02/18/2005Colorado
                River KOA, LLC
            
            
            100.00
            %
            
            02/18/2005Foxhill
                Development, LLC
            
            
            60.00
            %
            
            02/18/2005Heritage
                Condominiums, LLC
            
            
            50.16
            %
            
            02/18/2005
            
            
            *Kendal
                Hills, LLC
            
            
            100.00
            %
            
            02/18/2005
            
            
            *Mountain
                View at T-Bone Ranch, LLC
            
            
            60.00
            %
            
            02/18/2005Pinnacle
                T-Bone Condominiums, LLC
            
            
            48.75
            %
            
            02/18/2005
            
            
            *Riverplace
                Condominiums, LLC
            
            
            100.00
            %
            
            02/18/2005Riverview
                Condos Waukesha, LLC
            
            
            100.00
            %
            
            02/18/2005
            
            
            04/11/2005Settler’s
                Chase Development, LLC
            
            
            59.25
            %
            
            02/18/2005
            
            
            12/31/2005Settler’s
                Commercial Development, LLC
            
            
            59.25
            %
            
            02/18/2005Sovereign
                Companies, LLC
            
            
            100.00
            %
            
            02/18/2005Sovereign
                Realty
            
            
            100.00
            %
            
            02/18/2005Sovereign
                Homes of Colorado
            
            
            100.00
            %
            
            02/18/2005Sovereign
                Equipment
            
            
            100.00
            %
            
            02/18/2005
            
            
            12/31/2005Lighthouse
                Lending, LLC
            
            
            50.00
            %
            
            02/18/2005Sovereign
                Parker Enterprises, LLC
            
            
            100.00
            %
            
            02/18/2005SR
                Condominiums, LLC
            
            
            82.50
            %
            
            02/18/2005Patio
                Homes at T-Bone Ranch, LLC
            
            
            50.00
            %
            
            02/18/2005
            
            
            *





*
      Non
      operating entity at December 31, 2005.





*Investments
      in unconsolidated entities*





In
      accordance with the Emerging Issues Task Force Issue No. 03-16, *Accounting
      for Investments in Limited Liability Companies* , the
      equity method of accounting is used for affiliated LLC entities over which
      the
      Company has significant influence; generally this represents partnership equity
      or common stock ownership interests of at least 3% to 5% and not more than
      50%.
      Under the equity method of accounting, the Company recognizes its pro rata
      share
      of the profits and losses of these entities and have been included in other
      assets.





*Segment
      Information*





The
      Company has two reportable segments: communications services and real estate
      activities. Communications services include individual, voice, video and data
      services as well as various combinations of bundled packages of these
      communications services. Real estate activities include sales of residential
      single family units, rental from commercial properties and fees from mortgage
      operations.




The
      accounting policies of the segments are the same as those described here in
      the
      summary of critical accounting policies. Separate legal entities conduct these
      businesses. Each entity is managed separately as each business has a distinct
      customer base and requires different strategic and marketing efforts. The
      following table reflects the income statement and balance sheet information
      for
      each of the reporting segments:




**Real
                  Estate**
              
              **Communications**
              
              **Corporate**
              
              **Total**Revenue
              
              $
              18,764,122
              
              $
              7,100,273
              
              $
              -
              
              $
              25,864,395Net
                  Income (Loss)
              
              
              (742,470
              )
              
              (2,192,678
              )
              
              (8,464,929
              )
              
              (11,400,077
              )Interest
                  (Expense)
              
              
              (394,200
              )
              
              (774
              )
              
              (230,599
              )
              
              (625,573
              )Depreciation
                  and Amortization
              
              
              394,938
              
              
              447,986
              
              
              669,992
              
              
              1,512,916Assets
              
              
              50,174,270
              
              
              2,753,152
              
              
              8,738,268
              
              
              61,665,690
  F-10


**CARDINAL
        COMMUNICATIONS, INC. AND SUBSIDIARIES**
 
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 **FOR
        THE YEARS ENDED DECEMBER 31, 2005 AND 2004**


*Reclassifications*




For
      comparative purposes, prior year's consolidated financial statements have been
      reclassified to conform to report classifications of the current
      year.





*Use
      of Estimates*





The
      preparation of financial statements in conformity with accounting principles
      generally accepted in the United States of America requires management to make
      estimates and assumptions that affect the reported amounts of assets and
      liabilities, disclosure of contingent assets and liabilities at the date of
      the
      financial statements and the reported amounts of revenues and expenses during
      the reporting period. Specific estimates include lives of assets, intangibles,
      collectability of receivables and notes, purchase price adjustments and
      valuation allowance on net operating loss carryforward. Actual results could
      differ from those estimates.





*Cash
      Equivalents*





The
      Company considers all highly liquid investments with original maturities of
      three months or less from the date of purchase to be cash
      equivalents.





*Marketable
      Securities*





Marketable
      Securities consist of publicly traded equity securities, which are classified
      as
      "available-for-sale" under SFAS No. 115, "Accounting for Certain Investments
      in
      Debt and Equity Securities" ("SFAS No. 115"). In accordance with SFAS No. 115,
      the Company is required to carry these investments at their fair or market
      value. Changes in market value are reflected in other comprehensive income
      in
      the Statements of Changes in Stockholders' Equity (Deficit).





In
      May
      2004, the Company sold Children's Technology Group, Inc., dba MomsandDads,
      to
      ZKID Network Company (OTCBB: ZKID). The terms of the sale provided for ZKID
      to
      pay the Company $600,000 in stock consideration (the "Purchase Price'). At
      closing the Company received 4,000,000 shares of ZKID common stock valued at
      $0.15 per share. The terms of the purchase and sale agreement provide that
      if
      the shares issued to the Company do not have a market value of at least
      $600,000, then ZKID would issue additional shares to the Company for the
      difference. On December 31, 2005, the Company determined that the market value
      of its ZKID stock had been permanently impaired and wrote down the stock value
      to $12,800 recording a loss on marketable securities of $587,200 per the
      guidelines of the FASB Staff Position Nos. FAS 115-1 and FAS 124-1“The Meaning
      of Other-Than-Temporary Impairment and Its Application to Certain Investments”
as issued November 3, 2005.





*Allowance
      for Uncollectible Receivables*





Accounts
      receivable consist of uncollateralized customer obligations due under normal
      trade terms requiring payment within 30 days of the invoice date. In most cases,
      trade receivables are applied to a specific identified invoice. Management
      reviews trade receivables periodically and reduces the carrying amount by a
      valuation allowance that reflects management's best estimate of the amount
      that
      may not be collectible. The Company estimates the amount of uncollectible
      accounts receivable and records an allowance for bad debt. Uncollectible
      accounts receivable are then charged against this allowance.




*Goodwill*





Goodwill
      was recorded at its purchase price and is not being amortized. Pursuant to
      SFAS
      142 ("Goodwill and Other Intangible Assets") and SFAS 144 ("Accounting for
      the
      Impairment or Disposal of Long-Lived Assets"), the Company has evaluated its
      goodwill for impairment and determined that the fair value of its goodwill
      exceeds the book value recorded.




F-11


**CARDINAL
        COMMUNICATIONS, INC. AND SUBSIDIARIES**
 
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 **FOR
        THE YEARS ENDED DECEMBER 31, 2005 AND 2004**


*Property
      and Equipment*





Property
      and equipment are stated at cost and are depreciated over the estimated useful
      lives of the assets.




Class
                of Asset
            
            Useful
                life in YearsAirplane
                and vehicles
            
            5Furniture
            
            5Data
                Hardware
            
            3Equipment
            
            5Leasehold
                improvements
            
            Lesser
                of life of lease or useful lifeBuildings
                and developments properties
            
            15-18Rental
                real estate
            
            20





Maintenance
      and repairs are charged to expense as incurred and expenditures for major
      improvements are capitalized. When assets are retired or otherwise disposed
      of,
      the property accounts are relieved of costs and accumulated depreciation and
      any
      resulting gain or loss is credited or charged to operations.





*Long-lived
      Assets*





The
      Company reviews the carrying values of its long-lived assets for possible
      impairment whenever events or changes in circumstances indicate that the
      carrying amount of the assets may not be recoverable. Total impairment charges
      for the years ended December 31, 2005 and 2004, were $3,016,620 and $0,
      respectively. Any long-lived assets held for disposal are reported at the lower
      of their carrying amounts or fair value less cost to sell. At December 31,
      2005
      there was one undeveloped property that was being held for disposal; a charge
      of
      $783,922 was taken during 2005 to report this property at its estimated fair
      value determined by sales price. Additionally, a $938,940 impairment charge
      was
      recorded during 2005 related to estimated losses for two of the Company’s
      residential construction subsidiaries’ current construction projects. Also at
      December 31, 2005 the original customer list purchased with Connect Paging,
      Inc.
      d/b/a Get A Phone (GAP) was evaluated and compared to the current customers
      and
      deemed permanently impaired by its turnover and $1,126,923 of impairment expense
      was recorded. In relation to business ventures no longer being pursued an
      additional $166,835 of impairment was recorded at year end.





*Revenue
      Recognition*





The
      Company charges its video and data customers monthly service fees and recognizes
      the revenue in the month the services are provided or equipment is sold. The
      Company bills monthly for voice (telephone) services in advance and generally
      receives payments during the month in which the services are provided. To the
      extent that revenue is received, but not earned, the Company records these
      amounts as deferred revenue. At December 31, 2005 the Company recorded $64,618
      as deferred revenue for these services.





The
      Company recognizes revenue from the sale of real estate when cash is received,
      title possession and other attributes of ownership have been transferred to
      the
      buyer and the Company is not obligated to perform significant additional
      services after sale and delivery. During construction, all direct material
      and
      labor costs and those indirect costs related to acquisition and construction
      are
      capitalized, and all customer deposits are treated as liabilities. Capitalized
      costs are charged to expense upon revenue recognition. Closing costs incurred
      in
      connection with completed homes and selling, general and administrative costs
      are charged to expense as incurred. Provision for estimated losses on
      uncompleted contracts and on speculative projects is made in the period in
      which
      such losses are determined. During December 2005, one of the Company’s
      subsidiaries that operates in the residential construction industry pre-sold
      2
      of its units that were still under construction. In accordance with the
      Company’s revenue recognition policy, since the Company is still obligated to
      perform significant additional services, the completion of the construction,
      100% of the gross profit of $549,732 was recorded as deferred revenue at
      December 31, 2005.




F-12


**CARDINAL
        COMMUNICATIONS, INC. AND SUBSIDIARIES**
 
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 **FOR
        THE YEARS ENDED DECEMBER 31, 2005 AND 2004**


For
      its
      mortgage operations, the Company recognizes revenue on fees received from
      mortgage lenders when the loan is closed. The Company receives a percentage
      of
      the loan closing from a third party sponsor based on the interest rate charged
      to the consumer. The Company may also recognize loan origination fees from
      the
      borrowers.





*Deferred
      Revenue*





The
      Company recognizes revenues in the period in which the earnings process is
      complete with no future obligations to be performed by the Company. Revenues
      collected in advance of the earnings process must be recorded as deferred
      revenues, a liability account, for financial statement purposes. Deferred
      revenue at December 31, 2005 and 2004 were $2,656,020 and $247,050 respectively.




Components
                  of Deferred Revenue at December 30, 2006Deferred
                  Revenue from Real Estate Sales
              
              $
              2,041,670Deferred
                  Revenue from Communications Sales
              
              
              614,350Total
                  Deferred Revenue
              
              $
              2,656,020


*Deferred
      Costs of Goods Sold*





The
      Company sells real estate inventory for which sales can not be recognized until
      all foreseeable obligations are satisfied. Inventory that is sold, but has
      not
      completed the earnings process is recorded as deferred costs of goods sold.
      If
      future expenses are anticipated at the time the inventory is sold, these costs
      are accrued at the time of the sale. Deferred costs of goods sold at December
      31, 2005 were $1,860,660 . There were no deferred costs of goods sold at
      December 31, 2004.





*Leasing
      Previously Sold Units*





The
      Company has entered into a series of agreements to sell residential units and
      lease them back. These units are used for marketing purposes as model units. The
      revenue for these units is recognized at the time of sale of these units and
      the
      monthly rent expense is recognized in the period incurred. Generally, the
      Company enters into one year lease agreements for these units, and the buyers
      have the right to sell the units during the lease period.





The
      Company has also entered into a series of agreements to sell residential units
      and lease them back; the Company then holds these units for sale. The Company
      does not retain any ownership interest in these units. The sale of these units
      reduce commitments on construction lines of credit. Generally, the Company
      enters into one year lease agreements for these units, but the buyers have
      the
      right to sell the units during the lease period. The Company records the costs
      of these sales as deferred costs of goods sold until the unit is sold to another
      party. The revenue for these units is recognized as deferred revenue at the
      time
      of the sale. The Company then recognizes the revenue and corresponding costs
      of
      goods sold once the obligations of the Company are fully satisfied.





*Advertising
      Expenses*





Certain
      costs related to model homes are capitalized as prepaid assets and amortized
      to
      selling, general and administrative expenses as the homes in the related
      subdivision are closed. All other marketing costs are expensed as incurred.
      During the years ended December 31, 2005 and 2004 the Company did not have
      significant advertising costs.




*Real
      estate and land inventory*





Finished
      inventories are stated at the lower of accumulated cost or net realizable value.
      Inventories under development or held for development are stated at accumulated
      cost, unless certain facts indicate such cost would not be recovered from the
      cash flows generated by future disposition. In this instance, such inventories
      are measured at fair value.




F-13


**CARDINAL
        COMMUNICATIONS, INC. AND SUBSIDIARIES**
 
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 **FOR
        THE YEARS ENDED DECEMBER 31, 2005 AND 2004**


Sold
      units are expensed on a specific identification basis. Under the specific
      identification basis, cost of sales includes the construction cost of the unit,
      an average lot cost by project based on land acquisition and development costs,
      and commissions. Construction related overhead and salaries are also capitalized
      and allocated proportionately to projects being developed. Construction cost
      of
      the unit includes amounts paid through the closing date of the unit. Adjustments
      to estimated total project land acquisition and development costs for the
      project affect the amount of future unit cost.





The
      Company capitalizes interest incurred on real estate construction and
      development into unit inventories. The Company capitalized interest in the
      amount of $2,181,377 in 2005 .




Major
      components of the Company’s inventory at December 31, 2005:




Residential
                units under construction
            
            $
            20,461,463Land
                under and held for development
            
            
            24,246,031Total
                real estate and land inventory
            
            $
            44,707,494




*Allowance
      for warranties*





Residential
      sales are provided with limited warranties issued by an unaffiliated warranty
      company against certain building defects. The specific terms and conditions
      of
      those warranties vary geographically. Reserves are established by the Company
      to
      cover estimated costs of repairs for which the Company is responsible. The
      Company estimates the costs to be incurred under these warranties and records
      a
      liability in the amount of such costs at the time product revenue is recognized.
      Factors that affect the Company's warranty liability include the number of
      units
      sold, historical and anticipated rates of warranty claims, and cost per claim.
      The Company periodically assesses the adequacy of its recorded allowance for
      warranties and adjusts the amount as necessary. The allowance for warranties
      at
      December 31, 2005 was $35,000. Actual warranty expense for the periods ended
      December 31, 2005 and 2004 was approximately $46,000 and $6,000,
      respectively.




*Start-up
      and organization costs*





Costs
      and
      expenses associated with entry into new homebuilding residential markets and
      opening new communities in existing markets are expensed when
      incurred.





*Minority
      Interest*





When
      losses applicable to the minority interest in a subsidiary exceed the minority
      interest in the equity capital of the subsidiary, such excess and any further
      losses applicable to the minority interest are charged against the majority
      interest in the subsidiary when there are no obligations for the minority
      interest to fund such losses.





The
      subsidiaries operating agreements define how profits and losses are generally
      allocated amongst its members. Generally, profits and losses are allocated
      first
      to preferred members in an amount equal to their Preferred Return (as defined
      in
      their respective Operating Agreements) and then all remaining profits and losses
      are allocated to the common members based on their respective ownership
      percentages.





*Income
      Taxes*





Deferred
      income taxes are recorded to reflect the tax consequences in future years of
      temporary differences between the tax basis of the assets and liabilities and
      their financial statement amounts at the end of each reporting period. Valuation
      allowances are established when necessary to reduce deferred tax assets to
      the
      amount expected to be realized. Income tax expense is the tax payable for the
      current period and the change during the period in deferred tax assets and
      liabilities. The deferred tax assets and liabilities have been netted to reflect
      the tax impact of temporary differences. At December 31, 2005, a full valuation
      allowance has been established for the deferred tax asset as management believes
      that it is more likely than not that a tax benefit will not be
      realized.





F-14


**CARDINAL
        COMMUNICATIONS, INC. AND SUBSIDIARIES**
 
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 **FOR
        THE YEARS ENDED DECEMBER 31, 2005 AND 2004**


Certain
      entities have elected to be treated as Limited Liability Companies (LLC) for
      income tax purposes. Accordingly, taxable income and losses of these entities
      are reported on the income tax returns of the respective members and no
      provision for federal income taxes has been recorded on the accompanying
      financial statements.





*Financial
      Instruments and Concentration of Credit Risk*





Financial
      instruments, which potentially subject the Company to concentrations of credit
      risk, consist principally of cash and cash equivalents and accounts receivable.
      The Company maintains its cash in bank deposit accounts, which, at times, may
      exceed federally insured limits. The Company has not experienced any losses
      in
      such accounts and believes it is not exposed to any significant credit risk
      on
      cash. Accounts receivable are typically unsecured and are derived from
      transactions with and from customers located primarily in the western United
      States; the Company performs ongoing credit evaluations of its
      customers.





*Concentrations*





The
      Company relies, in part, on local telephone companies and other companies to
      provide certain telecommunications services. Although management believes
      alternative telecommunications facilities could be found in a timely manner,
      any
      disruption of these services could have an adverse effect on operating
      results.





*Earnings
      per Share*





The
      Company computes earnings per common share in accordance with Statement of
      Financial Accounting Standards No. 128, "Earnings per Share" (SFAS No. 128).
      The
      Statement requires dual presentation of basic and diluted EPS on the face of
      the
      income statement for all entities with complex capital structures and requires
      a
      reconciliation of the numerator and denominator of the basic EPS computation
      to
      the numerator and denominator of the diluted EPS computation. Basic loss per
      share is computed by dividing loss available to common shareholders by the
      weighted average number of common shares outstanding. The computation of diluted
      loss per share is similar to the basic loss per share computation except the
      denominator is increased to include the number of additional shares that would
      have been outstanding if the dilutive potential common shares had been issued.
      In addition, the numerator is adjusted for any changes in income or loss that
      would result from the assumed conversions of those potential shares. However,
      such presentation is not required if the effect is antidilutive. Accordingly,
      the diluted per share amounts do not reflect the impact of warrants and options
      or convertible debt outstanding (totaling 67,543,129 and 129,757,591at December
      31, 2005 and 2004, respectively) is not presented as the effects would be
      anti-dilutive.


*Intangible
      Assets*





Intangible
      assets are stated at cost and are amortized over the estimated useful lives
      of
      the assets.





F-15


**CARDINAL
        COMMUNICATIONS, INC. AND SUBSIDIARIES**
 
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 **FOR
        THE YEARS ENDED DECEMBER 31, 2005 AND 2004**




Description
            
            LifeContracts
            
            15
                years or life of contractRight
                of Entry Agreements
            
            3
                yearsCustomer
                Base
            
            5
                yearsWebsite
                and Graphics
            
            3
                yearsSoftware
            
            3
                or 7 years




The
      Company assesses the recoverability of intangible assets by determining whether
      the amortization of the intangible asset balance over its remaining life can
      be
      recovered through undiscounted future operating cash flows of the acquired
      operation. The amount of impairment, if any, is measured based on projected
      discounted future operating cash flows using a discount rate reflecting the
      Company's average cost of funds. The assessment of the recoverability of
      intangible assets will be impacted if estimated future operating cash flows
      are
      not achieved.





*Stock
      Based Compensation*





The
      Company accounts for stock based compensation in accordance with Statement
      of
      Financial Accounting Standards No. 123, "Accounting for Stock-Based
      Compensation" (SFAS 123). This standard requires the Company to adopt the "fair
      value" method with respect to stock-based compensation of consultants and other
      non-employees and allows for use of the intrinsic value method for stock-based
      compensation of employees under Accounting Principles Board Opinion No.
      25.





Had
      compensation cost for the Company's stock-based compensation plans been
      determined using the fair value of the options at the grant date as prescribed
      by SFAS 123, the Company's pro forma net loss and loss per common share would
      be
      as follows:





Year
                Ended December 31,2005
            
            2004NET
                LOSS AS REPORTED
            
            $
            (11,225,278
            )
            $
            (18,152,850
            )Stock
                based employee compensation(options
                as recorded):
            
            
            -0-
            
            
            -0-Stock
                based employee compensation(options
                value method):
            
            
            -0-
            
            
            -0-ProForma
                Net Loss
            
            $
            (11,225,278
            )
            $
            (18,152,850
            )Basic
                loss per common share as reported
            
            
            (0.04
            )
            
            (0.11
            )ProForma
                Net loss per common share
            
            
            (0.04
            )
            
            (0.11
            )




*Valuation
      of the Company's Common Stock*




Unless
      otherwise disclosed, all stock based transactions entered into by the Company
      have been valued at the market value of the Company's common stock on the date
      the transaction was entered into or have been valued using the Black-Scholes
      Pricing Model to estimate the fair market value.





*Recently
      Issued Accounting Pronouncements*





In
      June
      2005, the Financial Accounting Standards Board (“FASB”) ratified its Emerging
      Issues Task Force consensus in Issue No. 04-5, “Determining Whether a General
      Partner, or the General Partners as a Group, Controls a Limited Partnership
      or
      Similar Entity When the Limited Partners Have Certain Rights” (“Issue 04-5”).
      This guidance states that the general partner in a limited partnership is
      presumed to control that limited partnership, with limited exceptions. The
      Company does not expect the provisions of Issue 04-5 to impact its current
      accounting treatment for limited partnerships because the Company is not a
      general partner. Issue 04-5 is effective June 29, 2005 for new limited
      partnerships and existing limited partnerships where the partnership agreement
      has been modified and is otherwise effective for the first fiscal period
      beginning after December 15, 2005 for all other limited partnerships. Currently,
      the Company directly has no limited partnership interests.




F-16


**CARDINAL
        COMMUNICATIONS, INC. AND SUBSIDIARIES**
 
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 **FOR
        THE YEARS ENDED DECEMBER 31, 2005 AND 2004**


In
      May
      2005, the FASB issued SFAS No. 154, “Accounting Changes and Error Corrections —
a replacement of APB Opinion No. 20 and FASB Statement No. 3” (“SFAS 154”). This
      Statement replaces APB Opinion No. 20, “Accounting Changes,” and SFAS No. 3,
“Reporting Accounting Changes in Interim Financial Statements,” and changes the
      requirements for the accounting for and reporting of a change in accounting
      principle. This Statement requires retrospective application to financial
      statements of prior periods for changes in accounting principle. This Statement
      is effective January 1, 2006 and has been determined to have no impact on the
      Company’s results of operations or its financial position.





In
      December 2004 the FASB issued SFAS No.123 (revised 2004), "Share-Based Payment"
      ("SFAS 123(R)"). SFAS 123(R) will provide investors and other users of financial
      statements with more complete and neutral financial information by requiring
      that the compensation cost relating to share-based payment transactions be
      recognized in financial statements. That cost will be measured based on the
      fair
      value of the equity or liability instruments issued. SFAS 123(R) covers a wide
      range of share-based compensation arrangements including share options,
      restricted share plans, performance-based awards, share appreciation rights,
      and
      employee share purchase plans. SFAS 123(R) replaces SFAS No. 123, "Accounting
      for Stock-Based Compensation", and supersedes APB Opinion No. 25, "Accounting
      for Stock Issued to Employees". SFAS 123, as originally issued in 1995,
      established as preferable a fair-value-based method of accounting for
      share-based payment transactions with employees. However, that Statement
      permitted entities the option of continuing to apply the guidance in Opinion
      25,
      as long as the footnotes to financial statements disclosed what net income
      would
      have been had the preferable fair-value-based method been used. Public entities
      (other than those filing as small business issuers) will be required to apply
      SFAS 123(R) as of the first interim or annual reporting period that begins
      after December 15, 2005. The Company has evaluated the impact of the
      adoption of SFAS 123(R), and believes that it could have an impact to the
      Company's overall results of operations depending on the number of stock options
      granted in a given year.





In
      December 2004 the FASB issued SFAS No.153, "Exchanges of Nonmonetary Assets,
      an
      amendment of APB Opinion No. 29, Accounting for Nonmonetary Transactions."
      The
      amendments made by SFAS 153 are based on the principle that exchanges of
      nonmonetary assets should be measured based on the fair value of the assets
      exchanged. Further, the amendments eliminate the narrow exception for
      nonmonetary exchanges of similar productive assets and replace it with a broader
      exception for exchanges of nonmonetary assets that do not have commercial
      substance. Previously, Opinion 29 required that the accounting for an exchange
      of a productive asset for a similar productive asset or an equivalent interest
      in the same or similar productive asset should be based on the recorded amount
      of the asset relinquished. Opinion 29 provided an exception to its basic
      measurement principle (fair value) for exchanges of similar productive assets.
      That exception required that some nonmonetary exchanges, although commercially
      substantive, to be recorded on a carryover basis. By focusing the exception
      on
      exchanges that lack commercial substance, the FASB believes SFAS No.153 produces
      financial reporting that more faithfully represents the economics of the
      transactions. SFAS No.153 is effective for nonmonetary asset exchanges occurring
      in fiscal periods beginning after June 15, 2005. Earlier application is
      permitted for nonmonetary asset exchanges occurring in fiscal periods beginning
      after the date of issuance. The provisions of SFAS No.153 shall be applied
      prospectively. The Company has evaluated the impact of the adoption of SFAS
      153,
      and does not believe the impact will be significant to the Company's overall
      results of operations or financial position.





In
      March
      2004 the FASB approved the consensus reached on the Emerging Issues Task Force
      (EITF) Issue No. 03-1, "The Meaning of Other-Than-Temporary Impairment and
      Its
      Application to Certain Investments." The objective of this Issue is to provide
      guidance for identifying impaired investments. EITF 03-1 also provides new
      disclosure requirements for investments that are deemed to be temporarily
      impaired. In September 2004 the FASB issued a FASB Staff Position (FSP) EITF
      03-1-1 that delays the effective date of the measurement and recognition
      guidance in EITF 03-1 until after further deliberations by the FASB. The
      disclosure requirements are effective only for annual periods ending after
      June
      15, 2004. On November 3, 2005, FASB Staff Position Nos. FAS 115-1 and FAS
      124-1“The Meaning of Other-Than-Temporary Impairment and Its Application to
      Certain Investments” was issued and the Company evaluated the impact of the
      adoption of the disclosure requirements and on December 31, 2005, the company
      determined that the market value of its marketable securities had been
      permanently impaired and wrote down the stock value to $12,800 per the
      guidelines.





Note
      3 .
      CORRECTION OF AN ERROR IN PREVIOUSLY ISSUED FINANCIAL STATEMENTS





The
      Company determined it had an accounting error recording sales when the Company
      still had obligations. In this error, the company had recognized $2,041,670
      in
      sales for December 31, 2005. Accordingly, certain historical transactions have
      been reclassified on the financial statements as of December 31, 2005. To
      correct this error, the Company will restate its previously filed quarterly
      financial statements for the second and third quarters of 2005, and the
      previously filed financial statements of and for the year ended December 31,
      2005.




F-17


**CARDINAL
        COMMUNICATIONS, INC. AND SUBSIDIARIES**
 
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 **FOR
        THE YEARS ENDED DECEMBER 31, 2005 AND 2004**


The
      accompanying tables reconcile the Company's results of operations for the year
      ended December 31, 2005 and the Company's financial position as of December
      31,
      2005, both previously reported in the Company's 2005 Annual Report on Form
      10-KSB, to the restated financial statements.





For
                the Year Ended December 31, 2005
            
            As
                Reported in 2005 10-KSB
            
            Audited
                Adjustments
            
            Restated
                Amounts for 2005Revenues
            
            $
            27,906,065
            
            $
            (2,041,670
            )
            $
            25,864,395Cost
                of Sales
            
            
            (20,815,656
            )
            
            1,854,910
            
            
            (18,960,746
            )Gross
                Profit
            
            
            7,090,409
            
            
            (186,760
            )
            
            6,903,649Total
                operating (expenses)
            
            
            16,469,751
            
            
            201,212
            
            
            16,670,963Total
                other (expense)
            
            
            (2,411,727
            )
            
            0
            
            
            (2,411,727
            )(LOSS)
                BEFORE MINORITY INTEREST
            
            
            (11,791,069
            )
            
            (387,972
            )
            
            (12,179,041
            )(Income)/loss
                attributable to minority interest
            
            
            565,792
            
            
            213,172
            
            
            778,964NET
                (LOSS)
            
            $
            (11,225,277
            )
            $
            (174,800
            )
            $
            (11,400,077
            )Income/(loss)
                per common share, basic and diluted:Net
                (loss) per common share
            
            $
            (0.04
            )
            $
            (0.00
            )
            $
            (0.04
            )Weighted
                average number of shares outstanding
            
            
            258,985,141
            
            
            258,985,141
            
            
            258,985,141




For
                the Year Ended December 31, 2005
            
            As
                Reported in 2005 10-KSB
            
            Audited
                Adjustments
            
            Restated
                Amounts for 2005ASSETSUnchanged
                Assets
            
            $
            15,168,501
            
            
            
            
            $
            15,168,501Real
                estate and land inventory
            
            
            44,707,495
            
            
            (70,966
            )
            $
            44,636,529Deferred
                costs of goods sold
            
            
            0
            
            
            1,860,660
            
            
            1,860,660Total
                Assets
            
            $
            59,875,996
            
            $
            1,789,694
            
            $
            61,665,690LIABILITIES
                AND STOCKHOLDERS' EQUITY (DEFICIT)Unchanged
                Liabilities
            
            $
            53,127,650
            
            $
            0
            
            $
            53,127,650Accrued
                expenses and other liabilities
            
            
            3,843,132
            
            
            135,996
            
            
            3,979,128Deferred
                revenue
            
            
            614,350
            
            
            2,041,670
            
            
            2,656,020Total
                Liabilities
            
            
            57,585,132
            
            
            2,177,666
            
            
            59,762,798Commitments
                and ContingenciesStock
                Committed
            
            
            2,804,837
            
            
            0
            
            
            2,804,837Minority
                Interest
            
            
            2,542,406
            
            
            (213,172
            )
            
            2,329,234Stockholders'
                equity (deficit):Unchanged
                Equity
            
            
            69,333,594
            
            
            0
            
            
            69,333,594Accumulated
                (deficit)
            
            
            (72,389,973
            )
            
            (174,800
            )
            
            (72,564,773
            )Total
                Stockholders' Equity (Deficit)
            
            
            (3,056,379
            )
            
            (174,800
            )
            
            (3,231,179
            )Total
                Liabilities and Stockholders' Equity (Deficit)
            
            $
            59,875,996
            
            $
            1,789,694
            
            $
            61,665,690




F-18


**CARDINAL
        COMMUNICATIONS, INC. AND SUBSIDIARIES**
 
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 **FOR
        THE YEARS ENDED DECEMBER 31, 2005 AND 2004**


4.
      GOING
      CONCERN





The
      Company has experienced recurring losses and operated with negative working
      capital and, as a result, there exists substantial doubt about its ability
      to
      continue as a going concern. For the years 2005 and 2004, the Company incurred
      a
      net loss of $11,225,278 and $18,152,850, respectively. As of December 31, 2005,
      the Company had an accumulated deficit of $72,389,973 . The Company is actively
      seeking customers for its services. The financial statements do not include
      any
      adjustments relating to the recoverability and classification of recorded
      assets, or the amounts and classification of liabilities that might be necessary
      in the event the Company cannot continue in existence. These factors raise
      substantial doubt about the Company’s ability to continue as a going
      concern.




Management
      plans to raise capital by obtaining debt and equity financings. Management
      intends to use the proceeds from any financings for home building activities
      and
      to acquire and develop markets to implement its business plan and sell its
      telecommunications services. The Company believes that these actions will enable
      it to carry out its business plan and ultimately to achieve profitable
      operations.





5.
 
      DEPOSITS AND PREPAID EXPENSES





Deposits
      and prepaid expenses consisted of the following at December 31,
      2005:





Deposits
            
            $
            193,433Prepaid
                expenses
            
            
            139,527Escrow
                deposits
            
            
            437,507Other
            
            
            59,154Total
                deposits and prepaid expenses
            
            $
            829,621




6.
      PROPERTY AND EQUIPMENT





Classifications
      of property and equipment and accumulated depreciation were as follows at
      December 31, 2005:





Airplane
                and vehicles
            
            $
            605,012Furniture
            
            
            81,988Data
                Hardware
            
            
            105,791Equipment
            
            
            1,773,894Leasehold
                improvements
            
            
            63,106Buildings
                and developments properties
            
            
            2,414,762Rental
                real estate
            
            
            423,2785,467,831Less
                accumulated depreciation
            
            
            (2,431,656
            )Total
                property and equipment
            
            $
            3,036,175





For
      the
      years ending December 31, 2005 and 2004, the Company recognized $732,223 and
      $314,616 of depreciation expense, respectively.





F-19




**CARDINAL
        COMMUNICATIONS, INC. AND SUBSIDIARIES**
 
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 **FOR
        THE YEARS ENDED DECEMBER 31, 2005 AND 2004**


7.
      INTANGIBLES





Classification
      of intangible assets and accumulated amortization at December 31, 2005 were
      as
      follows:


DescriptionRight
                  for entry of agreements
              
              $
              95,000Customer
                  Base
              
              
              221,408Goodwill
              
              
              8,509,032Totals
              
              
              8,825,440Accumulated
                  Amortization
              
              
              (245,507
              )Intangible
                  Assets, net
              
              $
              8,579,933





For
      the years ending December 31, 2005 and 2004, the Company recognized $780,693
      and
      $748,697 respectively of amortization expense. Additions and reductions to
      intangible assets in 2005 and 2004 are the result of certain acquisitions and
      dispositions. In addition we impaired certain intangible assets at year end
      which reduced our total intangible assets and associated accumulated
      amortization. See policy above for Long-lived Assets.





8.
      ACCRUED EXPENSES AND OTHER LIABILITIES





Accrued
      expenses and other liabilities consisted of the following at December 31,
      2005:




Accrued
                  expenses and other
              
              $
              2,254,018Deposits
                  from customers
              
              
              619,644Accrued
                  payroll taxes
              
              
              352,550Accrued
                  wages and vacation
              
              
              377,254Accrued
                  interest
              
              
              206,896Due
                  to loan officer
              
              
              32,769Total
                  accrued expenses and other liabilities
              
              $
              3,843,131




9.
      NOTES
      PAYABLE, RELATED PARTY DEBT AND LAND AND CONSTRUCTION LOANS





In
      December 2003, the Company executed a convertible loan agreement under which
      the
      Company could borrow up to $700,000. At December 31, 2003, the balance of the
      loan was $57,000. The loans were due one year from funding, and accrue interest
      at the rate of ten percent (10%) per annum and are convertible into the
      Company’s common stock at a conversion price of $0.15 per share. Additionally,
      the agreement called for the issuance upon conversion of two warrants with
      an
      exercise price of $0.18 and $0.26 respectively for each share converted. In
      accordance with EITF 98-5, the Company calculated the beneficial conversion
      feature as $44,200 using the intrinsic value method as of December 31, 2003.
      Since the note is convertible immediately, the entire $44,200 was expensed.
      During the first quarter of 2004, the Company borrowed an additional $543,000
      under the agreement bringing the balance to $600,000. During 2004, the Company
      recorded $351,467 as expense for the beneficial conversion feature of the
      additional borrowings using the intrinsic value method as the notes are
      convertible immediately. In March 2004, as inducement to convert the Company
      reduced the conversion price to $0.12 per share and also adjusted the exercise
      price of any warrants that would be issued to $0.12 per share. In connection
      with adjusting the conversion price, the entire $600,000 outstanding balance
      of
      the note was converted into 5,000,000 shares of the Company's common stock.
      In
      accordance with SFAS 84, the Company recorded a debt conversion expense of
      $100,000 as a result of the inducement. Upon conversion the Company granted
      warrants to purchase 10,000,000 shares of the Company's common stock at $0.12
      per share. Of the warrants, 5,000,000 are exercisable over a period of three
      years and the remaining 5,000,000 are exercisable over a period of five years.
      The warrants were valued at $700,000, the fair value using the Black-Scholes
      Pricing Model and recorded as interest expense. The average risk free interest
      rate used was 1.26%, volatility was estimated at 110% and the expected life
      was
      three and five years.




F-20





**CARDINAL
      COMMUNICATIONS, INC. AND SUBSIDIARIES**





**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**FOR
      THE YEARS ENDED DECEMBER 31, 2005 AND 2004**




In
      March
      2004, Atlas Capital Services, LLC ("Atlas") arranged for the Company to complete
      the closing of a private placement totaling $3,095,000. The placement consisted
      of $1,000,000 in common stock at $0.10 per share, $2,095,000 in convertible
      debentures convertible into common stock at $0.10 per share. Upon closing of
      the
      convertible debenture, the Company granted the note holder warrants to purchase
      13,782,895 shares of the Company's common stock at $0.08 per share. The
      convertible debentures, if not converted, were due September 15, 2005 and bear
      interest at six percent (6%) payable quarterly. Under the terms of the private
      placement, the investors have the right to purchase up to an amount equal to,
      at
      the election of such investors, $3,000,000 principal amount of additional
      debentures. Any additional investment will be on terms identical to those set
      forth in the private placement. The entire proceeds from the convertible
      debentures were allocated to the warrants and the notes payable. Since the
      warrants are detachable, in accordance with EITF 00-27 the Company recorded
      the
      allocated value of the warrants of $486,717, the fair value of the warrants
      using the Black-Scholes Pricing Model in proportion to the fair value of the
      note, as a discount on the note. The average risk free interest rate used was
      1.26%, volatility was estimated at 110% and the expected life was eighteen
      months. The discount is recorded as a reduction of the face value of the note
      payable and is being amortized over the eighteen-month term of the note. In
      addition, in accordance with EITF 98-5 and EITF 00-27, the Company recorded
      interest expense of $401,217 for the beneficial conversion feature of the
      discounted convertible note using the intrinsic value method, as the note is
      convertible immediately. In July 2004, the debenture was repriced as described
      below and an additional beneficial conversion feature of $628,500 calculated
      using the intrinsic value method was recorded as expense as the note is
      convertible immediately. As of December 31, 2005 the Company has amortized
      all
      of the discount as interest expense.





During
      the second quarter of 2004, Atlas arranged for the Company to complete the
      closing of an additional private placements totaling $1,575,000, consisting
      of
      $1,575,000 in convertible debentures convertible into common stock at $0.08
      per
      share. Upon closing of the convertible debenture, the Company granted the note
      holder warrants to purchase 7,579,403 shares of the Company's common stock
      at
      $0.10 per share. The convertible debentures, if not converted, are due April,
      2006 and bears interest at eight percent (8.0%) payable quarterly. Under the
      terms of these private placements, the investors have the right to purchase
      up
      to an amount equal to, at the election of such investors, $1,500,000 principal
      amount of additional debentures. Any additional investment will be on terms
      identical to those set forth in the private placements. The entire proceeds
      from
      the convertible debentures were allocated to the warrants and the notes payable.
      Since the warrants are detachable, in accordance with EITF 00-27 the Company
      recorded the allocated value of the warrants of $504,742, the fair value of
      the
      warrants using the Black-Scholes Pricing Model in proportion to the fair value
      of the note, as a discount on the note. The average risk free interest rate
      used
      was 5%, volatility was estimated at 106% and the expected life was five years.
      The discount is recorded as a reduction of the face value of the note payable
      and is being amortized over the two-year-term of the note. In addition, in
      accordance with EITF 98-5 and EITF 00-27, the Company recorded interest expense
      of $1,299,375 for the beneficial conversion feature of the discounted
      convertible note using the intrinsic value method, as the note is convertible
      immediately. In July 2004, the debenture was repriced and an additional
      beneficial conversion feature of $472,500 using the intrinsic value method
      was
      recorded as expense as the note is convertible immediately. As of December
      31,
      2005 the Company has amortized $388,376 of the discount as interest
      expense.





The
      company was has been notified that certain affiliated purchasers in both the
      March 2004 private placement and the second quarter 2004 private placement
      expect additional penalty interest and liquidated damages when their notes
      are
      satisfied. The Company believes that when the terms of the private placements
      were modified in February 2005 (described below), the default interest and
      liquidated damages were eliminated. However as of December 31, 2005 the Company
      has recorded additional accrued interest expense of $111,307 comprised of
      $32,569 of penalty interest and 78,738 of liquidated damages until such time
      this issue is resolved.




F-21
 
  **CARDINAL
        COMMUNICATIONS, INC. AND SUBSIDIARIES**
  **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 **FOR
        THE YEARS ENDED DECEMBER 31, 2005 AND 2004**




During
      the third quarter of 2004, Atlas arranged for the Company to complete the
      closing of two additional private placements totaling $750,000, consisting
      of
      $750,000 in convertible debentures convertible into common stock at $0.05 per
      share. Upon closing of the convertible debenture, the Company granted the note
      holders warrants to purchase 11,250,000 shares of the Company's common stock
      at
      $0.12 per share. The convertible debentures, if not converted, are due June,
      2006 and bear interest at twelve percent (12.0%) payable quarterly. Under the
      terms of these private placements, the investors have the right to purchase
      up
      to an amount equal to, at the election of such investors, $750,000 principal
      amount of additional debentures. Any additional investment will be on terms
      identical to those set forth in the private placements. The entire proceeds
      from
      the convertible debentures were allocated to the warrants and the notes payable.
      Since the warrants are detachable, in accordance with EITF 00-27 the Company
      recorded the allocated value of the warrants of $370,228, the fair value of
      the
      warrants using the Black-Scholes Pricing Model in proportion to the fair value
      of the note, as a discount on the note. The average risk free interest rate
      used
      was 5%, volatility was estimated at 138% and the expected life was five years.
      The discount is recorded as a reduction of the face value of the note payable
      and is being amortized over the two-year-term of the note. In addition, in
      accordance with EITF 98-5 and EITF 00-27, the Company recorded interest expense
      of $739,130 for the beneficial conversion feature of the discounted convertible
      note using the intrinsic value method, as the note is convertible immediately.
      As of December 31, 2005 the Company has amortized $646,320 of the discount
      as
      interest expense.





The
      Company and Evergreen Venture Partners, LLC (“Evergreen”) entered into a
      Surrender and Exchange Agreement effective as of February 18, 2005, the Closing
      date of the acquisition of Sovereign. Under the terms of the Surrender and
      Exchange Agreement, Evergreen surrendered 17,000,000 shares of the Company’s
      common stock owned by it (the “Surrendered Shares”). Evergreen also surrendered
      warrants to purchase 15,316,667 shares of common stock (the “Surrendered
      Warrants”). The Surrendered Shares and the Surrendered Warrants have been
      canceled and are of no further force or effect. In consideration of the
      Surrendered Shares and Surrendered Warrants, the Company issued to Evergreen
      a
      new promissory note in the principal amount of $750,000 (the “Note”). The Note
      provides for the lump sum payment of the principal amount of the Note on July
      1,
      2006. However, should the trading price of the Company’s common stock be greater
      than $0.21 per share for a consecutive thirty day period, the Note shall
      terminate and the Company will have no further obligation to Evergreen under
      the
      Note.




Additionally,
      in February 2005 the Company modified the terms of its 2004 private placement
      agreements with Crestview Capital Master, LLC (Crestview”) and other affiliates
      of Crestview totaling $4,420,000 (the “Modification”) such that a maximum of
      40,000,000 shares are to be issued upon conversion of the debentures and the
      warrants issued in connection with the private placements to purchase an
      aggregate of 31,626,372 shares of common stock were surrendered and canceled.
      If
      the Company’s common share price exceeds $0.25 per share for 30 consecutive
      days, payment of debentures totaling $2,250,000 shall be forgiven by the
      debenture holders.





In
      September 2005, the Company entered into a Secured Promissory Note with
      Crestview Capital Master, LLC. The principal amount of the note was $500,000
      bearing interest at the rate of LIBOR plus 6%. The note is due August 1, 2006.
      As partial consideration for the note, the Company issued to the Payee a five
      year warrant to purchase 1,666,666 shares of common stock at an exercise price
      of $0.07. A note origination fee of $10,000 was recorded in relation this note
      and a debt discount value was calculated based upon the Black-Scholes Pricing
      Model applied to the warrants; and over the life of the note $34,972 of
      additional interest will be recorded relating to the accretion of the note
      to
      its face value. For the Black-Scholes Pricing Model the average risk free
      interest rate used was 5%, volatility was estimated at 83% and the expected
      life
      was five years.





In
      December 2005, the Company entered into a Secured Promissory Note with Crestview
      Capital Master, LLC and The Elevation Fund, LLC (collectively the “Payee”). The
      principal amount of the note was $750,000 bearing interest at the rate of 10%.
      The note is due December 17, 2006. As partial consideration for the note, the
      Company issued to the Payee five year warrants to purchase 7,500,000 shares
      of
      common stock at an exercise price of $0.05. A note origination fee of $ 35,882
      was recorded in relation this note and a debt discount value was calculated
      based upon the Black-Scholes Pricing Model applied to the warrants; and over
      the
      life of the note $66,917 of additional interest will be recorded relating to
      the
      accretion of the note to its face value. For the Black-Scholes Pricing Model
      the
      average risk free interest rate used was 5%, volatility was estimated at 70%
      and
      the expected life was five years. Also in December 2005, the Company entered
      into a Convertible Debenture Loan Agreement with Crestview Capital Master,
      LLC
      and The Elevation Fund, LLC. The agreement set the interest rate for both the
      September 2005 Secured Promissory Note and the December Secured Promissory
      note
      at 10% and extended an additional amount of credit for $250,000 bringing the
      total available for loan under the agreement to $1,500,000. Currently only
      $1,250,000 has been borrowed on these agreements. The holders of the Notes
      have
      the right, at any time, to convert up to forty percent (40%) of the principal
      owed to the holder to shares of Common Stock at a rate of $.025 per shares.
      There is no intrinsic value to the beneficial conversion feature as the
      conversion is at $.025 per share and the Company’s stock was trading at $.021
      when the agreement was signed




F-22


**CARDINAL
        COMMUNICATIONS, INC. AND SUBSIDIARIES**
 
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 **FOR
        THE YEARS ENDED DECEMBER 31, 2005 AND 2004**




At
      December 31, 2005 total notes payable under the above is $5,670,000 with
      unamortized debt discount of $232,858 netted against the balance resulting
      in a
      senior, secured notes payable balance of $5,437,142.





*Construction
      Lines-of-Credit*





Through
      the Company’s subsidiary Sovereign Partners, LLC, the Company maintains secured
      revolving construction lines-of-credit with several lending institutions for
      its
      construction projects. At December 31, 2005 the aggregate borrowings under
      the
      lines-of-credit total $17,171,642. Borrowings on the lines are repaid in
      connection with the sale of completed units. The lines-of-credit are secured
      by
      the project being constructed. Each construction line is personally guaranteed
      by individual members of each development entity. Interest rates range from
      5.75% to 9.0%, and have maturity dates ranging from March 2006 through November
      2006, with two exceptions with maturities in May 2011 and July 2034, unless
      extended. As of December 31, 2005, the construction lines-of-credit outstanding
      amounts range from $143,000 to $2,973,294, utilizing eight different
      lenders.





*Related
      Party Debt*





In
      May
      2005 the Company and a related party, Jantaq, Inc. entered into a $50,000 note.
      A principal of Jantaq, Inc. John Weisman is the brother of the Company’s former
      CEO David Weisman. The terms of the agreement were for 12% per annum interest
      and the note was due June 8, 2005. On June 1, 2005 we amended the note to
      increase the balance due to $125,000. This note was satisfied in June 2005
      with
      4,166,667 shares of the Company’s common stock. Interest of $1,125 was recorded
      in relation to this note and financing expense of $119,708 was recorded in
      relation to the stock conversion.





In
      June
      2005, the Company entered into a $500,000 note payable agreement with a related
      party, Ed Buckmaster. Mr. Buckmaster is the general partner of AEJM Enterprises
      Limited Partnership, a shareholder of the Company and father-in-law of the
      current CEO, Mr. Edouard Garneau. The terms of the agreement are for 12% simple
      interest over the life of the note and the note was due September 1, 2005.
      The
      Company is currently negotiating an amendment and extension on the balance
      of
      this note.




In
      August
      2005 the Company and, Jantaq, Inc. entered into a $150,000 note. The terms
      of
      the agreement were for 10% per annum interest and the note was due September
      1,
      2005. In September, the company satisfied the note with 5,505,000 shares of
      the
      Company’s common stock. Financing expense of $75,705 was recorded in relation to
      the stock conversion.





Through
      the Company’s subsidiary Sovereign Partners, LLC the Company has both debt
      collateralized by real estate and other unsecured term debt. These notes payable
      totaled $39,694,843 at December 31, 2005. Interest rates range from 5% to
      10.75%, and have maturity dates ranging from January, 2006 through February
      2020. As of December 31, 2005, the notes payable outstanding amounts range
      from
      $43,000 to $4,172,052, utilizing thirteen different lenders. Currently the
      Company is renegotiating matured debt in the amount of $2,010,349 which is
      included in the above total.





The
      Company has related party debt of $4,384,284 at December 31, 2005, utilizing
      twelve different related parties. Interest rates range from 4.25% to 16.00%,
      and
      have maturity dates ranging from October 2006 through November 2007, with three
      exceptions. Two notes amortize over thirty years maturing April 2033 and
      February 2034, and one note is interest only, with no stated maturity date.
      As
      of December 31, 2005, the related party debts outstanding amounts range from
      $1,000 to $811,060.





10.
      INCOME TAXES





The
      significant components of deferred tax assets and liabilities were as follows
      at
      December 31:




2005
              
              2004Deferred
                  tax assets Net operating loss carry forwards
              
              $
              10,663,004
              
              $
              11,816,187Less
                  - valuation allowance
              
              $
              (10,663,004
              )
              $
              (11,816,187
              )Total
                  deferred tax assets
              
              $
              0
              
              $
              0




F-23


**CARDINAL
        COMMUNICATIONS, INC. AND SUBSIDIARIES**
 
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 **FOR
        THE YEARS ENDED DECEMBER 31, 2005 AND 2004**




The
      decrease in the valuation allowance was $1,153,183 and $4,585,187 for the years
      ended December 31, 2005 and 2004, respectively. In assessing the realizability
      of deferred tax assets, management considers whether it is more likely than
      not
      that some portion or all of the deferred tax assets will not be realized. The
      ultimate realization of deferred tax assets is dependent upon the generation
      of
      future taxable income during the periods in which those temporary differences
      become deductible.





The
      Company has net operating loss carry forwards of $43,199,994 for 2005 and
      $32,536,990 for 2004. These losses may be available to offset future income
      for
      income tax reporting purposes and will begin to expire in 2011.




11.
      STOCKHOLDERS' EQUITY





At
      the
      2005 annual meeting of shareholders, the Articles of Incorporation were amended
      to increase the number of authorized shares of common stock to 800,000,000
      and
      to authorize 100,000,000 shares of preferred stock. The Board of Directors
      has
      been authorized to fix the number of shares in series, and the designations,
      preferences, relative, participating, optional or other special rights, and
      qualifications, limitations and restrictions thereof as well as increase or
      decrease the number of shares of any series.




*Stock,
      Option and Warrant Issuances*





During
      2005, the Company issued shares of common stock and common stock purchase
      warrants, as follows:





35,000,000
      shares to acquire various businesses or business assets;




9,671,667
      Stock issued for settlement of notes payable;





24,180,123
      shares to officers and employees in lieu of compensation;





41,159,963
      shares in exchange for consulting and other services





2,500,000
      shares in exchange for 1,250 shares of convertible Series A Preferred Stock;
      and





9,166,666
      warrants as in consideration of notes payable





*2004
      Stock Ownership Plan*





In
      February 2004, the Company’s Board of Directors adopted a stock ownership plan
      for the Company’s officers, Directors and consultants known as the 2004 Stock
      Ownership Plan. Persons who are either officers, Directors or consultants are
      eligible to participate in the 2004 Plan. The Board of Directors may, at any
      time and from time to time, grant shares of the Company’s common stock in such
      amounts and upon such terms and conditions as it may determine, to include
      the
      granting of shares of the Common Stock and the granting of options to purchase
      shares of the common stock. A total of 15,000,000 shares of the Company’s common
      stock have been reserved for issuance under the 2004 Plan registration statement
      on Form S-8 (SEC File No.333-115558) relating to the 2004 Plan, as amended,
      have
      been filed with the SEC. All shares have been issued.





*2005
      Stock Ownership Plan*





In
      December 2004, the Company’s Board of Directors adopted a stock ownership plan
      for its officers, Directors and consultants known as the 2005 Stock Ownership
      Plan. The 2005 Plan was established by the Board of Directors as a means to
      promote the Company’s success and enhance its value by linking the personal
      interests of participants to its shareholders, and by providing participants
      with an incentive for outstanding performance. Persons who are officers,
      directors or consultants are eligible to participate in the 2005 Plan. The
      Board
      of Directors may, at any time and from time to time, grant shares of the
      Company’s common stock in such amounts and upon such terms and conditions as it
      may determine, to include the granting of shares of the Common Stock and the
      granting of options to purchase shares of the common stock. A total of
      110,000,000 shares of the Company’s common stock have been reserved for issuance
      under the 2005 Plan registration statement on Form S-8 (SEC File No.333-121916)
      relating to the 2005 Plan, as amended, have been filed with the SEC. At December
      31, 2005, 37,488,597 shares of the Company’s common stock remain unissued under
      the Plan.





F-24


**CARDINAL
        COMMUNICATIONS, INC. AND SUBSIDIARIES**
 
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 **FOR
        THE YEARS ENDED DECEMBER 31, 2005 AND 2004**


*2004
      and 2005 Stock Options Granted*




During
      the year ended December 31, 2005 the Board of Directors granted options to
      certain contractors totaling 500,000. The options have an exercise price of
      $0.07 per share and are exercisable through July 2010. Expense of $18,375 was
      recorded in relation these options. For the Black-Scholes Pricing Model the
      average risk free interest rate used was 5%, volatility was estimated at 99%
      and
      the expected life was five years.




During
      the year ended December 31, 2004 the Board of Directors granted options to
      certain key employees and consultants totaling 6,650,000. The options have
      an
      exercise price of $0.10 per share and are exercisable when the market price
      for
      common share of the Company's stock reaches $0.15 per share, $0.22 per share
      and
      $0.30 per share respectively. The Company used the Black-Scholes Pricing Model
      to calculate the fair market value of the options given to consultants as
      $43,499; this amount was recorded as an expense. For the Black-Scholes Pricing
      Model the average risk free interest rate used was 5%, volatility was estimated
      at 112% and the expected life was two years.





*Warrant
      Exercises*





During
      2005 and 2004, the Company did not issue any shares upon the exercise of
      warrants.




For
      the
      years ended December 31, 2005 and 2004, the Company recognized $0 and $325,258,
      respectively, of compensation expense related to issuance of warrants to
      non-employees in accordance with SFAS No. 123 using the Black-Scholes Pricing
      Model in proportion to the fair value of the note, as a discount on the note.
      The average risk free interest rate used was 5%, volatility was estimated at
      167% and the expected life was two years.





The
      following table summarizes the activity of options and warrants under all
      agreements and plans for the two years ended December 31, 2005 and
      2004:





DESCRIPTION


Weighted Average Number of
              
              Weighted Average Exercise PriceOptions
              
              Warrants
              
              Options
              
              WarrantsOutstanding
                  December 31, 2003
              
              
              -0-
              
              
              8,476,727
              
              
              n/a
              
              $
              0.19Granted
              
              
              6,650,000
              
              
              118,994,178
              
              $
              0.10
              
              $
              0.10Expired/Cancelled
              
              
              -0-
              
              
              (4,815,477
              )
              
              n/a
              
              $
              0.19Exercised
              
              
              -0-
              
              
              -0-
              
              
              n/a
              
              
              n/aOutstanding
                  December 31, 2004
              
              
              6,650,000
              
              
              122,655,428
              
              $
              0.10
              
              $
              0.11Granted
              
              
              500,000
              
              
              9,166,666
              
              $
              0.07
              
              $
              0.05Expired/Cancelled
              
              
              -0-
              
              
              (71,428,965
              )
              
              n/a
              
              $
              0.11Exercised
              
              
              -0-
              
              
              -0-
              
              
              n/a
              
              
              n/aOutstanding
                  December 31, 2005
              
              
              7,150,000
              
              
              60,393,129
              
              $
              0.10
              
              $
              0.10


*Stock
      Compensation*





During
      2005 and 2004, the Company issued a total of 24,180,123 and 2,355,000 shares
      in
      payment of salaries in the total amount of $518,009 and $206,074 respectively,
      the fair value of the common stock on the respective dates of
      issuance.





During
      2005 and 2004 the Company issued 51,131,630 and 21,400,014 shares of common
      stock, respectively to consultants and professionals for services to be
      performed during 2005 and 2004. The stock price was determined to be market
      price on the date of issuance. As of December 31, 2005 and 2004, $18,013 and
      $17,500, respectively, of services were not performed and are shown as a
      reduction to stockholders' equity.





*Common
      Stock Transactions*





During
      2005 the Company issued 9,671,667 shares of Common Stock for the settlement
      of
      notes payable. The Company also received the return of 17,000,000 shares of
      Common Stock for a $750,000 note payable.





F-25
 
  **CARDINAL
        COMMUNICATIONS, INC. AND SUBSIDIARIES**
  **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 **FOR
        THE
        YEARS ENDED DECEMBER 31, 2005 AND 2004**





During
      2004, the Company issued 38,500,000 shares of common stock for cash of $
      2,305,415 and a stock subscriptions receivable of $ 44,585. The subscription
      receivable was collected during 2005.





During
      2004 and 2005 the Company retained certain debt consultants to assist the
      Company in resolving the issues related to the Company’s working capital
      shortages. The Company issued such shares under its equity incentive plans
      pursuant to the Company’s registration statements on Form S-8, resulting in the
      debt consultants receiving unrestricted shares. The Company’s Board of Directors
      has since reached the conclusion that the issuance of the shares to the debt
      consultants pursuant to Form S-8 Registration Statements may have been improper
      with respect to the use of shares registered on the S-8 Registration Statements,
      and the shares should have been issued as restricted shares pursuant to an
      exemption from registration.




At
      December 31, 2005 the Company accrued $260,616 representing 11,846,160 shares
      of
      common stock of stock Committed for shares issuable to loan guarantors who
      are
      executives or related parties of the Company.




During
      2004 and 2005, the Company issued a total of 54,213,206 shares to four debt
      consultants for services in connection with the resolution of corporate debts
      in
      a total amount of $2,121,167. The value of the shares (based on the market
      price
      of the shares when issued) was $3,301,660. With the assistance of counsel,
      the
      Company also negotiated the return of 17,178,340 shares that were previously
      issued without a restrictive legend and recorded as of December 31, 2005 stock
      committed of $505,315. Of the remaining 37,034,866 shares, the Company believes
      that most, if not all of them, have been resold into the public market and
      are
      no longer owned by the debt consultants.




*Preferred
      Stock Transactions*





In
      2005,
      the Company issued 100,000 shares of its convertible Series B preferred stock
      to
      acquire various business assets The Series B Preferred Stock is convertible
      into
      Common Stock at the conversion rate of 100 shares of Common Stock for each
      share
      of Series B Preferred Stock.





In
      2004,
      the Company issued 10,000 shares of its convertible Series A preferred stock
      for
      $100.00 per share resulting in cash of $1,000,000. The Series A preferred stock
      is convertible into the Company's common stock at eighty-five percent (85%)
      of
      the Market Price provided, however in no event shall the conversion price be
      less than $0.05 per share or exceed $0.075.





12.
      ACQUISITIONS





*Sovereign
      Partners, LLC*





On
      February 18, 2005, the Company closed on the acquisition with Sovereign
      Partners, LLC (“Sovereign”) to acquire 100% of the membership interests of
      Sovereign from the Members in exchange for the issuance of 35,000,000 shares
      of
      the Company’s common stock and 100,000 shares of the Company’s newly created
      Series B Convertible Preferred Stock. Under the terms of the Acquisition
      Agreement the members are to be issued an additional 125,000 shares of Series
      B
      Preferred Stock on January 1, 2006 and July 1, 2006. Sovereign operations
      include real estate development and the related communications infrastructure
      for residential, multiple dwelling unit (apartment) and planned community
      developments.





Conditionally,
      the original Members of Sovereign may earn an additional 250,000 shares of
      Preferred Stock at such time as the Net Operating Income of Sovereign after
      January 1, 2005 is equal to or greater than $6,000,000; and 400,000 shares
      of
      Preferred Stock if the Net Operating Income of Sovereign ending on the period
      twenty-four months following the closing of the acquisition is equal to or
      greater than $5,000,000. For the purposes of the Acquisition Agreement, Net
      Operating Income means for any period the “EBITDA” on a consolidated basis for
      Sovereign and all of its subsidiaries, in accordance with generally accepted
      accounting principles. “EBITDA” means earnings before interest, taxes,
      depreciation and amortization.





The
      Members may earn additional shares of Common Stock or Preferred Stock if the
      average annualized Net Operating Income for the period commencing on the closing
      and ending on the twenty-four month anniversary date of the closing is: (A)
      greater than $5,000,000, but less than or equal to $6,000,000, then the Members
      will receive in the aggregate an additional 0.05 shares of Preferred Stock
      for
      each dollar that the average annualized Net Operating Income for that period
      exceeds $5,000,000; (B) greater than $6,000,000 but less than or equal to
      $7,000,000, then the Members will receive in the aggregate an additional 0.10
      shares of Preferred Stock for each dollar that the average annualized Net
      Operating Income for that period exceeds $5,000,000; (C) greater than $7,000,000
      but less than or equal to $8,000,000, then the Members will receive in the
      aggregate 0.15 shares of Preferred Stock for each dollar that the average
      annualized Net Operating Income for that period exceeds $5,000,000; or (D)
      greater than $8,000,000 for that period, then the Members will receive in the
      aggregate 0.20 shares of Preferred Stock for each dollar that the average
      annualized Net Operating Income for that period exceeds $5,000,000
      (collectively, the “Twenty-Four Month Issuances”).




F-26


**CARDINAL
        COMMUNICATIONS, INC. AND SUBSIDIARIES**
  **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 **FOR
        THE
        YEARS ENDED DECEMBER 31, 2005 AND 2004**


In
      addition, the Members may earn additional shares of Common Stock or Preferred
      Stock as follows: if the average annualized Net Operating Income for the period
      commencing on the Closing and ending on the thirty-six month anniversary date
      of
      the closing is: (A) greater than $5,000,000, but less than or equal to
      $6,000,000, the Members will receive in the aggregate an additional 0.10 shares
      of Preferred Stock for each dollar that the average annualized Net Operating
      Income for that period exceeds $5,000,000; (B) greater than $6,000,000 but
      less
      than or equal to $7,000,000, then the Members will receive in the aggregate
      an
      additional 0.20 shares of Preferred Stock for each dollar that the average
      annualized Net Operating Income for that period exceeds $5,000,000; (C) greater
      than $7,000,000 but less than or equal to $8,000,000, then the Members will
      receive in the aggregate 0.30 shares of Preferred Stock for each dollar that
      the
      average annualized Net Operating Income for that period exceeds $5,000,000;
      or
      (D) greater than $8,000,000 for that period, then the Members will receive
      in
      the aggregate 0.40 shares of Preferred Stock for each dollar that the average
      annualized Net Operating Income for that period exceeds $5,000,000. Such
      issuances will be reduced by the number of shares of Common Stock or Preferred
      Stock received pursuant to the Twenty-Four Month Issuances, if
      any.





Under
      the
      terms of the Acquisition Agreement, the aggregate number of shares of capital
      stock of the Company issuable to the Members is limited to 300,000,000 shares
      of
      Common Stock or such number of shares of Preferred Stock that is convertible
      into 300,000,000 shares of Common Stock, or any combination of Preferred Stock
      and Common Stock which does not exceed 300,000,000 shares of Common Stock in
      total.





The
      Company may suspend the issuance of additional shares of Common Stock or
      Preferred Stock upon certain “breaches” by Sovereign defined in the Acquisition
      Agreement. In the event of a breach, any shares that have not yet been issued
      to
      the Members under the terms of the Acquisition Agreement may be withheld by
      the
      Company until the earlier of (i) twelve months from the date such shares would
      have otherwise been issued to the Members or (ii) such time as any such breach
      has been cured by Sovereign.





This
      transaction was accounted for using the purchase method and, accordingly, the
      purchase price has been allocated to net assets acquired based on their
      estimated fair values at the date of acquisition. The allocation resulted in
      goodwill totaling approximately $6,688,207. Goodwill was recorded at its
      purchase price and is not being amortized. Pursuant to SFAS 142 (“Goodwill and
      Other Intangible Assets”) and SFAS 144 *Accounting
      for the Impairment or Disposal of Long-Lived Assets* the
      Company evaluates its goodwill for impairment annually. Pro forma results of
      operations are presented on a Current Report on Form 8-K by amendment filed
      August 4, 2005. Financial statements for years ended 2002, 2003 and 2004 are
      included in the August 4, 2005 Current Report on Form 8-K/A.





F-27




**CARDINAL
      COMMUNICATIONS, INC. AND SUBSIDIARIES**




**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**FOR
      THE
      YEARS ENDED DECEMBER 31, 2005 AND 2004**


Sovereign
      Purchase Price Allocation




Consideration
              
              Purchase
                  Price AllocationStock
              
              $
              5,705,000Transaction
                  costs
              
              
              294,765Minority
                  Interest
              
              
              4,750,672Assumption
                  of liabilities
              
              
              43,003,203Adjusted
                  Purchase Price
              
              
              53,753,640Allocation
                  to Assets
              
              
              (47,065,433
              )Residual
                  Value of Goodwill
              
              $
              6,688,207




The
      following unaudited proforma condensed statements of operations assumes the
      Sovereign Partners, LLC acquisition occurred on January 1, 2005 and presents
      proforma financial information for the year ended December 31,
      2005.





In
      the
      opinion of management, only a proforma adjustment to salary expense is currently
      necessary to present fairly such unaudited proforma condensed statements of
      operations.


2005January
                  1 to2005
              
              February
                  18
              
              Proforma
              
              ProformaCardinal
              
              Sovereign
              
              Adjustments
              
              CombinedRevenues
              
              $
              27,906,065
              
              $
              3,240,113
              
              $
              -
              
              $
              31,146,178ExpensesCosts
                  of Sales
              
              
              20,815,656
              
              
              2,852,894
              
              
              
              
              
              23,668,550Depreciation
                  and amortization
              
              
              1,512,916
              
              
              37,842
              
              
              
              
              
              1,550,758General
                  and administrative
              
              
              14,956,836
              
              
              647,051
              
              
              4,375
              
              
              15,608,262Total
                  Expenses
              
              
              37,285,408
              
              
              3,537,787
              
              
              4,375
              
              
              40,827,570Operating
                  (loss)
              
              
              (9,379,343
              )
              
              (297,674
              )
              
              (4,375
              )
              
              (9,681,392
              )Other
                  (expense)
              
              
              (2,411,727
              )
              
              (59,319
              )
              
              
              
              
              (2,471,046
              )Net
                  (loss) before minority interest
              
              $
              (11,791,070
              )
              $
              (356,993
              )
              $
              (4,375
              )
              $
              (12,152,438
              )Net
                  (loss) per common share before minority interest
              
              
              (0.05
              )
              
              
              
              
              
              
              
              (0.05
              )Weighted
                  average shares outstanding
              
              
              258,985,141
              
              
              
              
              
              
              
              
              258,985,141




*Connect
      Paging, Inc. d/b/a Get A Phone*





In
      April
      2004, the Company acquired all of the issued and outstanding common stock of
      Connect Paging, Inc. d/b/a Get-A-Phone ("GAP"). The purchase price consisted
      of
      $2,000,000 in cash and 15,000,000 shares of the Company's common stock. GAP
      operates as a competitive local exchange carrier in Texas and Florida offering
      local and long distance telephone services.





The
      transaction was accounted for as a purchase. The purchase price was allocated
      to
      the acquired assets based upon fair market values on the date of
      acquisition.




F-28


**CARDINAL
        COMMUNICATIONS, INC. AND SUBSIDIARIES**
  **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 **FOR
        THE
        YEARS ENDED DECEMBER 31, 2005 AND 2004**


The
      following table summarizes the assets acquired by Cardinal in the transaction
      and the amount attributable to cost in excess of assets
      acquired:




Property and Equipment
            
            $
            45,000Intangibles (Customer List)
            
            $
            1,566,686Intangibles (Goodwill)
            
            $
            1,955,814




The
      following unaudited proforma condensed statements of operations assumes the
      GAP
      acquisition occurred on January 1, 2004 and presents proforma financial
      information for the year ended December 31, 2004. In the opinion of management,
      all adjustments necessary to present fairly such unaudited proforma condensed
      statements of operations have been made.


2004Cardinal
              
              
              GAP
              
              
              
              
              Proforma
                Adjustments
              
              
              Proforma
                CombinedRevenues
              
              $
              6,479,420
              
              $
              2,203,212
              
              
              
              
              
              
              $
              $8,682,632ExpensesCosts
                  of Sales
              
              
              3,587,701
              
              
              766,984
              
              
              
              
              
              
              
              4,354,685Depreciation
                  and amortization
              
              
              1,063,313
              
              
              3,750
              
              (1)
              
              
              (246,253
              )
              
              820,810General
                  and administrative
              
              
              9,471,530
              
              
              936,755
              
              
              
              
              
              
              
              10,408,285Total
                  Operating Expenses
              
              
              14,122,544
              
              
              1,707,489
              
              (1)
              
              
              (246,253
              )
              
              15,583,780Operating
                  loss
              
              
              (7,643,124
              )
              
              495,723
              
              
              
              
              246,253
              
              
              (6,901,148
              )Other
                  Income (expense)
              
              
              (9,659,726
              )
              
              
              
              (2)
              
              
              (94,500
              )
              
              (9,754,226
              )Net
                  loss
              
              $
              (17,302,850
              )
              $
              495,723
              
              (2)
              
              $
              151,753
              
              $
              (16,655,374
              )Net
                  loss per common share
              
              
              (0.10
              )
              
              
              
              
              
              
              
              
              
              (0.10
              )Weighted
                  average shares outstanding
              
              
              165,552,450
              
              
              
              
              
              
              
              
              
              
              165,552,450





(1)
      To
      record depreciation for equipment and amortization of intangible
      assets.




(2)
      To
      record interest on loan to acquire GAP.





*2004
      Failed Acquisition Costs*





SunWest
      Communications, Inc. and Apollo Communications, Inc.





In
      October 2003, the Company signed a Letter of Intent to acquire the assets of
      Apollo Communications, Inc. of Colorado Springs ("Apollo"). Apollo provides
      data
      and high-speed internet access services as well as local and long distance
      telephone services. Additionally, in February, 2004, we signed a definitive
      agreement to acquire the assets of SunWest Communications, Inc. ("SunWest").
      The
      assets included SunWest's network of fiber optic lines, its operations
      facilities and equipment and, subject to Colorado Public Utility Commission
      approval, its customer base.





Through
      September 30, 2004 the Company advanced a combined total of $1,830,000 to
      SunWest and Apollo and recorded this amount as "other long term assets". Through
      September 30, 2004 the Company supported through its operations $1,443,258
      of
      customer care and related expenses of SunWest and Apollo. During the quarter
      ended September 30, 2004 the senior secured lenders of SunWest and Apollo
      foreclosed on the assets of these companies. As a result, the Company wrote
      off
      the balance of other assets of $1,830,000 and reclassified the related expenses
      of $1,443,258 as write off of other assets and reclassification of related
      expenses. The Company has not made a determination whether to seek legal
      recourse to recover damages as a result of the foreclosure.




F-29


**CARDINAL
        COMMUNICATIONS, INC. AND SUBSIDIARIES**
 
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 **FOR
        THE YEARS ENDED DECEMBER 31, 2005 AND 2004**


13.
      COMMITMENTS AND CONTINGENCIES





*Letters
      of credit*





At
      December 31, 2005 the Company, in the normal course of business, had outstanding
      letters of credit of $82,438. The letters are maintained for the benefit of
      certain vendors on a real estate development.




*Litigation*





From
      time
      to time, the Company is a party to a number of lawsuits arising in the normal
      course of business. In the opinion of management, the resolution of these
      matters will not have a material adverse effect on the Company's operations,
      cash flows or financial position.





The
      Company has been involved in lawsuits and other claims. The Company assesses
      the
      likelihood of any adverse judgments or outcomes to these matters as well as
      the
      potential range of probable losses. A determination of the amount of accrual
      required, if any, for these contingencies is made after careful analysis of
      each
      matter. The required accrual may change in the future due to new developments
      in
      any matter or changes in approach (such as a change in settlement strategy)
      in
      dealing with these matters. Management has accrued $45,000.00 of expense in
      relation to a judgement against its subsidiary Usurf TV, however management
      is
      unaware of any other existing or potential litigation or judgment and has made
      no other litigation-related accruals at December 31, 2005.





*Currently
      Pending Litigation*





Cardinal
      Communications, Inc. (the “Company”) is a defendant in a proceeding styled
      Exceleron Software, Inc. v. Cardinal Communications, Inc., Cause No.
      DV05-8334-J, filed in the Dallas County, Texas District Court on August 22,
      2005. **** Exceleron is seeking damages of $240,000 together with interest and attorney’s
      fees for early termination of a billing software contract. The Company intends
      to vigorously defend this action, however, the Company cannot control the
      outcome and the extent of the losses, if any, that may be incurred.





Usurf
      TV,
      formerly known as Neighborlync, a wholly owned subsidiary of the Company that
      ceased operations in early 2005, was sued by Platte Valley Bank in Scotts Bluff,
      Nebraska County Court. The case is styled Platte Valley Bank v. Usurf TV, f/k/a/
      Neighborlync, Inc., Case No. CI O5-1050 **** and was
      filed on September 12, 2005. The Plaintiff obtained judgment for $45,000 in
      or
      around October 2005. The Defendant, however, does not have any assets and is
      no
      longer in business. The Company will vigorously defend itself against any
      attempts to enforce the judgment against the Company, but has recorded a $45,000
      liability in connection with this lawsuit.





The
      Company is a defendant in an arbitration proceeding styled Douglas O. McKinnon
      v. Cardinal Communications, Inc. pending before the American Arbitration
      Association in Denver, Colorado. The demand for arbitration was filed on July
      29, 2005. Mr. McKinnon is seeking $360,000, representing two years salary
      pursuant to an employment agreement with the Company. The Company intends to
      vigorously defend this action; however, the Company cannot control the outcome
      and extent of losses, if any, that may be incurred.





Sovereign
      Companies, LLC (“Sovereign”), a wholly owned subsidiary of the Company, is
      involved in litigation surrounding a condominium development project in Greeley,
      Colorado known as Mountain View at T-Bone. In October 2005, Sovereign, Mountain
      View at T-Bone, LLC (“Mountain View”), and Mr. Edouard A. Garneau filed a
      declaratory relief action against certain members of Mountain View seeking
      a
      determination of the various rights and obligations of the members. The action
      is styled Sovereign Companies, LLC et al. v. Yale King et al., Case No.
      05-CV-649 and is pending in Larimer County District Court in Colorado. The
      declaratory relief action seeks to clarify the roles and responsibilities of
      certain members and the operational authority of individual managers of Mountain
      View and asserts claims against certain of its members. Mr. Garneau is a member
      of the Company’s Board of Directors and indirectly owns and controls shares of
      the Company’s common and preferred stock




F-30


**CARDINAL
        COMMUNICATIONS, INC. AND SUBSIDIARIES**
 
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 **FOR
        THE YEARS ENDED DECEMBER 31, 2005 AND 2004**


In
      a
      related action, Sovereign and Mr. Garneau, in his capacity as Manager of
      Sovereign and Mountain View, were named in a lawsuit brought by several
      individual members of Mountain View, claiming unspecified damages for breach
      of
      contract by Sovereign and Mr. Garneau, and for other causes of action against
      Mr. Garneau individually. That case is styled Yale King et al. v. Sovereign
      Companies, LLC et al., Case No. 2005-CV-1008 **** and was
      filed in June 2005 in Weld County District Court in Colorado. This action was
      subsequently dismissed for improper venue and transferred to Denver County
      District Court. Both related cases have been stayed pending a determination
      as
      to where the two cases should proceed. Sovereign disputes the allegations of
      the
      other Mountain View members and intends to vigorously defend the action.
      However, the Company cannot control the outcome and extent of the losses, if
      any, that may be incurred.




Since
      the
      close of the Company’s 2005 fiscal year, Colorado River KOA, LLC (“CRKOA”), a
      partially owned subsidiary of the Company, **** has been
      sued by WHR Properties, Inc. in a case styled WHR Properties, Inc. v. Colorado
      River KOA, LLC and is currently pending in Gunnison County District Court in
      Colorado. The action was filed on March 17, 2006 and alleges breach of an
      agreement for the purchase of real property and seeks specific performance
      of
      the alleged contract and, alternatively, an unspecified claim for damages.
      CRKOA
      disputes the allegations and intends to vigorously defend the action. However,
      the Company cannot control the outcome and extent of the losses, if any, that
      may be incurred.





Since
      the
      close of the Company’s 2005 fiscal year, Sovereign Companies, LLC and Sovereign
      Developments, LLC, (collectively “Sovereign”), wholly owned subsidiaries of the
      Company, have been sued by Jech Excavating, Inc. in a case styled Jech
      Excavating, Inc. v. Riverplace Condominiums, LLC et al., Case No. 55-CV-06-2-28
      pending in Olmstead County District Court in Minnesota. The action was filed
      on
      February 22, 2006 and alleges breach of contract under a promissory note
      relating to the performance of excavating work at the Riverplace development.
      The action also asserts a claim against Mr. Garneau individually. The Plaintiff
      is seeking damages of $664,000 together with interest and attorney’s fees. The
      parties are currently engaging in settlement negotiations. However, the Company
      cannot control the outcome and extent of the losses, if any, that may be
      incurred.





Since
      the
      close of the Company’s 2005 fiscal year, Sovereign Homes, LLC (“Sovereign
      Homes”), a wholly owned subsidiary of the Company, has been sued by third-party
      plaintiff, Jech Excavating, Inc. in a case styled Falcon Drilling &
Blasting, Inc. v. Jech Excavating, Inc. et al., Case No. 55-C4-05-005151,
      pending in Olmstead County District Court in Minnesota. The third-party
      complaint against Sovereign Homes was filed on March 9, 2006 and seeks
      enforcement of a mechanics lien, alleges breach of contract, and asserts other
      claims relating to the performance of excavating work at the Rocky Creek
      development. The Plaintiff is seeking damages of $263,000 together with interest
      and attorney’s fees. The parties are currently engaging in settlement
      negotiations. However, the Company cannot control the outcome and extent of
      the
      losses, if any, that may be incurred.





*Leases*





The
      Company’s headquarters are located in Broomfield, Colorado and are leased
      through 2015. The Company is currently paying $7,433 per month for the office
      space. This rate on this space will increase over the life of the lease. The
      Company believes that its leased facility is adequate for the Company's needs
      for the foreseeable future.





Cardinal
      Broadband, LLC leases offices in Thornton, Colorado. The Company is currently
      paying $1,767 per month for this facility.





Connect
      Paging, Inc. d/b/a Get A Phone leases office space in Fort Worth, Texas. The
      Company is currently paying $3,496 per month for this facility.





Lighthouse
      Lending leases office space, a copier and other equipment under operating leases
      which expire through 2009. As part of the office lease agreements, the Company
      received an abatement of rent, and also negotiated for an escalation of monthly
      rent payments. These benefits are recorded as deferred rent in other accrued
      liabilities and are being amortized equally over the life of the
      lease.





Rent
      expense for the years ended December 31, 2005 and 2004, was $477,647 and
      $117,835 respectively.




F-31


**CARDINAL
        COMMUNICATIONS, INC. AND SUBSIDIARIES**
 
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 **FOR
        THE YEARS ENDED DECEMBER 31, 2005 AND 2004**


The
      following table sets forth the minimum annual rental expense under the terms
      of
      the Company's lease agreements without common area maintenance
      charges.




Year
              
              Rent Expense2006
              
              $
              436,5822007
              
              $
              471,5462008
              
              $
              349,2462009
              
              $
              290,644Thereafter
              
              $
              296,617


Unestimatable
      Contingency





During
      2004 and 2005 the Company retained certain debt consultants to assist the
      Company in resolving the issues related to Cardinal’s working capital shortages.
      The method under these contracts involved the debt consultants writing checks
      payable to Cardinal’s creditors, and the Company paying the debt consultants a
      fee based on the amount of debt resolved. The fee was paid in shares of the
      Company’s common stock and was calculated at a discount from the then-current
      market price for those shares. The Company issued such shares under its equity
      incentive plans pursuant to Cardinal’s registration statements on Form S-8,
      resulting in the debt consultants receiving unrestricted shares. Cardinal’s
      Board of Directors has since reached the conclusion that the issuance of the
      shares to the debt consultants pursuant to Form S-8 Registration Statements
      may
      have been improper with respect to the use of shares registered on the S-8
      Registration Statements, and the shares should have been issued as restricted
      shares pursuant to an exemption from registration.





During
      2004 and 2005, the Company issued a total of 54,213,206 shares to four debt
      consultants for services in connection with the resolution of corporate debts
      in
      a total amount of $2,121,167. The value of the shares (based on the market
      price
      of the shares when issued) was $3,301,660. The shares were paid for services
      rendered and as reimbursement of monies paid to creditors.





In
      response to learning that the use of shares registered on the S-8 Registration
      Statement may not have been proper, on the advice of counsel, the Board of
      Directors formed a Special Committee in October of 2005 to review and
      investigate all legal and accounting issues that may be related to the improper
      issuances of unrestricted shares. Mr. Garneau and Mr. Weisman were not selected
      to serve on the Special Committee, due to their relationships with certain
      of
      the debt consultants. The Special Committee hired independent counsel who
      confirmed the legal issues which the Company continues to investigate.


With
      the
      assistance of the Special Committee’s counsel, the Company also attempted to
      negotiate a resolution of the outstanding issues with the four debt consultants.
      In these negotiations, the Company received a return to it of 17,178,340 shares
      that were previously issued without a restrictive legend and reissued to those
      debt consultants 25,346,303 shares with a restrictive legend. Of the remaining
      37,034,866 shares, the Company believes that most, if not all of them, have
      been
      resold into the public market and are no longer owned by the debt consultants.
      However, the Company has been unable to confirm this. The Company also sent
      correspondence on October 17, 2005 and November 18, 2005 to Scott Kramer of
      Jantaq Investments, Inc.; Michael Blank of Jango Capital; Ms. Beatrice Welles;
      and Mr. Ed Buckmaster informing them not to sell or effect trades in the shares
      registered on the S-8 Registration Statements due to improper issuances as
      free
      trading securities.





The
      possibly improper issuance of the unrestricted shares to the debt consultants
      and use of the S-8 Registration Statement may result in potential liability
      to
      the Company for failure to comply with specific federal securities laws and
      regulations regulating the use of S-8 registration statements. If this is
      proven, the Company may have liability for fines, penalties, and damages. To
      date, neither the Securities and Exchange Commission, nor any shareholder has
      threatened litigation or an investigation related to the use of the S-8
      Registration Statements.





After
      reviewing the Company’s financial statements, the Company’s Board of Directors
      has determined that it does not believe that it must restate any of the
      financial information previously published and publicly filed by the Company
      because the amount of loss cannot be reasonably estimated. Further, there is
      no
      pending or threatened litigation relating to the improper issuance of the shares
      under the S-8 Registration Statement. Paragraph 10 of Statement of Financial
      Accounting Standards No. 5 (FASB) states that, “[i]f disclosure is deemed
      necessary, the financial statements shall indicate the nature of the loss or
      loss contingency and give an estimate of the amount or range of loss or possible
      loss or state that such an estimate cannot be made.”





The
      Company does not believe that an estimate of the potential loss contingency
      can
      be made at this time, if at all. As the Company continues its review of these
      legal and accounting issues, it will continue to consider the appropriate
      disclosures and whether a loss contingency should appropriately be recognized
      in
      its financial statements for any future or past periods.




F-32


**CARDINAL
          COMMUNICATIONS, INC. AND SUBSIDIARIES**
 
 **NOTES
          TO CONSOLIDATED FINANCIAL STATEMENTS**
 **FOR
          THE YEARS ENDED DECEMBER 31, 2005 AND 2004**


14.
      RELATED PARTIES





*Commission
      expense*




The
      Company’s CEO is also a licensed real estate broker and provided related
      services to the Company for $76,800.





*Rent
      expense*





At
      times,
      the Company sells model units of housing developments to related parties and
      leases them back until the project is completed. For the year ended December
      31,
      2005, the Company incurred rent expense on the lease of these units of
      $52,585.





14.
      SUBSEQUENT EVENTS





Restructure
      and Amendment Agreement





Subsequent
      to year end, the Company entered into a Restructure and Amendment Agreement
      with
      the original members of Sovereign Partners, LLC. This agreement was created
      to
      resolve operating conflicts between the Company and Sovereign Partners, LLC.
      Under the terms of the agreement the original Stock Purchase Agreement was
      modified to eliminate the EBITDA and NOI provisions. All
      subsequent-to-purchase-date issuances of the Company’s stock in consideration of
      the original Stock Purchase Agreement were amended to the following. The
      guaranteed shares were modified to equal 500,000 shares of the Company
      Convertible Series B Preferred Stock issued as 250,000 shares with the execution
      of the agreement and the balance of 250,000 shares to be issued on July 1,
      2006.
      Incentive shares shall equal 1,000,000 shares of the Company’s Convertible
      Series B Preferred Stock and will be issued as 500,000 shares on January 1,
      2007
      and 500,000 shares on July 1, 2007. Bonus shares shall equal 1,000,000 shares
      of
      the Company’s Convertible Series B Preferred stock and will be issued as 500,000
      shares on January 1, 2008 and 500,000 shares on July 1, 2008. In addition,
      the
      Company shall distribute Balance Shares in two equal installments on January
      1,
      2009 and July 1, 2009. The Balance Shares shall be shares of the Company’s
      Convertible Series B Preferred Stock which shall equal such number of such
      preferred stock as shall provide the Members with ownership of at least, but
      not
      more than 49.99% of the issued and outstanding shares of the Common Stock of
      the
      Company on an as converted and fully diluted capitalization basis as measured
      on
      the Measurement Date. The Measurement Date shall be the last day of the first
      consecutive 10 day period, wherein the shares of the Company’s common stock have
      had a closing bid price of at least $0.10 per share on each day in that period,
      as adjusted for any stock splits, dividends, or similar adjustments. The Balance
      Shares calculation shall not include, and shall be adjusted for any shares
      or
      securities issued with respect to any mergers, acquisitions, conversion of
      debt
      to equity, obligations of Sovereign existing as of February 18, 2005 or any
      options or warrants that expire, unexercised prior to January 1, 2009 which
      may
      have been outstanding on the Measurement Date.





Technology
      and Trademark License Agreement





On
      February 17, 2006, the Company (or “Cardinal”) signed a Technology and Trademark
      License Agreement (the “License”) with GalaVu Entertainment Networks, Inc., of
      Toronto, Ontario, Canada (“GalaVu”). The term of the License is ten (10) years.
      Among other things, the License grants Cardinal a non-exclusive, royalty-free,
      fully paid up, worldwide license to make, use, sell, offer to sell, manufacture,
      market, and distribute the finished products and technology incorporated into
      GalaVu’s video on demand system (the “GalaVu Technology”). Under the License,
      Cardinal has the right to bundle products incorporating the GalaVu Technology
      with other products distributed by Cardinal. Cardinal also has the right to
      sublicense the rights granted under the License to third parties, provided
      that
      Cardinal enters into sublicense agreements with each such sublicensee consistent
      with the terms set forth in the License. The rights provided to Cardinal under
      the License shall apply equally to existing and future products of similar
      or
      like functionality as those currently offered by GalaVu. The License requires
      GalaVu to provide Cardinal within five (5) days of the date of execution of
      the
      License, all technical information (including, but not limited to product
      specifications, blueprints and schematics, circuit diagrams, software,
      middleware, and firmware) required to manufacture GalaVu’s products and/or
      comprising the GalaVu Technology.




In
      addition, provisions in the License grant Cardinal the right, but not the
      obligation, to purchase products incorporating or comprising the GalaVu
      Technology from GalaVu (the “Purchased Products”). Cardinal shall pay only the
      actual costs of manufacturing and shipping the Purchased Products to Cardinal
      (or as directed by Cardinal); GalaVu shall not be entitled to any mark-up or
      profit on such products for the first 5,000 units of such products (the “Initial
      Units”). Orders for any products in excess of the Initial Units shall be
      marked-up by the lowest amount charged by GalaVu to any of its customers or
      partners.




F-33


**CARDINAL
        COMMUNICATIONS, INC. AND SUBSIDIARIES**
 
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 **FOR
        THE YEARS ENDED DECEMBER 31, 2005 AND 2004**


The
      License also grants to Cardinal a non-exclusive, royalty-free, fully paid up,
      worldwide license to use GalaVu’s trademarks, service marks, and logos (the
“Marks”) for (i) the sale of GalaVu branded products (the “Branded Products”),
      (ii) the use and display for marketing, advertising and promotion according
      to
      certain usage standards, and (iii) incorporating the Marks into the Branded
      Products. Any uses of the Marks shall be submitted in writing for review by
      GalaVu in advance and shall not be distributed or used in any manner without
      prior written approval of the Licensor or its authorized representative, which
      approval shall not be unreasonably withheld or delayed. No license is granted
      for the use, display, or incorporation of the Marks on products other than
      the
      Branded Products. Cardinal has the right to bundle the Branded Products with
      other products or services distributed by Cardinal (such Branded Products when
      bundled with such other products, the “Bundled Products”), provided that
      Cardinal uses the Marks solely on and in conjunction with that portion of
      Bundled Products that constitute the Branded Products. Cardinal has the right
      to
      sublicense these rights to its partners, resellers, OEMs, distributors and
      sales
      representatives that market and distribute Branded Products (each, a
“Sublicensee”) solely for the purpose of advertising, marketing, selling and
      distributing the Branded Products in accordance with the terms of the License;
      provided that Cardinal enters into agreements with each such Sublicensee
      consistent with the terms set forth in the License.





The
      parties to the License acknowledge and agree that the License does not create
      a
      fiduciary relationship among or between them; that each shall remain an
      independent business; and that nothing in the License is intended to constitute
      either party as an agent, legal representative, subsidiary, joint venturer,
      partner, employee or servant of the other for any purpose
      whatsoever.




Purchase
      and Exchange Agreement





On
      February 17, 2006, the Company, Livonia Pty Limited (an Australian corporation)
      and Entertainment Media & Telecoms Corporation Limited (“EMT”), executed an
      agreement regarding the purchase and the exchange of certain debt owed by EMT
      and/or its subsidiaries (collectively, “EMT”) for equity in EMT, and including
      provisions for a loan for working capital from Cardinal to GalaVu (the “EMT
      Agreement”).





Pursuant
      to the EMT Agreement, Cardinal agreed to purchase the balance of the debt owed
      by EMT to Alleasing Finance Australia Limited (“Alleasing”), in the principal
      amount of two million twenty thousand Australian dollars (A$2,020,000)
      equivalent to one million four hundred ninety-one thousand three hundred
      sixty-six US dollars ($1,491,366 USD) (the “Debt”) in exchange for an assignment
      of the Debt and all security interests securing repayment of the Debt. The
      purchase price to be paid by the Company for the Debt is seven hundred two
      thousand five hundred Australian dollars (A$702,500) equivalent to five hundred
      eighteen thousand six hundred fifty six US dollars ($518,656 USD).





In
      addition, the Company has agreed to provide a bridge loan for working capital
      of
      seven hundred ninety seven thousand five hundred Australian dollars (A$797,500)
      equivalent to five hundred eighty-eight thousand seven hundred ninety four
      US
      dollars ($588,794) to GalaVu (the “Loan”). The definitive terms, conditions, and
      interest rate in respect of such Loan shall be agreed between Cardinal and
      Livonia. Notwithstanding the generality of the foregoing, Cardinal’s
      representative shall have sole discretion as to the use of proceeds from the
      Loan, including how, to whom, and when the Loan proceeds are
      dispersed.





The
      Debt
      and the Loan are to be secured by the assets of EMT’s subsidiaries. The Debt
      purchased from Alleasing shall remain secured by the assets of EMT’s
      subsidiaries, including GalaVu. Also, Livonia shall assign to Cardinal six
      hundred forty eight thousand two hundred and fifty Australian dollars
      (A$648,250) equivalent to four hundred seventy-eight thousand six hundred three
      US dollars ($478,603 USD) of the secured debt that Livonia previously purchased
      from Alleasing in a separate transaction, such that the total secured debt
      held
      by Cardinal shall total three million four hundred sixty five thousand seven
      hundred fifty Australian dollars (A$3,465,750) equivalent to two million five
      hundred fifty-eight thousand seven hundred sixty-three US dollars ($2,558,763
      USD) (the “Cardinal Secured Debt”). All such Cardinal Secured Debt is and will
      remain secured by all the EMT’s subsidiaries’ assets.




Cardinal
      also agreed that, to the extent permissible under Australian law and subject
      to
      the approval of the shareholders of EMT, should the same be necessary, Cardinal
      shall: (a) convert five hundred thirty two thousand five hundred Australian
      dollars (A$532,500) equivalent to three hundred ninety-three thousand one
      hundred forty five US dollars ($393,145 USD) of the Cardinal Secured Debt into
      53,250,000 shares of free-trading, common stock of EMT at a conversion rate
      of 1
      cent (.7383 US cent) per share; and (b) at a date to be agreed between the
      parties, convert two million nine hundred thirty three thousand seven hundred
      and fifty Australian dollars (A$2,933,750) equivalent to two million one hundred
      sixty-five thousand nine hundred eighty-eight US dollars ($2,165,988 USD) of
      the
      Cardinal Secured Debt into shares of free-trading EMT common stock at a
      conversion rate of one half cent (A$.005) per share, equating to 586,250,000
      shares in EMT. In addition, Livonia agreed that, to the extent permissible
      under
      Australian law and subject to approval of the shareholders of EMT, should same
      be necessary, Livonia shall: (a) convert A$425,000 equivalent to three hundred
      thirteen thousand seven hundred seventy-eight US dollars ($313,778 USD) owing
      to
      it by EMT into 42,500,000 shares in EMT at a conversion rate of 1 Australian
      cent per share; and (b) at a date to be agreed between the parties, convert
      A$733,750.00 equivalent to five hundred seventy-one thousand two hundred sixty
      US dollars ($571,260 USD) owing to it by EMT into shares in EMT at a conversion
      rate of one half cent (A$.005) per share, equating to 146,750,000 shares in
      EMT.
      The Parties agreed to take all acts necessary to ensure that, following both
      the
      Cardinal conversion and the Livonia conversion, Cardinal shall own 64% of the
      outstanding shares of EMT, accounted for on a fully diluted basis. EMT has
      historically traded on the Australian stock exchange under the symbol
      ETC.


F-34
  **CARDINAL
        COMMUNICATIONS, INC. AND SUBSIDIARIES**
 
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 **FOR
        THE YEARS ENDED DECEMBER 31, 2005 AND 2004**
  Livonia
        and EMT agreed that should: (a) the shareholders of EMT not agree to the
        conversion by Cardinal of its Cardinal Secured Debt into equity in EMT, or
        (b)
        EMT does not regain trading status on the Australian Stock Exchange within
        one
        hundred and twenty (120) days of the date of the EMT Agreement, Livonia and
        EMT
        shall do all acts, matters or things to facilitate the transfer of the assets
        constituting the security (including but not limited to the assets of GalaVu)
        to
        Cardinal free and clear of all liens, claims, and encumbrances, in exchange
        for
        Cardinals’ agreement to extinguish the Cardinal Secured Debt. Cardinal agreed
        that, in the event that the GalaVu assets are transferred to Cardinal in
        exchange for the Cardinal Secured Debt, Livonia shall be entitled to acquire
        shares of Cardinal as follows: first, Livonia shall cause EMT to be sold;
        second, the purchase price obtained by Livonia from such sale (the “Purchase
        Price”) shall be paid directly to Cardinal in its entirety in exchange for
        shares of Cardinal common stock. The number of shares shall be determined
        by
        dividing the dollar amount of the Shell Purchase Price, converted to United
        States dollars, by the lower of 80% of the price per share for the five (5)
        trading days preceding the date of issuance, or two cents (U.S.
        $0.02).





Assignment
      Deed





Effective
      February 20, 2006, the Company signed an Assignment Deed with Alleasing Finance
      Australia Limited, an Australian company (formerly Rentworks Limited)
      (“Alleasing”) (the “Assignment”). Pursuant to the Assignment, Alleasing agreed
      to assign Cardinal all of its right, title, and interest in the debt owing
      by
      the Entertainment Media & Telecoms Corporation Limited (“EMT”) and/or EMT’s
      subsidiaries, including GalaVu Entertainment Networks, Inc. (“GalaVu”) to
      Cardinal in the amount of two million twenty thousand Australian dollars
      (A$2,020,000) equivalent to one million four hundred ninety-one thousand three
      hundred sixty-six US dollars ($1,491,366 USD) (the “Debt”). The purchase price
      paid by Cardinal for the debt is seven hundred two thousand five hundred
      Australian dollars (A$702,500) equivalent to five hundred eighteen thousand
      six
      hundred fifty six US dollars ($518,656 USD).





The
      Debt
      is secured by the (a) Pledge Agreement between Entertainment Media &
Telecoms Corporation (Canada), Inc., (registered in Canada) (“EMT (Canada)”),
      and Rentworks Limited dated 31 March 2006; (b) Security Agreement between EMT
      (Canada) and Rentworks Limited dated 31 March 2006; (c) Security Agreement
      between GalaVu and Rentworks Limited dated 31 March 2006; (d) Guaranty between
      EMT (Canada), Inc., and Rentworks Limited dated 31 March 2006; and (e) Guaranty
      between GalaVu and Rentworks Limited dated 31 March 2006.





Interested
      Director





A
      member
      of the Company’s Board of Directors, David A. Weisman, and certain entities
      affiliated with Mr. Weisman are shareholders of GalaVu’s parent corporation,
      Entertainment Media & Telecoms Corporation Limited. Mr. Weisman did not
      participate in the vote by Cardinal’s Board of Directors approving the License,
      the Assignment Deed, or the Purchase and Exchange Agreement (collectively,
      the
“Agreements”). The remaining members of Cardinal’s Board of Directors voted
      unanimously to approve the Agreements.





*Various
      Short Term Notes*





In
      the
      first quarter of 2006, the Company and a related party, Ronald Bass, the
      Principal Accounting Officer, entered into a series of Short-Term notes totaling
      $14,500. The terms of the agreements were for any unpaid balance after 30 days
      from the made date to accrue interest at an annual rate of 24%. These notes
      were
      satisfied in the first quarter of 2006 and $300 of document preparation fees
      were recorded in relation to these notes.




F-35


**CARDINAL
        COMMUNICATIONS, INC. AND SUBSIDIARIES**
 
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 **FOR
        THE YEARS ENDED DECEMBER 31, 2005 AND 2004**


In
      the
      first quarter of 2006, the Company entered into a series of Convertible Loan
      Agreements with ISP V, LLC totaling $1,500,000. The final terms of the
      agreements is for the total $1,500,000 to be due in January 2008 and over the
      course of the loan the principal shall accrue interest at a rate of 12% per
      year
      calculated monthly. As partial consideration for the note, the Company issued
      to
      the Payee five year warrants to purchase 2,400,000 shares of common stock at
      an
      exercise price of $0.05. A debt discount value was calculated based upon the
      Black-Scholes Pricing Model applied to the warrants; and over the life of the
      note $16,825 of additional interest will be recorded relating to the accretion
      of the note to its face value. For the Black-Scholes Pricing Model the average
      risk free interest rate used was 5%, volatility was estimated at 69% and the
      expected life was five years. The holders of the Notes have the right, at any
      time, to convert the principal owed to the holder to shares of Common Stock
      at a
      rate of $.025 per share. There is no intrinsic value to the beneficial
      conversion feature as the conversion is at $.025 per share and the Company’s
      stock was trading at $.0181 when the agreement was signed.





In
      March
      2006, the Board of Directors for Cardinal Communications, Inc. (the “Company”)
      approved on its behalf and the behalf of its wholly owned subsidiary, Sovereign
      Companies, LLC (“Sovereign”), the execution of a Convertible Loan Agreement,
      Promissory Note (the “Note”), and Pledge and Security Agreement with Thunderbird
      Management Limited Partnership (“Thunderbird”).





Convertible
      Loan Agreement





The
      Company is currently indebted to Thunderbird pursuant to existing two promissory
      notes. The first, dated September 12, 2000, is in the original principal amount
      of seven hundred two thousand dollars ($702,000), with interest on the principal
      balance at the rate of twelve percent (12%) per annum; the second, dated August
      24, 2004, is in the original principal amount of eight hundred thousand dollars
      ($800,000) with interest on the principal balance from time to time remaining
      at
      the rate of ten percent (10%) per annum (collectively, the “Prior
      Notes”).





F-36




**CARDINAL
      COMMUNICATIONS, INC. AND SUBSIDIARIES**





**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**FOR
      THE YEARS ENDED DECEMBER 31, 2005 AND 2004**





The
      Convertible Loan Agreement consolidates for certain purposes the Prior Notes
      and
      a third, new note (described in the next section, below) in the original
      principal amount of nine hundred ninety eight thousand and No/100 Dollars
      ($998,000) (collectively, the “Thunderbird Notes”). The total principal amount
      owed under the Thunderbird Notes is two million five hundred thousand dollars
      ($2,500,000) (the “Principal Amount”).





The
      Thunderbird Notes are consolidated for the purposes of setting a single interest
      rate and certain conversion rights for the Principal Amount. Interest on the
      Principal Amount outstanding shall accrue at the rate of twelve percent (12%)
      per annum, which interest shall be paid monthly, with the first installment
      payable on April 17, 2006, and subsequent payments at the seventeenth day of
      the
      month beginning each month thereafter. Overdue principal and interest on the
      Thunderbird Notes shall bear interest, to the extent permitted by applicable
      law, at a rate of twelve percent (12%) per annum. If not sooner redeemed or
      converted, the Thunderbird Notes shall mature on the fifth anniversary of the
      execution of the Convertible Loan Agreement, at which time all the remaining
      unpaid principal, interest and any other charges then due under the agreement
      shall be due and payable in full.





The
      Thunderbird Notes shall be convertible, at either party’s option, into shares of
      the Company’s common stock at four separate conversion prices. Up to twenty five
      percent (25%) of the Principal Amount may be converted at two and a half cents
      ($0.025) per share; up to twenty five percent (25%) of the Principal Amount
      may
      be converted at seven and a half cents ($0.075) per share; up to twenty five
      percent (25%) of the Principal Amount may be converted at twelve and a half
      cents ($0.125) per share; and the final twenty five percent (25%) of the
      Principal Amount may be converted at seventeen and a half cents ($0.175) per
      share (collectively, such converted stock is referred to as the “Registerable
      Securities”).





In
      the
      Convertible Loan Agreement, the Company has agreed to register all or any
      portion of the Registerable Securities any time it receives a written request
      from Thunderbird that the Company file a registration statement under the 1933
      Act covering the registration of at least a majority of the Registerable
      Securities then outstanding. The Company has agreed, subject to the limitations
      in the Convertible Loan Agreement, to use its best lawful efforts to effect
      as
      soon as reasonably possible, and in any event (if legally possible, and as
      allowed by the SEC, and if no factor outside the Company’s reasonable control
      prevents it) within 150 days of the receipt of the initial written registration
      request, to effect the registration under the 1933 Act of all Registerable
      Securities which the Thunderbird has requested.




Notwithstanding
      the foregoing, in lieu of registration, the Company may provide Thunderbird
      with
      a certificate signed by the President of the Company stating that in the good
      faith judgment of the Board of Directors, it would be materially detrimental
      to
      the Company and its shareholders for such registration statement to be filed
      at
      that time, and it is therefore essential to defer the filing of such
      registration statement. Thereafter, the Company shall have the right to defer
      the commencement of such a filing for a period of not more than 180 days after
      receipt of the request; provided, however, that at least 12 months must elapse
      between any two such deferrals.





Promissory
      Note





Pursuant
      to a Promissory Note, dated March 24, 2006 (the “Note”), the Company and
      Sovereign (collectively, the “Borrower”), borrow and promise to repay to
      Thunderbird (the “Payee”), the principal sum of Nine Hundred Ninety Eight
      Thousand and No/100 Dollars ($998,000), with interest at the rate of twelve
      percent (12%) per annum on the unpaid principal balance until paid or until
      default. All past due installments of principal and, if permitted by applicable
      law, of interest shall bear interest at the highest lawful rate, or, if no
      such
      maximum rate is established by applicable law, then at the rate of eighteen
      percent (18%) per annum.





The
      full
      amount of principal and interest is due under the Note is due on March 25,
      2011.
      The interest shall be due and payable in monthly payments, to be paid on the
      17th day of every month and applied to the interest that accrued during the
      preceding month.





Upon
      the
      occurrence of any “Event of Default,” the Payee may declare the remainder of the
      debt immediately due and payable. An “Event of Default” includes, failure to
      make payment on the Note when due, and such failure shall continue for fifteen
      (15) business days from receipt by Borrower of written notice of such failure;
      Borrower files any voluntary petition seeking relief under federal bankruptcy
      law or under any other act or law related to insolvency or debtor relief,
      whether state or federal; the filing against Borrower of any involuntary
      petition seeking relief under federal bankruptcy law or under any other act
      or
      law related to insolvency or debtor relief, whether state or federal, if such
      petition is not dismissed within thirty (30) days of filing; or a custodian,
      trustee, receiver or assignee for the benefit of creditors is appointed or
      takes
      possession of any of Borrower’s assets.


F-37


**CARDINAL
          COMMUNICATIONS, INC. AND SUBSIDIARIES**
 
 **NOTES
          TO CONSOLIDATED FINANCIAL STATEMENTS**
 **FOR
          THE YEARS ENDED DECEMBER 31, 2005 AND 2004**


The
      Note
      is secured by the pledge of certain assets by Borrower to the Payee pursuant
      to
      the Pledge and Security Agreement.




Pledge
      and Security Agreement




The
      Pledge and Security Agreement (“PSA”) secures payment of (i) all amounts now or
      hereafter payable by the Company and Sovereign (jointly “Pledgors”) to
      Thunderbird on the Thunderbird Notes, and (ii) all obligations and liabilities
      now or hereafter payable by the Pledgors under, arising out of or in connection
      with the PSA (all such indebtedness, obligations and liabilities being herein
      called the “Obligations”).





Pursuant
      to the PSA, the Pledgors pledge and grant to Thunderbird a security interest
      in
      the shares of stock and partnership interests comprising Pledgors’ interests in
      Sovereign Pumpkin Ridge, LLC, and, contingent upon Pledgors’ formation of a
      limited liability company for the purpose of developing the project, Pledgors’
future interest in “Sovereign El Rio, LLC” (collectively, the “Pledged
      Interests”). The Pledged Interests also include without limitation all of
      Pledgors’ right, title and interest in and to (i) all dividends or distributions
      arising from the Pledged Interests, payable thereon or distributable in respect
      thereof, whether in cash, property, stock or otherwise, and whether now or
      hereafter declared, paid or made, and the right to receive and receipt
      therefore; (ii) all Pledged Interests into which any of the Pledged Interests
      are split or combined; and (iii) all other rights with respect to the Pledged
      Interests; provided, however, that Secured Party hereby agrees that, if and
      so
      long as Pledgors shall not be in default under this Agreement, Pledgors shall
      have the right to vote, or to give any approval or consent in respect of, the
      Pledged Interests for all purposes not inconsistent with the provisions of
      this
      Agreement.





Upon
      the
      full and final payment of the Thunderbird Notes, the security interests in
      the
      Pledged Interests shall terminate and all rights to the Pledged Interests shall
      revert to the Pledgors. In addition, at any time and from time to time prior
      to
      such termination of the security interests, the Secured Party may release any
      of
      the Pledged Interests. Upon any such termination of the security interests
      or
      any release of the Pledged Interests, the Secured Party will, at the Pledgors’
expense, execute and deliver to the Pledgors such documents as the Pledgors
      shall reasonably request to evidence the termination of the security interests
      or the release of the Pledged Interests.




Interested
      Director





A
      member
      of the Company’s Board of Directors and the Company’s Chief Executive Officer,
      Edouard A. Garneau, is related (as son-in-law) to the General Partner of
      Thunderbird Management. Mr. Garneau did not participate in the vote by
      Cardinal’s Board of Directors approving the Promissory Note, Pledge and Security
      Agreement, or Convertible Loan Agreement (collectively, the “Agreements”). The
      remaining members of Cardinal’s Board of Directors voted unanimously to approve
      the Agreements.




F-38