UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                   FORM 10-QSB

   (Mark One)
      [x]        QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
                     OF THE SECURITIES EXCHANGE ACT OF 1934
                 For the three-month period ended June 30, 2006
                                       OR
      [ ]        TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
                     OF THE SECURITIES EXCHANGE ACT OF 1934
                        Commission file number 000-22515


                       SPEAKING ROSES INTERNATIONAL, INC.
             (Exact name of registrant as specified in its charter)

              Utah                                             20-0612376
  (State or other jurisdiction of                          (I.R.S. Employer
   incorporation or organization)                        Identification Number)

                 404 Ironwood Drive                                84115
                Salt Lake City, Utah                            (Zip Code)
      (Address of principal executive offices)

       Registrant's telephone number, including area code: (801) 433-3900

          Securities registered pursuant to Section 12 (b) of the Act:
           Title of each class         Name of each exchange on which registered
           -------------------         -----------------------------------------
                   None                                  None

           Securities registered pursuant to Section 12(g) of the Act:

                    Common Stock (par value, $.001 per share)
                                (Title of class)

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the  preceding 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 [ ]

As of August 7, 2006, there were 30,535,273 common shares outstanding.



                                       1
<PAGE>
                                TABLE OF CONTENTS

PART I
FINANCIAL INFORMATION
Item 1.       Financial Statements
Item 2.       Management's Discussion and Analysis or Plan of Operations
Item 3.       Controls and Procedures

PART II
OTHER INFORMATION
Item 1.       Legal Proceedings
Item 2.       Unregistered Sales of Equity Securities and Use of Proceeds
Item 3.       Defaults Upon Senior Securities
Item 4.       Submission of Matters to a Vote of Security Holders
Item 5.       Other Information
Item 6.       Exhibits and Reports on Form 8-K

SIGNATURES
EX 31.1       (Certifications required under  Section 302  of the Sarbanes-Oxley
              Act of 2002)
EX 31.2       (Certifications required under  Section 302  of the Sarbanes-Oxley
              Act of 2002)
EX 32.1       (Certifications required under  Section 906  of the Sarbanes-Oxley
              Act of 2002)
EX 32.2       (Certifications required under  Section 906  of the Sarbanes-Oxley
              Act of 2002)


                                       2
<PAGE>

                SPEAKING ROSES INTERNATIONAL, INC. AND SUBSIDIARY

PART I.  FINANCIAL INFORMATION.


Item 1.  Financial Statements

The  accompanying  unaudited  condensed  consolidated  financial  statements  of
Speaking Roses  International,  Inc. and Subsidiary ("SRII" or the "Company") as
of June 30, 2006 and  December  31, 2005 and for the three and six months  ended
June 30, 2006 and 2005,  have been  prepared in accordance  with U.S.  generally
accepted  accounting  principles for interim financial reporting and pursuant to
the rules  and  regulations  of the  Securities  and  Exchange  Commission.  The
condensed   consolidated   financial  statements  do  not  include  all  of  the
information  and  footnotes  required  by  U.S.  generally  accepted  accounting
principles  for complete  financial  statements.  These  condensed  consolidated
financial  statements  should be read in conjunction with the notes hereto,  and
the consolidated  financial  statements and notes thereto included in our annual
report on Form 10-KSB for the year ended December 31, 2005.

All adjustments  (consisting only of normal recurring adjustments) necessary for
the fair presentation of our consolidated financial position as of June 30, 2006
and December 31, 2005 and our consolidated  results of operations and cash flows
for the three and six months  ended June 30,  2006 and 2005 have been  included.
The  consolidated  results of operations for the three and six months ended June
30, 2006 may not be indicative  of the results for the year ending  December 31,
2006.

In Management's Discussion and Analysis or Plan of Operations in Item 2, we have
compared the operating results and financial  position of SRII for the three and
six months  ended June 30, 2006 and for the three and six months  ended June 30,
2005. We believe these  comparisons  may not be meaningful and caution should be
exercised by readers in utilizing these comparisons.


                                       3
<PAGE>
                SPEAKING ROSES INTERNATIONAL, INC. AND SUBSIDIARY

                      CONDENSED CONSOLIDATED BALANCE SHEETS
                                   (Unaudited)


                                                   June 30,       December 31,
                                                     2006             2005
                                                 -------------    --------------
                                     ASSETS
                                     ------

CURRENT ASSETS
     Cash                                        $       7,245    $      36,814
     Accounts receivable, less
        allowance for doubtful accounts
        of $113,997 and $25,222, respectively          148,653           98,786
     Inventories                                        92,326           85,196
     Prepaid expenses                                   20,325           24,506
     Other current assets                              178,695            8,500
                                                 -------------    --------------

            TOTAL CURRENT ASSETS                       447,244          253,802
                                                 -------------    --------------

PROPERTY AND EQUIPMENT, at cost, net of
     accumulated depreciation and amortization
     of $195,500 and $132,640, respectively            381,905          307,015
                                                 -------------    --------------

OTHER ASSETS
     Deposits                                           10,092           17,004
     Net investment in sales type leases                 2,053                -
     Patents and trademarks, net of
        accumulated amortization of $42,334
        and $30,778, respectively                      442,470          390,623
                                                 -------------    --------------

            TOTAL OTHER ASSETS                         454,615          407,627
                                                 -------------    --------------


            TOTAL ASSETS                         $   1,283,764    $     968,444
                                                 =============    ==============


                                    Continued

      See accompanying notes to condensed consolidated financial statements


                                       4
<PAGE>
                SPEAKING ROSES INTERNATIONAL, INC. AND SUBSIDIARY

                      CONDENSED CONSOLIDATED BALANCE SHEETS
                                   (Unaudited)

                                                   June 30,       December 31,
                                                     2006             2005
                                                 -------------    --------------

                      LIABILITIES AND STOCKHOLDERS' DEFICIT
                      -------------------------------------

CURRENT LIABILITIES
     Accounts payable, trade                     $     516,877    $     443,769
     Accrued expenses                                  208,162          114,161
     Area development rights deposits                   46,400          856,790
     Accrued interest                                  131,158           21,003
     Current portion of deferred revenue               428,835          140,172
     Current portion of capital lease
        obligations                                      3,541            3,377
     Convertible notes payable to stockholders,
        net of debt discount of $217,249 and
        $219,174, respectively                       1,082,067          280,826
     Convertible line of credit with
        stockholder                                  1,587,832                -
     Related party notes payable                       505,526          620,526
     Notes payable                                     100,000                -
                                                 -------------    --------------

            TOTAL CURRENT LIABILITIES                4,610,398        2,480,624
                                                 -------------    --------------

DEFERRED REVENUE, less current portion                 493,987          304,575
                                                 -------------    --------------

CAPITAL LEASE OBLIGATIONS, less current portion          9,413           11,225
                                                 -------------    --------------

COMMITMENTS AND CONTINGENCIES

STOCKHOLDERS' DEFICIT
     Preferred Stock, par value $.001;
        authorized 30,000,000 shares, no shares
         issued                                              -                -
     Common Stock, par value $.001; authorized
        70,000,000 shares, 30,535,273 and
        29,260,273 shares issued and
        outstanding, respectively                       30,535           29,260
     Additional paid-in capital                      9,032,502        6,797,476
     Deferred compensation                            (669,397)               -
     Accumulated deficit                           (12,223,674)      (8,654,716)
                                                 -------------    --------------

            TOTAL STOCKHOLDERS' DEFICIT             (3,830,034)      (1,827,980)
                                                 -------------    --------------

            TOTAL LIABILITIES AND STOCKHOLDERS'
            DEFICIT                              $   1,283,764    $     968,444
                                                 =============    ==============


                                    Concluded

      See accompanying notes to condensed consolidated financial statements


                                       5
<PAGE>

                         SPEAKING ROSES INTERNATIONAL, INC. AND SUBSIDIARY

                          CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                                            (Unaudited)
<TABLE>
<CAPTION>


                                             Three months ended             Six months ended
                                                  June 30,                     June 30,
                                             2006          2005           2006           2005
                                         ------------- -------------- -------------- --------------
<S>                                      <C>           <C>            <C>            <C>
SALES
     Product sales                       $    268,475  $     309,017  $     638,357  $     694,466
     License fees and other revenue           129,005         48,274        204,478         92,088
     Royalties                                 10,462         10,500         26,014         21,000
                                         ------------- -------------- -------------- --------------
        NET SALES                             407,942        367,791        868,849        807,554

OPERATING EXPENSES
     Cost of goods sold                       304,745        345,887        658,945        728,581
     General and administrative             1,113,515        433,112      1,828,573        798,043
     Sales and marketing                      416,084        476,538        657,936      1,071,578
     Research and development                  20,386         41,272         57,027         47,435
                                         ------------- -------------- -------------- --------------

        TOTAL OPERATING EXPENSES            1,854,730      1,296,809      3,202,481      2,645,637
                                         ------------- -------------- -------------- --------------

        OPERATING LOSS                     (1,446,788)      (929,018)    (2,333,632)    (1,838,083)
                                         ------------- -------------- -------------- --------------

OTHER INCOME (EXPENSE)
     Other income                              10,000         14,203         19,683         14,203
     Interest income                                -            213              5            376
     Other expense                               (222)             -           (991)             -
     Loss on extinguishment of debt          (500,000)             -       (598,457)             -
     Interest expense                        (147,640)      (469,542)      (655,566)      (472,389)
                                         ------------- -------------- -------------- --------------

        TOTAL OTHER (EXPENSE), NET           (637,862)      (455,126)    (1,235,326)      (457,810)
                                         ------------- -------------- -------------- --------------

        LOSS BEFORE PROVISION FOR
           INCOME TAXES                    (2,084,650)    (1,384,144)    (3,568,958)    (2,295,893)

        Provision for income taxes                  -              -              -           (800)
                                         ------------- -------------- -------------- --------------

        NET LOSS                         $ (2,084,650) $  (1,384,144) $  (3,568,958) $  (2,296,693)
                                         ============= ============== ============== ==============

        NET LOSS PER COMMON SHARE,
           BASIC AND DILUTED             $      (0.07) $       (0.05) $       (0.12) $       (0.08)
                                         ============= ============== ============== ==============

        WEIGHTED AVERAGE NUMBER OF
           COMMON SHARES OUTSTANDING,
              BASIC AND DILUTED            30,059,998     27,783,519     29,713,450     27,574,405
                                         ============= ============== ============== ==============



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

                                                 6
<PAGE>

                SPEAKING ROSES INTERNATIONAL, INC. AND SUBSIDIARY

                 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                        For the Six Months Ended June 30,
                                   (Unaudited)

                                                            June 30,
                                                     2006              2005
                                                 -------------    --------------
CASH FLOWS FROM OPERATING ACTIVITIES
     Net loss                                    $  (3,568,958)   $  (2,296,693)
     Adjustments to reconcile net loss to
         net cash used in operating
         activities:
         Depreciation and amortization                  80,289           46,834
         Provision for losses on accounts
         receivable                                     88,775                -
         Loss on sale of assets                            791                -
         Interest expense from debt
             beneficial conversion feature             472,602          449,871
         Interest expense on conversion of
             area development rights
             deposits to convertible notes
             payable                                    38,959                -
         Loss on extinguishment of debt                598,457                -
         Amortization of deferred compensation         397,089                -
         Issuance of stock for consulting
             expense                                     7,500                -
         Gain on forgiveness of liability               (9,656)         (14,203)
     (Increase) decrease in operating assets,
        net of effect of acquisition:
         Accounts receivable                          (104,933)          (5,115)
         Inventories                                    36,015           (5,300)
         Prepaid expenses                                6,728           15,734
         Other current assets                         (172,248)            (978)
         Deposits                                        7,297           (5,667)
     Increase (decrease) in operating
       liabilities, net of effect of
       acquisition:
         Accounts payable, trade                       (12,001)         141,364
         Accrued expenses                              102,727           76,230
         Accrued interest                              143,344           19,194
         Area development rights deposits               39,610          100,000
         Deferred revenue                              674,036           16,288
                                                 -------------    --------------

          NET CASH USED IN OPERATING ACTIVITIES     (1,173,577)      (1,462,441)
                                                 -------------    --------------

CASH FLOWS FROM INVESTING ACTIVITIES
     Purchase of franchise, net of cash acquired      (134,742)               -
     Purchase of area development rights               (15,000)               -
     Purchase of property and equipment                (32,006)        (115,166)
     Proceeds from sale of assets                          808                -
     Increase in patents and trademarks                (63,403)         (65,922)
                                                 -------------    --------------

          NET CASH USED IN INVESTING ACTIVITIES       (244,343)        (181,088)
                                                 -------------    --------------

CASH FLOWS FROM FINANCING ACTIVITIES
     Proceeds from convertible notes payable
      to stockholders                                1,390,000          750,000
     Principal payments on notes payable                     -          (21,220)
     Principal payments on capital lease
      obligations                                       (1,649)               -
     Proceeds from sale of common stock                      -          465,571
                                                 -------------    --------------

          NET CASH PROVIDED BY FINANCING
          ACTIVITIES                                 1,388,351        1,194,351
                                                 -------------    --------------

          DECREASE IN CASH                             (29,569)        (449,178)

          CASH AT BEGINNING OF PERIOD                   36,814          523,072
                                                 -------------    --------------

          CASH AT END OF PERIOD                  $       7,245    $      73,894
                                                 =============    ==============

--------------------------------------------------------------------------------
CASH PAID DURING THE PERIOD FOR
     Interest                                    $         661    $       4,614
     Income taxes                                $           -    $         800

                                    Continued

      See accompanying notes to condensed consolidated financial statements

                                       7
<PAGE>
               SPEAKING ROSES INTERNATIONAL, INC. AND SUBSIDIARY


Supplemental  schedule of non-cash investing and financing activities during the
six months ended June 30, 2006:

On January 10, 2006, the Company exchanged $750,000 recorded as area development
deposits for an unsecured convertible note payable to a significant stockholder.
As part of the exchange agreement and as required by the agreement,  the Company
added an amount of  $38,959  to the  principal  amount of the  convertible  note
payable  which  represented  the  interest  that would  have been  earned on the
deposit had it been an interest  bearing  note when the deposit was  received by
the  Company.  The Company  also  recorded a  beneficial  conversion  feature of
$362,921 which was immediately  expensed because the convertible note payable is
due on demand.

Effective as of February 6, 2006, the Company entered into an exchange agreement
with a  significant  stockholder  (see Note 9). The  Company  recorded  non-cash
interest  expense of $10,356  that was included in the  principal  amount of the
replacement  notes as of  February  6, 2006.  In  connection  with the  exchange
agreement,  the  Company  recorded a loss on  extinguishment  of debt of $98,457
which  included  the  allocation  of the  extinguishment  proceeds  between  the
beneficial  conversion feature, the extinguishment of the convertible  security,
and the value of the common shares  issued to effect the  exchange.  The Company
recorded a beneficial  conversion feature of $306,213 related to the replacement
notes which will be amortized over the life of the replacement notes.

On February 28, 2006,  the Company  issued a promissory  note to a member of the
Board of Directors who is also a significant stockholder in the principal amount
of $178,452 in settlement of a promissory  note dated  November 30, 2005 payable
to the  Director  maturing  on  February  28,  2006 in the  principal  amount of
$175,000 with $3,452 of non-cash  accrued  interest.  This note was exchanged as
part of the Line of Credit agreement entered into on May 11, 2006 (see Note 10).

On May 9, 2006, the Company  acquired a franchise store with a net book value of
$172,580  for cash  consideration  of $135,000 and a  promissory  note  totaling
$37,580  (see  Note  3).  Also  on May  9,  2006,  the  Company  purchased  area
development rights for cash consideration of $15,000, a promissory note totaling
$60,000,  and a warrant to purchase 150,000 shares of the Company's common stock
which had a fair value of $93,181.

On June 23, 2006, the Company exchanged $100,000 recorded as an area development
deposit for an unsecured  note  payable to an  unrelated  party (see Note 7). As
part of the transaction and as required by the agreement,  the Company  recorded
$8,056 of  interest  expense  which is  accrued  but not yet paid as of June 30,
2006. The terms of the area development  rights deposit require that the Company
accrue interest from the date of the original deposit should the Company fail to
timely formulate the area development agreement.

Supplemental  schedule of non-cash investing and financing activities during the
six months ended June 30, 2005:

In  connection  with the  repayment  of notes  payable to related  parties,  the
Company issued  1,000,000  shares of its common stock valued at $966,000 in full
settlement of loan balances  totaling $500,000 plus $16,129 in accrued interest.
As a result  of this  transaction,  the  Company  recorded  additional  non-cash
interest expense of $449,871  representing the difference between the fair value
of the common stock on the settlement date and the loan balances.

     See accompanying notes to condensed consolidated financial statements

                                       8
<PAGE>

                SPEAKING ROSES INTERNATIONAL, INC. AND SUBSIDIARY

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


(1)      Summary of significant accounting policies
         ------------------------------------------

         Nature of  operations  - Speaking  Roses  International,  Inc.  and its
         subsidiary  (collectively,  the  "Company"  or "SRII") own patented and
         other proprietary technology used to emboss flowers and other products.
         The  technology  allows  end  users  to  request   personalized  floral
         arrangements using standardized or unique messages,  logos, trademarks,
         and  pictures.  In  addition  to its own  production,  the  Company has
         licensed that technology to large  wholesale  flower concerns and other
         parties  to perform  the actual  embossing  of  flowers.  In the United
         States,  the Company  sells  embossed  flowers and bouquets  containing
         embossed flowers directly to individuals,  businesses,  florists, chain
         stores,  funeral homes and large wedding and corporate  event  planners
         with production and fulfillment  primarily  provided by the Company and
         by licensed  wholesale  flower  providers.  The  Company  has  recently
         developed  a retail  distribution  model  and has  begun to offer  area
         development and franchise  rights in those  jurisdictions  which do not
         require  regulatory  approval.   The  Company  formed  a  wholly  owned
         subsidiary,  Speaking Roses Development  Corporation  ("SRDC"),  during
         August 2005 through which to conduct its franchise  activities.  SRII's
         condensed  consolidated  financial  statements  include the accounts of
         SRDC from the date of  inception.  The  Company has also  licensed  the
         technology  and  equipment  to  exclusive  licensees  in  international
         markets  and  is  offering  area   development  and  franchise   rights
         internationally.

         Basis  of   presentation  -  The   accompanying   unaudited   condensed
         consolidated  financial  statements  have been  prepared on the accrual
         basis of accounting  and in accordance  with the  instructions  to Form
         10-QSB but do not include all of the  information and notes required by
         U.S. generally accepted accounting principles and should, therefore, be
         read in  conjunction  with  the  notes  hereto,  and  the  consolidated
         financial statements and notes thereto included in our annual report on
         Form 10-KSB for the year ended  December  31,  2005.  In the opinion of
         management,   all   adjustments   (consisting   of   normal   recurring
         adjustments)  necessary  for the  fair  presentation  of the  Company's
         consolidated  financial position and consolidated results of operations
         have been included.  Certain amounts in the prior year are reclassified
         for   comparability   to  the  current   year's   presentation.   These
         reclassifications  have no effect on net loss or stockholders' deficit.
         The interim  operating  results are not  necessarily  indicative of the
         results for a full year.

         Principles  of  consolidation  - The unaudited  condensed  consolidated
         financial statements include the accounts of the Company and its wholly
         owned  subsidiary,   SRDC.  All  material   intercompany  balances  and
         transactions have been eliminated in consolidation.


                                       9
<PAGE>
                SPEAKING ROSES INTERNATIONAL, INC. AND SUBSIDIARY

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


(1)      Summary of significant accounting policies (continued)
         ------------------------------------------------------

         Use of  estimates  in the  preparation  of  financial  statements - The
         preparation of financial  statements in conformity with U.S.  generally
         accepted  accounting  principles  requires management to make estimates
         and  assumptions  that  affect  the  reported  amounts  of  assets  and
         liabilities and disclosure of contingent  assets and liabilities at the
         date of the financial  statements and the reported  amounts of revenues
         and expenses during the reporting periods.  Actual results could differ
         from those  estimates.  Key  estimates  in the  accompanying  condensed
         consolidated   financial  statements  include,  among  others,  revenue
         recognition,  allowances for doubtful accounts  receivable,  impairment
         and useful lives of long-lived assets,  impairment of inventories,  and
         valuation allowances against deferred income tax assets.

         Long-lived assets - The Company assesses its property and equipment and
         other  long-lived  assets in  accordance  with  Statement  of Financial
         Accounting  Standards (SFAS) No. 144, "Accounting for the Impairment or
         Disposal of  Long-Lived  Assets." The Company  reviews its property and
         equipment and other  definite-lived  tangible and intangible assets for
         impairment on an annual basis or when events or circumstances  indicate
         the existence of a possible impairment in accordance with SFAS No. 144.
         In  determining  whether an asset is  impaired,  the Company  must make
         assumptions  regarding  recoverability  of costs,  estimated future net
         cash flows from the asset,  intended use of the asset and other related
         factors.  If these estimates or their related  assumptions  change, the
         Company may be required to record impairment  charges for these assets.
         The  Company did not record any  impairment  charges for the six months
         ended June 30, 2006 and 2005.

         Advertising  costs - Advertising  costs are charged to operations  when
         incurred.  Advertising  expense  was  $17,903 and $21,013 for the three
         months  ended June 30,  2006 and 2005,  respectively,  and  $26,028 and
         $40,269 for the six months ended June 30, 2006 and 2005, respectively.

         Net loss per common share - The Company applies SFAS No. 128, "Earnings
         Per Share,"  which  requires the  calculation  of basic and diluted net
         loss per common share. Basic net loss per common share ("basic EPS") is
         computed by dividing net loss available to common  stockholders  by the
         weighted average number of common shares outstanding during the period.
         Diluted  net loss per  common  share  ("diluted  EPS") is  computed  by
         dividing net loss by the sum of the  weighted-average  number of common
         shares  outstanding  and the  weighted-average  dilutive  common  share
         equivalents then  outstanding.  The computation of diluted EPS does not
         assume  exercise  or  conversion  of  securities  that  would  have  an
         anti-dilutive  effect.  The  Company  had a net  loss  for all  periods
         presented herein;  therefore, none of the stock options and convertible
         debt instruments outstanding during the periods presented, as discussed
         in Notes 9, 10 and 12, were included in the  computation of diluted net
         loss per common share as they were anti-dilutive.

         Common share  equivalents  consist of shares issuable upon the exercise
         of  common  stock  options  and  shares  issuable  upon  conversion  of
         convertible  debt. As of June 30, 2006 and 2005,  there were  8,249,088
         and 1,280,000 outstanding common share equivalents,  respectively, that
         were not  included  in the  computation  of diluted net loss per common
         share as their effect would be anti-dilutive.


                                       10
<PAGE>
                SPEAKING ROSES INTERNATIONAL, INC. AND SUBSIDIARY

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


(1)      Summary of significant accounting policies (continued)
         ------------------------------------------------------

         Revenue  recognition - The Company recognizes revenue from direct sales
         of floral  products and supplies,  the sale of license  agreements  and
         related equipment,  royalties related to licensing agreements, the sale
         of area development rights, and the sale of franchises.

         Direct Product Sales
         Revenue from direct product sales is recognized when the following four
         revenue   criteria   (as  defined  by  the   Securities   and  Exchange
         Commission's  (SEC's) Staff Accounting Bulletin (SAB) No. 104) are met:
         (1)  persuasive  evidence of an  arrangement  exists;  (2) products are
         shipped and the customer takes  ownership and assumes the risk of loss;
         (3) the selling price is fixed or determinable;  and (4) collectibility
         is reasonably assured.  The Company uses domestic floral wholesalers to
         emboss,   fulfill  and  distribute   its  direct  product  sales.   The
         wholesalers  emboss and fulfill orders using the Company's  proprietary
         technology and equipment.  Under these  fulfillment  arrangements,  the
         Company is the primary  obligor,  assumes  inventory risk upon customer
         return,   establishes  price,  provides  embossing  specifications  and
         techniques and assumes credit risk. As a result, and in accordance with
         Emerging Issues Task Force (EITF) No. 99-19,  "Reporting  Revenue Gross
         as a Principal versus Net as an Agent," the Company  recognizes revenue
         on a gross basis for direct product  sales.  Gross sales are reduced by
         returns, charge backs and other discounts.

         The Company  also has  agreements  with some  wholesalers  in which the
         Company  does not act as the  primary  obligor  and does not assume the
         inventory risk or establish pricing for the product. In accordance with
         EITF No.  99-19,  revenue  from these  wholesaler  originated  sales is
         recognized as commission revenue when the revenue recognition  criteria
         as  defined  in SAB No.  104 are met.  Under  these  arrangements,  the
         wholesalers  initiate sales to their  customers,  are  responsible  for
         collections and have a risk of loss of inventory.  Commission  revenues
         are reduced accordingly for returns, charge backs and discounts.

         License Agreements and Related Equipment and Support
         The Company  enters into  license  agreements  in which it licenses its
         patented technology, leases or sells the equipment necessary to utilize
         the technology, and provides customer support related to the equipment.
         The  sale  of  the  licensed  technology,  together  with  the  related
         equipment and support is considered a revenue arrangement with multiple
         deliverables  under EITF Issue No. 00-21,  "Revenue  Arrangements  with
         Multiple  Deliverables."  In accordance with EITF No. 00-21,  fees from
         the sale of licensing  agreements  including  customer  support and the
         lease or sale of the related  equipment,  are  initially  deferred  and
         subsequently  recognized as revenue on a  straight-line  basis over the
         life of the agreement beginning on the commencement date of the license
         agreement.  The terms of these  non-cancelable  license  agreements are
         generally 2 to 4 years, although some terms are as long as 10 years.

                                       11
<PAGE>
                SPEAKING ROSES INTERNATIONAL, INC. AND SUBSIDIARY

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


(1)      Summary of significant accounting policies (continued)
         ------------------------------------------------------

         In certain  circumstances,  mainly with  international  licensees,  the
         Company  enters into  non-cancelable  license  agreements  that grant a
         license to the  technology,  provide the  equipment  and  support,  and
         provide exclusive rights to distribute imprinted floral products within
         a geographical  region.  Fees from these licensing  agreements are also
         recognized in accordance with EITF No. 00-21 and are recorded initially
         as deferred revenue and recognized as revenue on a straight-line  basis
         over the lives of the agreements.

         Royalty Fees
         In connection  with the license  agreements,  the Company also receives
         royalties  on  the  sales  of  all  imprinted  flowers.  Royalties  are
         recognized as earned in accordance with SAB No. 104 and EITF No. 99-19.

         Franchise Fees
         The Company recognizes  franchise fee revenue when earned in accordance
         with SFAS No. 45, "Accounting for Franchise Fee Revenue." Franchise fee
         revenue is recognized when all material services or conditions relating
         to the  sale  of a  franchise  have  been  substantially  performed  or
         satisfied by the Company,  which generally occurs upon the commencement
         of  franchise  operations.  The  Company's  agreements  with  the  area
         developers  generally require a portion of the franchise fee to be paid
         to the area  developer.  Any portion of the  franchise  fee paid to the
         area developer is recorded as a reduction to the franchise fee revenue.

         Sale of Area Development Rights
         Revenues  from the sale of area  development  rights are  deferred  and
         recognized  proportionately  based on the  number  of  franchises  sold
         compared  to the total  franchises  expected to be sold as set forth in
         each area developer's agreement with the Company.  Franchise royalties,
         which  are based on a  percentage  of  franchised  stores'  sales,  are
         recognized as earned.

         Sales-Type Lease Revenue
         Revenue  attributable to sales-type  leases is recognized over the term
         of the lease agreement in accordance with SFAS No. 13,  "Accounting for
         Leases," as amended.

         Accounting for stock based  compensation  - Effective  January 1, 2006,
         the Company adopted SFAS No. 123R (revised 2004), "Share-Based Payment"
         which amends SFAS No. 123,  "Accounting for  Stock-Based  Compensation"
         and  supersedes  Accounting  Principles  Board ("APB")  Opinion No. 25,
         "Accounting  for Stock Issued to Employees."  The Company  adopted SFAS
         No.  123R  using  the  modified   prospective   method.   The  modified
         prospective  method  requires that  compensation  expense be recognized
         beginning with the effective date 1) based on the  requirements of SFAS
         No. 123R for all share-based  payments granted after the effective date
         and 2) based on the requirements of SFAS No. 123 for all awards granted
         to employees prior to the effective date of SFAS No. 123R that were not
         fully  vested as of January 1,  2006.  See Note 12 for a more  detailed
         description of the Company's adoption of SFAS No. 123R.

                                       12
<PAGE>
                SPEAKING ROSES INTERNATIONAL, INC. AND SUBSIDIARY

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


(2)      Going concern
         -------------

         The accompanying  condensed consolidated financial statements have been
         prepared  assuming the Company will continue as a going concern,  which
         contemplates   the  realization  of  assets  and  the  satisfaction  of
         liabilities in the normal course of business.  The Company has incurred
         cumulative  net losses of  $12,223,674  through June 30, 2006 and a net
         loss of $2,084,650 for the three months ended June 30, 2006. As of June
         30, 2006,  the Company had total cash available of $7,245 and a working
         capital  deficit of $4,163,154  (total  current assets of $447,244 less
         total current liabilities of $4,610,398).

         The above factors raise substantial doubt that the Company will be able
         to  continue  as a going  concern.  Furthermore,  during the six months
         ended June 30, 2006 and in the two months  subsequent to that date, the
         Company  has been  receiving  cash  advances  pursuant to a two million
         dollar line of credit agreement as described in Note 9. As of August 2,
         2006,  the line of credit has been  exhausted  and its provider has not
         indicated a  willingness  to advance  additional  cash to the  company.
         Consequently,  the  Company  will need to obtain  financing  from other
         sources  if it is to  continue  as a going  concern.  The need for that
         additional  financing is critical given the small amount of cash in the
         Company and the high levels of debt  including  a  convertible  line of
         credit with a  stockholder  of  $1,587,832,  notes payable of $100,000,
         related party notes payable of $505,526,  and convertible notes payable
         to stockholders of $1,082,067.  Of these debt totals, $1,334,485 of the
         principal  total is due on  demand.  Thus,  if a lender  were to demand
         payment,  the  Company  would be unable to  satisfy  the demand and the
         Company would be rendered insolvent.

         The  Company is  attempting  to raise  additional  funds;  however,  no
         assurance  can be given that the  Company  will be able to obtain  such
         financing  on terms  favorable  to the  Company or at all.  Any sale of
         additional  equity or the conversion of any convertible debt securities
         would result in additional dilution to the Company's  stockholders.  If
         the Company is unable to obtain additional  funding, it may be required
         to reduce or cease operations.

         Management's plans to improve the Company's  liquidity position include
         raising  additional  capital  through the sale of equity  securities or
         issuance  of debt.  During the six  months  ended  June 30,  2006,  the
         Company did not issue any of its shares of common  stock for cash.  The
         Company  received  $1,390,000  cash in exchange for  convertible  notes
         payable to  stockholders  and a line of credit with a  stockholder  and
         received $362,000 in cash for international area development rights.

         The accompanying  condensed  consolidated  financial  statements do not
         include   any   adjustments   relating   to  the   recoverability   and
         classification   of  asset   carrying   amounts   or  the   amount  and
         classification  of  liabilities  that  might be  necessary  should  the
         Company be unable to continue as a going concern.


                                       13
<PAGE>
                SPEAKING ROSES INTERNATIONAL, INC. AND SUBSIDIARY

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


(3)      Acquisition of franchise store
         ------------------------------

         On May 9, 2006, the Company  consummated the acquisition of a franchise
         store from the Business Retail Group, LLC ("the Retail Group") owned by
         Mike Glauser,  the Company's Vice President of Retail  Operations,  and
         his wife. The Company had previously entered into a franchise agreement
         with the Retail Group pursuant to which the Retail Group had opened the
         franchise store.

         The purchase price of $172,580 was comprised as follows:

                                                                     Amounts
                                                                  -------------

                   Cash                                           $     135,000
                   Promissory note                                       37,580
                                                                  -------------

                   Fair value of franchise
                     store assets acquired                        $     172,580
                                                                  =============

         The  allocation  of the  purchase  price  to the  assets  acquired  and
         liabilities  assumed  based  on  their  estimated  fair  values  was as
         follows:

                                                                     Amounts
                                                                  -------------

                   Cash acquired                                  $         258
                   Other tangible assets
                     acquired                                           193,010
                   Liabilities assumed                                  (20,688)
                                                                  -------------

                                                                  $     172,580
                                                                  =============

         The  operations of the franchise  store  subsequent to May 9, 2006 have
         been included in the condensed consolidated financial statements of the
         Company.

         This transaction was not deemed to be a material business  combination;
         therefore,  no pro forma  results  are  required  under  SFAS No.  141,
         "Business Combinations."

                                       14
<PAGE>

                SPEAKING ROSES INTERNATIONAL, INC. AND SUBSIDIARY

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


(4)      Inventories
         -----------

         As of June 30, 2006 inventories consist of the following:

                                                                    June 30,
                                                                      2006
                                                                  --------------

                   Floral products                                $      16,215
                   Non-floral products                                   48,696
                   Embossing supplies                                    22,440
                   Shipping materials                                     4,975
                                                                  --------------

                          Total inventories                       $      92,326
                                                                  ==============

(5)      Area development rights deposits
         --------------------------------

         As of June 30, 2006, the Company has area  development  rights deposits
         totaling  $46,400 which  represent  funds collected from potential area
         developers of retail distribution  outlets in territories that are both
         determined and yet to be determined.

         In some cases,  the area developers have a right to receive a refund of
         their deposits,  plus interest,  if the Company does not timely provide
         them with forms of area development agreements.

         One of the potential area developers ("the  Significant  Stockholder"),
         who owns  more  than 5% of the  Company's  common  stock  and meets the
         definition of a related party,  paid $750,000  during the twelve months
         ended  December  31, 2005 for the right to,  within sixty days of being
         provided with a form of area  development  agreement,  choose to either
         enter into the area  development  agreement or be issued a  convertible
         note  payable  by  the  Company.  The  convertible  note  would  have a
         six-month term,  accrue  interest at 12% per annum,  and be convertible
         into common stock at $.50 per share.  By January 2006,  the Company was
         unable to formulate the area development agreement  contemplated by the
         terms of the Significant  Stockholder's area development rights deposit
         within  the  timeframes   specified.   As  a  result,  the  Significant
         Stockholder  has elected to have the funds  deposited  with the Company
         converted  into loans to the Company (the  "Development  Loan").  As of
         December  31,  2005,  the  $750,000   received  from  the   Significant
         Stockholder  was  recorded  as  an  area  development  rights  deposit.
         Effective  January 10, 2006,  the deposit was recorded as a convertible
         note payable to the  Significant  Stockholder  pursuant to the terms of
         the  area  development  agreement.  The  terms  of  the  original  area
         development  agreement  required that the Company accrue  interest from
         the  dates of the  original  deposits  if the  Company  fails to timely
         formulate  the area  development  agreement.  Accordingly,  the Company
         recorded  interest  expense  (accrued but not yet paid) of $38,959 that
         was  included in the  principal  amount of the  Development  Loan as of
         January 10, 2006.


                                       15
<PAGE>


                SPEAKING ROSES INTERNATIONAL, INC. AND SUBSIDIARY

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


(5)      Area development rights deposits (continued)
         --------------------------------------------

         The  Development  Loan bears  interest  at an annual rate of 12% and is
         payable  upon  the  request  of  the  holder  thereof.   The  Company's
         obligations  under the  Development  Loan are not secured by any of the
         assets or properties of the Company. The principal and accrued interest
         of the Development  Loan are convertible at the option of the holder of
         the  Development  Loan at any time into common shares of the Company at
         the conversion rate of $0.50 per common share.  Therefore, a beneficial
         conversion  feature of $362,921 was recorded as of January 10, 2006 and
         immediately  expensed  due to the fact that the  principal  and accrued
         interest of the Development Loan are due on demand and convertible into
         common  shares of the  Company  at any time (see Note 9). No  placement
         agent fee or  commissions  are payable  with respect to the purchase or
         issuance of the Development Loan.

         Another of the potential area developers  ("the Trust"),  paid $100,000
         during the twelve  months  ended  December  31,  2005 which the Company
         recorded as an area  development  rights deposit.  As of June 23, 2006,
         the  Company was unable to  formulate  the area  development  agreement
         contemplated  by the  terms  of the  Trust's  area  development  rights
         deposit  within  the  timeframes  specified.  As a result,  the  amount
         deposited with the Company and recorded as an area  development  rights
         deposit was exchanged for a loan (the "Trust Loan") (see Note 7).

         The terms of the deposit  require that the Company accrue interest from
         the  date of the  original  deposit  if the  Company  fails  to  timely
         formulate  the area  development  agreement.  Accordingly,  the Company
         recorded  interest expense (accrued but not yet paid) of $10,548 in the
         three months ended June 30, 2006 calculated at an annual rate of 10%.

 (6)     Deferred revenue
         ----------------

         As of June 30, 2006, the Company has deferred revenue of $922,822 which
         consists  of  $150,000  of  deferred   revenue   associated  with  area
         development right agreements,  $764,861  associated with  international
         licensing agreements,  and $7,961 associated with amounts collected for
         unearned revenue.

         On  May  9,  2006,  the  Company   acquired  the  Retail  Group's  area
         development rights which was recorded as deferred revenue in the amount
         of  $195,960  as  of  December  31,  2005.  The  Development  Agreement
         permitted  the area  developer to refer  potential  franchisees  to the
         Company and to share in any franchise  fees paid by franchisees in Utah
         and Clark County,  Nevada.  The Company  granted the Retail Group these
         rights in exchange  for research and  development  consulting  services
         provided to the Company for its retail expansion. The Company re-sold a
         portion of the area  development  rights acquired from the Retail Group
         the  following  day and received  $150,000 in cash which is recorded as
         deferred revenue as of June 30, 2006.

                                       16
<PAGE>

                SPEAKING ROSES INTERNATIONAL, INC. AND SUBSIDIARY

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


(6)      Deferred revenue (continued)
         ----------------------------

         The Company has entered into non-cancelable  licensing  agreements with
         international  wholesalers  and  other  entities  with  terms of 2 to 4
         years,  although  some  terms  are as long  as 10  years.  Under  these
         contracts  the  wholesalers  acquire  exclusive  rights  to  distribute
         imprinted  floral  products  within a geographic  region.  License fees
         under these  agreements  are paid to the Company at  inception  and are
         recognized  over the lives of the  contracts  using  the  straight-line
         method.  Some of these  contacts  have  included up front  payments for
         equipment.

         For the six months ended June 30, 2006, the Company  recognized  $3,372
         of revenue from  international  franchise area development  rights, but
         has not yet  recognized  any  revenue  associated  with  domestic  area
         development rights, franchise fees, or franchise royalties. The Company
         recognized $84,703 and $35,337 of international license fee revenue for
         the  three  months  ended  June 30,  2006 and 2005,  respectively,  and
         $141,419  and $63,712 for the six months  ended June 30, 2006 and 2005,
         respectively.

(7)      Notes payable
         -------------

         As of June 30, 2006, notes payable consist of the following:

         Unsecured  note  payable  to an  individual.  This
         note  bears  simple interest at 10% and is due upon
         demand                                                   $     100,000
                                                                  --------------
                                                                  $     100,000
                                                                  ==============

(8)      Related party notes payable
         ---------------------------

         As of June  30,  2006,  related  party  notes  payable  consist  of the
         following:

         Unsecured note payable to a member of the Board of
         Directors and a stockholder.  This note bears simple
         interest at 8% and matured on August 5, 2005.  This
         note was subsequently extended until September 5,
         2005 and is currently in default.                        $     250,000

         Unsecured notes payable to the Chairman of the
         Board of Directors who is also a significant
         stockholders these notes bear simple interest
         at 8% and are due upon demand.                                 195,526

         Unsecured note payable to an officer.  This note
         bears simple interest at 10% and matures on May 9,             260,000
                                                                  --------------

                                                                  $     505,526
                                                                  ==============

                                       17
<PAGE>

                SPEAKING ROSES INTERNATIONAL, INC. AND SUBSIDIARY

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS



(9)      Convertible notes payable to stockholders
         -----------------------------------------

         Development  Loan.  As described in Note 5, an area rights  development
         deposit  totaling  $788,960  representing  $750,000  in  principal  and
         $38,960 in accrued interest was recorded  effective January 10, 2006 as
         a convertible note payable to stockholder  pursuant to the terms of the
         Development Loan as described in Note 5.

         Exchange  Agreement.  Effective  as of  February  6, 2006,  the Company
         entered into an exchange  agreement  with the  Significant  Stockholder
         pursuant to which the Company issued the  Significant  Stockholder  two
         promissory notes in exchange for and in cancellation of, the promissory
         notes the Company issued to the Significant Stockholder on November 14,
         November  29 and  December  30,  2005.  The  principal  amount of these
         replacement   notes  totals   $510,356  in  the  aggregate,   and  each
         replacement  note  is  in  the  principal   amount  of  $255,178.   The
         replacement  notes bear interest at an annual rate of 12% and mature on
         December  30,  2006.   The  principal  and  accrued   interest  of  the
         replacement  notes are  convertible  at the option of the holder at any
         time into common shares of the Company at the conversion  rate of $0.50
         per common share, subject to any share splits or reclassifications.

         As  additional  consideration  in accepting  each of these  notes,  the
         Company agreed to issue to the holder of the replacement  notes a total
         of 250,000 shares of unregistered common stock of the Company,  equally
         apportioned between each replacement note. The fair value of the common
         shares  was  $200,000  and in  accordance  with EITF Issue  96-19,  the
         exchange  of the notes  was  considered  to  result in a  substantially
         different debt instrument.  Accordingly,  the transaction was accounted
         for as a debt  extinguishment  of the original  notes and the new notes
         were recorded at fair value.

         As of the  date  of  extinguishment,  the  Company  recorded  a loss on
         extinguishment  of debt of $98,457 which included the allocation of the
         extinguishment proceeds between the beneficial conversion feature which
         was  valued  at the  extinguishment  date,  the  extinguishment  of the
         convertible security, and the fair value of the common shares issued to
         effect  the  exchange  transaction  as  required  by EITF  Issue  98-5,
         "Accounting  for  Convertible  Securities  with  Beneficial  Conversion
         Features or Contingently Adjustable Conversion Ratios."

         The  Company  recorded a  beneficial  conversion  feature  of  $306,213
         related to the replacement notes which will be amortized and recognized
         as interest expense over the life of the replacement notes.

                                       18
<PAGE>

                SPEAKING ROSES INTERNATIONAL, INC. AND SUBSIDIARY

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


(9)      Convertible notes payable to stockholders (continued)
         -----------------------------------------------------

         As of June 30, 2006,  convertible notes payable to stockholders consist
         of the following:

         Unsecured convertible note payable to the
         Significant  Stockholder with interest at 12%
         and due upon demand. The holder of the note may
         convert any portion of the principal and accrued
         interest for shares of common stock at $0.50 per
         share. A beneficial  conversion  feature of
         $362,921 was recorded and immediately expensed
         when the note was issued during the three months
         ended March 31, 2006.                                    $     788,959

         Unsecured convertible note payable to the
         Significant Stockholder with interest at 12%
         (effective  interest rate of 116%), and
         maturing December 31, 2006. The holder of
         the note may convert any portion of the
         principal and accrued  interest for shares of
         common stock at $0.50 per share.  A  beneficial
         conversion  feature of $153,107 was recorded
         during the three months ended March 31, 2006.
         As of June 30, 2006, the remaining debt discount
         was $108,625.  The principal amount of the note
         is $255,178.                                                   146,554

         Unsecured convertible note payable to a
         stockholder with interest at 12% (effective
         interest rate of 116%), and maturing December
         31, 2006. The holder of the note may convert any
         portion of the principal and accrued interest for
         shares of common stock at $0.50 per share.  A
         beneficial conversion feature of $153,107 was
         recorded during the three months ended March 31,
         2006. As of June 30, 2006, the remaining debt
         discount was $108,625. The principal amount of
         the note is $255,178.                                          146,554
                                                                  --------------

                                                                  $   1,082,067
                                                                  ==============


                                       19
<PAGE>

                SPEAKING ROSES INTERNATIONAL, INC. AND SUBSIDIARY

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


(10)     Convertible line of credit with stockholder
         -------------------------------------------

         On May 11, 2006,  the Company  entered into a Line of Credit  Agreement
         ("Credit  Agreement")  with Dos Lagos,  LLC, a Utah  limited  liability
         company whose sole member is a significant  stockholder and who is also
         a member of the Board of  Directors  ("Lender"),  pursuant to which the
         Company  issued  Lender  a  promissory  note  in  exchange  for  and in
         cancellation  of, the promissory notes the Company issued to the Lender
         on January 10,  February 10,  February 28, March 20, March 29, April 26
         and May 10, 2006. The principal  amount of the replacement  note totals
         $1,287,832  as of May 11,  2006,  which  includes  $19,380  in  accrued
         interest  on  the  original  promissory  notes.  The  Credit  Agreement
         establishes  a line of credit for a period  extending  to December  31,
         2006 (the "Maturity  Date"),  for and on behalf of the Company equal to
         two million dollars.  All sums advanced by the Lender to the Company on
         the line of credit or  pursuant  to the terms of the  Credit  Agreement
         shall become part of the  principal of the  replacement  note and shall
         bear  interest from the date each advance is made until paid in full at
         an interest  rate of ten percent  (10%) per annum.  The  principal  and
         accrued  interest of the replacement note are convertible at the option
         of the Lender on the Maturity Date into common shares of the Company at
         the  conversion  rate of $0.50 per common  share,  subject to any share
         splits or reclassifications.  As additional  consideration in accepting
         the terms of the Credit  Agreement,  the Company agreed to issue to the
         Lender a total of 1,000,000 shares of unregistered  common stock of the
         Company.  The fair  value of the  common  shares  was  $500,000  and in
         accordance  with  EITF  Issue No.  96-19,  "Debtor's  Accounting  for a
         Modification  or Exchange  of Debt  Instruments,"  the  exchange of the
         notes  was  considered  to  result in a  substantially  different  debt
         instrument.  Accordingly,  the  transaction was accounted for as a debt
         extinguishment  of the original notes and the new note will be recorded
         at fair value. As of the date of extinguishment, the Company recorded a
         loss on  extinguishment  of debt of $500,000 which  represents the fair
         value of the common shares issued to effect the exchange transaction.

         Subsequent to May 11, 2006 when the Credit  Agreement  was  established
         and before June 30,  2006,  the Company  received  additional  advances
         pursuant to the Credit Agreement  totaling $300,000  resulting in total
         convertible  notes  payable to the Lender of  $1,587,832 as of June 30,
         2006.

         As of June  30,  2006,  convertible  line of  credit  with  stockholder
         consists of the following:

         Unsecured  convertible  note payable to the Lender
         with interest at 10% and maturing December 31, 2006.
         The holder of the note may convert any portion of
         the principal and accrued interest for shares of
         common stock at $0.50 per share.                         $   1,587,832
                                                                  --------------

                                                                  $   1,587,832
                                                                  ==============

                                       20
<PAGE>

                SPEAKING ROSES INTERNATIONAL, INC. AND SUBSIDIARY

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


(11)     Stockholders equity
         -------------------

         As  described  in  Note 5, in  January  2006  the  Company  recorded  a
         beneficial  conversion  feature associated with the Development Loan in
         the amount of $362,921.

         As described in Note 9, in February 2006 the Company  issued a total of
         250,000  unregistered shares of its $.001 par value common stock with a
         fair value of $200,000 to the holder of two convertible notes issued in
         exchange for  replacement  notes.  The exchange was  accounted for as a
         debt  extinguishment  resulting  in a reduction in  additional  paid-in
         capital of $300,000 related to the value of the unamortized  beneficial
         conversion  feature revalued at the  extinguishment  date. A beneficial
         conversion  feature of $306,213 was  recorded  related to the new notes
         issued.

         As  described  in Note 9, in May  2006  the  Company  issued a total of
         1,000,000  unregistered shares of its $.001 par value common stock with
         a fair value of $500,000 to the Lender as additional  consideration  in
         accepting  the terms of the Credit  Agreement  described in Note 9. The
         exchange was  accounted  for as a debt  extinguishment  resulting in an
         increase in additional  paid-in capital and a loss on extinguishment of
         debt of $500,000

         On June 29, 2006,  the Company  issued  25,000  shares of  unregistered
         common stock to BayHill  Group LC  ("Advisor"),  as  consideration  for
         advisory  services  performed  by  Advisor  pursuant  to  the  advisory
         agreement  dated  January 6, 2006 (the  "Advisory  Agreement"),  by and
         between  the  Company  and  Advisor as amended  on June 29,  2006.  The
         issuance of the shares is in exchange for and in  cancellation  of, the
         Company's  commitment  to issue  1,200,000  stock  warrants  previously
         contemplated by the Advisory Agreement.

(12)     Stock-based compensation
         ------------------------

         Prior to January 1, 2006,  as  permitted  under  Statement of Financial
         Accounting  Standards  ("SFAS") No. 123, the Company  accounted for its
         stock option plans following the recognition and measurement principles
         of Accounting  Principles  Board ("APB") No. 25,  Accounting  for Stock
         Issued to  Employees,  and  related  interpretations.  Accordingly,  no
         stock-based  compensation  expense had been  reflected in the Company's
         statements of operations as all options  granted had an exercise  price
         equal to or greater  than the  market  value of the  underlying  common
         stock on the date of grant and the related number of shares granted was
         fixed at that point in time.

         The Company  adopted  SFAS No.  123R  effective  January 1, 2006.  This
         pronouncement  requires  companies  to  measure  the  cost of  employee
         services  received  in  exchange  for an  award of  equity  instruments
         (typically  stock options)  based on the  grant-date  fair value of the
         award.  The fair value is estimated using  option-pricing  models.  The
         resulting  cost is recognized  over the period during which an employee
         is required to provide  service in exchange for the award,  usually the
         vesting  period.  The  Company  adopted  SFAS 123R  using the  modified
         prospective transition method, which is explained below.


                                       21
<PAGE>

                SPEAKING ROSES INTERNATIONAL, INC. AND SUBSIDIARY

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


(12)     Stock-based compensation (continued)
         ------------------------------------

         SFAS  123R is  effective  for all  stock  options  the  Company  grants
         beginning  January 1, 2006. For those stock option awards granted prior
         to January 1, 2006,  but for which the vesting  period is not complete,
         the Company used the modified  prospective  transition method permitted
         by SFAS 123R.  Under this method,  the Company accounts for such awards
         on a prospective  basis, with expense being recognized in its statement
         of  operations  beginning  in the  first  quarter  of  2006  using  the
         grant-date  fair  values  previously   calculated  for  its  pro  forma
         disclosures.  The Company will recognize the related  compensation cost
         not  previously  recognized  in the  pro  forma  disclosures  over  the
         remaining vesting period. The Company's stock options typically vest in
         equal annual  installments  over a service  period.  Expense related to
         each portion of an option grant is recognized over the specific vesting
         period for those stock options.

         The fair value of stock options is determined at the grant date using a
         Black-Scholes  option pricing model, which requires the Company to make
         several  assumptions.  The  risk-free  interest  rate is  based on U.S.
         Treasury  interest  rates.  The dividend yield on the Company's  common
         stock is assumed to be zero since the  Company  does not pay  dividends
         and has no  current  plans to do so in the  future.  The  market  price
         volatility  of the  Company's  common stock is based on the  historical
         volatility  of the stock.  The expected life of the options is based on
         the  Company's  historical  experience  of stock  option  exercise  and
         employee  termination  within the valuation  model;  separate groups of
         employees that have similar historical exercise behavior are considered
         separately  for  valuation  purposes.  The Company also  estimates  the
         expected rate of stock option  forfeitures  separately for officers and
         directors  and for  employees  based on the  historical  experience  of
         options forfeiture in each class of employee and the difference between
         the Company's stock price as of June 30, 2006 and the weighted  average
         exercise price of outstanding options as of that date.

         The following table  summarizes  stock option activity  pursuant to the
         Company's  2004 Speaking  Roses Equity  Incentive Plan (the "Plan") for
         the six months ended June 30, 2006. Under the Plan, 5,000,000 shares of
         the  Company's  common  stock  are  available  for  issuance.  With one
         exception,  options outstanding and exercisable were granted at a stock
         option  price  which  was not less  than the fair  market  value of the
         Company's common stock on the date the option was granted and no option
         has a term in excess of ten years. The Company made one option grant of
         150,000 shares to the Company's former Chief Executive Officer pursuant
         to a separation agreement with an exercise price of $.25 per share on a
         day  when  the  Company's  common  stock  closed  at  $.45  per  share.
         Additionally,  options vested and became exercisable either on the date
         of grant or  commencing  either six or 12 months from the option  grant
         date.

                                       22
<PAGE>

                SPEAKING ROSES INTERNATIONAL, INC. AND SUBSIDIARY

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


(12)     Stock-based compensation (continued)
         ------------------------------------
<TABLE>
<CAPTION>

                                                                     Weighted Average
                                                Weighted Average     Contractual Life        Aggregate
                                     Options    Exercise Price          in Years           Intrinsic Value*
                                 --------------------------------------------------------------------------
<S>                                <C>            <C>                     <C>                    <C>
Outstanding, December 31, 2005     1,450,000      $    1.32

    Granted                        1,180,000           0.64
    Exercised                              -             -
    Canceled                          480,00           1.28
                                   ---------

Outstanding, June 30,2006           2,150,000          1.06               9.16                   -

Exercisable, June 30, 2006            816,667          1.12               8.75                   -

</TABLE>

         * The  intrinsic  value of a stock  option  is the  amount by which the
         market value of the underlying  stock exceeds the exercise price of the
         option.  The market value of the Company's stock was $0.30 per share as
         of June 30, 2006.

         The  weighted-average  fair value of options  granted during the second
         quarter  of 2006 was  determined  to be $0.53,  based on the  following
         weighted-average assumptions:

                   Dividend yield                                        -
                   Expected volatility                                  171%
                   Risk-free interest rate                              5.1%
                   Expected life of option (years)                      6.0

         The following  tables  summarize  the range of exercise  prices and the
         weighted average remaining  contractual life of the options outstanding
         and the range of exercise prices for the options exercisable as of June
         30, 2006:

                          Options Outstanding             Options Exercisable
            ----------------------------------------   -----------------------
                                            Weighted                   Weighted
Range of                      Remaining     Average                    Average
Exercise     Options         Contractual    Exercise    Options        Exercise
Prices      Outstanding     Life (Years)     Price     Exercisable      Price
-------     -----------    -------------    --------   -----------     ---------

$  0.25        150,000            9.93          0.25         -               -
   0.70        890,000            9.66          0.70     100,000          0.70
   0.71        300,000            8.81          0.71     300,000          0.71
   1.00        200,000            8.93          1.00      66,667          1.00
   1.50        110,000            9.10          1.50        -                -
   1.60        300,000            8.41          1.60     300,000          1.60
   1.70        200,000            8.32          1.70      50,000          1.70
             ---------                                   -------

             2,150,000                                   816,667
             =========                                   =======

Weighted Average                  9.16          0.96                      1.12

                                       23
<PAGE>

                SPEAKING ROSES INTERNATIONAL, INC. AND SUBSIDIARY

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


(12)     Stock-based compensation (continued)
         ------------------------------------

         On May 9,  2006,  warrants  were  issued to  Business  Retail  Group to
         purchase  150,000  shares of the Company's  common stock at an exercise
         price of $0.75  per  share.  The  warrants  expire on May 9,  2016.  In
         accordance  with  SFAS  123R,  the  fair  value  of  the  warrants  was
         determined  based on the fair  value  of the  area  development  rights
         purchased as the Company determined that was a more reliable measure of
         the fair value than that of the equity securities issued. There were no
         other warrants issued and outstanding as of June 30, 2006.

         Stock  based  compensation  expense  recognized  under SFAS 123R in the
         three months ended June 30, 2006 increased wages, salaries and benefits
         expense and our net loss by  $348,562,  or $0.012 per basic and diluted
         share,  and by $397,089,  or $.013 per basic and diluted  share for the
         six months ended June 30, 2006.  There was no stock based  compensation
         expense  capitalized as of June 30, 2006. As of June 30, 2006, $669,397
         of compensation  expense related to unvested stock options and warrants
         attributable to future  performance had not yet been  recognized.  This
         amount will be recognized in expense over a weighted-average  period of
         1.5 years.

         SFAS  123R  requires  the  benefits  of tax  deductions  in  excess  of
         recognized compensation expense to be reported as financing cash flows,
         rather than as an  operating  cash flow as  prescribed  under the prior
         accounting rules. This requirement reduces net operating cash flows and
         increases net financing  cash flows in periods  after  adoption.  Total
         cash flow remains  unchanged  from what would have been reported  under
         prior accounting rules.

         Prior to the  adoption  of SFAS No.  123R,  the  Company  followed  the
         intrinsic value method in accordance with APB No. 25 to account for its
         employee  stock  options.  Accordingly,  no  compensation  expense  was
         recognized  for employee stock options  granted in connection  with the
         issuance of stock  options  under the Plan for  periods  ended prior to
         January 1, 2006. The adoption of SFAS No. 123R primarily  resulted in a
         change  in the  Company's  method  of  recognizing  the  fair  value of
         share-based compensation.  Specifically,  the adoption of SFAS No. 123R
         will result in the recording of compensation expense for employee stock
         option rights.

         The following  table  illustrates  the pro forma effect on net loss and
         net loss per share for the three  months and six months  ended June 30,
         2005 had the Company applied the fair value  recognition  provisions of
         SFAS No. 123:

                                                 Three Months      Six Months
                                                 Ended June 30,   Ended June 30,
                                                     2005             2005
                                                 -------------------------------
          Net loss as reported                   $  (1,384,144)   $  (2,296,693)
          Deduct total stock-based employee
            compensation expense determined
            under SFAS 123, net of tax in 2005         (36,627)         (68,672)
                                                 -------------------------------

          Pro forma net loss                     $  (1,420,771)   $  (2,365,365)
                                                 ===============================

          Net loss per common share (basic
            and diluted):
            As reported                          $       (0.05)   $       (0.08)
                                                 ===============================
            Pro forma                            $       (0.05)   $       (0.09)
                                                 ===============================


                                       24
<PAGE>

                SPEAKING ROSES INTERNATIONAL, INC. AND SUBSIDIARY

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


(13)     Commitments and contingencies
         -----------------------------

         On May 26, 2006, John W.  Winterholler  tendered his resignation as the
         Chief Executive  Officer of the Company,  effective as of June 1, 2006.
         In connection with his resignation,  the Company agreed to enter into a
         separation  agreement  with Mr.  Winterholler  and  provide him with 13
         months of base salary, which amounts to $162,500, payable in accordance
         with the Company's  standard payroll  practices and subject to required
         withholdings.  The entire $162,500 was recorded as compensation expense
         during the three months ended June 30, 2006 with  $150,000  recorded as
         an accrued expense as of June 30, 2006.

         The  Company  also  agreed to  continue  providing  medical  and dental
         insurance  benefits,  pursuant  to federal  law,  for up to one year or
         until such time as Mr. Winterholler accepts new employment which offers
         comparable  insurance  benefits.  The Company will record these benefit
         expenses as they are incurred given that the term of this commitment is
         not fixed or determinable.

(14)     Related party transactions
         --------------------------

         For the three  months  ended June 30, 2006 and 2005,  the Company  paid
         management and consulting fees and other expenses  totaling $44,448 and
         $36,268,  respectively,  and  $115,283  and  $58,828 for the six months
         ended June 30, 2006 and 2005,  respectively,  to related  parties or to
         companies controlled by affiliates of certain principal stockholders of
         the Company.  As of June 30, 2006,  the Company had amounts  payable to
         those entities totaling $9,618 recorded in accounts payable,  trade and
         an additional  $120,610 recorded in accrued  interest.  Also as of June
         30, 2006, the Company has accounts receivable from T.A. Lassetter,  Jr.
         totaling  $16,614  pursuant  to  a  franchise  agreement   representing
         expenses for franchise store equipment and supplies.

         Debt  Arrangements.  As of June 30, 2006, the Company has a demand note
         payable to Mr. Bob Warfield,  who is a member of the Company's Board of
         Directors,  with a principal amount of $250,000.  The note bears simple
         interest at an annual rate of 8% (See Note 8).

         As of June 30, 2006, the Company has demand notes payable to Mr. Blaine
         Harris, who is the Company's  Chairman of the Board of Directors,  with
         principal amounts totaling $195,526.  The notes bear simple interest at
         an annual rate of 8% (See Note 8).

         As of June 30, 2006, the Company has a convertible  line of credit with
         Dos Lagos,  LLC, a Utah limited  liability company whose sole member is
         Mr. Roland N. Walker, a significant stockholder who is also a member of
         the Board of Directors, with a principal amount of $1,587,832. The note
         bears simple interest at an annual rate of 10% (See Note 9).


                                       25
<PAGE>

                SPEAKING ROSES INTERNATIONAL, INC. AND SUBSIDIARY

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


(14)     Related party transactions (continued)
         --------------------------------------

         As of June 30, 2006, the Company has  convertible  notes payable to Mr.
         Steven F. Hanson,  who owns more than 5% of the Company's  common stock
         and meets the  definition of a related party,  with  principal  amounts
         totaling  $1,044,137.  The notes bear simple interest at an annual rate
         of 12%.  The  holder  of the  notes  may  convert  any  portion  of the
         principal and accrued interest for shares of the Company's common stock
         at $0.50 per share at any time prior to  acceptance  for  payment  (See
         Note 9).

         For the three and six months ended June 30,  2006,  the total amount of
         interest  expense  paid to or accrued for loans from  stockholders  was
         $76,952 and $132,796, respectively.

         Franchise  Agreement.  The Company  entered into a franchise  agreement
         with T. A. Lassetter,  Jr. who is the son of Ted Lassetter, a member of
         the  Company's  Board of  Directors,  the chairman of the  Compensation
         Committee of the Board, and the Company's Chief Executive Officer.  The
         franchise  agreement allows the franchisee to open a retail store under
         the Speaking  Roses name using the  Company's  technology.  The Company
         will receive  continuing  royalties  from the store and will act as the
         wholesaler of floral and other products to the store.  The retail store
         opened in July,  2006.  The  Company's  Board of  Directors  waives the
         franchise  fee for any director  who chooses to open a Speaking  Roses'
         franchise store, for up to 10 stores.

         Franchise and Area Development Agreements.  As discussed in Note 6, the
         Company  acquired  the area  development  rights  described in the Area
         Development  Agreement  (the  "Development  Agreement")  with  Business
         Retail  Group,  LLC ("the Retail  Group")  owned by Mike  Glauser,  the
         Company's  Vice  President  of Retail  Operations,  and his  wife.  The
         Development  Agreement  permitted the area developer to refer potential
         franchisees  to the Company and to share in any franchise  fees paid by
         franchisees in Utah and Clark County,  Nevada.  The Company granted the
         Retail Group these  rights in exchange  for  research  and  development
         consulting  services  provided to the Company for its retail expansion.
         During the three months ended June 30, 2006, the Company also purchased
         all of the Retail  Group's  rights,  title and interest in the business
         and assets  comprising  the  operations of the franchise  store thereby
         terminating the franchise agreement as described in Note 3.

         Sales and  Marketing.  During the three months ended June 30, 2006, the
         Company retained Chad Harris as an independent contractor to manage its
         sales and marketing activities. Mr. Harris is the son of Blaine Harris,
         the Company's Chairman of the Board of Directors.


                                       26
<PAGE>

                SPEAKING ROSES INTERNATIONAL, INC. AND SUBSIDIARY

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


(15)     Subsequent events
         -----------------

         Advances on Line of Credit Agreement. On July 12, 2006 and on August 2,
         2006,  the  Company   received   advances  of  $200,000  and  $180,000,
         respectively, pursuant to the Credit Agreement described in Note 9. The
         sums  advanced  by the  Lender to the  Company on the line of credit or
         pursuant to the terms of the Credit  Agreement  bear  interest from the
         date each advance is made until paid in full at an interest rate of ten
         percent  (10%) per annum.  The Credit  Agreement  establishes a line of
         credit for a period  extending  to  December  31,  2006 (the  "Maturity
         Date"),  for and on behalf of the Company equal to two million dollars.
         The principal and accrued interest of all sums advanced are convertible
         at the option of the Lender on the Maturity  Date into common shares of
         the Company at the conversion  rate of $0.50 per common share,  subject
         to any share splits or reclassifications.

         As of August 2, 2006 when the last  advance was made,  the total of the
         sums advanced  pursuant to the Credit Agreement and accrued interest on
         those sums exceeds the two million dollar credit limit.  The Lender has
         not indicated a willingness to advance  additional cash to the Company.
         Thus,  the line of credit has been  exhausted and the Company will need
         to obtain  financing from other sources if it is to continue as a going
         concern.  However,  there is no assurance that the Company will be able
         to obtain  additional  financing on terms which are  acceptable,  or at
         all.


                                       27
<PAGE>

                SPEAKING ROSES INTERNATIONAL, INC. AND SUBSIDIARY


Item 2.  Management's Discussion and Analysis or Plan of Operations

This Management's  Discussion and Analysis or Plan of Operations ("MD&A") should
be read  in  conjunction  with  our  interim  condensed  consolidated  financial
statements and notes thereto which appear elsewhere in this Quarterly Report and
the MD&A contained in our Annual Report on Form 10-KSB filed with the Securities
and Exchange  Commission (the "SEC") on April 3, 2006. The following  discussion
contains forward-looking  statements and should also be read in conjunction with
"Forward-looking  statements"  below.  All  amounts  presented  in the  MD&A are
rounded to the nearest thousand dollars.

Overview

We own  patented and other  proprietary  technology  used to emboss  flowers and
other products.  The technology allows end users to request  personalized floral
arrangements  using  standardized or unique  messages,  logos,  trademarks,  and
pictures. In addition to our own production, we have licensed that technology to
large  wholesale  flower  concerns  and other  parties  to  perform  the  actual
embossing  of  flowers.  In the United  States,  we sell  embossed  flowers  and
bouquets  containing  embossed  flowers  directly  to  individuals,  businesses,
florists,  chain stores,  funeral  homes and large  wedding and corporate  event
planners  with  production  and  fulfillment  primarily  provided  by us  and by
licensed wholesale flower providers.

We have recently  developed a retail  distribution model and have begun to offer
area development and franchise rights for sale in those  jurisdictions  which do
not require  regulatory  approval.  In order to improve our retail  distribution
model,  during the three months ended June 30, 2006,  we purchased the assets of
our first  franchise  store and entered  into an  agreement  with an operator of
grocery stores to manage the floral  operations of one of its stores in exchange
for store rent based on the gross floral sales of the store. We intend to pursue
similar  agreements with this and other  comparable  operators in support of our
retail distribution  outlets. We have also licensed the technology and equipment
to exclusive  licensees in  international  markets and we are beginning to offer
area development and franchise rights for sale internationally.

Set forth below are comparisons of financial statement information for the three
month  periods  ended  June 30,  2006 and  June 30,  2005 and for the six  month
periods  ended  on  those  same  dates.  Interim  results  are  not  necessarily
indicative of results for future quarters or the full fiscal year.

Results of Operations

Sales
-----

Sales  for the three and six  months  ended  June 30,  2006  were  $408,000  and
$869,000, respectively,  compared to sales of $368,000 and $808,000 for the same
periods in the prior year.  Product  (flower)  sales were $268,000 for the three
months  ended June 30,  2006 and  $309,000  for the  comparable  period in 2005.
License fees and other revenue were $129,000 for the three months ended June 30,
2006 and $48,000 for the comparable  period in 2005.  Royalties were $10,000 for
the three months ended June 30, 2006 and $11,000 for the three months ended June
30, 2005. The decrease of $41,000 in product  sales,  the increase of $81,000 in
license fees and other revenue,  and the slight  decrease of $1,000 in royalties
for the  two  comparable  three-month  periods,  together  with  similar  trends
experienced  when  comparing  the three  months  ended  March 31,  2006 with the

                                       28
<PAGE>
                SPEAKING ROSES INTERNATIONAL, INC. AND SUBSIDIARY


comparable  period in 2005 are all  attributable  to our increasing  emphasis on
licensing and franchising both domestically and  internationally  while striving
to sustain  and grow our direct  product  sales  even  though we have  allocated
proportionately fewer resources toward that effort.

During the six months ended June 30, 2006,  we entered into three  international
license agreements.  In each case, the licensee paid us a non-cancelable fee and
was  granted a license to use our  technology  to  distribute  imprinted  floral
products within a geographical  region for initial periods of from 2 to 4 years.
These agreements provide licenses with respect to the countries of South Africa,
Namibia, Botswana,  Swaziland,  Lesotho, Zimbabwe,  Mozambique, Spain, Portugal,
India, and Kenya.

Cost of goods sold
------------------

Cost of goods  sold for the  three  and six  months  ended  June 30,  2006  were
$305,000 and $659,000,  respectively,  compared to $346,000 and $729,000 for the
same  periods in the prior  year.  Cost of goods  sold  consisted  primarily  of
purchases of roses and the labor and supplies necessary to emboss and ship them.
The overall  decrease in cost of goods sold is  attributable  to the decrease in
product  sales  discussed  previously.  The  ratio  of cost of  goods  sold as a
percentage  of product  sales  declined  slightly  between  the two  comparative
three-month periods, but improved slightly between the two comparative six-month
periods. The ratio is still much higher than our targets due to the fact that we
have invested in production capability  anticipating higher sales which have not
materialized as projected.

General and administrative
--------------------------

General and administrative  expenses for the three and six months ended June 30,
2006 were  $1,114,000  and  $1,829,000,  respectively,  compared to $433,000 and
$798,000  for the same  periods in the prior year.  The  increase in general and
administrative   expenses  when  comparing  the  two  six-month  periods  totals
$1,031,000. The majority of this difference is explained as follows: $241,000 is
attributable  to an increase in  professional  fees which  consists of increased
consulting  and legal  fees  incurred  in  support  of our  increasing  focus on
franchising  and retailing and increased  accounting fees due to a change in our
independent  registered public accounting firm;  $101,000 is attributable to bad
debt expense associated with an uncollectible international license fee; $99,000
is  attributable  to  increased  salaries  and wages due to an  increase  in our
executive  staff  including a new  president,  chief  financial  officer,  chief
operating officer,  and information systems personnel;  $163,000 is attributable
to severance expense payable to our former Chief Executive Officer; and $398,000
is attributable to additional  compensation  expense due to our adoption of SFAS
No. 123R which requires us to expense the fair value of stock options granted to
employees in exchange  for  employee  services,  whereas  previously  we had not
recognized such expense but had provided disclosure on a pro forma basis.

Sales and marketing
-------------------

Sales and  marketing  expenses  for the three and six months ended June 30, 2006
were $416,000 and $658,000,  respectively,  compared to $477,000 and  $1,072,000
for the same  periods in the prior year.  The  decrease  in sales and  marketing
expenses between the two comparative  periods is due to a reduction in our sales
and marketing personnel and other associated expenses which were not expected to
benefit us in the  execution of our retailing  strategy.  The decrease in direct
product  sales is partly  attributable  to the decrease in these  expenses as we
have shifted the focus or our sales efforts.


                                       29
<PAGE>
                SPEAKING ROSES INTERNATIONAL, INC. AND SUBSIDIARY


Research and development
------------------------

Research  and  development  expenses for the three and six months ended June 30,
2006 were $20,000 and $57,000, respectively, compared to $41,000 and $47,000 for
the same periods in the prior year.  The  increase in research  and  development
expenses  for  the  six-month  comparative  periods  is due  to  our  increasing
investment  in  our  franchising  and  retailing  strategy  and  the  associated
development  expenses.  Comparatively fewer resources were dedicated to research
and  development  in the six months ended June 30, 2005 due to our primary focus
then on direct product sales in our various sales channels.

Other income (expense)
---------------------

Other  expense for the three and six months ended June 30, 2006 was $638,000 and
$1,235,000, respectively, compared to $455,000 and $458,000 for the same periods
in the prior year.  The increase in other expense for the six-month  comparative
periods of $777,000 is due primarily to losses on  extinguishment of debt during
the six months ended June 30, 2006. In May 2006,  the Company  issued a total of
1,000,000  unregistered  shares of its $.001 par value  common  stock  valued at
$500,000 to the Lender as additional  consideration  in accepting the terms of a
line  of  credit   agreement.   The  exchange  was   accounted  for  as  a  debt
extinguishment  resulting  in a loss on  extinguishment  of  debt  of  $500,000.
Similarly,  in February 2006, the Company recorded a loss on  extinguishment  of
debt of $98,000 pursuant to an exchange agreement in which the company exchanged
debt instruments with a significant  stockholder and issued to the holder of the
replacement notes a total of 250,000  unregistered  shares valued at $200,000 as
additional consideration in accepting the terms of the exchange agreement.

In addition,  interest  expense  increased by $184,000  when  comparing  the two
six-month  periods.  The increase in interest  expense is attributable to higher
levels of  interest  bearing  debt  during  the first  six  months of 2006,  the
recording of a beneficial  conversion  feature associated with the restructuring
of certain  loans  payable  to  shareholders,  the  amortization  of  beneficial
conversion  features recorded in earlier periods,  and the recording to interest
expense of a beneficial  conversion feature associated with the transfer of area
development rights deposits to development loan status.

Net loss
--------

Our net loss for the three and six months ended June 30, 2006 was  $2,085,000 or
$.07 per common share,  and  $3,569,000 or $.12 per common share,  respectively,
compared to  $1,384,000  or $.05 per common  share,  and  $2,296,000 or $.08 per
common  share,  for the same periods in the prior year.  The increase in our net
loss for the  six-month  comparative  periods is due to  increased  general  and
administrative  expenses including salaries and wages,  professional fees, stock
option  compensation  expense,  bad debt expense and  severance  pay,  losses on
extinguishment of debt, and increased  interest expense as discussed  previously
in this MD&A.



                                       30
<PAGE>
                SPEAKING ROSES INTERNATIONAL, INC. AND SUBSIDIARY


Liquidity and Capital Resources

Cash
----

We had cash of $7,000  invested  in demand  deposits as of June 30, 2006 to fund
operations and capital expenditures and we will require additional financing. If
we  acquire  that  funding   through  the  issuance  of  equity  or  convertible
securities,  our shareholders may experience  dilution in the value per share of
their equity securities. If we acquire the funding through the issuance of debt,
that  financing  could  result in a  substantial  portion of our cash flows from
operations  being  dedicated  to the payment of  principal  and interest on that
indebtedness,  and could render us more vulnerable to competitive  pressures and
economic  downturns.  We can give no  assurances  that we will be able to obtain
additional  financing,  either  through  debt  or  equity,  on  terms  that  are
acceptable  to us,  or at all.  Any  additional  sale of  common  stock  or debt
securities would result in additional dilution to our shareholders.

Cash flows
----------

Cash flows used in operating  activities were  $(1,174,000) and $(1,462,000) for
the six months ended June 30, 2006 and 2005, respectively. Because our operating
cash flows are currently insufficient to fund our operations,  we have relied on
funding from our directors and stockholders, as described below.

Capital expenditures
--------------------

Capital expenditures totaled $244,000 for the six months ended June 30, 2006, up
from  $181,000 for the six months ended June 30, 2005.  Expenditures  of $54,000
during  the three  months  ended  March 31,  2006 were  primarily  for  computer
equipment,  computer software,  furniture and fixtures, and patent and trademark
applications.  During the three months ended June 30, 2006, capital expenditures
consisted  primarily of tangible  assets totaling  $149,000  associated with the
purchase  of the  franchise  store  as  described  in  Note  3 of the  condensed
consolidated  financial  statements  presented in this Form  10-QSB,  along with
$41,000 of  additional  computer  equipment,  software,  furniture and fixtures,
equipment and  machinery,  and patent and trademark  applications.  The tangible
fixed assets  acquired in the purchase of the franchise  store include  computer
equipment, store equipment, store improvements,  store furniture, and a delivery
van.

Financing
---------

As of the date of this Form 10-QSB, we have been unable to obtain financing from
external sources under terms which we deem to be reasonably acceptable,  and the
revenues  generated from our operations are  insufficient for our current needs.
Consequently,  certain of our directors and shareholders  have extended debt and
convertible  debt financing to us as described in Notes 8 and 9 to our condensed
consolidated financial statements. During the three months ended March 31, 2006,
we  received  $740,000 in loans from a member of the Board of  Directors  who is
also a significant  stockholder  (the  "Lender").  During the three months ended
June 30, 2006, we received an additional  $650,000 from the Lender. The total of
$1,390,000  in new loans to the Lender during the six months ended June 30, 2006
has  materially  increased  the amount of our total debt.  During this six month
period and in the two months subsequent,  the cash advances we have received are
pursuant to a two million  dollar line of credit  agreement as described in Note
9. As of August 2, 2006,  the line of credit has been  exhausted  and the Lender
has not indicated a willingness to advance additional cash to us.  Consequently,
we will need to obtain  financing  from other sources if we are to continue as a
going concern.

The need for that  additional  financing  is critical  given our small amount of
cash and our high levels of debt  including a convertible  line of credit with a
stockholder  of  $1,587,832,  notes  payable of  $100,000,  related  party notes
payable  of  $505,526,   and  convertible   notes  payable  to  stockholders  of

                                       31
<PAGE>
                SPEAKING ROSES INTERNATIONAL, INC. AND SUBSIDIARY


$1,082,067.  Of these debt totals,  $1,334,485 of the principal  total is due on
demand.  Thus, if a lender were to demand payment, we would be unable to satisfy
the demand and we would be rendered insolvent.

The total amount and nature of notes  payable,  convertible  line of credit with
stockholder,  related  party notes  payable,  and  convertible  notes payable to
stockholders  as described in this Form 10-QSB has  significantly  increased our
total debt and will likely  negatively  affect our  ability to raise  additional
funds.  While  we are  attempting  to  obtain  additional  commitments  from our
directors,  certain  shareholders  and other outside parties to continue to fund
our operations  beyond those  commitments  described herein, no assurance can be
given nor relied upon that we will be able to obtain such  commitments  on terms
and conditions  reasonably  acceptable to us or that we will be able to continue
to operate as a going concern. Our expenses continue to exceed our revenues by a
significant margin.  Accordingly,  unless we are able to operate profitably,  we
can give no assurance that we have or will have sufficient  capital resources or
liquidity to satisfy working capital and operating requirements.

We have not achieved  quarterly or annual  profits as either SRII or as Speaking
Roses,  LLC. Our ability to continue as a going  concern is  dependent  upon our
ability to generate  future profits and to generate  sufficient  capital to meet
our obligations on a timely basis. During the six months ended June 30, 2006, we
incurred a net loss of $3,569,000.  Net cash flows used in operating  activities
during the six months  ended June 30, 2006 were  $1,174,000.  The above  factors
raise  substantial  doubt that the  Company  will be able to continue as a going
concern.  We have reached this conclusion as a result of our recent  operational
and financial history, discussions with our current lenders, and the probability
that we assess that our current  holders of demand notes will demand  payment in
the near future. Our conclusion is that there is a significant  probability that
we will be unable to continue as a going concern.

Estimated  capital  expenditures  for the six months  beginning July 1, 2006 are
approximately  $100,000.  We  believe we will be able to plan and  minimize  our
capital  and  operating  spending  in the  future by  varying  the extent of our
licensing activities,  hiring practices,  geographical expansion,  and marketing
activities.  If we elect to slow the speed, or narrow the focus, of our business
plan, we may be able to reduce our capital  expenditures and losses.  Our actual
ability to execute our proposed business plan will depend on a number of factors
including:

         o    the acceptance of our floral embossing process in the market place
              at profitable prices;

         o    the success of our retail business strategy;

         o    our ability to protect our intellectual property;

         o    our ability to continue to raise capital; and

                                       32
<PAGE>
                SPEAKING ROSES INTERNATIONAL, INC. AND SUBSIDIARY

         o    factors  over  which  we  have  little  or  no  control,  such  as
              regulatory  changes,  changes  in  technology,  failures  by third
              parties  to meet  their  contractual  obligations  or  significant
              changes in the competitive environment in which we will operate.

Our actual costs and revenues can vary from the amounts that we expect or budget
in our business plan,  possibly  materially,  and those variations are likely to
affect our  ability to generate a profit or our need for  additional  financing.
Accordingly,  we can give no assurance  that our actual debt and equity  capital
needs  will  not  exceed  the  anticipated  amounts  that are  available  to us,
including from our  affiliates,  directors,  and  stockholders,  and new outside
parties.  The unaudited  condensed  consolidated  financial  statements included
herein have been prepared  assuming we will continue as a going  concern,  which
contemplates  the  realization of assets and the  satisfaction of liabilities in
the  normal  course of  business.  We have  incurred  cumulative  net  losses of
$12,224,000  and net losses of $2,085,000  and  $3,569,000 for the three and six
months ended June 30, 2006, respectively.

The above factors raise  substantial doubt that we will be able to continue as a
going  concern  unless  we are  able to  generate  sufficient  cash  flows  from
operating  activities  to meet  our  obligations  as  they  come  due or  obtain
additional debt or equity financing.

The unaudited  condensed  consolidated  financial  statements do not include any
adjustments  relating to the recoverability and classification of asset carrying
amounts or the amount and  classification of liabilities that might be necessary
should we be unable to continue as a going concern.

Forward-looking statements

This report includes  forward-looking  statements  within the meaning of Section
27A of the  Securities  Act and Section 21E of the  Securities  Exchange  Act of
1934, as amended (the "34 Act"). Although we believe our expectations  regarding
future  events  are based on  reasonable  assumptions  within  the bounds of our
knowledge,   these   forward-looking   statements   are  subject  to  risks  and
uncertainties  that  could  prevent  our goals from  being  achieved.  Important
factors that could cause actual results to differ  materially  from those in the
forward-looking  statements include the effects of competition,  legislative and
regulatory  developments,  conditions of the capital  markets and equity markets
and, in general,  our ability to achieve the goals  described  in this report as
well as other factors contained in other cautionary  statements included in this
report.

Certain  statements  contained in this  report,  including  without  limitation,
statements   containing   the   words   "may,"   "will,"   "expects,"   "plans,"
"anticipates,"  "believes," "intends," "estimates,"  "projects," "potential," or
"continue" and similar types of expressions  identify such statements,  although
not  all   forward-looking   statements   contain   these   identifying   words.
Forward-looking  statements  involve known and unknown risks,  uncertainties and
other factors that may cause our actual results,  performance or achievements to
be materially  different from any future  results,  performance or  achievements
expressed   or  implied  by  the   forward-looking   statements.   Those  risks,
uncertainties and other factors include, among others, the following:

         o    our  ability  to develop a  presence  in the  market  and  sustain
              profitable operations;

         o    the acceptance by the public of our product and retail concept;

                                       33
<PAGE>
                SPEAKING ROSES INTERNATIONAL, INC. AND SUBSIDIARY


         o    the availability  and terms of the additional  capital required to
              fund our operations as needed;

         o    performance by third parties of their  contractual  obligations to
              us;

         o    our ability to manage growth and retail operations;

         o    technological changes; and

         o    competitive factors.

All  forward-looking  statements speak only as of the date of this report. We do
not undertake any  obligation to update or revise  publicly any  forward-looking
statements, whether as a result of new information,  future events or otherwise.
Although we believe that the plans,  intentions and expectations reflected in or
suggested by the forward-looking  statements made in this report are reasonable,
we can give no assurance  that such plans,  intentions or  expectations  will be
achieved. Given these uncertainties,  prospective investors are cautioned not to
place undue reliance on such forward-looking  statements.  Readers and potential
investors should  carefully  review the risk factors  described in this document
and in other  documents that Speaking Roses  International,  Inc. and subsidiary
files from time to time with the Securities and Exchange Commission,  including,
but not limited to, our annual report on Form 10-KSB for the year ended December
31, 2005.


                                       34
<PAGE>
                SPEAKING ROSES INTERNATIONAL, INC. AND SUBSIDIARY


Item 3. Controls and Procedures

In accordance with the rules  promulgated under the 1934 Act, our management has
evaluated,  with the  participation of our president and chief executive officer
and our chief financial  officer,  the effectiveness of the design and operation
of our disclosure  controls and  procedures (as defined in Rule 13a-15(e)  under
the 1934 Act) as of the end of the  fiscal  quarter  ended  June 30,  2006 ("the
Evaluation Date").  Based upon our evaluation of these disclosure  controls,  at
the Evaluation  date, we concluded  that our disclosure  controls and procedures
are not  effective  to ensure that  information  required to be disclosed in the
reports that we file under the 1934 Act is recorded,  processed,  summarized and
reported within the time periods  specified by the SEC's rules and  regulations.
Based  on this  evaluation,  we  concluded  that  our  disclosure  controls  and
procedures  are not  effective  due to: 1)  adjustments  required to correct the
accounting  for certain  debt and equity  transactions  which was also noted and
previously  disclosed  in our annual  report on Form 10-KSB as of  December  31,
2005; and 2) failure to timely file certain  Current Reports on Form 8-K. We are
in the process of improving our internal  control and related  disclosures in an
effort to remediate these deficiencies through improved supervision and training
of our accounting  staff.  These  deficiencies  have been disclosed to our audit
committee and to our independent  registered public accounting firm.  Additional
effort is needed to fully remedy these  deficiencies  and we are  continuing our
efforts to improve and  strengthen  our control  processes and  procedures.  Our
management,  audit  committee,  and  directors  will  continue  to work with our
independent  registered  public  accounting  firm and other outside  advisors to
ensure that our controls and procedures are adequate and effective.

During the first fiscal  quarter ended March 31, 2006,  changes were made to our
inventory  tracking  procedures,  our  sales  reporting  procedures,  and to the
implementation  and use of our new accounting  software that we anticipate  will
materially improve, or are reasonably likely to materially improve, our internal
controls over financial reporting.

Our management,  including our chief  executive  officer and our chief financial
officer,  does not expect that our  disclosure  controls and  procedures  or our
internal  controls will prevent all error and all fraud.  A control  system,  no
matter how well  conceived and operated,  can provide only  reasonable,  but not
absolute,  assurance that the objectives of the control system are met. Further,
the design of a control  system must  reflect  the fact that there are  resource
constraints,  and the benefits of controls must be considered  relative to their
cause. Because of the inherent limitations in all control systems, no evaluation
of  controls  can  provide  absolute  assurance  that  all  control  issues  and
incidences of fraud, if any, within a company have been detected. These inherent
limitations  reflect the fact that judgments and  decision-making  can be faulty
and that breakdowns can occur because of simple error or mistake.  Additionally,
controls  can be  circumvented  by the  individual  acts  of  some  persons,  by
collusion of two or more people, or by management override of the controls.  The
design  of any  system  of  controls  also  is  based,  in  part,  upon  certain
assumptions about the likelihood of future events, and there can be no assurance
that any design will succeed in achieving  its stated goals under all  potential
future conditions.  Over time, controls may become inadequate because of changes
and conditions,  or the degree of compliance with the policies or procedures may
deteriorate.  Because of the inherent  limitations in a cost  effective  control
system, errors and fraud may occur and still not be detected.


                                       35
<PAGE>
                SPEAKING ROSES INTERNATIONAL, INC. AND SUBSIDIARY


PART II  OTHER INFORMATION

Item 1.   Legal Proceedings

None

Item 2.   Unregistered Sales of Equity Securities and Use of Proceeds

During the three months ended March 31, 2006,  the Company issued 250,000 shares
of its $.001 par value common stock to two  accredited  investors as  additional
consideration  in accepting  the terms of an exchange  agreement to  restructure
notes payable to stockholders.

During the three months ended June 30, 2006, the Company issued 1,000,000 shares
of its $.001 par value  common  stock to an  accredited  investor as  additional
consideration  in accepting the terms of a line of credit agreement ("the Credit
Agreement")  which  establishes  a line of  credit  for a  period  extending  to
December  31,  2006,  for and on  behalf  of the  Company  equal to two  million
dollars.

In  addition,  also during the three  months  ended June 30,  2006,  the Company
issued  25,000  shares  of its $.001 par  value  common  stock to an  accredited
investor as  consideration  for advisory  services  performed by the  accredited
investor ("the  Advisor")  pursuant to the Advisory  Agreement  dated January 6,
2006 (the  "Agreement"),  by and  between  the Company and Advisor as amended on
June 29, 2006. The issuance of the shares is in exchange for and in cancellation
of, the  Company's  commitment  to issue  1,200,000  stock  warrants  previously
contemplated by the Agreement.

The  Company  believes  the  issuance  of these  securities  was exempt from the
registration  requirements  of the  Securities  Act of 1933, as amended (the "33
Act"),  pursuant  to  Sections  4(2) and  other  provisions  of the 33 Act.  The
investors were  "accredited  investors" and represented that they were accepting
the common shares for  investment  and without a view to their  distribution  in
violation of the federal or state securities laws, and that they understood that
the  common  shares  were  being  issued  in  reliance  upon   exemptions   from
registration  under the  federal and state  securities  laws and that they were,
therefore,  "restricted  securities"  subject  to  significant  restrictions  on
transfer. The certificates evidencing the securities bear a standard restrictive
legend.

Item 3.   Defaults Upon Senior Securities

None


                                       36
<PAGE>
                SPEAKING ROSES INTERNATIONAL, INC. AND SUBSIDIARY


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

At the annual meeting of stockholders  held on May 10, 2006, the stockholders of
the Company elected the following five directors for terms of office expiring at
the annual meeting of stockholders in the year 2007:

--------------------------------------------------------------------------------
      Name                        For          Against         Abstentions
--------------------------------------------------------------------------------
Blaine Harris                 20,410,410      3,045,971            0
--------------------------------------------------------------------------------
Rene Rodriguez                20,468,145      2,988,236            0
--------------------------------------------------------------------------------
Roland N. Walker              20,500,242      2,956,139            0
--------------------------------------------------------------------------------
Terrell A. Lassetter          20,468,145      2,988,236            0
--------------------------------------------------------------------------------
Robert E. Warfield            20,452,145      3,004,236            0
--------------------------------------------------------------------------------

The  proposal  for Tanner LC to serve as the  Company's  independent  registered
public  accountants  for the fiscal year ending  December 30, 2006 was ratified.
The votes were 23,432,323 (For); 24,028 (Against); and 30 (Abstentions).

Item 5.  Other Information

None


                                       37
<PAGE>

                SPEAKING ROSES INTERNATIONAL, INC. AND SUBSIDIARY


Item 6. Exhibits and Reports on Form 8-K

(A) EXHIBITS

The  exhibits  listed below are hereby  filed with the  Securities  and Exchange
Commission  as part of this  Quarterly  Report on Form  10-QSB.  Certain  of the
following  exhibits have been previously  filed with the Commission  pursuant to
the  requirements  of the 33 Act or the 34 Act. Those exhibits are identified by
the parenthetical  references following the listing of each such exhibit and are
incorporated  herein by  reference.  We will  furnish a copy of any exhibit upon
request, but a reasonable fee will be charged to cover our expense in furnishing
such exhibit.

 Exhibit      Description
 -------      -----------

   2.1        Agreement and Plan of Merger between Millennium Electronics,  Inc.
              and Speaking Roses International, Inc.(1)

   3.1        Articles of Incorporation of Speaking Roses International, Inc (1)

   3.2        Bylaws of Speaking Roses International, Inc. as amended on October
              19, 2005 (2)

   10.1       Contribution  Agreement between Speaking Roses, LLC and Millennium
              Electronics, Inc. (3)

   10.2       Line of Credit  Agreement  between the Company and Dos Lagos,  LLC
              dated May 11, 2006 (4)

   10.3       Advisory  Agreement between the Company and BayHill Group LC dated
              January 6, 2006 (5)

   10.4       Modification  and  Restructuring  Agreement  among  Speaking Roses
              Development  Corporation,  Business Retail Group,  LLC and Michael
              Glauser, effective as of May 9, 2006 (6)

   14         Codes of Ethics (7)

   31         Certifications required by Rule 13a-15(e) and 15d-15(e)

   32         Section 1350 Certifications

________________

(1)  Incorporated  by reference from our  information  statement on Schedule 14C
filed December 23, 2003.

(2)  Incorporated  by reference  from our current report on Form 8-K filed March
29, 2006.

(3) Incorporated by reference from our current report on Form 8-K filed February
5, 2004.

(4) Incorporated by reference from our quarterly report on Form 10-QSB filed May
15, 2006.

(5) Incorporated by reference from our current report on Form 8-K filed February
8, 2006.
                                      38
<PAGE>

                SPEAKING ROSES INTERNATIONAL, INC. AND SUBSIDIARY


(6) Incorporated by reference from our current report on Form 8-K filed June 29,
2006.

(7)  Incorporated by reference from our annual report on Form 10-KSB filed April
13, 2004.

(B) REPORTS ON FORM 8-K

The following  reports on Form 8-K were filed during the three months ended June
30, 2006:

          Report Filing Date             Items Reported
          ------------------             --------------

(a)       Current Report on Form 8-K     Entry   into  a   Material   Definitive
          filed May 31, 2006             Agreement  regarding the execution of a
                                         Separation  Agreement  pursuant  to the
                                         resignation  of  the  Company's   Chief
                                         Executive Officer

                                         Unregistered Sale of Equity Securities

                                         Departure  of  Directors  or  Principal
                                         Officers;    Election   of   Directors;
                                         Appointment   of   Principal   Officers
                                         regarding   the   resignation   of  the
                                         Company's Chief  Executive  Officer and
                                         the   appointment   of  a   new   Chief
                                         Executive Officer

(b)       Current Report on Form 8-K     Entry   into  a   Material   Definitive
          filed June 29, 2006            Agreement  regarding  the  execution of
                                         certain  license  agreements,  an  area
                                         development     agreement,     and    a
                                         modification     and      restructuring
                                         agreement.  Unregistered Sale of Equity
                                         Securities   Regulation  FD  Disclosure
                                         Financial Statements and Exhibits

SIGNATURES

In accordance with the requirements Exchange Act, the Registrant has duly caused
this  report to be  signed on its  behalf  by the  undersigned,  thereunto  duly
authorized.


SPEAKING ROSES INTERNATIONAL, INC.

By:       /s/ Terrell A. Lassetter
          Terrell A. Lassetter
          President and Chief Executive Officer
Date:     August 18, 2006

By:       /s/ Bradley E. Wittwer
          Bradley E. Wittwer
          Chief Financial Officer
Date:     August 18, 2006


                                       39