Unassociated Document

10QSB/A 1 v059781_10qsb-a.htm Unassociated Document

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-QSB/A

(Mark One)

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

For the quarterly period ended March 31, 2006.

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

For the transition period from _____________ to _____________

Commission file number 001-15383

CARDINAL COMMUNICATIONS, INC.

(Exact name of small business issuer as specified in its charter)

NEVADA	91-2117796
(State or other jurisdiction of incorporation or organization)	(IRS Employer Identification No.)

11101 WEST 120^TH AVENUE, SUITE 220, BROOMFIELD, COLORADO 80021

(Address of principal executive offices)

(303) 285-5379

(Issuer’s telephone number)

______________________________________________________________________________________

(Former name, former address and former fiscal year, if changed since last report)

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

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x

APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY

PROCEEDINGS DURING THE PRECEDING FIVE YEARS

Check whether the registrant filed all documents and reports required to be filed by Section l2, 13 or 15(d) of the Exchange Act after the distribution of securities under a plan confirmed by a court. Yes o No o

APPLICABLE ONLY TO CORPORATE ISSUERS

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

As of May 12, 2006, there were 445,328,774 shares of the issuer’s outstanding common stock.

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

EXPLANATORY NOTE

Cardinal Communications, Inc. (the “Company,” “we,” “us,” or “our”) is filing this Amendment No. 1 on Form 10-QSB/A to our Quarterly Report on Form 10-QSB for the quarterly period ended March 31, 2006, as filed with the Securities and Exchange Commission on May 22, 2006(the “Report”), for the purpose of improving our public disclosure.

This report includes amendments to items:

The Consolidated Financial Statements for the three months ended March 31, 2006 have been corrected for an accounting error whereby the Company prematurely recognized $380,000 of sales in 2006. Please see Correction of an Error in Previously Issued Financial Statements in the Notes to Consolidated Financial Statements Note 3 for more details;

In the Notes to Consolidated Financial Statements for the three months ended March 31, 2006 and 2005:

Note 1:

Added disclosure of Correction of an Error in Previously Issued Financial Statements; Additional Going Concern disclosure;

Note 2:

The addition of disclosures for Deferred Revenue, Deferred Costs of Goods Sold, Leasing Previously Sold Units, and Property and Equipment;

Note 3:

Disclosure of the Correction of an Error in Previously Issued Financial Statements;

Note 4:

Additional disclosure regarding Thunderbird Management Limited Partnership;

Item 2:

Added disclosure of Correction of an Error in Previously Issued Financial Statements, amended the Liquidity disclosure and added a future obligations disclosure;

Item 3:

Added a Controls and Procedures section;

Part II, Item 1A. Moved Risk Factors to this section and added a new risk factor for Requiring Additional Funding;

Exhibits 31.1 and 31.2: As required by Rule 12b-15 under the Securities Exchange Act of 1934, as amended, new certifications by the Company’s principal executive officer and principal financial officer are being filed as exhibits to this Form 10-QSB/A; and

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

Except as described above, this amendment does not update or modify in any way the disclosures in the Registrant’s Quarterly Report on Form 10-QSB for the quarter ended March 31, 2006, and does not purport to reflect any information or events subsequent to the filing thereof.

PART I - Financial Information

ITEM 1. FINANCIAL STATEMENTS

CARDINAL COMMUNICATIONS, INC. AND SUBSIDIARIES

FINANCIAL STATEMENTS

TABLE OF CONTENTS

	PAGE
Consolidated Balance Sheet as of March 31, 2006 (restated) (Unaudited)	4

Consolidated Statements of Operations and Comprehensive Loss for the three months ended March 31, 2006 (restated) and 2005 (Unaudited)	6

Consolidated Statements of Cash Flows for the three months ended March 31, 2006 (restated) and 2005 (Unaudited)	7

Notes to Consolidated Financial Statements (Unaudited)	9

CARDINAL COMMUNICATIONS, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEET

March 31, 2006 (Restated) (UNAUDITED)

ASSETS

(Substantially pledged)

Cash and cash equivalents	$	447,363
Marketable securities		107,924
Accounts receivable, net		740,689
Other receivables net of $1,208,275 discount		1,471,192
Unamortized financing costs		80,494
Deposits and prepaid expenses		937,101
Property and equipment, net		2,849,371
Real estate and land inventory		47,594,233
Deferred costs of goods sold		2,360,413
Intangibles, net		8,557,746
Other assets		309,565

Total Assets	$	65,456,091

The accompanying notes are an integral part of these statements.

CONSOLIDATED BALANCE SHEET (Continued)

March 31, 2006 (Restated) (UNAUDITED)

LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)

Accounts payable	$	4,273,814
Accrued expenses and other liabilities		3,772,288
Deferred revenue		3,067,362
Land and construction loans		35,426,111
Related party debt		4,622,273
Notes payable, net of $129,492 debt discount		13,234,450

Total Liabilities		64,396,298

Commitments and Contingencies

Stock Committed		2,367,992

Minority Interest		2,135,352

Stockholders' equity (deficit):
Preferred stock; par value $0.0001; issuable in series; authorized 100,000,000
Series A Convertible Preferred stock; issued and outstanding 8,750		1
Series B Convertible Preferred stock; issued and outstanding 100,000		10
Common stock; par value $0.0001; authorized 800,000,000; issued and outstanding
412,497,784		41,249
Additional paid-in capital		71,357,569
Deferred consulting		(165,173	)
Other comprehensive income		7,200
Accumulated (deficit)		(74,684,407	)

Total Stockholders' Equity (Deficit)		(3,443,551	)

Total Liabilities and Stockholders' Equity (Deficit)	$	65,456,091

The accompanying notes are an integral part of these statements.

CARDINAL COMMUNICATIONS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

(UNAUDITED)

	Three Months Ended March 31
	2006			2005
	(Restated)
REVENUES
Revenues	$	4,996,482		$	4,860,642
Cost of sales		(3,570,478	)		(2,385,701	)
Gross profit		1,426,004			2,474,941

OPERATING EXPENSES
Depreciation and amortization		268,165			338,876
Asset impairment		85,066			-
Professional fees		681,200			993,331
Rent		162,384			63,800
Salaries and commissions		918,659			881,452
Selling, general and administrative		894,183			984,101
Total operating expenses		3,009,657			3,261,560

(LOSS) FROM OPERATIONS		(1,583,653	)		(786,619	)

OTHER INCOME (EXPENSE)
Other income (expense)		(63,573	)		(13,604	)
Accretion of interest (expense) on convertible debt		(137,343	)		(186,380	)
Gain (loss) on disposition of assets		-			(25,764	)
Interest (expense)		(441,481	)		(158,698	)
Total other (expense)		(642,397	)		(384,446	)

(LOSS) BEFORE MINORITY INTEREST		(2,226,050	)		(1,171,065	)

(Income)/loss attributable to minority interest		106,416			(89,538	)

NET (LOSS) before comprehensive income		(2,119,634	)	$	(1,260,603	)

OTHER COMPREHENSIVE INCOME
Unrealized holding gain		7,200			-

COMPREHENSIVE (LOSS)	$	(2,112,434	)	$	(1,260,603	)

Net (loss) per common share	$	(0.006	)	$	(0.006	)

Weighted average number of shares outstanding		377,418,999			218,752,780

The accompanying notes are an integral part of these statements.

CARDINAL COMMUNICATIONS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

	Three Months Ended March 31
	2006			2005
	(Restated)
CASH FLOWS FROM (TO) OPERATING ACTIVITIES
Net (loss) before minority interest	$	(2,226,050	)	$	(1,171,065	)
Adjustments to reconcile net (loss) to net cash provided by
(used) in operating activities:
Depreciation and amortization		268,165			338,876
Stock issued for consulting, fees and compensation		663,328			1,169,461
Stock committed for Expenses		83,064			-
Accretion of interest expense on convertible debt		137,343			186,380
Minority interest loss of subsidiaries attributable to parent		(66,445	)		-
(Gain) Loss on sale of assets		(1,990	)		40,415
Asset impairment		85,066			-
(Gain) loss from discontinued operations		33,569			-

Changes in Operating Assets and Liabilities:
Accounts receivable		(158,269	)		(313,693	)
Accounts payable		1,379,753			(200,487	)
Accrued expenses and other liabilities		(179,454	)		160,449
Deferred revenue		411,342			7,007
Other assets and liabilities		101,006			(9,727	)
Deferred costs of goods sold		(499,753	)		-
Real estate and land inventory		(3,031,757	)		(1,450,535	)
Net cash (used in) operating activities		(3,001,082	)		(1,242,919	)

CASH FLOWS FROM (TO) INVESTING ACTIVITIES
Purchases of property and equipment		-			(44,747	)
Marketable securities		(87,924	)		-
Cash paid for investment in EMT		(450,030	)		(294,765	)
Issuance of note receivable		(602,530	)		-
Purchases of intangibles & other assets		(28,400	)		(64,414	)
Cash acquired through acquisition		-			1,352,147
Proceeds from sale of assets		2,474			9,284
Net cash provided by (used in) investing activities		(1,166,410	)		957,505

CASH FLOWS FROM (TO) FINANCING ACTIVITIES
Proceeds from notes payable		5,096,797			3,109,351
Proceeds from related party notes payable		1,012,500			-
Payments on notes payable		(2,523,387	)		(2,272,159	)
Payments on related party notes payable		(29,151	)		-
Collections on subscriptions receivable		-			44,585
Disbursements to minority interest members		(21,021	)		-
Net cash provided by (used in) financing activities		3,535,738			881,777

Net increase (decrease) in cash		(631,754	)		596,363
Cash and cash equivalents, beginning of period		1,079,117			730,372
Cash and cash equivalents, end of period	$	447,363		$	1,326,735

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid for interest	$	456,761		$	44,249
Stock issued for acquisition of assets	$	-		$	5,705,000
Stock issued for satisfaction of debt	$	1,406,234		$	-

The accompanying notes are an integral part of these statements.

SUPPLEMENTAL DISCLOSURE

OF NON-CASH INVESTING AND

OTHER CASH FLOW INFORMATION

Three Months Ended March 31, 2006

In the first quarter of 2006, we issued 12,552,131 shares under various consulting agreements, which shares were valued at $236,938.92; however $9,500 of this expense was recorded as deferred consulting. Additionally, $22,340 of amortized deferred consulting was recognized during this period.

In the first quarter of 2006, we issued 841,750 shares to an outside director for committee services performed, which shares were valued at $15,000.

In the first quarter of 2006, we issued 17,414,989 shares to employees as part of an employee stock purchase and compensation program, which shares were valued at $328,549.

In the first quarter of 2006, we issued 4,090,920 shares under two consulting agreements for legal services, which shares were valued at $70,000.

Three Months Ended March 31, 2005

In the first quarter of 2005, we issued 13,656,959 shares under various consulting agreements, which shares were valued at $1,160,713; however $8,750 of this expense was recorded as deferred consulting.

CARDINAL COMMUNICATIONS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

THREE MONTHS ENDED MARCH 31, 2006 AND 2005

(UNAUDITED)

Note 1. Interim Consolidated Financial Statements

In the opinion of management, the accompanying consolidated financial statements as of March 31, 2006 (restated) and for the three months ended March 31, 2006 (restated) and 2005, reflect all adjustments (consisting only of normal recurring adjustments) necessary to present fairly the financial condition, results of operations and cash flows of Cardinal Communications, Inc. and subsidiaries (“Company”), and include the accounts of the Company and all of its subsidiaries.

The financial statements included herein have been prepared by the Company, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles in the United States have been condensed or omitted pursuant to such rules and regulations. These unaudited financial statements should be read in conjunction with the financial statements and notes thereto included in the Company’s Annual Report on Form 10-KSB/A for the year ended December 31, 2005 filed with the SEC on December 1, 2006. Certain reclassifications and adjustments may have been made to the categories presented in the financial statements for the comparative period of the prior fiscal year to conform to the 2006 presentation. The results of operations for the interim periods are not necessarily indicative of the results to be obtained for the entire year.

Correction of an Error in Previously Issued Financial Statements

The Company determined it had an accounting error recording sales when the Company still had obligations. In this error, the company had recognized $380,000 in sales for March 31, 2006 (restated). This error did not effect the quarter ended March 31, 2005. Please see Correction of an Error in Previously Issued Financial Statements under Note 3 for more details.

Going Concern

As of March 31, 2006 (restated) the Company has experienced recurring losses and, as a result, there exists substantial doubt about its ability to continue as a going concern. For the Three Months ended March 31 2006, the Company incurred a net loss of $2,119,634 . As of March 31 2006, Cardinal had an accumulated deficit of $74,684,407 . The Company is actively seeking customers for its services. The financial statements do not include any adjustments relating to the recoverability and classification of recorded assets, or the amounts and classification of liabilities that might be necessary in the event it cannot continue in existence. These factors raise substantial doubt about its ability to continue as a going concern.

Nature of Business

The Company offers integrated construction and construction management services, as well as broadband communications design, implementation, and operations services to other large developers and municipalities seeking to deploy broadband services. The Company also continues to implement and expand its business plan as a provider of enhanced telephone (voice) services, cable television (video) and Internet (data) services to business and residential customers.

Note 2. Critical Accounting Policies

Principles of Consolidation

The accompanying consolidated financial statements include all of the accounts of the Company and all majority owned and/or controlled subsidiaries. At March 31, 2006 (restated) the Company has recorded minority interest of $2,135,352 representing third party ownership of the entities not wholly owned by the Company. Sovereign Partners, LLC a wholly owned subsidiary of the Company consolidates all operations of its subsidiaries due to a controlling financial interest or a controlling management interest in these subsidiaries. Currently the Company is formally dissolving Usurf Communications, Inc., Usurf TV, Inc. Pinnacle T-Bone, LLC and Patio Homes at T-Bone Ranch, LLC. As the Company finalizes construction projects, certain other entities will be dissolved in 2006.

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

Inter-company transactions and balances have been eliminated in the consolidation.

Stock-Based Compensation

Effective January 1, 2006, the Company adopted the fair value recognition provisions of SFAS No. 123R, under which compensation expense is recognized in the Consolidated Statement of Operations for the fair value of employee stock-based compensation. The Company has elected the modified-prospective transition method as permitted by SFAS No. 123R and accordingly, prior periods have not been restated to reflect the effect of SFAS No. 123R. The modified-prospective transition method requires that stock-based compensation expense recognized in the first quarter of fiscal 2006 include (1) quarterly amortization of all stock-based payments granted prior to, but not vested as of January 1, 2006, based on the grant date fair value estimated in accordance with the original provisions of SFAS No. 123 and (2) quarterly amortization of all stock-based payments granted subsequent to January 1, 2006, based on the grant date fair value estimated in accordance with the provisions of SFAS No. 123R. In addition, pursuant to SFAS No. 123R, the Company is required to estimate the amount of expected forfeitures when calculating stock-based compensation expense, rather than accounting for forfeitures as incurred, which was the Company’s previous method. Compensation expense will be recognized over the requisite service (vesting) period using the straight-line attribution method. The Company has evaluated the impact of the adoption of SFAS 123(R), and believes that it could have an impact to the Company's overall results of operations depending on the number of stock options granted in a given year; however no employee options have been granted nor vested in 2006. As of March 31, 2006 (restated) the current and former company employees hold 6,650,000 options that were granted fully vested on August 1, 2004. The options which expire August 1, 2006 are exercisable as follows: one third (2,216,666 shares) exercisable at $0.10 per share, one third (2,216,666 shares) exercisable at $0.22 per share and one third (2,216,667 shares) exercisable at $0.30 per share.

Stock for Services

The Company has issued stock pursuant to various consulting agreements. Deferred consulting costs which are valued at the stock price on the date of a particular agreement or the value of services, are recorded as a reduction of stockholders’ equity and are amortized over the useful lives of the respective agreements.

Revenue Recognition

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

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

For the mortgage brokerage operations, the Company only acts as an agent to place mortgages with third parties. The Company recognizes revenue on fees received from the mortgage lenders on the day the loan is closed, which is also the day the Company receives payment. The Company receives a percentage of the loan closing by the third party sponsor based on the interest rate charged to the consumer. The Company also recognizes loan origination fees from borrowers.

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

Deferred Revenue

The Company recognizes revenues in the period in which the earnings process is complete with no future obligations to be performed by the Company. Revenues collected in advance of the earnings process must be recorded as deferred revenues, a liability account, for financial statement purposes. Deferred revenue at March 31, 2006 (restated) and 2005 were $3,067,362 and $254,057 respectively.

Components of Deferred Revenue at March 31, 2006

Deferred Revenue from Real Estate Sales	$	2,421,670
Deferred Revenue from Management Fees		549,732
Deferred Revenue from Communications Sales		95,960
Total Deferred Revenue	$	3,067,362

Deferred Costs of Goods Sold

The Company sells real estate inventory for which sales can not be recognized until all foreseeable obligations are satisfied. Inventory that is sold, but has not completed the earnings process is recorded as deferred costs of goods sold. If future expenses are anticipated at the time the inventory is sold, these costs are accrued at the time of the sale. Deferred costs of goods sold at March 31, 2006 (restated) and 2005 were $2,360,413 and $0 respectively.

Leasing Previously Sold Units

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

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

Property and Equipment

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

Class of Asset		Useful life in Years
Airplane and vehicles		5
Furniture		5
Data Hardware		3
Equipment		5
Leasehold improvements		Lesser of life of lease or useful life
Rental real estate		20

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

Classifications of property and equipment and accumulated depreciation were as follows at March 31, 2006 (restated):

Airplane and vehicles	$	605,012
Furniture		81,988
Data Hardware		105,791
Equipment		1,773,894
Leasehold improvements		63,106
Rental real estate - campgrounds		2,414,762
Rental real estate		423,278
		5,467,831

Less accumulated depreciation		(2,618,460	)
Net property and equipment	$	2,849,371

For the three months ending March 31, 2006 and 2005, the Company recognized $186,320 and $116,949 of depreciation expense, respectively.

Real Estate and Land Inventory

Inventories, consisting of single and multi family residential units and commercial projects under construction, are stated at the lower of accumulated cost or net realizable value. Inventories under development or held for development are stated at accumulated cost, unless certain facts indicate such cost would not be recovered from the cash flows generated by future disposition. In this instance, such inventories are measured at fair value.

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

Major components of inventory at March 31, 2006 were:

Residential/Commercial units under construction	$	23,546,907
Land under development		24,047,326

Total real estate and land inventory	$	47,594,233

Bad Debt

The Company estimates the amount of uncollectible accounts receivable and records an allowance for bad debt. Uncollectible accounts receivable are then charged against this allowance. At March 31, 2006 the Company has a recorded bad debt allowance of $888,398.

Goodwill

Goodwill was recorded at its purchase price and is not being amortized. Pursuant to SFAS 142 Goodwill and Other Intangible Assets and SFAS 144 Accounting for the Impairment or Disposal of Long-Lived Assets, the Company at December 31, 2005 evaluated its goodwill for impairment and determined the fair value of its goodwill exceeded the book cost.

Intangibles

Classification of intangible assets and accumulated amortization at March 31, 2006 were as follows:

Description
Right of entry agreements	$	95,000
Customer base		221,408
Goodwill		8,509,032
Totals		8,825,440
Accumulated amortization		(267,694	)
Intangibles, net	$	8,557,746

For the three months ended March 31, 2006 and 2005, the Company recognized $81,845 and $221,927 of amortization expense, respectively.

Loss Per Common Share

The loss per common share is presented in accordance with the provisions of SFAS No. 128 Earnings Per Share. Basic loss per common share has been computed by dividing the net loss available to the common stockholder by the weighted average number of shares of common stock outstanding for the period. The effect of considering all potential dilutive securities is not presented as the effects would be anti-dilutive.

Investment in EMT

In February, 2006, the Company received 46,000,000 shares of Entertainment Media and Telecoms Corporation, Australian Stock Exchange code “ETC”. Our basis in these shares was valued at $87,924 US Dollars and $339,618 was recorded as a reduction to the Note Receivable from Gala Vu while $251,694 was recorded as a reduction to the Gala Vu Receivable Discount. The Gala Vu transaction is described in further detail under Note 5. Acquisitions.

Marketable Securities and Comprehensive Income

At March 31, 2006 , the Company was holding 4,000,000 shares of ZKID Network Company (OTCBB: ZKID), and the market value of the shares was $20,000, while the book value of the shares was $12,800 as of December 31, 2005 and therefore the Company recorded $7,200 as an unrealized holding gain. Subsequent to March 31, 2006 ZKID Network Company renamed itself to EATware Corporation (OTCBB: EATW) and executed a 4,000:1 reverse stock split therefore the Company now holds 1,000 shares of EATware Corporation stock.

Note 3. Correction of an Error in Previously Issued Financial Statements

The Company determined it had an accounting error recording sales when the Company still had obligations. In this error, the company had recognized $380,000 in sales for March 31, 2006 (restated); however it did not effect the quarter ended March 31, 2005. Accordingly, certain historical transactions have been reclassified on the financial statements as of March 31, 2006 (restated).

The accompanying tables reconcile the Company's results of operations for the Three Months ended March 31, 2006 and the Company's financial position as of March 31, 2006, both previously reported in the Company's 2006 Quarterly Report on Form 10-QSB, to the restated financial statements.

For the Three Months Ended March 31, 2006	As Reported in 2006 10-QSB			(Unaudited) Adjustments			Restated Amounts for 2006

Revenues	$	5,376,482		$	(380,000	)	$	4,996,482
Cost of Sales		(4,097,400	)		526,922			(3,570,478	)
Gross Profit		1,279,082			146,922			1,426,004

Total operating (expenses)		2,888,044			121,613			3,009,657

Total other (expense)		(642,397	)		-			(642,397	)

(LOSS) BEFORE MINORITY INTEREST		(2,251,359	)		25,309			(2,226,050	)

(Income)/loss attributable to minority interest		72,817			33,599			106,416

NET (LOSS)	$	(2,178,542	)	$	58,908		$	(2,119,634	)

Income/(loss) per common share, basic and diluted:

Net (loss) per common share	$	(0.006	)	$	0.000		$	(0.006	)

Weighted average number of shares outstanding		377,418,999			377,418,999			377,418,999

For the Three Months Ended March 31, 2006	As Reported in 2006 10-QSB			(Unaudited) Adjustments			Restated Amounts for 2006

ASSETS
Unchanged Assets	$	15,501,445		$	-		$	15,501,445
Real estate and land inventory		47,712,380			(118,147	)		47,594,233
Deferred Costs of Goods Sold		-			2,360,413			2,360,413

Total Assets	$	63,213,825		$	2,242,266		$	65,456,091


LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Unchanged Liabilities	$	57,556,648		$	-		$	57,556,648
Accrued expenses and other liabilities		3,589,029			183,259			3,772,288
Deferred revenue		645,692			2,421,670			3,067,362

Total Liabilities		61,791,369			2,604,929			64,396,298

Commitments and Contingencies
Stock Committed		2,367,992			-			2,367,992
Minority Interest		2,382,123			(246,771	)		2,135,352

Stockholders' equity (deficit):
Unchanged Equity		71,240,856			-			71,240,856
Accumulated (deficit)		(74,568,515	)		(115,892	)		(74,684,407	)

Total Stockholders' Equity (Deficit)		(3,327,659	)		(115,892	)		(3,443,551	)

Total Liabilities and Stockholders' Equity (Deficit)	$	63,213,825		$	2,242,266		$	65,456,091

Note 4. Financing Transactions

Convertible Loan Agreements

In the first quarter of 2006, the Company entered into a series of Convertible Loan Agreements with ISP V, LLC totaling $1,500,000. The final agreement terms is for the total $1,500,000 to be due in January 2008 and over the course of the loan the principal shall accrue interest at a rate of 12% per year calculated monthly. As partial consideration for the initial note, the Company issued to the Payee five year warrants to purchase 2,400,000 shares of common stock at an exercise price of $0.05. A debt discount value was calculated based upon the Black-Scholes Pricing Model applied to the warrants; and over the life of the initial note $16,825 of additional interest will be recorded relating to the accretion of the note to its face value. For the Black-Scholes Pricing Model the average risk free interest rate used was 5%, volatility was estimated at 69% and the expected life was five years. The holder of the notes have the right, at any time, to convert $1,500,000 of the principal owed to the holder to shares of Common Stock per the following formula: $800,000 convertible at $.025 per share, $400,000 convertible at $0.05 per share and $300,000 at $0.075 per share. There is no intrinsic value to the beneficial conversion feature as lowest conversion rate is at $.025 per share and the Company’s stock was trading at $.0181 when the agreement was signed.

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

The Convertible Loan Agreement consolidates for certain purposes the Prior Notes and a third note in the original principal amount of $998,000 dated March 24, 2006 (collectively, the “Thunderbird Notes”). The total principal amount owed under the Thunderbird Notes is $2,500,000, the “Principal Amount”.

The Thunderbird Notes are consolidated for the purposes of setting a single interest rate and certain conversion rights for the Principal Amount. Interest on the Principal Amount outstanding shall accrue at the rate of 12% per annum, which interest shall be paid monthly, with the first installment payable on April 17, 2006, and subsequent payments at the seventeenth day of the month beginning each month thereafter. Overdue principal and interest on the Thunderbird Notes shall bear interest, to the extent permitted by applicable law, at a rate of 18% per annum. The note is due March 25, 2011. If not sooner redeemed or converted, the Thunderbird Notes shall mature on the fifth anniversary of the execution of the Convertible Loan Agreement, at which time all the remaining unpaid principal, interest and any other charges then due under the agreement shall be due and payable in full.

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

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

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

Upon the occurrence of any event of default, the Payee may declare the remainder of the debt immediately due and payable. The Note is secured by the pledge of certain assets by Borrower to the Payee pursuant to the Pledge and Security Agreement.

Pledge and Security Agreement

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

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

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

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

Senior Secured Debt and Notes Payable

At March 31, 2006, the Company has secured notes totaling $13,363,942 with debt discounts of $129,492 netted against the balance resulting in the secured notes payable balance of $13,234,450. All of these notes are secured by assets of the Company. Interest rates range from 6% to 12% and have Maturity Dates from April 2006 through January 2008 with one exception with a maturity in February 2020. As of March 31, 2006 the senior secured debt and notes payable outstanding amounts range from $10,000 to $2,757,102 utilizing fourteen different lenders. Subsequent to the quarter ended March 31, 2006, the Company has entered into certain agreements to convert $45,000 of Senior Secured Debentures into shares of the Company’s common stock.

Debt Collateralized by Real Estate and Construction Lines-of-Credit

Through the Company’s subsidiary Sovereign Partners, LLC, the Company maintains secured revolving construction lines-of-credit with several lending institutions for its construction projects. At March 31, 2006 the aggregate borrowings under the lines-of-credit totaled $18,160,610. Borrowings on the lines are repaid in connection with the sale of completed units. The lines-of-credit are secured by the project being constructed. Each construction line is personally guaranteed by the individual members of each development entity or an officer of the Company. Interest rates range from 5.75 % to 9.0%, and have maturity dates ranging from May 2006 through February 2007, with two exceptions with maturities in May 2011 and July 2034, unless extended. As of March 31, 2006, the construction lines-of-credit outstanding amounts range from $143,000 to $3,095,274, utilizing eight different lenders.

Through the Company’s subsidiary Sovereign Partners, LLC the Company has debt collateralized by real estate. These notes payable totaled $17,265,504 at March 31, 2006. Interest rates range from 5% to 10%, and have maturity dates ranging from May 2006 through December 2011. As of March 31, 2006, the notes payable outstanding amounts range from $600,284 to $4,172,052, utilizing eight different lenders.

Thunderbird Management Limited Partnership

In March 2006, the Board of Directors for Cardinal Communications, Inc. (the “Company”) approved on its behalf and the behalf of its wholly owned subsidiary, Sovereign Companies, LLC (“Sovereign”), the execution of a Convertible Loan Agreement, Promissory Note (the “Note”), and Pledge and Security Agreement with Thunderbird Management Limited Partnership (“Thunderbird”). A member of the Company’s Board of Directors and the Company’s Chief Executive Officer, Edouard A. Garneau, is related (as son-in-law) to the General Partner of Thunderbird Management. Mr. Garneau did not participate in the vote by Cardinal’s Board of Directors approving the Promissory Note, Pledge and Security Agreement, or Convertible Loan Agreement (collectively, the “Agreements”). The remaining members of Cardinal’s Board of Directors voted unanimously to approve the Agreements.

The Convertible Loan Agreement consolidates for certain purposes the Prior Notes and a third, new note (described in the next section, below) in the original principal amount of $998,000 (collectively, the “Thunderbird Notes”). The total principal amount owed under the Thunderbird Notes is $2,500,000, the “Principal Amount”.

The Thunderbird Notes are consolidated for the purposes of setting a single interest rate and certain conversion rights for the Principal Amount. Interest on the Principal Amount outstanding shall accrue at the rate of 12% per annum, which interest shall be paid monthly, with the first installment payable on April 17, 2006, and subsequent payments at the seventeenth day of the month beginning each month thereafter. Overdue principal and interest on the Thunderbird Notes shall bear interest, to the extent permitted by applicable law, at a rate of 18% per annum. If not sooner redeemed or converted, the Thunderbird Notes shall mature on the fifth anniversary of the execution of the Convertible Loan Agreement, at which time all the remaining unpaid principal, interest and any other charges then due under the agreement shall be due and payable in full.

Pledge and Security Agreement

AEJM Enterprises Limited Partnership

During 2006 the Company converted $700,000 of related party debt to AEJM Enterprises Limited Partnership into restricted shares of the Company’s common stock at a rate of $0.0147. A member of the Company’s Board of Directors and the Company’s Chief Executive Officer, Edouard A. Garneau, is related (as son-in-law) to the General Partner of AEJM Enterprises Limited Partnership. Mr. Garneau did not participate in the vote by Cardinal’s Board of Directors approving the note conversion. The remaining members of Cardinal’s Board of Directors voted unanimously to approve the debt conversion.

Related Party Debt

The Company has related party debt of $4,622,273 at March 31, 2006, utilizing eleven different related parties. Interest rates range from 6.00% to 16.00%, and have maturity dates ranging from October 2006 through January 2008, with three exceptions. Two notes amortize over thirty years maturing April 2033 and February 2034, and one note is interest only, with no stated maturity date. As of March 31, 2006, the related party debts outstanding amounts range from $1,000 to $818,973, utilizing nine different lenders.

Note 5. Acquisitions

Sovereign Partners, LLC, Restructure and Amendment Agreement

On February 18, 2005, the Company closed on the acquisition with Sovereign Partners, LLC (“Sovereign”) to acquire 100% of the membership interests of Sovereign from the Members in exchange for the issuance of 35,000,000 shares of the Company’s common stock and 100,000 shares of the Company’s newly created Series B Convertible Preferred Stock. Under the terms of the Acquisition Agreement the members are to be issued an additional 125,000 shares of Series B Preferred Stock on January 1, 2006 and July 1, 2006. As a result of the acquisition, Sovereign is now owned and operated as a wholly owned subsidiary of the Company. Sovereign operations include real estate development and the related communications infrastructure for residential, multiple dwelling unit (apartment) and planned community developments. See “Sovereign Acquisition” under Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations below.

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

Technology and Trademark License Agreement

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

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

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

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

Purchase and Exchange Agreement

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

Pursuant to the EMT Agreement, Cardinal agreed to purchase the balance of the debt owed by EMT to Alleasing Finance Australia Limited (“Alleasing”), in the principal amount of $1,491,366 (the “Debt”) in exchange for an assignment of the Debt and all security interests securing repayment of the Debt. The purchase price paid by the Company for the Debt is $510,638.

In addition, the Company has provided a bridge loan for working capital of $602,530 to GalaVu (the “Loan”). The definitive terms, conditions, and interest rate in respect of such Loan shall be agreed between Cardinal and Livonia. Notwithstanding the generality of the foregoing, Cardinal’s representative shall have sole discretion as to the use of proceeds from the Loan, including how, to whom, and when the Loan proceeds are dispersed.

The Debt and the Loan are to be secured by the assets of EMT’s subsidiaries. The Debt purchased from Alleasing shall remain secured by the assets of EMT’s subsidiaries, including GalaVu. Also, Livonia shall assign to Cardinal $478,603 of the secured debt that Livonia previously purchased from Alleasing in a separate transaction, such that the total secured debt held by Cardinal shall total $2,573,137 (the “Cardinal Secured Debt”). All such Cardinal Secured Debt is and will remain secured by all the EMT’s subsidiaries’ assets. Initially a notes receivable discount was recorded in the amount of $1,459,969 to recognize the fair value of the Secured Debt. This discount will be reduced as the debt is satisfied.

Cardinal also agreed that, to the extent permissible under Australian law and subject to the approval of the shareholders of EMT, should the same be necessary, Cardinal shall: (a) convert $393,145 of the Cardinal Secured Debt into 53,250,000 shares of free-trading, common stock of EMT at a conversion rate of .7383 cent) per share; and (b) at a date to be agreed between the parties, convert $2,165,988 of the Cardinal Secured Debt into shares of free-trading EMT common stock at a conversion rate of $0.0036915 per share, equating to 586,250,000 shares in EMT. In addition, Livonia agreed that, to the extent permissible under Australian law and subject to approval of the shareholders of EMT, should same be necessary, Livonia shall: (a) convert $313,778 owing to it by EMT into 42,500,000 shares in EMT at a conversion rate of .7383 cent per share; and (b) at a date to be agreed between the parties, convert $571,260 owing to it by EMT into shares in EMT at a conversion rate of $0.0036915 per share, equating to 146,750,000 shares in EMT. The Parties agreed to take all acts necessary to ensure that, following both the Cardinal conversion and the Livonia conversion, Cardinal shall own 64% of the outstanding shares of EMT, accounted for on a fully diluted basis. EMT has historically traded on the Australian stock exchange under the symbol ETC.

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

Assignment Deed

Effective February 20, 2006, the Company signed an Assignment Deed with Alleasing Finance Australia Limited, an Australian company (formerly Rentworks Limited) (“Alleasing”) (the “Assignment”). Pursuant to the Assignment, Alleasing agreed to assign Cardinal all of its right, title, and interest in the debt owing by the Entertainment Media & Telecoms Corporation Limited (“EMT”) and/or EMT’s subsidiaries, including GalaVu Entertainment Networks, Inc. (“GalaVu”) to Cardinal in the amount of $1,491,366 (the “Debt”). The purchase price paid by Cardinal for the debt is $510,638.

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

Interested Director

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

Note 6 Subsequent Events

New Directors

Subsequent to quarter end, effective April 19, 2006, the Company appointed Joseph M. Durnford, Robert T. Hale, Robert R. Searls, and Kerry D. Briggs to serve as directors of the Company. Pursuant to Sections 3.2 and 3.10 of the Bylaws of the Company, Messrs. Durnford, Hale, Searls, and Briggs shall serve in such capacity until the next annual meeting of the shareholders of the Company. Two of the newly appointed members of the Board of Directors, Robert Searls and Kerry Briggs, have prior relationships with the Company and may be “interested” as defined by Form 8K. Mr. Searls is a former member of Sovereign Partners, LLC, and a current shareholder of Cardinal. Mr. Briggs has been an outside joint venture partner for five Sovereign Partner projects: SR Condominiums, LLC, Colony Ridge Development, LLC, Settler’s Chase Commercial Development, Heritage Condominiums, LLC (complete), and Settler’s Chase Development, LLC (complete).

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following information should be read in conjunction with the consolidated financial statements, including the notes thereto, included elsewhere in this Form 10-QSB, and the Management's Discussion and Analysis of Financial Condition and Results of Operations included in our 2005 Annual Report on Form 10-KSB filed with the Securities and Exchange Commission.

Forward-Looking Statements and Associated Risks

This report contains forward-looking statements, including statements regarding, among other things, (a) our growth strategies, (b) anticipated trends in our industry, (c) our future financing plans and (d) our ability to obtain financing and continue operations. In addition, when used in this filing, the words "believes," "anticipates," "intends," "in anticipation of," and similar words are intended to identify certain forward-looking statements. These forward-looking statements are based on our expectations and are subject to a number of risks and uncertainties, many of which are beyond our control. Actual results could differ materially from these forward-looking statements as a result of changes in trends in the economy and our industry, reductions in the availability of financing and other factors. In light of these risks and uncertainties, the forward-looking statements contained in this report may not occur. Except to fulfill our obligation under the United States securities laws, we do not undertake any obligation to publicly release the results of any revisions to these forward-looking statements that may be made to reflect any future events or circumstances.

Overview of Our Business

Cardinal Communications, Inc is a “Developer of Connected Communities,” as such; we design, construct, and operate diversified communication systems. The systems include voice, video, internet, wireless, and video-on-demand services to customers in multiple dwelling units (MDU), newly constructed housing developments, commercial properties, and the hospitality industry. One of our divisions builds residential and commercial properties, insuring a steady stream of telecommunication customers. Another of our divisions concentrates on selling “land line” services on a prepaid basis. Our growth strategy includes obtaining as many telecommunications customers as we can. We intend to grow our customer base through internal growth whenever possible, but we may acquire customers by acquiring related businesses or properties. If operational cash flow is insufficient to fund this growth, we will attempt to raise capital throughout the year.

Correction of an Error in Previously Issued Financial Statements

We determined there was an accounting error recording sales when we still had obligations. In this error, we recognized $2,041,670 in sales for December 31, 2005 and $380,000 in sales for March 31, 2006. Accordingly, certain historical transactions have been reclassified on the financial statements as of March 31, 2006 (restated). To correct this error, we have restated our previously filed quarterly financial statements for the quarter ended June 30, 2005, the quarter ended September 30, 2005, the previously filed financial statements of and for the year ended December 31, 2005, and our previously filed quarterly financial statements for the first quarter of 2006.

Certain Relationships and Related Transactions

We have certain debt owed to individuals and/or entities that are considered to be related parties for SEC reporting purposes.

The following table sets forth the individual amounts totaling $4,622,273 due as of March 31, 2006 to related parties, and entities:

Name and Relationship	Amount		Interest Rate			Due Date
Byron Young, Director and Shareholder	$	1,000		0	%		None
Ed Buckmaster ⁽¹⁾		150,000		0	%		None
Jeffrey Fiebig, Director and Shareholder		120,640		16	%		Dec ‘06
Thunderbird Management Limited Partnership, Shareholder		2,500,682		12	%		Mar ‘11
Bob Searls, Director and Shareholder ⁽²⁾		808,102		6	%		May ‘33
Jantaq, Inc. ⁽³⁾		303,058		0	%		*
Investors and/or Partners in Sovereign Partners as a group		738,791		4-12	%		Oct ‘06 - June ‘28

Total	$	4,622,273

(1) The general partner of AEJM Enterprises Limited Partnership, Ed Buckmaster is a shareholder of the Company and Ed Garneau’s father-in-law.

(2) Mr. Searls is also the general partner of Searls Family LLLP which is a shareholder of the Company.

(3) A principal of Jantaq, Inc. John Weisman is the brother of one of our directors, David Weisman

(*) This debt is currently due and is being negotiated.

Segment Information

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

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

	Real Estate			Communications			Corporate			Total

Revenue	$	3,352,487		$	1,643,995		$	-		$	4,996,482
Comprehensive Net (Loss)		(288,299	)		(339,850	)		(1,484,285	)		(2,112,434	)
Interest (Expense)		(213,562	)		(179	)		(227,739	)		(441,481	)
Depreciation and Amortization		96,034			100,314			71,817			268,165
Assets		52,724,100			2,988,787			9,743,205			65,456,091

Current Sovereign Projects

Mountain View at West T-Bone Ranch, Greeley, Colorado

Mountain View at West T-Bone Ranch is a 21 acre multi-dwelling unit development located in southwest Greeley, Colorado with onsite amenities including a clubhouse with pool, hot tub, and fitness room. The completed project will have 215 units consisting of two-story flats with detached garages, along with 7-unit and 4-unit townhomes with attached garages. To date, 90 units have been sold with an average sale price of $138,890.

The Renaissance at Fox Hill, Greeley, Colorado

The Renaissance at Fox Hill is a 13 acre multi-dwelling unit development located in Greeley, Colorado. The completed project will contain 123 dwelling units consisting of two story stacked flats/carriage units with direct access garages and 4-unit townhomes with attached garages. To date, 48 units have been sold with an average sale price of $183,804.

Colony Ridge Condominiums, (Settler’s Chase) Thornton, Colorado

The Colony Ridge Condominiums are a mix of 4 three-story stacked flats over one level of underground parking with elevators, and 98 townhome-style residences on an 11.65 acre parcel in Thornton, Colorado. Colony Ridge at Settler’s Chase is the final phase in the master planned community of Settler’s Chase, located in Thornton, Colorado. To date, 26 units have been sold with an average sale price of $181,121.

SR Condominiums, Parker, Colorado

The SR Condominiums are a mix of two and three story stacked flats with detached garages marketed as Hunter’s Chase Condominiums in Parker, Colorado. The completed project will include 188 dwelling units situated on a 13 acre parcel and includes a clubhouse featuring an outdoor swimming pool and spa. To date, 26 units have been sold with an average sale price of $155,479.

Millstone at Clear Creek, Golden, Colorado

The Millstone at Clear Creek consists of three four-story condominium buildings each with a ground level parking structure located on an approximately 1.7 acre parcel in Golden, Colorado. The completed project will have 78 dwelling units. To date, 43 units have been contracted for with an average sale price of $292,232.

Sovereign Pumpkin Ridge, Greeley, Colorado

The Pumpkin Ridge development consists of 78 lots in the Pumpkin Ridge subdivision located in west Greeley, Colorado. The plan is to build single and two-story single family detached residences on each of the lots. To date, 17 units have been sold with an average sale price of $264,127

Settler’s Commercial Development, Thornton, Colorado

Settler’s Commercial Development is the commercial/retail component of a master planned community. This 3.8 acre parcel is the final phase of the Settler’s Chase subdivision to be developed and is located in Thornton, Colorado. Building construction began in December 2005, with delivery of space scheduled for summer 2006. 3 Margaritas Restaurants will anchor the site and negotiations with other tenants are ongoing.

Sovereign Parker Commercial, Parker, Colorado

Parker Commercial consists of 18.5 undeveloped commercial acres located within the downtown core of Parker, Colorado. This property is currently on the market for approximately $3.5 million.

Legacy of Shorewood, Shorewood (Milwaukee), Wisconsin

Legacy of Shorewood is a 40 unit condominium project in the Village of Shorewood, a suburb of Milwaukee. It is a single building, converted from its prior use as an assisted living facility, renovated and rebuilt into 40 individual condominiums. It is a 4-story structure with underground parking and elevator access. To date, 24 units have been sold with an average sales price of $231,234.

Riverplace Condominiums, Rochester, Minnesota

Riverplace Condominiums consists of 4 undeveloped commercial acres of land on the Zumbro River in Rochester, Minnesota. This property sold for $950,000 on May 3, 2006.

Stonegate Summit, Rochester, Minnesota

Stonegate Summit consists of approximately 20 acres of land on top of a hill in Rochester, Minnesota. 155 townhome and condominium units are planned for the site. Initial site grading has commenced, but infrastructure work is currently on-hold pending acceptable construction financing.

El Rio Country Club, Arizona

El Rio consists of approximately 640 acres of land dedicated to a gated community anchored by an 18-hole golf course. Sovereign Homes has been named one of the Preferred Builders for the 1600-home, master planned community project in northwest Arizona's Mojave Valley.

Going Concern

Our auditor stated in its report on our financial statements for the period ended December 31, 2005 that we have experienced recurring losses and, as a result, there exists substantial doubt about our ability to continue as a going concern. For the three months ended March 31, 2006 (restated), we incurred a net loss of $2,119,634. As of March 31, 2006 (restated), Cardinal had an accumulated deficit of $74,684,407. We are actively seeking customers for our services. The financial statements do not include any adjustments relating to the recoverability and classification of recorded assets, or the amounts and classification of liabilities that might be necessary in the event we cannot continue in existence. These factors raise substantial doubt about our ability to continue as a going concern.

Critical Accounting Policies

Management’s Discussion and Analysis discusses the results of operations and financial condition as reflected in our consolidated financial statements, which have been prepared in accordance with accounting principals generally accepted in the United States. The preparation of financial statements in conformity with accounting principals generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements and reported amounts of revenues and expenses during the reporting period. On an ongoing basis, management evaluates its estimates and judgments, including those related to accounts receivable, inventory valuation, amortization and recoverability of long-lived assets, including goodwill, litigation accruals and revenue recognition. These critical accounting policies are described in more detail under Item 6 in the section entitled "Management's Discussion and Analysis of Financial Condition and Results of Operations" in our Annual Report on Form 10-KSB for the year ended December 31, 2005 filed with the Securities and Exchange Commission on April 17, 2006. Management bases its estimates and judgments on its historical experience and other relevant factors, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources.

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

Results of Operations

Three months Ended March 31, 2006 (restated) And 2005

Revenues

For the three months ended March 31, 2006 (restated) and 2005, Cardinal had revenue of $4,996,482 and $4,860,642 , respectively, an increase of $135,840 . This increase is primarily due to recording a full quarter of Sovereign Partners, LLC revenue in 2006 whereas we only had partial revenue for Sovereign Partners, LLC in 2005. The Company’s 2006 revenues are derived primarily from the sale of telecommunication services, internet access services, telecommunications-related hardware and services, satellite-based CATV access services, residential units, rental from commercial properties, fees from mortgage operations and construction management services. These revenues are recognized and recorded as services are performed and properties are sold or rented.

Operating Expenses

For the three months ended March 31, 2006 (restated) and 2005, operating expenses were $3,009,657 and $3,261,560 , respectively, a decrease of $251,903 . We attribute this decrease to reduced professional and consulting fees. During the three months ended March 31, 2006 (restated), operating expenses consisted primarily of professional and consulting fees of $681,200 , of which $319,780 were paid in stock, salaries and commissions of $918,659 of which $343,548 were paid in stock, and other general and administrative expenses of $894,183 . The general and administrative expenses consisted of bad debt related to Get-A-Phone of $306,815, rent expense of $115,203, insurance expense of $82,116 and numerous small expenses.

Net Loss

For the three months ended March 31, 2006 (restated), we had a net loss of $2,119,634 or $0.006 per share. In the comparable period of the prior year, we had a net loss of $1,260,603 or $0.006 per share. The increase in net loss period over period is directly attributable to decreased revenues in our Connect Paging, Inc. d/b/a Get A Phone subsidiary and reduced margins in our Sovereign Partners, LLC subsidiary. We are increasing our marketing efforts at Get a Phone in an attempt to stimulate sales and we anticipate our margins to increase at Sovereign Partners once our Millstone at Clear Creek project begins closing sales.

Liquidity

We have a minimum cash on hand to meet the current operational needs of the business. We are actively seeking additional sources of cash through additional financing and equity transactions in order to meet the short term cash needs of the business. If we are unsuccessful in these efforts, we may not be able fund the operational needs of the business through the remaining months of fiscal year 2006. Historically, we have funded our construction and telecommunication activities with internally generated cash flows, existing credit agreements, and equity financing. For the three months ended March 31, 2006 (restated) our operations used $3,001,082 of cash and at March 31, 2006 (restated) we had cash on hand of $447,363 . As we grow we expect operations to continually use cash since our construction projects use a large portion of operational cash which is provided by construction lines of credit. As construction projects are finished and sold the construction lines of credit are satisfied and the projects provide profit and long term liquidity. Operating, investing and financing activities used a total of $631,754 net cash in the Three Months ended March 31, 2006 (restated) compared to generating $596,363 of cash in the same period in 2005.

More liquidity information is available in the future obligation note below.

Cash Used in Operating Activities

During the three months ended March 31, 2006 (restated), our operations used cash of $3,001,082 compared to using $1,242,919 during the same period in 2005. For both the three months ended March 31, 2006 (restated) and March 31, 2005, the use of cash was a direct result of expanded construction projects. During the three months ended March 31, 2006 (restated), $137,343 of accreted interest expense was recorded in relation to our notes payable with beneficial conversion features; during the same period in 2005 we incurred accreted interest expense of $186,380 .

Cash Used in Investing Activities

During the three months ended March 31, 2006 (restated), we engaged in a significant amount of capital investment activity, primarily through the acquisition of business assets from other companies including the acquisition of notes receivable, payable by Gala Vu for $1,107,450. The total value of capital investments for the period used $1,166,410 compared to a net cash gain for the same period in 2005 of $957,505.

Cash Provided by Financing Activities

During the three months ended March 31, 2006 (restated), financing provided cash of $3,535,738 compared to $881,777 provided during the same period in 2005. The majority of our increased borrowings came from convertible loan agreements with ISP V, LLC and Thunderbird Management Limited Partnership. The balance of our increased borrowings came from debt collateralized by real estate and construction lines-of-credit.

Future Obligations

The following table sets forth contractual obligations as of March 31, 2006 (restated):

			2 Years				More than
Contractual Obligations	Total		or less		3-5 years		5 years
Land and construction loans	$	35,426,111	$	28,308,087	$	2,296,574	$	4,821,450
Related party debt		4,622,273		1,741,944		1,502,682		1,377,647
Notes payable, net of $129,492 debt discount		13,234,450		12,727,119		-		507,331

Total	$	53,282,834	$	42,777,150	$	3,799,256	$	6,706,428

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

Future Cash Flow

Our telecommunications subsidiary: Cardinal Broadband receives monthly recurring revenues provided by their subscriber base. The total costs associated with these subscribers has historically exceeded revenues, however we are striving to increase our subscriber base and lowering our costs in an attempt to generate excess cash flow. If we are unsuccessful at increasing our cash flow generated from this subsidiary our operations may be curtailed or ceased all together.

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

It is uncertain if we will be profitable for the year ended December 31, 2006. Our auditors have issued a going concern opinion for our Company which means that given our current operations our auditors believe there is a possibility we will not continue in operation long enough to realize our investment in assets through operations (as opposed to sale). In order to mitigate this possibility, we constantly monitor current operational requirements and financial market conditions to evaluate the use of available financing sources, including debt and securities offerings.

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

Off-Balance Sheet Financing Activities

We do not have any off-balance sheet arrangements that have, or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenue or expenses, results of operations, liquidity, capital expenditures or capital resources that are material.

Factors Affecting our Business and Prospects

The most significant risks and uncertainties associated with our business are described in Part II Item 1.A; however, they are not the only risks we face. If any of the following risks actually occur, our business, financial condition, or results or operations could be materially adversely affected, the trading of our common stock could decline, and an investor may lose all or part of his or her investment.

Item 3. Controls and Procedures

Material Weaknesses in Collecting And Processing Financial Information

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

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

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

PART II- OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

Cardinal Communications, Inc. (the “Company”) is a defendant in a proceeding styled Exceleron Software, Inc. v. Cardinal Communications, Inc., Cause No. DV05-8334-J, filed in the Dallas County, Texas District Court on August 22, 2005. On May 5, 2006, the parties reached an agreement to settle the matter and dismiss the case, with prejudice. The Company will pay Exceleron a total of $47,500 in full satisfaction of all claims and has recorded a liability of the same amount in connection with the settlement.

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

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

The Company is a defendant in an arbitration proceeding styled Douglas O. McKinnon v. Cardinal Communications, Inc. pending before the American Arbitration Association in Denver, Colorado. The demand for arbitration was filed on July 29, 2005. Mr. McKinnon is seeking $360,000, representing two years salary pursuant to an employment agreement with the Company. The parties have reached an agreement in principal to settle the claim for $242,000 payable in stock over the course of one year. The parties are in the process of finalizing the settlement documents and, once complete, will record a liability of the same amount in connection with the settlement.

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

Colorado River KOA, LLC (“CRKOA”), a subsidiary of the Company, has been sued by WHR Properties, Inc. in a case styled WHR Properties, Inc. v. Colorado River KOA, LLC and is currently pending in Gunnison County District Court in Colorado. The action was filed on March 17, 2006 and alleges breach of an agreement for the purchase of real property and seeks specific performance of the alleged contract and, alternatively, an unspecified claim for damages. On March 22, 2006, the Gunnison County District Court entered an order enjoining the sale of the property to any third party. CRKOA disputes the allegations and intends to vigorously defend the action. The parties are currently engaged in settlement negotiations. However, the Company cannot control the outcome and extent of the losses, if any, that may be incurred.

Sovereign Companies, LLC and Sovereign Developments, LLC, (collectively “Sovereign”), wholly owned subsidiaries of the Company, have been sued by Jech Excavating, Inc. in a case styled Jech Excavating, Inc. v. Riverplace Condominiums, LLC et al., Case No. 55-CV-06-2-28 pending in Olmstead County District Court in Minnesota. The action was filed on February 22, 2006 and alleges breach of contract under a promissory note relating to the performance of excavating work at the Riverplace development. The action also asserts a claim against Mr. Garneau individually. The Plaintiff is seeking damages of $664,000 together with interest and attorney’s fees. The parties reached a settlement whereby Sovereign paid Jech Excavating $638,000 in settlement of the claims which funds were derived from the sale of the Riverplace property. The parties are in the process of finalizing the settlement and dismissal papers.

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

The Company is a defendant in a proceeding styled Jantaq, Inc. v. Cardinal Communications, Inc., Case No. BC350688, filed in the Los Angeles County Superior Court on April 13, 2006. The complaint alleges breach of contract and fraud claims against the Company and seeks $300,000 in damages together with interest and attorney’s fees. The Company intends to vigorously defend the action. However, the Company cannot control the outcome and extent of the losses, if any, that may be incurred.

ITEM 1A. RISK FACTORS

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

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

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

WE REQUIRE ADDITIONAL FUNDING

We do not have sufficient cash on hand or cash generated from operations to continue operations into the foreseeable future. To continue funding operations the Company must raise additional cash, either through debt or equity financing. No assurance can be given that the Company will be successful in obtaining any such financing with acceptable terms, or that such financing will provide for payments to the Company sufficient to continue to sustain operations. In the absence of such financing the Company may be required to reduce operations. Even assuming the Company is successful in securing additional sources of financing to fund the continued operations, there can be no assurance that the Company will become profitable or self sustaining in the future.

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

We have 800,000,000 authorized shares of common stock that can be issued by the Board of Directors. At March 31 2006, we had 142,667,477 shares of common stock available for issue. Under most circumstances the Board of Directors has the right to issue these shares.

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

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

The trading price for our common stock has been, and we expect it to continue to be, highly volatile. For example, the closing bid price of our stock has fluctuated between $0.005 and $0.35 per share since January 1, 2003. The price at which our common stock trades depends upon a number of factors, including our historical and anticipated operating results and general market and economic conditions, which are beyond our control. In addition, the stock market has, from time to time, experienced extreme price and volume fluctuations. These broad market fluctuations may lower the market price of our common stock. Moreover, during periods of stock market price volatility, share prices of many telecommunications companies have often fluctuated in a manner not necessarily related to their operating performance. Accordingly, our common stock may be subject to greater price volatility than the stock market as a whole.

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

We have incurred annual operating losses since our inception. As a result, at March 31, 2006 (restated), we had an accumulated deficit of $74,684,407. Our gross revenues for the three months ended March 31, 2006 (restated) and 2005, were $4,996,482 and $4,860,642 with losses from operations of $1,583,653 and $786,619 and net losses of $2,119,634 and $1,260,603 respectively.

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

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

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

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

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

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

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

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

· potential loss of key employees.

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

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

WE HAVE SENIOR SECURED CONVERTIBLE DEBENTURES TOTALING $5,670,000 DUE IN 2006, COLLATERALIZED BY ALL OUR ASSETS. WE DO NOT HAVE THE FUNDS AVAILABLE TO PAY THESE DEBENTURES IF NOT CONVERTED INTO COMMON STOCK. IF THE DEBENTURES ARE NOT PAID OR CONVERTED, THE DEBENTURE HOLDERS COULD FORECLOSE ON OUR ASSETS.

We have entered into a series of private placements totaling $5,670,000 in senior secured debentures, convertible into common stock. If not converted, the debentures are due in July 2006 and December 2006. The debentures bear interest at rates from six percent (6%) to twelve percent (12%) and are collateralized by our assets. We do not currently have the funds to pay these debentures and we cannot assure you that we will have the funds to pay them on the due dates. If the debentures are not paid or converted, the debenture holders could foreclose on our assets.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

REGULATION OF THE INTERNET.

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

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

1. (a) Securities Issued. In January 2006; 1,000,000 shares of the Company's common stock were issued.

(b) Underwriter, Purchaser or Recipient. Such shares of stock were issued to Equitrend Advisors, LLC.

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

2. (a) Securities Issued. In January 2006; 2,370,360 shares of the Company's common stock were issued.

(b) Underwriter, Purchaser or Recipient. Such shares of stock were issued to Kenneth Miller.

3. (a) Securities Issued. In January 2006; 193,180 shares of the Company's common stock were issued.

(b) Underwriter, Purchaser or Recipient. Such shares of stock were issued to Edwin Buckmaster.

4. (a) Securities Issued. In January 2006; 8,980,360 shares of the Company's common stock were issued.

(b) Underwriter, Purchaser or Recipient. Such shares of stock were issued to Edouard Garneau.

5. (a) Securities Issued. In January 2006; 170,450 shares of the Company's common stock were issued.

(b) Underwriter, Purchaser or Recipient. Such shares of stock were issued to Paul Garneau.

6. (a) Securities Issued. In January 2006; 125,000 shares of the Company's common stock were issued.

(b) Underwriter, Purchaser or Recipient. Such shares of stock were issued to Jeffrey Fiebig.

7. (a) Securities Issued. In January 2006; 6,810 shares of the Company's common stock were issued.

(b) Underwriter, Purchaser or Recipient. Such shares of stock were issued to Craig Cook.

8. (a) Securities Issued. In February 2006; 9,974,288 shares of the Company's common stock were issued.

(b) Underwriter, Purchaser or Recipient. Such shares of stock were issued to Michael Blank.

9. (a) Securities Issued. In February 2006; 15,372,015 shares of the Company's common stock were issued.

(b) Underwriter, Purchaser or Recipient. Such shares of stock were issued to Edwin Buckmaster.

10. (a) Securities Issued. In February 2006; 47,743,590 shares of the Company's common stock were issued.

(b) Underwriter, Purchaser or Recipient. Such shares of stock were issued to AEJM Enterprises Limited Partnership.

11. (a) Securities Issued. In March 2006; 357,143 shares of the Company's common stock were issued.

(b) Underwriter, Purchaser or Recipient. Such shares of stock were issued to Steven Basmajian.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

None.

ITEM 5. OTHER INFORMATION

Private Placements

Subsequent to the quarter ended March 31, 2006, the Company has entered into a series of private placements for restricted securities totaling $550,000. Under the terms of the private placement Subscription Agreements, accredited investors were offered (restricted) common stock at a rate of $0.015 per share for a minimum investment of $50,000.

Converted Senior Secured Debentures

Subsequent to the quarter ended March 31, 2006, the Company has entered into certain agreements to convert $45,000 of Senior Secured Debentures into shares of the Company’s common stock.

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

	EXHIBIT NO.	DESCRIPTION

(1)	3.1	Articles of Incorporation of Registrant.

(6)	3.2	Bylaws of Registrant, as amended April 20, 2005.

(3)	3.5	Articles of Amendment to Articles of Incorporation of Registrant.

(4)	3.6	Articles of Amendment to Articles of Incorporation of Registrant.

(8)	3.7	Certificate of Designation of Series A Convertible Preferred Stock.

(6)	3.8	Certificate of Designation of Series B Convertible Preferred Stock.

(7)	3.9	Articles of Amendment to Articles of Incorporation of Registrant.

(2)	4.1	Specimen Common Stock Certificate.

(5)	4.2	Specimen Series A Preferred Stock Certificate.

(5)	4.3	Specimen Series B Preferred Stock Certificate.

	EXHIBIT NO.	DESCRIPTION

(6)	21.1	Subsidiaries of Registrant.

#	31.1	Certification pursuant to rules 13A-14 and 15D-14 of the Securities Exchange Act of 1934 of President and CEO.

#	31.2	Certification pursuant to rules 13A-14 and 15D-14 of the Securities Exchange Act of 1934 of Chief Financial Officer.

#	32.1	CERTIFICATION PURSUANT TO18 U.S.C. SECTION 1350 AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 of CEO and Chief Financial Officer.

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

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

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

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

(5) Incorporated by reference from Registrant’s Annual Report on Form 10-KSB filed with the SEC on March 31, 2005 and amended on April 6, 2005.

(6) Incorporated by reference from Registrant’s Report on Form 10-QSB filed with the SEC on June 3, 2005.

(7) Incorporated by reference from Registrant’s Report on Form 10-QSB filed with the SEC on August 18, 2005.

# Filed Herewith

SIGNATURES

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


Date: December 6, 2006	CARDINAL COMMUNICATIONS, INC.

	By:	/S/ Edouard A. Garneau
		Edouard A. Garneau
		Chief Executive Officer