**U.S.
      SECURITIES AND EXCHANGE COMMISSION**


**Washington,
      D.C. 20549**





**FORM
      10-KSB**


**(Mark
      One)[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
      EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31,
      2006** ****





**OR**





**[
      ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
      ACT OF 1934 FOR THE TRANSITION PERIOD FROM ______________ TO
      ______________**





**COMMISSION
      FILE NUMBER: 0-30448**





**5G
      WIRELESS COMMUNICATIONS, INC.**


(Exact
      Name of Company as Specified in Its Charter)


Nevada
              
              20-0420885(State
                  or Other Jurisdiction of Incorporation
              
              (I.R.S.
                  Employeror
                  Organization)
              
              Identification
                  No.)
  4136
                  Del Rey Avenue, Marina del Rey, California
              
              90292(Address
                  of Principal Executive Offices)
              
              (Zip
                  Code)




Company’s
      telephone number: (310)
      448-8022





Securities
      registered pursuant to Section 12(b) of the Act: None





Securities
      registered pursuant to Section 12(g) of the Act: Common stock, $0.001 par
      value





Indicate
      by check mark whether the Company (1) has filed all reports required to be
      filed
      by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
      preceding 12 months (or for such shorter period that the Company was required
      to
      file such reports), and (2) been subject to such filing requirements for the
      past 90 days. Yes x No
o.





Indicate
      by check mark if disclosure of delinquent filers pursuant to Item 405 of
      Regulation S-B is not contained herein, and will not be contained, to the best
      of Company’s knowledge, in definitive proxy or information statements
      incorporated by reference in Part III of this Form 10-KSB or any amendment
      to
      this Form 10-KSB o.





Indicate
      by check mark if the Company is required to file reports pursuant to Section
      13
      or 15(d) of the Securities Exchange Act of 1934. Yes x No o.





1


Indicate
      by check mark whether the Company is a shell company (as defined in Rule 12b-2
      of the Securities Exchange Act of 1934): Yes o No x.





The
      Company had revenues of $781,948 for the year ended on December 31, 2006. The
      aggregate market value of the voting stock held by non-affiliates of the Company
      as of April 11, 2007: $3,595,558. As of April 11, 2007, the Company had
      33,051,578 shares of common stock issued and outstanding.





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





2


**TABLE
      OF CONTENTS**





**PART
                I.**
              
              **PAGE****ITEM
                  1.**
              **DESCRIPTION
                  OF BUSINESS**
              **4****ITEM
                  2.**
              **DESCRIPTION
                  OF PROPERTY**
              **30****ITEM
                  3.**
              **LEGAL
                  PROCEEDINGS**
              **31****ITEM
                  4.**
              **SUBMISSION
                  OF MATTERS TO A VOTE OF SECURITY HOLDERS**
              **32****PART
                  II.****ITEM
                  5.**
              **MARKET
                  FOR COMMON EQUITY AND RELATED****STOCKHOLDER
                  MATTERS, AND SMALL BUSINESS****ISSUER
                  PURCHASES OF EQUITY SECURITIES**
              **32****ITEM
                  6.**
              **MANAGEMENT’S
                  DISCUSSION AND ANALYSIS OF****FINANCIAL
                  CONDITION AND RESULTS OF OPERATIONS**
              **34****ITEM
                  7.**
              **FINANCIAL
                  STATEMENTS**
              **46****ITEM
                  8.**
              **CHANGES
                  IN AND DISAGREEMENTS WITH ACCOUNTANTS****ON
                  ACCOUNTING AND FINANCIAL DISCLOSURE**
              **46****ITEM
                  8A.**
              **CONTROLS
                  AND PROCEDURES**
              **47****ITEM
                  8B**
              **OTHER
                  INFORMATION**
              **48****PART
                  III.****ITEM
                  9.**
              **DIRECTORS,
                  EXECUTIVE OFFICERS, PROMOTERS, CONTROL****PERSONS
                  AND CORPORATE GOVERNANCE; COMPLIANCE****WITH
                  SECTION 16(A) OF THE EXCHANGE ACT**
              **49****ITEM
                  10.**
              **EXECUTIVE
                  COMPENSATION**
              **52****ITEM
                  11.**
              **SECURITY
                  OWNERSHIP OF CERTAIN BENEFICIAL****OWNERS
                  AND MANAGEMENT, AND****RELATED
                  STOCKHOLDER MATTERS**
              **54****ITEM
                  12.**
              **CERTAIN
                  RELATIONSHIPS AND RELATED TRANSACTIONS,****AND
                  DIRECTOR INDEPENDENCE**
              **60****ITEM
                  13.**
              **EXHIBITS**
              **61****ITEM
                  14.**
              **PRINCIPAL
                  ACCOUNTANT FEES AND SERVICES**
              **61****SIGNATURES**
              **62**
 3


**PART
      I.**





**ITEM
      1. DESCRIPTION OF BUSINESS.**





**Business
      Development.**





5G
      Wireless Communications, Inc. (“Company”) is a designer, developer and
      manufacturer of commercial grade wireless telecommunications equipment operating
      on the 802.11a/b/g frequency. The Company deploys its equipment as a wireless
      Internet service provider (“WISP”), primarily to hospitality properties. The
      Company also sells its equipment through resellers or directly to
      end-users.





The
      Company was
      incorporated as Tesmark, Inc. in September 1979. In November 1998, the Company
      changed its state of incorporation from Idaho to Nevada and in January 2001
      changed its name to 5G Wireless Communications, Inc. In March 2001, the Company
      acquired 5G Partners, a Canadian partnership, and changed its business to
      provide wireless technology systems through high speed Internet access and
      data
      transport systems. In April 2002, the Company acquired Wireless Think Tank,
      Inc., a developer of high-speed long distance wireless technologies. In July
      2003, the Company shifted its strategy from that of a service provider to an
      equipment manufacturer, or OEM. 5G Partners liquidated shortly after acquisition
      and Wireless Think Tank, Inc. is inactive.





On
      January 21, 2003, the Company’s articles of incorporation were amended to do the
      following: (a) increase the authorized shares of common stock of the Company
      to
      800,000,000; (b) in the future, an increase in the authorized capital stock
      of
      the company can be approved by the board of directors without stockholder
      consent; and (c) in the future, a decrease in the issued and outstanding common
      stock of the company (a reverse split) can be approved by the board of directors
      without stockholder consent. Effective on September 16, 2004, the Company
      amended its articles of incorporation to increase the number of authorized
      shares of common stock from 800,000,000 to 5,000,000,000.





On
      October 19, 2004, the Company elected, by the filing of a Form N-54A with the
      Securities and Exchange Commission (“SEC”), to be regulated as a business
      development company (“BDC”) under the Investment Company Act of 1940 (“1940
      Act”). On December 31, 2004, the Company transferred certain assets and certain
      liabilities of the Company into 5G Wireless Solutions, Inc. in exchange for
      100%
      of the outstanding shares of 5G Wireless Solutions, Inc.’s common
      stock.





On
      June
      3, 2005, the Company’s board of directors unanimously determined that it would
      be in the best interests of the Company and its stockholders to seek stockholder
      approval on certain matters. Pursuant to a definitive Schedule 14A proxy
      statement filed with the SEC on September 19, 2005, the Company sought approval
      from the stockholders, at the annual stockholder’s meeting on October 20, 2005,
      for the following (among other things): (a) to terminate the Company’s status as
      a BDC under the 1940
      Act
      and to file a Form N-54C with the SEC to terminate this status, and (b) to
      file
      a new registration statement with the SEC. This registration statement was
      filed
      on August 8, 2006, but has not been declared effective by the SEC.




4




On
      October 20, 2005, the Company’s stockholders approved (among other things) (a)
      the termination of the Company’s status as a BDC under the 1940
      Act
      and the filing of a Form N-54C with the SEC, and (b) the filing of a new
      registration statement. Based on this approval, on October 21, 2005, the Company
      filed a Form N-54C with the SEC terminating its status as a BDC. Accordingly,
      the accompanying balance sheet as of December 31, 2006 has been presented on
      a
      single entity basis and the accompanying balance sheet as of December 31, 2005
      has been presented on a consolidated basis.





On
      November 3, 2005, the Company’s Board of Directors approved a 1 for 350 reverse
      stock split of the Company’s common stock. Common shares outstanding prior to
      and after the reverse stock split totalled 1,169,494,405 and 3,341,419 shares,
      respectively. The November 23, 2005 reverse stock split has been retroactively
      reflected in the accompanying financial statements for all periods presented.
      Unless otherwise indicated, all references to outstanding common shares,
      including common shares to be issued upon the exercise of warrants and
      convertible notes payable, refer to post-split shares.





On
      January 19, 2006, 5G Wireless Solutions, Inc. was merged with and into the
      Company.





On
      October 4, 2006, the Company acquired certain assets of Global Connect, Inc.
      (“GCI”) (see Exhibit 10.13). The assets acquired from GCI are in the business of
      providing wireless Internet access to hospitality property patrons.





**Business
      of the Company.**





**(a)**  **Technology.**





The
      Company is a designer, developer and manufacturer of wireless broadband
      communications equipment operating on the 802.11a/b/g frequency. The Company's
      principal markets are universities, international and hospitality properties.
      The term “Wi-Fi” is a commonly used term that has come to stand for ‘Wireless
      Fidelity’ and is based on the IEEE 802.11 standard. Wi-Fi is an RF signal based
      on the IEEE 802.11 standard and is capable of transmitting and receiving signals
      to most Wi-Fi enabled laptops and other Wi-Fi enabled devices up to 800 meters.
      It uses spread spectrum multiple access that supports high data rates with
      very
      low latency, over a distributed all-IP wireless network that can penetrate
      walls
      and associated structures (“spread spectrum multiple access” is the use of many
      code symbols per data symbol which has the effect of spreading the bandwidth
      of
      the data symbol; “latency” refers to the length of time required for the signal
      to move from sender to recipient).





Wi-Fi
      shares the unregulated, 2.4 GHz radio spectrum along with other common wireless
      devices including cordless phones and baby monitors. Wi-Fi is primarily meant
      for use in a local area wireless network and for Internet access. As an
      alternative to current wire line broadband, Wi-Fi offers the opportunity of
      relatively inexpensive, mobile Internet access.




5




The
      Company’s products (base stations) are used to transmit and receive wireless
      signals to and from other wireless devices, typically laptop computers or
      personal digital assistants. The base stations conform to the predominant
      industry standard for wireless networks: IEEE 802.11. The 802.11 standard,
      and
      all its associated standards (e.g., 802.11a, 802.11b, etc.), form the “rules” by
      which compliant wireless devices can communicate. In this manner, all devices
      that follow these rules can communicate with each other, without the need for
      interoperability testing.





There
      are
      several merchant suppliers of 802.11 compliant semiconductor chips that form
      the
      basis of the Company’s finished products. The Company combines these
      semiconductor chips with off-the-shelf electronic hardware (including
      amplifiers, antennas, cables, filters and power supplies) and in-house
      customized software to produce the finished products.





**(b)**  **Products**





The
      Company’s family of indoor and outdoor wireless base stations are built on two
      basic building block products: a 120 degree outdoor sector base station and
      an
      18 degree indoor or outdoor base station.





By
      combining the outdoor sector base stations, three separate products emerge:
      a
      120 degree sector base station, a 240 degree sector base station and a 360
      degree sector base station. Multiples of these base stations in some combination
      are deployed from towers or the roofs of tall buildings to provide outdoor
      wireless coverage to large areas like campuses and municipalities.





The
      Company also deploys combinations of its products, primarily the indoor units
      to
      provide wireless Internet service to hospitality properties and
      classrooms.





**(c)**  **Competitive
      Advantage.**





The
      802.11 standards, along with FCC rules (like Title 47 of the Code of Federal
      Regulations, Part 15) that specify maximum transmit power imply a limit as
      to
      the effective wireless range of a compliant base station. Since it is expensive
      to wirelessly cover a large outdoor area like a campus or municipality, there
      is
      a strong incentive to maximize the wireless range of a base
      station.





Through
      a
      proprietary combination of the industry-standard 802.11 chips, off-the-shelf
      electronic hardware and in-house customized software, the Company has developed
      what it believes is the optimal system design for maximizing the range of
      wireless networking equipment. With this trade-secret system design, the Company
      has positioned itself at the forefront of the emerging wireless wide area
      network (W-WAN) marketplace for the following reasons:




6





·
            The
                Company believes it is the first to market this “optimal” design for
                maximum range, and while others may, through extensive research and
                development, ultimately develop a similarly performing
                design.





·
            Total
                cost of ownership (“TCO”) is or will be the driving factor in rolling out
                new campus and municipal wireless
                networks.





·
            TCO
                depends more on operating expense than the cost of the base
                stations





·
            Operating
                expense is a direct function of the number of base
                stations





·
            Maximizing
                the range of the base station reduces the number required thereby
                minimizing TCO  ·
            The Company’s believes its base station is better suited
              to wirelessly cover university campuses and similar properties compared
              to
              the other approaches being utilized
              today:  ·
            Mesh
                networks suffer from serious bandwidth degradation problems which
                limits
                their use to only low-bandwidth
                applications  ·
            Mesh networks require many more base stations, which
              makes it higher in TCO





The
      Company’s strategy is twofold. First, the Company desires to expand upon the
      wireless Internet service provider business in the hospitality and other markets
      of similar application. Second, the Company desires to secure a leadership
      position as a broadband wireless equipment provider to the college and
      university campuses and international markets, while maximizing profits based
      on
      superior gross margins and low overhead costs. Critical to the Company’s success
      in this market is its advantage over competitive Wi-Fi equipment providers
      that
      require considerably more access points to provide wireless coverage in any
      given area. It has been repeatedly demonstrated that the Company’s “Access Not
      Excess” approach allows one of its rooftop base stations to replace up to 25
      standard access points, thus offering a client considerable cost savings. For
      example, at University of California, Los Angeles, the Company installed a
      single 360 ° Base
      Station that provided coverage for the approximately five buildings of the
      Anderson School of Business. The alternative was to install over 25 other
      devices to cover the same area. The Company has have sold this same value
      proposition to more than 10 universities and colleges around the country which,
      in the opinion of management, has proven that the Company’s solution offers
      significant cost savings both in terms of the initial capital cost and the
      operating expense related to maintaining these networks.




The
      Company’s indoor units are also able to provide greater coverage than
      competitors, though not to the magnitude of the outdoor units. These savings
      occur not only on the front end, in terms of reduced capital hardware expenses,
      but moreover, in terms of ongoing operating expenses as less equipment requires
      less ongoing maintenance and network administration. This formula: TCO (Total
      Cost of Ownership) = CapEx (Capital Expenses) + OpEx (Operating Expenses) is
      the
      basis of the Company’s value proposition: significantly increased performance at
      the lowest possible TCO. Low TCO is a key driver of the viability of the
      hospitality WSIP business.




7




**(d)**  **Market
      Overview.**





Maravedis
      - Telcom Market Research **-** Sept
      2006
      Edition **;** Broadband
      Wireless (Sub-11GHz) Worldwide Market Analysis and Trends
      2006-2012:





Estimated
      worldwide shipments of wireless local area network equipment products increased
      6% in 2005 to total $5.2 billion and are expected to increase to $5.9 billion
      in
      2006 despite a 23% average drop in selling price. The
      fixed/portable broadband wireless access equipment market (sub-11 GHz) has
      grown
      from US$562 million to US$637 million - US$755 million when including
      point-to-point backhaul applications. Maravedis predicts the fixed broadband
      wireless market to pass US$1 billion in 2007-2008.





The
      fundamentals for continued growth of broadband wireless remain sound. Broadband
      is becoming a necessity for many residential and business subscribers worldwide.
      The demand is exploding as the pricing of broadband services is rapidly
      decreasing.





ARC
      Advisory Group - August
      21, 2006:





Wireless
      technology -- already the networking backbone in homes and offices worldwide
      --
      is about to see widespread adoption where it may have its most profound impact:
      on the plant floor and out in the field. The ARC Advisory Group forecasts the
      worldwide market for wireless technology in manufacturing to grow at a
      compounded annual growth rate of 26 percent over the next five years. The market
      was $325.7 million in 2005 and is forecasted to be over $1 billion in 2010,
      according to a new ARC Advisory Group study.





The
      hospitality WISP market is a proven market with significant growth opportunity
      in the timeshare segment. The acquisition of certain Global Connect, Inc. assets
      provided a footprint for the Company in the timeshare segment. The Company
      expects to be able to leverage the footprint to accumulate additional service
      contracts in this segment.





Consumers
      and enterprises continue to redefine their levels of connectivity and
      interactivity while elevating their expectations for wireless Internet access.
      This demand is being met on university campuses, where roughly 90% have
      experimented with some type of fragmentary wireless hotspot. The campus market
      is now moving to a “campus-wide” approach, and the Company’s equipment offers a
      superior, low-cost solution. These campuses that have used competitive equipment
      usually express dissatisfaction with the number of access points required and
      the difficulty maintaining them, which provides a receptive audience for the
      Company’s rooftop base station solution.





The
      municipal market is accelerating rapidly. Large cities such as Philadelphia
      and
      San Francisco have announced plans for citywide networks, which has driven
      awareness of the phenomenon nationwide, the Company intends to focus on the
      small to mid-size city markets to avoid the political complications, and long
      lead time, inherent in major metro installations. This is also a logical fit
      with the Company’s technology approach as large campuses resemble small cities,
      and small cities resemble big campuses. Other growth industries for wireless
      broadband include healthcare, recreation, shipping, and international. The
      international market is particularly lucrative as many third world nations
      are
      now rapidly progressing toward the need for citywide network infrastructures,
      and can dispense with both telephone and cable wire line networks and advance
      directly to a wireless approach.




8




The
      Company intends to target the following markets:





**Market**
            
            **Solution**Wireless
                ISP (Hospitality)
            
            The
                Company provides wireless internet service on a fee-for-service basis
                to
                hospitality patrons. The service is complemented with an outsourced
                support function that allows the business to scale its support costs
                on a
                marginal basis.Universities
                and Corporate Campuses
            
            The
                solution can replace VPN lines with direct and secure wireless
                connections, which can provide always-on roaming capabilities around
                the
                campus, with Internet access-control managed at the classroom or
                office
                level. In addition, with the Company’s access points the wireless
                connection can cover multiple campuses in the same city and allow
                individual end-users to stay connected while off
                campus.International
            
            Internationally,
                the solution is being applied to service businesses and communities
                throughthe
                Company’s VAR network.





**(e)**  **Channel
      Strategy.**





Currently,
      the Company services clients through both direct and distribution models. The
      majority of current sales have been through direct sales, which are mostly
      from
      domestic sources. The Company anticipates that it will grow its sales
      domestically through its direct sales force and paid referrals and
      internationally through value added resellers and similar distribution
      channels.





The
      hospitality business is expected to grow during 2007 through the efforts of
      its
      direct sales force and paid referrals in the form of royalties. Wireless
      Internet service revenues from properties can be seasonal and differ based
      on
      customer mix of the property. Nonetheless, revenue is expected to grow with
      each
      additional property serviced with the Company’s WISP.




**(f)**  **Sales
      and Marketing.**




9




The
      Company currently sells its products through a team of three salespersons and
      the efforts of its corporate officers. The Company’s average sales cycle exceeds
      six months from the time of initial contact to shipment of products. In an
      effort to improve sales, the Company is looking to add independent sales
      representatives and/or agencies that are compensated on a commission
      basis.





The
      Company markets its products to colleges, universities, governmental entities,
      commercial enterprises and systems integrators via trade shows, direct sales,
      distributors and value added resellers in the United States, Canada, and
      EMEA.




The
      hospitality wireless Internet service is marketed through a direct sales force
      with referral fees paid as royalties to appropriate persons involved in closing
      the transaction.





For
      fiscal 2006, the Company’s revenue was composed of the following sectors:
      education (49%), international (35%), hospitality service (8%), and other
      business (8%).





As
      the
      Company is continually developing its platform, its technology and field
      services partners will be a part of its sales and marketing effort, as the
      coordination of network design, field deployment and ongoing service support
      requires appropriate teaming arrangements for high quality design, installation
      and ongoing service support.





As
      many
      of the Company’s customers are established colleges and universities, the
      Company expects its sales force to attend and participate in industry
      associations and trade shows to support and supplement its sales and marketing
      activity.





For
      the
      year ended December 31, 2006, one foreign country accounted for greater than
      10%
      of revenue. (12% of revenue was generated in the United Arab Emirates). The
      Company has focused on marketing to the following countries: Lebanon, Nigeria
      and the United Arab Emirates.





**(g)**  **Major
      Customers.**





During
      2005, there were two customers that accounted for more than 10% of revenues:
      SRS
      (10%) and IAMA (30%). These two customers closed operations unexpectedly
      in mid-2005. Major customers in 2006 include Denison University and
      DigitalSkys, which represent 38% and 12% of sales, respectively.





The
      terms
      of the Company’s contracts consist of a purchase order, and standard terms and
      conditions. Contracts with universities generally are for the purchase of the
      Company’s products along with installation of the products. Occasionally
      extended warranties are issued. International customers generally purchase
      only
      the Company’s products and assume responsibility for deployment themselves.
      Hospitality customers pay for wireless Internet service using the Company’s
      products. Concurrently with the Global Connect, Inc. acquisition, the Company
      commenced operations providing “pay for wireless” Internet service to
      hospitality customers. The Company is obligated to provide support to the
      hospitality property users. The Company considers such contracts to be entered
      into in the ordinary course of business.




10




**(h)**  **Research
      and Development.**





The
      Company has defined a robust roadmap for the development of additional products
      intended to enhance network performance, decrease product costs, improve
      manufacturing, analyze outsource options, and expand the range of customer
      applications. This includes refined and completely new access point designs
      that
      complement current products. It also includes additional software functionality
      allowing remote control over the access points.




All
      developed products and projects must meet a minimum return on investment in
      order to be considered for development. The Company believes this will help
      to
      ensure that it is utilizing resources correctly, that assets are being deployed
      properly, and that all projects ultimately add stockholder value. Areas of
      positive return on investment development include:





·
            additional
                software providing additional remote control features thereby eliminating
                downtime and support costs;





·
            base
                stations that operate at various frequencies along the spread spectrum
                within legal limits; and





·
            WiMAX
                (IEEE 802.16) products that have a variety of applications including
                backhauling and mobility, etc.





For
      the
      years ended December 31, 2006 and 2005, all internal research and development
      costs were charged to expense as incurred. Third-party research and development
      costs are expensed when the contracted work has been performed or as milestone
      results have been achieved. Company-sponsored research and development costs
      related to both present and future products are expensed in the period incurred.
      Research and development costs (exclusive of salary related) were $67,510 for
      the year ended December 31, 2006 compared to $209,543 for the year ended
      December 31, 2005.





**(i)**  **Competition.**





The
      Company operates in the highly competitive communications equipment market.
      The
      Company expects to compete primarily on the basis of its fixed wireless
      equipment portfolio, experience and technical skills, competitive pricing model,
      service quality, reliability and deployment speed. The hospitality WISP business
      is competitive until a contract is signed. Contracts provide exclusive rights
      for WISP operation on a specific property.





The
      Company’s principal competitors are other equipment manufacturers that utilize
      fixed wireless technology, including Cisco Systems Inc. and Tropos Networks,
      Inc. Cisco currently possesses approximately 60% of the wireless equipment
      market for colleges and universities, while Tropos Networks, Inc. has a lead
      in
      the municipal market with more than 150 customers and 90 value added resellers
      throughout the world. Cisco Systems, Inc. and Tropos Networks, Inc. both
      utilize a dense
      access point deployment or mesh network architecture. There are approximately
      8
      other major competitors; some of these include: Belair and Strix offering mesh
      network solutions across a broad range of vertical markets, Terrabeam and Aruba
      providing base station equipment approaches similar to those of the Company,
      Airespace (now Cisco), Meru and Colubris all offering integrated dense access
      point deployment architecture coupled with a variety of service to comprise
      an
      enterprise solution. There is a relatively high cost of entry into this space
      given the need for proof of reliability and the long lead-time associated with
      establishing brand awareness through marketing communications. To date, the
      Company has not encountered any barriers to competition imposed by the practices
      of any of its competitors such as, for example, exclusivity agreements with
      the
      Company’s potential customer base.




11




Many
      of
      the Company’s competitors have longer operating histories, long-standing
      relationships with customers and suppliers, greater name recognition and greater
      financial, technical and marketing resources than the Company does and, as
      a
      result, may have substantial competitive advantages over the Company.
      Additionally, market perceptions as to reliability and security for the
      relatively early-stage fixed wireless networks as compared to copper or fiber
      networks provide the Company with additional marketing challenges. The Company
      may not be able to exploit new or emerging technologies or adapt to changes
      in
      customer requirements more quickly than these competitors, or devote the
      necessary resources to the marketing and sale of its products.





The
      Company believes that the market for broadband communication equipment is likely
      to remain highly competitive, and will continue to be characterized by new
      and
      potentially disruptive technology introduction, shrinking per-customer revenues,
      and fiercely competitive pricing.





Competitors
      in the hospitality WISP business include companies such as Wayport and Lodgenet.
      The Company believes that it competes favorably in the open market against
      these
      and other competitors in the market. Many of the Company’s competitors in this
      area have significantly more marketing capacity than the Company. The Company
      expects that its sales force will be able to sign additional contracts in this
      market due to personal relationships of the sales force, tradeshow exhibitions
      and word-of-mouth.





**(j)**  **Regulation.**





Internet-based
      communication equipment makers generally are not subject to federal fees or
      taxes imposed to support programs such as universal telephone service. Changes
      in the rules or regulations of the U.S. Federal Communications Commission or
      in
      applicable federal communications laws relating to the imposition of these
      fees
      or taxes could result in significant new operating expenses for the Company,
      and
      could negatively impact the Company’s business. Any new law or regulation, U.S.
      or foreign, pertaining to Internet-based communications products, or changes
      to
      the application or interpretation of existing laws, could decrease the demand
      for the Company’s products, increase its cost of doing business or otherwise
      harm its business. There are an increasing number of laws and regulations
      pertaining to the Internet. These laws or regulations may relate to taxation
      and
      the quality of products. Furthermore, the applicability to the Internet of
      existing laws governing intellectual property ownership and infringement,
      taxation, encryption, obscenity, libel, employment, personal privacy, export
      or
      import matters and other issues is uncertain and developing and the Company
      is
      not certain how the possible application of these laws may affect the Company.
      Some of these laws may not contemplate or address the unique issues of the
      Internet and related technologies. Changes in laws intended to address these
      issues could create uncertainty in the Internet market, which could reduce
      demand for the Company’s products, increase its operating expenses or increase
      its litigation costs.




12




**(k)**  **Employees.**





The
      Company has 11 full-time employees. In addition, the Company has contracts
      with
      six contractors who perform services in connection with the assets acquired
      from
      GCI. The Company believes that its relationship with employees is satisfactory.
      The Company has not suffered any labor problems during the last two
      years.





**Risks
      Related to the Business.**





**(a)**  **History
      of Losses May Continue, Requiring Additional Sources of Capital, Which May
      Result in Curtailing of Operations and Dilution to Existing
      Stockholders.**





The
      Company incurred net losses of $6,126,669 for the year ended December 31, 2006
      and $4,025,012 for the year ended December 31, 2005. The Company cannot assure
      that it can achieve or sustain profitability on a quarterly or annual basis
      in
      the future. If revenues grow more slowly than anticipated, or if operating
      expenses exceed expectations or cannot be adjusted accordingly, the Company
      will
      continue to incur losses. The Company’s possible success is dependent upon the
      successful development, deployment and marketing of its products, of which
      there
      is no assurance. Any future success that the Company might enjoy will depend
      upon many factors, including factors out of the Company’s control or which
      cannot be predicted at this time. These factors may include changes in or
      increased levels of competition, including the entry of additional competitors
      and increased success by existing competitors, changes in general economic
      conditions, increases in operating costs, including costs of supplies, personnel
      and equipment, reduced margins caused by competitive pressures and other
      factors. These conditions may have a materially adverse effect upon the Company
      or may force it to reduce or curtail operations. In addition, the Company will
      require additional funds to sustain and expand its sales and marketing
      activities, particularly if a well-financed competitor emerges. The Company
      anticipates that it will require additional funds to continue operations for
      the
      next twelve months. There can be no assurance that financing will be available
      in amounts or on terms acceptable to the Company, if at all. The inability
      to
      obtain sufficient funds from operations or external sources would require the
      Company to curtail or cease operations. Any additional equity financing may
      involve substantial dilution to the existing stockholders.





13




**(b)**  **The
      Independent Registered Public Accounting Firm Has Expressed Substantial Doubt
      About the Company’s ability to Continue as a Going Concern, Which May Hinder the
      Ability to Obtain Future Financing.**





In
      its
      report dated April 5, 2007, the Company’s independent registered public
      accounting firm stated that the financial statements for the years ended
      December 31, 2006 and 2005 were prepared assuming that the Company would
      continue as a going concern. The Company’s ability to continue as a going
      concern is an issue raised as a result of cash flow constraint, an accumulated
      deficit of $28,911,336 at December 31, 2006 and recurring losses from
      operations. The Company continues to experience net losses. The Company’s
      ability to continue as a going concern is subject to the ability to generate
      a
      profit and/or obtain necessary funding from outside sources, including obtaining
      additional funding from the sale of the Company’s securities, increasing sales
      or obtaining loans from various financial institutions where possible. The
      continued net losses and stockholders’ deficit increases the difficulty in
      meeting such goals and there can be no assurances that such methods will prove
      successful.





**(c)**  **The
      Company May Not Be Able to Accommodate Rapid Growth Which Could Decrease
      Revenues and Result in a Loss of Customers.**





The
      Company is focused on WISP hospitality service and selling its products to
      universities and international markets. To manage anticipated growth, the
      Company must continue to implement and improve its operational, financial and
      management information systems. The Company must also hire, train and retain
      additional qualified personnel, continue to expand and upgrade core
      technologies, and effectively manage its relationships with end users, suppliers
      and other third parties. The Company’s expansion could place a significant
      strain on its current services and support operations, sales and administrative
      personnel, capital and other resources. The Company could also experience
      difficulties meeting demand for its products. The Company cannot guarantee
      that
      its systems, procedures or controls will be adequate to support operations,
      or
      that management will be capable of fully exploiting the market. The Company’s
      failure to effectively manage growth could adversely affect its business and
      financial results.





**(d)**  **The
      Company’s Customers Require a High Degree of Reliability in Equipment and If the
      Company Cannot Meet Their Expectations, Demand for Its Products May
      Decline.**





Any
      failure to provide reliable equipment for the Company’s customers, whether or
      not caused by their own failure, could reduce demand for the Company’s products.
      The Company continues to improve its products and related technology and as
      such, the Company does not expect negative customer response however this cannot
      be assured. Negative customer response could impair the Company’s reputation and
      impair its ability to make future sales.





**(e)**  **Dependence
      on Suppliers May Affect the Ability of the Company to Conduct
      Business.**




14




The
      Company depends upon a number of suppliers for components of its products.
      Although the Company attempts to have multiple suppliers of critical components,
      there is an inherent risk that certain components of the Company’s products will
      be unavailable for prompt delivery or, in some cases, discontinued. The Company
      only has limited control over any third-party manufacturer as to quality
      controls, timeliness of production, deliveries and various other factors. Should
      the availability of certain components be compromised, it could force the
      Company to develop alternative designs using other components, which could
      add
      to the cost of goods sold and compromise delivery commitments. If the Company
      is
      unable to obtain components in a timely manner, at an acceptable cost, or at
      all, it may need to select new suppliers, redesign or reconstruct processes
      used
      to build its devices. In such an instance, the Company would not be able to
      manufacture any devices for a period of time, which could materially adversely
      affect its business, results from operations, and financial condition.





**(f)**  **The
      Company Faces Strong Competition in Its Market, Which Could Make It Difficult
      for the Company to Generate Revenues.**





The
      market for wireless products is highly competitive. The Company’s future success
      will depend on its ability to adapt to rapidly changing technologies, evolving
      industry standards, product offerings and evolving demands of the marketplace.
      The Company competes for customers primarily with facilities-based carriers,
      as
      well as with other non-facilities-based network operators. Some of the Company’s
      competitors have substantially greater resources, larger customer bases, longer
      operating histories and greater name recognition than the Company
      has:





·
            some
                of the Company’s competitors provide functionalities that the Company does
                not. Potential customers who desire these functions may choose to
                obtain
                their equipment from the competitor that provides these additional
                functions; and





·
            potential
                customers may be motivated to purchase their wireless Internet equipment
                from a competitor in order to maintain or enhance their respective
                business relationships with that
                competitor.





In
      addition, the Company’s competitors may also be better positioned to address
      technological and market developments or may react more favorably to
      technological changes. The Company competes on the basis of a number of factors,
      including:





·
            
            range





·
            
            non-line
                of sight capabilities





·
            
            data
                rate





·
            
            security
                scheme





·
            
            simultaneous
                users




15




·
            
            implementation
                cost





Competitors
      may develop or offer products that provide significant (technological, creative,
      performance, price) or other advantages over the products offered by the
      Company. If the Company fails to gain market share or loses existing market
      share, its financial condition, operating results and business could be
      adversely affected and the value of the investment in the Company could be
      reduced significantly. The Company may not have the financial resources,
      technical expertise, marketing, and distribution or support capabilities to
      compete successfully.





**(g)**  **Uncertain
      Demand for Equipment and WISP Service May Cause Revenues to Fall Short of
      Expectations and Expenses to Be Higher Than Forecast If the Company Needs to
      Incur More Marketing Costs.**





The
      Company is unable to forecast revenues with certainty because the Company may
      not continue to provide products in the future to meet the continually changing
      demands of customers. The Company is focused primarily on the WISP business.
      Should the Company be unable to perform under its contracts, the contracts
      could
      be terminated by the properties. Vendors who provide Internet service to the
      Company may have operational failures or even go out of business. The Company
      may not have adequate alternatives to quickly repair or replace vendors who
      do
      not meet the Company’s performance requirements. The Company is in the process
      of refining its sales and marketing plan for colleges, universities and other
      commercial applications in order to achieve the desired level of revenue, which
      could result in increased sales and marketing costs. In the event demand for
      the
      Company’s wireless equipment does not prove to be as great as anticipated,
      revenues may be lower than expected and/or sales and marketing expenses higher
      than anticipated, either of which may increase the amount of time and capital
      that the Company needs to achieve a profitable level of operations.





**(h)**  **The
      Company Could Fail to Develop New Products to Compete In an Industry of Rapidly
      Changing Technology, Resulting In Decreased Revenues.**





The
      Company operates in an industry with rapidly changing technology, and its
      success will depend on the ability to deploy new products that keep pace with
      technological advances. The market for broadband communications equipment is
      characterized by rapidly changing technology and evolving industry standards
      in
      both the Wi-Fi and Internet access industries. The Company’s technology or
      systems may become obsolete upon the introduction of alternative technologies.
      If the Company does not develop and introduce new products in a timely manner,
      it may lose opportunities to competing service providers, which would adversely
      affect business and results of operations.




There
      is
      a risk to the Company that there may be delays in initial implementation of
      new
      products. Further risks inherent in new product introductions include the
      uncertainty of price-performance relative to products of competitors,
      competitors’ responses to its new product introductions, and the desire by
      customers to evaluate new products for longer periods of time. Also, the Company
      does not have any control over the pace of technology development. There is
      a
      significant risk that rights to a technology could be acquired or be developed
      that is currently or is subsequently made obsolete by other technological
      developments. There can be no assurance that any new technology will be
      successfully acquired, developed, or transferred.




16




**(i)**  **The
      Company’s Ability to Grow Is Directly Tied to Its Ability to Attract and Retain
      Customers, Which Could Result In Reduced Revenues.**





The
      Company has no way of predicting whether its marketing efforts will be
      successful in attracting new locations and acquiring substantial market share.
      Past efforts have been directed toward a limited target market of colleges,
      universities, hospitality properties and municipalities. If the Company’s
      marketing efforts fail, it may fail to attract new customers and fail to retain
      existing ones, which would adversely affect business and financial
      results.





**(j)**  **Government
      Regulation May Affect the Company’s Ability to Conduct
      Business.**





Internet-based
      communication equipment makers generally are not subject to federal fees or
      taxes imposed to support programs such as universal telephone service. Changes
      in the rules or regulations of the Federal Communications Commission or in
      applicable federal communications laws relating to the imposition of these
      fees
      or taxes could result in significant new operating expenses, and could
      negatively impact the Company’s business. Any new law or regulation, U.S. or
      foreign, pertaining to Internet-based communications products, or changes to
      the
      application or interpretation of existing laws, could decrease the demand for
      the Company’s products, increase the cost of doing business or otherwise harm
      the business. There are an increasing number of laws and regulations pertaining
      to the Internet. These laws or regulations may relate to taxation and the
      quality of products. Furthermore, the applicability to the Internet of existing
      laws governing intellectual property ownership and infringement, taxation,
      encryption, obscenity, libel, employment, personal privacy, export or import
      matters and other issues is uncertain and developing and the Company is not
      certain how the possible application of these laws may affect it. Some of these
      laws may not contemplate or address the unique issues of the Internet and
      related technologies. Changes in laws intended to address these issues could
      create uncertainty in the Internet market, which could reduce demand for the
      Company’s products, increase operating expenses or increase litigation
      costs.





The
      Company’s technology is deployed in license-free frequency bands and is not
      subject to any wireless or transmission licensing in most jurisdictions,
      including the United States. Continued license-free operation is dependent
      upon
      the continuation of existing government policy. While the Company is not aware
      of any policy changes planned or expected, there can be no assurances that
      government policy will not change. The manner in which legislation may be
      enacted and enforced cannot be precisely determined and may subject either
      the
      Company or its customers to potential liability, which in turn could have an
      adverse effect on the Company’s business, results of operations and financial
      condition.





**(k)**  **Interference
      on License Free Bands May Affect the Company’s Equipment and
      Sales.**





License-free
      operation of the Company’s products in the 2.4 GHz and 5 GHz bands are
      subordinate to certain licensed and unlicensed uses of the bands and the
      Company’s products must not cause harmful interference to other equipment
      operating in the bands and must accept interference from any of them. If the
      Company is unable to eliminate any such harmful interference, or should its
      products be unable to accept interference caused by others, the Company and
      its
      customers could be required to cease operations in the bands in the locations
      affected by the harmful interference.




17




**(l)**  **Protect** **ion
      of Proprietary Rights May Affect the Company’s Ability to
      Compete.**





The
      Company’s intellectual property combines hardware design and modifications to the radio
      frequency software that enables it to extend range and throughputs. The Company
      plans to maintain this intellectual by limiting individuals within the
      organization from having access to these codes and will not allow any third
      party to have access to the base codes or hardware configurations.





The
      Company’s success
      and ability to compete will be dependent in part on the protection of its trade
      name (WiFi Hot Zone), and other proprietary rights. The Company intends to
      rely
      on trade secret and copyright laws to protect the intellectual property that
      it
      has developed, but there can be no assuran ce
      that
      such laws will provide sufficient protection, that others will not develop
      products that are similar or superior to the Company’s, or that third parties
      will not copy or otherwise obtain and use proprietary information without
      authorization.





The
      Company may rely on certain intellectual property licensed from third parties,
      and may be required to license additional products or services in the future,
      for use in the general operations of the business plan. There can be no
      assurance that these third party licenses will be available or will continue
      to
      be available to the Company on acceptable terms or at all. The inability to
      enter into and maintain any of these licenses could have a material adverse
      effect on the Company’s business, financial condition or operating
      results.




There
      is
      a risk that some of the Company’s products may infringe the proprietary rights
      of third parties. In addition, whether or not the Company’s products infringe on
      proprietary rights of third parties, infringement or invalidity claims may
      be
      asserted or prosecuted against the Company and it could incur significant
      expense in defending them. If any claims or actions are asserted against the
      Company, it may be required to modify its products or seek licenses for these
      intellectual property rights. The Company may not be able to modify its products
      or obtain licenses on commercially reasonable terms, in a timely manner or
      at
      all. The Company’s failure to do so could have a negative affect on its business
      and revenues.





**(m)**  **Dependence
      on a Few Customers May Affect the Company’s Ability to Conduct
      Business.**





In
      2005,
      the Company experienced approximately $630,000 in bad debts related to two
      customers. The Company has tightened its credit policy to require deposits
      prior
      to shipping products to customers. While the Company expects that this policy
      will reduce its exposure to credit losses, there is no guarantee that there
      will
      not experience additional credit losses in the future. Should
      a
      major customer become unable to pay, it could result in adverse consequences
      to
      the Company’s cash flow and cash position possibly resulting in the inability to
      meet its cash requirements. During the year ended December 31, 2006, there
      were
      two customers that accounted for more than 10% of the Company’s revenues: 
Denison University (approximately 26%) and DigitalSkys (approximately
      16%).




18




**(n)**  **Selling
      in the International Market May Affect the Company’s Ability to Conduct
      Business.**





During
      fiscal 2006, approximately 35% of the Company’s sales came from the
      international market. The Company intends to expand sales internationally in
      the
      future. Because of the involvement in foreign markets, the Company is subject
      to
      the risks inherent in conducting business across international borders,
      including, but not limited to, currency exchange rate fluctuations,
      international incidents, military outbreaks, economic downturns, government
      instability, nationalization of foreign assets, government protectionism and
      changes in governmental policy, any of which could have a material adverse
      effect on the Company’s business, operations and prospects for the future.





**(o)**  **The
      Company May Not Have Been in Compliance with Certain Provisions of the 1940
      Act
      When It Operated as a Business Development Company.**





On
      October 20, 2005, the Company’s stockholders approved (a) the termination of the
      Company’s status as a BDC under the 1940 Act and the
      filing of a Form N-54C with the SEC, and (b) the filing of a new registration
      statement. Based on this approval, on October 21, 2005, the Company filed a
      Form
      N-54C with the SEC.





The
      Company previously operated as a BDC, starting on October 19, 2004. The
      Company’s management has conducted a review of its compliance with the 1940 Act
      and the following are areas that the Company believes it may not have been
      in
      compliance with while it was operating as a BDC:





·
            The
                Company did not maintain the proper ratio of assets to “senior
                securities”; Section 61 of the 1940 Act requires that a BDC maintain a
                ratio of assets to senior securities of at least
                200%.





·
            Prior
                to the election to become a BDC, the Company entered certain convertible
                notes and warrants agreements, dated September 22, 2004. These agreements
                and those signed on March 22, 2005 which increased the convertible
                note by
                $1,000,000 and on July 19, 2005 by an additional $300,000 contained
                provisions for conversion into common stock of the Company based
                on the
                average of the five lowest closing bid prices of the common stock
                as
                reported by Bloomberg L.P. for the principal market for the 90 trading
                days preceding a conversion date. The Company believes that the existence
                of the convertible notes on October 19, 2004 may not be in compliance
                with
                the capital structure rules set forth in Section 61(a) of the 1940
                Act
                since the shares were sold at below market prices. The Company also
                believes that the convertible notes entered into after the BDC Election
                Date may not have been in compliance with Section 61(a) for the same
                reason.




19




·
            The
                Company filed a Form 1-E (Notification Under Regulation E) with the
                SEC
                for the shares issuable to the Longview funds pursuant to the conversion
                rights under debt agreements. In this Form 1-E, it is estimated that
                legal
                costs in connection with the offering will be $30,000. As disclosed
                in a
                Form 2-E (Report of Sales Pursuant to Rule 609 Under Regulation E)
                filed
                with the SEC, the Company has incurred legal and other expenses of
                approximately $625,000 in cash in connection with this offering,
                of which
                a total of $145,000 was direct legal cost associated with the offering
                and
                approximately $480,000 in associated legal cost relating to the
                organizational costs associated with becoming a BDC.Since
                the Company may not have been in compliance with certain provisions
                of the
                1940 Act from August 19, 2004 to October 21, 2005, then the shares
                issued
                to the Longview funds under the Form 1-E may not have been issued
                pursuant
                to a valid exemption from the registration requirements of Section
                5 of
                the Securities Act of 1933.





·
            It
                is a requirement of Section 56 of the 1940 Act to have a majority
                of board
                members be non-interested persons. From August 19, 2004 until June
                27,
                2005 (when two of the Company’s directors relinquished their interest in
                Redwood Grove Capital Management, LLC, the management company forthe
                Longview Equity Fund, L.P. and the Longview International Equity
                Fund,
                L.P.),
                the Company may not have had the requisite majority of non-interested
                persons as directors and therefore the Company may not have complied
                with
                this section. Therefore, the actions taken by the board of directors
                for
                such period may not be valid under the 1940 Act.





·
            The
                Company believes that as of August 19, 2004, the Series A preferred
                stock
                issued on October 6, 2004 may not have been in compliance with Section
                61(a) of the 1940 Act. In addition, the Company believes that it
                may not
                be in compliance with Section 63 of the 1940 Act since it was issued
                for
                services.





·
            On
                December 31, 2004, the Company moved the assets, employees, and all
                related contracts and agreements from the Company to 5G Wireless
                Solutions, Inc., a portfolio company. As part of its obligations,
                the
                Company issued restricted common shares for the accrued portion of
                salaries for the fourth quarter of fiscal 2004. The Company has since
                received the shares, totalling 7,085,254 (20,243 post reverse split),
                issued to Jerry Dix and Don Boudewyn, the Company’s chief executive
                officer and executive vice president/secretary/treasurer, respectively,
                which have been cancelled (the value of the shares has been reflected
                as a
                liability so as to comply with the 1940 Act). These shares were re-issued
                in 2006 after de-election as a BDC was
                completed.





There
      is
      a risk that the SEC could take enforcement action against the Company if the
      SEC
      determines that the Company has not been in compliance with the 1940 Act. Such
      action could include a permanent injunction (or a cease and desist order) and
      monetary penalties.




20




**(p)**  **The
      Company’s Success Is Largely Dependent on the Abilities of Its Management.**





The
      Company’s success is largely dependent on the personal efforts and abilities of
      its senior management, none of which currently has an employment agreement
      with
      the Company. The loss of certain members of the Company’s senior management,
      including its chief executive officer, could have a material adverse effect
      on
      its business and prospects.





The
      Company intends to recruit in fiscal year 2007 employees who are skilled in
      its
      industry. The failure to recruit these key personnel could have a material
      adverse effect on the Company’s business. As a result, the Company may
      experience increased compensation costs that may not be offset through either
      improved productivity or higher revenue. There can be no assurances that the
      Company will be successful in retaining existing personnel or in attracting
      and
      recruiting experienced qualified personnel.





**(q)**  **Any
      Required Expenditures as a Result of Indemnification Will Result in an Increase
      in the Company’s Expenditures.**





The
      Company’s bylaws include provisions to the effect that the Company may indemnify
      any director, officer, or employee. In addition, provisions of Nevada law
      provide for such indemnification, as well as for a limitation of liability
      of
      the Company’s directors and officers for monetary damages arising from a breach
      of their fiduciary duties. Any limitation on the liability of any director
      or
      officer, or indemnification of any director, officer, or employee, could result
      in substantial expenditures being made by the Company in covering any liability
      of such persons or in indemnifying them.





**(r)**  **The
      Company’s Internal Controls Over Financial Reporting Have Inherent
      Limitations.**




The
      Company maintains internal controls over financial reporting. Because of the
      inherent limitations in all control systems, no evaluation of controls can
      provide absolute assurance that all control issues and instances of fraud,
      if
      any, will be or have been detected. These inherent limitations include the
      realities that judgments in decision-making can be faulty, and that breakdowns
      can occur because of simple error or mistake. Additionally, controls can be
      circumvented by the individual acts of some persons, by collusion of two or
      more
      people, and/or by management override of the control. The design of any system
      of controls also is based in part upon certain assumptions about the likelihood
      of future events, and there can be no assurance that any design will succeed
      in
      achieving the Company’s stated goals under all potential future conditions; over
      time, controls may become inadequate because of changes in conditions, and/or
      the degree of compliance with the policies and procedures may deteriorate.
      Because of the inherent limitations in a cost-effective internal control system,
      misstatements due to error or fraud may occur and not be detected.





**Risks
      Relating to Financing Arrangements** **.**





**(a)**  **Conversion
      Price Feature of Notes, Preferred Stock, and Debentures May Encourage Short
      Sales in the Company’s Common Stock.**




21




The
      total
      of $3,300,000 in convertible notes issued to Longview
      Fund, LP, Longview Equity Fund, LP, and Longview International Equity Fund,
      LP are
      convertible into shares of the Company’s common stock. The conversion formula
      per share is at the lesser of:





·
            75%
                of the average of the five lowest closing bid prices of the common
                stock
                as reported by the Over the Counter Bulletin Board for the 90 trading
                days
                preceding the conversion date; or





·
            
            $17.50
                or $3.50 (depending on the particular note).





The
      $69,000 convertible notes issued to Longview Fund, LP are convertible into
      shares of common stock. The conversion formula per share is at the lesser
      of:





·
            
            $0.50
                per share; or





·
            50%
                of the lowest five-day weighted average volume price of the common
                stock
                using the volume weighted average price as reported by Bloomberg
                L.P. for
                the Company’s principal market for the 20 trading days preceding a
                conversion date.





The
      Series B preferred stock sold in February 2006 and May 2006 is convertible
      into
      shares of common stock at a conversion price per share equal
      to
      the lesser of:





·
            if
                converted without benefit of a registration statement, 75% of the
                lowest
                close bid of the common stock as reported by themarket
                or exchange on which the common stock is listed or quoted for trading
                or
                quotation on the date in questionfor
                the 20 trading days preceding the conversion date for each full share
                of
                convertible preferred stock held;





·
            if
                converted with the benefit of a registration statement, 85% of the
                lowest
                close bid of the common stock as reported by the trading
                marketfor the 20 trading days preceding the conversion date for each full
                share
                of convertible preferred stock held;
                or





·
            the
                face amount per share, which is
                $1.00.





The
      convertible debentures issued to Montgomery Equity Partners, LP are convertible
      into shares of common stock by Montgomery, at its sole option, into a price
      per
      share of either:





·
            
            $0.3155;
                or





·
            80%
                of the lowest closing bid price of common stock, for the 5 trading
                days
                immediately preceding the conversion date.





The
      downward pressure on the price of the common stock as the selling stockholders
      under both these financings convert and sell amounts of common stock could
      encourage short sales by investors. This could place further downward pressure
      on the price of the common stock. The selling stockholders could sell common
      stock into the market in anticipation of covering the short sale by converting
      their securities, which could cause the further downward pressure on the stock
      price. In addition, not only the sale of shares issued upon conversion or
      exercise of notes and related warrants, and Series B preferred stock, but also
      the mere perception that these sales could occur, may adversely affect the
      market price of the common stock.




22




**(b)**  **Issuance
      of Shares upon Conversion of Notes, Series B Preferred Stock, and Debentures
      May
      Cause Substantial Dilution to Existing Stockholders.**




Longview
      Convertible Notes.




The
      Company’s obligation to issue shares to the Longview Funds upon conversion of
      the convertible notes is essentially limitless.  At 75% of the closing
      price of $0.11 as of April 11, 2007 ($0.0825), the $2,569,499 in principal
      amount of notes outstanding (except for the last $69,000 in notes) would be
      convertible into 31,145,448 shares of common stock.  The following is an
      example of the amount of shares of common stock that would be issuable upon
      conversion of the convertible notes (excluding accrued interest), based on
      market prices 25%, 50% and 75% below the closing price as of April 11, 2007
      of
      $0.11 per share:




%
                Below Market
            Price
                Per Share
            With
                Discount at
              25%
            Issuable
                Shares
            %
                of Outstanding
              Common
                Stock(1)25%
            $0.0825
            0.06187
            41,527,264
            55.68%50%
            $0.0550
            0.04125
            62,290,896
            65.33%75%
            $0.0275
            0.02062
            124,581,793
            79.03%




(1) 
      After the outstanding shares of 33,051,578 as of April 11, 2007 are added to
      the
      shares issued.




The
      Company’s obligation to issue shares to Longview Fund, LP upon conversion of the
      $69,000 in convertible notes is also essentially limitless.  At 50% of the
      closing price of $0.11 as of April 11, 2007 ($0.055), the $69,000 in principal
      amount of notes outstanding would be convertible into 1,254,545 shares of common
      stock.  The following is an example of the amount of shares of common stock
      that would be issuable upon conversion of the convertible debentures (excluding
      accrued interest), based on market prices 25%, 50% and 75% below the closing
      price as of April 11, 2007 of $0.11 per share:




%
                Below Market
            Price
                Per Share
            With
                Discount at
              50%
            Issuable
                Shares
            %
                of Outstanding
              Common
                Stock(1)25%
            $0.0825
            0.04125
            1,672,727
            4.82%50%
            $0.0550
            0.02750
            2,509,091
            7.06%75%
            $0.0275
            0.01375
            5,018,182
            13.18%




(1)
      After
      the outstanding shares of 33,051,578 as of April 11, 2007 are added to the
      shares issued.




23





As
      illustrated, the number of shares of common stock issuable upon conversion
      of
      the convertible notes will increase if the market price of the stock
      declines, which may cause dilution to the existing stockholders.




Series
      B Convertible Preferred Stock.




The
      Company’s obligation to issue shares to the Divine investors upon conversion of
      the Series B preferred stock is essentially limitless.  At 75% of the
      closing price of $0.11 as of April 11, 2007 ($0.0825), the $250,000 in principal
      amount Series B preferred stock would be convertible into an aggregate 3,030,303
      shares of common stock.  The following is an example of the amount of
      shares of common stock that would be issuable upon conversion of the Series
      B
      preferred stock (excluding accrued interest), based on market prices 25%, 50%
      and 75% below the closing price as of April 11, 2007 of $0.11 per share:




%
                Below Market
            Price
                Per Share
            With
                Discount at
              25%
            Issuable
                Shares
            %
                of Outstanding
              Common
                Stock(1)25%
            $0.0825
            0.06187
            4,040,404
            10.89%50%
            $0.0550
            0.04125
            6,060,606
            15.50%75%
            $0.0275
            0.02062
            12,121,212
            26.83%




(1) 
      After the outstanding shares of 33,051,578 as of April 11, 2007 are added to
      the
      shares issued.




The
      Company’s obligation to issue shares to Castellum upon conversion of the Series
      B preferred stock is essentially limitless.  At 75% of the closing price of
      $0.11 of April 11, 2007 ($0.0825), the $290,000 in principal amount Series
      B
      preferred stock would be convertible into 3,515,151 shares of common
      stock.  The following is an example of the amount of shares of common stock
      that would be issuable upon conversion of the Series B preferred stock
      (excluding accrued interest), based on market prices 25%, 50% and 75% below
      the
      closing price as of April 11, 2007 of $0.11 per share:




%
                Below Market
            Price
                Per Share
            With
                Discount at
              25%
            Issuable
                Shares
            %
                of Outstanding
              Common
                Stock(1)25%
            $0.0825
            0.06187
            4,686,869
            12.42%50%
            $0.0550
            0.04125
            7,030,303
            17.54%75%
            $0.0275
            0.02062
            14,060,606
            29.84%




(1) 
      After the outstanding shares of 33,051,578 as of April 11, 2007 are added to
      the
      shares issued.







As
      illustrated, the number of shares of common stock issuable upon conversion
      of
      the Series B preferred stock will increase if the market price of the stock
      declines, which may cause dilution to the existing stockholders.




24




Montgomery
      Convertible Debentures.




The
      Company’s obligation to issue shares to Montgomery upon conversion of the
      convertible debentures is essentially limitless.  At 80% of the closing
      price of $0.11 as of April 11, 2007 ($0.088), the $1,200,000 ($900,000
      outstanding as of December 31, 2006) in principal amount of the debentures
      would
      be convertible into 10,227,273 shares of common stock.  The following is an
      example of the amount of shares of common stock that would be issuable upon
      conversion of the convertible debentures (excluding accrued interest), based
      on
      market prices 25%, 50% and 75% below the closing price as of April 11, 2007
      of
      $0.11 per share:







%
                Below Market
            Price
                Per Share
            With
                Discount at
              20%
            Issuable
                Shares
            %
                of Outstanding
              Common
                Stock(1)25%
            $0.0825
            0.066
            18,181,818
            35.49%50%
            $0.0550
            0.044
            27,272,727
            45.81%75%
            $0.0275
            0.022
            54,545,454
            62.27%




(1) 
      After the outstanding shares of 33,051,578 as of April 11, 2007 are added to
      the
      shares issued.




As
      illustrated, the number of shares of common stock issuable upon conversion
      of
      the convertible debentures will increase if the market price of the stock
      declines, which may cause dilution to the existing stockholders.




**(c)**  **Repayment
      of Notes and Debentures, If Required, Would Deplete Available Capital, or Could
      Result in Legal Action if Not Repaid.**





The
      Company anticipates that over time the full amount of the convertible notes
      and
      debentures, together with accrued interest, will be converted into shares of
      common stock, in accordance with the terms of the convertible notes and
      debentures. Through
      December 31, 2006, the Company has paid a total of 168,843 shares of common
      stock in payment of total accrued interest under the Longview Funds notes of
      $161,552. If
      the
      Company is required to repay the convertible notes or debentures, it would
      be
      required to use limited working capital and/or raise additional funds. If the
      Company were unable to repay the notes and/or debentures when required, the
      note
      or debenture holders could commence legal action against and foreclose on assets
      to recover the amounts due. Any such action may require the Company to curtail
      or cease operations.





**(d)**  **The
      Company is in Default Under the Longview Convertible
      Notes.**





Pursuant
      to the terms of the $3,369,000 in convertible notes entered into between the
      Company and the Longview Funds, the shares that serve as collateral for the
      notes must be registered. The filing of the Form N-54C that de-elected the
      Company’s status as a business development company also terminated the
      Regulation E exemption from registration that covered the shares serving as
      collateral for the notes. Under the terms of the notes, the Company is in
      default on the notes since a Form SB-2 registration statement has not been
      declared effective with regard to the shares underlying the notes. Please see
      Item 3, Legal Proceedings, with regard to litigation involving the Longview
      Funds.




25




If
      the Company is unable to issue shares of common stock upon conversion of the
      Longview convertible notes as a result of any reason, it is required to (under
      provisions of the subscription agreements):





·
            Pay
                late payment fees (as liquidated damages and not as a penalty) to
                the
                subscriber in the amount of $100 per business day after the delivery
                date
                for each $10,000 of purchase price of the unlegended shares subject
                to the
                delivery default. If during any 360 day period, the Company fails
                to
                deliver unlegended shares for an aggregate of 30 days, then each
                subscriber may, at its option, require the Company to redeem all
                or any
                portion of the shares and warrant shares subject to such default
                at a
                price per share equal to 120% of the purchase price of such common
                stock
                and warrant shares.




·
            If
                the Company fails to deliver to a subscriber unlegended shares as
                required, within seven business days after the unlegended shares
                delivery
                date and the subscriber purchases (in an open market transaction
                or
                otherwise) shares of common stock to deliver in satisfaction of a
                sale by
                such subscriber of the shares of common stock which the subscriber
                was
                entitled to receive from the Company (a “Buy-In”), then the Company will
                pay in cash to the subscriber the amount by which the subscriber’s total
                purchase price (including brokerage commissions, if any) for the
                shares of
                common stock so purchased exceeds the aggregate purchase price of
                the
                shares of common stock delivered to the Company for reissuance as
                unlegended shares, together with interest thereon at a rate of 15%
                per
                annum, accruing until such amount and any accrued interest thereon
                is paid
                in full (which amount shall be paid as liquidated damages and not
                as a
                penalty).




The
      Company is also liable for liquidated damages of 2% for each thirty days or
      part
      thereof of the purchase price of the notes remaining unconverted that are
      subject to such non-registration event.  As of December 31, 2006, the
      remaining unconverted notes aggregated to $2,638,499, plus accrued interest
      of
      $398,817.  The Company filed a Form SB-2 registration statement on August
      8, 2006, but it has not been declared effective.  Such registration
      statement, if and when it becomes effective, would provide such coverage for
      the
      securities in question.  Until such time as the registration statement has
      been made effective, the Company will incur $51,390 in liquidated damage
      penalties per month.  As of December 31, 2006, the Company has accrued
      $849,648 in
      liquidated damages, which is included in other liabilities in the accompanying
      balance sheet.





**(e)**  **The
      Company is in Default Under the Montgomery Convertible
      Debentures.**





The
      Company is in default to Montgomery because: (1) it is in default to the
      Longview Funds; (2) the Company has not commenced the mandatory redemptions
      of
      principal; and (3) the Company has not made interest payments required by the
      convertible debentures ( On
      March
      19, 2007, the Company received $300,000 (gross) on Montgomery debentures; this
      was the last installment due under this debenture and thus Montgomery waived
      the
      registration requirement under the registration rights agreement) .




26




If
      the
      Company fails to deliver to a subscriber unlegended shares as required by the
      fifth trading day after the unlegended shares delivery date and the subscriber
      purchases (in an open market transaction or otherwise) shares of common stock
      to
      deliver in satisfaction of a sale by such subscriber of the shares of common
      stock which the subscriber was entitled to receive from the Company (a
“Buy-In”), then the Company will (A) pay in cash to Montgomery (in addition to
      any remedies available to or elected by Montgomery) the amount by which (x)
      Montgomery’s total purchase price (including brokerage commissions, if any) for
      the common stock so purchased exceeds (y) the product of (1) the aggregate
      number of shares of common stock that Montgomery anticipated receiving from
      the
      conversion at issue multiplied by (2) the market price of the common stock
      at
      the time of the sale giving rise to such purchase obligation and (B) at the
      option of Montgomery, either reissue a debenture in the principal amount equal
      to the principal amount of the attempted conversion or deliver to Montgomery
      the
      number of shares of common stock that would have been issued had the Company
      timely complied with its delivery requirements.




Under
      a
      Pledge and Escrow Agreement, dated June 13, 2006, the Company has irrevocably
      pledged to Montgomery 15,212,982 shares of the Company’s common stock. Since an
      event of default has occurred, Montgomery has the option to declare the
      obligations to be due and payable immediately, by a notice in writing to the
      Company, and upon any such declaration, Montgomery has the right to have such
      shares transferred into its name and sold. Montgomery has not taken this
      step.





**(f)**  **The
      Longview and Montgomery Financings May Affect the Company’s Ability to Raise
      Future Capital.**




The
      Company has historically been successful in raising capital as necessary to
      fund
      projects or operations. As of December 31, 2006, the face value of all
      convertible debt and debentures, including accrued interest, was $4,374,478.
      The
      conversion price of the debt for shares generally ranges from 50% to 80% of
      the
      lowest closing bid price for the five trailing days. Until a Form SB-2
      registration statement becomes effective, both the Longview Funds and Montgomery
      will be unable to sell shares received from conversions of debt and/or interest
      in the open market (absent compliance with Rule 144). The inability of these
      investors to sell their converted shares in the open market may adversely impact
      the Company’s ability to raise future capital.





**Risks
      Relating to the Common Stock** **.**





**(a)**  **The
      Company’s Common Stock Price May Be Volatile.**





The
      trading price of the Company’s common stock may fluctuate substantially. The
      price of the common stock may be higher or lower than the price you pay for
      your
      shares, depending on many factors, some of which are beyond the Company’s
      control and may not be directly related to its operating performance. These
      factors include the following:





·
            
            price
                and volume fluctuations in the overall stock market from time to
                time;




27





·
            significant
                volatility in the market price and trading volume of securities of
                companies in the same business as the
                Company;





·
            
            changes
                in regulatory policies with respect to the business of the
                Company;





·
            
            actual
                or anticipated changes in earnings or fluctuations in operating
                results;





·
            
            general
                economic conditions and trends;





·
            
            loss
                of a major funding source; or





·
            
            departures
                of key personnel.





Due
      to
      the continued potential volatility of the Company’s common stock price, the
      Company may be the target of securities litigation in the future. Securities
      litigation could result in substantial costs and divert management’s attention
      and resources from its business.





**(b)**  **Absence
      of Cash Dividends May Affect Investment Value of the Company’s
      Stock.**





The
      board
      of directors does not anticipate paying cash dividends on the common stock
      for
      the foreseeable future and intends to retain any future earnings to finance
      the
      growth of the Company’s business. Payment of dividends, if any, will depend,
      among other factors, on earnings, capital requirements and the general operating
      and financial conditions of the Company, as well as legal limitations on the
      payment of dividends out of paid-in capital.





**(c)**  **No
      Assurance of Public Trading Market and Risk of Low Priced Securities May Affect
      Market Value of the Company’s Stock.**





The
      SEC
      has adopted a number of rules to regulate “penny stocks.” Such rules include
      Rule 3a51-1 and Rules 15g-1 through 15g-9 under the Securities Exchange Act
      of
      1934, as amended (“Exchange Act”). Because the securities of the Company may
      constitute “penny stocks” within the meaning of the rules (as any equity
      security that has a market price of less than $5.00 per share or with an
      exercise price of less than $5.00 per share, largely traded in the Over the
      Counter Bulletin Board or the Pink Sheets), the rules would apply to the Company
      and to its securities.





28


The
      SEC
      has adopted Rule 15g-9 which established sales practice requirements for certain
      low price securities. Unless the transaction is exempt, it shall be unlawful
      for
      a broker or dealer to sell a penny stock to, or to effect the purchase of a
      penny stock by, any person unless prior to the transaction: (i) the broker
      or
      dealer has approved the person’s account for transactions in penny stock
      pursuant to this rule and (ii) the broker or dealer has received from the person
      a written agreement to the transaction setting forth the identity and quantity
      of the penny stock to be purchased. In order to approve a person’s account for
      transactions in penny stock, the broker or dealer must: (a) obtain from the
      person information concerning the person’s financial situation, investment
      experience, and investment objectives; (b) reasonably determine that
      transactions in penny stock are suitable for that person, and that the person
      has sufficient knowledge and experience in financial matters that the person
      reasonably may be expected to be capable of evaluating the risks of transactions
      in penny stock; (c) deliver to the person a written statement setting forth
      the
      basis on which the broker or dealer made the determination (i) stating in a
      highlighted format that it is unlawful for the broker or dealer to affect a
      transaction in penny stock unless the broker or dealer has received, prior
      to
      the transaction, a written agreement to the transaction from the person; and
      (ii) stating in a highlighted format immediately preceding the customer
      signature line that (iii) the broker or dealer is required to provide the person
      with the written statement; and (iv) the person should not sign and return
      the
      written statement to the broker or dealer if it does not accurately reflect
      the
      person’s financial situation, investment experience, and investment objectives;
      and (d) receive from the person a manually signed and dated copy of the written
      statement. It is also required that disclosure be made as to the risks of
      investing in penny stock and the commissions payable to the broker-dealer,
      as
      well as current price quotations and the remedies and rights available in cases
      of fraud in penny stock transactions. Statements, on a monthly basis, must
      be
      sent to the investor listing recent prices for the penny stock and information
      on the limited market.




There
      has
      been only a limited public market for the common stock of the Company. The
      Company’s common stock is currently traded on the Over the Counter Bulletin
      Board. As a result, an investor may find it difficult to dispose of, or to
      obtain accurate quotations as to the market value of the Company’s securities.
      The regulations governing penny stocks, as set forth above, sometimes limit
      the
      ability of broker-dealers to sell the Company’s common stock and thus,
      ultimately, the ability of the investors to sell their securities in the
      secondary market.





Potential
      stockholders of the Company should also be aware that, according to SEC Release
      No. 34-29093, the market for penny stocks has suffered in recent years from
      patterns of fraud and abuse. Such patterns include (i) control of the market
      for
      the security by one or a few broker-dealers that are often related to the
      promoter or issuer; (ii) manipulation of prices through prearranged matching
      of
      purchases and sales and false and misleading press releases; (iii) “boiler room”
practices involving high-pressure sales tactics and unrealistic price
      projections by inexperienced sales persons; (iv) excessive and undisclosed
      bid-ask differential and markups by selling broker-dealers; and (v) the
      wholesale dumping of the same securities by promoters and broker dealers after
      prices have been manipulated to a desired level, along with the resulting
      inevitable collapse of those prices and with consequent investor
      losses.




**(d)**  **Failure
      to Remain Current in Reporting Requirements Could Result in Delisting from
      the
      Over The Counter Bulletin Board.**





Companies
      trading on the Over the Counter Bulletin Board (“OTCBB”), such as the Company,
      must be reporting issuers under Section 12 of the Exchange Act, and must be
      current in their reports under Section 13, in order to maintain price quotation
      privileges on the OTCBB. If the Company fails to remain current in its reporting
      requirements, the Company could be delisted from the Bulletin
      Board.




29




In
      addition, the National Association of Securities Dealers, Inc., which operates
      the OTCBB, has adopted a change to its Eligibility Rule, in a filing with the
      SEC. The change makes those OTCBB issuers that are cited for filing delinquency
      in their Form 10-K/Form 10-Q three times in a 24-month period and those OTCBB
      issuers removed for failure to file such reports two times in a 24-month period
      ineligible for quotation on the OTCBB for a period of one year. Under this
      proposed rule, a company filing with the extension time set forth in a Notice
      of
      Late Filing (Form 12b-25) is not considered late. This rule does not apply
      to a
      company’s Current Reports on Form 8-K. Since this rule was adopted, the Company
      has not been late in filing its Form 10-KSB/Form 10-QSB.





As
      a
      result of these rules, the market liquidity for Company securities could be
      severely adversely affected by limiting the ability of broker-dealers to sell
      its securities and the ability of stockholders to sell their securities in
      the
      secondary market.





**(e)**  **Failure
      to Maintain Market Makers May Affect Price of the Company’s Common
      Stock.**





If
      the
      Company is unable to maintain a National Association of Securities Dealers,
      Inc.
      member broker/dealers as market makers, the liquidity of the common stock could
      be impaired, not only in the number of shares of common stock which could be
      bought and sold, but also through possible delays in the timing of transactions,
      and lower prices for the common stock than might otherwise prevail. Furthermore,
      the lack of market makers could result in persons being unable to buy or sell
      shares of the common stock on any secondary market. There can be no assurance
      the Company will be able to maintain such market makers.





**(f)**  **Shares
      Eligible For Future Sale May Affect the Price of the Company’s Common
      Stock.**





All
      the
      shares, common and preferred, currently held by management have been issued
      in
      reliance on the private placement exemption under the Securities Act of 1933.
      Such shares will not be available for sale in the open market without separate
      registration except in reliance upon Rule 144 under the Securities Act of 1933.
      In general, under Rule 144 a person (or persons whose shares are aggregated)
      who
      has beneficially owned shares acquired in a non-public transaction for at least
      one year, including persons who may be deemed affiliates of the Company (as
      that
      term is defined under that rule) would be entitled to sell within any
      three-month period a number of shares that does not exceed 1% of the then
      outstanding shares of common stock, provided that certain current public
      information is then available. If a substantial number of the shares owned
      by
      these stockholders were sold pursuant to Rule 144 or a registered offering,
      the
      market price of the common stock at that time could be adversely
      affected.





**ITEM
      2. DESCRIPTION OF PROPERTY.**





The
      principal executive offices for the Company currently consists of approximately
      10,560 square feet of office space, which are located at 4136 Del Rey Avenue
      in
      Marina del Rey, California. T he
      Company leased this property on October 30, 2003 for a 5-year term at the
      current monthly rent of $12,114 as of December 31, 2006. The total rent payments
      for this property during 2006 were approximately $141,848.




30





Property
      and equipment as of December 31, 2006 consisted of the following:





**Property
                and equipment**
            
            **2006**Building
                improvements
            
            
            4,747Computers
            
            $
            350,099Furniture
                and fixtures
            
            
            21,264Software
            
            
            24,798Deployed
                wireless internet service equipment
            
            
            50,000Property
                and equipment, gross
            
            
            450,908Less:
                accumulated depreciation and amortization
            
            
            (312,064
            )Property
                and equipment, net
            
            $
            138,844





**ITEM
      3. LEGAL PROCEEDINGS.**




Other
      than as set forth below, the Company is not a party to any material pending
      legal proceedings and, to the best of its knowledge, no such action by or
      against the Company has been threatened.




(a)  On
      June
      15, 2005 the Company was served with a complaint from a third party in a matter
      entitled Leslie J. Bishop and Deborah J. Bishop v. Brian K. Corty and Candy
      M.
      Corty, Wireless Think Tank, Inc., and 5G Wireless Communications, Inc., New
      York
      Supreme Court (Chenango County). This action seeks actual damages in excess
      of
      $80,000 and punitive damages of $300,000 against a former employee for breach
      of
      a residential lease and damage to a residential property in 2001. The claim
      against the Company alleges that the former employee was a principal in Wireless
      Think Tank, Inc. (a wholly owned subsidiary of the Company) and conducted
      business from such residence.





The
      Company had tentatively agreed to settle this litigation; however, as of
      December 31, 2006 the action was still open. In April 2007, the Company was
      notified by its counsel that the case was settled for $7,500.





(b)  On
      May 8,
      2006 the Company was served with a complaint in a matter entitled Brian Vallone
      and Anne Vallone v. 5G Wireless Communications, Inc., California Superior Court
      (Orange County). This action, which does not allege a damage amount, includes
      causes of action for breach of contract, negligent misrepresentation, and fraud,
      and is concerning equipment that was sold to a wireless internet provider in
      California for approximately $9,000 who claims that they were unable to generate
      fees for use and for advertising revenues.





Management
      believes the Company has meritorious claims and defenses to the plaintiffs’
claims and ultimately will prevail on the merits. However, this matter remains
      in the early stages of litigation and there can be no assurance as to the
      outcome of the lawsuit. Litigation is subject to inherent uncertainties, and
      unfavorable rulings could occur. Were unfavorable rulings to occur, there exists
      the possibility of a material adverse impact of money damages on the Company’s
      financial condition, results of operations, or liquidity of the period in which
      the ruling occurs, or future periods.




31




(c)  In
      November 2006 the Company was served with a Notice of Motion for Summary
      Judgment in Lieu of Complaint filed by Longview Fund, L.P., Longview Equity
      Fund, L.P., and Longview International Equity Fund, L.P. (“Longview Funds”). In
      this Motion, filed in New York State Supreme Court on November 2, 2006, the
      Longview Funds allege that the Company has failed to make payments of interest
      due on a series of notes issued by the Company, and failed to make payments
      of
      interest due on these notes.  The Longview Funds asked the court to enter
      judgment in their favor for $2,644,987 allegedly due under the notes, plus
      accrued interest.





Summary
      judgment was denied by the court, and the Longview Funds were ordered to file
      a
      regular complaint, which they did in January 2007. The Company has filed an
      answer and counterclaims in response to the complaint, asserting numerous
      defenses and independent claims for breach of contract, breach of the implied
      covenant of good faith and fair dealing, fraud, and breach of fiduciary duty
      against the Longview Funds, and Stanley A. Hirschman and Phil E. Pearce (two
      former directors of the Company). The Longview Funds have filed an answer in
      response to the Company’s counterclaims; the two former directors have filed a
      motion to dismiss for lack of personal jurisdiction (which is still pending,
      set
      for hearing on April 20, 2007). The case is continuing and is currently in
      discovery.





Management
      believes the Company has meritorious claims and defenses to the claims of the
      Longview Funds. This matter remains in the early stages of litigation and there
      can be no assurance as to the outcome of the action. Litigation is subject
      to
      inherent uncertainties, and unfavorable rulings could occur. Were unfavorable
      rulings to occur, there exists the possibility of a material adverse impact
      of
      money damages on the Company's financial condition, results of operations,
      or
      liquidity of the period in which the ruling occurs, or future
      periods.





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





None.





**PART
      II.**




**ITEM
      5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS, AND SMALL BUSINESS
      ISSUER PURCHASES OF EQUITY SECURITIES.**




**Market
      Information** **.**




The
      Company’s shares of common stock are traded on the Over the Counter Bulletin
      Board under the symbol “FGWI.” From February 12, 2001 through November 22, 2005,
      the stock traded under the symbol “FGWC;” prior to February 12, 2001 the symbol
      was “TSMK”. The range of closing bid prices shown below is as reported by the
      Over the Counter Bulletin Board. The quotations shown reflect inter-dealer
      prices, without retail mark-up, markdown or commission and may not necessarily
      represent actual transactions, and are shown to reflect the 1 for 350 reverse
      split of the common stock that occurred on November 23, 2005.




32




Per
      Share
      Common Stock Bid Prices by Quarter


For
      the Fiscal Year Ended on December 31, 2006





**High**
            
            **Low**Quarter
                Ended December 31, 2006
            
            $
            0.35
            
            $
            0.11Quarter
                Ended September 30, 2006
            
            $
            0.38
            
            $
            0.19Quarter
                Ended June 30, 2006
            
            $
            0.70
            
            $
            0.30Quarter
                Ended March 31, 2006
            
            $
            1.09
            
            $
            0.63





Per
      Share
      Common Stock Bid Prices by Quarter


For
      the Fiscal Year Ended on December 31, 2005





**High**
            
            **Low**Quarter
                Ended December 31, 2005
            
            $
            2.69
            
            $
            0.59Quarter
                Ended September 30, 2005
            
            $
            2.45
            
            $
            1.05Quarter
                Ended June 30, 2005
            
            $
            4.55
            
            $
            1.75Quarter
                Ended March 31, 2005
            
            $
            4.20
            
            $
            2.45





**Holders
      of Common Equity.**




As
      of
      April 11, 2007, the Company had approximately 203 record holders of its common
      stock. The number of record holders was determined from the records of the
      transfer agent and does not include beneficial owners of common stock whose
      shares are held in the names of various security brokers, dealers and registered
      clearing agencies.




**Dividend
      Information.**




The
      Company has not declared or paid a cash dividend to stockholders since it was
      organized. The board of directors presently intends to retain any earnings
      to
      finance operations and does not expect to authorize cash dividends in the
      foreseeable future. Any payment of cash dividends in the future will depend
      upon
      earnings, capital requirements and other factors.




**Equity
      Securities Sold Without Registration** **.**




All
      sales
      of unregistered (restricted) securities during the fiscal year ended December
      31, 2006 have been previously reported either in a Form 10-QSB or in a Form
      8-K.




33




**Company
      Purchases of Equity Securities.**





There
      were no purchases of the Company’s common stock by the Company or its affiliates
      during the year ended December 31, 2006.





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





The
      following discussion and analysis of financial condition and results of
      operations of the Company is based upon, and should be read in conjunction
      with,
      its audited financial statements and related notes included elsewhere in this
      Form 10-KSB, which have been prepared in accordance with accounting principles
      generally accepted in the United States of America.





**Overview.**





The
      Company is a designer, developer and manufacturer of commercial grade wireless
      broadband communications equipment operating on the 802.11a/b/g frequency.
      The
      Company’s principal markets are universities, international and hospitality
      properties.





The
      Company has been focused on developing, marketing and selling its innovative
      wireless solutions to university campus & enterprise wide-area-networks
      (“WAN”) and as of September 2006, through its asset acquisition of certain GCI
      assets, made the decision to leverage this experience and its market proven
      RF
      equipment and enter into the hospitality timeshare market. GCI operated as
      a
      service provider and providing equipment and services under multi-year contracts
      to several timeshare properties and the acquired assets provided the Company
      with a foundation to pursue, develop and grow this model.





The
      move
      into timeshare and hospitality changes the business under which the company
      has
      been operating since it now provides the equipment to the timeshare or
      hospitality property and absorbs all costs in order to own the network and
      revenue streams. Although the Company continues to focus on developing and
      improving current solutions, both hardware and software, to create more
      efficient wireless networks with greater remote control and network
      functionality its main focus is on securing new properties in which to deploy,
      manage and own the equipment and revenue. The acquisition of certain GCI assets
      has provided the company with a “jump start” opportunity to enter these
      markets.





Through
      years of research and development, field-testing and customer support, the
      Company has optimized the hardware design of our base stations, within the
      IEEE
      standards, to maximize coverage to mobile wireless devices. The Company has
      accomplished this through a combination of proprietary software, amplifier
      design and antenna system selection. Amplifiers and antennas are optimized
      to
      maximize the RF coverage in both the uplink and downlink, while minimizing
      the
      effects of ambient interference and maximizing frequency reuse to accommodate
      the largest possible number of simultaneous users and offering the best user
      experience within the coverage area. The Company’s products provide strong
      security at both the hardware and software levels, optimizes voice, and offers
      data, and video links at multi-megabit speeds, and can work seamlessly in
      wireless networks.




34




Because
      of the Company’s equipment, cost benefits, network design and network management
      experience, the Company believes its current business focus to hospitality,
      time
      share and planned communities in addition to equipment sales will result in
      the
      company realizing positive cash flow by the forth quarter of 2007.




The
      Company has historically experienced operating losses and negative cash flow.
      The Company expects that these operating losses and negative cash flows may
      continue through additional periods. Until recently, the Company has had a
      limited record of revenue-producing operations but with the addition of the
      hospitality timeshare deployed assets, the Company now believes it has a
      predictable, scalable revenue and business model that is based on the Company’s
      short but proven revenue history will be able to achieve its business
      plans.





**Results
      of Operations - Year Ended December 31, 2006 Compared to Year Ended December
      31,
      2005.**





**(a)**  **Revenues.**





Revenues
      from the sales of equipment and wireless internet services was $781,948 for
      the
      year ended December 31, 2006 compared to $1,618,932 for the year ended December
      31, 2005, a decrease of $836,984 or approximately 52%. The decrease in revenue
      was primarily attributable to the departure of key sales personnel in the
      university campus market place and the Company’s inability to find satisfactory
      replacement sales personnel. The Company expects the current sales personnel
      to
      increase sales as more university campuses look to upgrade their network
      infrastructure. Further, the hospitality WISP operation is expected to make
      a
      significant impact on revenue over the next twelve months.





**(b)**  **Cost
      of Revenue.**





Total
      cost of revenues was $388,231 for the year ended December 31, 2006 compared
      to
      $337,003 for year ended December 31, 2005, an increase of $51,228 or
      approximately 15%. The increase was principally due to the (1) inclusion of
      hospitality property costs; (2) writedown of obsolete parts inventory to net
      realizable value; and (3) cost overruns associated with underbid contracts
      that
      were settled as of December 31, 2006. The Company expects cost of revenue to
      increase in the aggregate but to be constant as a percentage of sales in the
      future. The Company expects the cost overruns to be a one-time occurrence.
      However, as the Company transitions to the hospitality wireless service provider
      business, the cost of revenue will include royalties, support and credit card
      processing costs in addition to labor and materials costs.




**(c)**  **Operating
      Expenses.**





Total
      operating expenses were $3,822,133 for the year ended December 31, 2006 compared
      to $3,568,376 for the year ended December 31, 2005, an increase of $253,757
      or
      approximately 7%. The increase is principally attributable to increased labor
      cost primarily due to increased sales salaries and salary retention adjustments
      necessary to retain qualified personnel and increased legal fees as a result
      of
      the Longview litigation. Management expects significant legal fees to continue
      until the Longview litigation is settled.




35




Recognized
      within operating expenses for the year ended December 31, 2005 is more than
      $775,000 of bad debt related the write-off accounts receivable. This amount
      consists principally of approximately $630,000 in uncollectible receivables
      from
      the Company’s two largest customers, SRS and IAMA, both of which closed
      operations in 2005. SRS and IAMA comprised approximately 40% of the Company’s
      total revenue for the year 2005. The sales complied with the Company’s revenue
      recognition policy and at the time of sale collectibility was highly probable.
      For the year ended December 31, 2006, bad debt expense was reduced to $184,001,
      a reduction of $590,999 or 76%.





**(d)**  **Interest
      Expense.**





Interest
      expense was $2,703,947 for the year ended December 31, 2006 compared to
      $1,695,347 for the year ended December 31, 2005, an increase of $1,008,600
      or
      approximately 59%.





Ongoing
      amortization of outstanding beneficial conversion features and other debt
      discounts on the notes will decline in 2007 and beyond as the notes reach
      maturity. Interest expense for 2007 is nonetheless expected to be significantly
      higher than in prior years as a result of increased outstanding debt principal
      balances and the liquidated damages provisions associated with the Longview
      notes that accrue at the rate of $51,390 per month until such time as an
      effective registration statement is on file with the SEC.





Costs
      recorded as interest expense for the years ended December 31, 2006 and 2005
      primarily consist of: (1) amortization of the beneficial conversion features
      and
      discounts associated with the convertible notes; (2) stated interest rates
      on
      notes and convertible notes; (3) liquidated damages; (4) accretion of redemption
      premium; and (5) amortization of deferred financing costs.





**(e)**  **Net
      Loss.**





Net
      loss
      was $6,126,669 for the year ended December 31, 2006 compared to a net loss
      of
      $4,025,012 for the year ended December 31, 2005, an increase of $2,101,657
      or
      approximately 52%. The increase is primarily related to increases in interest
      expense and increased legal fees during the year ended December 31, 2006. The
      net loss for the year 2007 and beyond is anticipated to decline as additional
      WISP revenue is generated from an increase in hospitality properties deployed
      using the Company’s equipment. However, increases in interest expense and legal
      fees along with changes in fair value of derivative liabilities expenses could
      cause net loss to increase.




36




**Factors
      That May Affect the Company’s Operating Results.**





The
      operating results of the Company can vary significantly depending upon a number
      of factors, many of which are outside its control. General factors that may
      affect the Company’s operating results include:





·   market
      acceptance of and changes in demand for products;





·
            a
                small number of customers account for, and may in future periods
                account
                for, substantial portions of the Company’s revenue, its revenue could
                decline because of delays of customer orders or the failure to retain
                customers;





·   gain
      or
      loss of clients or strategic relationships;





·   continuance
      of the hospitality contracts;





·   satisfaction
      of hospitality wireless Internet service end users;





·   announcement
      or introduction of new products by the Company or by its
      competitors;





·   the
      ability to build brand recognition;





·   timing
      of
      sales to customers;





·   price
      competition;





·   the
      ability to upgrade and develop systems and infrastructure to accommodate
      growth;





·   the
      ability to attract and integrate new personnel in a timely and effective
      manner;





·   the
      ability to introduce and market products in accordance with market
      demand;





·   changes
      in governmental regulation;





·
            reduction
                in or delay of capital spending by clients due to the effects of
                terrorism, war and political
                instability;





·   valuation
      of derivative liabilities; and





·   general
      economic conditions.





The
      Company believes that its planned growth and profitability will depend in large
      part on the ability to promote its products, gain clients and expand its
      relationship with current clients. Accordingly, the Company intends to invest
      in
      marketing, strategic partnerships, and development of its customer base. If
      the
      Company is not successful in promoting its products and expanding its customer
      base, this may have a material adverse effect on its financial condition and
      its
      ability to continue to operate its business.




37




**Operating
      Activities.**





The
      net
      cash used in operating activities was $2,148,485 for the year ended December
      31,
      2006 compared to $1,866,970 for the year ended December 31, 2005, an increase
      of
      $281,515 or approximately 15%. The increase is attributed primarily to the
      increase in legal fees and payroll expense.





**Investing
      Activities.**





Net
      cash
      used in investing activities was $125,889 for the year ended December 31, 2006
      compared to $45,844 for the year ended December 31, 2005, an increase of
      $80,045, or approximately 175%. The increase was the result of cash costs
      associated with the purchase of property and equipment.





**Liquidity
      and Capital Resources.**





The
      Company’s current liabilities totaled $7,567,561 and $2,793,199 at December 31,
      2006 and 2005, respectively, and current assets totaled $322,868 and $551,360
      as
      of those dates, respectively. This resulted in working capital deficits of
      $7,244,693 and $2,241,839 at December 31, 2006 and 2005, respectively. The
      increase in current liabilities is primarily due to financing the Company
      through the issuance of convertible notes, the nature of which create large
      derivative liabilities over and above the principal balance, of the convertible
      notes and increased accrued legal fees and other payables. The decrease in
      current assets is primarily due to decreased accounts receivable due to tighter
      credit policy. At December 31, 2006, the Company’s current assets consisted
      primarily of net accounts receivable totaling $96,372, inventory of $97,015,
      deferred financing costs of $119,242, other assets $8,088 and cash of $2,151.




During
      the years ended December 31, 2006 and 2005, the Company incurred losses of
      $6,126,669 and $4,025,012, respectively. The Company has an accumulated deficit
      of $28,911,336 as of December 31, 2006.





The
      above
      factors raise substantial doubt as to the Company’s ability to continue as a
      going concern. The Company’s independent registered public accounting firms’
audit reports included in this Form 10-KSB include explanatory paragraphs
      regarding the Company’s ability to continue as a going concern.





The
      accompanying financial statements have been prepared assuming that the Company
      continues as a going concern and contemplates the realization of assets and
      the
      satisfaction of liabilities in the normal course of business. The ability of
      the
      Company to continue as a going concern on a long-term basis will be dependent
      upon its ability to generate sufficient cash flows from operations to meet
      its
      obligations on a timely basis, to obtain additional financing and to ultimately
      attain profitability.




38




The
      Company’s current cash flow from operations will not be sufficient to maintain
      its capital requirements for the year. Therefore, the Company’s continued
      operations, as well as the implementation of its business plan, will depend
      upon
      its ability to raise additional funds through bank borrowings and equity or
      debt
      financing of up to $5,000,000 during the year ending December 31,
      2007.





The
      Company has been successful in obtaining the required cash resources by issuing
      stock and convertible notes and notes payable, including related party notes
      payable to service the Company’s operations through 2006. Net cash provided by
      financing activities was $2,191,168 for the year ended December 31, 2006
      compared to $1,261,267 for the year ended December 31, 2005, an increase of
      $929,901 or approximately 74%. The net cash provided for the year ended December
      31, 2006 came primarily from the following: (a) proceeds from the issuance
      of
      convertible notes of $969,000; (b) net proceeds from the issuance of common
      stock under Regulation S of $746,690; and (c) net proceeds from the issuance
      of
      Series B preferred stock of $490,000; this was offset by deferred financing
      costs of $122,420. Management plans to continue raising additional capital
      through a variety of fund raising methods including Regulation S, during the
      next twelve months and to pursue all available financing alternatives as
      necessary to fund the Company. Management may also consider a variety of
      potential partnership or strategic alliances to strengthen its financial
      position.





Whereas
      the Company has been successful in the past in raising capital, no assurance
      can
      be given that these sources of financing will continue to be available to it
      and/or that demand for its equity/debt instruments will be sufficient to meet
      its capital needs, or that financing will be available on terms favorable to
      the
      Company. The financial statements do not include any adjustments relating to
      the
      recoverability and classification of liabilities that might be necessary should
      the Company be unable to continue as a going concern.





If
      funding is insufficient at any time in the future, the Company may not be able
      to take advantage of business opportunities or respond to competitive pressures,
      or may be required to reduce the scope of its planned product development and
      marketing efforts, any of which could have a negative impact on its business
      and
      operating results. In addition, insufficient funding may have a material adverse
      effect on the Company’s financial condition, which could require it
      to:





·
            
            curtail
                operations significantly;





·
            
            sell
                significant assets;





·
            seek
                arrangements with strategic partners or other parties that may require
                the
                Company to relinquish significant rights to products, technologies
                or
                markets; or





·
            
            explore
                other strategic alternatives including a merger or sale of the
                Company.




39




To
      the
      extent that the Company raises additional capital through the sale of equity
      or
      convertible debt securities, the issuance of such securities may result in
      dilution to existing stockholders. If additional funds are raised through the
      issuance of debt securities, these securities may have rights, preferences
      and
      privileges senior to holders of common stock and the terms of such debt could
      impose restrictions on the Company’s operations. Regardless
      of whether the Company’s cash assets prove to be inadequate to meet the
      Company’s operational needs, the Company may seek to compensate providers of
      services by issuing stock in lieu of cash, which may also result in dilution
      to
      existing stockholders.





**Longview
      Funds.**





On
      October 20, 2005, the Company’s stockholders approved (a) the termination of the
      Company’s status as a BDC under the 1940
      Act
      and the filing of a Form N-54C with the SEC, and (b) the filing of a new
      registration statement. Based on this approval, on October 21, 2005, the Company
      filed a Form N-54C with the SEC. Pursuant to the terms of the convertible notes
      entered into between the Company and the Longview Funds, the shares that serve
      as collateral for the notes must be registered or an exemption from registration
      available. The filing of the Form N-54C terminated the Regulation E exemption
      from registration that covered the shares serving as collateral for the notes.
      Pursuant to the terms of the notes, the Company remains in technical default
      on
      the notes since that time.





In
      November 2006 the Company was served with a Notice of Motion for Summary
      Judgment in Lieu of Complaint filed by Longview Fund, L.P., Longview Equity
      Fund, L.P., and Longview International Equity Fund, L.P. (“Longview Funds”). In
      this Motion, filed in New York State Supreme Court on November 2, 2006, the
      Longview Funds allege that the Company has failed to make payments of interest
      due on a series of notes issued by the Company, and failed to make payments
      of
      interest due on these notes.  The Longview Funds asked the court to enter
      judgment in their favor for $2,644,987 allegedly due under the notes, plus
      accrued interest.





Summary
      judgment was denied by the court, and the Longview Funds were ordered to file
      a
      regular complaint, which they did in January 2007. The Company has filed an
      answer and counterclaims in response to the complaint, asserting numerous
      defenses and independent claims for breach of contract, breach of the implied
      covenant of good faith and fair dealing, fraud, and breach of fiduciary duty
      against the Longview Funds, and Stanley A. Hirschman and Phil E. Pearce (two
      former directors of the Company). The Longview Funds have filed an answer in
      response to the Company’s counterclaims; the two former directors have filed a
      motion to dismiss for lack of personal jurisdiction (which is still pending,
      set
      for hearing on April 20, 2007). The case is continuing and is currently in
      discovery.





As
      of
      December 31, 2006, the remaining unconverted notes payable to the Longview
      Funds
      aggregated $2,638,499. The Company has filed a Form SB-2 registration statement
      with the SEC but such statement has not become effective. Until such time as
      the
      registration statement has been made effective, the Company will incur $51,390
      in liquidated damage penalties per month. Liquidated damages of $849,648 were
      accrued as of December 31, 2006.




40




**Inflation.**





The
      impact of inflation on the Company’s costs and the ability to pass on cost
      increases to its customers over time is dependent upon market conditions. The
      Company is not aware of any inflationary pressures that have had any significant
      impact on its operations over the past quarter, and the Company does not
      anticipate that inflationary factors will have a significant impact on future
      operations.





**Off
      Balance Sheet Arrangements.**





The
      Company does not engage in any off balance sheet arrangements that are
      reasonably likely to have a current or future effect on its financial condition,
      revenues, results of operations, liquidity or capital expenditures.





**Obligations.**





**(a)**  **Contractual
      Obligations.**





The
      Company has contractual obligations to repay its notes payable and to make
      payments under its operating lease agreement.





Payments
                Due by PeriodContractual
              Obligations
            
            Total
            
            2007
            
            2008
            
            2009-2011
            
            ThereafterConvertible
                debt
            
            $
            3,810,749
            
            $
            3,810,749
            
            $
            --
            
            $
            --
            
            $
            --Notes
                payable
            
            
            50,924
            
            
            50,924
            
            
            --
            
            
            --
            
            
            --Operating
                leases
            
            
            276,864
            
            
            127,770
            
            
            127,770
            
            
            --
            
            
            --Total
                contractual cash obligations
            
            $
            4,138,537
            
            $
            4,010,767
            
            
            127,770
            
            $
            --
            
            $
            --





**(b)**  **Consulting
      Agreements.**





The
      Company entered into consulting agreements with certain former employees of
      GCI.
      The term of the consulting agreements was from the October 4, 2006 to December
      31, 2006. The agreements are now at will and can be terminated at any time.
      The
      aggregate cost per month for these agreements was $28,990. After December 31,
      2006, the monthly amount paid under these agreements is $20,616.





**(c)**  **Payroll
      Taxes.**





The
      Company has been notified by the Internal Revenue Service and the California
      Employment Development Department that the Company owes a total of $222,335
      in back payroll taxes (including penalties and interest to date). The Company
      has also been notified that the Internal Revenue Services has recorded a federal
      tax lien against the Company in the office of the Los Angeles County Recorder
      in
      the amount of $58,638 (which is part of the total amount). The California
      Employment Development Department may record such a lien in the future. Such
      lien(s) may affect the ability of the Company raise capital in the
      future.




41




**Critical
      Accounting Policies.**





The
      SEC
      has issued Financial Reporting release No. 60, “Cautionary Advice Regarding
      Disclosure About Critical Accounting Policies” (“FRR 60”); suggesting companies
      provide additional disclosure and commentary on their most critical accounting
      policies. In FRR 60, the SEC defined the most critical accounting policies
      as
      the ones that are most important to the portrayal of a company’s financial
      condition and operating results, and require management to make its most
      difficult and subjective judgments, often as a result of the need to make
      estimates of matters that are inherently uncertain. Based on this definition,
      the Company’s most critical accounting policies include: (a) the use of
      estimates in the preparation of financial statements; (b) revenue recognition;
      (c) stock based compensation arrangements; (d) warranty reserves; (e) inventory
      reserves; (f) allowance for doubtful accounts; (g) the deferred tax valuation
      allowance; (h) valuation of derivative liabilities and classification of
      conversion features and warrants; and (i) intangible assets. The methods,
      estimates and judgments the Company uses in applying these most critical
      accounting policies have a significant impact on the results reported in its
      financial statements.





**(a)**  **Use
      of Estimates.**





The
      preparation of these financial statements requires the Company to make estimates
      and judgments that affect the reported amounts of assets, liabilities, revenues
      and expenses, and related disclosure of contingent assets and liabilities.
      On an
      on-going basis, the Company evaluates these estimates, including those related
      to revenue recognition and concentration of credit risk. The Company bases
      its
      estimates on historical experience and on various other assumptions that are
      believed to be reasonable under the circumstances, 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. Actual results may differ
      from
      these estimates under different assumptions or conditions.





**(b)**  **Revenue
      Recognition** **.**





Revenues
      result principally from the sale and installation of wireless radio equipment
      to
      customers. Equipment sales are recognized when products are shipped. The Company
      recognizes revenues in accordance with Staff Accounting Bulleting No. 104,
      “Revenue Recognition,” when all of the following conditions exist: (a)
      persuasive evidence of an arrangement exists in the form of an accepted purchase
      order; (b) delivery has occurred, based on shipping terms, or services have
      been
      rendered; (c) the Company’s price to the buyer is fixed or determinable, as
      documented on the accepted purchase order; and (d) collectibility is reasonably
      assured.




42




Orders
      delivered to the Company by phone, fax, mail or email are considered valid
      purchase orders and once accepted by the Company are deemed to be the final
      understanding between the Company and its customer as to the specific nature
      and
      terms of the agreed-upon sale transaction. Products are shipped and are
      considered delivered when (a) for FOB factory orders they leave the Company’s
      shipping dock or (b) for FOB customer dock orders upon confirmation of delivery.
      The creditworthiness of customers is generally assessed prior to the Company
      accepting a customer’s first order.





The
      WISP
      operation applies Staff Accounting Bulletin No. 104 to recognize revenue as
      follows (a) persuasive evidence of an arrangement exists in the form of an
      order
      accepted online; (b) revenue recognized ratably as services are rendered over
      term of the contract; (c) the Company’s price to the buyer is fixed or
      determinable, as offered online; and (d) collectibility is reasonably assured
      as
      credit card is approved and billed and then customer is provided service.





The
      Company offers installation services to customers and charges separately when
      such services are purchased. Installation by the Company is not required for
      the
      functionality of the equipment. Consequently, installation services are
      considered a separate unit of accounting under Financial Accounting Standards
      Board’s Emerging Issues Task Force (“EITF”) No. 00-21, “Revenue Arrangements
      with Multiple Deliverables.”





**(c)**  **Stock
      Based Compensation Arrangements.**





The
      Company issues shares of common stock to various individuals and entities for
      certain management, legal, consulting and marketing services. These issuances
      are valued at the fair market value of the service provided and the number
      of
      shares issued is determined, based upon the closing price of the Company’s
      common stock on the date of each respective transaction after the period of
      service or the contract price, whichever is of greater evidence value. These
      transactions are reflected in the appropriate account of the Company’s financial
      statements in conformity with generally accepted accounting principles in the
      accompanying statement of operations.





**(d)**  **Warranty.**





The
      Company provides a warranty on all electronics sold for a period of one year
      after the date of shipment. Warranty issues are usually resolved with repair
      or
      replacement of the product. Trends of sales returns, exchanges and warranty
      repairs are tracked by management as a basis for the reserve that management
      records in the Company’s financial statements. Estimated future warranty
      obligations related to certain products and services are provided by charges
      to
      operations in the period in which the related revenue is recognized. At December
      31, 2006, warranty reserve approximated $12,564, which is recorded under other
      current liabilities on the balance sheet.





43


**(e)**   **Inventory**





Inventories
      are stated at the lower of cost (first-in, first-out) or market. Cost is
      determined on a standard cost basis that approximates the first-in, first-out
      method. Market is determined by comparison with recent sales or net realizable
      value.





Such
      net
      realizable value is based on management’s forecasts for sales of the Company’s
      products or services in the ensuing years. The industry in which the Company
      operates is characterized by technological advancement, change and certain
      regulations. Should the demand for the Company’s products prove to be
      significantly less than anticipated, the ultimate realizable value of the
      Company’s inventories could be substantially less than amounts shown in the
      accompanying balance sheet.





The
      Company deploys its own products in the WISP operation. The standard cost of
      access points deployed plus related installation costs are capitalized as fixed
      assets and removed from inventory when deployed.





**(f)**  **Allowance
      for Doubtful Accounts.**





In
      determining the allowance for doubtful accounts, management evaluates the future
      collectibility of customer receivable balances, on a customer by customer basis,
      including an individual assessment of the customer’s credit quality, financial
      standing, and the customer’s ability to meet current or future commitments and
      the industry and general economic outlook. Based on the severity of the likely
      loss, the Company provides a reserve against outstanding balances over 60 days.
      In the event collection efforts are unsuccessful for a customer, the receivable
      is written off and charged to allowance for doubtful accounts. At December
      31,
      2006, the Company carried an allowance for doubtful accounts of $25,822. In
      addition, during 2006, bad debt expense totalled $184,001.





**(g)**   **Deferred
      Tax Valuation Allowance.**





Deferred
      taxes are provided on the liability method whereby deferred tax assets are
      recognized for deductible temporary differences and operating loss and tax
      credit carry forwards and deferred tax liabilities are recognized for taxable
      temporary differences. Temporary differences are the differences between the
      reported amounts of assets and liabilities and their tax bases. A deferred
      tax
      asset is reduced by a valuation allowance if, in the opinion of management,
      it
      is more likely than not that some portion or all of the deferred tax assets
      will
      not be realized in the future. Deferred tax assets and liabilities are adjusted
      for the effects of changes in tax laws and rates on the date of
      enactment.





A
      valuation allowance is provided for deferred tax assets if it is more likely
      than not these items will either expire before the Company is able to realize
      their benefit, or that future deductibility is uncertain. In accordance with
      Statement of Financing Accounting Standards No. 109, the Company records net
      deferred tax assets to the extent the Company believes these assets will more
      likely than not be realized. In making such determination, the Company considers
      all available positive and negative evidence, including scheduled reversals
      of
      deferred tax liabilities, projected future taxable income, tax planning
      strategies and recent financial performance.




44




**(h)**  **Derivative
      Liabilities.**





The
      Company evaluates free-standing instruments (or embedded derivatives) indexed
      to
      its common stock to properly classify such instruments within equity or as
      liabilities in its financial statements, pursuant to the requirements of the
      EITF No. 00-19, “Accounting for Derivative Financial Instruments Indexed to, and
      Potentially Settled in, a Company’s Own Stock,” EITF No. 01-06, “The Meaning of
      Indexed to a Company’s Own Stock,” EITF No. 05-04, “The Effect of a Liquidated
      Damages Clause on a Freestanding Financial Instrument Subject to EITF No.
      00-19,” and Statement of Financial Accounting Standards (“SFAS”) No. 133,
“Accounting for Derivative Instruments and Hedging Activities,” as amended. The
      Company's policy is to settle instruments indexed to its common shares on a
      first-in-first-out basis.





The
      Company accounts for the effects of registration rights and related liquidated
      damages pursuant to EITF No. 05-04, View C, subject to EITF No. 00-19. Pursuant
      to EITF No. 05-04, View C, liquidated damages payable in cash or stock are
      accounted for as a separate derivative, which requires a periodic valuation
      of
      its fair value and a corresponding recognition of liabilities associated with
      such derivative. The Company accounts for certain embedded conversion features
      and free-standing warrants pursuant to SFAS No. 133 and EITF No. 00-19, which
      require corresponding recognition of liabilities associated with such
      derivatives at their fair values and changes in fair values to be charged to
      earnings.





**(i)**  **Intangible
      Assets.**





In
      October 2006, the Company acquired certain assets of GCI. Management allocated
      the purchase price according to the provisions of SFAS No. 141, “Business
      Combinations.” Management acquired three groups of assets: (1) fixed assets,
      primarily including computers and access points; (2) contracts to provide WISP
      services to certain timeshare properties generally expiring November 2008;
      and
      (3) goodwill, primarily in the form of workforce-in-place. The fixed assets
      were
      allocated value in accordance with paragraph 37d of SFAS No. 141 at market
      value
      that approximated replacement cost. The contract was recorded in the
      accompanying balance sheet according to paragraph 37e as it met the criteria
      of
      paragraph 39 for contractual rights that are to be recognized as an asset
      separate from goodwill. The contract was valued at its estimated fair value
      determined using a discounted cash flow model. The excess of cost over the
      fair
      value of assets acquired or goodwill, primarily composed of workforce-in-place
      as going concern value and other non-separable intangible assets were negligible
      was valued by calculating the replacement cost of the operation acquired which
      included recruiting fees and labor cost to start up a similar
      operation.





**Forward
      Looking Statements.**





Information
      in this Form 10-KSB contains “forward looking statements” within the meaning of
      Rule 175 of the Securities Act of 1933, as amended, and Rule 3b-6 of the
      Securities Act of 1934, as amended .
      When
      used in this Form 10-KSB, the words “expects,” “anticipates,” “believes,”
“plans,” “will” and similar expressions are intended to identify forward-looking
      statements. These are statements that relate to future periods and include,
      but
      are not limited to, statements regarding the Company’s adequacy of cash,
      expectations regarding net losses and cash flow, statements regarding its
      growth, the need for future financing, the dependence on personnel, and its
      operating expenses.




45




Forward-looking
      statements are subject to certain risks and uncertainties that could cause
      actual results to differ materially from those projected. These risks and
      uncertainties include, but are not limited to, those discussed above, as well
      as
      risks related to the Company’s ability to obtain future financing, and the risks
      set forth under “Factors That May Affect the Company’s Operating Results.” These
      forward-looking statements speak only as of the date hereof. The Company
      expressly disclaims any obligation or undertaking to release publicly any
      updates or revisions to any forward-looking statements contained herein to
      reflect any change in its expectations with regard thereto or any change in
      events, conditions or circumstances on which any such statement is
      based.





**ITEM
      7. FINANCIAL STATEMENTS.**




The
      financial statements as of and for the year ended December 31, 2006 and
      consolidated financial statements for the year ended December 31, 2005 are
      presented in a separate section of this report following Item 14.




**ITEM
      8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
      DISCLOSURE.**




(a)
      On
      November 30, 2006, the Company was informed by Squar, Milner, Miranda &
Williamson, LLP (formerly known as Squar, Milner, Reehl & Williamson, LLP)
      (“Squar Milner”), the Company’s independent registered public accounting firm,
      that it had consummated a merger with Peterson & Co., LLP of San Diego,
      California (which is also registered with the Public Company Accounting
      Oversight Board). As this is viewed as a separate legal entity, the Company
      terminated its accounting arrangement with the former firm. The name of the
      post-merger firm is Squar, Milner, Peterson, Miranda & Williamson, LLP. The
      decision to change principal accountants was approved by the Company’s Audit
      Committee and subsequently approved by the Board of Directors.





Squar
      Milner audited the Company’s financial statements for the fiscal years ended
      December 31, 2005 and 2004. This firm’s report on these financial statements was
      modified as to uncertainty that the Company will continue as a going concern;
      other than this, the accountant’s report on the financial statements for those
      periods neither contained an adverse opinion or a disclaimer of opinion, nor
      was
      qualified or modified as to uncertainty, audit scope, or accounting
      principles.





During
      the fiscal years ended December 31, 2004 and 2003, and the subsequent interim
      period preceding such change, there were no disagreements with Squar Milner
      on
      any matter of accounting principles or practices, financial statement
      disclosure, or auditing scope or procedure. In addition, there were no
“reportable events” as described in Item 304(a)(1)(iv)(B)1 through 3 of
      Regulation S-B that occurred during the fiscal years ended December 31, 2004
      and
      2003, and the subsequent interim period preceding such change.




46




(b)
      On
      November 30, 2006, the Company engaged Squar, Milner, Peterson, Miranda &
Williamson, LLP, as successor to Squar Milner, as its independent registered
      public accounting firm to audit the Company’s financial statements. During the
      fiscal years ended December 31, 2005 and 2004, and the subsequent interim period
      prior to engaging this firm, neither the Company (nor someone on its behalf)
      consulted the newly engaged accountant regarding any matter.





**ITEM
      8A. CONTROLS AND PROCEDURES.**





**Evaluation
      of Disclosure Controls and Procedures.**




The
      Company maintains disclosure controls and procedures (as defined in Rule
      13a-15(e) and Rule 15d-15(e) under the Exchange Act) that are designed to ensure
      that information required to be disclosed in the Company’s periodic reports
      filed under the Exchange Act is recorded, processed, summarized and reported
      within the time periods specified in the SEC’s rules and forms, and that such
      information is accumulated and communicated to management, including the
      Company’s principal executive officer and principal financial officer, to allow
      timely decisions regarding required disclosures.





The
      Company has been informed by its independent registered public accounting firm
      in connection with the audit of the financial statements as of and for the
      year
      ended December 31, 2006 that certain matters were identified involving
      internal control that this firm considered to be material weaknesses under
      the
      standards of the Public Company Accounting Oversight Board. These material
      weaknesses were:





(1)  inadequate
      segregation of duties in the areas of approving invoices and initiating wire
      transfers;





(2)  insufficient
      personnel resources and technical accounting expertise within the accounting
      function to resolve non-routine or complex accounting matters as well as
      inadequate procedures for appropriately identifying, assessing and applying
      accounting principles generally accepted in the United States of America,
      specifically, the accounting for and reporting of debt and equity transactions,
      and inadequate procedures for appropriately identifying required filings under
      the SEC rules and regulations; and





(3)  lack
      of
      an independent audit committee or independent members of the board of
      directors.





The
      Company will continue to monitor and evaluate the effectiveness of its controls
      and procedures on an ongoing basis, and are committed to taking further action
      and implementing additional improvements, as necessary.




47




As
      of the
      end of the period covered by this report, management carried out an evaluation,
      under the supervision and with the participation of the Company’s principal
      executive officer and principal financial officer, of the Company’s disclosure
      controls and procedures (as defined in Rule 13a-15(e) and Rule 15d-15(e) of
      the
      Exchange Act). Based upon the evaluation, the Company’s principal executive
      officer and principal financial officer concluded that its disclosure controls
      and procedures were not effective, as set forth above, at a reasonable assurance
      level to ensure that information required to be disclosed by the Company in
      the
      reports that it files or submits under the Exchange Act is recorded, processed,
      summarized and reported, within the time periods specified in the SEC’s rules
      and forms. Specifically, the Company did not file the required financial
      information as required under Rule 3-05 of Regulation S-X in connection with
      its
      recent acquisition of GCI. In addition, the Company’s principal executive
      officer and principal financial officer concluded that its disclosure controls
      and procedures were not effective, as set forth above, at a reasonable assurance
      level to ensure that information required to be disclosed by the Company in
      the
      reports that it files or submits under the Exchange Act is accumulated and
      communicated to the Company’s management, including its principal executive
      officer and principal financial officer, to allow timely decisions regarding
      required disclosure.




Because
      of the inherent limitations in all internal control systems, no evaluation
      of
      controls can provide absolute assurance that all control issues and instances
      of
      fraud, if any, will be or have been detected. These inherent limitations include
      the realities that judgments in decision-making can be faulty and that
      breakdowns can occur because of simple error or mistake. Additionally, controls
      can be circumvented by the individual acts of some persons, by collusion of
      two
      or more people and/or by management override of controls. The design of any
      system of controls also is based in part upon certain assumptions about the
      likelihood of future events, and there can be no assurance that any design
      will
      succeed in achieving its stated goals under all potential future conditions.
      Over time, controls may become inadequate because of changes in conditions,
      and/or the degree of compliance with the policies and procedures may
      deteriorate. Because of the inherent limitations in a cost-effective internal
      control system, misstatements due to error or fraud may occur and not be
      detected.




**Changes
      in Controls and Procedures.**





During
      the quarter ended December 31, 2006, there were no changes in the Company’s
      disclosure controls and procedures, or its internal controls over financial
      reporting (as defined in Rule 13a-15(f) of the Exchange act), or in other
      factors that could affect these controls during the last fiscal quarter that
      has
      materially affected, or is reasonably likely to materially affect, these
      controls.




**ITEM
      8B. OTHER INFORMATION.**





**Subsequent
      Events.**





(a)  From
      January 3, 2007 to April 11, 2007, the Company sold a total of 10,543,715
      restricted shares of common stock to a total of 36 accredited investors for
      a
      total consideration of approximately $410,777 (average of approximately $0.039
      per share). These
      sales were undertaken in offshore transactions under Regulation S in which
      no
      directed selling efforts were made in the United States by the Company, or
      any
      person acting on behalf of any of the Company.




48




(b)  From
      January 5, 2007 to April 2, 2007, the Company issued a total of 3,355,511 free
      trading shares of common stock under its Stock and Option Plan to various
      individuals and firms for consulting work for the Company. These shares were
      valued at a total of $363,134 (average of $0.108 per share).





(c) On
      March
      19, 2007, the Company received $300,000 (gross) on Montgomery Convertible
      Debentures.  This was the last installment due under this debenture and
      thus Montgomery waived the registration statement requirement.





(d) The
      Company was informed that final settlement was reached in the matter of entitled
      Leslie J. Bishop and Deborah J. Bishop v. Brian K. Corty and Candy M. Corty,
      Wireless Think Tank, Inc., and 5G Wireless Communications, Inc., New York
      Supreme Court (Chenango County).  The terms of settlement were not
      disclosed.  All amounts paid were expensed during 2006 and were not
      material to the Company’s financial statements.





(e) The
      Company changed transfer agents to Computershare based in Golden, Colorado,
      effective April 12, 2007.





(f)  On
      October 4, 2006, the Company acquired certain assets of Global Connect, Inc.
      On
      October 11, 2006, the Company filed a Form 8-K in connection with this material
      contract. After further consideration of this transaction in consultation with
      the Company’s independent registered public accounting firm, including a
      discussion of the accounting treatment of this transaction for purposes of
      the
      audited financial statements as of December 31, 2006, the Company has determined
      that this was a business acquired by the Company. Therefore, t he
      Company has determined that this acquisition must comply with Rule 3.05 of
      Regulation S-X, and therefore audited financial statements will be furnished
      for
      the two most recent fiscal years and any interim periods for this company;
      pro
      forma financial information will also be furnished in connection with this
      acquisition pursuant to Article 11 of Regulation S-X. This financial information
      will be provided in an upcoming amended Form 8-K.





**PART
      III.**





**ITEM
      9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS, CONTROL PERSONS AND CORPORATE
      GOVERNANCE; COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE
      ACT.**





**Directors
      and Executive Officers.**





The
      names, ages and respective positions of the directors and executive officers
      of
      the Company are set forth below. The directors named below will serve until
      the
      next annual meeting of the
      Company’s stockholders or until their successors are duly elected and have qualified.
      Directors are elected for a term ending upon the date of the next annual
      stockholders’ meeting. Officers will hold their positions at the will of the
      board of directors, absent any employment agreement, of which none currently
      exist or are contemplated.




49




There
      are
      no family relationships between any two or more of the
      Company’s directors or executive officers. There are no arrangements or understandings
      between any two or more of the
      Company’s directors or executive officers. There is no arrangement or understanding
      between any of the
      Company’s directors or executive officers and any other person pursuant to which any
      director or officer was or is to be selected as a director or officer, and
      there
      is no arrangement, plan or understanding as to whether non-management
      stockholders will exercise their voting rights to continue to elect the current
      board of directors. There are also no arrangements, agreements or understandings
      between non-management stockholders that may directly or indirectly participate
      in or influence the management of the
      Company’s affairs.
      There are no other promoters or control persons of the Company. There are no
      legal proceedings involving the executive officers or directors of the
      Company.





**(a)**  **Jerry
      Dix, President/Chief Executive Officer/Director.**





Mr.
      Dix,
      age 61, has been in the wireless industry since 1994 and was a pioneer in the
      pre-paid cellular industry with Globalwise Communications and Prepaid
      Technologies. In 1995, Dix and his partner launched PrePay Technologies, a
      wholly owned subsidiary of Globalwise Communications. PrePay Technologies was
      developed with proprietary technology that enabled PrePay Technology to deliver
      a prepaid wireless platform as a re-seller for AirTouch in San Diego,
      California. In 1996, Mr. Dix helped found Satellite Control Technologies, a
      publicly traded company with patented one and two-way paging technologies,
      where
      he worked until being named president and chief executive officer of the Company
      in January 2002. Mr. Dix helped develop and launch the AlphaTrak locating and
      control system that utilizes this patented technology combined with GPS
      technology to locate assets in North America.





**(b)**  **Don
      Boudewyn, Executive Vice
      President/Secretary/Treasurer/Director.**





Mr.
      Boudewyn, age 42, has held his current position with the Company since January
      2002. He has held various positions with the Company, including president and
      vice president of international sales since founding the Company in 2000. From
      October 1998 to October 2000, Mr. Boudewyn served as a major account executive
      and business development manager for Celterra Vancouver Ltd., where he was
      responsible for sales, marketing and business development strategies for a
      national fiber optic network. Prior to his experience in the communications
      arena, Mr. Boudewyn worked in real estate from July 1986 to October 1998. He
      graduated from the British Columbia Institute of Technology with a Bachelor
      of
      Arts degree in sales and marketing management. He is also a graduate of the
      UCLA
      Director Training & Certification Program.




50




**(c)**  **Andrew
      D. McCormac, Chief Financial Officer.**





Mr.
      McCormac, age 43, has more than 16 years of experience in financial arenas,
      and
      has extensive background in managing the financial plans and accounting policies
      for high growth companies. From December 2001 to May 2006, Mr. McCormac served
      as the chief financial officer of Storactive, Inc. in Marina del Rey,
      California, a leader in developing true continuous data protection software
      for
      Windows PCs and Exchange Servers. From October 2000 to December 2001, he was
      a
      consulting chief financial officer. Prior to that, Mr. McCormac served as senior
      vice president of finance at Quarterdeck Corporation (before it was acquired
      by
      Symantec, Inc.) and a vice president at Countrywide Home Loans.





On
      October 16, 2006, Mr. McCormac was appointed to the position of chief financial
      officer and principal accounting officer; prior to that, from May 2006, he
      served as a consultant to the Company on accounting matters. Mr. McCormac does
      not have an employment agreement with the Company. He received a Bachelor of
      Science degree in accounting in 1986 from the University of Southern California,
      and is licensed as a certified public accountant in California.





**Corporate
      Governance.**





**(a)**  **Code
      of Ethics.**




The
      Company has adopted a code of ethics that applies to its principal executive
      officer, principal financial officer, principal accounting officer or
      controller, or persons performing similar functions. See Exhibit
      14.





**(b)**  **Audit
      Committee.**




The
      Company’s audit committee consists of Messrs. Boudewyn and McCormac, neither of
      which is an independent director. The audit committee has adopted a written
      charter. Mr. McCormac has been designated the Audit Committee’s “financial
      expert” in compliance with Item 407(d)(5) of Regulation S-B.





The
      primary responsibility of the Audit Committee is to oversee the Company’s
      financial reporting process on behalf of the Company’s board of directors and
      report the result of their activities to the board. Such responsibilities
      include, but are limited to, the selection, and if necessary the replacement,
      of
      the Company’s independent auditors, review and discuss with such independent
      auditors (i) the overall scope and plans for the audit, (ii) the adequacy and
      effectiveness of the accounting and financial controls, including the Company’s
      system to monitor and manage business risks, and legal and ethical programs,
      and
      (iii) the results of the annual audit, including the financial statements to
      be
      included in the Company’s annual report on Form 10-KSB.





The
      Company’s policy is to pre-approve all audit and permissible non-audit services
      provided by the independent auditors. These services may include audit services,
      audit-related services, tax services and other services. Pre-approval is
      generally provided for up to one year and any pre-approval is detailed as to
      the
      particular service or category of services and is generally subject to a
      specific budget. The independent auditors and management are required to
      periodically report to the audit committee regarding the extent of services
      provided by the independent auditors in accordance with this pre-approval,
      and
      the fees for the services performed to date. The audit committee may also
      pre-approve particular services on a case-by-case basis.




51




**(c)**  **Recommendation
      of Nominees.**





There
      have been no changes to the procedures by which security holders may recommend
      nominees to the Company’s board of directors.





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





Section
      16(a) of the Exchange Act requires executive officers and directors, and persons
      who beneficially own more than 10% of any class of the Company’s equity
      securities to file initial reports of ownership and reports of changes in
      ownership with the SEC. Executive officers, directors and beneficial owners
      of
      more than 10% of any class of the Company’s equity securities are required by
      SEC regulations to furnish the Company with copies of all Section 16(a) forms
      they file.





Based
      solely upon a review of Forms 3 and 4 and amendments thereto furnished to the
      Company under
      Rule 16a-3(d) during fiscal 2006, and certain written representations from
      executive officers and directors, the
      Company is aware that the following required report was not timely filed: (a)
      Form 3 for the appointment of Mr. McCormac as chief financial officers of the
      Company (this report was prepared and filed on November 16, 2006); (b) Form
      4’s
      for Mr. Dix to report the issuance of shares of common stock in January and
      February 2006 for accrued salaries for 2002 to 2004 (a Form 4 was prepared
      and
      filed on July 10, 2006); and (c) Form 4’s for Mr. Boudewyn to report the
      issuance of shares of common stock in January and February 2006 for accrued
      salaries for 2002 to 2004 (a Form 4 was prepared and filed on July 10, 2006).
      The Company is unaware of any other required reports that were not timely filed.





**ITEM
      10. EXECUTIVE COMPENSATION.**





**Summary
      Compensation Table.**





The
      following table presents compensation information for the last two completed
      fiscal years ended on December 31, 2006 for the persons who served as
      principal executive officer and each of the two other most highly compensated
      executive officers whose aggregate salary and bonus was more than $100,000
      in
      such year.




52




**Name
                  and principal position**
                **(a)**
              **Year**
                **(b)**
              **Salary**
                **($)**
                **(c)**
              **Bonus**
                **($)**
                **(d)**
              **Stock
                  Awards**
                **($)**
                **(e)**
              **Option**
                **Award(s)**
                **($)**
                **(f)**
              **Non-Equity
                  Incentive Plan Compensation**
                **($)**
                **(g)**
              **Nonqualified
                  Deferred Compensation Earnings**
                **($)**
                **(h)**
              **All
                  Other**
                **Compensation**
                **($)**
                **(i)**
              **Total**
                **($)**
                **(j)**Jerry
                  Dix, CEO
              2006
                  2005
              $140,400(1)
                $144,000
              -
                -
              $48,843(2)
                -
              -
                -
              -
                -
              -
                -
              -
                -
              $188,843
                $144,000Don
                  Boudewyn, EVP
              2006
                2005
              $107,000(3)
                $96,000
              -
                -
              $30,200(4)
                -
              -
                -
              -
                -
              -
                -
              -
                -
              $137,200
                $96,000





(1)  Of
      this
      total amount, $10,200 was accrued but not paid in 2006.





(2)  The
      total
      stock award was 61,954 restricted shares of common stock valued at $48,843
      ($0.80 per share).





(3)  Of
      this
      total amount, $12,000 was accrued but not paid in 2006.





(4)  The
      total
      stock award was 37,750 restricted shares of common stock valued at $30,200
      ($0.80 per share).





**Employment
      Agreements.**





All
      prior
      employment agreements between Mr. Dix and Mr. Boudewyn expired on February
      1,
      2005. The Company intends in the future to enter into new employment agreements
      with these individuals.




**Outstanding
      Equity Awards at Fiscal Year-End Table** .





There
      were no outstanding equity awards at December 31, 2006 for the directors and
      executive officers of the Company.





**Other
      Compensation.**




There
      are
      no plans that provide for the payment of retirement benefits, or benefits that
      will be paid primarily following retirement, including but not limited to
      tax-qualified defined benefit plans, supplemental executive retirement plans,
      tax-qualified defined contribution plans and nonqualified defined contribution
      plans. In addition, there are no contracts, agreements, plans or arrangements,
      whether written or unwritten, that provide for payment(s) to a named executive
      officer at, following, or in connection with the resignation, retirement or
      other termination of a named executive officer, or a change in control of the
      Company or a change in the named executive officer’s responsibilities following
      a change in control, with respect to each named executive officer. The Company
      will offer a Section 401(k) plan beginning in 2007; however no Company match
      will be offered.




53




**Compensation
      of Directors.**





With
      the
      exception of director compensation, no remuneration is proposed to be paid
      in
      the future directly or indirectly by the Company to any director in that
      capacity. The Company currently has no independent directors. In the future,
      independent directors of the Company will receive $300 per telecom meeting,
      $500
      per day plus reasonable expenses for in person meetings, $200 for board update
      telecom meetings, and $300 for audit committee meetings.





**ITEM
      11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
      STOCKHOLDER MATTERS.**





**Security
      Ownership.**





The
      following table sets forth information regarding the beneficial ownership of
      the
      Company’s common stock as of April 11, 2007 (33,051,578 shares issued and
      outstanding) (there is also outstanding as of that date: (a) 3,000,000 shares
      of
      Series A preferred stock, none of which is convertible before October 7, 2007;
      and (b) 540,000 shares of Series B preferred stock, all of which is currently
      convertible into shares of common stock) by: (i) all stockholders known to
      the
      Company to be owners of more than 5% of the outstanding common stock of the
      Company; and (ii) all officers and directors of the Company, individually and
      as
      a group:




54





**Title
                of Class**
            **Name
                and Address of**
              **Beneficial
                Owner**
            **Amount
                and Nature of**
              **Beneficial
                Owner****(1)**
            **Percent
                of Class****(2)**Common
              Stock
            Montgomery
                Equity Partners, 2999 Northeast 191 Street - Penthouse II, Aventura,
                Florida 33180
            16,943,834(3)
            33.93%Common
              Stock
            Castellum
                Investments S.A., 2 Belles Fontaines
              Cornaux,
                Switzerland
            3,515,151(4)
            9.61%Common
              Stock
            Olaf
                Tagge
              Langkofelweg,
              1a
                12247 Berlin, Germany
            3,162,274
            9.57%Common
              Stock
            Karl
                Heinz Bruno Sartor,
              Eichkehle
                56,
              67433
                Neustadt, Germany
            3,160,973
            9.57%Common
              Stock
            Longview
                Equity Fund, LP; Longview International Equity Fund, LP,600
                Montgomery Street, 44th Floor, San Francisco, California
                94111
            2,326,735(5)
            6.75%Common
              Stock
            Longview
                Fund, LP,600
                Montgomery Street, 44th Floor, San Francisco, California
                94111
            2,042,212(6)
            5.93%




55





Common
              Stock
            Jerry
                Dix, 4136 Del Rey Avenue, Marina del Rey, California 90292
            184,706(7)
            0.56%Common
              Stock
            Don
                Boudewyn, 4136 Del Rey Avenue, Marina del Rey, California
                90292
            119,132(8)
            0.36%Common
              Stock
            Andrew
                D. McCormac, 4136 Del Rey Avenue, Marina del Rey, California
                90292
            0
            0.00%Common
                Stock
            All
                Directors and
              Executive
                Officers as a
              Group
                (3 persons)
            303,838
            0.92%Series
                A Preferred
              Stock
            Jerry
                Dix, 4136 Del Rey Avenue, Marina del Rey, California 90292
            1,800,000
            60.00%Series
                A Preferred
              Stock
            Don
                Boudewyn, 4136 Del Rey Avenue, Marina del Rey, California
                90292
            1,200,000
            40.00%Series
                A Preferred
              Stock
            All
                Directors and
              Executive
                Officers as a
              Group
                (2 persons)
            3,000,000(9)
            100.00%





(1)  Each
      person has sole voting power and sole dispositive power as to all of the shares
      shown as beneficially owned by them.





(2)  Applicable
      percentage ownership of common stock is based on 33,051,578 shares issued and
      outstanding as of April 11, 2007. Beneficial ownership is determined in
      accordance with Rule 13d-3 of the Securities Exchange Act of 1934, and the
      Instructions to Item 403 of Regulation S-B, and the information is not
      necessarily indicative of beneficial ownership for any other purpose. In
      computing the number of shares beneficially owned by a person and the percentage
      ownership of that person, shares of common stock subject to options or
      convertible or exchangeable into such shares of common stock held by that person
      that are currently exercisable, or exercisable within 60 days, are
      included.





(3)  The
      amount of 16,943,834 includes:





(a)
      60,852 shares currently held.





(b)
      1,670,000 shares as a partial conversion of the debentures held by Montgomery,
      which are currently convertible. These
      debentures are currently convertible into
      the
      common stock of the Company at the price per share of either $0.3155 or 80%
      of
      the lowest closing bid price of the Company’s common stock, for the five trading
      days immediately preceding the conversion date. At
      80% of
      the closing price of $0.11 as of April 11, 2007 ($0.088), the $1,200,000 in
      principal amount of the debentures would be convertible into 13,636,364 shares
      of common stock. However, since there is a 4.99% limit of actual ownership
      by
      Montgomery under these debentures, and the three attached warrants, this limits
      to total amount to 1,670,000 (this amount takes into account the 60,852 shares
      currently owned by Montgomery).




56




(c)
      15,212,982 shares pledged to Montgomery Equity Partners, which are held in
      an
      escrow account. The Company considers these shares to be issued but not
      outstanding. Under Rule 13d-3(d)(3), Montgomery is deemed to beneficially own
      these shares since it does not fall within any of the pledgee exceptions set
      forth in that Rule.





(4)
      All
      Series B convertible preferred stock, including the 290,000 shares owned by
      Castellum, is convertible into shares of common stock at a conversion price equal
      to
      the lesser of (since there is no effective registration statement at this
      time):





(a) 75%
      of
      the lowest close bid of the common stock as reported by the market
      or
      exchange on which the common stock is listed or quoted for trading or quotation
      on the date in question for
      the
      20 trading days preceding the conversion date for each full share of convertible
      preferred stock held; or





(b) the
      face
      amount per share, which is $1.00.





At
      75% of
      the closing price of $0.11 of April 11, 2007 ($0.0825), the 290,000 shares
      owned
      by Castellum, would be convertible into 3,515,151 shares of common
      stock.





(5)
      Longview Equity Fund, LP and Longview International Equity Fund, LP are under
      the common control of Redwood Grove Management, LLC. Therefore, the share
      holdings of these funds are aggregated for beneficial ownership purposes under
      Rule 13d-3(a).





The
      amount of 2,326,735 includes:





(a)
      936,418 shares currently held.





(b)
      730,000 shares as a partial conversion of the notes held by these two funds,
      which are currently convertible. These
      notes are currently convertible into
      the
      common stock of the Company at the price per share of either 75% of the average
      of the five lowest closing bid prices of the common stock as reported by the
      Over the Counter Bulletin Board for the 90 trading days preceding the conversion
      date or 17.50 or $3.50 (depending on the particular note). At
      75% of
      the closing price of $0.11 as of April 11, 2007 ($0.088), the $1,751,765 in
      principal amount of the notes ($1,339,389 for Longview Equity and $412,376
      for
      Longview International) would be convertible into 19,906,420 shares of common
      stock. However, since there is a 4.99% limit of actual ownership by these funds
      combined under these notes, and the attached warrants, this limits to total
      amount to 730,000 (this amount takes into account the 936,418 shares currently
      owned by Longview Fund).





(c)
      660,317 shares pledged to these two funds (495,238 for Longview Equity and
      165,079 for Longview International), which are held in an escrow account. The
      Company considers these shares to be issued but not outstanding. Under Rule
      SEC
      Rule 13d-3(d)(3), these Longview funds are deemed to beneficially own these
      shares since it does not fall within any of the pledgee exceptions set forth
      in
      that Rule.





(6)
      Longview Fund, LP is under the control of Viking Asset Management, LLC. The
      amount of 2,042,212 includes:





(a)
      631,656 shares currently held.





(b)
      1,055,000 shares as follows:





57


A
      partial
      conversion of the notes held by this fund (except for the $69,000 note), which
      are currently convertible. These
      notes are currently convertible into
      the
      common stock of the Company at the price per share of either 75% of the average
      of the five lowest closing bid prices of the common stock as reported by the
      Over the Counter Bulletin Board for the 90 trading days preceding the conversion
      date or 17.50 or $3.50 (depending on the particular note). At
      75% of
      the closing price of $0.11 as of April 11, 2007 ($0.088), the $817,734 in
      principal amount of the notes would be convertible into 9,292,432 shares of
      common stock.





A
      partial
      conversion of the $69,000 note held by this fund, which is currently
      convertible. This
      notes are currently convertible into
      the
      common stock of the Company at the price per share of either 50% of the lowest
      five-day weighted average volume price of the common stock using the volume
      weighted average price as reported by Bloomberg L.P. for the Company’s principal
      market for the 20 trading days preceding a conversion date or $0.50. At
      50% of
      the closing price of $0.11 as of April 11, 2007 ($0.055), the $69,000 in
      principal amount of the note would be convertible into 1,254,545 shares of
      common stock.





However,
      since there is a 4.99% limit of actual ownership by these funds combined under
      these notes, and the attached warrants, this limits to total amount to 1,055,000
      (this amount takes into account the 631,656 shares currently owned by Longview
      Fund).





(c)
      355,556 shares pledged shares to this fund, which are held in an escrow account.
      The Company considers these shares to be issued but not outstanding. Under
      Rule
      SEC Rule 13d-3(d)(3), Longview Fund is deemed to beneficially own these shares
      since it does not fall within any of the pledgee exceptions set forth in that
      Rule.





(7)   All
      shares held by Jerry and Karen Dix, joint tenants with right of survivorship,
      except for 305 shares held by Market Force, Inc. of which Mr. Dix and Steven
      Lipman have shared voting and investment control.





(8)
      Of
      the total, 3,384 shares are held by Wireless Xstream Technologies Ltd., which
      is
      controlled by Mr. Boudewyn.





(9)
      The
      Series A preferred stock, issued on October 7, 2004, is convertible after three
      years following its issuance, providing the holder is still employed by the
      Company. E ach
      share
      of Series A Preferred Stock is convertible at the rate of 800 shares of common
      stock for each full share of convertible preferred stock. Under the terms of
      the
      certificate of designation governing these shares, the conversion ratio was
      not
      changed upon the reverse split of the Company’s common stock on November 23,
      2005. There
      are
      no other plans or arrangements to issue any additional Series A Preferred Stock
      at this time.





**Securities
      Authorized for Issuance under Equity Compensation Plans.**





The
      Company has previously adopted three equity compensation plans (none of which
      has been approved by the Company’s stockholders): the 2004 Non-Employee
      Directors and Consultants Retainer Stock Plan, the Non-Employee Directors and
      Consultants Retainer Stock Plan, and the Stock Incentive Plan. Since the Company
      converted to a BDC in 2004, and under the 1940 Act it was prohibited from
      issuing stock or options for services, management made the decision after such
      conversion not to issue any further shares under these three plans and to
      deregister all of the remaining registered shares under each of these plans
      by a
      Form S-8 POS (filed on March 28, 2006).




58




**(a)**  **Stock
      and Option Plan.**





On
      December 21, 2005, the Company adopted a 2006 Stock and Option Plan (amended
      and
      restated in January 2006 and further amended on November 28, 2006), since it
      is
      no longer subject to the provisions of the 1940 Act; this plan was not approved
      by the Company’s stockholders. This plan replaces one adopted by the Company in
      December 2005. The purpose of this plan is to promote the interests of the
      Company and its stockholders by attracting and retaining employees capable
      of
      furthering the future success of the Company and by aligning their economic
      interests more closely with those of the Company’s stockholders. A total of
      4,800,000 shares have been registered under this plan under Form S-8’s filed
      with the SEC. As of December 31, 2005, no shares had been issued. During 2006,
      the Company issued a total of 1,472,906 shares under this plan, leaving a total
      of 3,327,094 shares remaining to be issued as of December 31, 2006. No options
      have been granted under this plan.





**Equity
                Compensation Plan Information**
              **as
                of December 31, 2006****Plan
                category**
            **Number
                of**
              **securities
                to be**
              **issued
                upon**
              **exercise
                of**
              **outstanding**
              **options,
                warrants**
              **and
                rights**
              
              **(a)**
            **Weighted-average**
              **exercise
                price of**
              **outstanding**
              **options,
                warrants**
              **and
                rights**
              
              **(b)**
            **Number
                of securities**
              **remaining
                available for**
              **future
                issuance under**
              **equity
                compensation plans**
              **(excluding
                securities**
              **reflected
                in column (a))**
              
              **(c)**Equity
              compensation
              plans
                approved by
              security
                holders
            0
            0
            0Equity
              compensation
              plans
                not approved
              by
                security holders
            0
            0
            Stock
                and Option Plan:
              3,327,094Total
            0
            0
            Stock
                and Option Plan:
              3,327,094




59




**ITEM
      12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
      INDEPENDENCE.**





**Certain
      Relationships and Related Transactions.**





Other
      than as set forth below, during the last two fiscal years there have not been
      any relationships, transactions or proposed transactions to which the Company
      was or is to be a party, in which any of the directors, officers, or 5% or
      greater stockholders (or any immediate family thereof) had or is to have a
      direct or indirect material interest.





(a)  On
      January 31, 2006, the Company issued a total of 128,818 restricted shares of
      common stock to fifteen employees, including 30,270 to Mr. Dix, 17,030 to Mr.
      Boudewyn, and 19,970 to Gary Dix, Mr. Dix’s son, as compensation. These shares
      had an aggregate value of $103,054 (average of $0.80 per share).





(b)  On
      February 13, 2006, the Company issued 30,784 restricted shares of common stock
      and 20,720 restricted shares of common stock to Mr. Dix and Mr. Boudewyn,
      respectively, to settle accrued salaries for 2002, 2003, and 2004. These shares
      had an aggregate value of $42,233 ($0.82 per share).




(c)  On
      June
      1, 2006, the Company entered loan agreements with Thomas Janes, the
      father-in-law of Mr. Boudewyn, and his son Russell Janes, for $20,000 each
      (see
      Exhibits 10.11 and 10.12). These loans were due not later than thirty days
      thereafter, but this time has been extended indefinitely by oral agreement
      of
      the parties. These loans carry interest at the rate of 10% per
      annum.





Under
      each of these agreements, the Company promised to pay to pay an administration
      fee of $4,000. This fee is to be in the form of restricted shares of Company
      common stock, and issued at a price based on a 25% discount to the lowest
      closing bid price in the 20 trading days prior to the effective date of the
      agreement. On July 11, 2006, the Company issued a total of 21,333 shares of
      common stock to each individual in payment of this fee; because of this
      discount, these shares have been valued for accounting purposes at $5,333 ($0.25
      per share).





(d)  During
      2005 and 2006, the Company used the credit lines of Service Group, which is
      a
      company controlled by Mr. Dix, to help the Company purchase equipment, travel
      and related consumables throughout the year as a means of managing cash flows.





(e)  Mr.
      Dix
      advanced $7,182 to the Company during the year ended December 31, 2006. There
      is
      no interest applicable to this advance. As of December 31, 2006 $5457 is
      outstanding and remains payable to Jerry Dix which is included in Related Party
      notes and advances in the accompanying balance sheet.




For
      each
      of the transactions noted above, the transaction was negotiated, on the part
      of
      the Company, on the basis of what is in the best interests of the Company and
      its stockholders. In addition, in each case the interested affiliate did vote
      in
      favor of the transaction; however, the full board of directors did make the
      determination that the terms in each case were as favorable as could have been
      obtained from non-affiliated parties.




60


**Director
      Independence.**





The
      Company does not have a nominating committee, compensation committee or
      executive committee of the board of directors, stock plan committee or any
      other
      committees, except for an Audit Committee, which is composed of Messrs. Boudewyn
      and McCormac (neither of which are independent directors of the Company).





**ITEM
      13. EXHIBITS.**





Exhibits
      included or incorporated by reference in this document are set forth in the
      Exhibit Index.





**ITEM
      14. PRINCIPAL ACCOUNTANT FEES AND SERVICES.**





**Audit
      Fees.**




The
      aggregate fees for each of the last two fiscal years for professional services
      rendered by Squar, Milner, Peterson, Miranda & Williamson, LLP (formerly
      Squar, Milner, Reehl & Williamson, LLP) (“Accountant”) for the audit of the
      Company’s annual financial statements, and review of financial statements
      included in the company’s Form 10-QSB’s: 2006: approximately $115,600; and 2005:
      $138,341.




**Audit-Related
      Fees.**




The
      aggregate fees in each of the last two fiscal years for assurance and related
      services by the Accountant that are reasonably related to the performance of
      the
      audit or review of the Company’s financial statements and are not reported under
      Audit Fees above: 2006: approximately $28,000; and 2005: $1,650.




**Tax
      Fees.**




The
      aggregate fees in each of the last two fiscal years for professional services
      rendered by the Accountant for tax compliance, tax advice, and tax planning:
      2006: $24,659; and 2005: $5,000.





**All
      Other Fees.**




The
      aggregate fees in each of the last two fiscal years for products and services
      provided by the Accountant, other than the services reported above:
      $0.





61








**SIGNATURES**





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




**5G
              Wireless Communications, Inc.**Dated:
              April 16, 2007
            By:
            /s/ Jerry
              DixJerry
              Dix, Chief Executive Officer


Pursuant
      to the requirements of the Securities Exchange Act of 1934, this report has
      been
      signed below by the following persons on behalf of the Company and in the
      capacities and on the date indicated:





Signature
            Title
            Date/s/
                Jerry Dix
              Jerry
                Dix
            Chief
                Executive Officer/Director
            April
                16, 2007/s/
                Don Boudewyn
              Don
                Boudewyn
            Executive
                Vice President/Secretary/Treasurer/Director
            April
                16, 2007/s/
                Andrew D. McCormac
              Andrew
                D. McCormac
            Chief
                Financial Officer
            April
                16, 2007




62




**REPORT
      OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM**








To
      the
      Board of Directors and Stockholders


5G
      Wireless Communications, Inc.





We
      have
      audited the accompanying balance sheet of 5G Wireless Communications, Inc.
      (the
“Company”), as of December 31, 2006 and the related statements of operations,
      stockholders’ deficit, and cash flows for each of the two years in the period
      ended December 31, 2006. These financial statements are the responsibility
      of
      the Company’s management. Our responsibility is to express an opinion on these
      financial statements based on our audits.





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





In
      our
      opinion, the financial statements referred to above present fairly, in all
      material respects, the financial position of the Company as of December 31,
      2006, and the results of operations and cash flows for each of the two years
      in
      the period ended December 31, 2006 in conformity with accounting principles
      generally accepted in the United States of America.





The
      accompanying financial statements have been prepared assuming that the Company
      will continue as a going concern. As disclosed in Note 1, the Company incurred
      net losses of approximately $6,127,000 and $4,025,000 during the years ended
      December 31, 2006 and 2005, respectively, and has an accumulated deficit of
      approximately $28,911,000 as of December 31, 2006. These factors raise
      substantial doubt about the Company’s ability to continue as a going concern.
      Management’s plans regarding these matters are described in Note 1. The
      accompanying financial statements do not include any adjustments that might
      be
      necessary should the Company be unable to continue as going
      concern.








/s/
      Squar, Milner, Peterson, Miranda & Williamson, LLP


Newport
      Beach, California


April
      6,
      2007




63


**5G
      WIRELESS COMMUNICATIONS, INC.**


**BALANCE
      SHEET**


**DECEMBER
      31, 2006**





**ASSETS**Cash
            
            $
            2,151Accounts
                receivable, net of allowance for doubtful
              accounts
                of $25,822
            
            
            96,372Inventory,
                net of reserve of $29,102
            
            
            97,015Deferred
                financing costs
            
            
            119,242Prepaid
                and other current assets
            
            
            8,088Total
                current assets
            
            
            322,868Property
                and equipment, net of accumulated depreciation and
              amortization
                of $312,064
            
            
            138,844Intangible
                assets, net of accumulated amortization of $28,328
            
            
            198,298Goodwill
                net
            
            
            100,000Total
                non-current assets
            
            
            437,142Total
                assets
            
            $
            760,010**LIABILITIES
                AND STOCKHOLDERS’ DEFICIT**Liabilities:Accounts
                payable and accrued liabilities
            
            $
            1,067,798Notes
                payable
            
            
            50,924Related
                party notes and advances
            
            
            42,477Accrued
                interest
            
            
            568,400Other
                liabilities
            
            
            3,324,644Convertible
                notes payable, net of discount of $1,297,432
            
            
            2,513,318Total
                current liabilities
            
            
            7,567,561Stockholders’
                deficit:Preferred
                series A convertible stock, $0.001 par value; 3,000,000
              shares
                authorized; 3,000,000 shares outstanding
            
            
            3,000Preferred
                Series B convertible stock, $0.001 par value; 5,000,000
              shares
                authorized; 540,000 shares issued and outstanding
            
            
            540Common
                stock, $0.001 par value; 5,000,000,000 shares
              authorized;
                32,329,535(1)shares issued and outstanding
            
            
            32,330Additional
                paid in capital
            
            
            22,157,568Common
                stock held in escrow
            
            
            (16,428
            )Unearned
                compensation
            
            
            (50,000
            )Deferred
                consulting fees
            
            
            (23,225
            )




64




**5G
      WIRELESS COMMUNICATIONS, INC.**


**BALANCE
      SHEET**


**DECEMBER
      31, 2006**


**(continued)**








Accumulated
                deficit
            
            
            (28,911,336
            )Total
                stockholders’ deficit
            
            
            (6,807,551
            )Total
                liabilities and stockholders’ deficit
            
            $
            760,010








(1)
      Includes 15,212,982 shares held in escrow in connection with the Securities
      Purchase Agreement with Montgomery Equity Partners, LP; 1,105,873
      shares held in escrow in connection with the Securities Purchase Agreements
      with
      the Longview Funds; and 198,786 of escrow shares issued to Global Connect in
      2006







The
      accompanying notes are an integral part of these financial
      statements





65








**5G
      WIRELESS COMMUNICATIONS, INC.**


**STATEMENTS
      OF OPERATIONS**


**FOR
      THE YEARS ENDED DECEMBER 31, 2006 AND 2005**








**2006**
            
            **2005**Revenues
            
            $
            781,948
            
            $
            1,618,932Cost
                of revenues
            
            
            388,231
            
            
            337,003Gross
                profit
            
            
            393,717
            
            
            1,281,929Operating
                expenses:General
                and administrative
            
            
            1,127,186
            
            
            1,464,945Salaries
                and related
            
            
            1,434,919
            
            
            627,385Research
                and development
            
            
            67,510
            
            
            209,543Professional/consulting
                services
            
            
            1,115,600
            
            
            1,194,878Depreciation
            
            
            76,918
            
            
            71,625Total
                operating expenses
            
            
            3,822,133
            
            
            3,568,376Operating
                loss
            
            
            (3,428,416
            )
            
            (2,286,447
            )Interest
                expense (including amortizationof
                financing costs and debt discounts)
            
            
            (2,703,947
            )
            
            (1,695,347
            )Other
                income
            
            
            2,325
            
            
            --Change
                in fair value of derivative liabilities
            
            
            3,369
            
            
            (43,218
            )Net
                loss
            
            $
            (6,126,669
            )
            $
            (4,025,012
            )Cumulative
                undeclared dividends anddeemed
                dividends on preferred stock
            
            
            42,160
            
            
            **--**Net
                loss applicable to common stockholders
            
            
            (6,168,829
            **)**
            
            (4,025,012
            )Loss
                per common share:Basic
                and diluted
            
            $
            (0.79
            )
            $
            (1.38
            )Basic
                and diluted weighted average common
              shares
                outstanding
            
            
            7,766,005
                (1)
            
            
            2,910,748





(1)
      Excludes shares held in escrow.





The
      accompanying notes are an integral part of these financial
      statements


66


**5G
      WIRELESS COMMUNICATIONS INC.**


**STATEMENTS
      OF STOCKHOLDERS’ DEFICIT**


**FOR
      THE YEARS ENDED DECEMBER 31, 2006 AND 2005**


**Shares
                  of Series A Preferred Stock**
              
              **Series
                  A Preferred Stock ($0.001 Par Value)**
              
              **Shares
                  of Series B Preferred Stock**
              
              **Series
                  B Preferred Stock ($0.001 Par Value)**
              
              **Common
                  Shares**
              
              **Common
                  Stock ($0.001 Par Value)**
              
              **Additional
                  Paid-In Capital**
              
              **Common
                  Stock Held In Escrow**
              
              **Unearned
                  Compensation**
              
              **Deferred
                  Consulting Fees**
              
              **Accumulated
                  Deficit**
              
              **Total**Balance
                  December 31, 2004
              
              
              3,000,000
              
              
              3,000
              
              
              --
              
              
              --
              
              
              2,488,678
              
              
              2,489
              
              
              18,271,556
              
              
              (1,016
              )
              
              (150,000
              )
              
              --
              
              
              (18,759,655
              )
              
              (633,626
              )Shares
                  issued for services
              
              
              --
              
              
              --
              
              
              --
              
              
              --
              
              
              147,325
              
              
              147
              
              
              130,098
              
              
              --
              
              
              --
              
              
              --
              
              
              --
              
              
              130,245Debt
                  conversion
              
              
              --
              
              
              --
              
              
              --
              
              
              --
              
              
              1,081,838
              
              
              1,082
              
              
              1,110,936
              
              
              --
              
              
              --
              
              
              --
              
              
              --
              
              
              1,112,018Amortization
                  of preferred stock unearned compensation
              
              
              --
              
              
              --
              
              
              --
              
              
              --
              
              
              --
              
              
              --
              
              
              --
              
              
              --
              
              
              33,334
              
              
              --
              
              
              --
              
              
              33,334Shares
                  returned by stockholders
              
              
              --
              
              
              --
              
              
              --
              
              
              --
              
              
              (20,244
              )
              
              (20
              )
              
              (77,980
              )
              
              --
              
              
              --
              
              
              --
              
              
              --
              
              
              (78,000
              )Debt
                  discount related to beneficial conversion features
              
              
              --
              
              
              --
              
              
              --
              
              
              --
              
              
              --
              
              
              --
              
              
              1,300,000
              
              
              --
              
              
              --
              
              
              --
              
              
              --
              
              
              1,300,000Net
                  loss
              
              
              --
              
              
              --
              
              
              --
              
              
              --
              
              
              --
              
              
              --
              
              
              --
              
              
              --
              
              
              --
              
              
              --
              
              
              (4,025,012
              )
              
              (4,025,012
              )Balance
                  December 31, 2005
              
              
              3,000,000
              
              
              3,000
              
              
              --
              
              
              --
              
              
              3,697,597
              
              
              3,698
              
              
              20,734,610
              
              
              (1,016
              )
              
              (116,666
              )
              
              --
              
              
              (22,784,667
              )
              
              (2,161,041
              )Common
                  stock issued for:
                services
              
              
              --
              
              
              --
              
              
              --
              
              
              --
              
              
              2,008,663
              
              
              2,009
              
              
              752,800
              
              
              --
              
              
              --
              
              
              (410,285
              )
              
              --
              
              
              344,524Warrants
                  issued for services
              
              
              --
              
              
              --
              
              
              --
              
              
              --
              
              
              --
              
              
              --
              
              
              220,000
              
              
              --
              
              
              --
              
              
              (220,000
              )
              
              --
              
              
              --Common stock Issued for asset purchase
              
              
              --
              
              
              --
              
              
              --
              
              
              --
              
              
              861,174
              
              
              861
              
              
              228,012
              
              
              --
              
              
              --
              
              
              --
              
              
              -
              
              
              228,873Common
                  stock issued for conversion of convertible notes payable
              
              
              --
              
              
              --
              
              
              --
              
              
              --
              
              
              1,853,010
              
              
              1,853
              
              
              477,741
              
              
              --
              
              
              --
              
              
              --
              
              
              --
              
              
              479,594Amortization
                  of preferred stock unearned compensation
              
              
              --
              
              
              --
              
              
              --
              
              
              --
              
              
              --
              
              
              --
              
              
              --
              
              
              --
              
              
              66,666
              
              
              --
              
              
              --
              
              
              66,666





67





**5G
      WIRELESS COMMUNICATIONS INC.**


**STATEMENTS
      OF STOCKHOLDERS’ DEFICIT**


**FOR
      THE YEARS ENDED DECEMBER 31, 2006 AND 2005**


**(continued)**




**Shares
                  of Series A Preferred Stock**
              
              **Series
                  A Preferred Stock ($0.001 Par Value)**
              
              **Shares
                  of Series B Preferred Stock**
              
              **Series
                  B Preferred Stock ($0.001 Par Value)**
              
              **Common
                  Shares**
              
              **Common
                  Stock ($0.001 Par Value)**
              
              **Additional
                  Paid-In Capital**
              
              **Common
                  Stock Held In Escrow**
              
              **Unearned
                  Compensation**
              
              **Deferred
                  Consulting Fees**
              
              **Accumulated
                  Deficit**
              
              **Total**Restricted
                  shares issued to employees
              
              
              --
              
              
              --
              
              
              --
              
              
              --
              
              
              194,925
              
              
              195
              
              
              155,745
              
              
              --
              
              
              --
              
              
              --
              
              
              --
              
              
              155,940Escrow
                  shares issued
              
              
              --
              
              
              --
              
              
              --
              
              
              --
              
              
              15,411,768
              
              
              15,412
              
              
              
              
              
              (15,412
              )
              
              --
              
              
              --
              
              
              --
              
              
              --Warrants
                  exercised
              
              
              --
              
              
              --
              
              
              --
              
              
              --
              
              
              92,198
              
              
              92
              
              
              13,738
              
              
              --
              
              
              --
              
              
              --
              
              
              --
              
              
              13,830Issuance
                  of Series B preferred stock
              
              
              --
              
              
              --
              
              
              540,000
              
              
              540
              
              
              14,286
              
              
              14
              
              
              489,446
              
              
              --
              
              
              --
              
              
              --
              
              
              --
              
              
              490,000Deemed
                  dividend related to Series B preferred stock
              
              
              --
              
              
              --
              
              
              --
              
              
              --
              
              
              --
              
              
              --
              
              
              (1,331,410
              )
              
              --
              
              
              --
              
              
              --
              
              
              --
              
              
              (1,331,410
              )Amortization
                  of stock issued for services
              
              
              --
              
              
              --
              
              
              --
              
              
              --
              
              
              --
              
              
              --
              
              
              --
              
              
              --
              
              
              --
              
              
              336,777
              
              
              --
              
              
              336,777Dividends
                  on Series B preferred stock
              
              
              --
              
              
              --
              
              
              --
              
              
              --
              
              
              --
              
              
              --
              
              
              (42,160
              )
              
              --
              
              
              --
              
              
              --
              
              
              --
              
              
              (42,160
              )Reclass
                  derivative liability originally recorded to paid-in
                  capital
              
              
              --
              
              
              --
              
              
              --
              
              
              --
              
              
              --
              
              
              --
              
              
              (52,632
              )
              
              --
              
              
              --
              
              
              --
              
              
              --
              
              
              (52,632
              )Shares
                  issued for related party notes administrative fee
              
              
              --
              
              
              --
              
              
              --
              
              
              --
              
              
              42,666
              
              
              43
              
              
              10,624
              
              
              --
              
              
              --
              
              
              --
              
              
              --
              
              
              10,667Shares
                  issued upon convertible note payable commitment fee
              
              
              --
              
              
              --
              
              
              --
              
              
              --
              
              
              35,200
              
              
              35
              
              
              8,765
              
              
              --
              
              
              --
              
              
              --
              
              
              --
              
              
              8,800




68




**5G
      WIRELESS COMMUNICATIONS INC.**


**STATEMENTS
      OF STOCKHOLDERS’ DEFICIT**


**FOR
      THE YEARS ENDED DECEMBER 31, 2006 AND 2005**


**(continued)**




**Shares
                  of Series A Preferred Stock**
              
              **Series
                  A Preferred Stock ($0.001 Par Value)**
              
              **Shares
                  of Series B Preferred Stock**
              
              **Series
                  B Preferred Stock ($0.001 Par Value)**
              
              **Common
                  Shares**
              
              **Common
                  Stock ($0.001 Par Value)**
              
              **Additional
                  Paid-In Capital**
              
              **Common
                  Stock Held In Escrow**
              
              **Unearned
                  Compensation**
              
              **Deferred
                  Consulting Fees**
              
              **Accumulated
                  Deficit**
              
              **Total**Mark-to-market
                  adjustment to deferred consulting fees
              
              
              --
              
              
              --
              
              
              --
              
              
              --
              
              
              --
              
              
              --
              
              
              (270,283
              )
              
              --
              
              
              --
              
              
              270,283
              
              
              --
              
              
              --Stock
                  issued for cash
              
              
              --
              
              
              --
              
              
              --
              
              
              --
              
              
              8,057,196
              
              
              8,057
              
              
              738,633
              
              
              --
              
              
              --
              
              
              --
              
              
              --
              
              
              746,690Common
                  stock issued upon convertible note payable financing fees
              
              
              --
              
              
              --
              
              
              --
              
              
              --
              
              
              60,852
              
              
              61
              
              
              23,939
              
              
              --
              
              
              --
              
              
              --
              
              
              --
              
              
              24,000Net
                  Loss
              
              
              --
              
              
              --
              
              
              --
              
              
              --
              
              
              --
              
              
              --
              
              
              --
              
              
              --
              
              
              --
              
              
              --
              
              
              (6,126,669
              )
              
              (6,126,669
              )Balance
                  December 31, 2006
              
              
              3,000,000
              
              
              3,000
              
              
              540,000
              
              
              540
              
              
              32,329,535
              
              
              32,330
              
              
              22,157,568
              
              
              (16,428
              )
              
              (50,000
              )
              
              (23,225
              )
              
              (28,911,336
              )
              
              (6,807,551
              )




The
      accompanying notes are an integral part of these
      financial statements




69


**5G
      WIRELESS COMMUNICATIONS, INC.**


**STATEMENTS
      OF CASH FLOWS**


**FOR
      THE YEARS ENDED DECEMBER 31, 2006 AND 2005**




**2006**
                
                **2005**Cash
                    flows from operating activities:Net
                    loss
                
                $
                (6,126,669
                )
                $
                (4,025,012
                )Adjustments
                    to reconcile net loss to net cash used in operating
                    activities:Depreciation
                    and amortization
                
                
                76,918
                
                
                71,625Fair
                    value of common stock and warrantsissued
                    for services to employees
                
                
                155,940
                
                
                --Fair
                    value of common stock and warrantsissued
                    for services to non-employees
                
                
                344,524
                
                
                130,245Amortization
                    of deferred consulting fees
                
                
                336,777Bad
                    debt expense
                
                
                184,001
                
                
                775,547Amortization
                    of deferred financing costs
                
                
                35,978Amortization
                    of unearned compensation
                
                
                66,666
                
                
                33,334Change
                    in fair value of derivative liabilities
                
                
                (3,369
                )
                
                43,218Amortization
                    of debt discount onconvertible
                    notes
                
                
                1,408,072
                
                
                1,309,171Changes
                    in operating assets/liabilities:Accounts
                    receivable
                
                
                48,524
                
                
                (860,560
                )Inventory
                
                
                (26,534
                )
                
                (86,672
                )Other
                    current assets
                
                
                8,537
                
                
                (10,491
                )Accounts
                    payable and accrued liabilities
                
                
                422,745
                
                
                110,634Accrued
                    interest
                
                
                411,363
                
                
                260,440Other
                    liabilities
                
                
                508,042
                
                
                381,551Net
                    cash flows used in operating activities
                
                
                (2,148,485
                )
                
                (1,866,970
                )Cash
                    flows from investing activities:Purchase
                    of property and equipment
                
                
                (125,889
                )
                
                (45,844
                )Net
                    cash flows used in investing activities
                
                
                (125,889
                )
                
                (45,844
                )Net
                    cash flows from financing activities:Proceeds
                    from related party
                
                
                53,144
                
                
                --Proceeds
                    from issuance of notes payable
                
                
                40,924
                
                
                --Repayments
                    of notes payable
                
                
                --
                
                
                (38,733
                )Proceeds
                    from issuance of convertible notes
                
                
                969,000
                
                
                1,300,000Deferred
                    financing costs
                
                
                (122,420
                )
                
                --Net
                    proceeds from issuance of commonstock
                    under Regulation S
                
                
                746,690
                
                
                --Net
                    proceeds from exercise of warrants
                
                
                13,830
                
                
                --Net
                    proceeds from issuance of Series Bpreferred
                    stock
                
                
                490,000
                
                
                --Net
                    cash flows provided by financingactivities
                
                
                2,191,168
                
                
                1,261,267
  70


**5G
      WIRELESS COMMUNICATIONS, INC.**


**STATEMENTS
      OF CASH FLOWS**


**FOR
      THE YEARS ENDED DECEMBER 31, 2006 AND 2005**


**(continued)**




**2006**
            
            **2005**Net
                increase (decrease) in cash
            
            
            (83,206
            )
            
            (651,547
            )Cash,
                beginning of period
            
            
            85,357
            
            
            736,904Cash,
                end of period
            
            $
            2,151
            
            $
            85,357Supplemental
                disclosure of non-cash investingand
                financing activities:Cash
                paid for income taxes
            
            $
            --
            
            $
            1,723Conversion
                of convertible notes andaccrued
                interest into common stock
            
            $
            479,594
            
            $
            1,112,018Common
                stock issued for acquisition of assets
            
            $
            228,873
            
            $
            --Cumulative
                preferred Series Bundeclared
                dividends
            
            $
            42,160
            
            $
            --Common
                stock issued and held in escrow
            
            $
            15,412
            
            $
            --Imputed
                dividend on Series B Preferred Shares
            
            $
            (1,331,410
            )
            $
            --Reclassification
                of derivative liability from equity
            
            $
            (52,632
            )
            $
            --Debt
                discounts on convertible notes
            
            $
            969,000
            
            $
            1,300,000Common
                shares issued for related party notespayable
                administration fees
            
            $
            10,667
            
            $
            --Common
                shares issued for convertible notespayable
                commitment fee
            
            $
            24,000
            
            $
            --Common
                shares issued for note payableadministration
                fee
            
            $
            8,800
            
            $
            --Mark-to-market
                adjustment to deferredconsulting
                fees
            
            $
            270,283
            
            $
            --





See
      accompanying notes to financial statements for additional disclosures of
      non-cash investing and financing activities




The
      accompanying notes are an integral part of these financial
      statements




71


**5G
      WIRELESS COMMUNICATIONS, INC** .


**NOTES
      TO FINANCIAL STATEMENTS**





**1.**  **NATURE
      OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES**





**Nature
      and Development of Business.**





5G
      Wireless Communications, Inc. (“Company”) is a designer, developer and
      manufacturer of commercial grade wireless telecommunications equipment operating
      on the 802.11a/b/g frequency. The Company deploys its equipment as a wireless
      Internet service provider (“WISP”), primarily to hospitality properties. The
      Company also sells its equipment through resellers or directly to
      end-users.





The
      Company was incorporated as Tesmark, Inc. in September 1979. In November 1998,
      it changed its state of incorporation from Idaho to Nevada and in January 2001
      changed the name to 5G Wireless Communications, Inc. In March 2001, the Company
      acquired 5G Partners, a Canadian partnership, and changed its business to
      provide wireless technology systems through high speed Internet access and
      data
      transport systems. In April 2002, it acquired Wireless ThinkTank, Inc., a
      developer of high-speed long distance wireless technologies. In July 2003,
      the
      Company shifted its strategy from that of a service provider to an equipment
      manufacturer, or OEM. 5G Partners was liquidated shortly after acquisition.
      Wireless ThinkTank, Inc. is inactive.





On
      October 19, 2004, the Company elected, by the filing of a Form N-54A with the
      Securities and Exchange Commission (“SEC”), to be regulated as a business
      development company (“BDC”) under the Investment Company Act of 1940 (“1940
      Act”). On December 31, 2004, certain assets and certain liabilities of the
      Company were transferred into 5G Wireless Solutions, Inc. in exchange for 100%
      of its outstanding common shares.





On
      June
      3, 2005, the Company’s board of directors unanimously determined that it would
      be in the best interests of the Company and its stockholders to seek stockholder
      approval on certain matters. Pursuant to a definitive Schedule 14A proxy
      statement filed with the Securities and Exchange Commission on September 19,
      2005, the Company sought approval from the stockholders, at the annual
      stockholder’s meeting on October 20, 2005, for the following (among other
      things): (a) to terminate the Company’s status as a BDC under the 1 940
      Act
      and to file a Form N-54C with the SEC to terminate this status, and (b) to
      file
      a new registration statement with the SEC.





On
      October 20, 2005, the Company’s stockholders approved (among other things) (a)
      the termination of the Company’s status as a business development company under
      the 1940
      Act
      and the filing of a Form N-54C with the SEC, and (b) the filing of a new
      registration statement. Based on this approval, on October 21, 2005, the
      Company filed a
      Form N-54C with the SEC terminating its status as a BDC.





On
      November 3, 2005, the Company’s Board of Directors approved a 1 for 350 reverse
      stock split of the Company’s common stock. Common shares outstanding prior to
      and after the reverse stock split totalled 1,169,494,405 and 3,341,419 shares,
      respectively. The November 23, 2005 reverse stock split has been retroactively
      reflected in the accompanying financial statements for all periods presented.
      Unless otherwise indicated, all references to outstanding common shares,
      including common shares to be issued upon the exercise of warrants and
      convertible notes payable, refer to post-split shares.




72




On
      January 19, 2006, 5G Wireless Solutions, Inc. was merged with and into 5G
      Wireless Communications, Inc. The transaction was accounted for as a transfer
      of
      entities under common control. Accordingly, the 2005 financial statements were
      presented on a consolidated basis.





On
      October 4, 2006, the Company acquired certain assets of Global Connect, Inc.
      (“GCI”) doing business as Ivado, which included wireless equipment deployed at
      13 hospitality properties and contracts related to the properties for total
      purchase consideration of $397,476.





**Going
      Concern Basis of Presentation.**





The
      accompanying financial statements have been prepared assuming that the Company
      continues as a going concern that contemplates the realization of assets and
      the
      satisfaction of liabilities in the normal course of business. However, the
      ability of the Company to continue as a going concern on a longer-term basis
      will be dependent upon its ability to generate sufficient cash flow from
      operations, to meet its obligations on a timely basis, to retain its current
      financing, to obtain additional financing, and ultimately attain profitability.





During
      the years ended December 31, 2006 and 2005, the Company incurred losses of
      $6,126,669 and $4,025,012, respectively, and the Company has an accumulated
      deficit of $28,911,336 as of December 31, 2006. These factors raise substantial
      doubt as to the Company’s ability to continue as a going concern. If the Company
      is unable to generate sufficient cash flow from operations and/or continue
      to
      obtain financing to meet its working capital requirements, it may have to
      curtail its business sharply or cease business altogether.





Management
      plans to continue raising additional capital through a variety of fund raising
      methods during 2007 and to pursue all available financing alternatives as
      necessary to fund operations. Management also expects that WISP revenue will
      begin to contribute significantly to cash flow, especially in the second half
      of
      2007 as the Company establishes critical mass with respect to properties
      deployed. Management may also consider a variety of potential partnership or
      strategic alliances to strengthen its financial position. In addition, the
      Company will continue to seek additional funds to ensure its successful growth
      strategy as a wireless internet service provider to hospitality and similar
      properties and to, when appropriate, allow for potential investments into a
      diverse portfolio of companies with strategic information and communications
      technologies or applications. Whereas the Company has been successful in the
      past in raising capital, no assurance can be given that these sources of
      financing will continue to be available to the Company and/or that demand for
      the Company’s equity/debt instruments will be sufficient to meet its capital
      needs. The financial statements do not include any adjustments relating to
      the
      recoverability and classification of liabilities that might be necessary should
      the Company be unable to continue as a going concern.




73




If
      funding is insufficient at any time in the future, the Company may not be able
      to take advantage of business opportunities or respond to competitive pressures,
      or may be required to reduce the scope of its planned product development and
      marketing efforts, any of which could have a negative impact on its business
      and
      operating results. In addition, insufficient funding may have a material adverse
      effect on the Company’s financial condition, which could require it
      to:




·  curtail
      operations significantly;





·  sell
      significant assets;





·
            seek
                arrangements with strategic partners or other parties that may require
                it
                to relinquish significant rights to products, technologies or markets;
                or





·  explore
      other strategic alternatives including a merger or sale of the
      Company.





To
      the
      extent that the Company raises additional capital through the sale of equity
      or
      convertible debt securities, the issuance of such securities may result in
      dilution to existing stockholders. If additional funds are raised through the
      issuance of debt securities, these securities may have rights, preferences
      and
      privileges senior to holders of common stock and the terms of such debt could
      impose restrictions on the
      Company’s operations. Regardless of whether the Company’s cash assets prove to
      be inadequate to meet its operational needs, the Company may seek to compensate
      providers of services by issuing stock in lieu of cash, which will help it
      manage its liquidity but may also result in dilution to existing
      stockholders.





**Use
      of Estimates.**





The
      preparation of financial statements in conformity with accounting principles
      generally accepted in the United States of America requires management to make
      estimates and assumptions that affect the reported amounts of assets and
      liabilities and disclosure of contingent assets and liabilities at the date
      of
      the financial statements and the reported amounts of revenues and expenses
      during the reporting periods. Significant estimates include the allowance for
      doubtful accounts, inventory and warranty reserves, valuation of derivative
      liabilities, valuation of intangibles, realization of long-lived assets and
      deferred tax asset valuation allowance. Actual results could differ from those
      estimates.




**Basis
      of Presentation.**




The
      financial statements as of and for the years ended December 31, 2005 include
      the
      accounts of the Company and its wholly owned subsidiary, 5G Wireless Solutions,
      Inc and have been presented on a consolidated basis. All significant
      intercompany transactions and balances have been eliminated in consolidation.
      In
      2006, 5G Wireless Solutions, Inc. was merged into the Company.




74




**Cash
      and Cash Equivalents.**




The
      Company considers all highly liquid fixed income investments with maturities
      of
      three months or less at the time of acquisition, to be cash equivalents. At
      December 31, 2006, the Company had cash of $2,151. At December 31, 2006, the
      Company had no cash equivalents.




**Accounts
      Receivable.**




The
      Company provides a reserve for bad debts on trade receivables based on a review
      of the current status of existing receivables and management’s evaluation of
      periodic aging of accounts. The Company charges off accounts receivable against
      the reserve for bad debts when an account is deemed to be uncollectible. It
      is
      not the Company’s policy to accrue interest on past due receivables





In
      determining the allowance for doubtful accounts, management evaluates the future
      collectibility of customer receivable balances, on a customer by customer basis,
      including an individual assessment of the customer’s credit quality, financial
      standing, and the customer's ability to meet current or future commitments
      and
      the industry and general economic outlook. Based on the likelihood of loss,
      the
      Company provides an allowance for doubtful accounts against outstanding balances
      over 60 days. In the event collection efforts are unsuccessful for a customer,
      the receivable is written off and the related allowance is reduced. At December
      31, 2006, the allowance for doubtful accounts was $25,822. In addition, during
      the years ended December 31, 2006, and 2005, the Company recorded bad debt
      expense totaling $184,001 and $775,547, respectively.





**Inventory.**





Inventories
      are stated at the lower of cost (first-in, first-out) or market. Cost is
      determined on a standard cost basis that approximates the first-in, first-out
      method. Market is determined by comparison with recent sales or net realizable
      value.





Such
      net
      realizable value is based on management’s anticipated sales of the Company’s
      products or services in the near term. The industry in which the Company
      operates is characterized by technological advancement, change and certain
      regulations. Should the demand for the Company’s products prove to be
      significantly less than anticipated, the ultimate realizable value of the
      Company’s inventories could be substantially less than amounts shown in the
      accompanying balance sheets. An inventory reserve has been provided for raw
      materials that are not used in products that the Company currently offers for
      sale or for deployment in the WISP operation. At December 31, 2006, the balance
      of the reserve for obsolete inventory of $29,102 is included within the
      inventory caption on the accompanying balance sheet.





**Property
      and Equipment.**




75




Property
      and equipment are stated at cost and are depreciated using the straight-line
      method over their estimated useful lives of 5-7 years for furniture and fixtures
      and 2-3 years for computers and software. Leasehold improvements are amortized
      over the shorter of their estimated useful lives or the term of the lease.
      Self-constructed equipment deployed in the WISP is recorded at its standard
      cost
      plus installation cost when deployed and is depreciated over 2
      years.




**Goodwill**





Goodwill
      is periodically reviewed, but no less than annually for impairment as to its
      realizability in accordance with Statement of Financial Accounting Standards
      (“SFAS”) No. 142, “Goodwill and Other Intangible Assets”. Factors the Company
      considers important which could trigger an impairment review include significant
      underperformance relative to expected historical or projected future operating
      results, significant changes in the manner of use of acquired assets or the
      strategy for the overall business, and significant negative industry or economic
      trends. At December 31, 2006, the balance of goodwill is $100,000 and is
      recorded in the accompanying balance sheet.





**Long-Lived
      Assets**





Intangible
      assets and other long-lived assets with definite lives are amortized over their
      useful lives, currently approximately two years. In accordance with SFAS No.
      144, “Accounting for the Impairment or Disposal of Long-Lived Assets,” the
      Company reviews long-lived assets for impairment whenever events or changes
      in
      circumstances indicate that the carrying value of such assets may not be
      recoverable. If long-lived assets become impaired, the Company recognizes an
      impairment loss measured as the amount by which the carrying value of the assets
      exceeds the estimated fair value of the assets. At December 31, 2006, the
      balance of intangible assets is $198,298 and is recorded in the accompanying
      balance sheet.




**Concentrations
      of Credit Risk.**





Financial
      instruments that potentially subject the Company to concentrations of credit
      risk include cash and accounts receivable. The Company maintains its cash funds
      in bank deposits in highly rated financial institutions. At times, such
      investments may be in excess of the Federal Deposit Insurance Corporation
      insurance limit. At December 31, 2006, there were no funds in excess of the
      FDIC
      limit.





The
      Company’s customers are located in the United States and other countries.





During
      the year ended December 31, 2006, there were two customers that accounted for
      more than 10% of the Company’s revenues: Denison University (26%) in the United
      States geographic region and DigitalSkys (16%) in the Asia geographic region.





During
      the year ended December 31, 2005, there were two customers that accounted for
      more than 10% of the Company’s revenues: SRS (10%) and IAMA (30%). Both major
      customers closed operations in the year 2005, and the Company recognized
      approximately $630,500 in bad debt related to these uncollectible receivables.




76




The
      Company operates in a highly competitive industry that is subject to intense
      competition, government regulation and rapid technological change. The Company's
      operations are subject to significant risks and uncertainties including
      financial, operational, technological, regulatory and other business risks
      associated with such a company.




**Income
      Taxes.**





In
      accordance with SFAS No. 109, deferred taxes are provided on the liability
      method whereby deferred tax assets are recognized for deductible temporary
      differences and operating loss and tax credit carry forwards and deferred tax
      liabilities are recognized for taxable temporary differences. Temporary
      differences are the differences between the reported amounts of assets and
      liabilities and their tax bases. A deferred tax asset is reduced by a valuation
      allowance if, in the opinion of management, it is more likely than not that
      some
      portion or all of the deferred tax assets will not be realized in the future.
      Deferred tax assets and liabilities are adjusted for the effects of changes
      in
      tax laws and rates on the date of enactment.




**Revenue
      Recognition.**





Revenues
      result principally from (1) the sale and installation of wireless radio
      equipment to customers; and (2) provision of wireless Internet service at
      hospitality properties. Equipment sales are recognized when products are
      shipped. The Company recognizes revenues in accordance with Staff Accounting
      Bulleting (“SAB”) No. 104, “Revenue Recognition,” when all of the following
      conditions exist: (a) persuasive evidence of an arrangement exists in the form
      of an accepted purchase order or equivalent documentation; (b) delivery has
      occurred, based on shipping terms, or services have been rendered; (c) the
      Company’s price to the buyer is fixed or determinable, as documented on the
      accepted purchase order or similar documentation; and (d) collectibility is
      reasonably assured.





Orders
      delivered to the Company by phone, fax, mail or email are considered valid
      purchase orders and once accepted by the Company are deemed to be the final
      understanding between the Company and its customer as to the specific nature
      and
      terms of the agreed-upon sale transaction. Products are shipped and are
      considered delivered when (a) for FOB factory orders they leave the Company’s
      shipping dock or (b) for FOB customer dock orders upon confirmation of delivery.
      The creditworthiness of customers is generally assessed prior to the Company
      accepting a customer’s first order.





The
      Company offers installation services to customers and charges separately when
      such services are purchased. Installation by the Company is not required for
      the
      functionality of the equipment. Consequently, installation services are
      considered a separate unit of accounting under Financial Accounting Standards
      Board’s (“FASB”) Emerging Issues Task Force (“EITF”) No. 00-21,“Revenue
      Arrangements with Multiple Deliverables.”




77




The
      WISP
      operation applies SAB No. 104 to recognize revenue as follows: (a) persuasive
      evidence of an arrangement exists in the form of an order accepted online;
      (b)
      revenue recognized ratably as services are been rendered over term of contract;
      (c) the Company’s price to the buyer is fixed or determinable; and (d)
      collectibility is reasonably assured as credit card is approved and billed
      and
      then customer is provided service.





**Basic
      and Diluted Loss Per Common Share.**





Under
      SFAS No. 128, “Earnings Per Share,” basic earnings per common share is computed
      by dividing income available to ****** common
      stockholders by the weighted-average number of common shares outstanding during
      the period of computation. Diluted earnings per share is ****** computed
      similar to basic earnings per share except that the denominator is ****** increased
      to include the number of additional common shares that would have been
      outstanding if the potential common shares had been issued and if the
      additional ****** common
      shares were dilutive. Because the Company has incurred net losses, basic and
      diluted loss per share are the same since additional potential common shares
      would be anti-dilutive. The calculated diluted loss per share does not take
      into
      account the effect of 39,616,108 and 1,191,095 shares for 2006 and 2005,
      respectively including shares such as escrow shares, convertible debt securities
      and warrants, which could be considered to be potentially dilutive.





**Fair
      Value of Financial Instruments.**




The
      carrying value of cash and cash equivalents, accounts receivable, accounts
      payable and accrued expenses approximate their fair value due to their
      short-term maturities. At December 31, 2006, the fair value of the convertible
      notes amounts to $2,513,318, based on the Company’s incremental borrowing rate.
      The carrying value of the derivative liability associated with the convertible
      notes approximates its fair value based on assumptions using the Black-Scholes
      model and convertible debt and equity financial pricing models.





Management
      has concluded that it is not practical to determine the estimated fair value
      of
      amounts due to related parties. SFAS No. 107 requires that for instruments
      for
      which it is not practicable to estimate their fair value, information pertinent
      to those instruments be disclosed, such as the carrying amount, interest rate,
      and maturity, as well as the reasons why it is not practicable to estimate
      fair
      value. Information related to these related party instruments is included in
      Note 9. Management believes it is not practical to estimate the fair value
      of
      these related-party instruments because the transactions cannot be assumed
      to
      have been consummated at arm’s length, the terms are not deemed to be market
      terms, there are no quoted values available for these instruments, and an
      independent valuation would not be practicable due to the lack of data regarding
      similar instruments, if any, and the associated potential costs.





**Stock-Based
      Compensation Arrangements.**





During
      2005, the Company accounted for stock issued to non-employees for services
      under
      SFAS No. 123, “Accounting for Stock Based Compensation” and
      EITF
      No. 96-18, “Accounting for Equity Instruments that are Issued to Other Than
      Employees for Acquiring or in Conjunction with Selling Goods or
      Services.” Under SFAS No. 123, and EITF No. 96-18 stock compensation
      expense is recorded based on the fair value of equity instruments, or the fair
      value of the services, whichever is more clearly determinable. Beginning January
      1, 2006, the Company accounted for stock issued to non-employees for services
      under SFAS No. 123-R replaces SFAS No. 123.  During the year ended December
      31, 2006, there were no options issued to employees, directors or related third
      parties, nor did any outstanding option awards vest during 2006 that would
      be
      accounted for under SFAS No. 123-R. The Company incurred total stock based
      compensation expense of $837,241 from issuance of 2,203,588 shares in 2006
      and
      $130,245 from issuance of 147,325 shares in 2005. In 2006, $155,940 related
      to
      employees and directors and $681,301 related to third parties. In 2005, $0
      related to employees and directors and $130,245 related to third parties. As
      of
      December 31, 2006, there were no options outstanding to employees, directors
      or
      others.




78




**Warranty.**





The
      Company provides a warranty on all manufactured products, including both
      hardware and software components, sold for a period of one year after the date
      of shipment. Warranty issues are usually resolved with repair or replacement
      of
      the product. Trends of sales returns, exchanges and warranty repairs are tracked
      by management as a basis for the reserve that management records in the
      Company’s financial statements. Estimated future warranty obligations related to
      certain products and services are provided by charges to operations in the
      period in which the related revenue is recognized. At December 31, 2006,
      warranty reserve approximated $12,564, which is included in other current
      liabilities on the accompanying balance sheet.





**Shipping
      and Handling Costs.**





Shipping
      and/or handling costs are included in cost of goods sold in the accompanying
      statements of operations in accordance with EITF No. 00-10, “Accounting for
      Shipping and Handling Fees and Costs.”





**Research
      and Development.**





In
      accordance with SFAS No. 2, “Accounting for Research and Development Costs,” all
      research and development costs must be charged to expense as incurred.
      Accordingly, internal research and development costs are expensed as incurred.
      Third-party research and developments costs are expensed when the contracted
      work has been performed or as milestone results have been achieved.
      Company-sponsored research and development costs related to both present and
      future products are expensed in the period incurred. Research and development
      costs for the years ended December 31, 2006 and 2005 were $67,510 and $209,543,
      respectively.





**Segment
      Disclosures** .




79




SFAS
      No.
      131, “Disclosures about Segments of an Enterprise and Related Information,”
changed the way public companies report information about segments of their
      business in their annual financial statements and requires them to report
      selected segment information in their quarterly reports issued to stockholders.
      It also requires entity-wide disclosures about the products and services an
      entity provides, the foreign countries in which it holds significant assets
      and
      its major customers. At December 31, 2006, the Company operated in two segments,
      product sales and service and WISP. At December 31, 2005 the Company operated
      in
      product sales and service only.





The
      Company’s chief operating decision-maker evaluates the performance of the
      Company based upon revenues and expenses by operating divisional areas as
      disclosed in the Company’s statements of operations. Operating division segment
      information follows:




Years
                  Ended December 31,2006
              
              2005Sales
                  to external customers:Product
                  sales and service
              
              $
              719,217
              
              $
              1,618,932WISP
                  service
              
              
              62,731
              
              
              --Total
                  sales to external customers
              
              $
              781,948
              
              $
              1,618,932Net
                  loss:Product
                  sales and service
              
              $
              (6,098,148
              )
              $
              (4,025,012
              )WISP
                  service
              
              
              (28,521
              )
              
              --Net
                  loss
              
              $
              (6,126,669
              )
              $
              (4,025,012
              )Tangible
                  assets by operating division:Product
                  sales and service
              
              $
              31,900
              
              $
              80,798WISP
                  service
              
              
              106,944
              
              
              --Total
                  tangible assets
              
              $
              138,844
              
              $
              80,798




The
      Company’s chief operating decision-maker
      evaluates the performance of the Company based upon revenues and expenses by
      geographic areas as disclosed in the Company’s statements of operations.
      Geographical information follows:


Years
                  Ended December 31,2006
              
              2005Sales
                  to external customers:United
                  States
              
              $
              507,342
              
              $
              1,529,686Asia
              
              
              107,196
              
              
              14,246Africa
              
              
              167,410
              
              
              75,000Total
                  sales to external customers
              
              $
              781,948
              
              $
              1,618,932Tangible
                  assets by area:United
                  States
              
              $
              138,844
              
              $
              80,798All
                  other geographic regions
              
              
              --
              
              
              --Total
                  tangible assets
              
              $
              138,844
              
              $
              80,798




80




**Reclassifications.**





Certain
      reclassifications have been made to the prior year financial statements to
      conform to the current year presentation.





**Discount
      on Convertible Notes.**





Convertible
      instruments are evaluated to determine if they are within the scope of EITF
      No.
      00-19 and SFAS No. 133. In the event that they are not within the scope of
      SFAS
      No. 133, (i) discounts on convertible notes are attributable to the beneficial
      conversion feature (that allows holders of the debenture to convert into shares
      of the Company’s common stock at prices lower than the market value), and (ii)
      discounts associated with detachable warrants are accounted for in accordance
      with EITF No. 00-27, “Application of EITF No. 98-5 To Certain Convertible
      Instruments” and EITF No. 98-5, “Accounting For Convertible Securities with
      Beneficial Conversion Features or Contingently Adjustable Conversion
      Ratios.”





**Derivative
      Liabilities.**





The
      Company evaluates the conversion feature of convertible notes and free-standing
      instruments such as warrants (or other embedded derivatives) indexed to its
      common stock to properly classify such instruments within equity or as
      liabilities in its financial statements, pursuant to the requirements of the
      EITF No. 00-19, “Accounting for Derivative Financial Instruments Indexed to, and
      Potentially Settled in, a Company’s Own Stock,” EITF No. 01-06, “The Meaning of
      Indexed to a Company’s Own Stock,” EITF No. 05-04, “The Effect of a Liquidated
      Damages Clause on a Freestanding Financial Instrument Subject to EITF No.
      00-19,” and SFAS No. 133, “Accounting for Derivative Instruments and Hedging
      Activities,” as amended.





The
      Company accounts for the effects of registration rights and related liquidated
      damages pursuant to EITF No. 05-04, View C, subject to EITF No. 00-19. Pursuant
      to EITF No. 05-04, View C, liquidated damages payable in cash or stock are
      accounted for as a separate derivative, which requires a periodic valuation
      of
      its fair value and a corresponding recognition of liabilities associated with
      such derivative. The Company accounts for certain embedded conversion features
      and free-standing warrants pursuant to SFAS No. 133 and EITF No. 00-19, which
      require corresponding recognition of liabilities associated with such
      derivatives at their fair values and changes in fair values to be charged to
      results of operations.





**Acquisition
      of Certain Assets of Global Connect, Inc.**




81




On
      October 4, 2006, the Company acquired certain assets of GCI for cash and stock
      consideration totalling $397,476 in the aggregate. The purpose of the
      acquisition was to establish a footprint in the WISP market and to establish
      a
      more reliable and predictable revenue stream going forward.





Operating
      results relating to the certain assets of GCI acquired have been included in
      the
      accompanying financial statements for the period from October 4, 2006 to
      December 31, 2006.





The
      Company issued a total of 861,174 shares in connection with the acquisition
      of
      GCI. This included 492,841 restricted shares of common stock issued directly
      to
      GCI. These shares were valued at $182,351 ($0.37 per share) pursuant to the
      terms of the purchase agreement. On October 24, 2006, the Company issued 76,667
      shares ($0.15 per share or $11,500) to satisfy a debt owed by GCI to a vendor.
      On March 14, 2007, the Company issued 291,666 shares ($0.12 per share or
      $35,000) to former employees of GCI pursuant to the acquisition contract for
      certain assets of GCI which are included in the accompanying financial
      statements as if they were issued by December 31, 2006 as required by the
      contract. The aggregate purchase price can result in up to $935,000 in total
      consideration provided certain future sales goals are met. The additional
      consideration will be satisfied with additional shares of the Company’s common
      stock. The formula for such additional consideration is 100 shares for each
      incremental rentable timeshare or hospitality unit for which contracts to
      provide WISP service are obtained until the contingent consideration reaches
      the
      maximum of 1,579,072 shares. Such shares are required to be issued within 5
      days
      of each quarter end for contracts signed in the prior quarter. During the
      quarter ended December 31, 2006, no additional contracts were signed and thus
      no
      additional consideration was required to be paid. On December 8, 2006 the
      Company also issued 198,786 shares ($0.22 per share or $43,733) to be held
      in
      escrow to guarantee a note payable by GCI to a vendor.





Management
      has preliminarily allocated the purchase price according to the provisions
      of
      SFAS No. 141, “Business Combinations.” Management acquired three groups of
      assets: (1) fixed assets, primarily including computers and access points;
      (2)
      contracts to provide WISP services to certain timeshare properties generally
      expiring November 2008; and (3) goodwill, primarily in the form of
      workforce-in-place.





The
      fixed
      assets were allocated value of $70,850 that is the estimated fair market value
      that approximated replacement cost and included in fixed assets in the
      accompanying balance sheet and depreciated over an expected life of two years.





The
      WISP
      services contracts were recorded as contractual rights that are to be recognized
      as an asset separate from goodwill. The contract was estimated to have a fair
      value of $226,626 determined using a discounted cash flow model. The contract
      is
      being amortized over the remaining term of the contract expiring in November
      2008.





The
      excess of cost over the fair value of assets acquired or goodwill, primarily
      composed of workforce-in-place was $100,000.




82









The
      following table summarizes the preliminary estimated fair values of the assets
      acquired and liabilities assumed at the date of acquisition. The components
      of
      acquisition cost are detailed as well. The Company may incur additional costs
      in
      the form of contingent consideration; thus, the allocation of the purchase
      price
      is subject to refinement.





October
      4, 2006





Assets
                acquiredFixed
                assets
            
            $
            70,850Contracts
            
            
            226,626Goodwill
            
            
            100,000Total
                assets acquired
            
            $
            397,476Acquisition
                costsCash
                paid
            
            $
            140,125Common
                stock issued
            
            
            228,151Liabilities
                assumed
            
            
            28,500Total
                acquisition costs
            
            $
            397,476




The
        pro
        forma financial statements give effect to the purchase of GCI assets acquired
        by
        the Company using the purchase method of accounting. The pro forma financial
        statements are based on the respective historical financial statements and
        the
        notes thereto of the Company and GCI. The pro forma consolidated statements
        of
        operations for the years ended December 31, 2006 and 2005 assume that the
        purchase took place at the beginning of the periods presented combine (1)
        the
        audited statement of operations of the Company for the year ended December
        31,
        2006 and audited consolidated statement of operations for the year ended
        December 31, 2005 with the unaudited statements of operations of GCI assets
        for
        the years ended December 31, 2006 and 2005.
  The
        unaudited pro forma financial statements are
        subject to a number of estimates, assumptions, and other uncertainties and
        are
        not necessarily indicative of the combined results of operations for future
        periods, or the results that would have been realized had the Company and
        GCI
        assets been a combined entity during the specified periods.





Pro
      Forma
      Statements of Operations


For
      the
      Years Ended December 31, 2006 and 2005


(Unaudited)




83





**2006**
            
            **2005**Revenues
            
            $
            949,637
            
            $
            1,621,882Cost
                of revenues
            
            
            510,095
            
            
            371,036Gross
                profit
            
            
            439,542
            
            
            1,250,846Total
                operating expenses
            
            
            4,207,954
            
            
            4,015,733Operating
                loss
            
            
            (3,768,412
            )
            
            (2,764,887
            )Net
                loss
            
            $
            (6,466,665
            )
            $
            (4,503,701
            )Loss
                per common share (basic and diluted)
            
            $
            (0.83
            )
            $
            (1.55
            )Weighted
                average shares outstanding
            
            
            7,766,005
            
            
            2,910,748





**Significant
      Recent Accounting Pronouncements.**





In
      February 2006, the FASB issued SFAS No. 155, “Accounting for Certain Hybrid
      Financial Instruments,” an amendment of SFAS No. 133, “Accounting for Derivative
      Instruments and Hedging Activities”), and SFAS No. 140, “Accounting for
      Transfers and Servicing of Financial Assets and Extinguishments of Liabilities”.
      In this context, a hybrid financial instrument refers to certain derivatives
      embedded in other financial instruments. Among other things, SFAS No. 155
      permits fair value re-measurement of any hybrid financial instrument that
      contains an embedded derivative that otherwise would require bifurcation under
      SFAS No. 133. In addition, SFAS No. 155 establishes a requirement to evaluate
      interests in securitized financial assets in order to identify interests that
      are either freestanding derivatives or “hybrids” which contain an embedded
      derivative requiring bifurcation. SFAS No. 155 also clarifies which
      interest/principal strips are subject to SFAS No. 133, and provides that
      concentrations of credit risk in the form of subordination are not embedded
      derivatives. Lastly, SFAS No. 155 amends SFAS No. 140 to eliminate the
      prohibition on a qualifying special-purpose entity from holding a derivative
      financial instrument that pertains to a beneficial interest other than another
      derivative. When SFAS No. 155 is adopted, any difference between the total
      carrying amount of the components of a bifurcated hybrid financial instrument
      and the fair value of the combined “hybrid” must be recognized as a
      cumulative-effect adjustment of beginning deficit/retained earnings. SFAS No.
      155 is effective for all financial instruments acquired or issued after the
      beginning of an entity’s first fiscal year that begins after September 15, 2006.
      Earlier adoption is permitted only as of the beginning of a fiscal year,
      provided that the entity has not yet issued any annual or interim financial
      statements for such year. Restatement of prior periods is prohibited. Management
      does not believe this pronouncement will have a significant impact on its future
      financial statements.





On
      February 15, 2007, the FASB issued SFAS No. 159, “The Fair Value Option for
      Financial Assets and Financial Liabilities - Including an Amendment of FASB
      Statement No. 115.” This standard permits an entity to choose to measure many
      financial instruments and certain other items at fair value. This option is
      available to all entities, including not-for-profit organizations. Most of
      the
      provisions in Statement 159 are elective; however, the amendment to SFAS No.
      115, “Accounting for Certain Investments in Debt and Equity Securities,” applies
      to all entities with available-for-sale and trading securities. Some
      requirements apply differently to entities that do not report net income. The
      FASB’s stated objective in issuing this standard is as follows: “to improve
      financial reporting by providing entities with the opportunity to mitigate
      volatility in reported earnings caused by measuring related assets and
      liabilities differently without having to apply complex hedge accounting
      provisions.”




84




The
      fair
      value option established by SFAS No. 159 permits all entities to choose to
      measure eligible items at fair value at specified election dates. A business
      entity will report unrealized gains and losses on items for which the fair
      value
      option has been elected in earnings (or another performance indicator if the
      business entity does not report earnings) at each subsequent reporting date.
      A
      not-for-profit organization will report unrealized gains and losses in its
      statement of activities or similar statement. The fair value option: (a) may
      be
      applied instrument by instrument, with a few exceptions, such as investments
      otherwise accounted for by the equity method; (b) is irrevocable (unless a
      new
      election date occurs); and (c) is applied only to entire instruments and not
      to
      portions of instruments.





SFAS
      No.
      159 is effective as of the beginning of an entity’s first fiscal year that
      begins after November 15, 2007.  Early adoption is permitted as of the
      beginning of the previous fiscal year provided that the entity makes that choice
      in the first 120 days of that fiscal year and also elects to apply the
      provisions of SFAS No. 157, “Fair Value Measurements.” Management does not
      anticipate any significant impact to the Company’s financial statements from the
      application of this pronouncement.





SFAS
      No.
      157, “Fair Value Measurements,” has been issued by the FASB. This new standard
      provides guidance for using fair value to measure assets and liabilities.
      Statement 157 applies whenever other standards require (or permit) assets or
      liabilities to be measured at fair value but does not expand the use of fair
      value in any new circumstances. The
      provisions of SFAS No. 157 are effective for financial statements issued for
      fiscal years beginning after November 15, 2007, and interim periods within
      those
      fiscal years. Management does not anticipate any significant impact to the
      Company’s financial statements from the application of this
      pronouncement.





On
      July
      13, 2006, FASB Interpretation (“FIN”) No. 48, “Accounting for Uncertainty in
      Income Taxes - An Interpretation of FASB Statement No. 109,” was issued. FIN No.
      48 clarifies the accounting for uncertainty in income taxes recognized in an
      enterprise’s financial statements in accordance with SFAS No. 109, “Accounting
      for Income Taxes”. FIN No. 48 also prescribes a recognition threshold and
      measurement attribute for the financial statement recognition and measurement
      of
      a tax position taken or expected to be taken in a tax return. The new FASB
      standard also provides guidance on de-recognition, classification, interest
      and
      penalties, accounting in interim periods, disclosure, and
      transition.





The
      provisions of FIN No. 48 are effective for fiscal years beginning after December
      15, 2006. Earlier application is permitted as long as the enterprise has not
      yet
      issued financial statements, including interim financial statements, in the
      period of adoption. Management does not anticipate any significant impact to
      the
      Company’s financial statements from the application of this
      pronouncement.




85




The
      FASB
      has issued FASB Staff Position (“FSP”) 00-19-2, “Accounting for Registration
      Payment Arrangements.” This FSP specifies that the contingent obligation to make
      future payments or otherwise transfer consideration under a registration payment
      arrangement, whether issued as a separate agreement or included as a provision
      of a financial instrument or other agreement, should be separately recognized
      and measured in accordance with SFAS No. 5, “Accounting for Contingencies.” This
      FSP further clarifies that a financial instrument subject to a registration
      payment arrangement should be accounted for in accordance with other applicable
      GAAP without regard to the contingent obligation to transfer consideration
      pursuant to the registration payment arrangement. This FSP amends various
      authoritative literature notably SFAS No. 133, “Accounting for Derivative
      Instruments and Hedging Activities,” SFAS No. 150, “Accounting for Certain
      Financial Instruments with Characteristics of both Liabilities and Equity,” and
      FIN No. 45, “Guarantor’s Accounting and Disclosure Requirements for Guarantees,
      Including Indirect Guarantees of Indebtedness of Others.”





This
      FSP
      is effective immediately for registration payment arrangements and the financial
      instruments subject to those arrangements that are entered into or modified
      subsequent to December 21, 2006. For registration payment arrangements and
      financial instruments subject to those arrangements that were entered into
      prior
      to December 21, 2006, the guidance in the FSP is effective for financial
      statements issued for fiscal years beginning after December 15, 2006, and
      interim periods within those fiscal years. Management has not completed its
      evaluation of the impact to the Company’s financial statements from the
      application of this pronouncement.





Other
      recent accounting pronouncements issued by the FASB (including its EITF), the
      American Institute of Certified Public Accountants, and the SEC did not or
      are
      not believed by management to have a material impact on the Company’s present or
      future financial statements.





**2.**  **INVENTORY**





Inventory
      consisted of the following at December 31, 2006:





Raw
                materials
            
            $
            113,985Work
                in process
            
            
            5,984Finished
                goods
            
            
            6,148Inventory,
                gross
            
            
            126,117Reserve
                for obsolete inventory
            
            
            (29,102
            )Inventory,
                net
            
            $
            97,015





**3.**  **PROPERTY
      AND EQUIPMENT**





Property
      and equipment at December 31, 2006 consisted of the following:




86




Building
                improvements
            
            $
            4,747Computers
            
            
            350,099Furniture
                and fixtures
            
            
            21,264Software
            
            
            24,798Hospitality
                assets
            
            
            50,000Fixed
                assets, gross
            
            
            450,908Accumulated
                depreciation
            
            
            (312,064
            )Fixed
                assets, net
            
            $
            138,844





**4.**  **OTHER
      LIABILITIES**





Other
      liabilities at December 31, 2006 consisted of the following:





Accrued
                liquidated damages - Longview
            
            $
            849,648Series
                B preferred stock - conversion feature
              derivative
                liabilities
            
            
            794,880$805,000
                convertible notes - conversion
              feature
                derivative liabilities
            
            
            236,857Longview
                convertible notes - conversion
              feature
                derivative liabilities
            
            
            525,193Longview
                convertible notes - warrants
              derivative
                liabilities
            
            
            132,036Montgomery
                convertible debentures - conversion
              feature
                derivative liabilities
            
            
            413,815Montgomery
                convertible debentures - warrants
              derivative
                liabilities
            
            
            288,800Montgomery
                notes - redemption liability
            
            
            40,844$135,000
                convertible notes - warrants
              derivative
                liabilities
            
            
            411Series
                B preferred stock - cumulative accrued
              dividends
            
            
            42,160Total
            
            $
            3,324,644




87




See
      Notes
      5 and 6 for a description of the Company’s debt and equity instruments that are
      hosts to derivative liabilities.





**5.**  **NOTES
      PAYABLE**





Notes
      payable and convertible notes payable consist of the following at December
      31,
      2006:





$50,000
                note payable, interest bearing at 10% per annum with principal and
                interest payment of $1,000 monthly, maturing in November,
                2008
            
            $
            18,924$32,000
                note payable, interest bearing at 10% per annum with principal and
                interest currently due and payable
            
            
            32,000$805,000
                convertible note, bearing interest at 9% per annum, net of discounts
                of $0
                and 532,750 of principal converted due through April, 2006
            
            
            272,250$2,000,000
                convertible note, bearing interest at default rate of 15%, net of
                discount
                of $311,135 and $717,460 of principal converted, maturing in September,
                2007
            
            
            971,405$1,000,000
                convertible note, bearing interest at default rate of 15%, net of
                discount
                of $112,404 and $13,040 of principal converted, maturing in March,
                2007
            
            
            874,556$300,000
                convertible note, bearing interest at default rate of 15%, net of
                discount
                of $83,333, maturing in July, 2007
            
            
            216,667$69,000
                convertible note, bearing interest at default rate of 15%, net of
                discount
                of $49,761 maturing in April 2007
            
            
            19,239$600,000
                convertible note, bearing interest at 12%, net of discount of $474,683,
                maturing in June 2008
            
            
            125,317$300,000
                convertible note, bearing interest at 12%, net of discount of $266,116,
                maturing in August 2008
            
            
            33,884Total
            
            $
            2,564,242





**Note
      Payable - $50,000.**




88




On
      March
      21, 2003, the Company signed a $50,000 promissory note that as of December
      31,
      2006 had a balance of $18,924 and is scheduled to be repaid in monthly
      installments of $2,500 per month. $3,500 was paid on the note during the year
      ended December 31, 2006. The note originally matured in July 2006 and was in
      default. The default interest rate was 10% and at December 31, 2006
      approximately $2,962 of accrued interest was payable. The Company restructured
      the note in February 2007 with the note holder to make monthly payments of
      $1,000. The note currently matures in November 2008.





**Note
      Payable - $32,000.**





On
      June
      1, 2006, the Company signed a $33,000 loan agreement that as of December 31,
      2006 had a balance of $32,000 and is currently due and payable. $11,000 was
      paid
      on the note in May 2006. An additional $10,000 was drawn on the note in November
      2006. The note originally matured on July 31, 2006 and is currently in default.
      The default interest rate was 10% and at December 31, 2006 approximately $1,710
      of accrued interest was payable. The Company is continuing to accrue interest
      on
      this note at the default rate.





**$135,000
      Convertible Notes.**





The
      Company entered into an agreement with four investors, in the third quarter
      of
      2003, one of which was the then president of the Company, Peter Trepp, to loan
      the Company a total of $135,000 under subordinated promissory notes (“$135,000
      Convertible Notes”). The $135,000 Convertible Notes, bearing 8% simple interest
      payable at maturity or conversion, automatically convert into shares of the
      security issued in connection with the receipt of a new $2,500,000 equity
      financing, or into shares of common stock in case of a change in control of
      the
      Company. The $135,000 Convertible Notes are subordinated to all of our
      indebtedness to banks, commercial finance lenders, insurance companies or other
      financial institutions regularly engaged in the business of lending money,
      but
      are senior to all other debt on our balance sheet. As of June 30, 2006, the
      $135,000 Convertible Notes were paid in full.





Each
      investor was issued a warrant to purchase shares of our common stock equal
      to
      40% of the amount invested in the notes. As of December 31, 2006, warrants
      to
      purchase 13,716 shares of common stock were outstanding.





Upon
      completion of the June 13, 2006 Montgomery financing, the warrants did not
      satisfy all of the conditions of EITF No. 00-19 and therefore do not meet the
      scope exception of paragraph 11(a) of SFAS No. 133. Accordingly, at June 13,
      2006, after considering all other commitments that may require the issuance
      of
      common stock during the maximum period the warrants could remain outstanding,
      the Company determined that it is possible that the Company may not have
      sufficient authorized and unissued shares available to settle the warrants.
      Accordingly, the warrants were reclassified to derivative liabilities (included
      in other liabilities - See Note 2). The amount reclassified from additional
      paid-in capital related to the warrants was $4,800.




89




The
      estimated fair value of the warrants at June 13, 2006, the date of
      reclassification resulting from the issuance of the Montgomery debt, was $4,800.
      At December 31, 2006, the estimated fair value of such warrants was $411.
      Consequently, during the period from June 13, 2006 to December 31, 2006, the
      Company recorded to results of operations a reduction in the change in the
      estimated fair value of derivative liabilities of $4,389 and carries a
      derivative liability of $411 related to these warrants, which is included in
      other liabilities in the accompanying balance sheet at December 31,
      2006.





**$250,000
      Convertible Notes.**





In
      March
      2004, the Company borrowed $250,000 under convertible notes payable (“$250,000
      Convertible Notes”), of which $100,000 came from management or individuals
      related to certain management personnel. All borrowings are due in March 2006,
      with monthly interest payments on the outstanding balance; interest accrues
      at
      9% per annum. The $250,000 Convertible Notes were converted into common stock
      of
      the Company based on a formula subject to a floor of $0.001 per share.





In
      connection with the $250,000 Convertible Notes, the Company granted warrants
      to
      purchase 8,659 shares of the Company’s restricted common stock based on a
      formula subject to a floor of $0.001 per share. The warrants vested upon grant
      and expired in March 2006. The conversion feature embedded in the notes and
      the
      warrants could have been settled in unregistered shares pursuant to EITF No.
      00-19.





The
      convertible feature of the $250,000 Convertible Notes provides for a rate of
      conversion that is below market value. Such feature is normally characterized
      as
      a “beneficial conversion feature” (“BCF”). Pursuant to EITF No. 98-5,
“Accounting For Convertible Securities with Beneficial Conversion Features or
      Contingently Adjustable Conversion Ratio,” and EITF No. 00-27, “Application of
      EITF No. 98-5 To Certain Convertible Instruments,” the Company has estimated the
      fair value of such BCF to be approximately $176,000 related to these notes
      and
      recorded such amount as a debt discount. Such discount was amortized to interest
      expense over the term of the notes. Amortization expense during the years ended
      December 31, 2006 and 2005 approximated $0 and $100,000, respectively. Of the
      $250,000 in proceeds, $100,000 came from related parties, including officers.
      The notes were paid in June 2006.





**$805,000
      Convertible Notes.**





In
      March
      2004, the Company borrowed $715,000 under convertible notes payable (“$715,000
      Convertible Notes”). All borrowings are due in March 2006, with monthly interest
      payments on the outstanding balance; interest accrues at 9% per annum. The
      $715,000 Convertible Notes may be converted into common stock of the Company
      based on a formula subject to a floor of $0.001 per share. In July 2004, the
      Company borrowed an additional $90,000 under terms identical to those of the
      $715,000 Convertible Notes.





The
      conversion feature embedded in the notes and the warrants can be settled in
      unregistered shares pursuant to EITF No. 00-19. Therefore, the notes and warrant
      instruments met the scope exception of paragraph 11(a) of SFAS No. 133 at
      inception through March 31, 2006.




90




On
      June
      13, 2006, the Company issued convertible note instruments with variable
      conversion features and not subject to a floor exercise price. Consequently,
      due
      to these terms, the number of shares required for settlement is indeterminate.
      Accordingly, at June 30, 2006, after considering all other commitments that
      may
      require the issuance of stock during the maximum period the convertible notes
      could remain outstanding, the Company determined that it is possible it may
      not
      have sufficient authorized and unissued shares available to settle the
      convertible notes. Accordingly, the fair value of the conversion feature of
      $325,341associated with the $715,000 Convertible Notes was reclassified to
      derivative liabilities (included in other liabilities-See Note 2).





The
      reduction in estimated fair value of the conversion feature between the
      reclassification date and December 31, 2006 was $88,484. At December 31, 2006,
      the estimated fair value of such conversion feature was $236,857. Consequently,
      during the period from the reclassification date to December 31, 2006, the
      Company recorded the change in estimated fair value of this derivative liability
      as a reduction of expense of $88,484 within the change in the estimated fair
      value of derivative liabilities in the accompanying statement of operations
      and
      carries a derivative liability of $236,857 related to the conversion feature,
      which is included in other liabilities in the accompanying balance sheet at
      December 31, 2006.





In
      connection with the issuance of the $715,000 Convertible Notes, the Company
      paid
      issuance costs of $74,500, which were recorded as a debt discount and was
      amortized to interest expense over the life of notes. The debt discount is
      fully
      amortized as of December 31, 2006.





During
      the year ended December 31, 2006, $278,350 of principal and $9,244 of accrued
      interest were converted into common stock. As of December 31, 2006, the
      outstanding principal balance is $272,250.





In
      April
      2006, the notes expired and were in default. On May 22, 2006, the parties agreed
      to extend the due date to March 31, 2008.





**$2,000,000
      Longview Convertible Notes.**





On
      September 22, 2004, the Company entered into a subscription agreement with
      Longview Fund, LP, Longview Equity Fund, LP, and Longview International Equity
      Fund, LP whereby these investors purchased $2,000,000 of principal amount of
      convertible notes, bearing interest at 5% per annum, convertible into shares
      of
      the Company’s common stock (“$2,000,000 Convertible Notes). The conversion
      formula is subject to a floor of $0.001 per share. The conversion prices are
      equal to the lesser of (i) 75% of the average of the five lowest closing bid
      prices of the Company’s common stock as reported by the OTC Bulletin Board for
      the ninety trading days preceding the conversion date, or (ii) $17.50. Under
      the
      terms of the notes, they cannot be converted if such conversion would result
      in
      beneficial ownership by the subscriber and its affiliates of more than 4.99%
      of
      the outstanding shares of the Company’s common stock on the conversion date. In
      addition, the convertible note holders received Class A and Class B share
      warrants to purchase shares of common stock, as described below. The $2,000,000
      Convertible Notes and related warrant agreements require registration of the
      shares underlying the conversion feature and warrants. See also “Registration
      Rights,” “Classification of Conversion Feature and Warrants” and “Liquidated
      Damages,” below.




91




$1,000,000
      of promissory notes was purchased on the initial closing date (“Initial Closing
      Purchase Price”) and the second $1,000,000 of the purchase price (“Second
      Closing Purchase Price”) was received on November 9, 2004.





The
      convertible note holders received Class A and Class B share warrants to purchase
      shares of common stock based on the following formulas:




(1) Class
      A
      Warrants.





A
      Class A
      warrant to purchase 30 shares of common stock was issued for each 100 shares
      issuable assuming conversion at inception. The per warrant share exercise price
      to acquire a share upon exercise of a Class A warrant is $0.15, as adjusted
      June
      13, 2006. The original exercise price was $7.14. Each Class A warrant is
      exercisable until five years after the issue date of the Class A
      warrants.





(2) Class
      B
      Warrants.





A
      Class B
      warrant to purchase 125 shares of common stock was issued for each $1.00 of
      purchase price invested on each closing date. The per warrant share exercise
      price to acquire a share upon exercise of a Class B warrant is $0.15 as adjusted
      June 13, 2006. The original exercise price was $7.00. Each Class B warrant
      is
      exercisable until three years after the issue date of the Class B
      warrant.





At
      the
      inception of the $2,000,000 Convertible Notes, the convertible feature and
      the
      warrants could be settled in unregistered shares and was outside the scope
      of
      EITF No. 00-19. Consequently, pursuant to EITF No. 98-5 and EITF No. 00-27,
      the
      Company estimated the fair value of such BCF to be approximately $2,000,000
      and
      recorded such amount as a debt discount. Such discount is being amortized to
      interest expense over the three-year term of the notes. Amortization of the
      discount to interest expense on the $2,000,000 Convertible Notes during the
      years ended December 31, 2006 and 2005 was $560,385 and 1,300,000.





During
      the year ended December 31, 2006, $91,507 of principal and $11,993 of related
      accrued interest was converted into common stock. To date, the Company has
      issued 1,019,860 shares (post-reverse split) upon conversion of $717,460
      aggregate principal and $108,472 of related accrued interest.





On
      October 22, 2005, upon the de-election as a BDC, the shares underlying the
      conversion feature and the warrants were required to be registered. As a result,
      the Company reclassified the fair value of the conversion feature and the
      warrants of $26,193 to other liabilities from additional paid in capital. The
      balance of the derivative liability related to the $2,000,000 Convertible Notes
      at December 31, 2006 was $390,162.




92




The
      estimated fair value of the conversion feature and warrants associated with
      the
      Longview $2,000,000 convertible notes during the years ended December 31, 2006
      and 2005 increased by $363,970 and $26,193, respectively. Such increase to
      expense was recorded in the statement of operations and included within the
      change in estimated fair value of derivative liabilities.





**$1,000,000
      Longview Convertible Notes.**





On
      March
      22, 2005, the Company entered into a subscription agreement with Longview Fund,
      LP, Longview Equity Fund, LP, and Longview International Equity Fund, LP whereby
      these investors purchased $1,000,000 of principal amount in convertible notes,
      bearing interest at prime plus 4% per annum, of the Company convertible into
      shares of the Company’s common stock (“$1,000,000 Convertible Notes”). The
      conversion formula is subject to a floor of $0.001 per share. The conversion
      price is equal to the lesser of (i) 75% of the average of the five lowest
      closing bid prices of the Company’s common stock as reported by the OTC Bulletin
      Board for the ninety trading days preceding the conversion date, or (ii) $17.50.
      The notes mature in March 2007. Under the terms of the notes, they cannot be
      converted if such conversion would result in beneficial ownership by the
      subscriber and its affiliates of more than 4.99% of the outstanding shares
      of
      the Company’s common stock on the conversion date. In addition, the convertible
      note holders received Class A share warrants to purchase shares of common stock,
      as described below. The $1,000,000 Convertible Notes and related warrant
      agreements require registration of the shares underlying the conversion feature
      and warrants. See also “Registration Rights,” “Classification of Conversion
      Feature and Warrants” and “Liquidated Damages,” below.





The
      convertible note holders received Class A share warrants to purchase shares
      of
      common stock based on the following formula:




A
      Class A
      warrant to purchase 30 shares of common stock was issued for each 100 shares
      issuable assuming the complete conversion of the notes issued at inception.
      The
      per warrant share exercise price to acquire a share upon exercise of a Class
      A
      warrant is $0.15, as adjusted June 13, 2006. The original exercise price was
      $3.50. Each Class A warrant is exercisable until five years after the issue
      date.





At
      the
      inception of the $1,000,000 Convertible Notes, the conversion feature and the
      warrants could be settled in unregistered shares and was outside the scope
      of
      EITF No. 00-19. Consequently, pursuant to EITF No. 98-5 and EITF No. 00-27,
      the
      Company estimated the fair value of such BCF to be approximately $1,000,000
      and
      recorded such amount as a debt discount. Such discount is being amortized to
      interest expense over the two-year term of the notes. Amortization of the debt
      discount on these notes during the year ended December 31, 2006 and 2005 was
      $509,396 and $372,800, respectively. To date, the Company has issued 68,088
      shares (post-reverse split) upon conversion of $13,040 aggregate principal
      and
      $53,081 of related accrued interest.




93




On
      October 22, 2005, upon the de-election as a BDC, the shares underlying the
      conversion feature and the warrants were required to be registered. As a result,
      the Company reclassified the fair value of the conversion feature and the
      warrants to other liabilities from additional paid in capital. The balance
      of
      the derivative liabilities related to the $1,000,000 Convertible Notes and
      warrants at December 31, 2006 was $195,081.





The
      estimated fair value of the conversion feature and warrants associated with
      the
      Longview $1,000,000 convertible notes during the years ended December 31, 2006
      and 2005 increased by $181,984 and $13,096, respectively. The increase was
      recorded in the statement of operations and included within the change in
      estimated fair value of derivative liabilities.





**$300,000
      Longview Convertible Notes.**





On
      July
      20, 2005, July 28, 2005, and August 17, 2005, the Company entered into
      subscription agreements with Longview Fund, LP, Longview Equity Fund, LP, and
      Longview International Equity Fund, LP whereby these investors purchased
      $300,000 principal amount of promissory notes, bearing interest at prime plus
      4%
      per annum, of the Company convertible into shares of the Company’s common stock
      ($300,000 Convertible Notes). The conversion formula is subject to a floor
      of
      $0.001 per share. The conversion price is equal to the lesser of (i) 75% of
      the
      average of the five lowest closing bid prices of the Company’s common stock as
      reported by the OTC Bulletin Board for the ninety trading days preceding the
      conversion date, or (ii) $17.50. Under the terms of the $300,000 Convertible
      Notes, they cannot be converted if such conversion would result in beneficial
      ownership by the subscriber and its affiliates of more than 4.99% of the
      outstanding shares of the Company’s common stock on the conversion date. In
      addition, the convertible note holders received Class A share warrants to
      purchase shares of common stock, as described below. The $300,000 Convertible
      Notes and related warrants agreements require registration of the shares
      underlying the conversion feature and warrants. See also “Registration Rights,”
“Classification of Conversion Feature and Warrants” and “Liquidated Damages,”
below.





The
      convertible note holders received Class A share warrants to purchase shares
      of
      common stock based on the following formula:




A
      Class A
      warrant to purchase 30 shares of common stock was issued for each 100 shares
      issuable assuming the complete conversion of the notes at inception. The per
      warrant share exercise price to acquire a share upon exercise of a Class A
      warrant is $0.15. The original exercise price was 120% of the closing bid price
      of the common stock on the trading day immediately preceding the Initial Closing
      Date and is exercisable until five years after the issue date of the Class
      A
      warrants.





At
      the
      inception of the $300,000 Convertible Notes, the conversion feature and the
      warrants could be settled in unregistered shares and were outside the scope
      of
      EITF No. 00-19. Consequently, pursuant to EITF No. 98-5 and EITF No. 00-27,
      the
      Company estimated the fair value of such BCF to be $300,000 and recorded such
      amount as a debt discount. Such discount is being amortized to interest expense
      over the two-year term of the notes. Amortization of the debt discount on this
      note during the years ended December 31, 2006 and 2005 was $150,538 and $66,128,
      respectively.




94




To
      date,
      none of the $300,000 Convertible Notes or its related accrued interest have
      been
      converted into common stock.





On
      October 22, 2005, upon the de-election as a BDC, the shares underlying the
      conversion feature and the warrants were required to be registered. As a result,
      the Company reclassified the fair value of the conversion feature and the
      warrants to derivative liability from additional paid in capital. The balance
      of
      the derivative liabilities related to the $300,000 Convertible Notes and
      warrants at December 31, 2006 was $58,524.





The
      estimated fair value of the conversion feature and warrants associated with
      the
      Longview $300,000 convertible notes during the years ended December 31, 2006
      and
      2005 increased by $54,595 and $3,929, respectively and was recorded in the
      statement of operations and included within the change in estimated fair value
      of derivative liabilities.





**$69,000
      Longview Convertible Notes.**





On
      April
      5, 2006, the Company entered into a subscription agreement with Longview Fund,
      LP under which this investor purchased $69,000 in convertible notes bearing
      interest at 12% per annum, convertible into shares of the Company's common
      stock
      (the total amount of the notes was changed upon signing from $60,000 to $69,000)
      (“$69,000 Convertible Notes”). The terms of these notes are two years. The
      conversion price is equal to the lower of (i) $0.50, or (ii) 50% of the lowest
      five day weighted average volume price of the common stock using the volume
      weighted average price as reported by Bloomberg L.P. for our principal market
      for the 20 trading days preceding a conversion date. The conversion feature
      is
      not subject to a floor.





The
      note
      holder received Class A share warrant to purchase shares of common stock based
      on the following formula:





1
      Class A
      warrant was issued for each 1 share of common stock issuable assuming conversion
      at inception. The per warrant share exercise price to acquire a share upon
      exercise of a Class A warrant is $0.15, as adjusted June 13, 2006. The original
      exercise price was $0.50. Each warrant is exercisable until five years after
      the
      issue date of the Class A warrants.





On
      this
      basis, the Company issued warrants to purchase 216,668 shares of common stock
      on
      April 5, 2006.





The
      Company has received a total of $69,000 under two promissory notes under a
      first
      and second closing under the terms of the subscription agreement.





The
      conversion feature of the notes and warrants do not satisfy all of the
      conditions of EITF No. 00-19 and therefore do not meet the scope exception
      of
      paragraph 11(a) of SFAS No. 133. As a result, the conversion feature must be
      bifurcated from the host note and together with the warrants must be reflected
      as derivative liabilities.




95




The
      estimated fair value of the warrants was $132,167 at inception and $69,000
      was
      allocated as discount against the note and $63,167 of excess discount was
      recorded to change in fair value of derivative liabilities in the statement
      of
      operations. The balance of the derivative liabilities related to the $69,000
      Convertible Notes and warrants at December 31, 2006 was $13,461.





The
      estimated fair value of the conversion feature was $120,681 at inception and
      none was allocated as discount against the note and $120,681 of such amount
      was
      recorded to change in fair value of derivative liabilities in the accompanying
      statement of operations for the year ended December 31, 2006. The estimated
      fair
      value of the conversion feature and warrants associated with the Longview
      $69,000 convertible notes during the period from inception to December 31,
      2006
      increased by $13,461 and was recorded in the statement of operations and
      included within the change in estimated fair value of derivative.





During
      the year ended December 31, 2006, there were no conversions of the $69,000
      Convertible Notes into common stock.





**Registration
      Rights - Longview.**





The
      Longview notes and related warrant agreements contain provisions whereby the
      holders of notes and warrants are entitled to registration rights in the event
      the Company’s Regulation E exemption from registration ceases to be effective.
      This exemption (evidence by a Form 1-E filed when the Company operated as a
      BDC), ceased to be effective on October 22, 2005. Specifically, subsequent
      to
      October 22, 2005, the Company was required to register with the SEC the shares
      issuable pursuant to the notes’ conversion feature and warrants. From the date
      that the Regulation E exemption ceased to be effective, the Company must file
      a
      registration statement with the SEC within 60 days and it must have such
      registration statement be effective within 90 days.





**Classification
      of Conversion Feature and Warrants.**





Pursuant
      to EITF No. 00-19, the Company evaluated the Longview conversion feature and
      warrants at October 22, 2005. Management determined that due to the nature
      of
      the liquidated damages the Company must pay (with no maximum prescribed in
      the
      agreements), the Company must pursue registration as its most “economic
      alternative” and settle the Longview conversion feature and warrants with
      registered shares; and as a result, it must treat the conversion feature and
      warrants as derivative liabilities. In addition, under View C of EITF No. 05-04,
      the Company accounts for the liquidated damages separately from these two other
      derivative liabilities.





Management
      estimated the value of the warrants using a Black-Scholes model. The fair value
      of the Longview warrant derivative liability at December 31, 2006 totaled
      $132,036 and is included in other liabilities in the accompanying balance
      sheet.




96




Management
      estimated the value of the conversion feature using convertible bond pricing
      models while taking into consideration limitations on ownership (Longview cannot
      own in excess of 4.99% of the Company’s outstanding shares at any time) and
      estimated conversions during the term of the notes based upon expected dilution
      of the stock.





**Liquidated
      Damages.**





The
      Company is required to pay liquidated damages at the rate of 2% per month (based
      on the Longview notes’ outstanding principal balance) until such time as a Form
      SB-2 registration statement is effective. The Company has accrued $849,648
      in
      liquidated damages, which is included in Other Liabilities in the accompanying
      balance sheet at December 31, 2006. Additional liquidated damages accrue at
      $51,390 per month based on the outstanding principal balance of the Longview
      notes in the amount of $2,638,499 as of December 31, 2006. To date, no
      liquidated damages have been paid.





**Montgomery
      Convertible Debentures.**





On
      June
      13, 2006, the Company entered into and closed on a Securities Purchase Agreement
      with Montgomery Equity Partners, LP (“Montgomery”). Under this agreement,
      Montgomery agreed to purchase from the Company 12% convertible debentures in
      the
      aggregate principal amount of $1,200,000; that will mature on June 13, 2008
      (“Montgomery Convertible Debentures”). The debentures are convertible from time
      to time into the Company’s common stock by Montgomery, at its sole option, into
      a price per share of either: (i) $0.3155, or (ii) 80% of the lowest closing
      bid
      price of our common stock, for the five trading days immediately preceding
      the
      conversion date. The conversion feature is not subject to a floor.





Beginning
      January 15, 2007, the Company is required to redeem the debentures at a rate
      of
      no less than $60,000 per month of any then outstanding principal balance plus
      a
      redemption premium equal to 20% of the principal amount being redeemed. The
      Company is accreting the redemption premium as interest expense over the period
      from inception through each required monthly redemption date. During the year
      ended December 31, 2006, the Company included $40,844 of redemption premium
      accretion in interest expense in the statement of operations. At December 31,
      2006, the redemption premium liability totals $40,844 and is included in other
      liabilities in the accompanying balance sheet.





The
      Company granted Montgomery a subordinate priority security interest in certain
      of our assets pursuant to a Security Agreement, dated June 13,
      2006.





The
      Company received $600,000 upon closing June 13, 2006, received $300,000 on
      August 11, 2006 after a registration statement (Form SB-2) was filed with the
      Securities and Exchange Commission, and will receive the final $300,000 one
      business day after the date a registration statement is declared effective
      by
      the SEC.





Montgomery
      will not be able to convert the debentures and/or exercise the warrants into
      an
      amount that would result in the investor beneficially owning in excess of 4.99%
      of the outstanding shares of the Company’s common stock. Further, Montgomery
      agreed to limit its weekly debenture conversions to no more than $50,000 per
      week, unless this provision is waived by the Company. That limitation becomes
      void when our traded weighted dollar volume exceeds $400,000 for the previous
      week or the closing bid price of our common stock exceeds $0.4259.




97




In
      this
      transaction, Montgomery received three five-year warrants, all dated June 13,
      2006, to purchase as follows:





Class
      A
      warrant to purchase 800,000 shares of common stock at an exercise price of
      $0.15;





Class
      B
      warrant to purchase 800,000 shares of common stock at an exercise price of
      $0.35
      per share





Class
      C
      warrant to purchase 800,000 shares of common stock at an exercise price the
      lesser of $0.35 or 80% of the lowest closing bid price of our common stock
      per
      share as reported by Bloomberg L.P. for the 5 trading days prior to exercise
      of
      the warrant.





These
      warrants are exercisable on a cash basis provided the Company is not in default
      and the shares underlying the warrants are subject to an effective registration
      statement.





The
      Company paid to Montgomery 60,852 shares of common stock as a loan commitment
      fee. In addition, the Company paid the following, under the Securities Purchase
      Agreement to Yorkville Advisors LLC (an affiliate of Montgomery):





·
            commissions
                of 10% of the principal amount of the debenture, which is to be paid
                proportionally upon each
                disbursement;





·  a
      structuring fee of $10,000 directly from the initial proceeds; and





·  a
      non-refundable due diligence fee of $5,000.





All
      fees
      above have been paid, except for the 10% commission, related to $300,000 that
      was paid March 19, 2007 upon funding (see Subsequent Events).





These
      costs have been accounted for as deferred financing costs and are being
      amortized to interest expense over the life of the convertible debentures.
      As of
      December 31, 2006, $35,978 has been amortized to interest expense. In connection
      with this transaction, the Company granted to Montgomery certain demand rights
      under a registration rights agreement, dated June 13, 2006, to the shares to
      be
      issued upon conversion of the Montgomery debentures and the
      warrants.





The
      parties also entered into a Pledge and Escrow Agreement, dated June 13, 2006,
      under which the Company agreed to irrevocably pledge to Montgomery 15,212,982
      shares of the Company’s common stock as security. This stock is to be held by an
      escrow agent (counsel for Montgomery) until the full payment of all amounts
      due
      under the Montgomery convertible debentures




98




The
      conversion feature of the Montgomery Convertible Debentures provides for a
      rate
      of conversion that is below the market value of the Company's common stock.
      The
      conversion feature of the notes and warrants do not meet all of the criteria
      of
      EITF No. 00-19 as the number of shares is not fixed and therefore the scope
      exception of paragraph 11(a) of SFAS No. 133 is not met. As a result, the
      conversion feature must be bifurcated from the host note and together with
      the
      warrants reflected as derivative liabilities. The estimated fair value of the
      conversion feature was $744,000 at inception and $600,000 was allocated as
      discount against the notes with the remaining $144,000 charged to change in
      fair
      value of derivative liabilities in the statement of operations.





On
      August
      11, 2006, an additional $300,000 of the Montgomery Convertible Debentures were
      funded. The conversion feature of the notes does not meet all of the criteria
      of
      EITF No. 00-19 as the number of shares is not fixed and therefore the scope
      exception of paragraph 11(a) of SFAS No. 133 is not met. As a result, the
      conversion feature must be bifurcated from the host note and reflected as a
      derivative liability. The estimated fair value of the conversion feature was
      $450,000 at inception and $300,000 was allocated as discount against the notes
      with the remaining $150,000 charged to change in fair value of derivative
      liabilities in the statement of operations.





During
      the period from inception to December 31, 2006, the Company recorded a decrease
      in fair value of $396,185 related to the Montgomery conversion feature
      derivative liabilities within the line item change in fair value of derivative
      liabilities in the accompanying statement of operations.





At
      December 31, 2006, $413,815 related to Montgomery convertible debentures
      conversion feature derivative liabilities is included in other liabilities
      in
      the accompanying balance sheet.





The
      estimated fair value of the warrants was $840,000 at inception and such amount
      was charged to change in fair value of derivative liabilities in the statement
      of operations. During the year ended December 31, 2006, the Company recorded
      a
      decrease in fair value of $551,200 of the warrants’ derivative liability within
      the line item change in fair value of derivative liabilities in the accompanying
      statement of operations. At December 31, 2006, $288,800 of Montgomery warrant
      derivative liability is included in other liabilities in the accompanying
      balance sheet.





The
      discount of $900,000 is being amortized to interest expense over the two-year
      term of the notes. Amortization of debt discount on this note for the year
      ended
      December 31, 2006 was $159,201.





During
      the year ended December 31, 2006, there were no conversions of the Montgomery
      Convertible Debentures into common stock.





**Maturities.**




99




All
      notes
      and convertible notes payable (assuming no conversion) are in default and
      classified as current liabilities as of December 31, 2006.





**6.**  **STOCKHOLDERS’
      EQUITY (DEFICIT)**





**Preferred
      Stock.**





Series
      A.





The
      Company has 3,000,000 shares of Series A preferred stock authorized. On October
      6, 2004, the Company’s Compensation Committee granted and the Company issued
      Series A preferred stock to Mr. Dix and Mr. Boudewyn totaling 3,000,000 shares.
      Each share of Series A preferred stock is convertible at the rate of 800 shares
      of common stock for each full share of preferred stock (under
      the terms of the certificate of designation governing these shares, the
      conversion ratio was not changed upon the reverse split of the Company’s common
      stock on November 23, 2005).





Each
      share of outstanding Series A preferred stock entitles the holder thereof to
      vote on each matter submitted to a vote of the stockholders of the Company
      and
      to have the number of votes equal to the number (including any fraction) of
      shares of common stock into which such share of Series A preferred stock is
      then
      convertible pursuant to the provisions hereof at the record date for the
      determination of stockholders entitled to vote on such matters or, if no such
      record date is established, at the date such vote is taken or any written
      consent of stockholders becomes effective. The preferred shares are convertible
      no earlier than three years from issuance.





Management
      concluded that the value of the Series A preferred shares was $200,000, which
      is
      being amortized over the three-year vesting period. During the year ended
      December 31, 2006 and 2005, the Company recorded $66,666 and $33,334 of
      amortization as general and administrative expense in the accompanying
      statements of operations. At December 31, 2006, the balance of $50,000 is
      carried as unearned compensation, contra equity, in the accompanying balance
      sheet and statement of stockholders’ deficit.





Series
      B.





The
      Company is authorized to issue up to 5,000,000 shares of Series B convertible
      preferred stock ("Series B"). Series B is convertible into common stock upon
      various events including, change of control of the Company. The Company issued
      $250,000 of Series B convertible preferred stock in February 2006 and an
      additional $290,000 in April 2006. Issuance costs of $64,672 were recorded
      as
      reduction of additional paid in capital in the accompanying balance sheet and
      statement of stockholders’ deficit.





Each
      share of the Series B is convertible at a per share conversion price equal
      to
      the lesser of: (i) if converted without benefit of a registration statement,
      the
      conversion price will be equal to 75% of the lowest close bid of the common
      stock as reported by the Over-the-Counter Bulletin Board for the twenty trading
      days preceding the conversion date for each full share of Series B held; (ii)
      if
      converted with the benefit of a registration statement, the conversion price
      will be equal to 85% of the lowest close bid of the common stock as reported
      by
      the Over-the-Counter Bulletin Board for the twenty trading days preceding the
      conversion date for each full share of Series B held; or (iii) $1.00 (subject
      to
      adjustment as appropriate in the event of recapitalizations, reclassifications
      stock splits, stock dividends, divisions of shares and similar
      events).




100




Except
      as
      otherwise required by law, each share of outstanding Series B entitles the
      holder thereof to vote on each matter submitted to a vote of the stockholders
      of
      the Company and to have the number of votes equal to the number (including
      any
      fraction) of shares of common stock into which such share of Series B is then
      convertible pursuant to the provisions hereof at the record date for the
      determination of stockholders entitled to vote on such matters or, if no such
      record date is established, at the date such vote is taken or any written
      consent of stockholders becomes effective. Except as otherwise required by
      law
      or by the Certificate of Designation for the Series B, the holders of shares
      of
      common stock and Series B are to vote together and not as separate
      classes.





Should
      the Company file with the SEC a Form SB-2 registration statement in order to
      register the shares of common stock to be issued upon conversion of the Series
      B
      and the shares which could be issued upon payment of the dividends for resale
      and distribution under the Securities Act of 1933, the registrable securities
      are to be reserved and set aside exclusively for the benefit of each holder.
      Additionally, the registration statement will immediately be amended or
      additional registration statements will be immediately filed by the Company
      as
      necessary to register additional shares of common stock to allow the public
      resale of all common stock included in and issuable by virtue of the registrable
      securities.





Additionally,
      the Series B designation document includes the following
      provisions:





·
            10%
                cumulative preferred dividends shall accrue and accumulate on a quarterly
                basis at $0.10 per share;





·
            provided
                that, and only to the extent that, the Company has a sufficient number
                of
                shares of authorized but unissued and unreserved common stock available
                to
                issue upon conversion, each share of Series B shall be convertible
                at the
                option of the holder; and





·
            in
                the event the Company is prohibited from issuing shares of common
                stock
                upon conversion of the Series B, then at the holder's election, the
                Company must pay to the holder, an amount in cash determined by
                multiplying the unconverted face amount, together with accrued but
                unpaid
                dividends thereon, of the amount of shares of convertible preferred
                stock
                designated by the Holder for mandatory redemption by
                110%.





The
      Series B embedded conversion feature contains a variable conversion rate with
      no
      cap. Additionally, all of the three criteria pursuant to SFAS No. 133 paragraph
      12 are met, therefore the embedded derivative instrument (the conversion option)
      is required to be bifurcated from the host contract and accounted for as a
      derivative instrument pursuant to SFAS No. 133, with changes in fair value
      between reporting periods included in results of operations. Accordingly, the
      Company recorded the commitment date fair value as derivative liabilities
      ($332,500 for 250,000 shares issued during the three months ended March 31,
      2006
      and $998,889 for 290,000 shares issued during the three months ended June 30,
      2006), with a corresponding decrease to additional paid-in capital (since the
      Company has no retained earnings) for the offsetting deemed dividend. During
      the
      year ended December 31, 2006, there were no other investments in Series
      B.




101




During
      the year ended December 31, 2006, the Company recorded a decrease of $536,509
      in
      the fair value of the embedded conversion feature is recorded as a change in
      fair value of derivative liabilities in the accompanying statement of
      operations.





**Common
      Stock.**





During
      the year ended December 31, 2006, the Company issued common stock, valued using
      either the market price on the date of issuance subject to discount as
      applicable or the value of the services rendered, whichever was more readily
      determinable, as follows:





(a)  2,008,663
      restricted and free trading shares issued for services valued at $754,809,
      using
      the contract value or share price on date of issuance whichever was of greater
      evidence. $410,285 in value of the issued shares were recorded as deferred
      consulting fees in the accompanying balance sheet and amortized to stock-based
      compensation over the term of service and 344,524 were included in stock-based
      compensation expense upon issuance.





(b)  861,174
      restricted shares valued at $228,873 in connection with the acquisition of
      certain GCI assets. The value of these shares was allocated to the purchased
      assets along with cash proceeds and included in fixed assets and other assets
      in
      the accompanying balance sheet.





(c)  194,925
      restricted shares valued at $155,940 to employees, including 66,107 shares
      re-issued to Jerry Dix and Don Boudewyn that were previously cancelled pursuant
      to the BDC conversion were recorded as stock-based compensation expense upon
      issuance.





(d)  1,853,010
      restricted shares were issued in connection with conversions of convertible
      debt
      and related accrued interest valued at $479,594.





(e)  15,411,768
      restricted shares as security to be held in escrow accounts were recorded as
      common stock held in escrow in the accompanying balance sheet. These issuances
      included 15,212,982 issued in connection with the Montgomery Convertible
      Debentures and 198,786 issued as security for payment of debts owed by
      GCI.





(f)  92,198
      restricted shares issued in connection with the exercise of warrants for which
      cash proceeds of $13,830 were received,





(g)  42,666
      restricted shares issued as administrative fees associated with related party
      notes payable valued at $10,667 and was recorded as deferred financing costs
      and
      amortized to interest expense. This fee was in the form of restricted shares
      of
      Company common stock, and issued at a price based on a 25% discount to the
      lowest closing bid price in the 20 trading days prior to the effective date
      of
      the agreement. On July 11, 2006, the Company issued a total of 21,333 shares
      of
      common stock to each individual in payment of this fee; because of this
      discount, these shares have been valued for accounting purposes at $5,333 ($0.25
      per share).




102




(h)  35,200
      restricted shares as a commitment fee in connection with short-term loans valued
      at $8,800 and was recorded as deferred financing costs and amortized to interest
      expense. This fee was in the form of restricted shares of Company common stock,
      and issued at a price based on a 25% discount to the lowest closing bid price
      in
      the 20 trading days prior to the effective date of the agreement. On July 11,
      2006, the Company issued a total of 35,200 shares of common stock to the
      individual in payment of this fee; because of this discount, these shares were
      valued for accounting purposes at $8,800 ($0.25 per share).





(i)  60,852
      restricted shares as a fee associated with the Montgomery Convertible Debentures
      valued at $24,000 and recorded as deferred financing costs and is being
      amortized to interest expense. The $24,000 fee and payment in 60,852 shares
      were
      valued as such at the average of 5 closing bids from June 13, 2006 ($0.39 per
      share), the closing date of the financing.





(j)  8,057,196
      restricted shares issued under Regulation S for which cash proceeds of 746,690
      were received.





During
      the year ended December 31, 2005, the Company issued 147,325 free trading shares
      of common stock in exchange for legal and marketing services valued at
      approximately $130,000. Additionally, during the year 2005, the Company issued
      a
      total of 1,081,838 restricted shares of common stock due to the conversion
      of
      notes and accrued interest having a total value of $1,112,018. Value was based
      on the terms of an agreement or if no value is given for the shares, the closing
      market price on the dates of grant.





**Warrants.**





From
      time
      to time, the Company may grant warrants in conjunction with the issuance of
      certain financial instruments.




During
      the years ended December 31, 2006 and 2005, the Company granted warrants to
      certain convertible note holders to purchase a total of 2,975,331 (post reverse
      split) and 310,714 (post reverse split) shares, respectively, of the Company’s
      common stock at exercise prices ranging from $0.15 per share to $1.00 per share
      (post reverse split).




103




Number
                of Shares
              (post
                reverse split)
            
            Weighted-Average
                Exercise Price
              (post
                reverse split)Warrants
                outstanding and exercisable at
              December
                31, 2004
            880,381
            
            $6.97Granted
            310,714
            
            $3.50Exercised
            --
            
            --Expired
            --
            
            --Warrants
                outstanding and exercisable at
              December
                31, 2005
            1,191,095
            
            $6.07Granted
            2,975,331
            
            $0.20Exercised
            92,218
            
            $0.15Expired
            258,659
            
            $0.77Warrants
                outstanding and exercisable at
              December
                31, 2006
            3,815,549
            
            $0.19(1)





(1) The ending weighted average exercise price reflects the effect of repricing
      the
      Longview warrants to $0.15 pursuant to the Montgomery financing.





The
      number of outstanding and exercisable warrants as of December 31, 2006 is
      provided below:




Outstanding
                and ExercisableRange
                of Exercise Prices
              (post
                reverse split)
            
            Number
                of Shares
              (post
                reverse split)
            
            Weighted-Average
                Exercise Price
              (post
                reverse split)
            
            Weighted-Average
                Remaining Life (Years)$0.15
            
            3,701,833
            
            $0.15
            
            3.43$1.00
            
            100,000
            
            $1.00
            
            0.40$3.94
            
            13,716
            
            $3.94
            
            1.53,815,549





**Fair
      Value Disclosure.**




104




The
      fair
      value of warrants was estimated using the Black-Scholes model with the following
      weighted-average assumptions:





Years
                Ended December 31,2006
            
            2005Weighted-average
                expected life (years)
            
            
            4.98
            
            
            1.94Annual
                dividend per share
            
            
            ---
            
            
            ---Risk-free
                interest rate
            
            
            4.5
            %
            
            4.5
            %Volatility
            
            
            181
            %
            
            450
            %Weighted-average
                fair value of
              options
                and warrants granted (post reverse split)
            
            $
            0.11
            
            $
            7.02





**7.**  **INCOME
      TAXES**





The
      components of income tax benefits consist of the following:





2006
            
            2005Current:Federal
            
            $
            --
            
            $
            --State
            
            
            --
            
            
            --Total
                current
            
            
            --
            
            
            --Deferred:Federal
            
            
            --
            
            
            --State
            
            
            --
            
            
            --Total
                deferred
            
            
            --
            
            
            --$
            --
            
            $
            --





At
      December 31, 2006, the Company has federal net operating loss carryforwards
      of
      approximately $20,552,000 and state tax net operating loss carryforwards of
      approximately $12,021,000, respectively. The carryforwards expire from 2011
      to
      2026.





The
      benefit for income tax differs from the amounts computed by applying the
      statutory federal income tax rate of 34% as follows:




105




2006
            
            2005Computed
                tax (benefit) expense
            
            $
            (2,087,317
            )
            $
            (1,368,504
            )State
                taxes, net of federal benefit
            
            
            (358,184
            )
            
            (241,501
            )Beneficial
                conversion features
            
            
            561,216
            
            
            --Stock-based
                compensation
            
            
            360,066
            
            
            --Non-Deductible
                Expenses
            
            
            21,587
            
            
            59,636Valuation
                allowance
            
            
            1,502,632
            
            
            1,550,369$
            --
            
            $
            --





The
      tax
      effects of temporary differences that gave rise to significant portions of
      deferred tax assets at December 31, 2006 and 2005 are as follows:





2006
            
            2005Federal
                and state net operating losses
            
            $
            7,728,776
            
            $
            7,224,388Accrued
                liquidated damages
            
            
            338,452
            
            
            --Other
                accruals for financial statement purposesnot
                currently deductible
            
            
            110,777
            
            
            69,042Total
                deferred tax assets
            
            
            8,178,005
            
            
            7,293,430Valuation
                allowance
            
            
            (8,178,005
            )
            
            (7,293,430
            )$
            --
            
            $
            --





In
      assessing the realizability of deferred tax assets, management considers whether
      it is more likely than not that some portion or all of the deferred tax assets
      will not be realized. The ultimate realization of deferred tax assets is
      dependent upon the generation of future taxable income during the periods in
      which temporary differences become deductible. Management considers projected
      future taxable income and tax planning strategies in making this assessment.
      Based upon the history of operating losses, management believes it is more
      likely than not the Company will not realize the benefits of these deductible
      differences. A full valuation allowance has been recorded to offset 100% of
      the deferred tax asset.





**8.**  **COMMITMENTS
      AND CONTINGENCIES**




106




**Lease
      Commitments.**





In
      October 2003, the Company negotiated an operating lease agreement for its office
      and research and development space of approximately 10,560 square feet in Marina
      del Rey, California for a five-year term, ending in 2008.





The
      Company is committed to make future aggregate rental payments under the terms
      of
      the lease agreement as noted below.





Year
                Ending
              December
                31,2007
            
            $
            153,3682008
            
            
            152,8142009
            
            
            124,7702010
                and thereafter
            
            
            --Total
                commitments
            
            $
            430,952





Rent
      expense approximated $159,023 and $146,000 for the years ended December 31,
      2006
      and 2005, respectively.




**Litigation.**




Other
      than as set forth below, the Company is not a party to any material pending
      legal proceedings, claims or assessments and, to the best of its knowledge,
      no
      such action by or against the Company has been threatened.





(a)  On
      June
      15, 2005 the Company was served with a complaint from a third party in a matter
      entitled Leslie J. Bishop and Deborah J. Bishop v. Brian K. Corty and Candy
      M.
      Corty, Wireless Think Tank, Inc., and 5G Wireless Communications, Inc., New
      York
      Supreme Court (Chenango County). This action seeks actual damages in excess
      of
      $80,000 and punitive damages of $300,000 against a former employee for breach
      of
      a residential lease and damage to a residential property in 2001. The claim
      against the Company alleges that the former employee was a principal in Wireless
      Think Tank, Inc. (a wholly owned subsidiary of the Company) and conducted
      business from such residence.





The
      Company had tentatively agreed to settle this litigation; however, as of
      December 31, 2006 the action was still open. In April 2007, the Company was
      notified by its counsel that the case was settled for $7,500.





(b)  On
      May 8,
      2006 the Company was served with a complaint in a matter entitled Brian Vallone
      and Anne Vallone v. 5G Wireless Communications, Inc., California Superior Court
      (Orange County). This action, which does not allege a damage amount, includes
      causes of action for breach of contract, negligent misrepresentation, and fraud,
      and is concerning equipment that was sold to a wireless internet provider in
      California for approximately $9,000 who claims that they were unable to generate
      fees for use and for advertising revenues.




107




Management
      believes the Company has meritorious claims and defenses to the plaintiffs’
claims and ultimately will prevail on the merits. However, this matter remains
      in the early stages of litigation and there can be no assurance as to the
      outcome of the lawsuit. Litigation is subject to inherent uncertainties, and
      unfavorable rulings could occur. Were unfavorable rulings to occur, there exists
      the possibility of a material adverse impact of money damages on the Company’s
      financial condition, results of operations, or liquidity of the period in which
      the ruling occurs, or future periods.





(c)  In
      November 2006 the Company was served with a Notice of Motion for Summary
      Judgment in Lieu of Complaint filed by Longview Fund, L.P., Longview Equity
      Fund, L.P., and Longview International Equity Fund, L.P. (“Longview Funds”). In
      this Motion, filed in New York State Supreme Court on November 2, 2006, the
      Longview Funds allege that the Company has failed to make payments of interest
      due on a series of notes issued by the Company, and failed to make payments
      of
      interest due on these notes.  The Longview Funds asked the court to enter
      judgment in their favor for $2,644,987 allegedly due under the notes, plus
      accrued interest.





Summary
      judgment was denied by the court, and the Longview Funds were ordered to file
      a
      regular complaint, which they did in January 2007. The Company has filed an
      answer and counterclaims in response to the complaint, asserting numerous
      defenses and independent claims for breach of contract, breach of the implied
      covenant of good faith and fair dealing, fraud, and breach of fiduciary duty
      against the Longview Funds, and Stanley A. Hirschman and Phil E. Pearce (two
      former directors of the Company). The Longview Funds have filed an answer in
      response to the Company’s counterclaims; the two former directors have filed a
      motion to dismiss for lack of personal jurisdiction (which is still pending,
      set
      for hearing on April 20, 2007). The case is continuing and is currently in
      discovery.





Management
      believes the Company has meritorious claims and defenses to the claims of the
      Longview Funds. This matter remains in the early stages of litigation and there
      can be no assurance as to the outcome of the action. Litigation is subject
      to
      inherent uncertainties, and unfavorable rulings could occur. Were unfavorable
      rulings to occur, there exists the possibility of a material adverse impact
      of
      money damages on the Company's financial condition, results of operations,
      or
      liquidity of the period in which the ruling occurs, or future
      periods.





**Consulting
      Agreements.**





The
      Company entered into consulting agreements with certain former employees of
      GCI.
      The term of the consulting agreements was from the October 4, 2006 to December
      31, 2006. The agreements are now at will and can be terminated at any time.
      The
      aggregate cost per month for these agreements was $28,990. After December 31,
      2006, the monthly amount paid under these agreements is $20,616.




108




**Payroll
      Taxes.**





The
      Company has been notified by the Internal Revenue Service and the California
      Employment Development Department that the Company owes a total of $222,335
      in back payroll taxes (including penalties and interest to date). The Company
      has also been notified that the Internal Revenue Services has recorded a federal
      tax lien against the Company in the office of the Los Angeles County Recorder
      in
      the amount of $58,638 (which is part of the total amount). The California
      Employment Development Department may record such a lien in the future. Such
      lien(s) may affect the ability of the Company raise capital in the
      future.





**9.**  **RELATED
      PARTY TRANSACTIONS**





In
      March
      2004, the Company borrowed $250,000 under convertible notes payable, of which
      $100,000 came from management or individuals related to certain management
      personnel ($50,000 came from Mr. & Mrs. Trepp, Mr. Trepp being the former
      president, $25,000 from Paul Zygielbaum, a former employee of the Company,
      and
      $25,000 from Thomas Janes, who is the father in law of Donald Boudewyn, the
      Company’s executive vice president). For further details on these loans, please
      see Note 4, $250,000 Convertible Notes.





On September 29, 2004, the Company’s board of directors appointed Stanley A.
      Hirschman as an independent board member. Mr.
      Hirschman formerly owned a 0.5% interest in Redwood
      Grove Capital Management, which is the management company for the Longview
      funds
      (which provided $2,000,000
      convertible notes described below) ;
      he
      relinquished this interest on June 27, 2005.





On
      October 4, 2004, the Company’s board of directors appointed Phil E. Pearce as an
      independent board member. Mr. Pearce formerly owned a 0.5% interest in Redwood
      Grove Capital Management; he relinquished this interest on June 27,
      2005.





On
      October 6, 2004 the Company’s Compensation Committee granted and the Company
      issued 3,000,000 shares of Series A preferred stock to Mr. Dix and Mr. Boudewyn
      totaling 3,000,000 (prior to the election to be a BDC). See Note 5 for a further
      discussion.





During
      2006 and 2005, the Company used the credit lines of Service Group, which is
      a
      company controlled by Mr. Dix, chief executive officer of the Company, to help
      the Company purchase equipment, travel and related consumables throughout the
      year as a means of managing cash flows.





Mr.
      Dix
      advanced $7,182 to the Company during the year ended December 31, 2006. There
      is
      no interest applicable to this advance. As of December 31, 2006 $5,457 is
      outstanding and remains payable to Jerry Dix which is included in Related Party
      notes and advances in the accompanying balance sheet.





Thomas
      Janes, a family relative of Don Boudewyn, executive vice president, lent $20,000
      to the Company pursuant to a loan agreement dated June 1, 2006. The loan
      provides for simple interest at ten percent (10%) per annum. In addition, there
      was an administration fee of $4,000 paid in 21,333 restricted shares of the
      Company’s common stock issued at a 25% discount to the lowest closing bid price
      in the 20 trading days prior to the date of the agreement. During the year
      ended
      December 31, 2006, the Company incurred $1,238 of interest expense that was
      recorded as interest expense in the statement of operations.




109




Russell
      Janes, a family relative of Mr. Boudewyn lent $20,000 to the Company pursuant
      to
      a loan agreement dated June 1, 2006. The loan provides for simple interest
      at
      ten percent (10%) per annum. In addition, there was an administration fee of
      $4,000 paid in 21,333 restricted shares of the Company’s common stock issued at
      a 25% discount to the lowest closing bad price in the 20 trading days prior
      to
      the date of the agreement. During the year ended December 31, 2006, the Company
      incurred $1,238 of interest expense that was recorded as interest expense in
      the
      statement of operations.





**10.**  **SUBSEQUENT
      EVENTS (UNAUDITED)**





(a)  From
      January 3, 2007 to April 11, 2007, the Company sold a total of 10,543,715
      restricted shares of common stock a total of 36 accredited investors for a
      total
      consideration of approximately $410,777 (average of approximately $0.039 per
      share). These
      sales were undertaken in offshore transactions under Regulation S in which
      no
      directed selling efforts were made in the United States by the Company, or
      any
      person acting on behalf of any of the Company.





(b)  From
      January 5, 2007 to April 2, 2007, the Company issued a total of 3,355,511 free
      trading shares of common stock under its Stock and Option Plan to various
      individuals and firms for consulting work for the Company. These shares were
      valued at a total of $363,134 (average of $0.108 per share).




(c) On
      March
      19, 2007, the Company received $300,000 (gross) on Montgomery Convertible
      Debentures.  This was the last installment due under this debenture and
      thus Montgomery waived the registration statement requirement.





(d) The
      Company was informed that final settlement was reached in the matter of entitled
      Leslie J. Bishop and Deborah J. Bishop v. Brian K. Corty and Candy M. Corty,
      Wireless Think Tank, Inc., and 5G Wireless Communications, Inc., New York
      Supreme Court (Chenango County).  The terms of settlement were not
      disclosed.  All amounts paid were expensed during 2006 and were not
      material the company.





(e) The
      Company changed transfer agents to Computershare based in Golden, Colorado,
      effective April 12, 2007.




110




(f)  On
      October 4, 2006, the Company acquired certain assets of Global Connect, Inc.
      On
      October 11, 2006, the Company filed a Form 8-K in connection with this material
      contract. After further consideration of this transaction in consultation with
      the Company’s independent registered public accounting firm, including a
      discussion of the accounting treatment of this transaction under SFAS No. 141
      for purposes of these financial statements, the Company has determined that
      this
      was a business acquired by the Company. Therefore, t he
      Company has determined that this acquisition must comply with Rule 3.05 of
      Regulation S-X, and therefore audited financial statements will be furnished
      for
      the two most recent fiscal years and any interim periods for this company;
      pro
      forma financial information will also be furnished in connection with this
      acquisition pursuant to Article 11 of Regulation S-X. This financial information
      will be provided in an upcoming amended Form 8-K.




111




**EXHIBIT
      INDEX**




Number
              Description1
              Agency
                  Agreement between the Company and May Davis Group, Inc., dated
                  April 1,
                  2003 (incorporated by reference to Exhibit 1 of the Form 10-QSB/A
                  filed on
                  November 17, 2003).2.1
              Agreement
                  and Plan of Reorganization and Merger between Tesmark, Inc., an
                  Idaho
                  corporation, and the Company (formerly known as Tesmark, Inc.),
                  a Nevada
                  corporation, dated November 10, 1998 (incorporated by reference
                  to Exhibit
                  2 of the Form 10-SB filed on December 15, 1999).2.2
              Acquisition
                  Agreement between the Company, and Richard Lejeunesse, Curtis Mearns,
                  and
                  Don Boudewyn, a partnership (known as 5G Partners), dated December
                  15,
                  2000, as amended (incorporated by reference to Exhibit 10 of the
                  Form 8-K
                  filed on February 14, 2001).2.3
              Share
                  Purchase Agreement between the Company, and Sea Union Industries
                  Pte.
                  Ltd., Richard Lajeunesse, Rita Chou, Peter Chen, Yeo Lai Ann, Tan
                  Lam Im,
                  Choa So Chin, Tan Ching Khoon, Tan Sek Toh, and the Company Communication
                  Pte. Inc. (formerly known as Peteson Investment Pte Ltd.), dated
                  May 5,
                  2001 (incorporated by reference to Exhibit 2 of the Form 8-K filed
                  on June
                  5, 2001).2.4
              Purchase
                  Agreement between the Company and Skyhub Asia Holdings Limited,
                  eVision
                  USA.com, and eBanker USA.com, dated May 19, 2001 (incorporated
                  by
                  reference to Exhibit 2.4 of the Form 10-KSB filed on April 18,
                  2002).2.5
              Definitive
                  Acquisition Agreement between the Company and Wireless Think Tank,
                  dated
                  April 30, 2002 (incorporated by reference to Exhibit 2 of the Form
                  8-K
                  filed on August 13, 2002).2.6
              Agreement
                  and Plan of Merger between the Company and 5G Wireless Solutions,
                  Inc.,
                  dated January 18, 2006 (incorporated by reference to Exhibit 2.6
                  of the
                  Form 10-K filed on April 7, 2006).3.1
              Articles
                  of Incorporation, dated September 24, 1998 (incorporated by reference
                  to
                  Exhibit 3 of the Form 10-SB filed on December 15,
                  1999).3.2
              Certificate
                  of Amendment to Articles of Incorporation, dated May 5, 2000 (incorporated
                  by reference to Exhibit 3.3 of the Form SB-2 filed on January 10,
                  2002).
  112
  3.3
              Certificate
                  of Amendment to Articles of Incorporation, dated January 19, 2001
                  (incorporated by reference to Exhibit 3.1 of the Form 8-K filed
                  on
                  February 14, 2001).3.4
              Certificate
                  of Amendment to Articles of Incorporation, dated January 21, 2003
                  (incorporated by reference to Exhibit 3.4 of the Form 10-KSB filed
                  on May
                  8, 2003).3.5
              Certificate
                  of Amendment to Articles of Incorporation, dated September 16,
                  2004
                  (incorporated by reference to Exhibit 3.1 of the Form 8-K filed
                  on
                  September 22, 2004).3.6
              Certificate
                  of Correction, dated September 20, 2004 (incorporated by reference
                  to
                  Exhibit 3.2 of the Form 8-K filed on September 22,
                  2004).3.7
              Bylaws,
                  dated September 25, 2002 (incorporated by reference to Exhibit
                  3.5 of the
                  Form 10-KSB filed on May 8, 2003).4.1
              2001
                  Stock Incentive Plan, dated November 1, 2001 (incorporated by reference
                  to
                  Exhibit 10 of the Form S-8 filed on December 10, 2001).4.2
              Non-Employee
                  Directors and Consultants Retainer Stock Plan, dated January 30,
                  2002
                  (incorporated by reference to Exhibit 4.1 of the Form S-8 filed
                  on January
                  31, 2002).4.3
              Amended
                  and Restated Stock Incentive Plan, dated January 30, 2002 (incorporated
                  by
                  reference to Exhibit 4.2 of the Form S-8 filed on January 31, 2002).4.4
              Form
                  of Subscription Agreement Between the Company and investors, dated
                  February 12, 2002 (including the following exhibits: Exhibit A:
                  Form of
                  Notice of Conversion; Exhibit B: Form of Registration Rights Agreement;
                  Exhibit C: Form of Debenture; and Exhibit D: Form of Opinion of
                  Company’s
                  Counsel) (the following to this agreement have been omitted: Exhibit
                  E:
                  Board Resolution; Schedule 3(A): Subsidiaries; Schedule 3(C):
                  Capitalization; Schedule 3(E): Conflicts; Schedule 3(G): Material
                  Changes;
                  Schedule 3(H): Litigation; Schedule 3(L): Intellectual Property;
                  Schedule
                  3(N): Liens; and Schedule 3(T): Certain Transactions) (incorporated
                  by
                  reference to Exhibit 4.4 of the Form 10-QSB filed on May 20,
                  2002).4.5
              Escrow
                  Agreement between the Company, First Union Bank, and May Davis
                  Group,
                  Inc., dated February 12, 2002 (incorporated by reference to Exhibit
                  4.5 of
                  the Form 10-QSB filed on May 20,
                  2002).
  113
  4.6
              Form
                  of Escrow Agreement between the Company, Joseph B. LaRocco, Esq.,
                  and
                  investors, dated February 12, 2002 (incorporated by reference to
                  Exhibit
                  4.6 of the Form 10-QSB filed on May 20, 2002).4.7
              Security
                  Agreement (Stock Pledge) between the Company and investors, dated
                  February
                  12, 2002 (incorporated by reference to Exhibit 4.7 of the Form
                  10-QSB
                  filed on May 20, 2002).4.8
              Amended
                  and Restated Non-Employee Directors and Consultants Retainer Stock
                  Plan,
                  dated June 1, 2003 (incorporated by reference to Exhibit 4 of the
                  Form S-8
                  POS filed on June 26, 2003).4.9
              Form
                  of Subscription Agreement Between the Company and investors (including
                  the
                  following exhibits: Exhibit A: Form of Debenture; Exhibit B: Form
                  of
                  Notice of Conversion; Exhibit C: Form of Opinion; and Exhibit D:
                  Subscription Procedures) (the following schedules have been omitted:
                  Schedule 3(a): Subsidiaries; Schedule 3(c): Capitalization; Schedule
                  3(e):
                  Conflicts; Schedule 3(g): Material Changes; Schedule 3(h): Litigation;
                  Schedule 3(l): Intellectual Property; Schedule 3(n): Liens; and
                  Schedule
                  3(t): Certain Transactions) (incorporated by reference to Exhibit
                  4.9 of
                  the Form 10-QSB/A filed on November 17, 2003).4.10
              Form
                  of Subordinated, Convertible Note and Warrants Agreement between
                  the
                  Company and investors (including the following exhibits: Exhibit
                  A: Form
                  of Convertible Subordinated Promissory Note; and Exhibit B: Form
                  of
                  Warrant Agreement) (incorporated by reference to Exhibit 4.10 of
                  the Form
                  10-QSB filed on November 24, 2003)4.11
              Form
                  of Promissory Note issued by the Company to investors, dated March
                  4, 2004
                  (incorporated by reference to Exhibit 4.1 of the Form 10-QSB/A
                  filed on
                  May 28, 2004).4.12
              Form
                  of Note Purchase Agreement between the Company and investors, dated
                  March
                  4, 2004 (incorporated by reference to Exhibit 4.2 of the Form 10-QSB/A
                  filed on May 28, 2004).4.13
              Form
                  of Warrant issued by the Company to investors, dated March 4, 2004
                  (incorporated by reference to Exhibit 4.3 of the Form 10-QSB/A
                  filed on
                  May 28, 2004).4.14
              2004
                  Non-Employee Directors and Consultants Retainer Stock Plan, dated
                  June 8,
                  2004 (incorporated by reference to Exhibit 4 of the Form S-8 filed
                  on June
                  21, 2004).
  114
 4.15
              Subscription
                  Agreement between the Company, on the one hand, and Longview Fund,
                  LP,
                  Longview Equity Fund, LP, and Longview International Equity Fund,
                  LP, on
                  the other hand, dated September 22, 2004, and Form of Convertible
                  Note
                  (including the following items: Exhibit A1: Form of Class A Warrant;
                  Exhibit A2: Form of Class B Warrant; Exhibit B: Funds Escrow Agreement;
                  Exhibit E: Shares Escrow Agreement; Exhibit F: Form of Limited
                  Standstill
                  Agreement; Exhibit G: Security Agreement; and Exhibit H: Collateral Agent
                  Agreement) (not including the following items: Attachment 1: Disclosure
                  Schedule; Exhibit C: Form of Legal Opinion; Exhibit D: Form of
                  Public
                  Announcement on Form 8-K; Schedule 5(d): Additional Issuances;
                  Schedule
                  5(q): Undisclosed Liabilities; Schedule 5(s): Capitalization; Schedule
                  9(e) Use of Proceeds; Schedule 9(q): Limited Standstill Providers;
                  and
                  Schedule 11.1: Other Securities to be Registered) (incorporated
                  by
                  reference to Exhibit 4 of the Form 8-K filed on September 30,
                  2004).4.16
              Form
                  of Common Stock Purchase Warrant issued by the Company in favor
                  of Pole
                  Star Communications, Inc., dated November 1, 2004 (incorporated
                  by
                  reference to Exhibit 4 of the Form 8-K filed on November 12,
                  2004).4.17
              Certificate
                  of Designation of Series A Convertible Preferred Stock, dated October
                  5,
                  2004 (incorporated by reference to Exhibit 4.17 of the Form 10-KSB
                  filed
                  on March 31, 2005).4.18
              Subscription
                  Agreement between the Company, on the one hand, and Longview Fund,
                  LP,
                  Longview Equity Fund, LP, and Longview International Equity Fund,
                  LP, on
                  the other hand, dated March 22, 2005 (including the following items:
                  Exhibit A: Form of Class A Warrant; Exhibit B: Funds Escrow Agreement;
                  Exhibit C: Security Agreement; Exhibit D: Collateral Agent Agreement;
                  and
                  Exhibit G: Form of Limited Standstill Agreement) (not including
                  the
                  following items: Attachment 1: Disclosure Schedule; Exhibit E:
                  Legal
                  Opinion; Exhibit F: Form of Public Announcement or Form 8-K; Schedule
                  5(d): Additional Issuances/Capitalization; Schedule 5(q): Undisclosed
                  Liabilities; Schedule 5(x): Subsidiaries; Schedule 9(e) Use of
                  Proceeds;
                  and Schedule 9(p): Limited Standstill Providers) (incorporated
                  by
                  reference to Exhibit 4.1 of the Form 8-K filed on March 31,
                  2005).4.19
              Form
                  of Secured Convertible Note between the Company, on the one hand,
                  and
                  Holders on the other hand, dated March 22, 2005 (incorporated by
                  reference
                  to Exhibit 4.3 of the Form 8-K filed on March 31,
                  2005).4.20
              Subscription
                  Agreements between the Company, on the one hand, and Longview Fund,
                  LP,
                  Longview Equity Fund, LP, and Longview International Equity Fund,
                  LP, on
                  the other hand, dated July 20, 2005, July 28, 2005, and August
                  17, 2005
                  (including the following items: Exhibit A1: Form of Note; Exhibit
                  A2: Form
                  of Class A Warrant; Exhibit B: Funds Escrow Agreement; Exhibit
                  D: Transfer
                  Agent Instructions; Exhibit F: Form of Limited Standstill Agreement)
                  (not
                  including the following items: Exhibit C: Form of Legal Opinion;
                  Exhibit E
                  Form of Public Announcement; Schedule 4(a): Subsidiaries; Schedule
                  4(d):
                  Additional Issuances/Capitalization; Schedule 4(q): Undisclosed
                  Liabilities; Schedule 4(u): Disagreements of Accountants and Lawyers;
                  Schedule 8(e) Use of Proceeds; and Schedule 8(q): Providers of
                  Limited
                  Standstill Agreements) (incorporated by reference to Exhibit 4
                  of the Form
                  8-K filed on July 25, 2005).
  115
  4.21
              Modification
                  and Amendment Agreement, dated July 26, 2005 (incorporated by reference
                  to
                  Exhibit 4.2 of the Form 8-K/A filed on August 3, 2005).4.22
              2006
                  Stock and Option Plan, dated January 18, 2006 (incorporated by
                  reference
                  to Exhibit 4 of the Form S-8 POS filed on January 25,
                  2006).4.23
              Form
                  of Stock Purchase Agreement between the Company and certain investors,
                  dated February 17, 2006 (including the following items: Exhibit
                  A:
                  Certificate of Designation, and Exhibit C: Form of Registration
                  Rights
                  Agreement. Not including the following items: Exhibit B: Investor
                  Questionnaire; Exhibit D: Form of Opinion of Counsel; Schedule
                  3(c):
                  outstanding shares; Schedule: 3(g): list of untimely filed reports;
                  and
                  Schedule I: list of investors) (incorporated by reference to Exhibit
                  4 of
                  the Form 8-K filed on February 21, 2006).4.24
              Certificate
                  of Designation of Series B Convertible Preferred Stock, dated January
                  25,
                  2006 (incorporated by reference to Exhibit 4 of the Form 8-K filed
                  on
                  February 21, 2006).4.25
              Subscription
                  Agreement between the Company and Longview Fund, LP, dated April
                  5, 2006
                  (including the following items: Exhibit A1: Convertible Note; Exhibit
                  A2:
                  Class A Warrant; Exhibit B: Funds Escrow Agreement (not including
                  the
                  following items: Exhibit C: Form of Legal Opinion; Exhibit D: Transfer
                  Agent Instructions; Exhibit E: Form of Public Announcement; Exhibit
                  F:
                  Form of Limited Standstill Agreement; Schedule 4(a): Subsidiaries;
                  Schedule 4(d): Additional Issuances/Capitalization; Schedule 4(q):
                  Undisclosed Liabilities; Schedule 4(u): Disagreements with Accountants
                  and
                  Lawyers; Schedule 8(e) Use of Proceeds; and Schedule 8(q): Providers
                  of
                  Limited Standstill Agreements (incorporated by reference to Exhibit
                  4.25
                  of the Form 10-QSB fled on May 22, 2006).4.26
              Stock
                  Purchase Agreement between the Company and Castellum Investments,
                  S.A.,
                  dated May 30, 2006 (including the following items: Exhibit A: Certificate
                  of Designation, and Exhibit C: Form of Registration Rights Agreement.
                  Not
                  including the following items: Exhibit B: Investor Questionnaire;
                  Exhibit
                  D: Form of Opinion of Counsel; Schedule 3(c): outstanding shares;
                  Schedule: 3(g): list of untimely filed reports; and Schedule I:
                  list of
                  Investor) (incorporated by reference to Exhibit 4.9 of the Form
                  8-K filed
                  on July 14, 2006)
  116
  4.27
              Securities
                  Purchase Agreement between the Company and Montgomery Equity Partners,
                  LP,
                  dated as of June 13, 2006 (not including a Disclosure Schedule)
                  (incorporated by reference to Exhibit 4.1 of the Form 8-K filed
                  on July
                  14, 2006).4.28
              Secured
                  Convertible Debenture between the Company and Montgomery Equity
                  Partners,
                  LP, dated as of June 13, 2006 (incorporated by reference to Exhibit
                  4.2 of
                  the Form 8-K filed on July 14, 2006).4.29
              Security
                  Agreement, dated as of June 13, 2006, between the Company and Montgomery
                  Equity Partners, LP (incorporated by reference to Exhibit 4.3 of
                  the Form
                  8-K filed on July 14, 2006).4.30
              Class
                  A Warrant, dated as of June 13, 2006, between the Company and Montgomery
                  Equity Partners, LP (incorporated by reference to Exhibit 4.4 of
                  the Form
                  8-K filed on July 14, 2006).4.31
              Class
                  B Warrant, dated as of June 13, 2006, between the Company and Montgomery
                  Equity Partners, LP (incorporated by reference to Exhibit 4.5 of
                  the Form
                  8-K filed on July 14, 2006).4.32
              Class
                  C Warrant, dated as of June 13, 2006, between the Company and Montgomery
                  Equity Partners, LP (incorporated by reference to Exhibit 4.6 of
                  the Form
                  8-K filed on July 14, 2006).4.33
              Investor
                  Registration Rights Agreement, dated as of June 13, 2006, between
                  the
                  Company and Montgomery Equity Partners, LP (not including Form
                  of Notice
                  of Effectiveness of Registration Statement) (incorporated by reference
                  to
                  Exhibit 4.7 of the Form 8-K filed on July 14, 2006).4.34
              Pledge
                  and Escrow Agreement, dated as of June 13, 2006, between the Company
                  and
                  Montgomery Equity Partners, LP (incorporated by reference to Exhibit
                  4.8
                  of the Form 8-K filed on July 14, 2006).10.1
              Employment
                  Agreement between the Company and Jerry Dix, dated February 1,
                  2002
                  (incorporated by reference to Exhibit 10.12 of the Form 10-KSB
                  filed on
                  April 18, 2002).10.2
              Employment
                  Agreement between the Company and Don Boudewyn, dated February
                  1, 2002
                  (incorporated by reference to Exhibit 10.13 of the Form 10-KSB
                  filed on
                  April 18, 2002).10.3
              Employment
                  Agreement Amendment between the Company and Don Boudewyn, dated
                  April 1,
                  2002 (incorporated by reference to Exhibit 10.17 of the Form 10-KSB
                  filed
                  on April 18, 2002).
  117
  10.4
              Executive
                  Employment Agreement between the Company and Peter Trepp, dated
                  July 4,
                  2003 (including Exhibit A: Employee Proprietary Information and
                  Inventions
                  Agreement) (the following exhibits have been omitted: Exhibit A
                  - Schedule
                  A: Employee’s Disclosure; and Exhibit A - Schedule B: Termination
                  Certificate Concerning 5G Wireless Communications, Inc. Proprietary
                  Information (incorporated by reference to Exhibit 10 of the Form
                  10-QSB
                  filed on November 24, 2003).10.5
              Independent
                  Consulting Agreement between the Company and Ghillie Finaz, AG,
                  dated
                  September 22, 2004 (incorporated by reference to Exhibit 10 of
                  the Form
                  8-K filed on September 30, 2004).10.6
              Form
                  of agreement between the Company and its independent directors
                  (incorporated by reference to Exhibit 10.2 of the Form 10-QSB filed
                  on
                  November 17, 2004).10.7
              Contribution
                  Agreement between the Company and the Company Solutions, Inc. (the
                  following to this agreement have been omitted: Schedule 1: List
                  of Assets;
                  and Schedule 2: List of Liabilities),
                  dated December 31, 2004 (incorporated by reference to Exhibit 10
                  of the
                  Form 8-K filed on January 7, 2005).10.8
              Guarantor
                  Agreement between 5G Wireless and Al Lang, dated May 25, 2006
                  (incorporated by reference to Exhibit 10.1 of the Form 8-K filed
                  on July
                  14, 2006).10.9
              Loan
                  Agreement between 5G Wireless and Production Partners, Ltd., dated
                  May 30,
                  2006 (incorporated by reference to Exhibit 10.2 of the Form 8-K
                  filed on
                  July 14, 2006).10.10
              Consulting
                  Agreement between 5G Wireless and Jason Meyers, dated May 30, 2006
                  (incorporated by reference to Exhibit 10.3 of the Form 8-K filed
                  on July
                  14, 2006).10.11
              Loan
                  Agreement between 5G Wireless and Russell Janes, dated June 1,
                  2006
                  (incorporated by reference to Exhibit 10.4 of the Form 8-K filed
                  on July
                  14, 2006).10.12
              Loan
                  Agreement between 5G Wireless and Thomas Janes, dated June 1, 2006
                  (incorporated by reference to Exhibit 10.5 of the Form 8-K filed
                  on July
                  14, 2006).10.13
              Asset
                  Purchase Agreement between the Company and Global Connect, Inc.,
                  dated as
                  of September 12, 2006 (not including Schedule 1, Schedule 2, Schedule
                  3
                  and Schedule 4) (incorporated by reference to Exhibit 10 of the
                  Form 8-K
                  filed on October 11, 2006).
  118
  14
              Code
                  of Ethics, dated October 5, 2004 (incorporated by reference to
                  Exhibit 14
                  of the Form 10-KSB filed on March 31, 2005).16.1
              Letter
                  on Change in Certifying Accountant (incorporated by reference to
                  Exhibit
                  16 of the Form 8-K/A filed on August 28, 2003).16.2
              Letter
                  on Change in Certifying Accountant (incorporated by reference to
                  Exhibit
                  16 of the Form 8-K/A filed on September 30, 2004).16.3
              Letter
                  on Change in Certifying Accountant (incorporated by reference to
                  Exhibit
                  16 of the Form 8-K/A filed on September 30, 2004).16.4
              Letter
                  on Change in Certifying Accountant (incorporated by reference to
                  Exhibit
                  16 of the Form 8-K filed on April 12, 2007).21
              Subsidiaries
                  of the Company (incorporated by reference to Exhibit 21 of the
                  Form 10-QSB
                  filed on August 27, 2002).23
              Consent
                  of Squar, Milner, Peterson, Miranda & Williamson, LLP (filed
                  herewith).31.1
              Rule
                  13a-14(a)/15d-14(a) Certification of Jerry Dix (filed
                  herewith).31.2
              Rule
                  13a-14(a)/15d-14(a) Certification of Andrew D. McCormac (filed
                  herewith).32
              Section
                  1350 Certification of Jerry Dix and Andrew D. McCormac (filed
                  herewith).99
              Press
                  release issued by the Company, dated October 4, 2006 (incorporated
                  by
                  reference to Exhibit 99 of the Form 8-K filed on October 11, 2006).