**UNITED
      STATES SECURITIES AND EXCHANGE COMMISSION**


WASHINGTON,
      D.C 20549




**FORM
      10-QSB**




**x
      QUARTERLY REPORT UNDER
      SECTION 13 OR 15 (D) OF THE SECURITES**


**EXCHANGE
      ACT OF 1934**




**FOR
      THE QUARTERLY PERIOD ENDED March 31, 2007**




*COMMISSION
      FILE NUMBER: 0-21419*




**NETFABRIC
      HOLDINGS, INC.**


(Exact
      Name of Small Business Issuer as Specified in Its Charter)




Delaware
              76-0307819(State
                  or Other Jurisdiction of
              (I.R.S
                  Employer Identification No.)Incorporation
                  or Organization)


.Three
      Stewart Court


Denville,
      New Jersey, 07834


(Address
      of Principal Executive Offices)




(973)-887-2785


(Issuer's
      Telephone Number, Including Area Code)




Check
      whether the issuer (1) filed all reports required to be filed by Section 13
      or
      15 (d) of the Exchange Act during the past 12 months (or for such shorter period
      that the registrant was required to file such reports), and (2) has been subject
      to such filing requirements for the past 90 days.


Yes
xNo
o




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




Yes
oNo
x




State
      the
      number of shares outstanding of each of the issuer's classes of common equity,
      as of the latest practicable date: As of May 7, 2007, 75,663,883 shares of
      common stock, $.001 par value per share, of the issuer were
      outstanding.




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









**NETFABRIC
      HOLDINGS, INC.**




INDEX


PagePART
                  I.
              FINANCIAL
                  INFORMATIONItem
                  1.
              Financial
                  Statements (Unaudited)Condensed
                  Consolidated Balance Sheets
              1Condensed
                  Consolidated Statements of Operations
              2Condensed
                  Consolidated Statements of Cash Flows
              3Notes
                  to Interim Condensed Consolidated Financial Statements
              4Item
                  2.
              Management's
                  Discussion and Analysis of Financial Condition and Results of
                  Operations
              12Item
                  3.
              Controls
                  and Procedures
              19PART
                  II.
              OTHER
                  INFORMATION
              19Item
                  1.
              Legal
                  Proceedings
              19Item
                  2.
              Unregistered
                  Sales of Equity Securities and Use of Proceeds
              19Item
                  3.
              Defaults
                  Upon Senior Securities
              19Item
                  4.
              Submission
                  of Matters to a Vote of Security Holders
              20Item
                  5.
              Other
                  Information
              20Item
                  6.
              Exhibits
              20Signatures
              21









**NETFABRIC
        HOLDINGS, INC. AND SUBSIDIARIES**
 **CONDENSED
        CONSOLIDATED BALANCE SHEETS**
  **MARCH
                    31, 2007**
                
                **DECEMBER
                    31, 2006****ASSETS**
                
                (UNAUDITED)
                
                (NOTE
                    2)**CURRENT
                    ASSETS:**Cash
                
                $
                14,223
                
                $
                13,437Trade
                    accounts receivable, net
                
                
                2,349,300
                
                
                2,149,680Prepaid
                    expenses and other current assets
                
                
                43,962
                
                
                5,110Total
                    current assets
                
                
                2,407,485
                
                
                2,168,227Property
                    and equipment, net
                
                
                188,000
                
                
                197,215Goodwill
                
                
                13,982,451
                
                
                13,982,451Other
                    intangibles, net
                
                
                824,698
                
                
                879,702Other
                    assets
                
                
                74,712
                
                
                55,028**TOTAL
                    ASSETS**
                
                $
                17,477,346
                
                $
                17,282,623**LIABILITIES
                    AND STOCKHOLDERS' EQUITY****CURRENT
                    LIABILITIES:**Convertible
                    debentures, net of unamortized discounts
                
                $
                200,000
                
                $
                685,168Notes
                    payable to officer, net of unamortized discounts
                
                
                150,000
                
                
                150,000Accounts
                    payable and accrued liabilities
                
                
                3,397,970
                
                
                3,747,809Accrued
                    compensation
                
                
                414,978
                
                
                338,283Deferred
                    revenues and customer advances
                
                
                1,640,459
                
                
                -Revolving
                    note, net of unamortized discount
                
                
                1,015,285
                
                
                1,014,249Total
                    current liabilities
                
                
                6,818,692
                
                
                5,935,509Convertible
                    note, net of unamortized discount
                
                
                566,605
                
                
                443,430Total
                    liabilities
                
                
                7,385,297
                
                
                6,378,939**COMMITMENTS
                    AND CONTINGENCIES****STOCKHOLDERS'
                    EQUITY :**Common
                    Stock, $.001 par value, authorized shares 200,000,000, 75,663,883
                    and
                    75,023,883 shares issued and outstanding, respectively
                
                
                75,664
                
                
                75,024Additional
                    paid-in capital
                
                
                36,382,838
                
                
                36,201,479Accumulated
                    deficit
                
                
                (26,366,453
                )
                
                (25,372,819
                )Total
                    stockholders' equity
                
                
                10,092,049
                
                
                10,903,684**TOTAL
                    LIABILITIES AND STOCKHOLDERS' EQUITY**
                
                $
                17,477,346
                
                $
                17,282,623
  The
          accompanying notes should be read in conjunction with the condensed consolidated
          financial statements.


-1-
 
  **NETFABRIC
          HOLDINGS, INC. AND SUBSIDIARIES**
 **UNAUDITED
          CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS**
  **THREE
                    MONTHS**
                
                **THREE
                    MONTHS****ENDED**
                
                **ENDED****March
                    31, 2007**
                
                **March
                    31, 2006****Revenues**
                
                $
                4,270,188
                
                $
                4,098,446**OPERATING
                    EXPENSES:**Direct
                    employee compensation andconsultant
                    expenses (includes share based compensationof
                    $11,396 and $0)
                
                
                3,359,681
                
                
                2,997,103Selling,
                    general and administrative expenses (includesshare
                    based compensation of $170,603 and $94,776)
                
                
                1,560,230
                
                
                1,510,677Non-cash
                    charge for dispute settlements
                
                
                
                
                
                9,492,070Depreciation
                    and amortization
                
                
                89,234
                
                
                70,168Total
                    operating expenses
                
                
                5,009,145
                
                
                14,070,018Loss
                    from operations
                
                
                (738,957
                )
                
                (9,971,572
                )**OTHER
                    INCOME / (EXPENSE):**Amortization
                    of debt discounts and debtissuance
                    costs
                
                
                (175,795
                )
                
                (1,452,647
                )Interest
                    and bank charges
                
                
                (78,882
                )
                
                (77,232
                )Gain/(charge)
                    on derivative financial instruments
                
                
                
                
                
                336,352Debt
                    extinguishment costs
                
                
                
                
                
                (621,077
                )Total
                    other income / (expense)
                
                
                (254,677
                )
                
                (1,814,604
                )Loss
                    before provision for income taxes
                
                
                (993,634
                )
                
                (11,786,176
                )Provision
                    for income taxes
                
                
                -
                
                
                -**LOSS
                    FROM CONTINUING OPERATIONS**
                
                
                (993,634
                )
                
                (11,786,176
                )**DISCONTINUED
                    OPERATIONS:**Loss
                    from operations of discontinued operations
                
                
                
                
                
                (240,142
                )**NET
                    LOSS**
                
                $
                (993,634
                )
                $
                (12,026,318
                )Net
                    loss from continuing operationsper
                    common share, basic and diluted
                
                $
                (0.01
                )
                $
                (0.19
                )Net
                    loss from discontinued operationsper
                    common share, basic and diluted
                
                $
                -
                
                $
                (0.00
                )Net
                    loss per common share, basic anddiluted
                
                $
                (0.01
                )
                $
                (0.19
                )Weighted
                    average number of sharesoutstanding,
                    basic and diluted
                
                
                75,302,994
                
                
                62,491,398
  The
                    accompanying notes should be read in conjunction with the condensed
                    consolidated financial
                    statements.
  -2-
 **NETFABRIC
          HOLDINGS, INC. AND SUBSIDIARIES**
 **UNAUDITED
          CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS**
  **THREE****MONTHS**
                
                
                **THREE****MONTHS****ENDED**
                
                
                **ENDED****OPERATING
                    ACTIVITIES**
                
                
                **March
                    31, 2007**
                
                
                **March
                    31, 2006**Net
                    loss
                
                
                (993,634
                )
                
                (12,026,318
                )Loss
                    from discontinued operations
                
                
                
                
                
                240,142Adjustments
                    to reconcile net loss to net cash provided by (used in) operating
                    activities:Non-cash
                    charge for interest expense
                
                
                
                
                
                22,500Non-cash
                    charge for settlement of disputes
                
                
                
                
                
                9,492,070Non-cash
                    charge for reissuance of warrants in connection withdebt
                    extinguishment
                
                
                
                
                
                372,353Common
                    stock issued for services
                
                
                77,600Non-cash
                    charge for employee share based compensation
                
                
                104,399
                
                
                94,775Non-cash
                    gain on debt extinguishmentNon-cash
                    gain on derivative financial instrument
                
                
                
                
                
                (336,352
                )Amortization
                    of debt discounts
                
                
                175,795
                
                
                1,452,647Depreciation
                    and amortization
                
                
                89,234
                
                
                70,168Changes
                    in operating assets and liabilities:Trade
                    accounts receivable
                
                
                (199,620
                )
                
                521,712Prepaid
                    expenses and other current assets
                
                
                (38,852
                )
                
                (40,818
                )Other
                    assets
                
                
                (19,985
                )Accounts
                    payable and accrued liabilities
                
                
                (349,838
                )
                
                (808,542
                )Accrued
                    compensation
                
                
                76,695
                
                
                14,640Deferred
                    revenues and advances
                
                
                1,640,459
                
                
                1,071,724Net
                    cash provided by continuing operations
                
                
                562,253
                
                
                140,701Net
                    cash used in discontinued operations
                
                
                
                
                
                (220,075
                )Net
                    cash provided by (used in) operating activities
                
                
                562,253
                
                
                (79,374
                )**INVESTING
                    ACTIVITIES**Purchases
                    of property and equipment
                
                
                (24,716
                )
                
                (29,448
                )Net
                    cash used in investing activities
                
                
                (24,716
                )
                
                (29,448
                )**FINANCING
                    ACTIVITIES**Proceeds
                    from issuance of common stock
                
                
                -Repayment
                    of loans from officer and director
                
                
                -
                
                
                (170,000
                )Repayment
                    of note to officer
                
                
                
                
                
                (200,000
                )Proceeds
                    (repayment) of convertible debentures
                
                
                
                
                
                (1,658,160
                )Proceeds
                    from issuance (repayment) of revolving note, net
                
                
                (36,751
                )
                
                958,500Proceeds
                    from issuance of convertible note, net
                
                
                
                
                
                1,430,500Debt
                    issuance costs
                
                
                
                
                
                (20,697
                )Repayment
                    of convertible debenture
                
                
                (500,000
                )Net
                    cash (used in ) provided by financing activities
                
                
                (536,751
                )
                
                340,143**Net
                    increase in cash**
                
                
                786
                
                
                231,321**Cash
                    at beginning of period**
                
                
                13,437
                
                
                9,540**Cash
                    at end of period**
                
                $
                14,223
                
                $
                240,861**Supplemental
                    cash flow information:**Cash
                    paid for interest expense
                
                $
                82,000
                
                $
                32,860Cash
                    paid for income taxes
                
                $
                -
                
                $
                -The
                    accompanying notes should be read in conjunction with the condensed
                    consolidated financial
                    statements.
  -3-


**NETFABRIC
      HOLDINGS INC. AND SUBSIDIARIES**




**NOTES
      TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**




**NOTE
      1. NATURE OF BUSINESS AND MANAGEMENT'S PLANS**




NetFabric
      Holdings, Inc. ("Holdings" or the "Company") (formerly known as Houston
      Operating Company) was incorporated under the laws of the State of Delaware
      on
      August 31, 1989. On December 9, 2004, Holdings entered into an exchange
      agreement (the "Acquisition Agreement" or "Share Exchange") with all of the
      stockholders of NetFabric Corporation, a Delaware corporation ("NetFabric")
      whereby Holdings acquired all of the issued and outstanding capital stock of
      NetFabric and NetFabric became a wholly-owned subsidiary of Holdings. Upon
      completion of the merger, the NetFabric stockholders controlled approximately
      95% of the then issued and outstanding stock. NetFabric's business activities
      were the activities of the merged company and Holdings was a shell corporation
      without any operations. As a result of these factors, this transaction was
      treated as a reverse merger for financial reporting purposes




NetFabric
      was incorporated on December 17, 2002 and began operations in July 2003.
      NetFabric developed and marketed Voice Over Internet Protocol ("VoIP")
      appliances that simplified the integration of standard telephone systems with
      an
      IP infrastructure. On May 5, 2006, the Company announced its decision to exit
      from the hardware-based VoIP communications product line (including resale
      of
      transport services) that is targeted at small to mid-sized businesses ("SMB's").
      In accordance with Statement of Financial Accounting Standards No. 144
      "Accounting for the Impairment or Disposal of Long-Lived Assets", ("SFAS No.
      144"), the Company has presented the results of operations from its VoIP
      business segment as discontinued operations in the accompanying consolidated
      balance sheets, statements of operations and statements of cash flows (Note
      3).




On
      May
      20, 2005, Holdings entered into and closed on a share exchange agreement
      ("Exchange Agreement"), whereby Holdings acquired all of the issued and
      outstanding shares of UCA Services, Inc., a New Jersey company("UCA Services")
      ,
      from its shareholders in exchange for the issuance of 24,096,154 shares of
      common stock of Holdings (see Note 7). Holdings emerged from the development
      stage upon the acquisition of UCA Services.




UCA
      Services is an information technology ("IT") services company that serves the
      information and communications needs of a wide range of Fortune 500 and SMB
      clients in the financial markets industry as well as the pharmaceutical, health
      care and hospitality sectors. UCA Services delivers a broad range of IT services
      in the practice areas of infrastructure builds and maintenance, application
      development and maintenance, managed services and professional
      services.




Management's
      plans




The
      accompanying unaudited condensed consolidated financial statements have been
      prepared on a going concern basis. As shown in the accompanying unaudited
      condensed consolidated financial statements, the Company has incurred
      accumulated losses totaling $26,366,453 and has a working capital deficit of
      $4,411,207 at March 31, 2007. These factors, among others, indicate that the
      Company may be unable to continue as a going concern. The unaudited condensed
      consolidated financial statements do not include any adjustments that might
      result from the outcome of this uncertainty.




-4-




**NETFABRIC
      HOLDINGS INC. AND SUBSIDIARIES**


**NOTES
      TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**




Management
      recognizes that the Company's continuation as a going concern is dependent
      upon
      its ability to generate sufficient cash flow to allow the Company to continue
      the development of its business plans and satisfy its current and long-term
      obligations on a timely basis. The Company believes that it will be able to
      complete the necessary steps in order to meet its cash requirements throughout
      fiscal year 2007 and continue its business development efforts.




Management's
      plans in this regard include, but are not limited to current discussions and
      negotiations with a number of additional financing alternatives, one or more
      of
      which it believes will be able to successfully close to provide the necessary
      working capital. There is no assurance that the Company will be successful
      in
      completing the financing. To fund the Company's operations for fiscal year
      2007,
      the Company needs to raise additional financing and generate cash flows from
      its
      operations. Should additional cash flows not be available, the Company believes
      that it will have the ability to restructure its operations, and if necessary,
      initiate significant expense reductions. In addition, the Company will have
      to
      negotiate with its lenders to extend the repayment dates of its indebtedness.
      There can be no assurance, however, that the Company will be able to
      successfully restructure its operations or debt obligations in the event it
      fails to obtain additional financing.




**BASIS
      OF PRESENTATION / INTERIM FINANCIAL STATEMENTS**




The
      accompanying unaudited condensed consolidated financial statements have been
      prepared pursuant to the rules and regulations of the Securities and Exchange
      Commission ("SEC"), except for the condensed consolidated balance sheet as
      of
      December 31, 2006, which was derived from audited financial statements. Certain
      information and footnote disclosures normally included in financial statements
      prepared in accordance with generally accepted accounting principles in the
      United States of America have been omitted pursuant to such rules and
      regulations. However the Company believes that the disclosures are adequate
      to
      make the information presented not misleading. The financial statements reflect
      all adjustments (consisting only of normal recurring adjustments) that are,
      in
      the opinion of management, necessary for a fair presentation of the Company's
      financial position and results of operations. The operating results for the
      three months ended March 31, 2007 and 2006 are not necessarily indicative of
      the
      results to be expected for any other interim period or any future year. The
      accompanying unaudited condensed consolidated financial statements should be
      read in conjunction with the Company's December 31, 2006 consolidated financial
      statements, including the notes thereto, which are included in the Company's
      Annual Report on Form 10-KSB for the fiscal year ended December 31, 2006 filed
      on April 16, 2007.




**RECLASSIFICATIONS**




Certain
      reclassifications have been made in the prior period consolidated financial
      statements to conform to the current period presentation.




As
      a
      result of the Company's decision to exit the VoIP hardware business, previously
      reported financial statements have been reclassified as discontinued operations
      to conform to the current period presentation.




-5-




**NETFABRIC
      HOLDINGS INC. AND SUBSIDIARIES**


**NOTES
      TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**




**ESTIMATES**




The
      preparation of the condensed consolidated 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 condensed consolidated financial statements
      and
      the reported amounts of revenues and expenses during the reporting period.
      The
      accounting estimates that require management's most difficult and subjective
      judgments include provisions for bad debts, depreciable/amortizable lives,
      impairment of long-lived assets, accounting for goodwill and other intangible
      assets, the fair value of the Company's common stock, the fair value of options
      and warrants issued for services, the allocation of proceeds from certain
      financings to equity instruments and the computation of other reserves. Because
      of the uncertainty inherent in such estimates, actual results may differ from
      these estimates.




**Concentrations
      of Credit Risk**




Financial
      instruments that potentially subject the Company to concentrations of credit
      risk consist primarily of cash and cash equivalents and accounts receivable.
      The
      Company reduces credit risk by placing its cash and cash equivalents with major
      financial institutions with high credit ratings. At times, such amounts may
      exceed Federally insured limits. The Company reduces credit risk related to
      accounts receivable by routinely assessing the financial strength of its
      customers and maintaining an appropriate allowance for doubtful
      accounts.




The
      Company's services have been provided primarily to a limited number of clients
      located in a variety of industries. The Company had revenues from 2 clients
      representing 46.5% (36.5% and 10%, respectively) of revenues during the three
      months ended March 31, 2007.




The
      Company generally does not require its clients to provide collateral.
      Additionally, the Company is subject to a concentration of credit risk with
      respect to its accounts receivable. The Company had two clients accounting
      for
      43% (30% and 13%, respectively) of total gross accounts receivable as of March
      31, 2007.




**Income
      Taxes**





Effective
      January 1, 2007, the Company adopted FIN No. 48 (“FIN 48”), Accounting for
      Uncertainty in Income Taxes. FIN No. 48 prescribes a more-likely-than-not
      threshold for financial statement recognition and measurement of a tax position
      taken or expected to be taken in a tax return. This interpretation also provides
      guidance on derecognition of income tax assets and liabilities, classification
      of current and deferred income tax assets and liabilities, accounting for
      interest and penalties associated with tax positions, accounting for income
      taxes in interim periods and income tax disclosures.




As
      a
      result of the implementation of FIN No. 48, the Company performed a review
      of its portfolio of uncertain tax positions in accordance with recognition
      standards established by FIN No. 48. In this regard, an uncertain tax
      position represents the Company’s expected treatment of a tax position taken in
      a filed tax return, or planned to be taken in a future tax return, that has
      not
      been reflected in measuring
      income tax expense for financial reporting purposes. Based on its review, the
      Company concluded that there are no significant unrecognized tax positions
      requiring recognition in the Company’s financial statements.The
      Company does not believe there will be any material changes in our unrecognized
      tax positions over the next 12 months.


-6-


**NETFABRIC
      HOLDINGS INC. AND SUBSIDIARIES**


**NOTES
      TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**




The
      Company files federal income tax returns, as well as multiple state, local
      and
      foreign jurisdiction tax returns. The income tax returns are subject to
      examinations by tax authorities. A number of years may elapse before our tax
      positions are audited and finally resolved. While it is often difficult to
      predict the final outcome or the timing of resolution of any particular
      uncertain tax position, the Company believes its reserves for income taxes
      reflect the most probable outcome. The Company adjusts these reserves, as well
      as the related interest, in light of changing facts and circumstances. The
      resolution of a matter would be recognized as an adjustment to its provision
      for
      income taxes in the period of resolution.




The
      Company’s policy is to recognize interest and penalties accrued as a component
      of income tax expense. As of the date of adoption of FIN No.48, the Company
      did
      not have any penalties or tax-related interest, and there was no tax- related
      interest or penalties recognized during the three months ended March 31,
      2007.





**Earnings
      (Loss) Per Share**




The
      Company calculates earnings (loss) per share in accordance with SFAS No. 128,
      "Earnings per Share." SFAS No. 128 computes basic earnings (loss) per share
      by
      dividing the net income (loss) by the weighted average number of shares of
      common stock outstanding during the period. Diluted earnings (loss) per share
      is
      computed by dividing the net income (loss) by the weighted average number of
      shares of common stock outstanding during the period plus the effects of any
      dilutive securities.




Diluted
      earnings (loss) per share considers the impact of potentially dilutive
      securities except in periods in which there is a loss because the inclusion
      of
      the potential common shares would have an anti-dilutive effect. The Company's
      potentially dilutive securities include common shares which may be issued upon
      exercise of its stock options, exercise of warrants or conversion of convertible
      debt.




Diluted
      loss per share for the three months ended March 31, 2007 and 2006 exclude
      potentially issuable common shares of approximately 18,581,124 and 16,568,624,
      respectively, primarily related to the Company's outstanding stock options,
      warrants and convertible debt, because the assumed issuance of such potential
      common shares is antidilutive.




**Recent
      Accounting Pronouncements**




In
      September 2006, the FASB issued SFAS No. 157, "Fair Value Measurements," which
      defines fair value, establishes a framework for using fair value to measure
      assets and liabilities, and expands disclosures about fair value measurements.
      The Statement applies whenever other statements require or permit assets or
      liabilities to be measured at fair value. SFAS No. 157 is effective for fiscal
      years beginning after November 15, 2007. We are currently evaluating the impact
      this Statement will have on our consolidated financial statements.





-7-




**NETFABRIC
      HOLDINGS INC. AND SUBSIDIARIES**




**NOTES
      TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**




In
      September 2006, the SEC issued SAB No. 108, "Considering the Effects of Prior
      Year Misstatements when Quantifying Misstatements in Current Year Financial
      Statements," which provides interpretive guidance regarding the consideration
      given to prior year misstatements when determining materiality in current year
      financial statements. SAB No. 108 is effective for fiscal years ending after
      November 15, 2006 and had no impact on our consolidated financial
      statements.





In
      February 2007, FASB issued FASB Statement No. 159, The Fair Value Option for
      Financial Assets and Financial Liabilities. FAS 159 is effective for fiscal
      years beginning after November 15, 2007. Early adoption is permitted subject
      to
      specific requirements outlined in the new Statement. Therefore, calendar-year
      companies may be able to adopt FAS 159 for their first quarter 2007 financial
      statements.




The
      new
      Statement allows entities to choose, at specified election dates, to measure
      eligible financial assets and liabilities at fair value that are not otherwise
      required to be measured at fair value. If a company elects the fair value option
      for an eligible item, changes in that item's fair value in subsequent reporting
      periods must be recognized in current earnings. FAS 159 also establishes
      presentation and disclosure requirements designed to draw comparison between
      entities that elect different measurement attributes for similar assets and
      liabilities. The management is currently evaluating the effect of this
      pronouncement on financial statements.




**NOTE
      3. DISCONTINUED OPERATIONS**




On
      May 5,
      2006, the Company announced its decision to exit from the hardware-based VoIP
      communications product line (including resale of transport services) that is
      targeted at SMB's. In accordance with SFAS No. 144 "Accounting for the
      Impairment or Disposal of Long-Lived Assets", ("SFAS No. 144"), the Company
      recorded loss from discontinued operations of $0 for the three months ended
      March 31, 2007. The Company has reclassified prior period results to conform
      with the current period presentation. Accordingly, $240,142 for the three months
      ended March 31, 2006, has been classified as loss from discontinued operations.
      Revenues from VoIP operations have been nominal in all periods presented and
      operating expenses are the losses reported.




-8-





**NETFABRIC
      HOLDINGS INC. AND SUBSIDIARIES**




**NOTES
      TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**




**NOTE
      4. DEBT FINANCINGS**


Debt Financings consist of the following as March 31, 2007 and December 31,
        2006:




2007UnamortizeddebtPrincipal
            
            Discount
            
            Net2006
                Convertible Debentures, due in April 2007
            
            $
            200,000
            
            
            
            
            $
            200,000Convertible
                  Debenture payable to stockholder duein April
                  2007
            
            
            150,000
            
            
            
            
            
            150,000Laurus
                Revolving Note Due in February 2009
            
            
            1,450,601
            
            
            (435,316
            )
            
            1,015,285Laurus
                Convertible Note Due in February 2009
            
            
            1,500,000
            
            
            (933,395
            )
            
            566,605$
            3,300,601
            
            
            ($1,368,711
            )
            $
            1,931,8902006UnamortizeddebtPrincipal
            
            
            Discount
            
            
            Net2006
                Convertible Debentures, due at various datesbetween
                December 2006 and April 2007
            
            $
            700,000
            
            
            ($14,832
            )
            $
            685,168Convertible
                  Debenture payable to stockholder duein April
                  2007
            
            
            150,000
            
            
            
            
            
            150,000Laurus
                Revolving Note Due in February 2009
            
            
            1,487,353
            
            
            (473,104
            )
            
            1,014,249Laurus
                Convertible Note Due in February 2009
            
            
            1,500,000
            
            
            (1,056,570
            )
            
            443,430$
            3,837,353
            
            
            ($1,544,506
            )
            $
            2,292,847




In
      January and February of 2007, the Company repaid five of the seven 2006
      Convertible Debentures in the aggregate face amount of $500,000. In December
      2006, the Company and the officer and director and the stockholder agreed to
      extend the term of two of 2006 Convertible Debentures in the face amount of
      $200,000 to April 30, 2007. The Company is in the process of negotiating further
      extension of the maturities.




**NOTE
      5. STOCKHOLDERS' EQUITY**




**COMMON
      STOCK**




During
      the three months ended March 31, 2007, the Company entered into a placement
      agency agreement with an unaffiliated entity and consulting agreement with
      an
      unaffiliated individual. Pursuant to the agreements, the Company issued an
      aggregate of 640,000 shares of its common stock. The fair value of the shares
      $77,600 was charged to operations as consulting expense during the three months
      ended March 31, 2007.




-9-





**NETFABRIC
      HOLDINGS INC. AND SUBSIDIARIES**




**NOTES
      TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**




**Warrants**




Outstanding
      warrant securities consist of the following at March 31, 2007:





ExerciseWarrants
            
            Price
            
            ExpirationLaurus
            
            
            4,256,550
            
            $
            0.001
            
            
            See
                note (1
            )Macrocom
            
            
            1,000,000
            
            $
            1.50
            
            
            July
                2008Cornell
                Warrants
            
            
            560,000
            
            $
            0.40
            
            
            October
                20082006Convertible
                Debenture Financing
            
            
            1,350,000
            
            $
            0.01
            
            
            April
                to November 2009Others
                including officer,director
                and stockholder
            
            
            1,966,137
            
            
            $0.15
                  to $0.82
            
            
            December
                2008 to June 20119,132,687




(1)
      No
      expiration.




**NOTE
      6 STOCK-BASED COMPENSATION**




Share-based
      compensation expense recognized under SFAS 123(R) for the three months ended
      March 31, 2007 and 2006 were $104,399 and $89,619, respectively. Share-based
      compensation expense recognized in the Company's condensed consolidated
      statements of operations includes compensation expense for share-based payment
      awards granted prior to, but not yet vested as of December 31, 2005, based
      on
      the grant-date fair value estimated in accordance with the provisions of SFAS
      123.







**NOTE
      7 RELATED PARTY TRANSACTIONS**




As
      of
      March 31, 2007, the Company had Convertible debentures payable to a stockholder
      and an officer and director in the aggregate face amount of
      $350,000.




The
      Company subleases certain office space and incurs occupancy related costs under
      an agreement with UCA Global, Inc. ("Global"), an entity affiliated with a
      shareholder of the Company, whereby the Company pays rent and other occupancy
      costs based on the proportion of square footage occupied by the Company in
      Global's office facility. Rent and occupancy expenses incurred by the Company
      under this agreement, which commenced on May 20, 2005, during the three months
      ended March 31, 2007 and 2006 was, $31,875, and is included in selling, general
      and administrative expense on the accompanying statements of
      operations.




-10-





**NETFABRIC
      HOLDINGS INC. AND SUBSIDIARIES**




**NOTES
      TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**




In
      the
      normal course of business, the Company performed services for an entity
      affiliated with the Company' stockholders, in the amount of $ 0 and
      $50,000 , respectively during the three months ended March 31, 2007 and 2006. As of March
      31, 2007 approximately $235,000 was owed to the Company, including amounts
      owed
      to UCA Services prior to the acquisition and a full allowance is provided due
      to
      uncertainty of the recovery of the amount.




**NOTE
      8. SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING
      ACTIVITIES**




For
                  the Three Monthsended
                  March 31,2007
              
              2006Contribution
                    from officer, director and shareholder inconnection with
                    settlement of disputes
              
              
              
              
              $
              9,492,070Discount
                  on revolving note relating to warrants
              
              
              
              
              $
              513,820Discount
                  on convertible note relating to warrants
              
              
              
              
              $
              918,923Discount
                    on convertible debt relating to beneficialconversion feature
              
              
              
              
              $
              511,577Non-cash
                  interest expense paid
              
              
              
              
              $
              47,500Reissuance
                    of warrants in connection withdebt extinguishment
              
              
              
              
              $
              372,353Amortization
                  of debt discounts
              
              $
              175,795
              
              $
              1,452,647




**NOTE
      9. SUBSEQUENT EVENTS**




In
      April
      2007, the Company sold Debentures (the "Debentures") in the face amount of
      $200,000 to an individual. The Debentures bear interest at 8% and is due on
      July
      12, 2007. In connection with the sale, the Company issued warrants to acquire
      an
      aggregate of 500,000 shares of its common stock with a nominal exercise price.
      The warrants expire in three years from the date of issuance.




-11-





**ITEM
      2.**




**MANAGEMENT'S
      DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
      OPERATIONS**




The
      following discussion and analysis and results of operation should be read in
      conjunction with the unaudited condensed consolidated financial statements
      and
      accompanying notes and the other financial information appearing elsewhere
      in
      this report and reports included herein by reference. The following discussion
      contains forward-looking statements that reflect our plans, estimates and
      beliefs. Our actual results could differ materially from those discussed in
      the
      forward-looking statements.




Our
      independent registered public accounting firm has indicated in their report,
      dated April 13, 2007, on our December 31, 2006 financial statements since we
      have experienced net losses since inception and have a working capital
      deficiency their report indicates that these matters raise substantial doubt
      about our ability to continue as a going concern. Our plan with regard to this
      matter is discussed elsewhere in this document. The consolidated financial
      statements do not include any adjustments that might result from the outcome
      of
      this uncertainty.




**CORPORATE
      HISTORY**




We
      were
      formerly known as Houston Operating Company and were incorporated in Delaware
      on
      August 31, 1989. On December 9, 2004, we entered into an Acquisition Agreement
      with all of the stockholders of NetFabric Corp., a Delaware corporation.
      NetFabric Corp. was incorporated in the on December 17, 2002 and began
      operations in July 2003. At the closing, which occurred simultaneously with
      the
      execution of the Acquisition Agreement, we acquired all of the issued and
      outstanding capital stock of NetFabric Corp. from the stockholders in exchange
      for an aggregate of 32,137,032 newly-issued shares of our common stock. The
      acquisition was accounted for as a reverse merger whereby NetFabric Corp. was
      treated as the acquirer. On April 19, 2005, our name was changed from Houston
      Operating Company to NetFabric Holdings, Inc. and our stock symbol was changed
      from "HOOC" to "NFBH."




**UCA
      SERVICES, INC. ACQUISITION**




On
      May
      20, 2005, we entered into and closed on a share exchange agreement, whereby
      we
      purchased all of the issued and outstanding shares of UCA Services, Inc., a
      New
      Jersey company (“UCA Services”) from its shareholders in exchange for the
      issuance of 24,096,154 shares of our common stock. UCA Services is an IT
      services and solutions company that serves the information needs of a wide
      range
      of Fortune 500 clients in the financial markets industry and the pharmaceutical,
      health care and hospitality sectors. UCA Services delivers a broad range of
      IT
      services in managed services, professional services, infrastructure building
      and
      maintenance, application development and maintenance areas. The acquisition
      was
      accounted for using the purchase method of accounting with UCA Service’s results
      of operations included in our consolidated financial statements from the date
      of
      acquisition.




**DISCONTINUED
      OPERATIONS**




Prior
      to
      acquiring NetFabric Corp., Houston Operating Company did not have any
      operations, and we were a shell company whose primary business objective was
      to
      merge and become public.




-12-




NetFabric
      Corp. was a provider of hardware and services to small to mid-sized businesses
      ("SMBs") that utilized the Internet for telephone communications or Voice over
      Internet Protocol ("VoIP"). It developed and marketed appliances or Customer
      Premises Equipment ("CPE") that simplified the integration of standard telephone
      systems with an IP infrastructure. In addition, NetFabric Corp resold transport
      services of a third party VoIP transport provider.




Our
      operations, prior to the UCA Services acquisition, consisted of developing
      VoIP
      appliances, including research and product development activities. We also
      hired
      additional personnel for sales and marketing and developed our sales and
      marketing programs.




With
      minimal revenues from VoIP operations, we concluded that we could not implement
      our original business plan for VoIP operations within our resources or with
      the
      additional capital we could raise in the near term. On May 5, 2006, our Board
      of
      Directors decided that the Company should exit the hardware-based VoIP
      communications product line (including resale of transport services) that is
      targeted to SMBs. In accordance with Statement of Financial Accounting Standards
      (‘SFAS’) No. 144 "Accounting for the Impairment or Disposal of Long-Lived
      Assets", ("SFAS No. 144"), the results of operations from the VoIP business
      segment has been reclassified as discontinued operations for all periods
      presented. After the discontinuation of VoIP operations, our only operations
      are
      that of UCA.




**OVERVIEW
      OF UCA SERVICES BUSINESS**




UCA
      Services derives revenues primarily from managed IT services, professional
      services, application development services and business process management
      services. Service arrangements with customers are generally on a time and
      material basis or fixed-price, fixed-timeframe revenue basis. UCA' Service’s
      principal operating expenses are direct employee costs, consultant expenses
      and
      selling, general and administrative expenses. The principal components of
      selling, general and administrative expenses are salaries of sales and support
      personnel, and office rent. Direct employee costs and consultant expenses are
      comprised primarily of the costs of consultant labor, including employees,
      subcontractors and independent contractors, and related employee benefits.
      Approximately 40% of our consultants are employees and the remainder are
      subcontractors and independent contractors.




We
      compensate most of our consultants only for the hours that we bill to our
      clients for projects undertaken, which allows us to better match our labor
      costs
      with our revenue generation. With respect to our consultant employees, we are
      responsible for employment-related taxes, medical and health care costs and
      workers' compensation. Labor costs are sensitive to shifts in the supply and
      demand of IT professionals, as well as increases in the costs of benefits and
      taxes.




-13-




As
      previously noted, the December 9, 2004 acquisition of NetFabric Corp. was
      accounted for as a reverse merger whereby NetFabric Corp. was treated as the
      acquirer. Accordingly, the historical financial statements of NetFabric Corp.
      have been presented for all periods required. NetFabric Corp. began operations
      in January 2003 and was a development stage company until the UCA Services
      acquisition. The UCA Services acquisition was accounted for using the purchase
      method of accounting with the results of the operations included in the
      Company's consolidated financial statements from the date of
      acquisition.





**COMPARISON
      OF THREE MONTHS ENDED MARCH 31, 2007 AND 2006:**





Revenues.
      Revenues of the three months ended March 31, 2007, increased by $171,742 or
      4.2%
      compared to the same period of the prior year. In the three months ended March
      31, 2007, we either continued with the projects undertaken during the three
      months ended March 31, 2006 or successfully replaced discontinued projects
      with
      new projects thereby resulting in the revenue increase in the three months
      ended
      March 31, 2007. We anticipate our revenues to increase in 2007.




Direct
      employee compensation and consultant expenses. Excluding non-cash share based
      compensation, for the three months ended March 31, 2007, our direct employee
      compensation and consultant expenses increased by $351,182 or 11.7% to
      $3,348,285. The increase was due to increased revenues and due to the nature
      of
      projects performed in 2007.. Excluding non-cash share based compensation as
      a
      percentage of revenues our direct employee compensation and consultant expenses
      were 78.4%, compared to 73.1% in 2006. The increase in employee compensation
      and
      consultant expenses as a percentage of revenues was due to the nature of
      projects performed in 2007.




Selling,
      general and administrative expenses.


Excluding
      non-cash share based compensation, our selling, general and administrative
      expenses decreased for the three months ended March 31, 2007 by $26,274, or
      1.9%, to $1,389,627. During the three months ended March 31, 2007, we incurred
      approximately $162,000 in expenses ($240,000 including the fair value of shares
      of common stock issued) for an acquisition of an entity and the related
      financing. We terminated the acquisition related negotiation in April and the
      entire amount incurred was charged to operations during the three months ended
      March 31, 2007. Excluding non-cash share based compensation acquisition related
      expenses, our selling, general and administrative expenses decreased for the
      three months ended March 31, 2007 $188,000 compared to the same period of prior
      year due expense reductions implemented in the latter half of 2006.




Depreciation
      and amortization.


For
      three
      months ended March 31, 2007, depreciation and amortization increased by $19,066,
      or 27.2%, to $89,234. The increases were due to additional assets added during
      the later half of 2006 and in 2007.




Amortization
      of debt discount.


Amortization
      of debt discount for the three months ended March 31, 2007 increased by
      $1,276,852, or 87.9%, to $175,795. Since significant amount amortization of
      debt
      discount resulting from the allocation of value to certain equity instruments
      issued in connection with debt were amortized in 2006 and due to repayment
      of
      certain underlying debt, amortization of debt discount decreased in 2007. At
      March 31, 2007, the aggregate unamortized debt discount was $1,368,711, which
      will be amortized and charged to operations over the term of the respective
      debt.




Interest
      expense.


For
      the
      three months March 31, 2007, interest expense increased by $1,650, or 2.1 %,
      to
      $78,882, since borrowing levels and interest rates did not change
      materially.




-14-




Non-cash
      charge for dispute settlement.


In
      January 2006, we entered into a termination agreement with a consultant. In
      connection with the termination, an officer, director and stockholder of the
      Company transferred 1,000,000 shares of our common stock owned by him to the
      consultant. We accounted for the settlement as an expense in our consolidated
      financial statements as a non-cash charge for dispute settlements, based on
      the
      value of the option of $0.94 per share on the date of settlement, with a
      corresponding credit to contributed (paid-in) capital from the officer, director
      and stockholder during the year ended December 31, 2006. In February 2006,
      we
      entered into an amendment agreement with the former UCA Services shareholders.
      Pursuant to the amendment agreement, an officer, director and stockholder of
      the
      Company transferred 9,000,000 shares of our common stock owned by him to the
      former UCA Services shareholders. Since the settlement was not a contingency
      associated with the acquisition of UCA Services, we accounted for the shares
      transferred by the individual as an expense, based on the value of the shares
      on
      the settlement date, February 13, 2006.




Derivative
      Financial Instruments. In July 2005, we entered into an agreement pursuant
      to
      which we sold Cornell Capital Partners ("Cornell") secured convertible
      debentures (the "Cornell Debentures") in the aggregate principal amount of
      $1,000,000. In October 2005, we entered into a securities purchase agreement
      with Cornell whereby both parties agreed to amend and consolidate all of the
      convertible debentures issued to Cornell into one new secured convertible
      debenture in the principal amount of $1,658,160 ("October Convertible
      Debenture"). As a result of the change in the conversion terms of the October
      Convertible Debentures, on October 27, 2005, we determined that the embedded
      conversion feature of the October Cornell Debentures became subject to the
      provisions of SFAS No. 133. Therefore, we accounted for the embedded conversion
      feature as a liability in accordance with the guidance of EITF 00-19,
      "Accounting for Derivative Financial Instruments Indexed to, and Potentially
      Settled in, a Company's Own Stock" ("EITF 00-19"). Accordingly, we recorded
      the
      fair value of the embedded conversion feature of $784,784 as a non-current
      liability on the balance sheet as of October 27, 2005 and a portion of the
      amounts previously recorded to additional paid-in capital as part of the
      Original Cornell Debentures were reclassified from equity to liabilities. For
      the three months ended March 31, 2006, we recorded a gain in value for
      derivative financial instruments of $336,352 related to the change in fair
      value
      of the embedded conversion feature, which is recorded in the accompanying
      unaudited condensed consolidated statement of operations. For the year ended
      December 31, 2005, we recorded a charge in value for derivative financial
      instruments of $2,131,109 related to the change in fair value of the embedded
      conversion feature. In February 2006, we paid the October Convertible Debenture
      (the "Cornell Repayment") and accordingly, the value of the embedded conversion
      future was reclassified to additional paid-in capital.




Debt
      extinguishment costs.


As
      part
      of the Cornell Repayment, we paid an early redemption charge of 15% of the
      principal amount redeemed or $248,724, which charge is included on the
      accompanying condensed consolidated statement for operations for the three
      months ended March 31, 2007. In connection with the Cornell Repayment, we also
      agreed to reduce the exercise price of the 560,000 warrants from $0.50 to $0.40.
      The change in exercise price of the warrants was treated as a new issuance
      of
      warrants and was valued using the Black Scholes option-pricing model. The
      reduction in exercise price resulted in a fair value of $372,353 for the
      warrants, which was charged to operations for the three months ended March
      31,
      2007.




-15-




Discontinued
      Operations.


On
      May 5,
      2006, our Board of Directors decided to exit from the hardware-based VoIP
      communications product line (including resale of transport services) that is
      targeted to SMBs. In accordance with SFAS No. 144 "Accounting for the Impairment
      or Disposal of Long-Lived Assets", ("SFAS No. 144"), the results of operations
      from the VoIP business segment has been reclassified as discontinued operations
      for all periods presented. For the three months ended March 31, 2007 and 2006,
      loss from discontinued operations was $0 and $240,142, respectively. Revenues
      from VoIP operations have been nominal in all periods presented and operating
      expenses are the losses reported.




Net
      loss.


As
      a
      result of the foregoing, for the three months ended March 31, 2007, net loss
      decreased by $11,032,684, or 91.7%, to a loss of $993,634, compared to a net
      loss of $12,026,318 in the three months ended March 31, 2006.




**LIQUIDITY
      AND CAPITAL RESOURCES**




On
      March
      31, 2007, our working capital deficiency was $4,411,207, compared to a working
      capital deficiency of $3,767,282 on December 31, 2006. The increase in the
      working capital deficiency was principally due to operating losses. During
      the
      three months ended March 31, 2007, our operating activities from continuing
      operations provided approximately $562,000 of cash, compared to approximately
      $141,000 provided during the three months ended March 31, 2006.




During
      the three months ended March 31, 2007, our operating losses, after adjusting
      for
      non-cash items, utilized approximately $547,000 of cash, and working capital
      items provided approximately $1,109,000 of cash. The principal component of
      these working capital changes was an increase in our deferred revenues. During
      the three months ended March 31, 2006, our operating losses, after adjusting
      for
      non-cash items, utilized approximately $618,000 of cash, and working capital
      items provided approximately $759,000 of cash.




In
      February 2006, we repaid $70,000 owed to Fred Nazem, a stockholder of the
      Company, and $200,000 owed to Fahad Syed, an officer and director of the
      Company. Additionally, we repaid $100,000 plus accrued interest to Faisal Syed,
      a stockholder of the Company, in full satisfaction of a promissory note issued
      to him by UCA Services, prior to our acquisition of UCA Services. The promissory
      note bore interest at the rate of 6% and was due, together with accrued but
      unpaid interest in June 2005.




-16-





In
      February 2006, we along with our subsidiaries, entered into a Security
      Agreement, dated February 10, 2006 ( the "Security Agreement") with Laurus
      Master Fund, Ltd., a Cayman Islands company ("Laurus"). Under the Security
      Agreement, Laurus purchased a Secured Convertible Note (the "Laurus Convertible
      Note"), from the Company with a maturity date of February 10, 2009, in the
      aggregate principal amount of $1,500,000, and a Secured Non-Convertible
      Revolving Note (the "Laurus Revolving Note") in the aggregate principal amount
      of $1,500,000. The Laurus Convertible Note and Laurus Revolving Note are
      collectively referred to as the "Laurus Notes". Availability under the Laurus
      Notes is based on an advance rate equal to 90% of eligible accounts receivable,
      and Laurus has agreed to provide us an over advance for a specified period.
      The
      Laurus Convertible Note has a three-year term, and bears interest at 1% above
      the prime rate, with a minimum interest rate of 8%. Laurus has the option,
      but
      not the obligation, at any time until the maturity date, to convert all or
      any
      portion of the Laurus Convertible Note and accrued interest thereon into shares
      of our common stock at an exercise price of $0.91 per share. If converted in
      full, we would be obligated to issue an aggregate of 1,648,352 shares of our
      common stock to Laurus. We have the option to prepay the Laurus Convertible
      Note
      by paying Laurus the applicable redemption premium. The Laurus Revolving Note
      has a three-year term, and bears interest at 1% above the prime rate, with
      a
      minimum interest rate of 8%.




In
      connection with the borrowing, we issued a common stock purchase option (the
      "Option") to Laurus to purchase up to 4,256,550 shares of our common stock
      for
      nominal consideration. Additionally, we entered into a registration rights
      agreement with Laurus (the "Registration Rights Agreement"), covering the
      registration of common stock underlying the Laurus Convertible Note and the
      Option. Our obligations under the Laurus Notes are secured by first liens on
      all
      of our assets, and Laurus may accelerate all obligations under the Laurus Notes
      upon an event of default.




Our
      initial borrowing was approximately $2,300,000 and we utilized approximately
      $1,900,000 of the initial borrowing to repay all amounts owed to Cornell
      pursuant to the October Convertible Debenture, including a redemption premium.
      At March 31, 2007, our availability and borrowing with Laurus was approximately
      $2,950,601 (face amount).




At
      various dates between April and December of 2006, we sold seven convertible
      debentures in aggregate face amount of $700,000. In January and February of
      2007, we Company repaid five of the seven 2006 Convertible Debentures in the
      aggregate face amount of $500,000. In December 2006, the Company and the officer
      and director and the stockholder agreed to extend the term of two of 2006
      Convertible Debentures in the face amount of $200,000 to April 30, 2007. The
      Company is in the process of negotiating further extension of the maturity
      date.




In
      order
      to execute our business plan and achieve our objectives for the near future,
      management believes it will require approximately $2,000,000 over the next
      12
      months for working capital. A significant amount of this will be used to satisfy
      our obligations, both from borrowing and vendor accounts payable, as they become
      due. Our ability to continue as a going concern and our future success are
      dependent upon our ability to raise capital in the near term to satisfy our
      current obligations. Management's plans in this regard include, but are not
      limited to current discussions and negotiations with a number of additional
      financing alternatives, one or more of which management believes will be able
      to
      successfully close to provide the necessary working capital. There is no
      assurance that we will be successful in completing the financing. The
      accompanying condensed consolidated financial statements do not include any
      adjustments that might result from the outcome of this uncertainty.




-17-




To
      fund
      our operations for fiscal year 2007, we need to raise additional financing
      and
      generate cash flows from our operations. Should additional cash flows not be
      available, we believe that we will have the ability to restructure our
      operations, and if necessary, initiate significant expense reductions. In
      addition, we will have to negotiate with our lenders to extend the repayment
      dates f our indebtedness. There can be no assurance, however, that we will
      be
      able to successfully restructure our operations or debt obligations in the
      event
      we fail to obtain additional financing.





**CRITICAL
      ACCOUNTING POLICIES AND ESTIMATES**




The
      discussion and analysis and plan of operation is based upon our financial
      statements, which have been prepared in accordance with accounting principles
      generally accepted in the United States of America ("GAAP"). The preparation
      of
      these financial statements requires us to make estimates and judgments that
      affect the reported amounts of assets, liabilities, revenues and expenses,
      related disclosure of contingent assets and liabilities. On an ongoing basis,
      we
      evaluate our estimates, including those related to revenue recognition, accounts
      receivable and long-lived assets. We base our estimates on historical experience
      and on various other assumptions that we believe to be reasonable under the
      current 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.


We
      believe the following critical accounting policies affect the judgment and
      estimates used in preparation of our condensed consolidated financial
      statements:




**Income
      Taxes and Uncertain Income Tax Positions**




We
      account for income taxes using the asset and liability method. Under this
      method, deferred tax assets and liabilities are recognized for the future tax
      consequences attributable to differences between the financial statement
      carrying amounts of existing assets and liabilities and their respective tax
      bases, and operating loss and tax credit carryforwards. Deferred tax assets
      and
      liabilities are measured using enacted tax rates expected to apply to taxable
      income in the years in which those temporary differences are expected to be
      recovered or settled. The effect on deferred tax assets and liabilities of
      a
      change in tax rates is recognized in results of operations in the period that
      the tax change occurs.




Effective
      January 1, 2007, we adopted FIN No. 48 (“FIN 48”), A *ccounting
      for Uncertainty in Income Taxes.* FIN
      No. 48 prescribes a more-likely-than-not threshold for financial statement
      recognition and measurement of a tax position taken or expected to be taken
      in a
      tax return. This interpretation also provides guidance on derecognition of
      income tax assets and liabilities, classification of current and deferred income
      tax assets and liabilities, accounting for interest and penalties associated
      with tax positions, accounting for income taxes in interim periods and income
      tax disclosures.




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**ITEM
      3. CONTROLS AND PROCEDURES**




**A.
      EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES:**




Our
      disclosure controls and procedures are designed to ensure that information
      required to be disclosed in the reports filed or submitted under the Securities
      Exchange Act of 1934 (the "Exchange Act") is recorded, processed, summarized
      and
      reported, within the time period specified in the SEC's rules and forms.
      Disclosure controls and procedures include, without limitation, controls and
      procedures designed to ensure that information required to be disclosed in
      the
      reports filed under the Exchange Act are accumulated and communicated to
      management, including the Chief Executive Officer ("CEO"") and Chief Financial
      Officer ("CFO") , as appropriate, to allow timely decisions regarding required
      disclosure. As of the end of the period covered by this report, we carried
      out
      an evaluation, under the supervision and with participation of our management,
      including our CEO and CFO, of the effectiveness of the design and operation
      of
      our disclosure controls and procedures. Based upon and as of the date of that
      evaluation, the CEO and CFO concluded that our disclosure controls and
      procedures are effective to ensure that information required to be disclosed
      in
      the reports we file and submit under the Exchange Act are recorded, processed,
      summarized and reported as and when required.




**B.
      CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING:**




There
      were no changes in our internal controls over financial reporting during the
      most recent fiscal quarter that have materially affected or are reasonably
      likely to materially affect our internal control over financial
      reporting.




**PART
      II. OTHER INFORMATION**




**ITEM
      1 LEGAL PROCEEDINGS**




The
      Company from time to time is involved in routine legal matters incidental to
      business. In the opinion of management, the ultimate resolution of such matters
      will not have a material adverse effect on the Company's financial position,
      results of operations or liquidity.




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




During
      the three months ended March 31, 2007:




The
      Company issued 340,000 shares of common stock to Stoneggate Securities, Inc.
      pursuant a placement agent agreement.




The
      Company issued 300,000 shares of common stock to an unaffiliated individual
      pursuant to a consulting agreement.




The
      foregoing shares were issued pursuant to exemptions from registration under
      Sections 3(a)(9) and 4(2) of the Securities Act of 1933.




**ITEM
      3. DEFAULTS UPON SENIOR SECURITIES**




None




-19-




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




None




**ITEM
      5. OTHER INFORMATION**




None




**ITEM
      6. EXHIBITS**




(a)
      Exhibits:




31.1
                Rule 13a-14(a)/15d-14(a) Certification (CEO)
              
              31.2
                Rule 13a-14(a)/15d-14(a) Certification (CFO)
              
              32.1
                Section 1350 Certification (CEO)
              
              32.2
                Section 1350 Certification (CFO)




-20-




**SIGNATURES**




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


Date:
              May 14, 2007
            By:
            /s/ Fahad
              SyedFahad
              SyedChairman
                and ChiefExecutive
                Officer


By:
            /s/ Vasan
              ThathamVasan
              ThathamPrincipal
                Financial Officer andVice
                President




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