**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**


**Washington,
      D.C. 20549**





**FORM
      10-QSB**


(Mark
      One)





x
            Quarterly
                report under Section 13 or 15(d) of the Securities Exchange Act of
                1934
                for the quarterly period ended February 28,
                2007





o
            Transition
                report under Section 13 or 15(d) of the Securities Exchange Act of
                1934





For
      the
      transition period from ____________ to ______________


Commissions
      file number 000-32847




**TITAN
      GLOBAL HOLDINGS, INC.**


(Name
      of
      Small Business Issuer in Its Charter)


Utah
              87-0433444(State
                  of Incorporation)
              (IRS
                  Employer Identification No.)




**1700
      Jay Ell Drive Suite 200**


**Richardson,
      Texas 75081**


(Address
      of Principal Executive Offices)





**(972)
      470-9100**


(Issuer's
      Telephone Number)





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





Yes
x  No o





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





Yes
o No
x





As
      of
      April 4, 2007 the Company had  49,129,052 shares
      of
      its par value $0.001 common stock issued and outstanding.





Transitional
      Small Business Disclosure Format (check one):





Yes
o  No
x









**TITAN
        GLOBAL HOLDINGS, INC.**
  **TABLE
        OF CONTENTS**
  Page**PART
                  I.   FINANCIAL INFORMATION**Item
                  1.  Unaudited Consolidated Financial Statements
              
              
              4Item
                  2.  Management's Discussion and Analysis of Financial Condition
                  and Results of Operations
              
              
              20Item
                  3.  Controls and Procedures
              
              
              31**PART
                  II.  OTHER INFORMATION**Item
                  1.  Legal Proceedings
              
              
              31Item
                  2.  Unregistered Sales of Equity Securities and Use of Proceeds
              
              
              32Item
                  3.  Defaults upon senior securities
              
              
              32Item
                  4.  Submission of matters to a vote of security holders
              
              
              32Item
                  5.  Other information
              
              
              32Item
                  6.  Exhibits
              
              
              32Signatures
              
              
              33
  2




**STATEMENT
      REGARDING THIS REPORT**





**FORWARD-LOOKING
      INFORMATION**





Statements
      in this report concerning the future sales, expenses, profitability, financial
      resources, product mix, market demand, product development and other statements
      in this report concerning the future results of operations, financial condition,
      and business of Titan Global Holdings, Inc. are "forward-looking" statements
      as
      defined in the Securities Act of 1933 and Securities Exchange Act of 1934.
      Investors are cautioned that the Company's actual results in the future may
      differ materially from those projected in the forward-looking statements due
      to
      risks and uncertainties that exist in the Company's operations and business
      environment, including competition, need for increased acceptance of products,
      ability to continue to develop and extend our brand identity, ability to
      anticipate and adapt to a competitive market, ability to effectively manage
      rapidly expanding operations, amount and timing of operating costs and capital
      expenditures relating to expansion of our business, operations and
      infrastructure, ability to provide superior customer service, dependence upon
      key personnel and the like. The Company's most recent filings with the
      Securities and Exchange Commission, including Form 10-KSB, contain additional
      information concerning many of these risk factors, and copies of these filings
      are available from the Company upon request and without charge.




3




**Titan
        Global Holdings, Inc.**
  **Unaudited
        Consolidated Balance Sheet**
  **February
        28, 2007**
  **(In
        thousands, except common and preferred stock share
        data)**
  **ASSETS**Current
                  assets:Cash
                  and cash equivalents
              
              $
              2,153Restricted
                  short-term investment
              
              
              750Accounts
                  receivable, trade (less allowance for doubtful accounts of $380
                  and
                  allowance for sales returns of $120)
              
              
              16,551Universal
                  Service Fund fees recoverable
              
              
              4,024Inventory,
                  net
              
              
              2,230Prepaid
                  expenses and other current assets
              
              
              300Total
                  current assets
              
              
              26,008Equipment
                  and improvements, net
              
              
              2,010Definite-lived
                  intangible assets, net
              
              
              18,761Capitalized
                  loan fees, net
              
              
              626Goodwill
              
              
              4,448Federal
                  Excise Tax recoverable
              
              
              3,989Other
                  assets
              
              
              165Total
                  assets
              
              $
              56,007**LIABILITIES
                  AND STOCKHOLDERS' DEFICIT**Current
                  liabilities:Accounts
                  payable - trade
              
              $
              25,572Accrued
                  liabilities
              
              
              5,277Short-term
                  debt
              
              
              3,768Total
                  current liabilities
              
              
              34,617Long-term
                  seller-financed note
              
              
              2,096Redeemable,
                  convertible preferred stock - 4,500 shares authorized, issued,
                  and
                  oustanding (preference in liquidation of $4,676)
              
              
              4,676Lines
                  of credit
              
              
              11,054Long-term
                  debt
              
              
              4,140Long-term
                  derivative liabilities
              
              
              13,110Other
                  long-term liability
              
              
              112Total
                  liabilities
              
              
              69,805Stockholders'
                  deficit:Common
                  stock-$0.001 par value; 950,000,000 shares authorized; 49,129,052
                  shares
                  issued and outstanding
              
              
              49Additional
                  paid-in capital
              
              
              18,453Accumulated
                  deficit
              
              
              (32,300
              )Total
                  stockholders' deficit
              
              
              (13,798
              )Total
                  liabilities and stockholders' deficit
              
              $
              56,007


The
      accompanying notes form an integral part of the consolidated financial
      statements.




4


**Titan
      Global Holdings, Inc.**




**Unaudited
      Consolidated Statements of Operations**




**(In
      thousands, except share and per share amounts)**


**Three
                  Months Ended**
              
              **Six
                  Months Ended****2/28/2007**
              
              **2/28/2006**
              
              **2/28/2007**
              
              **2/28/2006**Sales
                  - Communications division
              
              $
              30,938
              
              $
              21,304
              
              $
              55,511
              
              $
              44,571Sales
                  - Electronics and homeland security division
              
              
              5,140
              
              
              4,699
              
              
              10,552
              
              
              9,112Total
                  Sales
              
              
              36,078
              
              
              26,003
              
              
              66,063
              
              
              53,683Cost
                  of sales - Communications division
              
              
              27,166
              
              
              19,975
              
              
              48,591
              
              
              41,186Cost
                  of sales - Electronics and homeland security division
              
              
              5,057
              
              
              3,964
              
              
              10,188
              
              
              8,324Total
                  Cost of Sales
              
              
              32,223
              
              
              23,939
              
              
              58,779
              
              
              49,5103,855
              
              
              2,064
              
              
              7,284
              
              
              4,173Operating
                  expenses:Sales
                  and marketing
              
              
              576
              
              
              459
              
              
              1,075
              
              
              884General
                  and administrative expenses
              
              
              2,680
              
              
              1,133
              
              
              4,553
              
              
              2,156Amortization
                  of intangibles
              
              
              1,335
              
              
              1,322
              
              
              2,669
              
              
              2,497Loss
                  from operations
              
              
              (736
              )
              
              (850
              )
              
              (1,013
              )
              
              (1,364
              )Other
                  income (expenses):Interest
                  income
              
              
              20
              
              
              25
              
              
              20
              
              
              26Interest
                  expense
              
              
              (1,424
              )
              
              (1,762
              )
              
              (2,230
              )
              
              (3,325
              )Gain
                  (Loss) on value of derivative instruments
              
              
              (4,158
              )
              
              318
              
              
              (9,915
              )
              
              (3,942
              )Gain
                  (Loss) on extinguishment of debt
              
              
              7,790
              
              
              (695
              )
              
              7,790
              
              
              (695
              )Income
                  (Loss) before income taxes
              
              
              1,492
              
              
              (2,964
              )
              
              (5,348
              )
              
              (9,300
              )Provision
                  for income taxes
              
              
              -
              
              
              -
              
              
              -
              
              
              -Net
                  income (loss)
              
              
              1,492
              
              
              (2,964
              )
              
              (5,348
              )
              
              (9,300
              )Accrual
                  of preferred stock dividend
              
              
              -
              
              
              -
              
              
              (68
              )
              
              (68
              )Net
                  income (loss) applicable to common shareholders
              
              $
              1,492
              
              $
              (2,964
              )
              $
              (5,416
              )
              $
              (9,368
              )Net
                  income (loss) applicable to common shareholders per share:Basic
              
              $
              0.03
              
              $
              (0.07
              )
              $
              (0.11
              )
              $
              (0.24
              )Diluted
              
              $
              0.03
              
              $
              (0.07
              )
              $
              (0.11
              )
              $
              (0.24
              )Number
                  of weighted average common shares outstanding:Basic
              
              
              49,129,052
              
              
              41,501,581
              
              
              49,125,820
              
              
              38,417,109Diluted
              
              
              49,917,459
              
              
              41,501,581
              
              
              49,125,820
              
              
              38,417,109


The
        accompanying notes form an integral part of the consolidated financial
        statements.
  5


**Titan
        Global Holdings, Inc.**
  **Unaudited
        Consolidated Statements of Cash Flows**
  **(In
        thousands)**


**Six
                  Months Ended****02/28/2007**
              
              **02/28/2006**Cash
                  flows from operating activities:Net
                  loss
              
              $
              (5,348
              )
              $
              (9,300
              )Adjustments
                  to reconcile net loss to net cash provided by operating
                  activities:Depreciation
                  and amortization
              
              
              365
              
              
              357Bad
                  debt and sales return allowances
              
              
              122
              
              
              -Non-cash
                  compensation
              
              
              84
              
              
              -Non-cash
                  asset retirement obligation accretion expense
              
              
              4
              
              
              -Non-cash
                  interest expense
              
              
              (78
              )
              
              -Amortization
                  of debt discounts and bank fees
              
              
              380
              
              
              2,556Amortization
                  of intangibles
              
              
              2,669
              
              
              2,497Loss
                  on fair value of derivative liabilities
              
              
              9,915
              
              
              3,942(Gain)
                  loss on debt extinguishment
              
              
              (7,790
              )
              
              695Changes
                  in operating assets and liabilities:Accounts
                  receivable
              
              
              (3,187
              )
              
              (71
              )Inventory
              
              
              189
              
              
              327Prepaid
                  expenses and other current assets
              
              
              (140
              )
              
              (70
              )Other
                  assets
              
              
              1
              
              
              (909
              )Universal
                  Service Fund fee recoverable
              
              
              (2,547
              )
              
              -Federal
                  Excise Tax recoverable
              
              
              (243
              )
              
              -Accounts
                  payable and accrued liabilities
              
              
              9,380
              
              
              947Total
                  adjustments
              
              
              9,124
              
              
              10,271Net
                  cash provided by operating activities
              
              
              3,776
              
              
              971Cash
                  flows from investing activities:Equipment
                  and improvements expenditures
              
              
              (162
              )
              
              (278
              )Restricted
                  investment to collateralize obligation
              
              
              -
              
              
              (750
              )Net
                  cash used in investing activities
              
              
              (162
              )
              
              (1,028
              )Cash
                  flows from financing activities:Proceeds
                  from issuance of long term debt, net of financing cost
              
              
              8,154
              
              
              -Proceeds
                  from lines of credit, net of repayments
              
              
              22
              
              
              870Payments
                  on long-term debt
              
              
              (10,354
              )
              
              (2,271
              )Capitalized
                  loan fees
              
              
              (684
              )
              
              -Net
                  cash used in financing activities
              
              
              (2,862
              )
              
              (1,401
              )Net
                  increase (decrease) in cash
              
              
              752
              
              
              (1,458
              )Cash
                  and cash equivalents at beginning of period
              
              
              1,401
              
              
              2,242Cash
                  and cash equivalents at end of period
              
              $
              2,153
              
              $
              784


**Supplemental
                  disclosures of cash flow information:**Interest
                  Paid
              
              $
              1,756
              
              $
              1,282Income
                  Tax Paid
              
              
              -
              
              
              -Non-cash
                  activities:Issuance
                  of common stock for capitalized debt costs
              
              $
              15
              
              $
              -Issuance
                  of common stock to related parties upon conversion of debt
              
              
              -
              
              
              591Issuance
                  of common stock for reducing redeemable preferred stock
              
              
              253
              
              
              -Issuance
                  of common stock to Chief Executive Officer
              
              
              305
              
              
              -Issuance
                  of common stock in connection with lender credit facility
              
              
              505
              
              
              -


6




**TITAN
      GLOBAL HOLDINGS, INC.**




**NOTES
      TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS**


**(Amounts
      in thousands, except share and per share amounts)**





***Note
      1 - Basis of Presentation and Nature of Business
      Operations***





**Basis
      of Presentation**





The
      accompanying unaudited consolidated financial statements of Titan Global
      Holdings, Inc. and its subsidiaries, (“Titan”, “We” or the “Company”), have been
      prepared in accordance with U.S. generally accepted accounting principles for
      interim financial information and with the instructions to Form 10-QSB pursuant
      to the rules and regulations of the Securities and Exchange Commission.
      Accordingly, they do not include all of the information and footnotes required
      by U.S. generally accepted accounting principles for complete financial
      statements. In the opinion of management, all adjustments considered necessary
      for a fair presentation are included herein. Operating results for the
      three-month period ended February 28, 2007 and the six-month period ended
      February 28, 2007 are not indicative of the results that may be expected for
      the
      fiscal year ending August 31, 2007. These unaudited consolidated financial
      statements should be read in conjunction with the consolidated financial
      statements and the notes thereto included in the Company’s Annual Report to
      Shareholders on Form 10-KSB for the fiscal year ended August 31, 2006 as filed
      with the Securities and Exchange Commission on December 15, 2006. All
      significant intercompany accounts and transactions have been eliminated in
      preparation of the consolidated financial statements. All numbers referenced
      below are stated in thousands except per share amounts unless otherwise
      noted.





The
      preparation of unaudited 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 consolidated financial statements and the
      reported amounts of revenue and expenses during the reporting period. Actual
      results could differ from those estimates. Such estimates relate primarily
      to
      the estimated lives of equipment and improvements, valuation reserves for
      accounts receivable, inventory, allocation of purchase price for acquisitions,
      impairment of intangible assets, valuation of derivatives, deferred tax
      accounts, fair value of equity instruments issued, and sales
      returns.




**Nature
      of Business**





*Organization:*





Titan
      Global Holdings, Inc. (“Titan” or the “Company”) was formed on March 1, 1985 as
      a Utah corporation. In August 2002, the Company acquired Titan PCB West, Inc.
      in
      a merger transaction with a subsidiary of the Company. Prior to this merger,
      the
      Company had no active business operations. On November 4, 2005, the name of
      the
      corporation was changed from Ventures-National Incorporated to its present
      name.





The
      accompanying consolidated statements of operations include the operating results
      of the Company's subsidiaries, Titan PCB West, Inc. (“PCB West”), Titan PCB
      East, Inc. (“PCB East”), Oblio Telecom, Inc. (“Oblio”), and Titan Wireless
      Communications, Inc. (“Titan Wireless”). The two subsidiaries of Oblio, Pinless
      Inc. (“Pinless”) and StartTalk Inc. (“StartTalk”) are also included in the
      accompanying consolidated financial statements.




7





*Nature
      of Operations:*





The
      Company operates in two market segments - (i) communications and (ii)
      electronics and homeland security.





Communications
      Segment




The
      Company, through its subsidiaries, Oblio, Titan Wireless, Pinless and StartTalk,
      which comprises its communications division, provides prepaid international
      phone cards and prepaid wireless services. The communications division creates
      and distributes prepaid offerings that provide first and second generation
      Americans efficient means to complete international calls and to maintain
      wireless services. These prepaid communications products are sold directly
      to
      wholesale distributors and large chain retailers in all 50 United States and
      Puerto Rico.




Electronics
      and Homeland Security Segment




The
      Company, through its PCB East and PCB West subsidiaries, manufactures printed
      circuit boards for quick-turn, prototype market and the defense supplier
      markets. The Company’s printed circuit boards serve as the foundation in many
      electronic products used in telecommunications, medical devices, automotive,
      military applications, aviation components, networking and computer equipment.
      The Company's time sensitive and high quality manufacturing services enable
      its
      customers to shorten the time it takes them to get their products from the
      research and development phase to the production phase, thus increasing their
      competitive position. Additionally, PCB East serves military and defense
      industry customers that are regulated to purchase printed circuit boards from
      companies that hold certain certifications from the United States Department
      of
      Defense. PCB East currently has military certifications 31032 and
      55110.




*Liquidity:*




For
      the
      three months ended February 28, 2007, the Company had net income of $1,492.
      For
      the six months ended February 28, 2007, the Company incurred a net loss of
      $5,348 and generated cash in operations of $3,776. As of February 28, 2007
      the
      Company had a net working capital deficit of $8,609. The Company’s principal
      sources of liquidity are its existing cash and cash equivalents, cash generated
      from operations and cash available from borrowings under its revolving credit
      facilities. The Company may also generate liquidity from offerings of debt
      and
      or equity in the capital markets. As of February 28, 2007, the Company has
      a
      total of $2,153 in unrestricted cash and cash equivalents. As of February 28,
      2007, it also had restricted investments of $750 that included funds set aside
      or pledged to secure letters of credit with a key supplier. Management believes
      the Company’s existing cash and cash equivalents, liquidity under its revolving
      credit facility and anticipated cash flows from operations will be sufficient
      to
      meet its operating and capital requirements at least for the next twelve months.




***Note
      2 - Income (Loss) Per Common Share***





We
      compute net income or loss per share in accordance with Statement of Financial
      Accounting Standards No. 128 “ *Earnings
      per Share* ”
(“SFAS
      128”) and SEC Staff Accounting Bulletin No. 98 (“SAB 98”). Under the provisions
      of SFAS 128 and SAB 98, basic net income or loss per share is computed by
      dividing the net income or loss available to common stockholders for the period
      by the weighted average number of common shares during the period. Diluted
      net
      income or loss per share is computed by dividing the net income or loss
      available to common shareholders for the period by the weighted average number
      of common and common equivalent shares outstanding during the
      period.




8


Earnings
        Per Share - Three Months Ended February 28, 2007


Net
                  income
              
              $
              1,492Less:
                  preferred stock dividends
              
              
              -Net
                  income available to common shareholders
              
              $
              1,492Basic
                  Earnings per common share
              
              $
              0.03Diluted
                  Earnings per common share
              
              $
              0.03Basic
                  common shares outstanding
              
              
              49,129,052Diluted
                  common shares outstanding
              
              
              49,917,459




During
      the period when they would be anti-dilutive, common stock equivalents are not
      considered in the computations. During the three months ended February 28,
      2007
      the common stock equivalents that were anti-dilutive and therefore, not
      considered in the calculations, consisted of warrants to purchase 10,200,000
      shares and preferred stock convertible into 3,027,250 common shares. 
During the six months ended February 28, 2007, the common stock equivalents
      that
      were anti-dilutive and therefore, not considered in the calculations, consisted
      of options to purchase 845,000 common shares, warrants to purchase 11,100,000
      common shares, and preferred stock convertible into 3,027,250 common shares.





***Note
      3 - Inventory***





Inventory
      consisted of the following:




Raw
                  materials and finished subassemblies
              
              $
              493Work
                  in process
              
              
              359Finished
                  goods
              
              
              1,4972,349Less
                  inventory reserves
              
              
              (119
              )Total
              
              $
              2,230




At
      February 28, 2007, the reserve for obsolescence was $119 principally related
      to
      raw material inventory in the Electronics and Homeland Security division and
      inventory obsolescence in the Communications division.





***Note
      4 - CapitalSource***





All
      amounts owed related to the CapitalSource Finance LLC, (“CapitalSource) Credit
      and Security Agreement dated August 12, 2005 were paid on December 29, 2006.
      This funding consisted of $5,950 in term notes payable and $7,465 in a revolving
      line of credit with CapitalSource. The Company entered into Amendment No. 5
      to
      the Credit and Security Agreement dated as of August 12, 2005. The Amendment
      provided for the elimination of the early termination fee in the amount of
      approximately $800 if the CapitalSource loan was repaid in full prior to
      December 31, 2006. CapitalSource also agreed to waive in writing certain
      non-monetary defaults which occurred prior to the date of the Amendment.





***Note
      5 - Laurus Master Fund***





All
      amounts owed related to the Laurus Master Fund, Ltd. (“Laurus”) financing which
      totaled $6,676 were paid on December 29, 2006. On November 20, 2003, the Company
      entered into loan agreements with Laurus, including principally a Security
      Agreement, a Securities Purchase Agreement ("SPA"), and a Registration Rights
      Agreement. Pursuant to the Security Agreement, the Company issued to Laurus
      (i)
      a Secured Revolving Note (the "Revolving Note") in the maximum principal amount
      of $2,500 and (ii) a Secured Convertible Minimum Borrowing Note (the "Minimum
      Borrowing Note") in the original principal amount of $1,500. As prescribed
      by
      the terms of the Security Agreement, the Company could borrow from Laurus such
      amount as shall equal 85% of the Company's eligible accounts receivable on
      the
      PCB West and PCB East subsidiaries, up to a maximum of $4,000. Additional
      Minimum Borrowing Notes could be issued from time to time upon request by the
      Company, provided the Company had availability under the Revolving Note using
      the prescribed formula or, at the discretion of Laurus, Laurus could advance
      additional loans in excess of the formula amount. The Revolving Note and the
      Minimum Borrowing Note would have matured on August 12, 2008. Pursuant to the
      SPA, the Company also issued and sold to Laurus a convertible term note (the
      "2003 Term Note") in the principal amount of $2,100. The first payment of the
      monthly principal amount of $64 on the 2003 Term Note commenced on February
      1,
      2004 and the maturity date was November 20, 2006.




9





On
      September 12, 2006, the Company and Laurus entered into a letter agreement
      pursuant to which Laurus agreed for a period of two years, commencing on
      September 12, 2006, that without prior written consent of the Company, Laurus
      will not sell any shares of common stock of the Company during a twenty two
      (22)
      day trading period by a number that exceeds twenty percent (20%) of the
      aggregate dollar trading volume of the common stock for the twenty two (22)
      day
      trading period immediately preceding and including the date of such proposed
      sales by Laurus. Such restriction, however, is not applicable to transfers
      in a
      private transaction, including as a bona fide gift or gifts, provided that
      the
      transferee thereof agrees to be bound in writing by the restrictions contained
      in the letter agreement. On September 12, 2006, the Company paid $.50 for an
      Option/Purchase to repurchase 1,250,000 shares for $.50 by December 31, 2006.
      The exercise of this option was subject to the repayment, on or before December
      31, 2006, of all outstanding amounts owed by the Company to Laurus pursuant
      to
      the secured revolving note dated November 20, 2003, minimum borrowing note
      dated
      November 20, 2003, convertible term note dated March 30, 2004, and convertible
      term note dated November 20, 2003. On December 29, 2006 the Company exercised
      the option for the shares. The Company immediately cancelled these shares.
      The
      gain of $1,263 from the repurchase of these shares at a discount was accounted
      for as part of the debt extinguishment costs. This gain was calculated using
      the
      share trading price on December 29, 2006. The derivative liabilities on these
      instruments were removed as of the extinguishment date, which resulted in a
      gain
      of $1,480 that is included in debt extinguishment.





***Note
      6 - Greystone Business Credit***





On
      December 29, 2006, the Company, together with all of its subsidiaries, entered
      into a credit facility with Greystone Business Credit II LLC (“Greystone”). The
      new credit facility with Greystone initially includes a revolving line of credit
      (“Revolver”) in the maximum amount of $15,000, and also includes term loans of
      up to $7,950.





The
      revolver will expire in 3 years, subject to earlier termination under certain
      circumstances. The revolving credit facility bears interest at a rate of 1.5%,
      plus the prime interest rate. Interest payments on the revolver are due monthly
      but the principal is paid on maturity. Revolver loans will be advanced based
      upon 85% of eligible accounts receivable and up to a maximum of 85% of eligible
      inventory, subject to certain limitations. The Company is required to have
      a
      minimum unused availability under the line of between $200 and $1,000. The
      Company is obligated to use any refunds on commercial taxes including Universal
      Service Fees (“USF”) to repay the term loans. The Company is also obligated to
      make a mandatory prepayment of $2,600 from the sale of debt or equity by April
      30, 2007 but only in the case that such a transaction occurs.





The
      senior term loans bear interest at a rate of 6%, plus the prime interest rate,
      provided that such rate is reduced by .5% for each reduction of principal by
      $1,000. The Term loans are to be paid off in 48 equal installments of $135
      per
      month which will result in repayment of the principal amount currently
      outstanding of $6,348 plus $1,640 in interest.





The
      Company granted a security interest in all of its assets to Greystone as
      security for the financing facility. Such security included a pledge of all
      trademarks and the stock of all subsidiaries.





The
      Company paid a commitment fee of $369 and will pay an annual commitment fee
      of
1⁄2% of the facility, payable on each anniversary. A loan servicing fee of .3%
      is
      payable each month based on the amount outstanding under the revolving facility.
      There is also a $20 per month administrative fee. In the event of a termination
      of the facility, an early termination fee will be payable. Such fee equals
      1% of
      the maximum revolving facility and the term loans if the termination occurs
      during the first year. As additional consideration for the facility, the Company
      issued to Greystone: (i) 500,000 shares of common stock valued at $505 and
      was
      recorded as a debt discount, and (ii) a warrant to purchase 500,000 shares
      of
      common stock at a price of $1.00 per share, exercisable for a period of five
      years was recorded as a derivative liability. The Company is obligated to
      register the shares of common stock and the common stock underlying the
      warrant.





Certain
      of the proceeds of the new financing were used to repay the existing credit
      facilities of the Company with Laurus and CapitalSource.




10





On
      February 14, 2007, the Company entered into Amendment #1 with Greystone. Through
      the amendment, Greystone increased the Company’s Revolver line of credit from
      $15,000 to $18,000 and provides for term loans of up to $7,608.





As
      of
      February 28, 2007, the Company currently has $6,348 in term loans and $11,054
      in
      a revolving line of credit with Greystone.





At
        February 28, 2007, the following amounts were outstanding:
  Greystone
                  Revolver
              
              $
              11,054Greystone
                  Term A & B
              
              $
              6,348Less:
                  current portion
              
              
              (1,621
              )$
              4,727The
                  revolving credit facility provides for borrowings utilizing an
                  asset based
                  formula, using eligible receivables, inventory and fixed assets,
                  less any
                  reserves. The amount of available borrowings pursuant to the formula
                  as
                  follows:
 Available
              
              $
              25,608Less:
                  amount borrowed under minimum borrowing note
              
              
              6,348Less:
                  amount borrowed under revolving credit facility
              
              
              11,054Less:
                  required unused availability
              
              
              40017,802Excess
                  availability
              
              $
              7,806





***Note
      7 - Cornell Capital Partners***





On
      October 10, 2006, the Company consummated a Securities Purchase Agreement (the
      "Purchase Agreement") dated October 10, 2006 with Cornell Capital Partners
      L.P.
      ("Cornell") providing for the sale by the Company to Cornell of its 8% secured
      convertible debentures in the aggregate principal amount of $1,200 (the
      "Debentures") of which $850 was advanced immediately. The second installment
      of
      $150 was advanced in this quarter. The last installment of $200 will be advanced
      two business days prior to the date the Registration Statement (see below)
      is
      declared effective by the Commission. The Debentures mature on the second
      anniversary of the date of issuance (the "Maturity Date").




Holder
      (the "Holder") of the Debentures may convert at any time amounts outstanding
      under the Debentures into shares of Common Stock of the Company (the "Common
      Stock") at a conversion price per share equal to $1.00. The Company has recorded
      an embedded derivative liability and associated expense, as appropriate, for
      the
      warrants associated with the Debenture. The Company has the right to redeem
      a
      portion or all amounts outstanding under the Debentures prior to the Maturity
      Date at a 10% redemption premium provided that (i) the Volume Weighted Average
      Price “VWAP” of the Company’s Common Stock is less than the conversion price of
      $1.00; (ii) no event of default has occurred and (iii) the Registration
      Statement is effective. The company has calculated a derivative liability,
      discussed later, related to this conversion feature.





Beginning
      on February 6, 2007 and continuing on the first trading day of each calendar
      month for the twelve months thereafter, the Company shall make mandatory
      redemptions consisting of outstanding principal divided by twelve, accrued
      and
      unpaid interest and a redemption premium of 10% per month, until the Debentures
      are paid in full. The Company shall have the option to make the mandatory
      redemption payments in cash or by issuing to the Holder such number of shares
      of
      its common stock which shall be equal to the mandatory redemption amount divided
      by 90% of the lowest VWAP during the 15 trading days prior to the date of the
      redemption payment. The Company will be permitted to pay the mandatory
      redemption by issuing shares of its common stock provided (i) the closing bid
      price of the Company’s Common Stock is greater than the redemption conversion
      price as of the trading day immediately prior to the date the redemption payment
      is due; (ii) no event of default shall have occurred and (iii) the Registration
      Statement is effective.




11





Under
      the
      Purchase Agreement, the Company also issued to Cornell (A) five-year warrants
      to
      purchase 250,000 and 250,000 shares of Common Stock at $1.00 and $1.10,
      respectively (collectively, the "Warrants"); and (B) 15,000 shares of its common
      stock (the “Shares”). The Company has recorded a derivative liability for the
      500,000 warrants associated with this transaction.





In
      connection with the Purchase Agreement, the Company also entered into a
      registration rights agreement with Cornell (the "Registration Rights Agreement")
      providing for the filing of a registration statement (the "Registration
      Statement") with the Securities and Exchange Commission registering the Common
      Stock issuable upon conversion of the Debentures and exercise of the Warrants
      and the 15,000 Shares. The Company is obligated to use its best efforts to
      cause
      the Registration Statement to be declared effective no later than February
      8,
      2007 and to insure that the registration statement remains in effect until
      all
      of the shares of common stock issuable upon conversion of the Debentures and
      exercise of the Warrants have been sold. In the event of a default of its
      obligations under the Registration Rights Agreement, including its agreement
      to
      file the Registration Statement with the Securities and Exchange Commission
      no
      later than December 11, 2006, or if the Registration Statement is not declared
      effective by February 8, 2007, it is required to pay to Cornell, as liquidated
      damages, for each thirty day period that the registration statement has not
      been
      filed or declared effective, as the case may be, either a cash amount or shares
      of our common stock equal to 2% of the liquidated value of the Debentures.





On
      January 5, 2007, Cornell and the Company executed Amendment No. 1 to the
      Registration Rights Agreement whereby among other provisions, changed the
      required filing date of the Registration Statement to January 31, 2007 and
      the
      date the Initial Registration Statement is to be declared effective by the
      Securities and Exchange Commission by March 31, 2007.





As
      of
      February 28, 2007, debentures with a $1,000 face value plus accrued interest
      is
      outstanding. Cornell has waived all penalties associated with the delay in
      effectiveness of the registration rights agreement. An SB-2 was filed with
      the
      SEC that would cover the registration of the securities covered by these
      agreements on March 8, 2007.





***Note
      8 - Seller Financed Notes and Preferred Stock***




Seller-financed
      debt was provided in connection with the acquisition of Oblio on August 12,
      2005, and the Company issued to the Seller, F&L, LLP (“F&L”) formerly
      known as Oblio Telecom, LLP, an 18-month promissory note in the principal amount
      of $2,500. The note matured on February 12, 2007 and carried an interest rate
      of
      1% per annum. The note was recorded upon issuance at its fair value of $2,245,
      and the associated discount of $255 is being amortized over the 18 month term
      of
      the note. The effective interest rate on the note is approximately 7.50%.





Additional
      seller financing was provided upon the closing of the Oblio acquisition in
      the
      amount of $2,323 in a contractual short term obligation that was not
      interest-bearing. On December 14, 2005, a promissory note was executed
      acknowledging this amount due to the Seller. The Note bears interest of 4%,
      and
      had a maturity date of February 28, 2006 which was extended to March 31,
      2009.





On
      December 29, 2006, F&L agreed to amend the terms of the Series A Preferred
      Stock originally issued to them as part of the Oblio acquisition. The provisions
      related to potential additional value of the preferred shares as a result of
      attainment of certain financial goals were eliminated and the stated value
      of
      the preferred stock was reduced from $9,000 to $4,500. The preferred stock
      agreement was modified as follows:




·
            The
                old Series A Preferred Stock consisted of four tranches.  The first
                tranche included a fixed 3,000 shares with a stated value of $1 per
                share.  The three remaining tranches included 2,000 shares with a
                stated value of $1 per share, subject to reduction in the event Oblio
                failed to meet certain EBITDA targets. Based on these EBITDA targets,
                the
                initial value of the Series A Preferred Stock could be reduced by
                a
                maximum of $6,000, but in no case could the final value ever be more
                than
                $9,000.





·
            The
                amended Series A Preferred Stock includes the first tranche only
                and is a
                fixed 3,000 shares with a stated value of $1.5 per
                share.





On
      the
      same date, pursuant to the amendment, F&L agreed to extend the maturity date
      of the notes to March 31, 2009, and increase the interest rate to 5% per annum.
      Oblio will make monthly payments of $179, commencing January 31, 2007. In
      connection with the amendment, the Company agreed to issue 250,000 shares of
      common stock valued at $253 to F&L LLP. In addition, the Company agreed to
      guaranty the payment to be made by Oblio. See additional discussion in Note
      12.




12





***Note
      9 - Trilogy Capital Partners***





On
      September 20, 2006, the Company entered into a letter of engagement with Trilogy
      Capital Partners, Inc. (“Trilogy”). The term of the engagement is for twelve
      months beginning on September 20, 2006 and terminable thereafter by either
      party
      upon 30 days’ prior written notice. Trilogy will provide marketing, financial
      public relations and investor relations services to the Company. The Company
      will pay Trilogy $12.5 per month and the Company issued warrants to purchase
      an
      aggregate of 2,450,000 shares of common stock of the Company, 1,225,000 of
      which
      are exercisable at a price of $1.00 per share and 1,225,000 of which are
      exercisable at a price of $1.50 per share. The warrants issued to Trilogy are
      exercisable upon issuance, expire on September 17, 2009, and are required to
      be
      registered with the Securities and Exchange Commission as part of the agreement.
      The Company recorded the value of the freestanding derivative liability related
      to the warrants of $1,822 as of February 28, 2007.





***Note
      10 - Long Term Debt***





Long
      term
      debt consists of:




Issue
              
              Expiration
              
              
              
              Outstanding
                  atDate
              
              Date
              
              Instrument
              
              2/28/200708/12/2005
              
              
              03/31/2009
              
              $
              4,823
                  Seller Financed Debt
              
              $
              4,49610/10/2006
              
              
              10/10/2008
              
              $
              1,200
                  Convertible Term Note
              
              
              1,00012/29/2006
              
              
              12/29/2009
              
              $
              18,000
                  Secured Revolving Note
              
              
              11,05412/29/2006
              
              
              02/01/2011
              
              $
              2,000
                  Term Note A
              
              
              85712/29/2006
              
              
              02/01/2011
              
              $
              5,608
                  Term Note B
              
              
              5,491Total
                  debt
              
              
              
              
              
              
              
              
              22,898Less
                  discount from warrants and derivatives
              
              
              
              
              
              
              
              
              (1,840
              )Total
                  carrying value of debt
              
              
              
              
              
              
              
              
              21,058Less
                  current portion
              
              
              
              
              
              
              
              
              (3,768
              )Total
                  long term debt
              
              
              
              
              
              
              
              $
              17,290




Long
      term
      debt repayments are due as follows:


Fiscal
                  Year
              
              F&L
                  Note
              
              Cornell
                  Note
              
              Greystone
                  Revolver
              
              Greystone
                  Term Debt
              
              Total
                  Long Term Debt2007
              
              $
              2,147
              
              $
              -
              
              $
              -
              
              $
              1,621
              
              $
              3,7682008
              
              
              2,349
              
              
              -
              
              
              -
              
              
              1,587
              
              
              3,9362009
              
              
              -
              
              
              1,000
              
              
              -
              
              
              1,587
              
              
              2,5872010
              
              
              -
              
              
              -
              
              
              11,054
              
              
              1,553
              
              
              12,607$
              4,496
              
              $
              1,000
              
              $
              11,054
              
              $
              6,348
              
              $
              22,898




***Note
      11 - Derivative Financial Instrument Liability***




Pursuant
      to SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities,
      as amended, and EITF Issue No. 00-19, Accounting for Derivative Financial
      Instruments Indexed to, and Potentially Settled in, A Company’s Own Stock, the
      Company has identified certain embedded and freestanding derivative instruments.
      Generally, where the ability to physical or net-share settle an embedded
      conversion option or free standing financial instrument is not deemed to be
      within the control of the Company, the embedded conversion option is required
      to
      be bifurcated and both the freestanding instruments and bifurcated conversion
      feature are accounted for as derivative liabilities.





At
      each
      reporting date, the Company estimates the fair values of all derivatives and
      changes in the fair value are charged to operations. For embedded and free
      standing derivatives valued using the Black-Scholes option pricing model the
      following assumptions were used: (1) contractual term of 3 to 7 years; (2)
      volatility of 85%, (3) risk free interest rate of 4.17% and (4) dividend rate
      of
      0%.




13




The
      fair
      value of the individual short and long-term embedded and free standing
      derivatives at February 28, 2007 is as follows:


**Issue
                  Date**
              
              **Expiration
                  Date**
              
              **Instrument**
              
              **Exercise
                  Price per Share**
              
              **Fair
                  Value at February 28, 2007**10/12/2006
              
              
              10/12/2011
              
              
              Long-Term
                  fair value of conversion feature of Convertible Debenture
              
              
              
              
              $
              789**Long-Term
                  Embedded Derivatives**
              
              
              
              
              
              **789**03/24/2006
              
              
              03/24/2013
              
              
              6,750,000
                  Warrants
              
              $
              0.23
              
              
              8,19709/20/2006
              
              
              09/17/2009
              
              
              1,225,000
                  Warrants
              
              $
              1.00
              
              
              99109/20/2006
              
              
              09/17/2009
              
              
              1,225,000
                  Warrants
              
              $
              1.50
              
              
              83110/12/2006
              
              
              10/12/2011
              
              
              250,000
                  Warrants
              
              $
              1.00
              
              
              24310/12/2006
              
              
              10/12/2011
              
              
              250,000
                  Warrants
              
              $
              1.10
              
              
              23910/12/2006
              
              
              10/12/2011
              
              
              500,000
                  Warrants
              
              $
              1.00
              
              
              496**Total
                  Long-Term Freestanding Derivatives**
              
              
              
              
              
              **10,997**08/12/2005
              
              
              08/12/2008
              
              
              Long-Term
                  fair value of conversion feature of Series A Preferred
                  Stock
              
              $
              1.50
              
              
              1,324**Total
                  Embedded and Free Standing Derivative Liabilities**
              
              
              
              
              **$**
              **13,110**




***Note
      12 - Gain or Loss on Extinguishment of Debts***





On
      December 29, 2006, the Company entered into a credit facility with Greystone
      as
      discussed in Note 6. The new credit facility with Greystone initially included
      a
      revolving line of credit in the maximum amount of $15,000 and also includes
      term
      loans of up to $7,950 of which $6,484 was borrowed on the closing date. On
      February 14, 2007, the revolving line of credit increased to $18,000 and also
      provides for term loans of up to $7,608 in connection with Amendment
      #1.





Certain
      of the proceeds of the new financing were used to repay the existing credit
      facilities of the Company with Laurus and CapitalSource. The Company also
      exercised an option previously granted by Laurus pursuant to which the Company
      canceled 1,250,000 shares of its outstanding common stock from Laurus in
      exchange for $1 upon repayment of all sums owed to Laurus. As discussed in
      Note
      5, the repayment of the Laurus debt resulted in a $1,263 gain for the quarter
      from the exercise of the option to purchase 1,250,000 shares and the
      cancellation of the shares and a $1,480 gain for the quarter from the removal
      of
      the derivative liabilities on these instruments. The repayment of the
      CapitalSource debt did not result in a gain or loss.





As
      discussed in Note 8, an amendment to the loan agreements on December 29, 2006
      between the Company and F&L resulted, in part, in the stated value of the
      preferred stock being reduced from $9,000 to $4,500. F&L agreed to extend
      the maturity date of the Notes to March 31, 2009, and increase the interest
      rate
      to 5% per annum. The Company also issued 250,000 shares as a part of this
      transaction. In accordance with EITF Issue No. 96-19, “ *Debtor's
      Accounting for a Modification or Exchange of Debt Instruments* ”,
      the
      Company concluded that the terms of the restructured debt were substantially
      different (greater than 10%) than the original debt terms and has treated the
      transaction as a debt extinguishment. The debt extinguishment was calculated
      by
      comparing the carrying value of the original debt instrument to the carrying
      value of the modified debt instrument. A resulting gain of $5,047, which
      includes a reduction in the stated value of $4,500, a reduction in the accrued
      dividends of $176, and a reduction in the related derivative liability of $371,
      was recorded at February 28, 2007.





***Note
      13 - Stock Options and Stock Based Compensation***





As
      permitted under SFAS 123, “ *Accounting
      for Stock-Based Compensation”,* as
      amended, until August 31, 2006, the Company accounted for its stock based
      compensation in accordance with Accounting Principles Board Opinion No. 25,
      “ *Accounting* for *Stock Issued to Employees,” (“APB No. 25* ”).
      Under
      APB No. 25, compensation cost is recognized over the vesting period based on
      the
      excess, if any, on the date of grant of the fair value of the Company’s shares
      over the employee’s exercise price. When the exercise price of the option is
      less than the fair value price of the underlying shares on the grant date,
      deferred stock compensation was recognized and amortized to expense over the
      vesting period of the individual options. Accordingly, if the exercise price
      of
      the Company’s employee options equaled or exceeded the market price of the
      underlying shares on the date of grant no compensation expense was recognized.




14





*Impact
      of the Adoption of SFAS 123(R)*





Effective
      September 1, 2006, the Company adopted the fair value recognition provisions
      of
      SFAS 123(R) (revised 2004), “ *Share
      Based Payment* ”
using
      the modified-prospective transition method. Under this transition method,
      stock-based compensation expense recognized during the period is based on the
      value of the portion of stock-based payment awards that is ultimately expected
      to vest. Stock-based compensation expense recognized in the consolidated
      statement of operations during the three and six months ended February 28,
      2007
      includes compensation expense for stock-based payment awards granted prior
      to,
      but not yet vested, as of August 31, 2006 based on the grant date fair value
      estimated in accordance with the pro forma provision of SFAS 148 and
      compensation expense for the stock-based payment awards granted subsequent
      to
      August 31, 2006, based on the grant date fair value estimated in accordance
      with
      SFAS 123(R).





The
      Company’s consolidated interim financial statements for the three and six months
      ended February 28, 2007 reflect the impact of adopting SFAS 123(R). The impact
      on the Company’s results of operations of recording stock-based compensation for
      the three and six month periods ended February 28, 2007 was approximately $35
      and $84, respectively, and was recorded in general and administrative expenses.
      Options or shares awards issued to non-employees and directors are valued using
      the Black-Scholes pricing model and expensed over the period services are
      provided.




As
      stock-based compensation expense recognized in the consolidated statement of
      operations for the three and six months ended February 28, 2007 is based on
      awards ultimately expected to vest, it has been reduced for estimated
      forfeitures. SFAS 123R requires forfeitures to be estimated at the time of
      grant
      and revised, if necessary, in subsequent periods if actual forfeitures differ
      form those estimates. In the pro forma information required under SFAS 148
      for
      the periods prior to September 1, 2006, forfeitures were accounted for as they
      occurred.




SFAS
      123R
      requires cash flows resulting from excess tax benefits to be classified as
      a
      part of cash flows from financing activities. Excess tax benefits are realized
      tax benefits from tax deductions for exercised options in excess of the deferred
      tax asset attributable to stock compensation costs for such options. There
      were
      no stock options exercised in the six months ended February 28, 2007 and
      February 28, 2006.




In
      accordance with the modified prospective method, the consolidated interim
      financial statements for prior periods were not restated but the impact of
      adopting SFAS 123(R) on those periods is discussed below. The table below shows
      net loss per share attributable to common stockholders for the three and six
      months ended February 28, 2006 as if the Company had elected the fair value
      method of accounting for stock options effective September 1, 2005.




**Three
                  Months Ended**
              
              **Six
                  Months Ended****2/28/2006**
              
              **2/28/2006**Net
                  loss attributable to common shareholders, as reported
              
              $
              (2,964
              )
              $
              (9,368
              )Add:
                  stock-based employee compensation in reported net loss, net of
                  related tax
                  effects
              
              
              -
              
              
              -Deduct:
                  stock-based employee compensation determined under fair value method
                  for
                  all awards, net of related tax effects.
              
              
              (2
              )
              
              (2
              )Proforma
                  net loss attributable to common shareholders, as adjusted
              
              $
              (2,966
              )
              $
              (9,370
              )Loss
                  per share attributable to common shareholders:Basic
                  and diluted, as reported
              
              $
              (0.07
              )
              $
              (0.24
              )Basic
                  and diluted, as adjusted
              
              $
              (0.07
              )
              $
              (0.24
              )




15




*Employee
      Stock Options*




On
      October 9, 2006, the Company granted Scott Hensell, its Chief Financial Officer
      an option to purchase 100,000 shares of common stock at a per share exercise
      price of $.83. The option vests in accordance with the following schedule:
      1/2
      of the total shares vest immediately on October 9, 2006 and 1⁄2 of the total
      shares vest on October 9, 2007.




On
      November 13, 2006, the Company granted Mike Kadlec, its Executive Vice President
      an option to purchase 100,000 shares of common stock at a per share exercise
      price of $1.00. The option vests in accordance with the following schedule:
      1/2
      of the total shares vest immediately on November 13, 2006 and 1⁄2 of the total
      shares vest on November 13, 2007.





*Valuation
      Assumptions*




The
      Company calculated the fair value of each option award on the date of grant
      using the Black-Scholes option pricing model. The following assumptions were
      used for the six months ended February 28, 2007:


**Six Months Ended****2/28/2007**Risk-free
                        interest rate
                    
                    
                    4.68
                    %Expected
                        lives (in years)
                    
                    
                    1.5
                        - 2.0Dividend
                        yield
                    
                    
                    0
                    %Expected
                        volatility
                    
                    
                    142.24%
                        - 144.43
                    %




Stock
      option activity is summarized as follows:


**Three Months Ended****2/28/2007**Outstanding,
                  December 1
              
              
              1,245,000Granted
              
              
              -Exercised
              
              
              -Forfeited
              
              
              -Outstanding,
                  February 28
              
              
              1,245,000Non-vested,
                  December 1
              
              
              150,000Grants
              
              
              -Vested
              
              
              (50,000
              )Forfeitures
              
              
              -Non-vested,
                  February 28
              
              
              100,000Average
                  exercise price per share:Outstanding,
                  December 1
              
              $
              0.72Granted
              
              $
              0.92Forfeited
              
              $
              -Outstanding,
                  February 28
              
              $
              0.72Exercisable
              
              $
              0.70Non-Vested,
                  December 1
              
              $
              0.92Non-Vested,
                  February 28
              
              $
              0.92Weighted-average
                  remaining term of outstanding options and warrants
              
              
              1.6
                  yearsWeighted-average
                  remaining term of exercisable options and warrants
              
              
              1.5
                  years




**Six Months Ended****2/28/2007**Outstanding,
                  September 1
              
              
              1,045,000Granted
              
              
              200,000Exercised
              
              
              -Forfeited
              
              
              -Outstanding,
                  February 28
              
              
              1,245,000Non-vested,
                  September 1
              
              
              50,000Grants
              
              
              200,000Vested
              
              
              (150,000
              )Forfeitures
              
              
              -Non-vested,
                  February 28
              
              
              100,000Average
                  exercise price per share:Outstanding,
                  September 1
              
              $
              0.68Granted
              
              $
              0.92Forfeited
              
              $
              -Outstanding,
                  February 28
              
              $
              0.72Exercisable
              
              $
              0.70Non-Vested,
                  September 1
              
              $
              0.33Non-Vested,
                  February 28
              
              $
              0.92Weighted-average
                  remaining term of outstanding options and warrants
              
              
              1.6
                  yearsWeighted-average
                  remaining term of exercisable options and warrants
              
              
              1.5
                  years




16




***Note
      14 - Federal Excise Tax Refund***




In
      May
      2006, the United States Treasury Department formally conceded the legal dispute
      over federal excise taxes on long distance telephone service. Accordingly,
      the
      Internal Revenue Service will process principal and interest refunds for all
      Federal Excise Taxes (FET) paid for long distance services during the last
      three
      years. As a result of the change, the Company has established a recoverable
      for
      FET amounts that have historically been included in the cost of sales as
      reported in historical financial statements.





At
      February 28, 2007, the Company has recorded an FET Recoverable of $3,989. The
      Company expects to collect this amount as a refund on the August 31, 2007
      corporate income tax return.




***Note
      15 - Universal Service Fund Refund***




In
      1997,
      the FCC issued an order, referred to as the Universal Service Order that
      requires all telecommunications carriers providing interstate telecommunications
      services to periodically contribute to universal service support programs
      administered by the FCC, the Universal Service Funds (“USF”). These periodic
      contributions are currently assessed based on a percentage of each contributor’s
      interstate and international end user telecommunications revenues reported
      to
      the FCC. We, and most of our competitors, pass through these USF contributions
      in the price of our interstate services, either as a separate surcharge or
      as
      part of the base rate. In turn, we remit amounts owed to the USF on a quarterly
      basis. We directly remit contributions to the USF administrator for our prepaid
      wireless services and indirectly pay contributions applicable to our wire line
      services through our underlying suppliers.





Pursuant
      to FCC Regulation 54.706(c), from November 1, 1999 to April 1, 2003, a provider
      of interstate and international retail communications services is not required
      to contribute to the USF based on its international telecommunications end-user
      revenues if its interstate telecommunications end-user revenues constitute
      less
      than eight (8%) percent of its combined interstate and international end-user
      revenues. Effective April 1, 2003, the FCC raised the Limited International
      Revenue Exemption (LIRE) threshold to twelve (12%) percent. As our prepaid
      international calling card division’s end-user revenues are ninety-eight point
      eight (98.8%) percent and thus greater than eighty-eight (88%) percent
      international end-user revenues, we are exempt from USF contributions for the
      vast majority of revenue generated by our calling card division. Any changes
      to
      this exemption by the FCC would impact the future profitability of our
      communications division.




In
      addition to the FCC universal service support mechanisms, state regulatory
      agencies also operate parallel universal service support systems. As a result,
      we are subject to state, as well as federal, universal service support
      contribution requirements, which vary from state to state.





At
      February 28, 2007, the Company has recorded a USF Recoverable of $4,024 (see
      additional discussion in Note 20). This amount relates to amounts owed to the
      Company from providers other than AT&T Corp. (“AT&T”). For additional
      discussion on the status of USF as it relates to AT&T, see additional
      discussion in Note 16.




***Note
      16 - Litigation***





From
      time
      to time, the Company may become involved in various lawsuits and legal
      proceedings which arise in the ordinary course of business. While management
      does not believe these matters will have a material effect on the Company’s
      financial statements, litigation is subject to inherent uncertainties, and
      an
      adverse result could arise from time to time that may harm Titan’s business,
      financial condition and results of operations. The Company and its subsidiaries
      are involved in the following:





On
      December 5, 2006, Oblio filed a Demand for Arbitration with the American
      Arbitration Association against AT&T Corp. (“AT&T”). Oblio is seeking a
      refund of amounts paid to AT&T for the period from 1999 to October 2006 for
      USF charges paid to AT&T pursuant the Purchase Order Agreement, which sets
      forth the parties’ business relationship. Oblio estimates that it and its
      predecessor have paid AT&T at least $61,913 in USF charges from 2001 to
      October 2006, but has not determined the USF charges it paid in 1999 and 2000.
      The fees paid to AT&T by Oblio for AT&T’s Enhanced Prepaid Card Service
      (“Prepaid Card Service”) included USF and other FCC charges, AT&T retained
      this revenue instead of making the required contributions to the USF and other
      FCC programs based on AT&T’s belief its Prepaid Card Service was exempt
      under the law.





In
      February 2005, the FCC issued an order which made it clear that AT&T is
      required to pay USF charges on its Prepaid Card Service, a large percentage
      of
      which was resold to the public through Oblio. The order required AT&T and
      all companies providing calling card services similar to those described in
      the
      order to file new or revised Form 499s to properly report revenues consistent
      with the Order’s findings.




17





In
      compliance with the FCC order, Oblio has registered with the FCC as an
      Interstate Telecommunications Service Provider. Oblio is now considered to
      be a
      direct contributor. As a direct contributor, over 98% of Oblio’s revenue is
      exempt from USF contributions and other Universal
      Service Administrative Company’s mandated
      fees to AT&T or other wholesale telecommunications service providers due to
      a specific FCC rule exemption applicable to international services.





AT&T
      maintains that Oblio it did not charge USF fees, and if it did, Oblio is not
      owed any refund of USF payments made by Oblio to AT&T from 1999 to October
      2006.





No
      amounts have been recorded in the accompanying financial statements associated
      with this litigation.




***Note
      17 - Segment Information***





The
      Company considers itself in two distinct operating segments.





The
      Company through its subsidiaries, PCB West and PCB East, is a fabrication
      service provider of time sensitive, high tech, prototype and pre-production
      printed circuit boards, providing time-critical printed circuit board
      manufacturing services to original equipment manufacturers, contract
      manufacturers and electronic manufacturing services providers. The Company
      considers this its PCB business segment.





The
      Company through its subsidiary, Oblio, is engaged in the creation, marketing,
      and distribution of prepaid telephone products for the wire line and wireless
      markets and other related activities. The Company acquired Oblio in a
      transaction that was completed on August 12, 2005.


**Three
                  Months Ended**
              
              **Three
                  Months Ended****2/28/2007**
              
              **2/28/2006****PCB**
              
              **Oblio**
              
              **Corp.**
              
              **Total**
              
              **PCB**
              
              **Oblio**
              
              **Corp.**
              
              **Total**Sales:
              
              
              5,140
              
              
              30,938
              
              
              -
              
              
              36,078
              
              
              4,699
              
              
              21,304
              
              
              -
              
              
              26,003Interest
                  expense:
              
              
              (182
              )
              
              1,602
              
              
              4
              
              
              1,424
              
              
              1,155
              
              
              607
              
              
              -
              
              
              1,762Net
                  Income (Loss):
              
              
              127
              
              
              2,582
              
              
              (1,217
              )
              
              1,492
              
              
              (1,688
              )
              
              (1,276
              )
              
              -
              
              
              (2,964
              )Assets:
              
              
              6,168
              
              
              49,544
              
              
              295
              
              
              56,007
              
              
              7,132
              
              
              38,076
              
              
              -
              
              
              45,208Equipment
                  and improvements (Gross):
              
              
              4,595
              
              
              411
              
              
              -
              
              
              5,006
              
              
              2,058
              
              
              179
              
              
              -
              
              
              2,237Additions:
              
              
              56
              
              
              36
              
              
              -
              
              
              92
              
              
              38
              
              
              164
              
              
              -
              
              
              202Disposals:
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -Depreciation
                  expense:
              
              
              167
              
              
              32
              
              
              -
              
              
              199
              
              
              164
              
              
              1
              
              
              -
              
              
              165Goodwill
                  and intangible assets (Gross):
              
              
              65
              
              
              31,142
              
              
              -
              
              
              31,207
              
              
              -
              
              
              28,319
              
              
              -
              
              
              28,319Amortization
                  expense:
              
              
              -
              
              
              1,335
              
              
              -
              
              
              1,335
              
              
              -
              
              
              1,322
              
              
              -
              
              
              1,322




18




**Six
                  Months Ended**
              
              **Six
                  Months Ended****2/28/2007**
              
              **2/28/2006****PCB**
              
              **Oblio**
              
              **Corp.**
              
              **Total**
              
              **PCB**
              
              **Oblio**
              
              **Corp.**
              
              **Total**Sales:
              
              
              10,551
              
              
              55,512
              
              
              -
              
              
              66,063
              
              
              9,112
              
              
              44,571
              
              
              -
              
              
              53,683Interest
                  expense:
              
              
              (31
              )
              
              2,257
              
              
              4
              
              
              2,230
              
              
              2,303
              
              
              1,022
              
              
              -
              
              
              3,325Net
                  Loss:
              
              
              (5,047
              )
              
              1,544
              
              
              (1,845
              )
              
              (5,348
              )
              
              (7,845
              )
              
              (1,455
              )
              
              -
              
              
              (9,300
              )Assets:
              
              
              6,168
              
              
              49,544
              
              
              295
              
              
              56,007
              
              
              7,132
              
              
              38,076
              
              
              -
              
              
              45,208Equipment
                  and improvements (Gross):
              
              
              4,595
              
              
              411
              
              
              -
              
              
              5,006
              
              
              2,058
              
              
              179
              
              
              -
              
              
              2,237Additions:
              
              
              94
              
              
              68
              
              
              -
              
              
              162
              
              
              38
              
              
              164
              
              
              -
              
              
              202Disposals:
              
              
              4
              
              
              -
              
              
              -
              
              
              4
              
              
              -
              
              
              -
              
              
              -
              
              
              -Depreciation
                  expense:
              
              
              313
              
              
              52
              
              
              -
              
              
              365
              
              
              309
              
              
              2
              
              
              -
              
              
              311Goodwill
                  and intangible assets (Gross):
              
              
              65
              
              
              31,142
              
              
              -
              
              
              31,207
              
              
              -
              
              
              28,319
              
              
              -
              
              
              28,319Amortization
                  expense:
              
              
              -
              
              
              2,669
              
              
              -
              
              
              2,669
              
              
              -
              
              
              2,497
              
              
              -
              
              
              2,497




All
      the
      Company's facilities are located in the United States and the majority of the
      Company's sales are made within the United States.





***Note
      18 - Recently Adopted Accounting Pronouncements***





In
      July 2006, the FASB issued Interpretation No. 48, “ *Accounting
      for Uncertainty in Income Taxes—an Interpretation of FASB Statement
      No. 109* ”
(“FIN
      48”). FIN 48 clarifies the accounting for uncertainty in income taxes recognized
      in an entity’s financial statements in accordance with SFAS No. 109,
“ *Accounting
      for Income Taxes* ”,
      and
      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. Additionally, FIN 48 provides guidance on subsequent
      derecognizing of tax positions, financial statement classification, recognition
      of interest and penalties, accounting in interim periods, and disclosure and
      transition requirements. FIN 48 is effective for the Company’s fiscal year
      beginning September 1, 2007, with early adoption permitted. The Company is
      in
      the process of evaluating FIN 48.




In
      September 2006, the Securities and Exchange Commission (“SEC”) issued Staff
      Accounting Bulletin No. 108 (“SAB 108”). Due to diversity in practice among
      registrants, SAB 108 expresses SEC staff views regarding the process by which
      misstatements in financial statements are evaluated for purposes of determining
      whether financial statement restatement is necessary, SAB 108 is effective
      for
      fiscal years ending after November 15, 2006, and early application is
      encouraged. The Company does not believe SAB 108 will have a material impact
      on
      our financial position or results from operations.





In
      September 2006, the FASB issued Statement of Financial Accounting Standards
      No. 157, “ *Fair
      Value Measurements* ”
(“FAS
      157”). This Statement defines fair value as used in numerous accounting
      pronouncements, establishes a framework for measuring fair value in generally
      accepted accounting principles and expands disclosure related to the use of
      fair
      value measures in financial statements. The Statement is to be effective for
      the
      Company’s fiscal year beginning September 1, 2007 and all financial statements
      issued in thereafter; however, earlier application is encouraged. The Company
      is
      currently evaluating the timing of adoption and the impact that adoption might
      have on our financial position or results of operations.





***Note
      19 - PCB Spin-off***





The
      Company’s Board of Directors has authorized a definitive strategic plan to
      spin-off its PCB Division manufacturing business to its shareholders, creating
      a
      new, more strategic independent public entity. The spin-off will allow the
      Company to accelerate strategic transaction flow at all divisions which will
      significantly build overall shareholder value. The spin-off will be accomplished
      through the pro rata dividend of 100% of Titan PCB to all shareholders of record
      on the record date set by the Company. The Company will make the appropriate
      filings with the SEC and expects the spin-off to be completed during the
      Company’s 2007 fiscal year.





***Note
      20 - Subsequent Events***





On
      March
      18, 2007, Oblio entered into a settlement and release agreement with Sprint
      Communications Company, L.P. (“Sprint”). Pursuant to the Settlement Agreement,
      Sprint has agreed to provide an invoice credit of $1,909 in full for amounts
      related to contributions made by Sprint on behalf of the Company to the USF
      Administrator from January 1, 2006 through December 31, 2006. Sprint has also
      agreed to issue an invoice credit for USF charges paid by Oblio in the first,
      second, and third quarters of 2007 for the sale of Sprint communications
      services that Oblio purchases pursuant to the Sprint Prepaid Pin Distribution
      Agreement entered into between Sprint and Oblio, where such USF charges were
      included in the billings in 2006. The reimbursement is calculated as the
      difference between the amount Sprint owed for the USF including Oblio’s revenues
      and the amount Sprint owed for the USF without Oblio’s revenues.




19





Oblio
      received the $1,909 credit effective March 18, 2007. Oblio expects to receive
      the remaining balance of $2,115 recorded in USF Recoverable at February 28,
      2007
      in invoice credits during the third and fourth quarters of fiscal year
      2007.





**ITEM
      2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
      OF
      OPERATIONS OR PLAN OF OPERATIONS**





*This
      Management's Discussion and Analysis of Financial Condition and Results of
      Operations and other portions of this report contain forward-looking information
      that involve risks and uncertainties. The Company's actual results could differ
      materially from those anticipated by the forward-looking information. Factors
      that may cause such differences include, but are not limited to, availability
      and cost of financial resources, product demand, market acceptance and other
      factors discussed in this report under the heading “Forward Looking
      Information/Risk Factors. ” This Management's Discussion and Analysis of
      Financial Condition and Results of Operations should be read in conjunction
      with
      its consolidated financial statements and the related notes included elsewhere
      in this report.*





**Overview**





A
      detailed overview of our business and history is set forth in our Annual Report
      on Form 10-KSB for the year ended August 31, 2006, to which overview we make
      reference. All numbers referenced below are stated in thousands unless otherwise
      noted.





**Summary
      Corporate Background**





The
      Company is a diversified holding company with a dynamic portfolio of
      subsidiaries that capitalize on the ever-expanding worldwide demand for new
      communications and connectivity services and products. The Company is committed
      to providing consumers with the tools they need to thrive by connecting them
      to
      family, friends and colleagues.





The
      Company was organized under the laws of the State of Utah on March 1, 1985,
      with
      the primary purpose of seeking potential business enterprises which in the
      opinion of the Company's management would prove profitable. The Company was
      largely inactive through 2001.





The
      Company began its electronics and homeland security division in 2001 through
      SVPC Partners LLC, a Delaware limited liability company that commenced its
      operations in July 2001 ("SVPC"). SVPC began acquiring cutting edge technology
      equipment, processes, customer lists and orders from competitors but was unable
      to remain in business principally due to a severe market downturn and excessive
      levels of indebtedness. On July 16, 2001, SVPC acquired all of the assets of
      SVPC Circuit Systems, Inc. and certain assets of Circuit Systems, Inc. ("CSI")
      pursuant to a combined approved bankruptcy court sale. After acquiring SVPC
      Circuit Systems, Inc. and certain assets of CSI, Titan acquired certain system
      integration division assets out of bankruptcy from creditors of Paragon
      Electronic Systems, Inc.





On
      June
      28, 2002, the Company entered into a letter of intent with Titan PCB West,
      Inc.,
      a manufacturer of time sensitive, high tech, prototype and pre-production
      printed circuit boards.





Effective
      August 30, 2002, through the Company's wholly-owned subsidiary Titan EMS
      Acquisition Corp., a Delaware corporation ("AcquisitionCo"), the Company
      acquired all of the capital stock of Titan PCB West through an exchange of
      its
      Common Stock pursuant to an Agreement and Plan of Merger (the "Merger"). In
      connection with the Merger, its fiscal year end was also changed from June
      30 to
      August 31.




20





In
      connection with the Merger, AcquisitionCo merged with and into Titan PCB West
      through the exchange of 6,880,490 shares of its Common Stock for all of Titan
      PCB West's outstanding shares of common stock.





On
      August
      12, 2002, Titan PCB West acquired certain intangible assets contributed by
      Louis
      George, the Company's President and Chief Executive Officer, in exchange for
      50,000 shares of Titan common stock valued at $1.50 per share, pursuant to
      the
      terms and conditions of a Contribution Agreement and Assignment and Assumption
      of Liabilities.





On
      February 27, 2003, through the Company's subsidiary, Titan PCB East, the Company
      acquired substantially all of the assets of Eastern Manufacturing Corporation,
      an Amesbury, Massachusetts-based manufacturer of rigid-flex printed circuits
      using a patented manufacturing process (the "HVR Flex Ô Process"), for
      approximately $500 in a foreclosure sale from Eastern Manufacturing
      Corporation's secured lender Eastern Bank. The acquired assets included
      equipment, work-in-progress, inventory, technology and patent licenses and
      customer lists. In connection with this acquisition, the Company assigned
      Eastern Manufacturing Corporation's rights under a license agreement with Coesen
      Inc., a New Hampshire corporation ("Coesen Inc."), to manufacture PCBs using
      the
      HVR Flex Ô Process to Titan PCB East and Titan PCB East was granted an option to
      purchase certain real estate assets. The Company financed the acquisition of
      Eastern Manufacturing Corporation's assets through the issuance and sale on
      February 27, 2003 of secured promissory notes by Titan PCB East to a limited
      number of accredited investors in a private placement.





Effective
      March 5, 2003, the Company purchased shares of common stock of Coesen Inc.
      representing 33.3% of its issued and outstanding shares of common stock from
      Mr.
      Howard Doane, the principal stockholder and an officer and director of Eastern
      Manufacturing Corporation, in exchange for 30,000 shares of Titan common stock
      and $5 in cash. In connection with the share purchase, David M. Marks, one
      of
      Titan’s Directors, was elected to the Board of Directors of Coesen Inc. and Mr.
      Doane resigned as a director of Coesen Inc. In consideration for the license
      rights to the proprietary technology of Coesen Inc., the Company has agreed
      to
      pay Coesen Inc. a royalty in the amount of 2.0% of revenues derived from the
      Company's sale of products using this technology, payable on a quarterly basis,
      subject to Coesen Inc. forgiving the royalty payment should certain directors
      of
      Coesen Inc. be under employment contracts with us.





In
      2005,
      the Company launched its communications division by acquiring Oblio Telecom,
      Inc.





On
      July
      28, 2005, Farwell Equity Partners, LLC (“Farwell”) and its newly formed
      acquisition subsidiary, Oblio entered into an Asset Purchase Agreement with
      Oblio Telecom L.L.P. (“Seller”) and its sole owners, Sammy Jibrin and Radu
      Achiriloaie (“Selling Owners”), for the purchase of substantially all of the
      assets of Seller. This transaction closed on August 12, 2005, upon Oblio
      obtaining financing for the acquisition. Also, effective on August 12, 2005
      and
      immediately following the aforementioned closing, Farwell contributed its 1,000
      shares of the common stock of Oblio to Titan, which stock represents all of
      the
      authorized and outstanding common stock of Oblio. Upon receipt of the Oblio
      common stock by Titan, Oblio became a wholly-owned subsidiary of Titan.





Through
      the Oblio acquisition, the Company also acquired Pinless, Inc. Pinless offers
      customers the ability to access prepaid international calling features via
      e-commerce or pinless residential dialing. Pinless supports first and second
      generation Americans that have established credit and prefer the convenience
      of
      managing their account purchases of prepaid communications services and products
      online through our website WhyUseIt.com.





On
      April
      17, 2006, the Company established StartTalk, Inc. to own and operate switching
      equipment. This switching equipment enables the Company to rapidly deploy and
      efficiently deliver prepaid international telecommunications services at
      favorable cost structures. StartTalk owns, operates and leases switching
      equipment in two strategic locations in the United States.





On
      September 28, 2006, the Company established Titan Wireless Communications,
      Inc.
      Titan Wireless is the Company’s prepaid wireless communications subsidiary and
      is a Mobile Virtual Network Operator (“MVNO”). Titan Wireless markets its MVNO
      through two brands, BRAVO cellular and the newly launched Picante
      Movil.




21





**Business
      Overview**





The
      Company's business strategy, by division, as follows:





Titan
      Communications Division





·
            expand
                market share in prepaid international phonecard market through continued
                expansion in distribution network;





·
            migrate
                termination of traffic to most efficient means, including strategic
                partnerships with tier one communications providers and newly developed
                and operational internal call termination
                options;





·
            expand
                market share in prepaid wireless communications market through targeted
                launches of product offerings to specific groups of first and second
                generation of Americans;





·
            launch
                e-commerce initiatives to rapidly offer prepaid international
                telecommunications services online to a fast growing segment of our
                existing customers who have internet
                connectivity;





·
            acquire
                and integrate strategic assets of businesses that increase penetration
                and
                efficiencies in existing prepaid international telecommunications
                markets
                (international phonecards and wireless subscriber
                bases);





·
            offer
                other prepaid services (i.e. money transfer, prepaid debit/credit
                cards,
                etc.) through existing distribution channels to first and second
                generation Americans;





Titan
      Electronics and Homeland Security Division





·
            target
                potential customers and industries needing prototype boards with
                required
                turnaround times of between 24 hours and the industry standard 10-days
                as
                well as preproduction needs requiring numerous types of
                materials;





·
            aggressively
                market specialty manufacturing services for time sensitive, high-tech
                prototype and pre-production Rigid and HVR Flex Ô (rigid-flex) PCBs to the
                high technology industry and cater to customers who need time sensitive
                delivery of low to medium production runs with high quality and superior
                design and customer service interface whether for production or research
                and development;





·
            expand
                its services to include rigid-flex combinations in order to diversify
                sources of revenue;





·
            acquire
                and integrate strategic assets of companies producing time sensitive,
                high
                tech prototype and pre-production PCBs with other unique customers,
                technology or processes in order to accelerate entry into its target
                market;





·
            acquire
                manufacturing facilities that have military certification or add
                value to
                its current time sensitive manufacturing service business;
                and





·
            develop
                and continuously improve fabrication and sales processes in order
                to
                improve margin and competitive
                pricing.





**ACCOUNTING
      PRINCIPLES; ANTICIPATED EFFECT OF GROWTH**





Below
      the
      Company describes a number of basic accounting principles which the Company
      employs in determining its recognition of revenues and expenses, as well as
      a
      brief description of the effects that the Company believes that its anticipated
      growth will have on its revenues and expenses in the future.





*Sales.* In
      our
      communications division, we recognize sales upon the activation of our prepaid
      calling cards by our customers or the transfer of risk of loss on our prepaid
      wireless handsets. We record net sales as gross sales less an allowance for
      returns and discounts. We provide our customers a limited right of return for
      calling cards and defective handsets and record an allowance against gross
      revenues for estimated returns at the time of the sale based on historical
      results. At February 28, 2007, we had $0 allowance for returns and an allowance
      for doubtful accounts of $210. Actual returns may differ materially from our
      estimates, and revisions to the allowances may be required from time to
      time.





We
      expect
      sales to continue to grow in our communications division as we increase our
      market penetration in the international prepaid calling card sector and continue
      to launch new product offerings in our prepaid wireless communications sector.
      We added internal call termination capacity in fiscal year 2006 through our
      StartTalk subsidiary that accelerates our prepaid international calling cards
      time to market and offers favorable cost of services rendered through our least
      cost routing software. This will continue to create sales growth as we are
      enabled to quickly respond to customer’s needs in a more profitable manner. The
      addition of Titan Wireless will provide the resources and ability for us to
      leverage existing distribution networks and brand identities into subscriber
      growth, thus increasing sales in our prepaid wireless sector as
      well.




22





In
      our
      electronics and homeland security division, we recognize sales upon shipment
      to
      our customers. We record net sales as gross sales less an allowance for returns
      and discounts. At February 28, 2007 we had approximately 263 customers in our
      electronics and homeland security division. We provide our customers a limited
      right of return for defective PCBs and record an allowance against gross
      revenues for estimated returns at the time of sale based on its historical
      results. Because our customers quickly test the PCBs the Company manufactures
      for them, the majority of returns for defects occur within the first 15 days
      following shipment. At February 28, 2007, we had an allowance for returns of
      $120 and an allowance for doubtful accounts of $170. Actual returns may differ
      materially from our estimates, and revisions to the allowances may be required
      from time to time.





We
      expect
      sales to grow in our electronics and homeland security division as we continue
      to develop our reputation in the quick turn and prototype and defense industry
      markets. Additional acquisitions will also increase sales as well as cause
      disruption as facilities, employees, and processes are integrated. We expect
      these fluctuations to be relatively short lived while expecting the sales growth
      to be more permanent with the variable of market demand as a condition. We
      anticipate that our internal growth, as well as acquisition of competitors,
      will
      materially contribute to our ability to increase our revenues as described
      above.





*Cost
      of Sales* . In
      our communications division, cost of sales consists of network costs associated
      with terminating our customer’s traffic, regulatory fees, printing and shipping.
      The cost of wireless handsets is also included in cost of sales in our prepaid
      wireless division as well. Our cost of sales can fluctuate with changes in
      the
      amount of traffic to certain destinations, changes in the regulatory fees to
      certain destinations and method of call termination. We expect cost of sales
      to
      decrease in fiscal year 2007 as we have added significant internal call
      termination capacity through our StartTalk subsidiary. This capacity utilizes
      least cost routing software which chooses routes real time from many suppliers
      for each destination to maintain a competitive cost base and acceptable call
      quality.





In
      our
      electronics and homeland security division cost of sales consists of materials,
      labor, outside services and overhead expenses incurred in the manufacture and
      testing of its products. Many factors affect its gross margin, including, but
      not limited to, capacity utilization, production volume, production quality
      and
      yield. We do not participate in any long-term supply contracts and we believe
      there are a number of high quality suppliers for the raw materials we use.
      Our
      cost of goods, as a percentage of revenues, varies depending on the complexity
      of the PCBs we manufacture in any given period.





Included
      in cost of sales is overhead which is relatively fixed on an annual basis.
      Materials are variable and labor is semi-variable and is influenced by the
      complexity of orders as well as the quantity of orders. As our electronics
      and
      homeland security business is continually changing with regard to the type
      of
      product produced, we plan to implement broader use of production systems to
      control the overtime in production as well as the use of materials in
      production. We anticipate that these systems will assist in the pricing of
      its
      products with the objective to be more competitive and profitable in its target
      market.





*Operating
      and Non-Operating Expenses.* Each
      division’s operating expenses for the three months ended February 28, 2007 and
      2006 and for the six months ended February 28, 2007 and 2006 are comprised
      of
      marketing, general and administrative, non-recurring costs and costs related
      to
      mergers and acquisitions, as well as the cost of developing operating
      facilities.





Selling
      and marketing expenses consist primarily of salaries and commissions paid to
      its
      internal sales team, commissions paid to independent sales representatives
      and
      costs associated with advertising and marketing activities. We expect our
      selling and marketing expenses to fluctuate as a percentage of sales as we
      add
      new personnel, develop new independent sales representative channels and
      advertise the products and company.





General
      and administrative expenses include all corporate and administrative functions
      that serve to support its current and future operations and provide an
      infrastructure to support future growth. Major items in this category include
      management and staff salaries and benefits, travel, network administration
      and
      systems/data processing, training, rent/leases and professional services. We
      do
      not expect a material increase in sales and marketing expense that is not
      consistent with an increase in our sales over a reasonable period of time.
      We
      anticipate our sales and marketing costs to fluctuate as a percentage of sales
      due to the addition of sales personnel and various marketing activities planned
      throughout the year.




*Interest
      Expense.* Interest
      expense reflects interest paid or accrued on debt instruments, the amortization
      of debt issuance costs, and finance charges. Interest expense includes, for
      derivative instrument liabilities, the amortization of the discount from the
      face value of convertible debt resulting from allocating part or all of the
      proceeds to the derivative instruments, together with the stated interest on
      the
      instrument, which is amortized over the life of the instrument, using the
      effective interest method.




23





*Gain
      or Loss from Derivative Liabilities* .
      The
      Company reviews the terms of convertible debt and equity instruments issued
      to
      determine whether there are embedded derivative instruments, including embedded
      conversion or other features that are required to be bifurcated and accounted
      for separately as derivative financial instruments. Generally, where the ability
      to physical or net-share settle an embedded conversion option is not deemed
      to
      be within the control of the Company, the embedded conversion option is required
      to be bifurcated and accounted for as a derivative liability. In connection
      with
      the sale of convertible debt and equity instruments, we may also issue
      freestanding options or warrants. Although the terms of the options and warrants
      may not provide for net-cash settlement, in certain circumstances, physical
      or
      net-share settlement is deemed to not be within our control and, accordingly,
      we
      are required to account for these freestanding options and warrants as
      derivative liabilities, rather than as equity. Certain instruments, including
      convertible debt and equity instruments and freestanding options and warrants,
      may be subject to registration rights agreements, which impose penalties for
      failure to register the underlying common stock. The existence of these
      potential cash penalties may require that the embedded conversion option and
      the
      freestanding options or warrants be accounted for as derivative instrument
      liabilities.





Derivative
      liabilities are initially measured at their fair value and then re-valued at
      each reporting date, with changes in the fair value reported as charges or
      credits to the statements of operations. For derivative liabilities related
      to
      freestanding warrants and embedded conversion features, we use the Black-Scholes
      option pricing model to determine the fair value. For derivative liabilities
      related to registration rights agreements and cash payment premiums, we used
      a
      discounted present value of expected future cash flows to determine the fair
      value. To the extent that the initial fair values of the bifurcated and/or
      freestanding derivative liabilities exceed the total proceeds received, an
      immediate charge to the statements of loss is recognized, in order to initially
      record the derivative liabilities at fair value. The discount from the face
      value of the convertible debt resulting from allocating part or all of the
      proceeds to the derivative liabilities, together with the stated interest on
      the
      instrument, is amortized over the life of the instrument through periodic
      charges to the statements of operations, using the effective interest method.





**Results
      of Operations**





As
      of
      February 28, 2007, the Company had a working capital deficit of $8,609 and
      an
      accumulated deficit of $32,300. The Company generated sales of $36,078 and
      $26,003 for the three months ended February 28, 2007 and 2006, respectively
      and
      incurred net income and net loss of $1,492 and $2,964, respectively. The Company
      generated sales of $66,063 and $53,683 for the six months ended February 28,
      2007 and 2006, respectively and incurred net losses of $5,348 and $9,300,
      respectively. In addition, the Company generated $3,776 and $971 of cash flow
      from operations during the six months ended February 28, 2007 and 2006
      respectively.





**Three
      Months Ended February 28, 2007 Compared to the Three Months Ended February
      28,
      2006.**





The
      following table sets forth statement of operations data for the three months
      ended February 28, 2007 and 2006 and should be read in conjunction with our
      consolidated financial statements and the related notes appearing elsewhere
      in
      this report.




**Three
                  Months Ended****2/28/2007**
              
              **2/28/2006**Sales
              
              $
              36,078
              
              
              100
              %
              $
              26,003
              
              
              100
              %Cost
                  of Sales
              
              
              32,223
              
              
              89
              
              
              23,939
              
              
              92Gross
                  Profit
              
              
              3,855
              
              
              11
              
              
              2,064
              
              
              8Operating
                  Expenses:Sales
                  and Marketing
              
              
              576
              
              
              2
              
              
              459
              
              
              2General
                  and Administrative
              
              
              2,680
              
              
              7
              
              
              1,133
              
              
              4Amortization
                  of Intangibles
              
              
              1,335
              
              
              4
              
              
              1,322
              
              
              5Total
                  Operating Expenses
              
              
              4,591
              
              
              13
              
              
              2,914
              
              
              11Operating
                  Income
              
              
              (736
              )
              
              (2
              )
              
              (850
              )
              
              (3
              )Interest
                  Income
              
              
              20
              
              
              0
              
              
              25
              
              
              0Interest
                  Expense
              
              
              (1,424
              )
              
              (4
              )
              
              (1,762
              )
              
              (7
              )Gain/(loss)
                  value of Derivative Instruments
              
              
              (4,158
              )
              
              (12
              )
              
              318
              
              
              1Gain/(loss)
                  extinguishment of debt
              
              
              7,790
              
              
              22
              
              
              (695
              )
              
              (3
              )Net
                  Loss
              
              $
              1,492
              
              
              4
              %
              $
              (2,964
              )
              
              (11
              )%




24




S *ales.* Sales
      increased by $10,075 or 39% from $26,003 in the three months ended February
      28,
      2006 to $36,078 in the three months ended February 28, 2007. Sales in the
      Company’s communications division increased $9,634 or 45% in the three months
      ended February 28, 2007 compared to the three months ended February 28, 2006.
      The increase in sales in our communications division is due to the expansion
      of
      products on our StartTalk switching network offset by decreases in product
      sales
      purchased from third party providers. Sales in the Company’s electronics and
      homeland security division increased $441 or 9% in the three months ended
      February 28, 2007 compared to the three months ended February 28, 2006. The
      increase in sales in our electronics and homeland security division is primarily
      attributable to continued growth and market penetration in the production of
      quick-turn and prototype printed circuit boards. The Company commands higher
      panel prices and better operating margins in quick-turn and prototype
      work.





*Cost
      of Sales.* Cost
      of
      sales increased $8,284 or 35%, from $23,939 in the three months ended February
      28, 2006 to $32,223 in the three months ended February 28, 2007, and as a
      percentage of sales decreased from 92% in the three months ended February 28,
      2006 to 89% in the three months ended February 28, 2007. The cost of sales
      increased in the communications division by $7,191 or 36% from 19,975 for the
      three months ended February 28, 2006 to $27,166 for the three months ended
      February 28, 2007 due to the sales increase of 45% in the comparable periods
      offset by lower cost of sales associated with a higher percentage of sales
      in
      the current period that are not subject to Universal Service Fees produced
      through our StartTalk subsidiary and or include an anticipated recovery of
      Universal Service Fees for the 2007 period without a corresponding recovery
      being recognized in the comparable period in 2006. The cost of sales increased
      in the electronics and homeland security division by $1,093 or 28% from $3,964
      for the three month period ending February 28, 2006 to $5,057 for the three
      month period ending February 28, 2007 due to the 9% increase in sales in the
      comparable periods and higher raw material costs for the most recent three
      month
      period when compared to the prior period.





*Sales
      and Marketing.* Sales
      and
      marketing expenses increased by $117 or 26%, from $459 in the three months
      ended
      February 28, 2006 to $576 in the three months ended February 28, 2007. As a
      percentage of sales, sales and marketing expense remained flat at 2% in the
      three months ended February 28, 2006 and in the three months ended February
      28,
      2007. This increase is primarily attributable to larger marketing staff in
      our
      electronics and homeland security division in the three months ended February
      28, 2007 as compared to the three months ended February 28, 2006.





*General
      and Administrative Expenses.* General
      and administrative expenses increased $1,547 or 137% from $1,133 in the three
      months ended February 28, 2006 to $2,680 in the three months ended February
      28,
      2007. As a percentage of sales, general and administrative expense increased
      from 4% in the three months ended February 28, 2006 to 7% in the three months
      ended February 28, 2007. This increase is due to staff additions in our
      communications division for our customer service department servicing our
      prepaid wireless and switched network prepaid long distance cards, staffing
      for
      managing our StartTalk subsidiary, staffing for our e-commerce initiative,
      increased corporate expenses, and an increase in professional service fees
      for
      the comparable periods.




25





*Amortization
      of Intangibles.* Amortization
      of intangibles increased $13 or 1% from $1,322 in the three months ended
      February 28, 2006 to $1,335 in the three months ended February 28, 2007. As
      a
      percentage of sales, amortization of intangibles decreased from 5% in the three
      months ended February 28, 2006 to 4% in the three months ended February 28,
      2007. Amortization of intangibles increased during the three months ended
      February 28, 2007 due to the Sprint implementation and the setup of our customer
      service call center that were not amortized in the three months ended February
      28, 2006 comparable prior period.





*Interest
      Expense.* Interest
      expense decreased $338 or 19%, from interest expense of $1,762 in the three
      months ended February 28, 2006 to $1,424 in the three months ended February
      28,
      2007. As a percentage of sales, interest expense decreased from 7% in the three
      months ended February 28, 2006 to 4% in the three months ended February 28,
      2007. Interest expense decreased during the applicable periods due to
      fluctuations in the carrying value of derivative instruments and the resulting
      effective interest charges and changes in the fair value of the related
      bifurcated debt instruments compared to the associated freestanding options,
      warrants and registration rights agreements as applicable.





*Gain
      or Loss from Derivative Liabilities* .
      Derivative liabilities are initially measured at their fair value and then
      re-valued at each reporting date, with changes in the fair value reported as
      charges or credits to the statements of loss. The Company recognized a loss
      from
      the change in fair value of its derivative liabilities of $4,158 in the three
      months ended February 28, 2007 and a gain from the change in fair value of
      derivative liabilities of $318 in the three months ended February 28,
      2006.





*Gain
      from Debt Extinguishment.* As a
      result of the refinancing of the Company’s debt on December 29, 2006, (See Note
      12 Gain or Loss on Extinguishment of Debt), the Company recorded a debt
      extinguishment gain of $7,790 in the three months ended February 28, 2007.
      For
      the three months ended February 28, 2006, the Company recorded a debt
      extinguishment loss of $695.





**Six
      Months Ended February 28, 2007 Compared to the Six Months Ended February 28,
      2006.**





The
      following table sets forth statement of operations data for the three months
      ended February 28, 2007 and 2006 and should be read in conjunction with our
      consolidated financial statements and the related notes appearing elsewhere
      in
      this report.




**Six
                  Months Ended****2/28/2007**
              
              **2/28/2006**Sales
              
              $
              66,063
              
              
              100
              %
              $
              53,683
              
              
              100
              %Cost
                  of Sales
              
              
              58,779
              
              
              89
              
              
              49,510
              
              
              92Gross
                  Profit
              
              
              7,284
              
              
              11
              
              
              4,173
              
              
              8Operating
                  Expenses:Sales
                  and Marketing
              
              
              1,075
              
              
              2
              
              
              884
              
              
              2General
                  and Administrative
              
              
              4,553
              
              
              7
              
              
              2,156
              
              
              4Amortization
                  of Intangibles
              
              
              2,669
              
              
              4
              
              
              2,497
              
              
              5Total
                  Operating Expenses
              
              
              8,297
              
              
              13
              
              
              5,537
              
              
              10Operating
                  Income
              
              
              (1,013
              )
              
              (2
              )
              
              (1,364
              )
              
              (3
              )Interest
                  Income
              
              
              20
              
              
              0
              
              
              26
              
              
              0Interest
                  Expense
              
              
              (2,230
              )
              
              (3
              )
              
              (3,325
              )
              
              (6
              )Gain/(loss)
                  value of Derivative Instruments
              
              
              (9,915
              )
              
              (15
              )
              
              (3,942
              )
              
              (7
              )Gain/(loss)
                  extinguishment of debt
              
              
              7,790
              
              
              12
              
              
              (695
              )
              
              (1
              )Net
                  Loss
              
              $
              (5,348
              )
              
              (8
              )%
              $
              (9,300
              )
              
              (17
              )%




S *ales.* Sales
      increased by $12,380 or 23% from $53,683 in the six months ended February 28,
      2006 to $66,063 in the six months ended February 28, 2007. Sales in the
      Company’s communications division increased $10,940 or 25% in the six months
      ended February 28, 2007 compared to the six months ended February 28, 2006.
      The
      increase in sales in our communications division is due to the expansion of
      products on our StartTalk switching network offset by decreases in product
      sales
      purchased from third party providers. Sales in the Company’s electronics and
      homeland security division increased $1,440 or 16% in the six months ended
      February 28, 2007 compared to the six months ended February 28, 2006. The
      increase in sales in our electronics and homeland security division is primarily
      attributable to continued growth and market penetration in the production of
      quick-turn and prototype printed circuit boards. The Company commands higher
      panel prices and better operating margins in quick-turn and prototype
      work.




26





*Cost
      of Sales.* Cost
      of
      sales increased $9,269 or 19%, from $49,510 in the six months ended February
      28,
      2006 to $58,779 in the six months ended February 28, 2007, and as a percentage
      of sales decreased from 92% in the six months ended February 28, 2006 to 89%
      in
      the six months ended February 28, 2007. The cost of sales increased in the
      communications division by $7,405 or 18% from 41,186 for the six months ended
      February 28, 2006 to $48,591 for the six months ended February 28, 2007 due
      to
      an increase in sales of 25% offset by lower cost of sales associated with a
      higher percentage of sales in the current period that are not subject to
      Universal Service Fees produced through our StartTalk subsidiary and or include
      an anticipated recovery of Universal Service Fees for the 2007 period without
      a
      corresponding recovery being recognized in the comparable period in 2006. The
      cost of sales increased in the electronics and homeland security division by
      $1,864 or 22% from $8,324 for the six month period ending February 28, 2006
      to
      $10,188 for the six month period ending February 28, 2007 due to a 16% increase
      in sales during the same period offset by higher raw material costs for the
      most
      recent six month period when compared to the prior period..





*Sales
      and Marketing.* Sales
      and
      marketing expenses increased by $191 or 22%, from $884 in the six months ended
      February 28, 2006 to $1,075 in the six months ended February 28, 2007. As a
      percentage of sales, sales and marketing expense remained flat at 2% in the
      six
      months ended February 28, 2006 and in the six months ended February 28, 2007.
      This increase is primarily attributable to the larger marketing staff in our
      electronics and homeland security division in the six months ended February
      28,
      2007 as compared to the six months ended February 28, 2006.





*General
      and Administrative Expenses.* General
      and administrative expenses increased $2,397 or 111% from $2,156 in the six
      months ended February 28, 2006 to $4,553 in the six months ended February 28,
      2007. As a percentage of sales, general and administrative expense decreased
      from 8% in the six months ended February 28, 2006 to 7% in the six months ended
      February 28, 2007. This increase is due to staff additions in our communications
      division for our customer service department servicing our prepaid wireless
      and
      switched network prepaid long distance cards, staffing for managing our
      StartTalk division, staffing for our e-commerce initiative, increased corporate
      expenses, and an increase in professional service fees for the comparable
      periods.





*Amortization
      of Intangibles.* Amortization
      of intangibles increased $172 or 7% from $2,497 in the six months ended February
      28, 2006 to $2,669 in the six months ended February 28, 2007. As a percentage
      of
      sales, amortization of intangibles decreased from 5% in the six months ended
      February 28, 2006 to 4% in the six months ended February 28, 2007. Amortization
      of intangibles increased during the six months ended February 28, 2007 due
      to
      the inclusion of a full six months of amortization related to our MNVO contract,
      Sprint implementation, and the setup of our customer service call center. The
      MNVO contract was amortized for four months and the Sprint implementation and
      the customer service call center were not amortized during the six months ended
      February 28, 2006.





*Interest
      Expense.* Interest
      expense decreased $1,095 or 33%, from interest expense of $3,325 in the six
      months ended February 28, 2006 to $2,230 in the six months ended February 28,
      2007. As a percentage of sales, interest expense decreased from 6% in the six
      months ended February 28, 2006 to 3% in the six months ended February 28, 2007.
      Interest expense decreased during the applicable periods due to fluctuations
      in
      the carrying value of derivative instruments and the resulting effective
      interest charges and changes in the fair value of the related bifurcated debt
      instruments compared to the associated freestanding options, warrants and
      registration rights agreements as applicable.





*Gain
      or Loss from Derivative Liabilities* .
      Derivative liabilities are initially measured at their fair value and then
      re-valued at each reporting date, with changes in the fair value reported as
      charges or credits to the statements of loss. The Company recognized non-cash
      losses from the change in fair value of its derivative liabilities of $9,915
      and
      $3,942 in the six months ended February 28, 2007 and 2006,
      respectively.





*Gain
      from Debt Extinguishment.* As a
      result of the refinancing of the Company’s debt on December 29, 2006, (See Note
      12 Gain or Loss on Extinguishment of Debt), the Company recorded a debt
      extinguishment gain of $7,790 in the six months ended February 28, 2007. For
      the
      six months ended February 28, 2006, the Company recorded a debt extinguishment
      loss of $695.




27





**Liquidity
      and Capital Resources**





Our
      principal sources of liquidity are our existing cash, cash equivalents and
      short-term investments, cash generated from operations, and cash available
      from
      borrowings under our $15,000 revolving credit facility in our communications
      division and our $3,000 revolving credit facility in our electronics and
      homeland securities division. We may also generate liquidity from offerings
      of
      debt and/or equity in the capital markets. As of February 28, 2007, we had
      a
      total of $2,153 in unrestricted cash and cash equivalents. As of February 28,
      2007, we also had restricted cash and cash equivalents and short-term
      investments of $750 that included funds set aside or pledged to secure lines
      of
      credit with key suppliers. We believe that our existing cash and investments,
      liquidity under our revolving credit facility and anticipated cash flows from
      operations will be sufficient to meet our operating and capital requirements
      through at least the next twelve months.




We
      currently intend to seek opportunities to acquire strategic assets that will
      enhance our communications division and our electronics and homeland securities
      division. We anticipate financing any purchases of assets, and any related
      working capital and/or initial operating cost needs, with cash from operations,
      our existing cash, cash equivalents and short-term investments, borrowings
      under
      our revolving credit facility, and proceeds from offerings of debt and/or equity
      securities. The amounts we may seek to raise through any such offerings may
      be
      substantial. There can be no assurance that financing will be available in
      amounts or on terms acceptable to us, if at all. Further, equity financing
      may
      result in dilution to existing shareholders and may involve securities that
      have
      rights, preferences, or privileges that are senior to our common
      stock.




*Operating
      Activities.* Cash
      provided by operating activities was $3,776 during the six months ended February
      28, 2007 compared to cash provided by operating activities of $971 during the
      six months ended February 28, 2006. The increase in cash provided by operations
      was due to an increase in trade accounts payable offset by an increase in
      accounts receivable and Universal Service Fund fees receivables.





*Investing
      Activities.* Cash
      used in investing activities was $162 during the six months ended February
      28,
      2007 compared to cash used in investing activities of $1,028 during the six
      months ended February 28, 2006. The decrease in cash used in investing
      activities is due to a decrease in capital expenditures and a decrease in
      investment in restricted short term investments used to collateralize
      obligations during the comparable periods.





*Financing
      Activities.* Cash
      used in financing activities during the six months ended February 28, 2007
      was
      $2,862 compared to cash used in financing activities of $1,401 during the six
      months ended February 28, 2006. The increase in cash used by financing
      activities is due to an increase in payments on the current portion of long
      term
      debt and capitalized loan fees offset by an increase in proceeds from loans
      payable during the comparable periods.





**Quantitative
      And Qualitative Disclosures About Market Risk**





Our
      exposure to market risk for changes in interest rates relates primarily to
      the
      increase or decrease in the amount of interest expense we incur in our debt
      obligations to our lenders for its prime plus percent interest rates. We do
      not
      believe that changes in interest rates will have a material effect on our
      liquidity, financial condition or results of operations.





**Impact
      of Inflation**




The
      cost
      of our products produced in our electronics and homeland security division
      is
      influenced by the cost of a wide variety of raw materials, including precious
      metals such as gold used in plating, copper and brass used for contacts, and
      plastic material used in molding connector components. Generally, increases
      in
      the cost of raw materials, labor and services have been offset by price
      increases, productivity improvements and cost saving programs. We have no
      assurance, however, that we will be able to similarly offset such cost increases
      in the future.





**Seasonality**




The
      Company has experienced sales fluctuations due to customer business shut downs
      over December holidays and the slow down of purchasing activities in the summer
      during peak vacation months.




28





**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: revenue recognition,
      which affects sales, inventory valuation, which affects its cost of sales and
      gross margin; and allowance for doubtful accounts and stock-based compensation,
      which affects general and administrative expenses. The methods, estimates and
      judgments the Company uses in applying these most critical accounting policies
      have a significant impact on the results the Company reports in its consolidated
      financial statements* .





*Revenue
      recognition.*





We
      recognize revenues when the following criteria are met: (1) the Company has
      persuasive evidence of an arrangement, such as contracts, purchase orders or
      written requests; (2) the Company has completed delivery and no significant
      obligations remain; (3) its price to its customer is fixed or determinable
      and
      (4) collection is probable.





In
      our
      communications division, we recognize revenue upon the activation of our prepaid
      calling cards by our customers or the transfer of risk of loss on our prepaid
      wireless handsets. We record net sales as gross sales less an allowance for
      returns and discounts. We provide our customers a limited right of return for
      calling cards and defective handsets and record an allowance against gross
      revenues for estimated returns at the time of the sale based on historical
      results.





In
      our
      electronics and homeland security division, we recognize revenue upon shipment
      to our customers. We record net sales as gross sales less an allowance for
      returns and discounts. We provide our customers a limited right of return for
      defective PCBs and record an allowance against gross revenues for estimated
      returns at the time of sale based on its historical results. Because our
      customers quickly test the PCBs the Company manufactures for them, the majority
      of returns for defects occur within the first 15 days following
      shipment.





*Inventory
      valuation.*





In
      our
      communications division, our policy is to value prepaid international card
      and
      wireless handset inventory at the lower of cost or market on a card-by-card
      basis on a first in first out basis.





In
      our
      electronics and homeland security division, our policy
      is to value raw material inventories at the lower of cost or market on a
      part-by-part basis on a first in first out basis. We also value work-in-process
      and finished goods utilizing a standard cost system which we believe
      approximates cost. This policy requires us to make estimates regarding the
      market value of its inventories, including an assessment of excess or obsolete
      inventories. We determine excess and obsolete inventories based on an estimate
      of the future demand for its products within a specified time horizon, generally
      12 months.





*Allowance
      for doubtful accounts.*





We
      maintain an allowance for doubtful accounts for estimated losses resulting
      from
      the inability of our customers to make required payments. Our allowance for
      doubtful accounts is based on our assessment of the collectibility of specific
      customer accounts, the aging of accounts receivable, our history of bad debts,
      and the general condition of the industry. If a major customer's credit
      worthiness deteriorates, or our customers' actual defaults exceed our historical
      experience, our estimates could change and adversely impact our reported
      results.





*Stock-based
      compensation.*





As
      permitted under SFAS 123, “ *Accounting
      for Stock-Based Compensation”,* as
      amended, until August 31, 2006, the Company accounted for its stock based
      compensation in accordance with Accounting Principles Board Opinion No. 25,
      “ *Accounting* for *Stock Issued to Employees,” (“APB No. 25* ”).
      Under
      APB No. 25, compensation cost is recognized over the vesting period based on
      the
      excess, if any, on the date of grant of the fair value of the Company’s shares
      over the employee’s exercise price. When the exercise price of the option is
      less than the fair value price of the underlying shares on the grant date,
      deferred stock compensation is recognized and amortized to expense in accordance
      with Financial Accounting Standards Board (“FASB”) Interpretation No. 44 over
      the vesting period of the individual options. Accordingly, if the exercise
      price
      of the Company’s employee options equals or exceeds the market price of the
      underlying shares on the date of grant no compensation expense is recognized.
      Options or shares awards issued to non-employees and directors are valued using
      the Black-Scholes pricing model and expensed over the period services are
      provided. Effective September 1, 2006, the Company adopted the fair value
      recognition provisions of SFAS 123(R) (revised 2004), “Share Based Payment”
using the modified-prospective transition method. Under this transition method,
      compensation cost recognized during the three months ended November 30, 2006
      includes (a) compensation cost for all share-based payments granted prior to,
      but not yet vested as of December 1, 2006, based on the grant date fair value
      estimated in accordance with the original provisions of SFAS No. 123(R), and
      (b)
      compensation cost for all share based payments granted subsequent to December
      1,
      2006, based on the grant-date fair value estimated in accordance with SFAS
      No
      123(R). Results for prior periods have not been restated. Stock based
      compensation is included in selling, general and administrative expenses.




29





*Long-lived
      Assets.*





We
      review
      long-lived assets for impairment whenever events or changes in circumstances
      indicate that the related carrying amounts may not be recoverable. Determining
      whether impairment has occurred typically requires various estimates and
      assumptions, including determining which cash flows are directly related to
      the
      potentially impaired asset, the useful life over which cash flows will occur,
      their amount, and the asset’s residual value, if any. In turn, measurement of an
      impairment loss requires a determination of fair value, which is based on the
      best information available. We use internal discounted cash flow estimates,
      quoted market prices when available and independent appraisals as appropriate
      to
      determine fair value. We derive the required cash flow estimates from our
      historical experience and our internal business plans and apply an appropriate
      discount rate.




*Goodwill
      and Intangible Assets.*




We
      test
      goodwill for impairment annually and whenever events or circumstances make
      it
      more likely than not that impairment may have occurred, such as a significant
      adverse change in the business climate or a decision to sell or dispose of
      a
      reporting unit. Determining whether an impairment has occurred requires
      estimating the fair value of the respective reporting unit, which we estimate
      using a discounted cash flow method. When available and as appropriate, we
      use
      comparative market multiples to corroborate discounted cash flow results. In
      applying this methodology, we rely on a number of factors, including actual
      operating results, future business plans, economic projections and market
      data.




If
      this
      analysis indicates goodwill is impaired, measuring the impairment requires
      a
      fair value estimate of each identified tangible and intangible asset. In this
      case we supplement the cash flow approach discussed above with independent
      appraisals, as appropriate.





*Derivative
      Liabilities.*





The
      Company reviews the terms of convertible debt and equity instruments issued
      to
      determine whether there are embedded derivative instruments, including embedded
      conversion and other features that are required to be bifurcated and accounted
      for separately as derivative financial instruments. Generally, where the ability
      to physical or net-share settle an embedded conversion option is not deemed
      to
      be within the control of the Company, the embedded conversion option is required
      to be bifurcated and accounted for as a derivative liability.





In
      connection with the sale of convertible debt and equity instruments, we may
      also
      issue freestanding options or warrants. Additionally, we may issue options
      or
      warrants to non-employees in connection with consulting or other services they
      provide. Although the terms of the options and warrants may not provide for
      net-cash settlement, in certain circumstances, physical or net-share settlement
      is deemed to not be within our control and, accordingly, we are required to
      account for these freestanding options and warrants as derivative liabilities,
      rather than as equity. Certain instruments, including convertible debt and
      equity instruments and freestanding options and warrants, may be subject to
      registration rights agreements, which impose penalties for failure to register
      the underlying common stock. The existence of these potential cash penalties
      may
      require that the embedded conversion option and the freestanding options or
      warrants be accounted for as derivative instrument liabilities.




30





Derivative
      liabilities are initially measured at their fair value and then re-valued at
      each reporting date, with changes in the fair value reported as charges or
      credits to the statement of operations. For derivative liabilities related
      to
      freestanding warrants and embedded conversion features, we use the Black-Scholes
      option pricing model to determine the fair value. For derivative liabilities
      related to registration rights agreements and cash payment premiums, we used
      a
      discounted present value of expected future cash flows to determine the fair
      value.




To
      the
      extent that the initial fair values of the bifurcated and/or freestanding
      derivative liabilities exceed the total proceeds received, an immediate charge
      to the statement of loss is recognized, in order to initially record the
      derivative liabilities at fair value. The discount from the face value of the
      convertible debt resulting from allocating part or all of the proceeds to the
      derivative liabilities, together with the stated interest on the instrument,
      is
      amortized over the life of the instrument through periodic charges to the
      statements of loss, using the effective interest method. The classification
      of
      derivative instruments, including whether such instruments should be recorded
      as
      liabilities or as equity, is re-assessed at the end of each reporting period.
      Derivative liabilities are classified in the balance sheet as current or
      non-current based on the classification previously elected for the host
      instrument.





**ITEM
      3. CONTROLS AND PROCEDURES**





*Evaluation
      of Disclosure Controls and Procedures:* Our
      independent registered public accounting firm reported to our Board of Directors
      certain conditions involving internal controls which they believe represent
      material weaknesses in our internal control environment. These matters are
      with
      regard to segregation of duties within the accounting function, lack of
      standardized operating and review procedures, limited access to historical
      accounting records and the performance of timely month end close processes.
      A
      material weakness is a significant deficiency, or combination of significant
      deficiencies, that results in more than a remote likelihood that a material
      misstatement of the annual or interim financial statements will not be prevented
      or detected. Significant deficiencies are control issues that could have a
      significant adverse effect on the ability to record, process, summarize and
      report financial data in the financial statements.





Our
      management and the Board of Directors agreed with our independent registered
      public accounting firm on the matter raised in their report and agreed to
      address the material weakness. To remediate this internal control weakness,
      the
      Company will continue to add sufficient accounting personnel to properly
      segregate duties and to affect a timely, accurate close of the financial
      statements.





*Changes
      in internal controls:* During
      the three months ended February 28, 2007, the Company strengthened its system
      of
      internal controls by augmenting the accounting staff, establishing standardized
      operating and review procedures, streamlining our month end close process and
      increasing the segregation of duties. A new Chief Financial Officer joined
      the
      Company in October 2006 and the Company hired a financial reporting manager
      in
      February 2007.




**PART
      II**




**OTHER
      INFORMATION**




**ITEM
      1. LEGAL PROCEEDINGS**





From
      time
      to time, the Company may become involved in various lawsuits and legal
      proceedings which arise in the ordinary course of business. While management
      does not believe these matters will have a material effect on the Company’s
      financial statements, litigation is subject to inherent uncertainties, and
      an
      adverse result could arise from time to time that may harm Titan’s business,
      financial condition and results of operations. The Company and its subsidiaries
      are involved in the following:





On
      December 5, 2006, Oblio Telecom, Inc. (“Oblio”), the Company’s wholly owned
      subsidiary, filed a Demand for Arbitration with the American Arbitration
      Association against AT&T Corp. (“AT&T”). Oblio is seeking a refund of
      amounts paid to AT&T for the period from 1999 to October 2006 for Universal
      Service Fund (“USF”) charges paid to AT&T pursuant the Purchase Order
      Agreement, which sets forth the parties’ business relationship. Oblio estimates
      that it and its predecessor have paid AT&T at least $61,913 in USF charges
      from 2001 to October 2006, but has not determined the USF charges it paid in
      1999 and 2000. The fees paid to AT&T by Oblio for AT&T’s Enhanced
      Prepaid Card Service (“Prepaid Card Service”) included USF and other FCC
      charges, AT&T retained this revenue instead of making the required
      contributions to the USF and other FCC programs based on AT&T’s belief its
      Prepaid Card Service was exempt under the law.




31





In
      February 2005, the FCC issued an order which made it clear that AT&T is
      required to pay USF charges on its Prepaid Card Service, a large percentage
      of
      which was resold to the public through Oblio. The order required AT&T and
      all companies providing calling card services similar to those described in
      the
      order to file new or revised Form 499s to properly report revenues consistent
      with the Order’s findings.





In
      compliance with the FCC order, Oblio has registered with the FCC as an
      Interstate Telecommunications Service Provider. Oblio is now considered to
      be a
      direct contributor. As a direct contributor, over 98% of Oblio’s revenue is
      exempt from USF contributions and other Universal
      Service Administrative Company’s mandated
      fees to AT&T or other wholesale telecommunications service providers due to
      a specific FCC rule exemption applicable to international services.





AT&T
      maintains that Oblio it did not charge USF fees, and if it did, Oblio is not
      owed any refund of USF payments made by Oblio to AT&T from 1999 to October
      2006.





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





On
      December 29, 2006 we entered into a credit facility with Greystone Business
      Credit II LLC. As consideration for entering into the credit facility, we issued
      to Greystone 500,000 shares of common stock and warrants to purchase 500,000
      shares of our common stock at a price of $1.00 per share for a term of 5 five
      years.





On
      December 29, 2006, we issued 250,000 shares of our Common Stock to F&L, LLP
      in connection with an agreement to reduce the number of Oblio Telecom Inc.’s
      outstanding Series A Preferred from 9,000 shares with a stated value of
      $9,000,000 to 4,500 shares with a stated value of $4,500,000.





All
      of
      the above offerings and sales were deemed to be exempt under rule 506 of
      Regulation D and Section 4(2) of the Securities Act of 1933, as amended. No
      advertising or general solicitation was employed in offering the securities.
      The
      offerings and sales were made to a limited number of persons, all of whom were
      accredited investors, business associates of the Company or executive officers
      of the Company and transfer was restricted by the Company in accordance with
      the
      requirements of the Securities Act of 1933. In addition to representations
      by
      the above-referenced persons, we have made independent determinations that
      all
      of the above-referenced persons were accredited or sophisticated investors,
      and
      that they were capable of analyzing the merits and risks of their investment,
      and that they understood the speculative nature of their investment.
      Furthermore, all of the above-referenced persons were provided with access
      to
      our Securities and Exchange Commission Filings.





**ITEM
      3. DEFAULTS UPON SENIOR SECURITIES**




Not
      applicable.





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





Not
      applicable.





**ITEM
      5. OTHER INFORMATION**





Not
      applicable **.**





**ITEM
      6. EXHIBITS**




31.1
              -
              Certification
                  of Principal Executive Officer pursuant to Rule 13a-14 and Rule
                  15d-14(a),
                  promulgated under the Securities and Exchange Act of 1934, as
                  amended31.2
              -
              Certification
                  of Principal Financial Officer pursuant to Rule 13a-14 and Rule
                  15d 14(a),
                  promulgated under the Securities and Exchange Act of 1934, as
                  amended32.1
              -
              Certification
                  pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section
                  906 of
                  the Sarbanes-Oxley Act of 2002 (Chief Executive
                  Officer)32.2
              -
              Certification
                  pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section
                  906 of
                  the Sarbanes-Oxley Act of 2002 (Chief Financial
                  Officer)
  32


**SIGNATURES**





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




TITAN
                GLOBAL HOLDINGS, INC.By:
            /s/ Bryan
              ChanceBryan
              ChanceChief
                Executive Officer and President(Principal
                Executive Officer)





TITAN
                  GLOBAL HOLDINGS, INC.By:
              /s/ Scott
                HensellScott
                  HensellChief
                  Financial Officer(Principal
                  Financial and Accounting
                  Officer)
  33