**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**


**Washington,
      DC 20549**





**FORM
      10-Q**





**QUARTERLY
      REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE**


**SECURITIES
      EXCHANGE ACT OF 1934**





**For
      the Quarterly Period ended June 30, 2006**





**Commission
      File Number** **000-51010**





**MOBILEPRO
      CORP.**


(Exact
      name of registrant as specified in charter)





**DELAWARE**
            
            **87-0419571**(State
                or other jurisdiction of
                incorporation
                  or organization)
            
            (I.R.S.
                Employer
                Identification
                  No.)





**6701
                Democracy Boulevard, Suite 202, Bethesda, MD**
            
            **20817**(Address
                of principal executive offices)
            
            (Zip
                Code)





**(301)
      315-9040**





**(** Registrant’s
      telephone number, including area code)





Indicate
      by check mark whether the issuer (1) filed all reports required to be filed
      by
      Section 13 or 15(d) of the Securities Exchange Act of 1934 (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
      __





Indicate
      by check mark whether the registrant is an accelerated filer (as defined in
      Rule
      12b-2 of the Exchange Act)   Yes X  No__





Indicate
      the number of shares outstanding of each of the issuer’s classes of common
      equity, as of the latest practicable date: As of August 1, 2006, the Company
      had
      588,888,574 outstanding shares of its common stock, $0.001 par value per
      share.









**TABLE
      OF CONTENTS**




**ITEM
                  NUMBER AND CAPTION**
              
              **PAGE**




**PART
                I**ITEM
                1.
            FINANCIAL
                STATEMENTS
            3NOTES
                TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
            8ITEM
                2.
            MANAGEMENT’S
                DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL
                CONDITION
            20ITEM
                3.
            QUANTITATIVE
                AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
            42ITEM
                4
            CONTROLS
                AND PROCEDURES
            42**PART
                II**ITEM
                1.
            LEGAL
                PROCEEDINGS
            43ITEM
                2.
            UNREGISTERED
                SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
            44ITEM
                3.
            DEFAULTS
                UPON SENIOR SECURITIES
            44ITEM
                4.
            SUBMISSION
                OF MATTERS TO A VOTE OF SECURITY HOLDERS
            44ITEM
                5.
            OTHER
                INFORMATION
            44ITEM
                6.
            EXHIBITS
            45




2
 
  **PART
          I**
 **FINANCIAL
          INFORMATION**
 **Item
          1. Financial Statements.**
  **MOBILEPRO
        CORP. AND SUBSIDIARIES**
 **CONDENSED
        CONSOLIDATED BALANCE SHEETS**
 **MARCH
        31, 2006 AND JUNE 30, 2006**


**ASSETS****March
                31,**
            
            **June
                30,****2006**
            
            **2006****(unaudited)****CURRENT
                ASSETS**Cash and cash equivalents
            
            $
            5,397,881
            
            $
            4,398,979Restricted cash
            
            
            352,200
            
            
            1,102,200Accounts receivable, net
            
            
            10,481,632
            
            
            9,167,486Prepaid expenses and other current assets
            
            
            3,399,864
            
            
            3,074,897**Total Current Assets**
            
            
            19,631,577
            
            
            17,743,562**FIXED
                ASSETS, NET OF ACCUMULATED DEPRECIATION**
            
            
            15,859,254
            
            
            18,515,616**OTHER
                ASSETS**Goodwill, net of impairment
            
            
            47,788,167
            
            
            47,749,778Customer contracts and relationships, net of amortization
            
            
            8,777,502
            
            
            8,450,829Deferred financing fees, net of amortization
            
            
            146,667
            
            
            -Other assets
            
            
            1,787,886
            
            
            1,749,05858,500,222
            
            
            57,949,665**TOTAL
                ASSETS**
            
            $
            93,991,053
            
            $
            94,208,843




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


3




**MOBILEPRO
        CORP. AND SUBSIDIARIES**
 **CONDENSED
        CONSOLIDATED BALANCE SHEETS**
 **MARCH
        31, 2006 AND JUNE 30, 2006**


**LIABILITIES
                AND STOCKHOLDERS' EQUITY****(CONTINUED)****March
                31,**
            
            **June
                30,****2006**
            
            **2006****(unaudited)****CURRENT
                LIABILITIES**Current portion of convertible debenture
            
            $
            4,500,000
            
            $
            11,000,000Current portion of long-term debt and notes payable
            
            
            4,269,519
            
            
            1,254,350Accounts payable and accrued expenses
            
            
            17,402,911
            
            
            15,680,090Deferred revenue
            
            
            4,343,754
            
            
            4,995,976**Total Current Liabilities**
            
            
            30,516,184
            
            
            32,930,416**LONG-TERM
                LIABILITIES**Convertible debenture, net of unamortized debt discount
                andcurrent portion
            
            
            9,995,243
            
            
            3,830,650Notes payable and other long-term liabilities, net of current
                maturities
            
            
            650,419
            
            
            1,863,184**Total Long-Term Liabilities**
            
            
            10,645,662
            
            
            5,693,834**TOTAL
                LIABILITIES**
            
            
            41,161,846
            
            
            38,624,250**STOCKHOLDERS'
                EQUITY**Preferred stock, $.001 par value, 20,035,425 shares
                authorized,35,378 shares issued and outstanding at March 31, 2006 and June 30,
                2006
            
            
            35
            
            
            35Common stock, $.001 par value, 1,500,000,000 shares authorized,560,666,950 and 588,888,574 shares issued and outstandingat March 31, 2006 and June 30, 2006
            
            
            560,667
            
            
            588,889Additional paid-in capital
            
            
            83,641,462
            
            
            91,106,133Accumulated deficit
            
            
            (31,372,957
            )
            
            (36,110,464
            )**Total Stockholders' Equity**
            
            
            52,829,207
            
            
            55,584,593**TOTAL
                LIABILITIES AND STOCKHOLDERS' EQUITY**
            
            $
            93,991,053
            
            $
            94,208,843




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


4
 
  **MOBILEPRO
          CORP. AND SUBSIDIARIES**
 **CONDENSED
          CONSOLIDATED STATEMENTS OF OPERATIONS**
 **(unaudited)**
  **For
                      the Three Months Ended****June
                      30,****2005**
                  
                  **2006****REVENUES**
                  
                  $
                  22,505,845
                  
                  $
                  23,342,786**OPERATING
                      COSTS AND EXPENSES******Cost
                      of services (exclusive of depreciation and amortization)
                  
                  
                  11,021,862
                  
                  
                  12,761,958Payroll, professional fees and related expenses
                  
                  
                  3,693,560
                  
                  
                  7,669,173Advertising and marketing expenses
                  
                  
                  518,664
                  
                  
                  162,618Office rent and expenses
                  
                  
                  429,941
                  
                  
                  539,584Other general and administrative expenses
                  
                  
                  4,668,075
                  
                  
                  3,675,493Depreciation and amortization
                  
                  
                  822,377
                  
                  
                  1,330,911Stock compensation
                  
                  
                  -
                  
                  
                  485,091Goodwill impairment charges
                  
                  
                  -
                  
                  
                  348,118Restructuring charges
                  
                  
                  -
                  
                  
                  303,671**Total Operating Costs and Expenses**
                  
                  
                  21,154,479
                  
                  
                  27,276,617**OPERATING
                      INCOME/(LOSS)**
                  
                  
                  1,351,366
                  
                  
                  (3,933,831
                  )**INTEREST
                      EXPENSE, NET**
                  
                  
                  (932,175
                  )
                  
                  (394,075
                  )**LOSS
                      ON EXTINGUISHMENT OF DEBT**
                  
                  
                  -
                  
                  
                  (409,601
                  )**NET
                      INCOME/(LOSS) BEFORE PROVISION FOR INCOME TAXES**
                  
                  
                  419,191
                  
                  
                  (4,737,507
                  )**Provision for Income Taxes**
                  
                  
                  -
                  
                  
                  -**NET
                      INCOME/(LOSS) APPLICABLE TO COMMON SHARES**
                  
                  $
                  419,191
                  
                  $
                  (4,737,507
                  )**NET
                      INCOME/(LOSS) PER SHARE**Basic
                  
                  $
                  0.0012
                  
                  $
                  (0.0082
                  )Diluted
                  
                  $
                  0.0010
                  
                  $
                  (0.0082
                  )**WEIGHTED
                      AVERAGE NUMBER OF COMMON****SHARES OUTSTANDING**
                  
                  
                  360,778,231
                  
                  
                  580,059,290
  The
          accompanying notes are an integral part of the
          condensed consolidated financial statements.


5
 
  **MOBILEPRO
          CORP. AND SUBSIDIARIES**
 **CONDENSED
          CONSOLIDATED STATEMENTS OF CASH FLOWS**
 **(unaudited)**
 **For
                    the Three Months Ended****June
                    30,****2005**
                
                **2006****CASH
                    FLOWS FROM OPERATING ACTIVITIES**Net income/(loss)
                
                $
                419,191
                
                $
                (4,737,507
                )**Items that reconcile net income/(loss) to net
                    cash****(used in) operating activities:**Depreciation and amortization
                
                
                822,377
                
                
                1,330,911Noncash interest expense and loss on debt extinguishment
                
                
                145,433
                
                
                644,535Goodwill impairment charges
                
                
                -
                
                
                348,118Restructuring charges
                
                
                -
                
                
                303,671Common stock issued for services
                
                
                15,000
                
                
                521,091**Changes in assets and liabilities**(Increase) decrease in accounts receivable
                
                
                (65,920
                )
                
                1,314,146Decrease in other current assets
                
                
                53,665
                
                
                324,968(Increase) in other assets
                
                
                (216,906
                )
                
                (263,151
                )(Decrease) in accounts payable andand accrued expenses
                
                
                (2,542,829
                )
                
                (1,876,842
                )Increase in deferred revenue
                
                
                19,933
                
                
                418,000(1,769,247
                )
                
                3,065,447**Net cash (used in) operating activities**
                
                
                (1,350,056
                )
                
                (1,672,060
                )**CASH
                    FLOWS FROM INVESTING ACTIVITIES**Proceeds from the sale/leaseback of wireless network
                    equipment
                
                
                -
                
                
                2,000,000Purchase of certificates of deposit
                
                
                -
                
                
                (750,000
                )Capital expenditures, net
                
                
                (579,724
                )
                
                (3,523,219
                )Acquisition of intangible assets
                
                
                (6,778,129
                )
                
                (37,167
                )Cash paid for acquisitions
                
                
                (2,024,646
                )
                
                -**Net cash (used in) investing activities**
                
                
                (9,382,499
                )
                
                (2,310,386
                )**CASH
                    FLOWS FROM FINANCING ACTIVITIES**Net proceeds from common stock issuances
                
                
                7,485,000
                
                
                6,661,669Borrowings/(payments) under other notes payable, net
                
                
                (1,313,276
                )
                
                (3,678,125
                )Proceeds from the issuance of the convertible debenture
                
                
                15,500,000
                
                
                -Retirement of acquisition bridge loan
                
                
                (13,000,000
                )
                
                -Investment by minority interests
                
                
                3,675,000
                
                
                -Debt financing fees
                
                
                (1,295,000
                )
                
                -**Net cash provided by financing activities**
                
                
                11,051,724
                
                
                2,983,544
  The
          accompanying notes are an integral part of the
          condensed consolidated financial statements.
  6
 
  **MOBILEPRO
              CORP. AND SUBSIDIARIES**
 **CONDENSED
              CONSOLIDATED STATEMENTS OF CASH FLOWS**
 **(CONTINUED)**
 **(unaudited)**
  **For
                          the Three Months Ended****June
                          30,****2005**
                      
                      **2006****NET
                          INCREASE (DECREASE) IN CASH AND CASH
                          EQUIVALENTS**
                      
                      $
                      319,169
                      
                      $
                      (998,902
                      )**CASH
                          AND CASH EQUIVALENTS - BEGINNING OF PERIOD**
                      
                      
                      4,669,787
                      
                      
                      5,397,881**CASH
                          AND CASH EQUIVALENTS - END OF PERIOD**
                      
                      $
                      4,988,956
                      
                      $
                      4,398,979**SUPPLEMENTAL
                          DISCLOSURE OF CASH FLOW****INFORMATION:**Cash paid during the period for interest
                      
                      $
                      1,035,219
                      
                      $
                      1,006,018**SUPPLEMENTAL
                          DISCLOSURE OF NONCASH****ACTIVITIES:**Capital lease
                      
                      $
                      -
                      
                      $
                      1,875,721Amortization of SEDA deferred financing fees
                      
                      $
                      220,000
                      
                      $
                      147,000Goodwill recorded in acquisitions
                      
                      $
                      3,409,158
                      
                      $
                      -Liability for common stock to be issued
                      
                      $
                      1,809,373
                      
                      $
                      -Adjustment to minority interest
                      
                      $
                      150,000
                      
                      $
                      -Issuance of common stock for the acquisition of WazAlliance
                      
                      $
                      110,200
                      
                      $
                      -
  The accompanying notes are an integral part of
                the condensed
                consolidated financial statements.
  7


**MOBILEPRO
      CORP. AND SUBSIDIARIES**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**JUNE
      30, 2006**


**(unaudited)**




**NOTE
      1-** **ORGANIZATION**





**Overview**





MobilePro
      Corp., incorporated under the laws of the State of Delaware in July 2000, is
      a
      broadband wireless, telecommunications, and integrated data communication
      services company that delivers a comprehensive suite of voice and data
      communications services to its customers, including local exchange, long
      distance, enhanced data, Internet, cellular, and wireless broadband, through
      its
      operations in three industry segments - voice services, Internet services and
      wireless networks. Together with its consolidated subsidiaries, Mobilepro Corp.
      is hereinafter referred to as “Mobilepro” or the “Company”.





The
      Company’s voice services segment includes the operations of CloseCall America,
      Inc. (“CloseCall”), a Stevensville, Maryland-based competitive local exchange
      carrier (a “CLEC”), Davel Communications, Inc. (“Davel”), a Cleveland,
      Ohio-based independent payphone provider, and American Fiber Network, Inc.
      (“AFN”), a CLEC based in Kansas City, Kansas. The Company’s Internet services
      segment includes DFW Internet Services, Inc. (“DFW”, doing business as
      Nationwide Internet), an Irving, Texas-based Internet services provider, its
      acquired Internet service provider subsidiaries, and InReach Internet L.L.C.
      (“InReach”), an Internet service provider based in Stockton, California. The
      Company’s municipal wireless networks operations are conducted primarily in
      Phoenix, Arizona, by a wholly owned subsidiary, NeoReach, Inc. (“NeoReach”), and
      its subsidiary, Kite Networks, Inc. (formerly known as NeoReach Wireless, Inc.).
      The wireless networks segment also includes the operations of the Company’s
      subsidiary, Kite Broadband, LLC (“Kite Broadband”), a broadband wireless service
      provider based in Ridgeland, Mississippi.





**Summary
      of Acquisition Activities since April 1, 2005**





In
      May
      2005, NeoReach acquired WazAlliance, a network of metro-wide commercial and
      residential wireless Internet access zones for a total purchase price of
      $257,500. Consideration included the issuance of 760,000 shares of Mobilepro’s
      common stock valued at $110,200, a liability to issue an additional 540,000
      shares of common stock valued at $78,300, and the payment of certain liabilities
      in the amount of $69,000 on behalf of WazAlliance. Subsequent to the
      acquisition, 173,334 of the additional shares of common stock were
      issued.





In
      June
      2005, the Company acquired Evergreen Open Broadband (“Evergreen”), a wholesale
      wireless Internet service provider based in Boston, for a purchase price of
      approximately $231,073 representing 1,505,360 shares of Mobilepro common stock
      valued at $0.1535 per share based on the date that the parties reached agreement
      on the terms of the acquisition.





In
      June
      2005, Mobilepro acquired 100% of the outstanding common stock of AFN (see Note
      5), a CLEC that is licensed to provide local telephone, long distance and/or
      Internet services throughout the United States, for a cost of $3,434,331,
      including 10,000,000 shares of Mobilepro common stock, valued at $1,500,000
      based on the value of the Company's common stock at the time that the
      substantive terms of the acquisition were accepted, a cash payment of $1,500,000
      and the excess of liabilities assumed over the fair value of assets
      acquired. The assumed liabilities included $1,337,103 payable to a related
      party
      company that supplied administrative and support services to AFN.





In
      September 2005, AFN acquired the assets of AllCom USA and their long distance
      and T-1 customers for $300,000 cash, providing the Company with an additional
      base of customers for bundled services.





In
      November 2005, Mobilepro acquired InReach for a cost of $2,966,861, including
      cash payments of $2,166,861 and 3,669,725 shares of Mobilepro common stock,
      valued at $800,000 based on the value of the Company's common stock at the
      time
      that the substantive terms of the acquisition were accepted (see Note
      5).




8




On
      January 31, 2006, the Company acquired the 49% minority interest in Kite
      Broadband and 100% of the outstanding common stock of Kite Networks, Inc. for
      90,000,000 shares of the Company’s common stock, subject to certain post-closing
      adjustments (see Note 6). For accounting purposes, the common stock was valued
      at $15,660,000, or $0.174 per share, the closing price per share on the date
      that the acquisition was announced. Subsequent to the acquisition, Kite
      Networks, Inc. was merged into NeoReach Wireless, Inc., and the combined entity
      was renamed Kite Networks, Inc. (“Kite Networks”).





**NOTE
      2-** **SUMMARY
      OF SIGNIFICANT ACCOUNTING POLICIES**





**Financial
      Statement Presentation**





The
      condensed consolidated financial statements include the accounts of the Company
      and its subsidiaries. All significant inter-company accounts and transactions
      have been eliminated in consolidation. In accordance with the requirements
      of
      Statement of Financial Accounting Standard (“SFAS”) No. 131, “Disclosures about
      Segments of an Enterprise and Related Information”, the Company has provided
      certain financial information relating to the operating results and assets
      of
      its industry segments (see Note 12) based on the manner in which management
      disaggregates the Company in making internal operating decisions.





The
      preparation of financial statements in conformity with generally accepted
      accounting principles in the United States of America requires management to
      make estimates and assumptions that affect the reported amounts of assets and
      liabilities, the disclosure of contingent assets and liabilities at the date
      of
      the financial statements and the reported amounts of revenue and expenses during
      the reporting periods. Actual results could differ from those
      estimates.





These
      financial statements are unaudited and have been prepared by the Company
      pursuant to the rules and regulations of the Securities and Exchange Commission
      regarding interim financial reporting. Accordingly, they do not include all
      of
      the information and footnotes required by generally accepted accounting
      principles for complete financial statements, and it is suggested that these
      financial statements be read in conjunction with the financial statements,
      and
      notes thereto, included in the Company’s Annual Report on Form 10-KSB for the
      fiscal year ended March 31, 2006. In the opinion of management, the comparative
      financial statements for the periods presented herein include all adjustments
      that are normal and recurring, and that are necessary for a fair presentation
      of
      results for the interim periods. The results of operations for the three months
      ended June 30, 2006 are not necessarily indicative of the results that will
      be
      achieved for the fiscal year ending March 31, 2007.





**Reclassifications**





Certain
      prior-period financial statement balances have been reclassified to conform
      to
      the June 30, 2006 presentation. The reclassifications resulted in no changes
      to
      the accumulated deficits reported in prior periods.





**Accounting
      for Stock Options and Warrants**





Prior
      to
      the quarter ended June 30, 2006, the Company accounted for its stock-based
      compensation under the recognition and measurement principles of Accounting
      Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees,” and
      related interpretations (“APB 25”). APB 25 provided that compensation expense
      relative to a Company’s employee stock options was measured based on the
      intrinsic value of the stock options at the measurement date.





In
      December 2004, the Financial Accounting Standards Board revised SFAS
      No. 123, “Accounting for Certain Transactions Involving Stock
      Compensation” (“SFAS
      123”). The revision was entitled “Share-Based Payment” (“SFAS 123R”), replacing
      SFAS 123 and superseding APB 25, and its scope encompasses a wide range of
      share-based compensation arrangements including share options, restricted share
      plans, performance-based awards, share appreciation rights and employee share
      purchase plans. SFAS 123R requires that the compensation cost relating to
      share-based payment transactions be recorded in financial statements. For each
      transaction, compensation cost is to be measured based on the fair value of
      the
      equity or liability instrument issued. The pro forma disclosures previously
      permitted under SFAS 123 no longer will be an alternative to financial statement
      recognition of compensation expense. The Company adopted SFAS 123R, effective
      April 1, 2006 (see Note 9).




9




**Revenue
      Recognition**





The
      Company derives a material portion of its revenues through the provision of
      local telephone, long distance, wireless calling and Internet access services
      to
      subscribers. The Company recognizes revenue related to these telecommunications
      services when such services are rendered and collection is reasonably assured;
      it defers revenue for services that the Company bills in advance. Revenue
      related to service contracts covering future periods is deferred and recognized
      ratably over the periods covered by the contracts.





A
      material amount of the Company’s revenues is also generated from the use of
      Davel’s payphones. Davel derives its payphone revenue from two principal
      sources: coin calls and non-coin calls. Revenue related to all calls, including
      dial-around compensation and operator service revenue, is recognized in the
      periods that the customers place the calls. Any variations between recorded
      amounts of revenue and actual cash receipts are accounted for at the time of
      receipt. Revenue related to such dial-around calls is recognized initially
      based
      on estimates. Recorded amounts of revenue may be adjusted based on actual
      receipts and/or the subsequent revision of prior estimates. Reported revenues
      for the quarter ended June 30, 2006 reflected a reduction to previously recorded
      revenues of $143,516; no such adjustment was recorded in the quarter ended
      June
      30, 2005. Total dial-around revenue amounts for the quarters ended June 30,
      2005
      and 2006 were $2,980,792 and $1,620,273, respectively.





**Accounts
      Receivable**





The
      Company had allowances for doubtful accounts of $883,232 and $898,112 at March
      31, 2006 and June 30, 2006, respectively, relating to accounts receivable other
      than dial-around compensation amounts.





Accounts
      receivable includes amounts related to dial-around revenue. The estimated
      dial-around receivable amount at each balance sheet date is based on the
      Company’s historical collection experience. Dial-around receivable amounts
      included in the balance sheets at March 31, 2006 and June 30, 2006 were
      $4,509,063 and $3,944,131, respectively.





**Financing
      Fees**





The
      financing fees paid in May 2004 to Cornell Capital Partners, L.P. (“Cornell
      Capital”) and others related to the negotiation of the Standby Equity
      Distribution Agreement (the “SEDA”) were deferred and, for the periods presented
      herein, were amortized against additional paid-in-capital on a straight-line
      basis over the twenty-four (24) month term of the SEDA. These fees were paid
      with the issuance of 8,000,000 shares of Mobilepro common stock valued in the
      amount of $1,760,000. The Company recorded amortization of approximately
      $220,000 and $147,000 in the quarters ended June 30, 2005 and 2006,
      respectively. Amortization of this balance concluded in May 2006. The fees
      paid
      to Cornell Capital and others at the time that funds are drawn under equity
      lines of credit, amounting to $315,000 and $86,000 in the quarters ended June
      30, 2005 and 2006, were charged to additional paid-in-capital.





The
      Company also incurred financing costs of $1,295,000 in May 2005 in connection
      with issuance of the $15.5 million convertible debenture to Cornell Capital
      and
      the early retirement of the bridge loan (see Note 7). These costs, including
      fees paid in cash to Cornell Capital, were charged to additional
      paid-in-capital.





**Advertising
      Contracts**




CloseCall
      uses print, signage, radio and television advertising to market services to
      customers of certain local professional sports teams. Advertising programs
      include the use of long-term contracts. Upon the negotiation of such a contract,
      the Company records the cost of the advertising program as an asset, and
      amortizes the balance to operating expenses over the life of the contract.
      At
      March 31, 2006, prepaid expenses and other assets included balances of $366,995
      and $474,569, respectively, related to such contracts. The corresponding
      contract liability is paid typically in installments. At March 31, 2006, current
      and long-term liabilities included balances of $304,560 and $475,493,
      respectively, that are payable under such contracts. At June 30, 2006, prepaid
      expenses and other assets included balances of $363,993 and $384,581,
      respectively, related to such contracts, and current and long-term liabilities
      included balances of $352,182 and $345,787, respectively, that are payable
      under
      such contracts.




10




**Property,
      Plant and Equipment**





At
      March
      31, 2006 and June 30, 2006, property, plant and equipment values were as
      follows:





**Estimated**
              **Useful**
              **Lives
                (in years)**
            
            **March
                31,**
              **2006**
            
            **June
                30,**
              **2006**(unaudited)Furniture
                and fixtures
            
            
            7
            
            $
            698,828
            
            $
            886,547Machinery
                and equipment
            
            
            5
            
            
            20,561,029
            
            
            23,831,849Leasehold
                improvements
            
            
            7
            
            
            788,610
            
            
            786,687Vehicles
            
            
            5
            
            
            204,205
            
            
            203,705Subtotals
            
            
            
            
            
            22,252,672
            
            
            25,708,788Less
                accumulated depreciation
            
            
            
            
            
            (6,393,418
            )
            
            (7,193,172
            )Fixed
                  assets, net
            
            
            
            
            $
            15,859,254
            
            $
            18,515,616




**Customer
      Contracts and Relationships**





In
      connection with the acquisition of certain customer rights under an agreement
      with Sprint Communications Company L.P. (“Sprint”), Kite Broadband made an
      up-front payment of $6,578,550 on June 30, 2005. Accordingly, the amount of
      this
      payment was capitalized and allocated between the value ascribed to the
      initial three-year term of the agreement with Sprint, amounting to $1,966,200,
      and the value ascribed to the bargain purchase option, amounting to
      $4,612,350.





The
      amount assigned to the initial term of the agreement is being amortized on
      a straight-line basis over the initial three-year term. The Company has
      estimated the total life of this arrangement to be ten years based upon an
      analysis of the operating history of the subscriber base and the average monthly
      disconnects. The Company intends to evaluate the value of these intangible
      assets for potential impairment at least annually and to adjust both the asset
      values and the prospective life in the future if determined necessary. For
      the
      quarter ended June 30, 2006, amortization expense was approximately
      $165,702.





This
      account also includes location contracts with net balances of $2,220,479 and
      $2,067,771 at March 31, 2006 and June 30, 2006, respectively, representing
      Davel
      acquisition costs allocated to location owner payphone contracts and other
      costs
      associated with obtaining written and signed location contracts. These other
      assets are amortized on a straight-line basis over their estimated useful lives
      based on contract terms (generally 5 years). Accumulated amortization related
      to
      these contracts at March 31, 2006 and June 30, 2006 was $859,276 and $1,011,982,
      respectively. Amortization related to location contracts was $160,292 and
      $152,706, respectively, for the quarters ended June 30, 2005 and
      2006.





**Accounts
      Payable and Accrued Liabilities**





At
      March
      31, 2006 and June 30, 2006, accounts payable and accrued liabilities consisted
      of the following:





**March
                31, 2006**
            
            **June
                30, 2006**(unaudited)Accounts
                payable
            
            $
            10,229,960
            
            $
            9,808,832Accrued
                location usage fees
            
            
            2,271,060
            
            
            2,149,972Accrued
                restructuring costs
            
            
            486,311
            
            
            746,757Accrued
                compensation
            
            
            1,048,027
            
            
            751,567Accrued
                interest expense
            
            
            873,206
            
            
            2,451Other
                accrued liabilities
            
            
            2,494,347
            
            
            2,220,511Totals
            
            $
            17,402,911
            
            $
            15,680,090




11




**Income
      Taxes**





Because
      of its history of losses, the Company has not had any material federal or state
      income tax obligations.





**NOTE
      3-** **IMPAIRMENT
      OF GOODWILL**





At
      June
      30, 2006, the Company’s balance sheet included intangible assets with an
      aggregate carrying value of $56,200,607, representing approximately 59.7% of
      total assets and including $47,749,778 in goodwill. Substantially, this goodwill
      was recorded in connection with the series of acquisitions completed by the
      Company since January 1, 2004. Generally accepted accounting principles require
      that the Company assess the fair values of acquired entities at least annually
      in order to identify any impairment in the values. However, on a quarterly
      basis, management is alert for events or circumstances that would indicate
      that,
      more likely than not, the fair value of a reporting segment has been reduced
      below its carrying amount. If there is a determination that the fair value
      of an
      acquired entity is less than the corresponding net assets amount, including
      goodwill, an impairment loss would be identified and recorded at that time.
      Management believes that the amounts of goodwill included in the balance sheet
      at June 30, 2006 do not exceed the corresponding fair values of these assets.




**NOTE
      4-** **RESTRUCTURING
      OF OPERATIONS**





During
      the year ended March 31, 2006, management began to focus on the integration
      of
      the operations of the acquired companies, in particular the operations of the
      Internet services business segment. The efforts are focused on combining service
      offerings, consolidating network operations and customer support locations,
      and
      reducing operating costs. At March 31, 2006, the accrued restructuring costs
      balance was $486,311, including $393,311 related to the loss expected on the
      abandonment of leased facilities and $93,000 related to the termination of
      certain employees. During the quarter ended June 30, 2006, the Company recorded
      a restructuring charge related to the termination of additional employees in
      the
      amount of $303,671. The Company expects to incur additional restructuring
      charges throughout the remainder of the current fiscal year related to the
      consolidation of additional office locations and the elimination of redundant
      positions.





**NOTE
      5-** **THE
      ACQUISITIONS OF AFN AND INREACH**





The
      acquisition of AFN occurred on June 30, 2005. Accordingly, the operating results
      of AFN are included in the operating results of the Company from and including
      July 1, 2005. The accompanying condensed consolidated statement of operations
      for the quarter ended June 30, 2006 included revenues and net income related
      to
      AFN of $1,976,222 and $323,434, respectively.





The
      acquisition of InReach occurred on November 1, 2005. Accordingly, the operating
      results of InReach are included in the operating results of the Company from
      and
      including November 1, 2005. The accompanying condensed consolidated statement
      of
      operations for the quarter ended June 30, 2006 included revenues and net income
      related to InReach of $1,239,595 and $80,042, respectively.





**NOTE
      6-** **THE
      FORMATION OF KITE BROADBAND**





In
      June
      2005, Kite Broadband was funded with the Company making an investment of
      $3,825,000 in cash and receiving 51% ownership. The minority owners
      invested $3,675,000 in cash. On June 30, 2005, Kite Broadband closed a Master
      Agreement for Services (the “Sprint Agreement”) with Sprint under which the
      Company shall provide services to Sprint’s broadband customers in fourteen (14)
      metropolitan markets for a period of three years utilizing the Sprint mark.
      The
      Sprint Agreement covers, among other things, the provisioning of certain
      customer-facing services, such as customer operations and call center
      management, sales, marketing, billing, collection, installation and repair.
      Sprint continues to provide network support and transport services. The
      customers remain Sprint customers during the initial three-year term of the
      Sprint Agreement. Upon expiration of the Sprint Agreement, the Company will
      have
      the option to acquire the then existing customers pursuant to the terms of
      the
      Sprint Agreement. All network and spectrum assets will remain Sprint property.
      In December 2005, Kite Broadband made a cash distribution of $127,500 to its
      investors. The Company’s share of the distribution was $65,025.




12




On
      January 31, 2006, the Company acquired the minority interest in Kite Broadband
      and the business of Kite Networks. On the acquisition date, the balance of
      the
      minority interest in Kite Broadband was approximately $3,797,000. Kite Networks’
most significant asset was its investment in Kite Broadband.





The
      operating results of Kite Broadband have been included in the operating results
      of the Company from and including July 1, 2005, the date that operations
      commenced. The revenues and net loss reported by Kite Broadband and included
      in
      the condensed consolidated results of operations for the quarter ended June
      30,
      2006 were $2,982,998 and $356,704, respectively.





**NOTE
      7-** **DEBT**





**Secured
      Convertible Debentures**





On
      May 13, 2005, the Company issued a 7.75% secured convertible debenture (the
“Debenture”) to Cornell Capital in the aggregate amount of $15,500,000. The
      Company used most of the proceeds to pay in full the remaining $13,000,000
      balance of a note payable that bore interest at the rate of 23% and was due
      on
      November 15, 2005; the retired note was the source of bridge financing for
      the
      Company’s acquisition of Davel. Results of operations for the quarter ended June
      30, 2005 included interest expense related to the retired note of
      $381,225.





The
      outstanding balance of the Debenture at March 31, 2006 of $15,000,000 was due
      and payable in the following installments over a three-year period: $1,500,000
      due on May 15, 2006; $1,000,000 due on each of August 15, 2006, November 15,
      2006 and February 15, 2007; $2,000,000 due on each of May 15, 2007, August
      15,
      2007, November 15, 2007 and February 15, 2008; and the remaining $2,500,000
      due
      on May 15, 2008. For the quarters ended June 30 2005 and 2006, the amounts
      of
      interest expense related to the Debenture and included in the accompanying
      condensed consolidated statements of operations, based on the stated interest
      rate, were $157,973 and $289,829, respectively. Accrued interest at March 31,
      2006 was $444,670. This interest was paid in cash by the Company in May
      2006.





On
      June
      30, 2006, the Company entered into an amended secured convertible debenture
      in
      the amount of $15,149,650 with Cornell Capital (the “Amended Debenture”),
      replacing the Debenture. Under the terms of the Amended Debenture, the Company
      has agreed to make weekly scheduled principal payments of at least $250,000
      commencing September 1, 2006 with interest on the outstanding principal balance
      payable at the same time. The Company has the right to make any and all such
      principal payments by issuing shares of its common stock to Cornell Capital provided that all
      such shares may only be issued by the Company if such shares are tradable under
      Rule 144 of the Securities and Exchange Commission, are registered for sale
      under the Securities Act of 1933 or are freely tradable by Cornell Capital
      without restriction. The amount of such shares shall be based upon the lower
      of
      $0.275 per share or 93% of the average of the two lowest daily volume weighted
      average per share prices of the Company’s common stock during the five days
      immediately following the scheduled payment date. Cornell Capital may elect
      to
      receive interest in cash or in the form of common stock. Cornell Capital may
      convert all or any part of the unpaid principal and accrued interest owed under
      the Amended Debenture into shares of our common stock at a conversion price
      of
      $0.275 per share. The Amended Debenture eliminated the requirement to renew
      the
      SEDA and is secured by a blanket lien on our assets. Like the Debenture, the
      Amended Debenture bears interest at an annual rate of 7.75%. The conversion
      price of the Amended Debenture may be adjusted if the Company issues additional
      equity or instruments convertible into equity in connection with a transaction
      such as a stock dividend or a stock split pursuant to a formula included in
      the
      Amended Debenture.





In
      connection with the issuance of the Debenture, the Company issued to Cornell
      Capital a five-year warrant to purchase 6,000,000 shares of its common stock
      at
      an exercise price of $0.50 per share (the “Warrant”). If the Company issues
      additional equity or instruments convertible into equity as described in the
      Warrant, or is deemed to have done so, at a lower per share price than the
      then-effective Warrant exercise price, the exercise price may be adjusted
      downward to such lower per share price. In that case, the number of shares
      issuable upon exercise of the Warrant would be increased so that the total
      exercise price would remain $3,000,000.





In
      connection with the issuance of the Amended Debenture, Cornell Capital was
      issued a warrant to purchase 10,000,000 shares of the Company’s common stock at
      a purchase price of $0.275 per share (the “Additional Warrant”). This Additional
      Warrant will expire one year after the date that the Company registers the
      underlying shares for resale by Cornell Capital with the Securities Exchange
      Commission. If the Company issues additional equity or instruments convertible
      into equity as described in the Additional Warrant, or is deemed to have done
      so, at a lower per share price than the then-effective Additional Warrant
      exercise price, the exercise price may be adjusted downward to such lower per
      share price. In that case, the number of shares issuable upon exercise of the
      Additional Warrant would be increased so that the total exercise price would
      remain $2,750,000.




13




The
      face
      amount of the Amended Debenture was reflected in the balance sheet at June
      30,
      2006, net of unamortized debt discount of $319,000. The net amount of the
      Amended Debenture reflects the fair market value on the date of issuance after
      allocating $319,000 of the proceeds to the Additional Warrant. This discount
      on
      the Amended Debenture will be amortized as a charge to interest expense over
      the
      term of the Amended Debenture.





The
      net
      carrying amount of the Debenture and the related amount of accrued interest,
      $14,590,399 and $149,650, respectively, were eliminated from the accounts in
      connection with the issuance of the Amended Debenture and the return of the
      Debenture, resulting in a loss on the extinguishment of the Debenture debt
      in
      the amount of $409,601. This amount was included in the accompanying statement
      of operations for the quarter ended June 30, 2006.





Interest
      expense amounts included in the accompanying condensed consolidated statements
      of operations for the quarters ended June 30, 2005 and 2006 included debt
      discount amortization related to the Debenture in the amounts of $50,475 and
      $97,140, respectively.





**Notes
      Payable to Cornell Capital**





During
      the two-year period ended March 31, 2006, the Company borrowed amounts from
      Cornell Capital that totaled $31,500,000 pursuant to a series of notes with
      maturities of one-year or less and annual interest rates ranging from 8% to
      12%.
      A remaining total principal balance of $3,600,000, plus accrued interest of
      $392,953, was owed to Cornell Capital at March 31, 2006. These amounts were
      paid
      during the quarter ended June 30, 2006 with cash provided by the operating
      units. Interest expense amounts included in the accompanying condensed
      consolidated statements of operations for the quarters ended June 30, 2005
      and
      2006 related to the notes payable to Cornell Capital, based on the stated rates
      of interest, were $234,312 and $25,074, respectively,




**Capital
      Leases**





On
      June
      30, 2006, the Company received $2,000,000 in cash proceeds from the sale of
      certain municipal wireless network equipment that has been deployed in Tempe,
      Arizona. Simultaneously, the Company entered into a leaseback agreement
      representing a capital lease. Accordingly, a fixed asset and a capital lease
      liability were recorded in the accounts at the present value of the future
      lease
      payments discounted at an assumed incremental borrowing rate of 10.25%, or
      $1,875,721. Under this lease, the Company is obligated to make 36 monthly
      payments commencing July 1, 2006; the lease contains an option to purchase
      the
      equipment at the end of the lease-term at a price equal to the fair market
      value
      of the equipment with this amount not to exceed 23% of the original cost of
      the
      equipment. The gain on the sale of the equipment $234,223 has been deferred
      and
      will be amortized to income over the term of the lease.





**Debt
      Maturities**





A
      summary
      of the balances owed under the Amended Debenture, capital leases, notes payable
      and other long-term liabilities at June 30, 2006 was as follows:





Amended
                Debenture issued to Cornell Capital
            
            $
            15,149,650Capital
                leases
            
            
            1,991,580Notes
                payable related to acquisitions
            
            
            42,909Other
                notes payable and long-term obligations
            
            
            1,083,04518,267,184Less:
                Unamortized debt discount on the Amended Debenture
            
            
            (319,000
            )Less:
                Amounts due within one year
            
            
            (12,254,350
            )Long-term
                portion of debt
            
            $
            5,693,834




14




At
      June
      30, 2006, a summary of the future scheduled payments of the long-term portion
      of
      debt was as follows:





The
                twelve months ending --June
                30, 2008
            
            $
            5,146,425June
                30, 2009
            
            
            862,210June
                30, 2010
            
            
            4,1996,012,834Less
                - Unamortized debt discount on the Amended Debenture
            
            
            (319,000
            )Long-term
                portion of debt
            
            $
            5,693,834




**NOTE
      8-** **STOCKHOLDERS’
      EQUITY**




**Standby
      Equity Distribution Agreement (the “SEDA”)**





On
      May
      13, 2004, the Company entered into the SEDA with Cornell Capital that provided,
      generally, that Cornell Capital would purchase up to $100 million of the common
      stock of Mobilepro over a two-year period, with the time and amount of such
      purchases, if any, at the Company’s discretion. Cornell Capital was entitled to
      purchase the shares at a 2% discount to a weighted-average market price of
      the
      common stock. The Company was obligated to pay a fee to Cornell Capital and
      other advisors at the time of each draw. On May 19, 2006, the SEDA
      expired.





Draws
      under the SEDA totaled $39,173,129, including $7,800,000 and $6,750,000 drawn
      during the quarters ended June 30, 2005 and 2006, respectively. The Company
      advanced a total of 183,996,589 shares of its common stock to the escrow agent
      in accordance with the terms of the SEDA since its inception at an average
      sale
      price of $0.2129 per share.





The
      discounts provided to Cornell Capital in connection with the sale of shares
      of common stock by the Company, amounting to $94,958 and $137,795 in the
      quarters ended June 30, 2005 and 2006, respectively, were included in interest
      expense in the accompanying condensed consolidated statements of
      operations.





**Common
      Stock Transactions in the Quarter Ended June, 2006**





In
      April
      2006, the Company issued 6,021,624 shares of its common stock to a former
      officer pursuant to the exercise of a stock warrant.





In
      June
      2006, the Company issued 200,000 shares of its common stock, valued at $36,000,
      in connection with the termination of an agreement with an investment banking
      firm.





During
      the quarter ended June 30, 2006, the Company issued 22,000,000 shares of common
      stock to the escrow agent for use under the SEDA. The termination of the SEDA
      will result in the return of 3,413,365 shares of common stock to the Company
      by
      the escrow agent.




15




**NOTE
      9-** **STOCK
      OPTIONS AND WARRANTS**





The
      following tables summarize the stock option activity and the warrant activity
      for the quarters ended June 30, 2005 and 2006:





**Weighted-Average****Stock
                Options --**
            
            **Number
                of Options**
            
            **Exercise
                Price**Outstanding
                – March 31, 2006
            
            
            11,076,000
            
            $
            0.2260Granted
            
            
            -
            
            $
            -Exercised
            
            
            -
            
            $
            -Cancelled
            
            
            -
            
            $
            -Outstanding
                – June 30, 2006
            
            
            11,076,000
            
            $
            0.2260Exercisable
                – June 30, 2006
            
            
            4,854,759
            
            $
            0.2302





**Weighted-Average****Stock
                Warrants --**
            
            **Number
                of Warrants**
            
            **Exercise
                Price**Outstanding
                – March 31, 2006
            
            
            94,932,500
            
            $
            0.1669Granted
            
            
            10,250,000
            
            $
            0.2732Exercised
            
            
            (6,021,524
            )
            $
            0.0180Cancelled
            
            
            (478,476
            )
            $
            0.0180Outstanding
                – June 30, 2006
            
            
            98,682,500
            
            $
            0.1877Exercisable
                – June 30, 2006
            
            
            81,869,834
            
            $
            0.1849





Options
      to purchase common stock that are awarded pursuant to the terms of the 2001
      Plan
      are ten-year options that typically vest over two to three year periods
      according to a defined schedule. The vesting of certain options during fiscal
      year 2007 will depend on the achievement of individual and company objectives.
      Unvested warrants to purchase common stock are vesting over periods that range
      from eleven to thirty-three months. The vesting of certain warrants awarded
      to
      certain of the Company’s officers will occur upon the achievement of individual
      and/or company objectives. Warrants typically expire on the ten-year anniversary
      of the date of award.





Effective
      April 1, 2006, the Company adopted the provisions of SFAS 123R that requires
      companies to record the compensation cost associated with stock options and
      warrants. As required by SFAS 123R, the Company has determined the appropriate
      fair value model to be used for valuing share-based payments, the amortization
      method for compensation cost and the transition method to be used at date of
      adoption. The model used by the Company in order to determine the fair values
      of
      the stock options and warrants awarded during the quarter ended June 30, 2006
      and those previously awarded options and warrants with unvested portions at
      March 31, 2006 continues to be the Black-Scholes model. The Company used the
      prospective method in order to adopt this accounting standard. Accordingly,
      compensation expense has been recorded in the quarter ended June 30, 2006
      related to new awards and the unvested stock options and warrants at March
      31,
      2006 on a straight-line basis over the applicable vesting periods. The operating
      results for the prior quarter were not restated.





For
      the
      quarter ended June 30, 2005, if compensation expense had been determined based
      on the fair value of the options at the grant dates consistent with the method
      of accounting proscribed by SFAS No. 123, as amended, the Company’s net
      income per share would have changed to the pro forma amount as presented
      below:




16


****


**2005**Net
                income, as reported
            
            $
            419,191Add:
                Stock-based employee compensation expense included in reported net
                income
            
            
            -Deduct:
                Total stock-based employee compensation expense determined under
                fair
                value based method for all awards
            
            
            (1,820,768
            )Pro
                forma net loss
            
            $
            (1,401,577
            )Net
                income per share:Diluted, as reported
            
            $
            0.0010Diluted, pro forma
            
            $
            (0.0034
            )





The
      fair
      value of each option is estimated on the date of grant using the Black-Scholes
      option-pricing model with the following assumptions used for awards during
      the
      quarters ended June 30, 2005 and 2006:




**2005**
            
            **2006**Dividend
                yield
            
            
            -
            %
            
            -
            %Expected
                volatility
            
            
            60
            %
            
            60
            %Risk-free
                interest rate
            
            
            3.00
            %
            
            4.00
            %Expected
                term (in years)
            
            
            10.00
            
            
            10.00




For
      stock
      options and warrants granted during the quarters ended June 30, 2005 and 2006,
      the weighted-average grant-date fair values were $0.30 per share and $0.15
      per
      share, respectively.





**NOTE-10-** **BASIC
      AND DILUTED INCOME (LOSS) PER SHARE**





Basic
      income (loss) per share includes no dilution and is computed by dividing net
      income (loss) available to common stockholders by the weighted-average number
      of
      common shares outstanding for the period. Diluted income (loss) per share
      includes the potential dilution that could occur if securities or other
      contracts to issue common stock were exercised or converted into common stock.





The
      computation of dilutive income per share for the quarter ended June 30, 2005
      was
      as follows:





Net
                income
            
            $
            419,191Weighted
                average number of shares outstanding during the period
            
            
            360,778,231Add:
                the treasury stock effect of stock options and warrants
            
            
            39,571,209Add: the effect of the assumed conversion of SEDA notes payable to
                common
                stock
            
            
            11,157,620Add: the effects of the assumed conversion of the Debenture and notes
                payable
            
            
            1,941,180Diluted
                number of shares outstanding
            
            
            413,448,241Net
                income per share:Basic
            
            $
            0.0012Diluted
            
            $
            0.0010





The
      effects of the assumed exercise of outstanding stock options and warrants and
      the assumed conversion of the Debenture and other convertible notes payable
      for
      the quarter ended June 30, 2006 were anti-dilutive as the Company incurred
      a net
      loss in this period.





17





**NOTE
      11-** **LITIGATION**





During
      the quarter ended June 30, 2006, the Company was party to the following material
      legal proceedings.





1)
      On
      September 10, 2004, CloseCall was served a complaint in an action captioned
      Verizon Maryland Inc., Verizon New Jersey Inc., and Verizon Delaware Inc.
      (together referred to as “Verizon”) in the Circuit Court for Montgomery County,
      Maryland, whereby Verizon was attempting to recover “in excess of $1,000,000”
based on alleged unpaid invoices for services provided to CloseCall. CloseCall
      also filed counterclaims against Verizon. The first claim related to Verizon’s
      refusal to resell certain bundled telecommunications services to CloseCall,
      despite repeated requests by CloseCall and the requirements of the
      Communications Act of 1934, as amended. In addition, CloseCall asserted damages
      as a result of Verizon’s entry into secret resale agreements with two CLECs,
      offering those companies deep discounts on telecommunications services not
      offered to other CLECs, including CloseCall. While CloseCall believed that
      its
      counterclaims against Verizon were valid and that it had meritorious defenses
      to
      the allegations contained in Verizon’s complaint, in June 2006, it elected to
      terminate these matters by agreeing to a settlement with Verizon. The effects
      of
      the settlement were reflected in the consolidated financial statement for the
      year ended March 31, 2006.





2)
      At the
      time that the Company acquired 95.2 % of the stock of Davel, Davel was a
      defendant in a civil patent infringement lawsuit captioned Gammino
      v. Cellco Partnership d/b/a Verizon Wireless, et al. ,
      filed
      in the United States District Court for the Eastern District of Pennsylvania.
      The case is in the discovery phase of the litigation. The plaintiff claims
      that
      Davel and other defendants allegedly infringed its patent involving the
      prevention of fraudulent long-distance telephone calls and is seeking damages in
      connection with the alleged infringement. Davel continues to review and
      investigate the allegations set forth in the complaint, continues to assess
      the
      validity of the Gammino Patents and is in the process of determining whether
      the
      technology purchased by Davel from third parties infringes upon the Gammino
      Patents. According to the terms of the Davel acquisition agreement, the former
      secured lenders, subject to certain limitations, have agreed to reimburse the
      Company for the litigation costs and any losses resulting from the Gammino
      lawsuit from future regulatory receipts that were assigned previously to them
      by
      Davel. Any such regulatory receipts are deposited into a third-party escrow
      account and are used to reimburse the Company for costs incurred. The secured
      lenders are not required to fund the escrow account or otherwise reimburse
      the
      Company for amounts, if any, in excess of actual regulatory receipts collected.
      Any amount remaining in the escrow account at the conclusion of the litigation
      is to be returned to the former secured lenders. The Company has received
      significant regulatory receipts that are being held in escrow. These funds
      can
      be used to reimburse the Company for costs, including legal fees, incurred
      in
      the defense or settlement of this litigation. The Company believes that there
      are sufficient funds in the escrow account to pay both its legal defense costs
      and any potential judgment that the Company believes could reasonably be
      expected.  This $7.5 million claim represents exposure to the Company in
      the event that escrowed regulatory receipts are insufficient to cover any
      potential judgment against the Company should it be found liable for the full
      monetary amount of the claim.


3)
        On
        August 6, 2006, the Company was served with notice of a lawsuit regarding
        the
        acquisition of Transcordia, LLC and related transactions. The Company is
        investigating the potential merits of the plaintiff's claims, but it believes
        that any potential exposure related to the claims against the Company is
        not
        likely to be material .


**NOTE
      12-** **SEGMENT
      INFORMATION**





The
      Company’s reportable operating segments include voice services, Internet
      services and wireless networks. Results of operations and certain asset data
      relating to the Company’s business segments for the quarters ended June 30, 2005
      and 2006 were as follows:





**Voice**
            
            **Internet**
            
            **Wireless****2005**
            
            **Services**
            
            **Services**
            
            **Networks**
            
            **Corporate**
            
            **Total**Revenues
            
            $
            18,462,451
            
            $
            4,037,400
            
            $
            5,994
            
            $
            -
            
            $
            22,505,845Cost
                of revenues (excludes depreciation and amortization)
            
            
            9,054,032
            
            
            1,956,024
            
            
            11,806
            
            
            -
            
            
            11,021,862Other
                operating expenses
            
            
            6,940,911
            
            
            1,752,806
            
            
            227,949
            
            
            388,574
            
            
            9,310,240Depreciation
                and amortization
            
            
            736,543
            
            
            81,799
            
            
            388
            
            
            3,647
            
            
            822,377Interest
                expense, net
            
            
            549
            
            
            18,464
            
            
            (74
            )
            
            913,236
            
            
            932,175Net
                income (loss)
            
            $
            1,730,416
            
            $
            228,307
            
            $
            (234,075
            )
            $
            (1,305,457
            )
            $
            419,191Segment
                assets
            
            $
            56,380,842
            
            $
            17,960,916
            
            $
            8,082,405
            
            $
            2,778,615
            
            $
            85,202,778Fixed
                assets, net of accumulated depreciation
            
            $
            11,729,485
            
            $
            1,366,679
            
            $
            257,127
            
            $
            3,645
            
            $
            13,356,936Goodwill,
                net of impairment
            
            $
            22,709,478
            
            $
            13,986,759
            
            $
            494,219
            
            $
            -
            
            $
            37,190,456





18





**Voice**
            
            **Internet**
            
            **Wireless****2006**
            
            **Services**
            
            **Services**
            
            **Networks**
            
            **Corporate**
            
            **Total**Revenues
            
            $
            16,084,041
            
            $
            4,220,433
            
            $
            3,038,312
            
            $
            -
            
            $
            23,342,786Cost
                of revenues (excludes depreciation and amortization)
            
            
            8,978,573
            
            
            1,980,462
            
            
            1,802,923
            
            
            -
            
            
            12,761,958Other
                operating expenses
            
            
            6,983,699
            
            
            2,190,690
            
            
            2,030,287
            
            
            1,736,881
            
            
            12,941,557Depreciation
                and amortization
            
            
            823,690
            
            
            111,797
            
            
            395,424
            
            
            -
            
            
            1,330,911Goodwill
                impairment charges
            
            
            -
            
            
            348,118
            
            
            -
            
            
            -
            
            
            348,118Restructuring
                charges
            
            
            -
            
            
            22,036
            
            
            -
            
            
            281,635
            
            
            303,671Interest
                expense, net
            
            
            (133,388
            )
            
            582
            
            
            (13,759
            )
            
            540,643
            
            
            394,078Net
                income (loss)
            
            $
            (568,533
            )
            $
            (433,252
            )
            $
            (1,176,563
            )
            $
            (2,559,159
            )
            $
            (4,737,507
            )Segment
                assets
            
            $
            47,236,418
            
            $
            17,604,384
            
            $
            28,477,183
            
            $
            890,858
            
            $
            94,208,843Fixed
                assets, net of accumulated depreciation
            
            $
            10,921,588
            
            $
            1,505,093
            
            $
            6,088,935
            
            $
            -
            
            $
            18,515,616Goodwill,
                net of impairment
            
            $
            20,531,278
            
            $
            15,142,567
            
            $
            12,075,933
            
            $
            -
            
            $
            47,749,778




19




**Item
      2. Management's Discussion and Analysis of Results of Operations and Financial
      Condition.**





The
      following is a discussion and analysis of our results of operations for the
      three-month periods ended June 30, 2005 and 2006, our financial condition at
      June 30, 2006 and factors that we believe could affect our future financial
      condition and results of operations. Historical results may not be indicative
      of
      future performance.





This
      discussion and analysis should be read in conjunction with our consolidated
      financial statements and the notes thereto included elsewhere in this Form
      10-Q.
      Our consolidated financial statements are prepared in accordance with Generally
      Accepted Accounting Principles in the United States (“GAAP”). All references to
      dollar amounts in this section are in United States dollars.





**Forward
      Looking Statements**





This
      Quarterly Report on Form 10-Q contains forward-looking statements that involve
      risks and uncertainties. The statements contained in this document that are
      not
      purely historical are forward-looking statements within the meaning of Section
      27A of the Securities Act of 1933 and Section 21E of the Securities Exchange
      Act
      of 1934, including without limitation statements regarding our expectations,
      beliefs, intentions or strategies regarding our business, and the level of
      our
      expenditures and savings for various expense items and our liquidity in future
      periods. We may identify these statements by the use of words such as
“anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “intend,”
“may,” “might,” “plan,” “potential,” “predict,” “project,” “should,” “will,”
“would” and other similar expressions. All forward-looking statements included
      in this document are based on information available to us on the date hereof,
      and we assume no obligation to update any such forward-looking statements,
      except as may otherwise be required by law. Our actual results could differ
      materially from those anticipated in these forward-looking
      statements.





**Overview**




We
      are a
      broadband wireless, telecommunications, and integrated data communication
      services company. We deliver a comprehensive suite of voice and data
      communications services, including local exchange, long distance, enhanced
      data,
      Internet, wireless and broadband services to our end-user customers. We are
      focused on growing our current customer bases, deploying wireless technologies,
      acquiring and growing profitable telecommunications and broadband companies
      and
      forging strategic alliances with well positioned companies with complementary
      product lines and in complementary industries.





The
      adoption of initiatives by cities to create areas within city limits where
      residents, visitors, students, and businesses can obtain wireless access to
      the
      Internet has created an increased interest in so-called wireless access zones.
      We are concentrating efforts on the deployment, management and ownership of
      such
      municipally sponsored wireless access zones. As a result, we are an innovator
      in
      the deployment of wireless broadband networks and services. Our wireless
      broadband networks and services will be provided in our wireless access zones
      to
      be primarily located in municipality sponsored areas. These network systems
      are
      scalable and flexible and will be readily modified to offer a variety of
      broadband services. To date, we have been selected by seven (7) municipalities
      for pilot or complete projects. The deployment of our first network in Tempe,
      Arizona was substantially completed in February 2006. To date, material
      revenues have not been provided from this business although the revenue
      generated by our Tempe wireless network has been increasing each
      month.





We
      market
      and sell our integrated communications services through 12 branch offices in
      eight states and we service over 150,000 billed accounts representing over
      263,000 equivalent subscriber lines including approximately 150,000 local and
      long-distance telephone lines, 57,000 dial-up lines, 7,000 broadband lines,
      6,000 cellular lines and over 18,000 wireless customers. We own and operate
      approximately 33,000 payphones located predominantly in 44 states and the
      District of Columbia.




20




Our
      revenues are generated through three of our four business reporting
      segments:





**Wireless
                Networks**
            Our
                broadband wireless network deployment efforts are being conducted
                by our
                wholly owned subsidiary, NeoReach, Inc., (“NeoReach”), and its subsidiary,
                Kite Networks, Inc. (“Kite Networks,” formerly, NeoReach Wireless, Inc.).
                This segment also includes the operations of Kite Broadband, LLC
                (“Kite
                Broadband”), a wireless broadband Internet service provider located in
                Ridgeland, Mississippi**Voice Services**
            Our
                voice services segment is led by CloseCall America, Inc. (“CloseCall”), a
                Competitive Local Exchange Carrier (“CLEC”, which is a term applied under
                the Telecommunications Act of 1996 to local telephone companies which
                compete with incumbent local telephone companies) based in Stevensville,
                Maryland; American Fiber Network, Inc. (“AFN”), a CLEC based in Kansas
                City, Kansas; and Davel Communications, Inc. (“Davel”), an independent
                payphone provider based in Cleveland, Ohio. CloseCall offers our
                customers
                a full array of telecommunications products and services including
                local,
                long-distance, 1-800-CloseCall anytime/anywhere calling, digital
                wireless,
                high-speed telephone (voice over IP), and dial-up and DSL Internet
                services. AFN is licensed to provide local access, long distance
                and/or
                Internet services throughout the United States. Davel is one of the
                largest independent payphone operators in the United
                States.**Internet Services**
            Our
                Internet services segment is led by DFW Internet Services, Inc. (“DFW”,
                doing business as Nationwide Internet), an Internet services provider
                (“ISP”) based in Irving, Texas, its acquired Internet service provider
                subsidiaries and InReach Internet, Inc. (“InReach”), a full service ISP
                located in Stockton, California that we acquired on November 1, 2005.
                Our
                Internet services segment provides dial-up and broadband Internet
                access, web-hosting services, and related Internet services to business
                and residential customers in over 40 states.**Corporate**
            Our
                corporate reporting segment serves as the holding company of the
                operating
                subsidiaries that are divided among the other three business reporting
                segments, provides senior executive and financial management, and
                performs
                corporate-level accounting, financial reporting, and legal functions.
                Occasionally, its employees may provide services to customers resulting
                in
                the recognition of consulting service
                revenues.





Revenues
      for the reportable business segments for the quarters ended June 30, 2006 and
      2005 were as follows:





**Business
                Segment**
            
            **2006**
            
            **2005****Voice
                Services**
            
            $
            16,084,041
            
            $
            18,462,451**Internet
                Services**
            
            
            4,220,433
            
            
            4,037,400**Wireless
                Networks**
            
            
            3,038,312
            
            
            5,994**Corporate**
            
            
            -
            
            
            -**Total
                Revenues**
            
            $
            23,342,786
            
            $
            22,505,845




21




The
      revenues for each business segment, expressed as a percentage of total revenues
      for the respective quarters, were as follows:




**Business
                Segment**
            
            **2006**
            
            **2005****Voice
                Services**
            
            
            68.9
            %
            
            82.0
            %**Internet
                Services**
            
            
            18.1
            
            
            18.0**Wireless
                Networks**
            
            
            13.0
            
            
            -**Corporate**
            
            
            -
            
            
            -**Total
                Revenues**
            
            
            100.0
            %
            
            100.0
            %




The
      revenues of the voice services business segment are provided primarily by the
      operations of Davel and CloseCall. Davel’s revenues represented approximately
      50% and 35% of voice services revenues and consolidated revenues, respectively,
      for the quarter ended June 30, 2006. CloseCall’s revenues represented
      approximately 37% and 25% of voice services revenues and consolidated revenues,
      respectively, for the quarter ended June 30, 2006.





The
      costs
      of the network services that we provide to our customers are comprised primarily
      of telecommunications charges, including data transmission and database access,
      leased digital capacity charges, circuit installation charges, and activation
      charges. The costs of database access, circuits, installation charges and
      activation charges are based on fixed fee and/or measured services contracts
      with local exchange carriers, inter-exchange carriers and data services
      providers. The cost of providing services to our customers also includes
      salaries, equipment maintenance and other costs related to the ongoing operation
      of our network facilities. Our other operating expenses include costs related
      to
      sales, marketing, administrative and management personnel; outside legal,
      accounting and consulting services; advertising and occupancy expenses; and
      other costs of being a publicly traded company, including legal and audit fees,
      insurance premiums and board of director fees.





**Geographic
      Markets**





Through
      our various businesses, we provide service to customers located throughout
      the
      United States. However, certain portions of our consolidated business are
      concentrated in certain geographic markets. For example, the business of
      CloseCall is concentrated in the mid-Atlantic region of the country. Although
      Davel has payphones located across the United States, approximately 73%, of
      the
      payphones are located in warm climate states of the southwest, southeast and
      west and approximately 27% of the payphones are located in Midwest, Northwest,
      and Northeast sections of the country, with usage during the winter months
      reduced by the cold climate. The Internet services business provides service
      to
      customers that are primarily located in the states of Texas, Arizona, Louisiana,
      Kansas, Missouri, Wisconsin, and Ohio.





**Corporate
      History**





Substantially,
      our business has been built through acquisitions. We expect that future revenue
      growth will occur largely through the deployment, ownership and management
      of
      broadband wireless networks that we expect to provide subscription and
      advertising revenues, the consummation of additional acquisitions, and the
      growth of our CLEC businesses. We do not expect our payphone or dial-up Internet
      businesses to show meaningful growth in future years due to strong industry
      trends, which reflect a decline in customer demand for such services. Our
      strategy is largely unproven and the revenue and income potential from our
      strategy is uncertain. We may encounter risks and difficulties frequently
      encountered by companies that have grown rapidly through acquisition, including
      the risks described elsewhere in this report. Our business strategy may not
      be
      successful and we may not be able to successfully address these
      risks.





Prior
      to
      January 2004, we were a development stage company. Although we were incorporated
      only five years ago, we have undergone a number of changes in our business
      strategy and organization. In June 2001, we focused our business on the
      integration and marketing of complete mobile information solutions to meet
      the
      needs of mobile professionals. In April 2002, we acquired NeoReach and shifted
      our focus toward solutions supporting the third generation wireless market
      that
      provides broadband to allow faster wireless transmission of data, such as the
      viewing of streaming video in real time. We shifted our business strategy in
      December 2003 with a new management team, expanding significantly the scope
      of
      our business activity to include Internet access services, local and long
      distance telephone services and the ownership and operation of payphones. In
      2005, we began to invest in the business of deploying broadband wireless
      networks and providing wireless network access services in wireless access
      zones
      to be primarily located in municipality-sponsored areas. As indicated above,
      we
      entered these businesses primarily through acquisitions. We have completed
      twenty-one (21) acquisitions within the last thirty (30) months. Accordingly,
      our experience in operating our current businesses is limited. The Company
      has
      lost money historically. For the fiscal years ended March 31, 2006 and 2005,
      we
      incurred net losses of $10,176,407 and $5,359,722, respectively, and we incurred
      an additional net loss of $4,737,507 in the quarter ended June 30, 2006.




22




Mobilepro
      Corp. (“Mobilepro”) was incorporated under the laws of Delaware in July 2000
      and, at that time, was focused on the integration and marketing of complete
      mobile information solutions that satisfied the needs of mobile professionals.
      In June 2001, Mobilepro merged with and into CraftClick.com, Inc.
      (“CraftClick”), with CraftClick remaining as the surviving corporation. The name
      of the surviving corporation was subsequently changed to Mobilepro Corp. on
      July
      9, 2001. CraftClick had begun to cease its business operations in October 2000,
      and ultimately disposed of substantially all of its assets in February
      2001.





On
      March
      21, 2002, Mobilepro entered into an Agreement and Plan of Merger with NeoReach,
      a private Delaware company, pursuant to which a newly formed, wholly owned
      subsidiary of Mobilepro merged into NeoReach in a tax-free transaction. The
      merger was consummated on April 23, 2002. As a result of the merger, NeoReach
      is
      now a wholly owned subsidiary of Mobilepro.





DFW
      is
      the principal operating subsidiary within our Internet services division. On
      January 20, 2004, we acquired DFW. Since then, we have acquired nine additional
      Internet service businesses that operate as subsidiaries of DFW and, on November
      1, 2005, we acquired the business of InReach.





On
      October 15, 2004, we closed our acquisition of CloseCall, which further
      established our commitment to the provision of voice services. One month later,
      we closed our acquisition of Davel. On June 30, 2005, we acquired
      AFN.





In
      June
      2005, we participated in the formation of Kite Broadband, a wireless broadband
      Internet service provider, resulting in the 51% ownership of this venture.
      Kite
      Broadband intends to establish a nationwide presence through the pursuit of
      acquisitions and other growth opportunities in the wireless broadband industry.
      On January 31, 2006, we acquired the remaining 49% of Kite Broadband and 100%
      of
      the outstanding common stock of Kite Networks, Inc.





On
      March
      31, 2006 we merged Kite Networks with and into NeoReach Wireless, Inc. and
      changed the name of the combined entity to Kite Networks, Inc.





Our
      principal executive offices are located at 6701 Democracy Boulevard, Suite
      202,
      Bethesda, MD 20817 and our telephone number at that address is (301) 315-9040.
      We maintain a corporate web site at www.mobileprocorp.com. We make available
      free of charge through our web site our annual report on Form 10-KSB, quarterly
      reports on Form 10-QSB and Form 10-Q, current reports on Form 8-K, and all
      amendments to those reports, as soon as reasonably practicable after we
      electronically file or furnish such material with or to the SEC. The contents
      of
      our web site are not a part of this report. The SEC also maintains a web site at
      www.sec.gov that contains reports, proxy statements, and other information
      regarding Mobilepro.





**Recent
      Developments**





Because
      of the increased pace in the emergence of municipal wireless networking
      opportunities, we have accelerated our business development efforts in this
      market. Including the operating costs being incurred to support the Tempe
      network, total operating expenses for Kite Networks in the quarter ended June
      30, 2006 were $524,920. Such costs were $200,488 in the quarter ended June
      30,
      2005. In order to complete the Tempe network, we made capital expenditures
      that
      exceeded $2,900,000 including the development of the deployment plan, networking
      equipment (i.e., antennas, transmitters and network routers) and equipment
      installation.




23




The
      cities of Chandler, Yuma and Gilbert, Arizona; Farmers’ Branch, Texas;
      Akron, Ohio; and Cuyahoga Falls, Ohio, have also
      selected us for the proposed deployment, ownership and management of their
      planned wireless networks. Currently, we are negotiating definitive contracts
      and/or developing pilot deployments with certain of these municipalities. We
      have begun the deployments of the networks in Farmers’ Branch and Chandler. As
      of June 30, 2006, we had purchased networking equipment for these networks
      in
      the amounts of approximately $1,231,000 and $1,499,000, respectively.





On
      June
      9, 2006, the Company announced that it would no longer pursue
      a
      project to establish a wireless broadband network for the City of Sacramento,
      California. The Company arrived at this decision after it determined that the
      demands made upon the Company by the city of Sacramento during contract
      negotiations were inconsistent with the Company’s current business
      model and the original award made by the city.





On
      June
      28, 2006, we signed agreements with an equipment leasing firm in order to
      execute a sale/leaseback transaction covering certain of the municipal wireless
      network equipment in Tempe, Arizona. The sale of the equipment provided
      $2,000,000 in proceeds; the leaseback period is 36 months and includes a
      fair-market-value purchase option at the end of the lease term. See the
      Liquidity and Capital Resources section of below for additional discussion
      of
      this sale/leaseback transaction.





On
      May
      19, 2006, the Company’s Standby Equity Distribution Agreement (“SEDA”) with
      Cornell Capital Partners, L.P. (“Cornell Capital”) expired following the end of its two-year term. The Company
      entered into the SEDA in May 2004 providing, generally, that Cornell Capital
      would purchase up to $100 million of the common stock of Mobilepro over a
      two-year period, with the time and amount of such purchases, if any, at the
      Company’s discretion. The Company drew approximately $39 million from the SEDA
      during its two-year term.





On
      June
      6, 2006, the Company terminated its exclusive financial advisory agreement
      with
      Ryan Beck & Co., Inc. that it executed on December 12, 2005.





On
      June
      30, 2006, we issued an amended debenture to Cornell Capital, replacing the original debenture. The original debenture
      was payable in quarterly installments over a three-year period with $4,500,000
      scheduled to be paid in cash over the year ending March 31, 2007. Pursuant
      to
      the amended debenture, the amended principal amount of $15,149,650 will be
      retired at a rate of $250,000 per week, commencing September 1, 2006. However,
      under certain conditions under the amended debenture, we have the option of
      making the weekly payments in the form of cash or our common stock. Like the
      original debenture, the amended debenture bears interest at an annual rate
      of
      7.75%. See the Liquidity and Capital Resources section below for additional
      discussion of the amended debenture.





In
      December 2005, the Company formed a new subsidiary, ProGames Network, Inc.
      (ProGames”), a Delaware corporation, to pursue select opportunities in the
      Internet gaming space. Under U.S. law, the ability to market “games of chance”
is limited by the federal Wire Act and various state anti-gambling laws. In
      the
      quarter ended June 30, 2006, Mobilepro expensed approximately $88,000 in
      organizational costs associated with the start-up of this business.





**Management
      Opportunities and Challenges**




Management
      continues to concentrate its efforts on the business development and network
      deployment activities of the wireless network business, the consolidation and
      integration of the Internet services and voice services businesses, and the
      identification and securing of additional sources of growth capital.





As
      discussed above, we see opportunity for growth in the emerging market presented
      by municipally sponsored broadband wireless networks. Our acquisition strategy
      of the last two years has been executed, in part, with the objective of
      establishing a viable telecommunications company with sufficient credibility
      to
      be considered for selection by cities for the deployment, ownership and
      management of broadband wireless networks. The initial indication of the
      effectiveness of our business plan execution was the selection by Tempe,
      Arizona, of Kite Networks (formerly NeoReach Wireless) for its network.
      Subsequently, we were selected by six other cities for the deployment,
      ownership, and management of such networks. However, the ramp-up time from
      selection to the completion of deployment can exceed six months. As a result,
      we
      have incurred significant costs related to this business before any significant
      revenues are expected. The capital equipment costs for the Tempe network have
      exceeded $2,900,000. As of June 30, 2006, we had purchased networking equipment
      for the Farmers’ Branch and Chandler networks in the amounts of approximately
      $1,231,000 and $1,499,000, respectively. Operating costs for Kite Networks
      were
      approximately $1,960,000 in the year ended March 31, 2006 and $525,000 in the
      quarter ended June 30, 2006. In order to fund the equipment costs and operating
      expenses of this business, we are required to obtain investment capital from
      external sources. The cash flow from the operations of the voice and Internet
      services business is not sufficient to fully fund this business.




24


Many
      of
      the companies that we have acquired are experiencing declining revenues as
      we
      expected. Over 80% of the customers of our Internet services business are
      subscribers to dial-up service. The revenues of this business segment have
      declined from approximately $4,037,000 for the three months ended June 30,
      2005
      to approximately $2,981,000 (before the addition of InReach revenues) for the
      three months ended June 30, 2006, a decline of approximately 26%. Likewise,
      the
      pay telephone business is declining due primarily to the public’s increasing
      usage of competitive technologies. Revenues for Davel for the quarter ended
      June
      30, 2006 were approximately $8,197,000 compared with revenues of approximately
      $11,139,000 for the prior year quarter, also a decline of 26%. The declining
      revenues of these businesses and the operating costs of Kite Networks discussed
      above are adversely affecting our operating profitability.




During
      the three months ended December 31, 2005, both the Internet service provider
      segment and the voice services segment incurred operating losses that were
      not
      expected. As a result, we reviewed the carrying values of the assets of these
      segments and determined that an adjustment for goodwill impairment was
      appropriate at December 31, 2005. We recorded an impairment charge in the amount
      of $3,764,429, including $1,945,519 related to the Internet service provider
      companies and $1,818,910 related to Affinity. The negative customer churn of
      dial-up ISP customers has exceeded our expectations, contributing to the net
      loss incurred by this segment during the most recent three quarters. We have
      experienced a significant and steady loss of Affinity customers, and Affinity
      has incurred bad debt losses at a greater rate than in our other CLEC companies.
      At March 31, 2006 and June 30, 2006, we recorded additional impairment charges
      related to the ISP companies in the amounts of $682,116 and 348,118,
      respectively. Future assessments of the acquisition fair values could identify
      material impairment losses resulting in substantial additional write-offs of
      goodwill. Such adjustments could have material adverse effects on our results
      of
      operations and our financial position.





In
      order
      to attain and to sustain the profitability of our Internet and voice services
      businesses, we have undertaken a project to consolidate these operations that
      we
      expect to substantially complete during fiscal 2007. In connection with this
      project, we recorded a restructuring charge of $825,703 in fiscal 2006, and
      an
      additional charge of $303,671 in the current quarter. As additional employee
      terminations occur, we may record additional charges for restructuring costs
      during the remainder of fiscal 2007. These amounts have not yet been
      determined.





A
      major
      challenge is the pursuit of new financing in order to fund the build out of
      our
      municipal wireless networks and provide funds for potential future acquisitions.
      We believe that we will be successful in securing additional alternative
      financing in the future. With that belief, we did not pursue an extension or
      renewal of the SEDA that expired in May 2006. As discussed elsewhere in this
      document, raising capital is a time intensive, subjective, and risky process.





**Critical
      Accounting Policies**




We
      believe there have been no significant changes in our critical accounting
      policies during the current year as compared to what was previously disclosed
      in
      Management’s Discussion and Analysis of Financial Condition and Results of
      Operations included in our Annual Report on Form 10-KSB for the year ended
      March
      31, 2006.




We
      consider the accounting policies related to revenue and related cost
      recognition, the valuation of goodwill and other intangible assets and the
      accounting for transactions related to our debt and equity financing activity
      to
      be critical to the understanding of our results of operations. Critical
      accounting policies include the areas where we have made what we consider to
      be
      particularly subjective or complex judgments in making estimates and where
      these
      estimates can significantly impact our financial results under different
      assumptions and conditions. We prepare our financial statements in conformity
      with U.S. generally accepted accounting principles. As such, we are required
      to
      make certain estimates, judgments, and assumptions that we believe are
      reasonable based upon the information available. These estimates, judgments,
      and
      assumptions affect the reported amounts of assets and liabilities at the date
      of
      the financial statement and the reported amounts of revenue and expenses during
      the periods presented. Actual results could be different from these
      estimates.




25




**New
      Accounting Pronouncements**




In
      December 2004, the Financial Accounting Standards Board revised its
      pronouncements covering the accounting for share-based compensation
      arrangements. The revision, referred to as SFAS 123R, was entitled “Share-Based
      Payment.” This revised pronouncement replaced SFAS No. 123, “Accounting for
      Certain Transactions Involving Stock Compensation, as amended (“SFAS 123”) and
      superseded APB No. 25, “Accounting for Stock Issued to Employees.” The scope of
      SFAS 123R encompasses a wide range of share-based compensation arrangements
      including share options, restricted share plans, performance-based awards,
      share
      appreciation rights and employee share purchase plans.




SFAS
      123R
      requires that the compensation cost relating to share-based payment transactions
      be recorded in financial statements. For each transaction, compensation cost
      is
      to be measured based on the fair value of the equity or liability instrument
      issued. The pro forma disclosures previously permitted under SFAS 123 no longer
      will be an alternative to financial statement recognition of compensation
      expense. We have adopted SFAS 123R in the current quarter. As a result, we
      recorded compensation expense in the amount of $485,091 that is included in
      the
      condensed consolidated results of operations for the quarter ended June 30,
      2006.




**Results
      of Operations and Financial Condition**





We
      realize that effective analysis of our operations with an approach of comparing
      results for a current period with the results of a corresponding prior period
      may be difficult due to the number of acquisitions that we have completed and
      the significant number of shares of our common stock that we have issued to
      the
      former owners of acquired companies and Cornell Capital. In order to analyze
      ourselves, we focus not only on achieving increasing amounts of net income
      and
      EBITDA, but emphasize the change of net income/(loss) per share.




**The
      Three Months Ended June 30, 2006 and 2005**





***Total
      Revenues***





We
      achieved consolidated revenues of $23,342,786 in the quarter ended June 30,
      2006
      compared with revenues of $22,505,845 in the prior year quarter, an increase
      of
      3.7%. Since April 1, 2004, we have completed the acquisition of 19 companies
      that together have provided significant revenues to us in all three operating
      segments. The most significant portions of our revenues are provided by our
      CloseCall and Davel subsidiaries that were acquired in October 2004 and November
      2004, respectively. As a result, revenues for these companies were included
      in
      our consolidated results of operations for both of the quarters ended June
      30,
      2006 and 2005. Major acquisitions in the prior year included AFN, acquired
      on
      June 30, 2005, and InReach, acquired on November 1, 2005. We obtained a 51%
      ownership interest in Kite Broadband in June 2005; this entity commenced
      operations on July 1, 2005. In January 2006 we subsequently acquired the
      remaining 49% of Kite Broadband and 100% interest in Kite Networks. The revenues
      of these new entities were included in our consolidated results of operations
      from those dates. Accordingly, the amounts of revenues included in our
      consolidated revenues for the quarters ended June 30, 2006 and 2005 were as
      follows for Davel, CloseCall, Kite Broadband, AFN, and InReach. Without the
      addition of the revenues from Kite Broadband, AFN and InReach, consolidated
      revenues would have declined between quarters.





**Acquired
                Company**
            
            **2006**
            
            **2005**
            
            **Change****Davel**
            
            $
            8,197,498
            
            $
            11,138,907
            
            $
            (2,941,409
            )**CloseCall
                (includes Affinity and US1)**
            
            
            5,910,321
            
            
            7,287,082
            
            
            (1,376,761
            )**Kite
                Broadband**
            
            
            2,982,998
            
            
            -
            
            
            2,982.998**AFN**
            
            
            1,976,222
            
            
            -
            
            
            1,976,222**InReach**
            
            
            1,239,595
            
            
            -
            
            
            1,239,595**Total
                Revenues**
            
            $
            20,306,634
            
            $
            18,425,989
            
            $
            1,880,645




26


**Voice
      Services.** We
      deliver voice communications services to end users on a retail basis principally
      though this business segment. Revenues from our voice services for the quarter
      ended June 30, 2006 were $16,084,041, representing approximately 69% of
      consolidated revenues. The revenues of this segment were $18,462,451 last year,
      representing approximately 82% of consolidated revenues. The current year
      revenues were attributable primarily to CloseCall, Davel, and AFN. This group
      derives most of its operating revenues from recurring monthly charges, coin
      revenue and “dial-around” revenues (intercarrier compensation paid to us by the
      providers of 800 numbers at the rate of 49.4 cents per call) that are generated
      by our communications services.





The
      proliferation of cell phone use by consumers has caused a continuous reduction
      in the use of payphones. As a result, the revenues of Davel continue to decline.
      As presented above, the revenues for Davel for the quarter ended June 30, 2006
      were $8,197,498 compared with revenues of approximately $11,138,907 for the
      prior year, a decline of approximately 26.4% between years. In addition, the
      location of a significant number of payphones in areas of the country that
      are
      subject to severe winter weather contributes to the seasonality of this
      business. In order to attempt to maintain gross margins, we have reduced the
      number of payphones by removing those phones receiving minimal use and thereby
      eliminating the costs to support and maintain those phones. For example, Davel
      had an average of 34,208 payphones in operation during the quarter ended June
      30, 2006, compared with an average of 37,708 payphones in operation during
      the
      quarter ended June 30, 2005, a decline of approximately 9.3%. Nonetheless,
      the
      gross margin percentage declined from approximately 53.6% in the first quarter
      of last year to approximately 41.8% in current quarter.





Our
      local
      and long distance service revenues are being negatively affected by a continued
      decline in rates and competitive pressures to bundle services together and
      long
      distance minutes of use within local service product offerings. Our existing
      base of business of long distance minutes is also subject to increasing
      competition from both VoIP and competing wireless service offerings. As a
      result, the business of CloseCall declined in the first quarter, experiencing
      a
      reduction in quarterly revenues of approximately 18.9% compared with the prior
      year quarter. Nontheless, we do expect revenues to grow in fiscal 2007 as we
      increase the promotion of our brand and our bundled service offerings. In
      addition, we expect increased revenues from mobile wireless service offerings
      marketed by CloseCall as FlyDSL. Utilizing a modem card, this service enables
      laptop computer connectivity to the Internet virtually anywhere that there
      is
      cell phone reception.





**Internet
      Services.** We
      deliver data communications services to end users on a retail basis principally
      though this business segment. Revenues from Internet services for the current
      quarter ended June, 2006 were $4,220,433, representing approximately 18% of
      consolidated revenues and including $1,239,595 in revenues attributable to
      InReach, a company that we acquired on November 1, 2005. We reported Internet
      service revenues of $4,037,400 for the prior year quarter. As stated above,
      the
      loss of customers by this business, that includes mostly dial-up Internet access
      subscribers, has exceeded our expectations, contributing to the goodwill
      impairment losses recorded in each of the last three quarters. In order to
      attempt to reverse the loss of revenues, we have consolidated the retail
      operations of the voice and Internet service provider businesses in order to
      promote the cross selling of CLEC services to our Internet access subscribers
      and to increase the retention of existing subscribers through the improvements
      in the quality of the Internet service offerings and customer support. During
      fiscal 2007, we expect to reduce the rate at which we are losing customers
      by
      switching them to DSL and VoIP service Internet access services.





**Wireless
      Networks.** The
      revenues of this operating segment principally relate to Kite Broadband. Kite
      Broadband’s revenues for the current quarter were $2,982,998, representing 12.8%
      of consolidated revenues. Since its formation, the number of Kite Broadband
      customers has declined by approximately 10%. Through improvements in the quality
      of the service, we expect to increase our customer retention rate and achieve
      a
      slight increase in the quarterly revenues of Kite Broadband’s business in the
      remainder of fiscal 2007. To date, the revenues earned by Kite Networks are
      insignificant although the revenue generated by our Tempe wireless network
      has
      been increasing each month.





**Corporate.** From
      time
      to time, the corporate segment generates miscellaneous revenues. No such
      revenues were generated by this segment in the current or prior year
      quarters.




27




***Operating
      Costs and Expenses***





Total
      operating costs and expenses for the quarter ended June 30, 2006, excluding
      depreciation and amortization, were $25,945,706, including charges for goodwill
      impairment and restructuring costs of $348,118 and $303,671, respectively.
      Excluding these charges, total operating costs and expenses represented
      approximately 108% of consolidated revenues for the current quarter. Operating
      costs and expenses for quarter ended June 30, 2005, excluding depreciation
      and
      amortization, were $20,332,102, or 90% of consolidated revenues for the
      corresponding period.





Depreciation
      and amortization expenses were $1,330,911 and $822,377 in the quarters ended
      June 30, 2006 and 2005, respectively. The increase between quarters is due
      primarily to amortization of the intangible asset related to the agreement
      with
      Sprint (see Notes 2 and 6 to the condensed consolidated financial statements)
      and depreciation on municipal wireless network equipment in the amounts of
      $165,702 and $163,659, respectively. In addition, current quarter depreciation
      in the amount of $82,190 related to the acquired companies of AFN, InReach
      and
      Kite Broadband.





Other
      costs of services were $12,761,958 and $11,021,862 in the quarters ended June
      30, 2006 and 2005, respectively, an increase of approximately 15.8% between
      quarters. These costs, expressed as a percentage of revenues for the
      corresponding periods, were 49.0% and 54.7%, respectively, for the current
      and
      prior-year quarters. The increase in the dollars of such cost between quarters
      was due to the addition of AFN, Kite Broadband and InReach. The increase in
      the
      percentage of revenues between quarters was due to Davel as discussed above.
      The
      costs of services for CloseCall America and the other Internet service provider
      companies, expressed as a percentage of corresponding revenues, declined
      slightly between quarters.





The
      remaining amounts of operating costs and expenses were $13,183,748 and
      $9,310,240, respectively, for the quarters ended June 30, 2006 and 2005. An
      analysis of the change between quarters follows:





**Consolidated
                operating expenses, quarter ended June 30, 2005**
            
            $
            9,310,000**Operating expenses of acquired companies**
            
            
            2,590,000**Operating expenses of comparable businesses**
            
            
            (236,000
            )**Stock compensation charge (adoption of SFAS 123R)**
            
            
            485,000**Goodwill impairment charge**
            
            
            348,000**Restructure charge**
            
            
            303,000**Write-off of investment banking fees**
            
            
            166,000**ProGames organizational costs**
            
            
            88,000**Other, net**
            
            
            130,000**Consolidated
                operating expenses, quarter ended June 30, 2006**
            
            $
            13,184,000




We
      were
      able to decrease the amount of operating expenses related to our comparable
      businesses between quarters, but not enough to offset the additional operating
      expenses of the acquired companies of AFN, InReach and Kite Broadband. The
      consolidated amounts for the quarters ended June 30, 2006 and 2005 included
      $524,920 and $200,488 of such expenses directly related to the municipal
      wireless network business, respectively.





***Interest
      Expense***





Interest
      expense, net, was $394,075 for the quarter ended June 30, 2006 compared with
      $932,175 in the prior year. During the current quarter, we completed the
      retirement of our notes payable to Cornell Capital. The prior year quarter
      included interest expense related to a bridge loan payable to Airlie Opportunity
      Fund (this loan was paid in May 2005). The major components of net interest
      expense for quarters ended June 30, 2006 and 2005 are presented in the following
      schedule.




28




**Type
                of Debt**
            
            **2006**
            
            **2005****Notes
                payable to Cornell Capital**
            
            $
            25,074
            
            $
            234,312**SEDA
                draw discounts**
            
            
            137,795
            
            
            94,958**Convertible
                debenture (including discount amortization amounts)**
            
            
            386,968
            
            
            208,161**Airlie
                bridge loan**
            
            
            -
            
            
            381,225**Other,
                net**
            
            
            (155,762
            )
            
            13,519**Interest
                Expense, net**
            
            $
            394,075
            
            $
            932,175





***Net
      Loss***




We
      reported a net loss of $4,737,507 for the quarter ended June 30, 2006, or
      $0.0082 per share, compared with net income of $419,191, or $0.0010 per
      diluted share, for the prior year quarter. The current quarter results
      included charges for goodwill impairment and restructuring of $348,118 and
      $303,671, respectively, and a loss incurred on the extinguishment of debt in
      the
      amount of $409,601 (see Note 7 to the condensed consolidated financial
      statements). The voice services segment incurred a net loss of $568,533 for
      the
      current quarter compared with net income of $1,730,416 in the prior year quarter
      as revenues declined by approximately 12.9% without corresponding decreases
      in
      either cost of revenues or operating expenses. The Internet service segment
      incurred a net loss of $433,252 for the current quarter compared with net income
      of $228,307 in the prior year quarter as operating expenses (including the
      costs
      incurred by InReach) increased by $437,884 between quarters and a goodwill
      impairment charge of $348,118 was recorded in the current quarter. Net losses
      incurred by both Kite Broadband and Kite Networks primarily caused the net
      loss
      of $1,176,563 reported by the wireless networks segment for the current quarter.
      The prior year net loss of $234,075 related to the start-up of the municipal
      wireless business. Corporate expenses were $2,559,159 in the current quarter,
      including $281,635 of the restructuring charge recorded in the quarter, the
      loss
      on the debt extinguishment, the write-off of the investment banking fees and
      the
      ProGames organizational costs.





***Adjusted
      EBITDA Presentation***





EBITDA
      represents net income (loss) before interest, taxes, depreciation and
      amortization, and in the case of Adjusted EBITDA, before goodwill impairment,
      restructuring charges and other non-operating costs. EBITDA is not a
      measurement of financial performance under GAAP. However, we have included
      data
      with respect to EBITDA because we evaluate and project the performance of our
      business using several measures, including EBITDA. The computations of
      Adjusted EBITDA for the quarters ended June 30, 2006 and 2005 were as
      follows.





**2006**
            
            **2005****Net
                income/(loss)**
            
            $
            (4,737,507
            )
            $
            419,191**Add
                non-EBITDA items included in net results:****Depreciation
                and amortization**
            
            
            1,330,911
            
            
            822,377**Interest
                expense, net**
            
            
            394,075
            
            
            932,175**Goodwill
                impairment, restructuring charges and write-offs**
            
            
            906,099
            
            
            -**Stock
                compensation expense**
            
            
            485,091
            
            
            -**Loss
                on debt extinguishment**
            
            
            409,601
            
            
            -**Adjusted
                EBITDA**
            
            $
            (1,211,730
            )
            $
            2,173,743




29




We
      consider adjusted EBITDA to be an important supplemental indicator of our
      operating performance, particularly as compared to the operating performance
      of
      our competitors, because this measure eliminates many differences among
      companies in financial, capitalization and tax structures, capital investment
      cycles and ages of related assets, as well as certain recurring non-cash and
      non-operating items. We believe that consideration of EBITDA should be
      supplemental, because EBITDA has limitations as an analytical financial measure.
      These limitations include the following: EBITDA does not reflect our cash
      expenditures, or future requirements for capital expenditures or contractual
      commitments; EBITDA does not reflect the interest expense, or the cash
      requirements necessary to service interest or principal payments, on our
      indebtedness; although depreciation and amortization are non-cash charges,
      the
      assets being depreciated and amortized will often have to be replaced in the
      future, and EBITDA does not reflect any cash requirements for such replacements;
      EBITDA does not reflect the effect of earnings or charges resulting from matters
      we consider not to be indicative of our ongoing operations; and not all of
      the
      companies in our industry may calculate EBITDA in the same manner in which
      we
      calculate EBITDA, which limits its usefulness as a comparative
      measure.




Management
      compensates for these limitations by relying primarily on its GAAP results
      to
      evaluate its operating performance and by considering independently the economic
      effects of the foregoing items that are not reflected in EBITDA. As a result
      of
      these limitations, EBITDA should not be considered as an alternative to net
      income (loss), as calculated in accordance with generally accepted accounting
      principles, as a measure of operating performance, nor should it be considered
      as an alternative to cash flows as a measure of liquidity.





Further,
      we realize that effective analysis of our operations with an approach of
      comparing results for a current period with the results of a corresponding
      prior
      period may be difficult due to the significant number of acquisitions and stock
      issues that we have completed. In order to analyze ourselves, we focus not
      only
      on achieving increasing amounts of net income and EBITDA, but strive to increase
      net income per share.





**Liquidity
      and Capital Resources**





During
      the quarter ended June 30, 2006, our balance of unrestricted cash and cash
      equivalents decreased by $998,902 to $4,398,979.





Net
      cash
      used in operations during the quarter ended June 30, 2006 was $1,672,060,
      reflecting the funding of operating expenses incurred by the municipal wireless
      network business and including a significant reduction, $1,876,842, in the
      total
      amount of accounts payable and accrued liabilities. Partially offsetting these
      factors was a $1,314,146 reduction in the balance of accounts receivable during
      the current quarter as, based on revenues for the respective preceding quarters,
      we reduced days sales in receivables to 35.8 days at June 30, 2006 from 39.8
      days at March 31, 2006.





We
      used
      net cash of $2,310,386 in connection with investing activities during the
      current quarter. We made capital expenditures during the current quarter
      totaling $3,523,219 including approximately $2,854,000 related to the deployment
      of municipal wireless networks. Net cash proceeds of $1,250,000 were provided
      from the sale of certain wireless network equipment in Tempe (see additional
      discussion of this sale/leaseback transaction below).





Our
      financing activities during the current quarter provided net cash of $2,983,544.
      Cash provided to us from the sale of common stock, primarily sales to Cornell
      Capital pursuant to the SEDA, totaled $6,661,669. During the current quarter,
      we
      used cash to make payments reducing the balance of notes payable and other
      debt
      amounts. The net reduction was $3,678,125 including a reduction in the balance
      of notes payable to Cornell Capital in the amount of $3,600,000.





We
      expect
      that our future cash flows from operations will not be adequate to meet our
      anticipated cash needs in fiscal 2007. Most important, we estimate that
      aggregate capital expenditures of approximately $18-$22 million will be required
      in order to complete the awarded municipal wireless network deployments. In
      order to support the municipal wireless network business operations, to complete
      the deployment these wireless networks, and to pursue one or more significant
      strategic acquisitions, we will need to incur additional debt or issue
      additional equity. Our expectation for the Company’s revenue-producing
      businesses is that they will achieve at least an aggregate breakeven cash flow
      from operations and cover corporate expenses. However, that did not occur in
      the
      current quarter. A continuing decline in any one of our businesses will
      exacerbate our need for cash.




30




On
      May
      19, 2006, the SEDA expired without renewal. The SEDA was important to the growth
      of our Company. However, we came to believe that the issuance of common stock
      pursuant to the SEDA resulted in an overhang that was depressive to our stock
      price. We also believe that less expensive financing alternatives may be
      available to the Company. However, the successful pursuit of alternative sources
      of capital has been very difficult. Our group of businesses, our history of
      net
      losses, our lack of a corporate credit history with significant suppliers and
      the long paybacks associated with investments in municipal wireless networks
      have proven to be significant obstacles to overcome in our search for capital.
      However, we continue to pursue the close of a series of transactions that we
      believe will enable us to continue with the execution of our plan for fiscal
      year 2007.





Cornell
      Capital has continued to support the Company. On June 30, 2006, we entered
      into
      an amended 7.75% secured convertible debenture in the amount of $15,149,650
      with
      Cornell Capital, replacing the convertible debenture with an outstanding
      principal amount of $15,000,000 (and accrued interest payable at June 30, 2006
      of approximately $149,650) that was issued to Cornell Capital in May 2005.
      Under
      the terms of the Amended Debenture, we have agreed to make weekly scheduled
      principal payments of at least $250,000 commencing September 1, 2006 with
      interest on the outstanding principal balance payable at the same time. We
      have
      the right to make any and all such principal payments by issuing shares of
      our
      common stock to Cornell Capital provided ** that
      all
      such shares may only be issued by the Company if such shares are tradable under
      Rule 144 of the Securities and Exchange Commission, are registered for sale
      under the Securities Act of 1933 or are freely tradable by Cornell Capital
      without restriction.  The
      amount of such shares shall be based upon the lower of $0.275 per share or
      93%
      of the average of the two lowest daily volume weighted average per share prices
      of our common stock during the five days immediately following the scheduled
      payment date. Cornell Capital may convert all or any part of the unpaid
      principal and accrued interest owed under the Amended Debenture into shares
      of
      our common stock at a conversion price of $0.275 per share. The Amended
      Debenture eliminates the requirement to renew the SEDA and is secured by a
      blanket lien on our assets. With the issuance of the Amended Debenture, we
      believe that we have deferred a cash requirement of $4,500,000 (the amount
      of
      the scheduled principal payments in the twelve month period ending March 31,
      2007) relating to fiscal year 2007.





In
      addition, on June 28, 2006, we signed agreements with an equipment leasing
      firm
      in order to execute a sale/leaseback transaction covering the municipal wireless
      network equipment in Tempe, Arizona. The sale of the equipment provided
      $2,000,000 in proceeds; the leaseback period is 36 months and includes a
      fair-market-value purchase option at the end of the lease term. However, in
      order to satisfy concerns about our credit worthiness, we were required to
      purchase certificates of deposit totaling $700,000 that serve as collateral
      for
      the benefit of the lessor. Commencing 18 months from lease inception and
      assuming that we are not in default, we shall be permitted to withdraw amounts
      on a monthly basis not exceeding the amount of the monthly payment. We expect
      that we will structure a similar transaction covering the wireless network
      equipment that is being deployed in Farmers’ Branch, Texas. The cost of this
      equipment approximates $1,300,000. With default-free meeting of our obligations
      under these leases, we expect to negotiate future municipal wireless equipment
      lease financing with reduced collateral requirements.





Further,
      we continue to negotiate the addition of new financing, and expect proceeds
      to
      be available during fiscal year 2007, and we are exploring the opportunity
      to
      obtain vendor financing from one or more of our current and prospective wireless
      equipment vendors.





Should
      we
      fail to obtain alternative capital financing or eliminate the net losses and
      negative cash flows of our operating businesses, we will be required to consider
      other alternatives, including the reduction of our operations (in particular
      the
      deployment of additional municipal wireless networks), the discontinuance or
      disposal of certain other operations, or the sale of the Company.





**Inflation**




Our
      monetary assets, consisting primarily of cash and receivables, and our
      non-monetary assets, consisting primarily of intangible assets and goodwill,
      are
      not affected significantly by inflation. We believe that replacement costs
      of
      equipment, furniture, and leasehold improvements will not materially affect
      our
      operations. However, the rate of inflation affects our expenses, such as those
      for employee compensation and costs of network services, which may not be
      readily recoverable in the price of services offered by us.




31




**Risks
      Related to Our Business**




Investing
      in our securities involves a high degree of risk. Before investing in our
      securities, you should carefully consider the risks and uncertainties described
      below and the other information in this report before deciding to purchase
      our
      common stock. If any of these risks or uncertainties actually occurs, our
      business, financial condition or future operating results could be materially
      harmed. In that case, the trading price of our common stock could decline and
      you could lose part or all of your investment.




**We
      Have Lost Money Historically Which Means That We May Not Be Able to Achieve
      and Maintain Profitability**




We
      have
      historically lost money. In the years ended March 31, 2006 and 2005, we
      sustained net losses of $10,176,407 and $5,359,722, respectively. In addition,
      we incurred a net loss of $4,737,507 in the quarter ended June 30, 2006. Future
      losses may occur. Accordingly, we will experience liquidity and cash flow
      problems if we are not able to improve our operating performance or raise
      additional capital as needed and on acceptable terms.




**Our
      Operations Are Recently Acquired Which Means That We Have a Limited
      Operating History upon Which You Can Base Your Investment
      Decision**




Prior
      to
      January 2004, we were a development stage company. Although we were incorporated
      less than six years ago, we have undergone a number of changes in our business
      strategy and organization.




We
      have
      had several major shifts in our business strategy. In June 2001, we focused
      our business on the integration and marketing of complete mobile information
      solutions that satisfy the needs of mobile professionals. In April 2002, we
      acquired NeoReach and shifted our focus toward solutions supporting the third
      generation wireless market. We shifted our business strategy in December
      2003 by beginning to expand significantly the scope of our business
      activity to include Internet access services, local and long distance telephone
      services and the ownership and operation of payphones. In 2005, we began to
      invest in the business of deploying wireless broadband networks and providing
      wireless network access services in wireless access zones to be primarily
      located in municipality-sponsored areas. We entered these businesses primarily
      through the acquisition of established companies. These operations have all
      been
      acquired subsequent to January 1, 2004. Accordingly, the Company has a limited
      operating history upon which an evaluation of its prospects can be
      made.




Our
      strategy is unproven and the revenue and income potential from our strategy
      is
      unproven. We may encounter risks and difficulties frequently encountered by
      companies that have grown rapidly through acquisition, including the risks
      described elsewhere in this section. Our business strategy may not be successful
      and we may not be able to successfully address these risks. If we are
      unsuccessful in the execution of our current strategic plan, we could be forced
      to reduce or cease our operations.





**The
      Success of Our Business Is Based on Unproven Revenue Generation Models Which
      Means That We May Not Achieve Anticipated Revenues**




Our
      revenue models, especially for our municipal wireless network business, are
      new
      and evolving. Our ability to generate revenue depends, among other things,
      on
      our ability to provide quality wireless technology, telecommunications,
      broadband and integrated data communication services to our customers utilizing
      new technologies, new products and innovative bundled service packages. Because
      our businesses are either newly acquired, based on emerging opportunities and
      technologies, or based on new bundled services with new price packages, we
      have
      limited experience with our revenue models.




Our
      ability to achieve organic revenue growth is dependent upon the success of
      long-term projects, such as our wireless initiatives, that require us to
      incur significant up-front costs. We expect to confront multiple
      challenges in reaching the point where significant revenues are provided by
      this
      business. For example, the securing of a city contract is a multi-step process
      that can take over six months to complete, including a pilot demonstration,
      the
      RFP preparation, response and evaluation, contract negotiation, development
      of
      the deployment plan, and equipment installation and testing. Although we attempt
      to minimize development risks by carefully analyzing demographics, topography,
      climate and other factors, each project includes the utilization of newly
      developed transmission equipment. For example, operating costs incurred by
      our
      municipal wireless network business in the current year approximated $1,960,000
      and we expect that the cost of the equipment required for the completion of
      the
      Tempe network will exceed $2.9 million. Further, in order to generate revenues
      from these projects, we will be required to successfully complete marketing
      efforts to obtain individual subscribers willing to pay us for wireless Internet
      service and negotiate contracts with large Internet service providers allowing
      them use of the network.




32




In
      addition, during the current fiscal year, the activities of the Internet
      services operation have focused on the integration of the acquired companies.
      The efforts are focused on combining service offerings, consolidating network
      operations and customer support locations, and reducing operating expenses.
      The
      success of our overall growth strategy depends, in part, on our ability to
      transition customers to new Internet access services, especially broadband
      wireless, and/or to sell additional voice services to the existing customer
      base. However, at present, dial-up subscribers represent a significant number
      of
      our Internet service customers. The erosion of this customer base is likely
      to
      continue until our new efforts to transition these customers to enhanced
      services become more effective.




There
      can
      be no assurance that the projects will be successfully completed or that the
      completed projects will provide the anticipated revenues. Accordingly, there
      can
      be no assurance that our business revenue models will be successful or that
      we
      can sustain revenue growth or maintain profitability.





**We
      Have Limited Experience Running Our Businesses Which May Hamper Our Ability
      to
      Make Effective Management Decisions**




Virtually
      all of our operations have been acquired or started in the last 30 months.
      Therefore, our experience in operating the current business is limited. Further,
      we intend to pursue additional acquisitions to further the development of our
      Internet services business, competitive local exchange and wireless broadband
      businesses.




Mr.
      Jay
      O. Wright became our Chief Executive Officer in December 2003. In February
      2006, Mr. Jerry M. Sullivan, Jr. became our President and Chief Operating
      Officer. Prior to Mr. Sullivan joining the Company in June 2005 as
      President of our subsidiary Kite Broadband, Messrs. Wright and Sullivan had
      no
      experience working together. Since Mr. Wright joined our Company we have
      completed numerous acquisitions and integrated various different management
      teams into our operations. Prior to closing these acquisitions,
      Messrs. Wright and Sullivan had not previously worked with management
      at any of our subsidiaries and divisions. The other senior executives,
      including the general managers of each of the three operating business segments,
      have joined the Company in connection with acquisitions or been recently hired.
      None of these executives has significant experience working with the others.
      Consequently, internal communication and business-decision making processes
      are
      evolving. We may react too slowly or incorrectly to trends that may emerge
      and
      affect our business. Our future success depends on the ability of the senior
      executives to establish an effective organizational structure and to make
      effective management decisions despite their limited experience.





**The
      Conversion of the Amended Debenture into Shares of Our Common Stock Could Result
      in Significant Near-Term Dilution to Our Stockholders**





On
      June
      30, 2006, we entered into an amended 7.75% secured convertible debenture in
      the
      amount of $15,149,650 (the “Amended Debenture”) with Cornell Capital, replacing
      the convertible debenture in the principal amount of $15,500,000 dated May
      13,
      2005 issued to Cornell Capital. Under the terms of the Amended Debenture, we
      have agreed to make weekly scheduled principal payments of at least $250,000
      commencing September 1, 2006 with interest on the outstanding principal balance
      payable at the same time. Under certain conditions, we have the right to make any and all such principal
      payments by issuing shares of its common stock to Cornell Capital with the
      amount of such shares based upon the lower of $0.275 per share or 93% of the
      average of the two lowest daily volume weighted average per share prices of
      our
      common stock during the five days immediately following the scheduled payment
      date. Cornell Capital may convert all or any part of the unpaid principal and
      accrued interest owed under the Amended Debenture into shares of our common
      stock at a conversion price of $0.275 per share.




33




On
      August
      1, 2006, the price of our common stock closed at $0.16 per share. Should the
      price of our stock remain at the current level and we choose to make scheduled
      principal payments with our common stock, the issuance of shares of our common
      stock to Cornell Capital may result in significant dilution to the value of
      common stock currently held by our stockholders. For example, using 93% of
      the
      closing price per share on August 1 ($0.1488 per share) as the conversion price,
      each weekly conversion of debt in the amount of $250,000 would result in the
      issuance of approximately 1,680,000 shares of our common stock to Cornell
      Capital commencing September 1, 2006.





**As
      a Microcap Company, Raising Money on Commercially Reasonable Terms is Difficult.
      If We Are Unable to Raise Additional Capital, We May Be Unable to Make
      Acquisitions or to Fund Our Future Operations**




We
      have
      relied almost entirely on external financing to fund our operations and
      acquisitions to date. We have been particularly reliant on funds provided by
      Cornell Capital. Such financing has historically come from a combination of
      borrowings and sale of common stock. In addition to the funds borrowed from
      Cornell Capital under the Amended Debenture, we have drawn a total of
      $39,173,129 in funds under the $100 million Standby Equity Distribution
      Agreement (the “SEDA”) resulting in the issuance of approximately 183,996,589
      shares of our common stock to Cornell Capital. Our SEDA expired on May 19,
      2006
      and was not renewed.





Over
      the
      next two years we anticipate that we may need to raise additional or alternative
      capital to fund major acquisitions and to grow our emerging businesses. We
      anticipate that these additional funds will be in the range of $25 million
      to
      $200 million, depending on the pace of growth and/or the size of future
      acquisitions.





Small,
      publicly traded companies like Mobilepro, historically have found raising money
      difficult due to numerous factors including (a) the desire of large Wall Street
      firms to focus on larger companies where larger fee opportunities exist; (b)
      the
      consolidation of small Wall Street firms; (c) the reduced liquidity of smaller
      public companies compared to larger ones; (d) the increased business risks
      that
      a small firm faces; (e) the heavy regulatory scrutiny the SEC imposes on small
      companies including the lack of availability of “shelf registration” rules under
      Rule 415 and the burdensome “penny stock” rules which limit the ability of many
      microcap companies to market to retail investors; (f) misbehavior by so-called
      “PIPEs” investors, as reported in the press, including illegal short-selling of
      companies seeking to raise money and/or conspiring to drive down the prices
      of
      microcap companies looking to raise capital; (g) the lack of bargaining power
      of
      a microcap company relative to a multi-billion dollar PIPE fund; (h) the lack
      of
      national brand awareness which may motivate a potential investor to invest;
      (i)
      limited market cap which may make a large fund’s minimum investment size too
      large for the particular company; (j) investment limitations which prevent
      certain funds from investing in unlisted securities; and (k) the slow process
      by
      which the SEC often reviews registration statements of smaller companies which
      creates significant regulatory uncertainty and thereby increases the negotiating
      leverage of PIPEs funds. Due to these factors and others, there can be no
      assurance that we will be able to raise funds on commercially reasonable terms,
      or at all.




**If
      We Are Unable to Successfully Acquire the Necessary Equipment, the Deployment
      and Management of Our Wireless Networks Could Be Delayed**




The
      successful deployment and management of a broadband wireless network, like
      the
      Tempe network, depends on our ability to obtain the necessary technical
      equipment and to acquire such equipment when needed at prices and on terms
      acceptable to us. Required equipment includes antennas, transmitters and network
      routers. For the Tempe network, we have been able to successfully obtain such
      equipment. To date, we have made capital expenditures related to the Tempe
      network in the amount of approximately $2,900,000. However, there can be no
      assurance that our purchasing efforts will continue to be successful. If we
      are
      unable to acquire the remainder of the equipment necessary for the successful
      completion of the Tempe wireless network when needed, or are unable to purchase
      equipment for future networks, all at prices and on terms acceptable to us,
      the
      deployment, ownership and management of broadband wireless networks could be
      delayed.




34




**We
      May Not Successfully Execute or Integrate Our Acquisitions Which Could Harm
      Our
      Business**




Our
      business model is dependent upon growth through acquisition of other
      telecommunication service providers. We have completed 21 acquisitions during
      the 31-month period ended June 30, 2006. We expect to continue making
      acquisitions that will enable us to build our Internet services, competitive
      local exchange carrier, and wireless broadband businesses. Acquisitions involve
      numerous risks, including the following:




•
            Difficulties
                in integrating the operations, technologies, products and personnel
                of the
                acquired companies;•
            Diversion
                of management’s attention from normal daily operations of the business;•
            Difficulties
                in entering markets in which we have no or limited direct prior experience
                and where competitors in such markets have stronger market positions;•
            Initial
                dependence on unfamiliar partners;•
            Insufficient
                revenues to offset increased expenses associated with acquisitions;
                and•
            The
                potential loss of key employees of the acquired companies.




Acquisitions
      may also cause us to:




•
            Issue
                common stock that would dilute our current stockholders’ percentage
                ownership;•
            Assume
                liabilities;•
            Record
                goodwill and non-amortizable intangible assets that will be subject
                to
                impairment testing on a regular basis and potential periodic impairment
                charges;•
            Incur
                amortization expenses related to certain intangible assets;•
            Incur
                large and immediate write-offs, and restructuring and other related
                expenses; or•
            Become
                subject to litigation.




Mergers
      and acquisitions are inherently risky, and no assurance can be given that our
      previous or future acquisitions will be successful and will not materially
      adversely affect our business, operating results or financial condition. In
      order to achieve the critical mass of business activity necessary to
      successfully execute our business plan, we plan to continue making strategic
      acquisitions and significantly increase the number of strategic partners and
      customers that use our technology and services. This growth has placed, and
      will
      continue to place, significant strain on our personnel, systems, and resources.
      We expect that we will continue to hire employees, including technical,
      management-level employees, and sales staff, in the foreseeable future. This
      growth will require us to improve management, technical, information and
      accounting systems, controls, and procedures. We may not be able to maintain
      the
      quality of our operations, control our costs, continue complying with all
      applicable regulations and expand our internal management, technical information
      and accounting systems in order to support our desired growth. We cannot be
      sure
      that we will manage our growth effectively, and our failure to do so could
      cause
      us to reduce or cease operations.




Many
      of
      the companies that we have acquired have been very small and/or privately held.
      Consequently, we have made acquisition decisions based on historical information
      that has not been audited. Generally, we structure our merger agreements to
      give
      us the right to make subsequent adjustments to the purchase consideration based
      on the subsequent discovery of inaccuracies. However, the process requires
      that
      senior management spend significant amounts of time resolving disputes with
      former owners of the acquired companies. In addition, we have been confronted
      with the challenges of managing many remotely located operations and combining
      different systems. Although we have been successful in retaining key managers
      and other employees of our major acquired companies, the lack of employee
      retention at certain smaller acquired companies has adversely affected the
      integration of operations and the retention of customers.




Failure
      to manage and successfully integrate acquisitions we make could harm our
      business and operating results in a material way.




**Impairment
      of Goodwill Could Result in Significant Future Charges That Could Jeopardize
      Our
      Ability to Raise Capital**




At
      June
      30, 2006, our balance sheet included intangible assets with a total carrying
      value of approximately $56,201,000, representing 59.7% of total assets and
      including approximately $47,750,000 in goodwill. Substantially, this goodwill
      has been recorded in connection with the series of acquisitions completed by
      us
      since January 1, 2004. GAAP requires that we assess the fair values of acquired
      entities at least annually in order to identify any impairment in the values.
      We
      perform our annual impairment tests for goodwill at fiscal year-end. However,
      on
      a quarterly basis, we are alert for events or circumstances that would more
      likely than not reduce the fair value of a reporting segment below its carrying
      amount. If we determine that the fair value of an acquired entity is less than
      the net assets of the entity, including goodwill, an impairment loss would
      be
      identified and recorded at that time.




35




During
      the three months ended December 31, 2005, both the Internet and voice services
      segments incurred operating losses that were not expected. As a result,
      management reviewed the carrying values of the assets of these segments and
      determined that an adjustment for goodwill impairment was appropriate at
      December 31, 2005. The Company recorded an impairment charge in the amount
      of
      $3,764,429, including $1,945,519 related to the Internet service companies
      and
      $1,818,910 related to Affinity Telecom (“Affinity”), a CLEC business located in
      the State of Michigan that was acquired in August 2004. The negative customer
      churn of dial-up Internet access customers has exceeded management's
      expectations, contributing to the net loss incurred by this segment during
      the
      most recent three quarters. The Company has experienced a significant and steady
      loss of Affinity customers, and Affinity has incurred bad debt losses at a
      greater rate than in our other CLEC companies. The impairment charges
      represented approximately 17.2% and 84.5% of the goodwill related to the
      Internet service companies (excluding InReach) and Affinity, respectively.
      In
      the quarters ended March 31, 2006 and June 30, 2006, we recorded additional
      ISP
      goodwill impairment charges of $682,116 and $348,118, respectively, as customer
      churn continued to exceed expectations.




Future
      assessments of the acquisition fair values could identify material impairment
      losses resulting in substantial write-offs of goodwill. Such adjustments could
      have material adverse effects on our results of operations and our financial
      position, and could impede our continuing ability to raise capital and/or to
      make acquisitions.





**If
      We Are Not Able to Compete Effectively in Our Markets That Are Highly
      Competitive, We May Be Forced to Reduce or Cease
      Operations**




We
      believe that our ability to compete successfully in our markets depends on
      a
      number of factors, including market presence; the adequacy of our member and
      technical support services; the capacity, reliability and security of our
      network infrastructures; the ease of access to and navigation of the Internet
      provided by our services; our pricing policies and those of our competitors
      and
      suppliers; the timing of introductions of new services by us and our
      competitors; our ability to support existing and emerging industry standards;
      and general industry and economic trends. Other specific factors that could
      impact our ability to compete successfully include the following items, among
      others:




•
            our
                success in withstanding the continued shift from dial-up ISP service
                to
                broadband ISP service;•
            the
                performance of our products, services and technology in a manner
                that
                meets customer expectations;•
            the
                success of our efforts to develop effective channels of distribution
                for
                our products;•
            our
                ability to price our products that are of a quality and at a price
                point
                that is competitive with similar or comparable products offered by
                our
                competitors;•
            the
                success of our efforts to develop, improve and satisfactorily address
                any
                issues relating to our technology;•
            our
                ability to effectively compete with companies that have substantially
                greater market presence and financial, technical, marketing and other
                resources than us including (i) local ISPs, (ii) national and regional
                ISPs, (iii) established online services; (iv) nonprofit or educational
                ISPs; (v) national telecommunications companies; (vi) Regional Bell
                Operating Companies (“RBOCs”); (vii) competitive local exchange carriers;
                and (viii) cable operators;•
            our
                ability to adapt to the consolidation of existing ISPs with or into
                larger
                entities, or entry of new entities into the Internet services market,
                would likely result in greater competition for the Company;•
            our
                ability to collect dial around compensation owed to our pay telephone
                business from third party payors; and•
            the
                continued erosion of coin revenues in our pay telephone business resulting
                from the penetration of wireless technologies and prepaid calling
                cards.





There
      can
      be no assurance that the Company will have the financial resources, technical
      expertise or marketing and support capabilities to compete successfully. Failure
      to do so could harm our business and operating results in a material way and
      could cause us to reduce or cease operations.




36




**Recent
      Industry Trends Could Adversely Affect Our Ability to Compete in the Wireless
      Communications Industry and Significantly Reduce the Likelihood of Our
      Success**




The
      wireless communications industry has experienced consolidation of participants,
      and this trend may continue. If wireless carriers consolidate with companies
      that utilize technologies that are similar to or compete with our wireless
      technology, our proportionate share of the emerging market for wireless
      technologies may be reduced or eliminated. This reduction or elimination of
      our
      market share could reduce our ability to obtain profitable operations and could
      even cause us to reduce or cease operations.




In
      addition, the increasing number of municipally sponsored wireless network
      opportunities is attracting the interest of very large competitors. For example,
      competitors for the Philadelphia network included Verizon, Comcast, and
      Earthlink. According to a published report, the city of San Francisco received
      plans from 26 companies in response to a request for proposals, including
      Cingular Wireless, Earthlink, and Google. Other potential customers, such as
      Sprint and Clearwire, have also recently announced plans to utilize WiMax
      technology to compete for broadband wireless customers.




The
      activity of these competitors, with resources far greater than ours, could
      adversely affect our ability to obtain additional awards for the deployment
      and
      management of wireless networks and significantly reduce the likelihood of
      success for our emerging wireless network and other businesses.




**Our
      Payphone Division is Experiencing Intense Competition That Has Resulted in
      Revenue Declines That May Continue**




Through
      our Davel subsidiary, we compete with other independent pay telephone providers
      and large local exchange carriers for the locations where we install and operate
      pay telephones. Many of these competitors have substantially greater financial,
      marketing and other resources than us.




Additionally,
      Davel indirectly competes with other telecommunications providers,
      including providers of wireless services and prepaid calling card companies,
      for
      end users to utilize our pay telephones to make local and long distance calls.
      The proliferation of wireless communication devices has continued to reduce
      the
      use of pay telephones. For example, the cellular telephone business of CloseCall
      represents indirect competition for Davel.  Furthermore, certain providers
      of wireless communication devices have continued to introduce rate plans,
      including pre-paid rate plans, that are competitively priced with certain of
      the
      products offered by us and have negatively impacted the usage of pay telephones
      throughout the nation. The effect on our business is that revenues of Davel
      are
      steadily declining. Davel’s revenues were $40,305,697 for the twelve months
      ended March 31, 2006 compared with $55,091,465 (including the pre-acquisition
      portion) for the corresponding period of the prior year, a decline of 26.8%.
      Further, Davel’s revenues were $8,197,498 for the quarter ended June 30, 2006
      compared with $11,138,907 for the quarter ended June 30, 2005, a decline of
      26.4%.




If
      we are
      unsuccessful in increasing revenues from other sources, the declining payphone
      business may contribute to declines in consolidated revenues and the incurring
      of additional operating losses.




**Davel’s
      Reliance on Third Party Providers Could Delay the Timely Receipt of Accounts
      Receivable**




Davel
      relies on third party providers to provide local access, long distance and
      operator services to its pay telephones. The uncertainty with the greatest
      potential negative financial impact relates to revenue from and
      collectibility of access code calls and toll-free dialed calls, or dial around
      compensation (i.e., intercarrier compensation paid to us by the providers of
      800
      numbers at the rate of 49.4 cents per call). In current quarters, Davel
      initially recognizes revenue related to non-coin dial-around calls that are
      initiated from a Company payphone in order to gain access to a long distance
      company or to make a standard toll free call based on estimates. The
      inter-exchange carriers have historically paid for fewer dial-around calls
      than
      are actually made and the collection period for dial-around revenue is generally
      four to six months, but can be in excess of a year. The estimates of
      revenue are based on the historical analysis of calls placed and amounts
      collected. These analyses are updated on a quarterly basis. Recorded
      amounts of revenue relating to prior periods may be adjusted based on the
      amounts of actual receipts and/or an unexpected change in the historical trends
      of calls and/or collections.




37




Dial
      around compensation represents a material percentage of our consolidated
      revenues. Dial around revenue was approximately $9,655,000 in the year ended
      March 31, 2006, representing approximately 9.8% of consolidated revenues. Dial
      around revenue was $1,620,273 in the quarter ended June 30, 2006, representing
      6.9% of consolidated revenues for the period. The amount of dial-around revenue
      estimated to be collectible and included in the balance of accounts receivable
      at June 30, 2006 was $3,944,131. We depend on the third-party service
      providers to quickly and accurately report and pay amounts owed to us as dial
      around compensation. Our inability to obtain such reports and/or our
      inability to collect amounts owed to us could result in material reductions
      in
      accounts receivable with material adverse effects to future consolidated
      revenues and net income.





**We
      May Not Be Successful in Obtaining and Retaining Key Employees Which Could
      Adversely Affect Our Ability to Operate, Grow and Manage Our
      Businesses**




Over
      the last twelve month period, we have been successful in making important
      additions to our management, including not only members of the management teams
      of certain acquired companies but new hires as well. For example, our
      executive management team has been expanded to include senior executive officers
      for each of our three operating business segments, an executive vice president
      focused on the integration of our acquired operations, and a general counsel.
      In
      addition, employment contract extensions were negotiated with our chief
      executive and other officers. On February 1, 2006, we negotiated an
      employment agreement with Mr. Jerry M. Sullivan, Jr., our President and Chief
      Operating Officer. Our future success depends in a large part upon the continued
      service of key members of our senior management team. In particular,
      our chief executive officer, Mr. Jay O. Wright, is important to the overall
      management of our Company as well as the development and implementation of
      our
      business strategy. Although we have designed employment agreements with Mr.
      Wright and other key executives that we believe provide incentives to perform
      at
      high levels and to fulfill the terms of their agreements with us, each
      executive, or any other employee, may terminate their employment with us at
      any
      time. Our future success also depends on our ability to identify, attract,
      hire,
      retain and motivate other well-qualified managerial, technical, sales and
      marketing personnel. There can be no assurance that these professionals will
      be
      available in the market or retained, or that we will be able to meet or to
      continue to meet their compensation requirements. Failure to establish and
      maintain an effective management team and work force could adversely affect
      our
      ability to operate, to grow and to manage our businesses.




**We
      May Not Be Able to Effectively Protect Our Intellectual Property Rights Which
      Could Harm Our Business by Making it Easier for Our Competitors to Duplicate
      Our
      Services**




We
      regard
      certain aspects of our products, processes, services, and technology as
      proprietary. We have taken steps to protect them with patents, copyrights,
      trademarks, restrictions on disclosure, and other methods. Despite these
      precautions, we cannot be certain that third parties will not infringe or
      misappropriate our proprietary rights or that third parties will not
      independently develop similar products, services and technology. Any
      infringement, misappropriation or independent development could seriously harm
      our business.




We
      have
      filed patent applications with respect to our ZigBee wireless technology and
      for
      certain aspects of our chips, but these may not be issued to us, and if issued,
      may not protect our intellectual property from competition which could seek
      to
      design around or invalidate these patents. Our failure to adequately protect
      our
      proprietary rights in our products, services and technology could harm our
      business by making it easier for our competitors to duplicate our
      services.




We
      own
      several Internet domain names including, among others, www.mobileprocorp.com,
      www.nationwide.net www.closecall.com, www.wazmetro.com, www.tommywireless.com,
      www.neoreach.com and www.neoreachwireless.com. The regulation of domain names
      in
      the United States and in foreign countries may change. Regulatory bodies could
      establish additional top-level domains or modify the requirements for holding
      domain names, any or all of which may dilute the strength of our names. We
      may
      not acquire or maintain our domain names or additional common names in all
      of
      the countries in which our marketplace may be accessed, or for any or all of
      the
      top-level domains that may be introduced. The relationship between regulations
      governing domain names and laws protecting proprietary rights is unclear.
      Therefore, we may not be able to prevent third parties from acquiring domain
      names that infringe or otherwise decrease the value of our trademarks and other
      proprietary rights.




38




We
      may
      have to resort to litigation to enforce our intellectual property rights,
      protect our trade secrets, determine the validity and scope of the proprietary
      rights of others, or defend ourselves from claims of infringement, invalidity
      or
      unenforceability. Litigation may be expensive and divert resources even if
      we
      win. This could adversely affect our business, financial condition and operating
      results such that it could cause us to reduce or cease operations.




**If
      We Fail to Negotiate Definitive Agreements, the Deployment of Municipal Wireless
      Networks in Cities That Have Selected Us to Do So Will Not Occur**





Selection
      of our Company for the deployment, ownership and operation of a city-wide
      wireless networks may result after a formal bid and proposal process or it
      may
      result from a directed award. We have been selected by nine municipalities
      in
      total. However, negotiation of a definitive contract covering the engagement
      typically follows the announcement of the selection. There can be no assurance
      that we will, complete a deployment until a definitive contract is in place.
      For
      example, earlier last year, we announced our selection by the city of
      Sacramento, California. However, more recently, we announced our decision to
      terminate the pursuit of this project during contract negotiation as we
      determined that certain new requirements were inconsistent with our current
      business model and original award. Of the seven remaining projects, we have
      not
      yet completed contract negotiation with the cities of Akron and Cuyahoga Falls,
      Ohio. There can be no assurance that we will reach a definitive agreement for
      the deployment, ownership and operation of wireless networks in these cities.





**We
      May Not Be Able to Keep Up with Rapid Technological Changes Which Could Render
      Our Services Obsolete**




Our
      industry is characterized by rapid technological change, changes in customer
      requirements and preferences, frequent introduction of products and services
      embodying new technologies and the emergence of new industry standards and
      practices that could render our existing services obsolete. Our future success
      will depend on our ability to enhance and improve the responsiveness,
      functionality, accessibility and features of our services including providing
      broadband for existing dial-up ISP customers. We expect that our marketplace
      will require extensive technological upgrades and enhancements to accommodate
      many of the new products and services that we anticipate will be added to our
      marketplace. We cannot assure you that we will be able to expand and upgrade
      our
      services, or successfully introduce new services or features that we develop
      in
      the future. Failure to keep pace with technology gains or to satisfy the desire
      of customers to utilize such new technology could render our services obsolete
      resulting in future reductions in revenues.




**Disruptions
      to the Growth and Maintenance of the Internet Infrastructure Could Harm Our
      Internet Services Business**




Our
      future success will depend on the continued growth and maintenance of the
      Internet infrastructure. This includes maintenance of a reliable network
      backbone with the necessary speed, data capacity, and security for providing
      reliable Internet services. Internet infrastructure may be unable to support
      the
      demands placed on it if the number of Internet users continues to increase
      or if
      existing or future Internet users access the Internet more often or increase
      their bandwidth requirements. In addition, viruses, worms, and similar programs
      may harm the performance of the Internet. The Internet has experienced a variety
      of outages and other delays as a result of damage to portions of its
      infrastructure, and it could face outages and delays in the future. To date,
      we
      have not experienced significant disruptions to our business as the result
      of
      such problems. However, these outages and delays, if they were to
      occur, could reduce the level of Internet usage as well as our ability to
      provide our solutions. If the growth, maintenance or growth of the Internet
      infrastructure is disrupted in any of these ways, our revenues, especially
      the
      revenues of our Internet services segment, could be adversely affected resulting
      in harm to our business.




**The
      Unavailability of Telecommunication Lines Could Threaten Our
      Business**




Our
      ability to deliver good quality services at competitive prices depends on our
      ability to obtain access to T-l and dial-up lines pursuant to pricing and other
      terms that are acceptable to us. Access to these lines necessary for providing
      services to a significant portion of our subscribers is obtained from incumbent
      local exchange carriers like Verizon, SBC, and Bell South. In 2005, we have
      been
      successful in reaching certain important agreements with each of these carriers
      providing us with opportunities to expand services and the geographic coverage
      of such services and predictable prices, avoiding any interruption in service
      to
      our customers. In the event that any of the carriers would be unable or
      unwilling to provide service to us, even if legally required to do so, our
      ability to service existing customers or add new customers could be adversely
      impaired in a material manner.




39




**The
      Federal and State Regulations under Which Our Payphone Business Operates
      Could Change, Resulting in Harm to This Business**




The
      enactment of the Telecommunications Act of 1996 significantly altered the
      regulatory landscape in which payphone companies operate. Although the
      Telecommunications Act of 1996, as implemented by the FCC, addressed certain
      historical inequities in the payphone marketplace, uncertainties relating to
      the
      impact and timing of the implementation of this framework still
      exist.




The
      uncertainty with the greatest potential financial impact relates to revenue
      from
      and collectibility of access code calls and toll-free dialed calls, or dial
      around compensation. Dial around compensation accounts for a material percentage
      of our revenues.




Historically,
      many parties legally obligated by the FCC to pay dial around compensation have
      nevertheless failed to do so. We believe that such failures exist today. While
      we believe that we would have the right to sue in order to collect amounts
      owed,
      such efforts may consume management time and attention and our cash, and there
      can be no assurance that such efforts would result in the collection of any
      additional amounts. Consequently, such illegal nonpayment activities may
      adversely affect our cash flows, receivable collectibility, and future business
      profitability. In addition, the December 2004 decision by the Federal
      Communications Commission to abolish "UNE-P" rules and rates has increased
      local
      line rates for us. The March 2004 United States Court of Appeals, D.C. Circuit
      decision to vacate the Federal Communications Commission Unbundled Network
      Element rules will have an unknown effect on local access pricing for pay
      telephone providers; however, it is likely that the impact will cause price
      increases to pay telephone providers.




**Our
      Payphone Division’s Revenue Is Subject to Seasonal
      Variations**




Davel's
      revenue from pay telephone operations is affected by seasonal variations. Since
      many of its pay telephones are installed outdoors, weather patterns have
      differing effects on our revenue depending upon the region of the country where
      the pay telephones are located. For example, the pay telephones installed and
      operated throughout the Midwestern and eastern United States produce their
      highest call volumes during the second and third calendar quarters, when the
      climate tends to be more favorable. Currently, approximately 25% of our 34,841
      payphones are located in these regions of the country. Unusually severe weather
      in these regions could exacerbate the seasonal variations in revenues resulting
      in adverse effects on our business. In addition, changes in the geographic
      distribution of Davel's pay telephones in the future may result in differing
      seasonal variations in our operating results.




**Our
      Common Stock Is Deemed to Be “Penny Stock,” Which May Make It More Difficult for
      Investors to Resell Their Shares Due to Suitability
      Requirements**




Our
      common stock is deemed to be “penny stock” as that term is defined in Rule
      3a51-1 promulgated under the Securities Exchange Act of 1934. A penny stock
      has
      the following characteristics:




•
            It
                is traded at a price of less than $5.00 per share;•
            It
                is not traded on a “recognized” national exchange;•
            Its
                price is not quoted on the Nasdaq automated quotation system
                (Nasdaq-listed stock must still have a price of not less than $5.00
                per
                share); or•
            Its
                issuer has net tangible assets less than $2.0 million (if the issuer
                has
                been in continuous operation for at least three years) or $5.0 million
                (if
                in continuous operation for less than three years), or has average
                annual
                revenues of less than $6.0 million for the last three years.




40




Trading
      of our stock may be restricted by the SEC’s penny stock regulations that may
      limit a stockholder’s ability to buy and sell our stock.




The
      penny
      stock rules impose additional sales practice requirements on broker-dealers
      who
      sell to persons other than established customers and “accredited investors.” The
      term “accredited investor” refers generally to institutions with assets in
      excess of $5,000,000 or individuals with a net worth in excess of $1,000,000
      or
      annual income exceeding $200,000 or $300,000 jointly with their spouse. The
      penny stock rules require a broker-dealer, prior to a transaction in a penny
      stock not otherwise exempt from the rules, to deliver a standardized risk
      disclosure document in a form prepared by the SEC that provides information
      about penny stocks and the nature and level of risks in the penny stock market.
      The broker-dealer also must provide the customer with current bid and offer
      quotations for the penny stock, the compensation of the broker-dealer and its
      salesperson in the transaction and monthly account statements showing the market
      value of each penny stock held in the customer’s account. The bid and offer
      quotations, and the broker-dealer and salesperson compensation information,
      must
      be given to the customer orally or in writing prior to effecting the transaction
      and must be given to the customer in writing before or with the customer’s
      confirmation. Moreover, broker/dealers are required to determine whether an
      investment in a penny stock is a suitable investment for a prospective investor.
      The penny stock rules require that prior to a transaction in a penny stock
      not
      otherwise exempt from these rules, the broker-dealer must make a special written
      determination that the penny stock is a suitable investment for the purchaser
      and receive the purchaser’s written agreement to the transaction.




These
      disclosure requirements may have the effects of reducing the number of potential
      investors and the level of trading activity in the secondary market for the
      stock that is subject to these penny stock rules. Consequently, these penny
      stock rules may affect the ability of broker-dealers to trade our securities.
      This may make it more difficult for investors in our common stock to sell shares
      to third parties or to otherwise dispose of them. This could cause our stock
      price to decline. We believe that the penny stock rules discourage investor
      interest in and limit the marketability of, our common stock.




In
      addition, the National Association of Securities Dealers, or NASD, has adopted
      sales practice requirements that may also limit a stockholder’s ability to buy
      and sell our stock. Before recommending an investment to a customer, a
      broker-dealer must have reasonable grounds for believing that the investment
      is
      suitable for that customer. Prior to recommending speculative low priced
      securities to their non-institutional customers, broker-dealers must make
      reasonable efforts to obtain information about the customer’s financial status,
      tax status, investment objectives and other information. Under interpretations
      of these rules, the NASD believes that there is a high probability that
      speculative low priced securities will not be suitable for at least some
      customers. The NASD requirements make it more difficult for broker-dealers
      to
      recommend that their customers buy our common stock, which may limit investors’
ability to buy and sell our stock and have an adverse effect on the market
      for
      our shares.





**Federal
      Regulators May Take Positions that are Contrary to Existing Law and Regulation
      which may Impose Substantial Litigation Costs on our Business, Impede our Access
      to Capital and/or Force us to Seek a Merger Partner.**





As
      a
      publicly traded telecommunications company, we are subject to the regulatory
      scrutiny of both the FCC and SEC. Both agencies are so-called “administrative
      agencies” with statutory authority to implement and enforce laws passed by the
      U.S. Congress. Despite this limited scope, both the FCC and SEC have the ability
      to use discretion in certain cases both in interpreting what the laws passed
      by
      Congress mean and when to enforce such laws. The FCC and/or SEC may even take
      positions which are unfounded in statute, regulation, or prior agency guidance
      which are adverse to Mobilepro. For instance, the FCC has been repeatedly
      overruled by federal courts in recent years for misinterpretations of the 1996
      Telecom Act. In order to contest such behavior, Mobilepro may be forced to
      resort to litigation. In the context of the SEC, Mobilepro’s ability to have its
      registration statements “go effective” may be impeded if the SEC were to take a
      position unfounded by law, regulation or prior interpretative guidance in its
      comments to Mobilepro’s registration statement. Such behavior would materially
      impair Mobilepro’s access to the capital markets, potentially force Mobilepro to
      incur substantial litigation related costs and may force Mobilepro to seek
      a
      merger with another company.





41


**Item
      3. Quantitative and Qualitative Disclosures about Market
      Risk.**





Not
      applicable.





**Item
      4. Controls and Procedures.**





Under
      the
      supervision and with the participation of our management, including our Chief
      Executive Officer (CEO) and Chief Accounting Officer (CAO), we conducted an
      evaluation of our disclosure controls and procedures (as defined in Rules
      13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934) as of the
      end
      of the period covered by this Quarterly Report on Form 10-Q. Based upon that
      evaluation, our CEO and our CAO have concluded that the design and operation
      of
      our disclosure controls and procedures were effective to ensure that information
      required to be disclosed by us in reports that we file or submit under the
      Exchange Act is recorded, processed, summarized and reported within the time
      periods specified in the rules and forms of the Securities and Exchange
      Commission and that information required to be disclosed in the reports that
      we
      file or submit under the Exchange Act is accumulated and communicated to
      management, including our principal executive and financial officers, to allow
      timely decisions regarding required disclosure.





There
      have been no changes in our internal controls over financial reporting that
      occurred during the period covered by this Quarterly Report on Form 10-Q that
      have materially affected, or are reasonably likely to materially affect, our
      internal controls over financial reporting.




42


**PART
      II**


**OTHER
      INFORMATION**





**Item
      1. Legal Proceedings.**




In
      addition to litigation arising in the normal course of its business that we
      believe will not materially affect our financial position or results of
      operations, we were involved with the following legal proceedings during the
      quarter ended June 30, 2006.





1)
            At
                the time that we acquired Davel, there was existing litigation brought
                against Davel and other defendants regarding a claim associated with
                certain alleged patent infringement. Davel has been named as a defendant
                in a civil action captioned Gammino v. Cellco Partnership d/b/a Verizon
                Wireless, et al., C.A. No. 04-4303 filed in the United States District
                Court for the Eastern District of Pennsylvania. The plaintiff claims
                that
                Davel and other defendants allegedly infringed its patent involving
                the
                prevention of fraudulent long-distance telephone calls. Davel continues
                to
                review and investigate the allegations set forth in the complaint,
                continues to assess the validity of the Gammino Patents, and is in
                the
                process of determining whether the technology purchased by Davel
                from
                third parties infringes upon the Gammino Patents. The plaintiff is
                seeking
                monetary relief of at least $7,500,000. The case is in the discovery
                phase
                of the litigation.




According
      to the terms of the Davel acquisition, the former secured lenders of Davel,
      subject to certain limitations addressed below, have agreed to reimburse the
      Company for the litigation cost and any losses resulting from the Gammino
      lawsuit. The former secured lenders have agreed to fund such costs from future
      Regulatory Receipts that were assigned to them by Davel. The Regulatory Receipts
      are being deposited into a third-party escrow account and used to reimburse
      the
      Company for costs incurred in connection with the litigation. The secured
      lenders are not required to fund the escrow account or otherwise reimburse
      the
      Company for amounts, if any, in excess of actual Regulatory Receipts collected.
      Any amount remaining in the escrow account at the conclusion of the litigation
      is to be distributed to the former secured lenders. Subsequent to March 31,
      2005, the Company has received significant Regulatory Receipts, which are being
      held in escrow. These funds can be used to reimburse the Company for costs,
      including legal fees, incurred in defending or settling the litigation matter.
      We believe that there are sufficient funds in the escrow account to pay both
      our
      legal costs in defending against this plaintiff's infringement claims and any
      potential judgment that could be reasonably expected in our view. There is
      a
      potential exposure of the Company to the $7,500,000 claim in the event that
      the
      Regulatory Receipts that are being held in escrow are insufficient to cover
      any
      potential judgment against the Company should it be found liable for the full
      monetary amount the plaintiff is seeking.





2)
            On
                September 10, 2004, CloseCall was served a complaint in an action
                captioned Verizon Maryland Inc., Verizon New Jersey Inc., and Verizon
                Delaware Inc. in the Circuit Court for Montgomery County, Maryland.
                Verizon sued for “in excess of $1,000,000” based on alleged unpaid
                invoices for services provided to CloseCall. Verizon asserted that
                CloseCall underpaid the Federal Subscriber Line Charges billed by
                Verizon,
                by applying an uncollectible factor to the amounts charged by Verizon.
                In
                addition, Verizon contended that CloseCall underpaid the amounts
                owed to
                Verizon by misapplying the terms of the “merger discount” offered to
                CLECs, including CloseCall, as a result of the merger between Bell
                Atlantic and GTE.




CloseCall
      filed counterclaims against Verizon. The first claim stemmed from Verizon’s
      refusal to resell certain bundled telecommunications services to CloseCall,
      despite repeated requests by CloseCall and the requirements of the
      Communications Act of 1934, as amended. In addition, CloseCall asserted damages
      as a result of Verizon’s entry into secret resale agreements with two CLECs,
      offering those companies deep discounts on telecommunications services not
      offered to other CLECs, including CloseCall. CloseCall also asserted damages
      as
      a result of Verizon’s failure to provide dialing parity to CloseCall’s
      customers. CloseCall also asserted a claim for tortious interference with
      business relations as a result of Verizon’s policy of blocking local service
      change orders for any customer that also receives DSL service from or through
      Verizon. CloseCall made a declaratory judgment claim for inaccurate and improper
      billings by Verizon, including carrier access billing service charges.




43




On
      November 2, 2005, the Circuit Court for Montgomery County (a) dismissed
      CloseCall's counterclaim relating to Verizon's alleged breach of the parties'
      resale agreements by refusing to offer for resale bundled telecommunications
      services that Verizon offered to its own end-user customers and by refusing
      to
      offer to CloseCall the same discounts for resold services offered by Verizon
      to
      other competitive local exchange carriers, (b) severed CloseCall's
      counterclaims, other than the claim related to CABS charges, and (c) ordered
      CloseCall to pursue the severed counterclaims in the first instance before
      the
      appropriate federal or state administrative agency.





As
      a
      result of the Circuit Court for Montgomery County's November 2, 2005 Order,
      CloseCall filed a Complaint against Verizon before the Public Service Commission
      of Maryland in connection with CloseCall’s allegations that (a) Verizon's
      failure to provide dialing parity to CloseCall's end-user customers and (b)
      Verizon's refusal to process local service change orders for customers also
      subscribing to Verizon's DSL service.





On
      June
      9, 2006, Verizon Maryland Inc., Verizon New Jersey Inc., and Verizon Delaware
      Inc. and CloseCall entered into a Confidential Settlement and Release Agreement,
      which ends the pending litigation between the parties relating to the payment
      of
      Subscriber Line Charges by CloseCall and the application of the terms of the
      promotional resale discount offered by Verizon to CloseCall in connection with
      the 2000 merger between Bell Atlantic Corporation and GTE Corporation. The
      terms
      of the parties' settlement are confidential.





3)  On
      August
      6, 2006, we were served with notice of a lawsuit regarding the acquisition
      of
      Transcordia, LLC and related transactions. We are investigating the potential
      merits of the plaintiff’s claims, but believe that any potential exposure
      related to the claims against the Company is not likely to be material.





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





On
      April
      1, 2006, we granted a warrant to purchase 250,000 shares of our common stock
      to
      Mr. Byron Wagner in connection with his joining our Board of Advisors,
      exercisable at $0.20 per share.





On
      June
      22, 2006, we issued 200,000 shares of our common stock to Ryan Beck & Co. in
      connection with their providing investment banking services to us.





Except
      as
      otherwise noted, the securities described in this Item were issued pursuant
      to
      the exemption from registration provided by Section 4(2) of the Securities
      Act
      of 1933 and/or Regulation D promulgated under the Securities Act. Each such
      issuance was made pursuant to individual contracts that are discrete from one
      another and are made only with persons who were sophisticated in such
      transactions and who had knowledge of and access to sufficient information
      about
      Mobilepro to make an informed investment decision. Among this information was
      the fact that the securities were restricted securities.





**Item
      3. Defaults upon Senior Securities.**





There
      were no defaults upon senior securities during the three months ended June
      30,
      2006.





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




There
      were no matters submitted to the stockholders for a vote during the three months
      ended June 30, 2006.





**Item
      5. Other Information.**




Not
      applicable.




44




**Item
      6. Exhibits.**





(a)
            The
                following exhibits are filed as part of this
                report:





**Exhibit
                No.**
            **Description**
            
            **Location**2.1
            Agreement
                and Plan of Merger, dated as of March 21, 2002, by and among Mobilepro
                Corp., NeoReach Acquisition Corp. and NeoReach, Inc.
            
            Incorporated
                by reference to Exhibit 10.1 to the Registrant’s Current Report on Form
                8-K filed on April 5, 20022.2
            Agreement
                and Plan of Merger, dated as of January 20, 2004, by and among Mobilepro
                Corp., DFWI Acquisition Corp., DFW Internet Services, Inc., Jack
                W. Beech,
                Jr. and Jack W. Beech, Sr.
            
            Incorporated
                by reference to Exhibit 99.1 to the Registrant’s Current Report on Form
                8-K filed on February 4, 20042.3
            Agreement
                and Plan of Merger, dated as of March 1, 2004, by and among DFW Internet
                Services, Inc., DFW Internet Acquisition Corp., Internet Express,
                Inc., J.
                Glenn Hughes and Loretta Hughes
            
            Incorporated
                by reference to Exhibit 99.1 to the Registrant’s Current Report on Form
                8-K filed on April 29, 20042.4
            Agreement
                and Plan of Merger, dated as of April 21, 2004, by and among DFW
                Internet
                Services, Inc., DFWA Acquisition Corp., August.Net Services, LLC,
                Louis G.
                Fausak, Andrew K. Fullford, John M. Scott, Dennis W. Simpson, Andrew
                T.
                Fausak, and Gayane Manasjan
            
            Incorporated
                by reference to Exhibit 99.1 to the Registrant’s Current Report on Form
                8-K filed on April 29, 20042.5
            Agreement
                and Plan of Merger, dated as of June 3, 2004, by and among Mobilepro
                Corp., DFW Internet Services, Inc., DFWS Acquisition Corp., ShreveNet,
                Inc. and the stockholders identified therein
            
            Incorporated
                by reference to Exhibit 99.1 to the Registrant’s Current Report on Form
                8-K filed on June 8, 20042.6
            Asset
                Purchase Agreement, dated as of June 21, 2004, by and between Crescent
                Communications, Inc. and DFW Internet Services, Inc.
            
            Incorporated
                by reference to Exhibit 99.1 to the Registrant’s Current Report on Form
                8-K filed on June 22, 20042.7
            Agreement
                and Plan of Merger, dated July 6, 2004, by and among the Company,
                DFW
                Internet Services, Inc., DFWC Acquisition Corp., Clover Computer
                Corp. and
                Paul Sadler
            
            Incorporated
                by reference to Exhibit 2.1 to the Registrant’s Current Report on Form 8-K
                filed on July 8, 20042.8
            Agreement
                and Plan of Merger, dated July 14, 2004, by and among DFW Internet
                Services, Inc., DFWT Acquisition Corp., Ticon.net, Inc. and the
                stockholders identified therein
            
            Incorporated
                by reference to Exhibit 2.1 to the Registrant’s Current Report on Form 8-K
                filed on July 15, 20042.9
            Agreement
                and Plan of Merger, dated July 30, 2004, by and among the Company,
                Affinity Acquisition Corp., C.L.Y.K., Inc. and the stockholders identified
                therein
            
            Incorporated
                by reference to Exhibit 2.1 to the Registrant’s Current Report on Form 8-K
                filed on August 20, 2004




45




2.10
            Amendment
                No. 1 to Agreement and Plan of Merger, dated December 28, 2004, by
                and
                among the Company, Affinity Acquisition Corp., C.L.Y.K., Inc. and
                the
                stockholders identified therein
            
            Incorporated
                by reference to Exhibit 10.1 to the Registrant’s Current Report on Form
                8-K filed on January 21, 20052.11
            Asset
                Purchase Agreement, dated as of August 13, 2004, by and among Web
                One,
                Inc., DFW Internet Services, Inc. and Jeff McMurphy
            
            Incorporated
                by reference to Exhibit 2.1 to the Registrant’s Current Report on Form 8-K
                filed on August 19, 20042.12
            Agreement
                and Plan of Merger, dated August 31, 2004, by and among the Company,
                MVCC
                Acquisition Corp. and CloseCall America, Inc.
            
            Incorporated
                by reference to Exhibit 2.1 to the Registrant’s Current Report on Form 8-K
                filed on October 19, 2004


2.13
            Amendment
                No. 1 to Agreement and Plan of Merger, dated September 30, 2004,
                by and
                among the Company, MVCC Acquisition Corp. and CloseCall America,
                Inc.
            
            Incorporated
                by reference to Exhibit 2.2 to the Registrant’s Current Report on Form 8-K
                filed on October 19, 20042.14
            Loan
                Purchase Agreement and Transfer and Assignment of Shares, dated September
                3, 2004, by and among the Company, Davel Acquisition Corp., Davel
                Communications, Inc. and certain stockholders identified
                therein
            
            Incorporated
                by reference to Exhibit 2.1 to the Registrant’s Current Report on Form 8-K
                filed on September 9, 20042.15
            Agreement
                and Plan of Merger, dated September 15, 2004, by and among the Company,
                DFWW Acquisition Corp., World Trade Network, Inc. and Jack
                Jui
            
            Incorporated
                by reference to Exhibit 2.1 to the Registrant’s Current Report on Form 8-K
                filed on September 15, 20042.16
            Agreement
                and Plan of Merger, dated September 16, 2004, by and among the Company,
                DFW Internet Services, Inc., DFWR Acquisition Corp., The River Internet
                Access Co. and the stockholders identified therein
            
            Incorporated
                by reference to Exhibit 2.1 to the Registrant’s Current Report on Form 8-K
                filed on September 17, 20042.17
            Agreement
                and Plan of Merger by and among Registrant, NeoReach, Inc., Transcordia
                Acquisition Corp., Transcordia, LLC and its Unit Holders, dated April
                2005
            
            Incorporated
                by reference to Exhibit 2.1 to the Registrant’s Form 10-QSB filed August
                15, 20052.18
            Agreement
                and Plan of Merger by and among Registrant, NeoReach, Inc., NeoReach
                Wireless, Inc., Evergreen Open Broadband Corporation, and Certain
                Shareholders
            
            Incorporated
                by reference to Exhibit 2.1 to the Registrant’s Form 10-QSB filed August
                15, 20052.19
            Agreement
                and Plan of Merger, dated June 30, 2005, by and among the Company,
                AFN
                Acquisition Corp., American Fiber Network, Inc. and the individuals
                and
                entities identified therein
            
            Incorporated
                by reference to Exhibit 2.1 to the Registrant’s Current Report on Form 8-K
                filed on July 6, 20052.20
            Agreement
                and Plan of Merger, dated October 31, 2005, by and among the Company,
                InReach Internet, Inc., InReach Internet, LLC, and Balco Holdings,
                Inc.
            
            Incorporated
                by reference to Exhibit 2.1 to the Registrant’s Current Report on Form 8-K
                filed on November 7, 20052.21
            Form
                of assignment of Limited Liability Company Interest/Release, dated
                January
                31, 2006
            
            Provided
                herewith




46




2.22
            Agreement
                and Plan of Merger, dated January 31, 2006, by and among Mobilepro
                Corp.,
                Kite Acquisition Corp. and Kite Networks, Inc.
            
            Provided
                herewith3.1
            Certificate
                of Incorporation, dated April 20, 2001, of Registrant
            
            Incorporated
                by reference to Exhibit 3.1 to the Registrant’s Registration Statement on
                Form S-8 filed on May 11, 20013.2
            Certificate
                of Amendment of Certificate of Incorporation of Mobilepro Corp dated
                November 16, 2001.
            
            Incorporated
                by reference to Exhibit 3.1 to the Registrant’s Registration Statement on
                Form S-8 filed on December 4, 20013.3
            Certificate
                of Amendment to Certificate of Incorporation of Mobilepro Corp. dated
                March 11, 2003
            
            Incorporated
                by reference to Exhibit 3.11 to the Registrant’s Registration Statement on
                Form SB-2 filed on May 6, 20033.4
            By-Laws
                of Registrant
            
            Incorporated
                by reference to Exhibit 3.2 to the Registrant’s Registration Statement on
                Form S-8 filed on May 11, 20014.1
            2001
                Equity Performance Plan
            
            Incorporated
                by reference to Exhibit 4.1 to the Registrant’s Registration Statement on
                Form S-8 filed on December 4, 20014.2
            Amended
                and Restated 2001 Equity Performance Plan
            
            Incorporated
                by reference to Exhibit 4.2 to the Registrant’s Annual Report on Form
                10-KSB filed on June 29, 20044.3
            Registration
                Rights Agreement, dated September 16, 2004, by and among the Company
                and
                the persons and entities identified therein
            
            Incorporated
                by reference to Exhibit 4.3 to the Registrant’s Annual Report on Form
                10-KSB filed on June 28, 20054.4
            Registration
                Rights Agreement, dated November 15, 2004, by and among the Company
                and
                the persons and entities identified therein
            
            Incorporated
                by reference to Exhibit 10.3 to the Registrant’s Current Report on Form
                8-K filed on November 17, 20044.5
            Form
                of Warrant issued on November 15, 2004
            
            Incorporated
                by reference to Exhibit 10.2 to the Registrant’s Current Report on Form
                8-K filed on November 17, 2004


4.6
            Registration
                Rights Agreement, dated June 30, 2005, by and among the Company and
                the
                persons and entities identified therein
            
            Incorporated
                by reference to Exhibit 4.1 to the Registrant’s Current Report on Form 8-K
                filed on July 6, 20054.7
            Registration
                Rights Agreement, dated November 1, 2005, by and among the Company
                and the
                persons and entities identified therein
            
            Incorporated
                by reference to Exhibit 4.1 to the Registrant’s Current Report on Form 8-K
                filed on November 7, 200510.1
            Executive
                Employment Agreement, dated December 15, 2003, between Jay O. Wright
                and
                the Company
            
            Incorporated
                by reference to Exhibit 10.6 to the Registrant’s Quarterly Report on Form
                10-QSB filed on February 13, 2004




47




10.2
            Executive
                Employment Agreement, dated April 15, 2004 between Jay O. Wright
                and the
                Company
            
            Incorporated
                by reference to Exhibit 10.15 to the Amendment to Registrant’s
                Registration Statement on Form SB-2 filed on May 14, 200410.3
            Amended
                and Restated Executive Employment Agreement, dated June 9, 2004 between
                Jay O. Wright and the Company
            
            Incorporated
                by reference to Exhibit 10.1 to the Registrant’s Current Report on Form
                8-K filed on June 15, 200410.4
            Standby
                Equity Distribution Agreement, dated May 13, 2004 between the Company
                and
                Cornell Capital
            
            Incorporated
                by reference to Exhibit 10.20 to the Registrant’s Registration Statement
                on Form SB-2 filed on May 14, 200410.5
            Registration
                Rights Agreement, dated May 13, 2004 between the Company and Cornell
                Capital
            
            Incorporated
                by reference to Exhibit 10.21 to the Registrant’s Registration Statement
                on Form SB-2 filed on May 14, 200410.6
            Placement
                Agent Agreement, dated May 13, 2004 between the Company and Newbridge
                Securities Corporation
            
            Incorporated
                by reference to Exhibit 10.22 to the Registrant’s Registration Statement
                on Form SB-2 filed on May 14, 200410.7
            Escrow
                Agreement, dated May 13, 2004 between the Company and Cornell
                Capital
            
            Incorporated
                by reference to Exhibit 10.23 to the Registrant’s Registration Statement
                on Form SB-2 filed on May 14, 200410.8
            Consulting
                Agreement by and among Mobilepro Corp., DFW Internet Services, Inc.,
                Beech
                Holdings, Inc., and Jack W. Beech, Jr.
            
            Incorporated
                by reference to Exhibit 99.1 to the Registrant’s Current Report on Form
                8-K filed on February 4, 2004


10.9
            Promissory
                Note issued by the Company to Cornell Capital on August 23,
                2004
            
            Incorporated
                by reference to Exhibit 10.2 to the Registrant’s Quarterly Report on Form
                10-QSB filed on November 15, 200410.10
            Security
                Agreement between the Company and Cornell Capital dated August 23,
                2004
            
            Incorporated
                by reference to Exhibit 10.3 to the Registrant’s Quarterly Report on Form
                10-QSB filed on November 15, 200410.11
            Promissory
                Note issued by the Company to Cornell Capital on August 25,
                2004
            
            Incorporated
                by reference to Exhibit 10.4 to the Registrant’s Quarterly Report on Form
                10-QSB filed on November 15, 20041012
            Security
                Agreement between the Company and Cornell Capital dated August 25,
                2004
            
            Incorporated
                by reference to Exhibit 10.5 to the Registrant’s Quarterly Report on Form
                10-QSB filed on November 15, 200410.13
            Letter
                Agreement between the Company and Cornell Capital dated August 27,
                2004
            
            Incorporated
                by reference to Exhibit 10.6 to the Registrant’s Quarterly Report on Form
                10-QSB filed on November 15, 200410.14
            Promissory
                Note issued by the Company to Cornell Capital on August 27,
                2004
            
            Incorporated
                by reference to Exhibit 10.2 to the Registrant’s Current Report on Form
                8-K filed on October 19, 2004




48




10.15
            Security
                Agreement between the Company and Cornell Capital dated August 27,
                2004
            
            Incorporated
                by reference to Exhibit 10.3 to the Registrant’s Current Report on Form
                8-K filed on October 19, 200410.16
            Promissory
                Note issued by the Company to Cornell Capital on September 22,
                2004
            
            Incorporated
                by reference to Exhibit 10.7 to the Registrant’s Quarterly Report on Form
                10-QSB filed on November 15, 200410.17
            Security
                Agreement between the Company and Cornell Capital dated September
                22,
                2004
            
            Incorporated
                by reference to Exhibit 10.8 to the Registrant’s Quarterly Report on Form
                10-QSB filed on November 15, 200410.18
            Executive
                Employment Agreement by and among the Company, CloseCall America,
                Inc. and
                Tom Mazerski
            
            Incorporated
                by reference to Exhibit 10.1 to the Registrant’s Current Report on Form
                8-K filed on October 19, 200410.19
            Executive
                Employment Agreement dated November 2, 2004, between Geoffrey Amend
                and
                the Company
            
            Incorporated
                by reference to Exhibit 10.8 to the Registrant’s Quarterly Report on Form
                10-QSB filed on February 14, 200510.20
            Executive
                Employment Agreement dated December 1, 2004, between Bruce Sanguinetti
                and
                the Company
            
            Incorporated
                by reference to Exhibit 10.8 to the Registrant’s Quarterly Report on Form
                10-QSB filed on February 14, 200510.21
            Credit
                Agreement, dated November 15, 2004, by and among the Company, Davel
                Acquisition Corp. and Airlie Opportunity Master Fund, Ltd.
            
            Incorporated
                by reference to Exhibit 10.1 to the Registrant’s Current Report on Form
                8-K filed on November 17, 200410.22
            Employment
                Agreement dated February 28, 2005 between Davel Communications, Inc.
                and
                Tammy L. Martin
            
            Incorporated
                by reference to Exhibit 10.28 to the Registrant’s Annual Report on Form
                10-KSB filed on June 28, 200510.23
            Amendment
                No. 1 to Employment Agreement between Davel Communications, Inc.
                and Tammy
                L. Martin, dated April 20, 2005
            
            Incorporated
                by reference to Exhibit 10.29 to the Registrant’s Annual Report on Form
                10-KSB filed on June 28, 200510.24
            Amendment
                No. 2 to Employment Agreement between Davel Communications, Inc.
                and Tammy
                L. Martin, dated May 26, 2005
            
            Incorporated
                by reference to Exhibit 10.30 to the Registrant’s Annual Report on Form
                10-KSB filed on June 28, 2005




49




10.25
            Amended
                and Restated Executive Employment Agreement, dated June 16, 2005
                between
                Jay O. Wright and the Company
            
            Incorporated
                by reference to Exhibit 10.1 to the Registrant’s Current Report on Form
                8-K filed on June 20, 200510.26
            Amended
                and Restated Executive Employment Agreement, dated June 16, 2005
                by and
                among the Company, CloseCall America, Inc. and Tom Mazerski
            
            Incorporated
                by reference to Exhibit 10.33 to the Registrant’s Annual Report on Form
                10-KSB filed on June 28, 200510.27
            Amended
                and Restated Executive Employment Agreement, dated June 16, 2005,
                between
                Geoffrey Amend and the Company
            
            Incorporated
                by reference to Exhibit 10.34 to the Registrant’s Annual Report on Form
                10-KSB filed on June 28, 200510.28
            Securities
                Purchase Agreement, dated as of May 13, 2005, by and between the
                Company
                and Cornell Capital
            
            Incorporated
                by reference to Exhibit 10.35 to the Registrant’s Annual Report on Form
                10-KSB filed on June 28, 200510.29
            Secured
                Convertible Debenture, issued on May 13, 2005 by the Company to Cornell
                Capital
            
            Incorporated
                by reference to Exhibit 10.36 to the Registrant’s Annual Report on Form
                10-KSB filed on June 28, 200510.30
            Amended
                and Restated Collateral Assignment of Intellectual Property Rights,
                made
                as of May 13, 2005, by and among the Company, the Company subsidiaries
                identified therein and Cornell Capital
            
            Incorporated
                by reference to Exhibit 10.37 to the Registrant’s Annual Report on Form
                10-KSB filed on June 28, 200510.31
            Amended
                and Restated Security Agreement, dated May 13, 2005, by and among
                the
                Company, the subsidiaries identified therein and Cornell
                Capital
            
            Incorporated
                by reference to Exhibit 10.38 to the Registrant’s Annual Report on Form
                10-KSB filed on June 28, 200510.32
            Investor
                Registration Rights Agreement, dated as of May 13, 2005 by and between
                the
                Company and Cornell Capital
            
            Incorporated
                by reference to Exhibit 10.39 to the Registrant’s Annual Report on Form
                10-KSB filed on June 28, 200510.33
            Amended
                and Restated Guaranty Agreement, dated as of May 13, 2005, made by
                each of
                the direct and indirect subsidiaries of the Company in favor of Cornell
                Capital
            
            Incorporated
                by reference to Exhibit 10.40 to the Registrant’s Annual Report on Form
                10-KSB filed on June 28, 200510.34
            Warrant
                issued by the Company to Cornell Capital
            
            Incorporated
                by reference to Exhibit 10.41 to the Registrant’s Annual Report on Form
                10-KSB filed on June 28, 200510.35
            Executive
                Employment Agreement dated September 1, 2005, between James L. Magruder,
                Jr. and the Company
            
            Incorporated
                by reference to Exhibit 10.1 to the Registrant’s Current Report on Form
                8-K filed September 9, 200510.36
            Master
                Agreement for Services between Sprint Communications Company L.P.
                and Kite
                Broadband, LLC, dated May 20, 2005*
            
            Incorporated
                by reference to Exhibit 2.1 to the Registrant’s Form 10-QSB filed November
                14, 200510.37
            Agreement
                between the City of Tempe and NeoReach, Inc. for the Use of City
                Property
                in Connection with the Operation of a WiFi Network, dated August
                17,
                2005
            
            Incorporated
                by reference to Exhibit 10.48 to the Registrant’s Annual Report on Form
                10-KSB filed on June 29, 200610.38
            Executive
                Employment Agreement dated February 1, 2006, between Jerry M.
                Sullivan, Jr. and the Company
            
            Incorporated
                by reference to Exhibit 10.1 to the Registrant’s Current Report on Form
                8-K filed February 13, 200510.39
            Secured
                Convertible Debenture, issued on June 30, 2006 by the Company to
                Cornell
                Capital
            
            Incorporated
                by reference to Exhibit 10.1 to the Registrant’s Current Report on Form
                8-K filed July 7, 200610.40
            Warrant
                issued by the Company to Cornell Capital
            
            Provided
                herewith10.41
            Master
                Lease Agreement dated June 28, 2006 between JTA Leasing Co., LLC,
                Mobilepro Corp., and NeoReach, Inc.
            
            Provided
                herewith




50




10.42
            Letter
                Agreement between American Fiber Network, Inc. and FSH Communications
                LLC,
                dated June 30, 2006*
            
            Incorporated
                by reference to Exhibit 10.1 to the Registrant’s Current Report on Form
                8-K, dated July 11, 200621.1
            Subsidiaries
                of Registrant
            
            Incorporated
                by reference to Exhibit 21.1 to the Registrant’s Annual Report on Form
                10-KSB filed on June 29, 2006


99.1
            Press
                Release dated December 28, 2005 regarding corporate
                restructuring
            
            Incorporated
                by reference to Exhibit 99.1 to the Registrant's Current Report on
                Form
                8-K filed January 1, 2006




*
      Confidential treatment has been requested for certain portions of this document
      pursuant to an application for confidential treatment sent to the Securities
      and
      Exchange Commission. Such portions are omitted from this filing and filed
      separately with the Securities and Exchange Commission.





**
      These
      certifications are not deemed filed by the SEC and are not to be incorporated
      by
      reference in any filing of the Registrant under the Securities Act of 1933
      or
      the Securities Exchange Act of 1934, irrespective of any general incorporation
      language in any filings.





**SIGNATURES**





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







**MOBILEPRO
              CORP.**Date:
              August 9, 2006
            By:
            /s/ Jay
              O.
              WrightJay
              O. Wright, Chief Executive Officer


Date: August
              9, 2006
            By:
            /s/ Richard
              H. DeilyRichard
              H. Deily, Chief Accounting Officer


****


51