**UNITED
        STATES**
 **SECURITIES
        AND EXCHANGE COMMISSION**
 **Washington,
        DC 20549**
 
 **FORM
        10-QSB**
 
 **QUARTERLY
        REPORT UNDER SECTION 13 OR 15(d) OF THE**
 **SECURITIES
        EXCHANGE ACT OF 1934**
 
 **For
        the Quarterly Period ended June 30, 2005**
 
 **Commission
        File Number** **000-51010**
 
 **MOBILEPRO
        CORP.**
 (Exact
        name of registrant as specified in charter)
 
 **DELAWARE**
              
              **87-0419571****(State
                  or other jurisdiction of**
              
              **(I.R.S.
                  Employer****incorporation
                  or organization)**
              
              **Identification
                  No.)**
 
 **6701
                  Democracy Boulevard, Suite 300, Bethesda, MD**
              
              **20817****(Address
                  of principal executive offices)**
              
              **(Zip
                  Code)**
 
 **(301)
        315-9040**
 **(** Registrant’s
        telephone number, including area code)
 
 Check
        whether the issuer (1) filed all reports required to be filed by Section
        13 or
        15(d) of the Exchange Act during the past 12 months (or for such shorter
        period
        that the registrant was required to file such reports), and (2) has been
        subject
        to such filing requirements for the past 90 days.  
        Yes  x No  
        o
 
 State
        the
        number of shares outstanding of each of the issuer’s classes of common equity,
        as of the latest practicable date: As of August 5, 2005, the Company had
        379,978,011 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
              21ITEM
                  3
              CONTROLS
                  AND PROCEDURES
              31**PART
                  II**ITEM
                  1.
              LEGAL
                  PROCEEDINGS
              32ITEM
                  2.
              CHANGES
                  IN SECURITIES
              33ITEM
                  3.
              DEFAULTS
                  UPON SENIOR SECURITIES
              33ITEM
                  4.
              SUBMISSION
                  OF MATTERS TO A VOTE OF SECURITY HOLDERS
              33ITEM
                  5.
              OTHER
                  INFORMATION
              34ITEM
                  6.
              EXHIBITS
                  AND REPORTS ON FORM 8-K
              34
   2
  **PART
        I**
 **FINANCIAL
        INFORMATION**
 
 **Item
        1. Financial Statements.**
  **MOBILEPRO
          CORP. AND SUBSIDIARIES**
 **CONDENSED
          CONSOLIDATED BALANCE SHEETS**
 **MARCH
          31, 2005 AND JUNE 30, 2005**
 **ASSETS**
 **March
                    31,**
                
                **June
                    30,****2005**
                
                **2005****(audited)**
                
                **(unaudited)****CURRENT
                    ASSETS**Cash
                    and cash equivalents
                
                $
                4,669,787
                
                $
                4,988,956Restricted
                    cash
                
                
                429,954
                
                
                418,193Accounts
                    receivable, net
                
                
                12,658,313
                
                
                12,911,405Investments,
                    at cost
                
                
                450,000
                
                
                450,000Prepaid
                    expenses and other current assets
                
                
                2,061,697
                
                
                2,186,781**Total
                    Current Assets**
                
                
                20,269,751
                
                
                20,955,335Fixed
                    assets, net of accumulated depreciation
                
                
                13,193,056
                
                
                13,356,936**OTHER
                    ASSETS**Goodwill,
                    net of impairment
                
                
                32,579,099
                
                
                37,190,456Customer
                    contracts and relationships
                
                
                -
                
                
                6,578,550Other
                    intangible assets, net of amortization
                
                
                4,476,461
                
                
                4,150,456Deferred
                    financing fees, net of amortization
                
                
                1,026,667
                
                
                806,667Other
                    assets
                
                
                1,277,897
                
                
                2,164,37839,360,124
                
                
                50,890,507**TOTAL
                    ASSETS**
                
                $
                72,822,931
                
                $
                85,202,778
  The
            accompanying notes are an integral part of the condensed consolidated
            financial
            statements.
   3
  MOBILEPRO
          CORP. AND SUBSIDIARIES
 CONDENSED
          CONSOLIDATED BALANCE SHEETS (CONTINUED)
 MARCH
          31, 2005 AND JUNE 30, 2005
 **LIABILITIES
            AND STOCKHOLDERS' EQUITY**
 **March
                    31,**
                
                **June
                    30,****2005**
                
                **2005****(audited)**
                
                **(unaudited)****CURRENT
                    LIABILITIES**Current
                    portion of convertible debenture
                
                $
                -
                
                $
                2,000,000Notes
                    payable under the Standby Equity Distribution Agreement ( the
                    "SEDA")
                
                
                6,500,000
                
                
                5,900,000Current
                    portion of other notes payable
                
                
                19,035,263
                
                
                6,109,253Accounts
                    payable and accrued expenses
                
                
                19,863,088
                
                
                17,507,009Liability
                    for common stock to be issued
                
                
                -
                
                
                1,809,373Deferred
                    revenue
                
                
                3,470,731
                
                
                3,490,664**Total
                    Current Liabilities**
                
                
                48,869,082
                
                
                36,816,299**LONG-TERM
                    LIABILITIES**Convertible
                    debenture, net of unamortized debt discount of $802,725
                
                
                -
                
                
                12,697,275Notes
                    payable and other long-term liabilities, net of current
                    maturities
                
                
                999,196
                
                
                1,661,816**Total
                    Long-Term Liabilities**
                
                
                999,196
                
                
                14,359,091**TOTAL
                    LIABILITIES**
                
                
                49,868,278
                
                
                51,175,390**MINORITY
                    INTEREST**
                
                
                600,000
                
                
                3,675,000**STOCKHOLDERS'
                    EQUITY**Preferred
                    stock, $.001 par value, 5,035,425 shares authorizedand
                    35,378 shares issued and outstanding at March 31, 2005and
                    June 30, 2005
                
                
                35
                
                
                35Common
                    stock, $.001 par value, 600,000,000 shares authorizedand
                    355,918,011 and 373,978,011 shares issued and outstandingat
                    March 31, 2005 and June 30, 2005
                
                
                355,918
                
                
                373,978Additional
                    paid-in capital
                
                
                43,195,250
                
                
                50,755,734Accumulated
                    deficit, beginning of period
                
                
                (15,836,828
                )
                
                (21,196,550
                )Net
                    income (loss) for the period
                
                
                (5,359,722
                )
                
                419,191**Total
                    Stockholders' Equity**
                
                
                22,354,653
                
                
                30,352,388**TOTAL
                    LIABILITIES AND STOCKHOLDERS' EQUITY**
                
                $
                72,822,931
                
                $
                85,202,778
  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,****2004**
                
                **2005****REVENUES**
                
                $
                1,170,164
                
                $
                22,505,845**COSTS
                    OF REVENUES**
                
                
                357,939
                
                
                11,021,862**GROSS
                    PROFIT**
                
                
                812,225
                
                
                11,483,983**OPERATING
                    EXPENSES**Payroll,
                    professional fees and related expenses
                
                
                910,051
                
                
                3,678,652Advertising
                    and marketing expenses
                
                
                55,378
                
                
                518,664Office
                    rent and expenses
                
                
                27,409
                
                
                429,941Travel
                    and entertainment expenses
                
                
                32,974
                
                
                117,265Other
                    research and development costs
                
                
                324
                
                
                14,908Other
                    general and administrative expenses
                
                
                201,118
                
                
                4,550,810Depreciation
                    and amortization
                
                
                39,944
                
                
                822,377**Total
                    Operating Expenses**
                
                
                1,267,198
                
                
                10,132,617**OPERATING
                    INCOME (LOSS)**
                
                
                (454,973
                )
                
                1,351,366**INTEREST
                    EXPENSE, NET**
                
                
                (302,466
                )
                
                (932,175
                )**NET
                    INCOME (LOSS) BEFORE PROVISION FOR INCOME TAXES**
                
                
                (757,439
                )
                
                419,191**Provision
                    for Income Taxes**
                
                
                -
                
                
                -**NET
                    INCOME (LOSS) APPLICABLE TO COMMON SHARES**
                
                $
                (757,439
                )
                $
                419,191**NET
                    INCOME (LOSS) PER SHARE**Basic
                
                $
                (0.0033
                )
                $
                0.0012Diluted
                
                $
                (0.0033
                )
                $
                0.0010**WEIGHTED
                    AVERAGE NUMBER OF COMMON****SHARES
                    OUTSTANDING**
                
                
                232,277,996
                
                
                360,778,231
  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,****2004**
              
              **2005****CASH
                  FLOWS FROM OPERATING ACTIVITIES**Net
                  income (loss)
              
              $
              (757,439
              )
              $
              419,191**Adjustments
                  to reconcile net income (loss) to net cash****(used
                  in) operating activities:**Depreciation
                  and amortization
              
              
              39,944
              
              
              822,377Noncash
                  interest expense
              
              
              290,567
              
              
              145,433Common
                  stock issued for services
              
              
              -
              
              
              15,000Investments
                  received for services
              
              
              (150,000
              )
              
              -**Changes
                  in assets and liabilities**(Increase)
                  in accounts receivable
              
              
              (90,157
              )
              
              (65,920
              )(Increase)
                  decrease in other current assets
              
              
              (50,928
              )
              
              53,665(Increase)
                  in other assets
              
              
              -
              
              
              (216,906
              )Increase
                  (decrease) in accounts payable andand
                  accrued expenses
              
              
              54,911
              
              
              (2,542,829
              )Increase
                  (decrease) in deferred revenue
              
              
              (17,110
              )
              
              19,933Total
                  adjustments
              
              
              77,227
              
              
              (1,769,247
              )**Net
                  cash (used in) operating activities**
              
              
              (680,212
              )
              
              (1,350,056
              )**CASH
                  FLOWS FROM INVESTING ACTIVITIES**Cash
                  paid for acquisitions
              
              
              (3,404,767
              )
              
              (5,849,646
              )Cash
                  received in acquisition of subsidiaries
              
              
              25,987
              
              
              748,412Capital
                  expenditures, net
              
              
              (68,054
              )
              
              (606,265
              )**Net
                  cash (used in) investing activities**
              
              
              (3,446,834
              )
              
              (5,707,499
              )**CASH
                  FLOWS FROM FINANCING ACTIVITIES**Borrowings
                  under convertible debenture
              
              
              -
              
              
              15,500,000Repayment
                  of acquisition bridge loan
              
              
              -
              
              
              (13,000,000
              )Borrowings
                  under the equity line of credit and the SEDA
              
              
              4,000,000
              
              
              2,200,000Borrowings
                  under other notes payable
              
              
              -
              
              
              4,100,000Debt
                  financing fees
              
              
              -
              
              
              (1,295,000
              )SEDA
                  conversion fees
              
              
              -
              
              
              (315,000
              )Increase
                  in other long-term liabilities
              
              
              -
              
              
              291,779Payments
                  of notes payable
              
              
              (55,721
              )
              
              (105,055
              )Proceeds
                  from common stock issuances
              
              
              23,999
              
              
              -**Net
                  cash provided by financing activities**
              
              $
              3,968,278
              
              $
              7,376,724





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,****2004**
              
              **2005****NET
                  INCREASE (DECREASE) IN****CASH
                  AND CASH EQUIVALENTS**
              
              $
              (158,768
              )
              $
              319,169**CASH
                  AND CASH EQUIVALENTS - BEGINNING OF YEAR**
              
              
              1,955,607
              
              
              4,669,787**CASH
                  AND CASH EQUIVALENTS - END OF PERIOD**
              
              $
              1,796,839
              
              $
              4,988,956**SUPPLEMENTAL
                  DISCLOSURE OF CASH FLOW****INFORMATION:**Cash
                  paid during the period for interest
              
              $
              -
              
              $
              12,769**SUPPLEMENTAL
                  DISCLOSURE OF NONCASH****ACTIVITIES:**Issuance
                  of common stock for:Conversion
                  of notes payable and accrued interest to common stock
              
              $
              2,800,000
              
              $
              8,335,188Acquisition
                  of WazAlliance
              
              $
              -
              
              $
              110,200Conversion
                  of payables to common stock
              
              $
              90,000
              
              $
              -Debt
                  financing fees paid in common stock
              
              $
              1,760,000
              
              $
              -Transfer
                  of notes payable to the SEDA
              
              $
              -
              
              $
              7,200,000Goodwill
                  recorded in acquisitions
              
              $
              3,567,341
              
              $
              3,409,158Liability
                  for common stock to be issued
              
              $
              190,000
              
              $
              1,809,373Assumption
                  of AFN liabilities
              
              $
              -
              
              $
              1,549,784Amortization
                  of SEDA deferred financing fees
              
              $
              -
              
              $
              220,000Adjustment
                  to minority interest
              
              $
              -
              
              $
              150,000Note
                  payable in escrow
              
              $
              75,000
              
              $
              -




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





7
 
 **MOBILEPRO
          CORP. AND SUBSIDIARIES**
 **NOTES
          TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**
 **JUNE
          30, 2005**
 **(unaudited)**
 
 **NOTE
                  1-**
                **ORGANIZATION**
 
 **Overview**
 
 Mobilepro
          Corp., incorporated under the laws of the State of Delaware in July 2000,
          is a
          wireless technology, telecommunications, broadband 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
          technology. 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
          and its
          acquired Internet service provider subsidiaries. The Company’s wireless
          technology development efforts are conducted primarily in Phoenix, Arizona,
          by a
          wholly owned subsidiary, NeoReach, Inc. (“NeoReach”), and its subsidiary,
          NeoReach Wireless, Inc.
 
 **Summary
          of Acquisition Activities**
 
 In
          April
          2004, DFW acquired August.net Services LLC, an Internet service provider
          located
          in Texas, for $1,730,000 in cash and promissory notes.
 
 In
          June
          2004, DFW acquired ShreveNet, Inc. (“ShreveNet”), an Internet service provider
          located in Louisiana, for $1,250,000 in cash and common stock. The issued
          shares
          were valued at a fair value of $190,000 based on the average 20-day closing
          price ($0.2162 per share) prior to June 3, 2004. Mobilepro issued the common
          stock in August 2004.
 
 In
          June
          2004, DFW acquired certain assets of Crescent Communications, Inc., an
          Internet
          service provider located in Houston, for $1,194,767 in cash and a promissory
          note.
 
 In
          June
          2004, the Company acquired US1 Telecommunications, Inc., a long distance
          provider located in Kansas, for $135,282 in cash and conditional promissory
          notes.
 
 In
          July
          2004, DFW acquired Clover Computer Corporation (“Clover”), a Coshocton,
          Ohio-based Internet services provider with operations in several Ohio cities,
          for $1,216,993 in cash and promissory notes.
  In
          July
          2004, DFW acquired Ticon.net, a Janesville, Wisconsin-based Internet service
          provider with operations in Janesville and Milwaukee, for $1,000,000 in
          cash and
          promissory notes.
 
 In
          August
          2004, the Company acquired Affinity Telecom (“Affinity”), a Michigan-based CLEC
          and long distance carrier. The Company paid $2,513,000 in cash, notes,
          and a
          convertible note.
 
 In
          August
          2004, DFW acquired the customer base, corporate name and certain other
          assets of
          Web One, Inc. (“Web One”), a Kansas City, Missouri-based Internet service and
          web-hosting provider, for $1,960,000 in cash and common stock.
 
 In
          September 2004, DFW acquired World Trade Network, Inc. an Internet services
          provider based in Houston, for $1,200,000 in cash and promissory
          notes.
 
 In
          September 2004, DFW acquired The River Internet Access Co., an Internet
          services
          provider based in Tucson, Arizona, for $2,467,204 in cash and promissory
          notes.
 
 8
 In
          October 2004, Mobilepro acquired CloseCall, a CLEC offering local telephone
          service, long distance service, 1.800CloseCall prepaid calling cards, and
          wireless, dial-up and DSL Internet services. The purchase price included
          1) a
          cash payment of $8,000,000, 2) 39,999,999 shares of Mobilepro’s common stock
          valued at $10,000,000, and 3) warrants to purchase 3,500,000 additional
          shares
          of Mobilepro’s common stock exercisable at $0.30 per share for 2,500,000 shares
          and $0.35 per share for 1,000,000 shares.
 
 In
          November 2004, Mobilepro acquired Davel, the owner and operator of approximately
          38,000 payphones in approximately 25,000 locations in 45 states and the
          District
          of Columbia. In connection with this transaction, the Company acquired
          all of
          Davel’s senior secured debt in the approximate principal amount of $103.1
          million, a $1.3 million note receivable from Davel held by one of its secured
          lenders, and approximately 95.2% of the common stock of Davel. The purchase
          price included cash of $14,000,000 plus warrants to purchase up to 5,000,000
          shares of common stock at the price of $0.30 per share. In May 2005, the
          Company
          purchased the remaining 4.8% of Davel’s outstanding common stock for $450,000
          cash.
 
 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 addition 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. The Company had previously
          partnered
          with WazAlliance in connection with projects to deploy full-scale metro-wide
          service in both Tempe and Chandler, Arizona, known as WazTempe and WazChandler.
          The network also includes WazHamptonRoads and WazMaui. This alliance provides
          citywide multi-band wireless networks for municipal vehicles and personnel,
          including public safety employees as well as services for residences, retail
          businesses, schools, public events, hotels and resorts, and public
          transportation.
 
 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
          to be issued and valued at $0.1535 per share based on the date that the
          parties
          reached agreement on the terms of the acquisition.
 
 In
          June
          2005, the Company acquired a 51% ownership interest in Kite Broadband,
          LLC
          (“Kite”) with the investment of $3,825,000 cash. On June 30, 2005, Kite closed
          the Master Agreement for Services (the “Sprint Agreement”) with Sprint
          Communications Company L.P. (“Sprint”) under which Kite shall provide services
          to Sprint’s broadband customers in fourteen (14) metropolitan markets for a
          period of three years utilizing the Sprint mark. The 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. Kite is entitled to have Sprint remit
          collected customer revenues in exchange for these services and is required
          to
          remit a monthly fee back to Sprint for network support and transport services.
          The customers remain Sprint customers during the three-year term of the
          Agreement. Upon expiration of the Agreement, Kite will have the option
          to
          acquire the then existing customers pursuant to the terms of the Agreement.
          All
          network and spectrum assets will remain Sprint property. Should Kite exercise
          this bargain purchase option, Sprint has a right of first refusal to acquire
          the
          customer base back at estimated fair value. The remaining 49% minority
          ownership
          of Kite was reflected in the condensed consolidated balance sheet at June
          30,
          2005 as minority interest in the amount of $3,675,000.
 
 In
          June
          2005, Mobilepro acquired AFN, a CLEC that is licensed to provide local
          telephone, long distance and Internet services in the forty-eight (48)
          states,
          for consideration of $3,000,000, including a liability to issue 10,000,000
          shares of Mobilepro common stock and a cash payment of $1,500,000. The
          Company
          also assumed liabilities totaling $1,549,784 including $1,337,103 payable
          to a
          related party company that supplies administrative and support services
          to
          AFN.
 
 **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 9) 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.
 
 9
 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, 2005. 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, 2005 are not necessarily indicative of the results that
          will be
          achieved for the fiscal year ending March 31, 2006.
 
 **Reclassifications**
 
 Certain
          prior-period financial statement balances have been reclassified to conform
          to
          the June 30, 2005 presentation. The reclassifications resulted in no changes
          to
          the accumulated deficits reported in prior periods.
 
 **Revenue
          Recognition**
 
 The
          Company recognizes revenue related to local telephone, long distance, wireless
          calling and Internet access services when such services are rendered and
          collection is reasonably assured; it defers revenue for services that the
          Company bills in advance.
 
 Revenue
          from product sales that contain embedded software is recognized in accordance
          with the provisions of the American Institute of Certified Public Accountants
          Statement of Position 97-2, “Software Revenue Recognition.” Accordingly, revenue
          related to shipments to credit-worthy customers without the collection
          of any
          portion of the corresponding fees being dependent on a future event is
          recorded
          at the time of shipment. The Company may grant extended payment terms to
          customers without established credit. Revenue related to shipments to such
          customers is recorded only upon the receipt of cash until a significant
          portion
          of the sales price is received. The Company considers the recognition of
          revenue
          related to shipments to value-added-resellers to be dependent upon the
          occurrence of a future event. Accordingly, revenue is deferred until a
          significant portion of the sales price is received in cash. On certain
          transactions, payment by the customer is contingent upon installation or
          acceptance. Until it is accepted, the customer may have a right to return
          the
          product. The Company does not recognize revenue on these transactions until
          these related rights have lapsed. Certain of the Company’s product are sold with
          accompanying maintenance/service contracts. The Company allocates revenue
          to
          such maintenance/service contracts based on vendor-specific objective evidence
          of fair value as determined by the Company’s contract renewal rates. Revenue
          related to maintenance/service contracts is deferred and recognized ratably
          over
          the periods covered by the contracts.
 
 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.
 
 Non-coin
          operator service calls are handled by independent operator service providers.
          These carriers assume billing and collection responsibilities for
          operator-assisted calls originating on Davel’s payphone network and pay
          commissions to Davel based upon gross revenue. Davel recognizes revenue
          related
          to operator service calls in amounts equal to the commissions that it is
          entitled to receive in the periods that the services are rendered.
 
 Davel
          also 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. Revenue related to such dial-around calls
          is
          recognized initially 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. Davel’s estimates of revenue are based on the
          historical analysis of calls placed versus amounts collected. These analyses
          are
          updated on a periodic basis. Recorded amounts of revenue are adjusted based
          on
          actual receipts and/or the subsequent revision of prior estimates.
 
 10
 
 **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, in the current year, are
          being 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 $73,000
          and
          $220,000 in the three-month periods ended June 30, 2004 and 2005, respectively.
          Fees paid to Cornell Capital and others at the time that funds are drawn
          under
          the SEDA, amounting to $315,000 in the three-month period ended June 30,
          2005,
          are charged to additional paid-in-capital. The discount amounts provided
          to
          Cornell Partners upon the conversion of SEDA notes payable to shares of
          common
          stock, approximately $95,000 in the three-month period ended June 30, 2005,
          are
          included in interest expense.
 
 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 Partners
          and
          the early retirement of the bridge loan (see Note 3). These costs, including
          fees paid in cash to Cornell Partners, were charged to additional
          paid-in-capital.
 
 **Basic
          and Diluted Income (Loss) Per Share**
 
 SFAS
          No. 128, “Earnings Per Share,” requires dual presentation of 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.
 
 Options
          and warrants to purchase  shares
          of
          common stock outst anding
          at
          June 30, 2004, were not
          included in the computation of diluted loss per
          s hare
          for
          the three-month period then ended as their effect would be
          anti-dilutive. The effects of debentures and other notes payable that were
          convertible in to shares
          of
          common stock at June 30, 2004, were not included in the computations of
          diluted
          loss per share for the three-month period then ended as they would be
          anti-dilutive.
 
 **Accounting
          for Stock Options and Warrants**
 
 The
          Company accounts for its stock-based compensation under the recognition
          and
          measurement principles of Accounting Principles Board (“APB”) Opinion
          No. 25, “Accounting for Stock Issued to Employees,” and related
          interpretations. APB Opinion No. 25 provides that compensation expense
          relative to a Company’s employee stock options is measured based on the
          intrinsic value of the stock options at the measurement date.
 
 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, “Accounting for Certain Transactions Involving Stock
          Compensation,” as amended by SFAS No. 148, “Accounting for Stock-Based
          Compensation-Transition and Disclosure,” the Company’s net income (loss) per
          share would have changed to the pro forma amounts for the three-month periods
          ended June 30, 2004 and 2005 as indicated below:
  **2004**
                
                **2005**Net
                    income (loss), as reported
                
                $
                (
                    757,439
                )
                $
                419,191Add:
                    Stock-based employee compensation expense included in reported
                    net income
                    (loss)
                
                
                -
                
                
                -Deduct:
                    Total stock-based employee compensation expense determined under
                    fair
                    value based method for all awards
                
                
                (4,595,592
                )
                
                (1,820,768
                )Pro
                    forma net loss
                
                $
                (5,353,031
                )
                $
                (1,401,577
                )Net
                    income (loss) per share:Diluted,
                    as reported
                
                $
                (0.0033
                )
                $
                0.0010Diluted,
                    pro forma
                
                $
                (0.0230
                )
                $
                (0.0034
                )
 
 11
 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 grants during
          the
          three-month periods ended June 30, 2004 and 2005:
 **2004**
                  
                  **2005**Dividend
                      yield
                  
                  
                  None
                  
                  
                  NoneExpected
                      volatility
                  
                  
                  60
                  %
                  
                  60
                  %Risk-free
                      interest rate
                  
                  
                  4.50
                  %
                  
                  3.00
                  %Expected
                      term (in years)
                  
                  
                  9.58
                  
                  
                  10.00
 
 For
          stock
          options granted during the three-month periods ended June 30, 2004 and
          2005, the
          weighted-average grant-date fair value was $0.20 per share and $0.30 per
          share,
          respectively.
 
 **Property,
          Plant and Equipment**
 
 Furniture
          and equipment are included in fixed assets in the accompanying balance
          sheets
          and are stated at cost. Depreciation expense is computed using the straight-line
          method during the estimated useful life of each asset. When an asset is
          retired
          or otherwise disposed of, the cost and related accumulated depreciation
          are
          removed from the accounts, and any resulting gain or loss is recognized
          in
          income for the period. The costs of maintenance and repairs are charged
          to
          expense as incurred; significant renewals and betterments are capitalized.
 
 Fixed
          assets were as follows:
 
 **Estimated**
                  **Useful**
                  **Lives****(****in********years)**
                
                **March
                    31, 2005**
                
                **June
                    30,******
                  **2005**(audited)
                
                (unaudited)Furniture
                    and fixtures
                
                
                7
                
                $
                387,861
                
                $
                397,563Machinery
                    and equipment
                
                
                5
                
                
                13,584,088
                
                
                14,277,462Leasehold
                    improvements
                
                
                7
                
                
                263,452
                
                
                351,487Vehicles
                
                
                5
                
                
                287,733
                
                
                287,732Subtotals
                
                
                
                
                
                14,523,134
                
                
                15,314,244Less
                    accumulated depreciation
                
                
                
                
                
                (
                    1,330,078
                )
                
                (
                    1,957,308
                )Fixed
                    assets, net
                
                
                
                
                $
                13,193,056
                
                $
                13,356,936
 
 The
          Company recorded depreciation expense of $39,944 and $619,177 for the
          three-month periods ended June 30, 2004 and 2005, respectively.
 
 **Customer
          Contracts and Relationships**
 
 In
          order
          to acquire certain customer rights under its agreement with Sprint, Kite
          made an
          up-front payment of $6,578,550, after adjustment for the difference in
          the
          closing number of customers subscribing to the service as compared to a
          target
          subscriber number. The purpose of the up-front payment was to acquire the
          existing customers and related revenue base, increasing the Company’s
          opportunity to leverage its broadband wireless market share.
 
 Accordingly,
          the entire opportunity payment, net of the portion allocated to the value
          of the
          tangible assets and adjusted to include payments for legal and direct
          professional advisory fees, was capitalized as an intangible asset ascribed
          to
          the subscriber customer contracts and relationships and will be amortized
          on a
          straight-line basis over the finite life of the subscriber base. The Company
          has
          estimated this life to be ten years based upon an analysis of the operating
          history of the base and the average monthly disconnects. In addition, the
          Company intends to evaluate the value of this intangible asset for potential
          impairment at least annually and to adjust both the asset value and the
          prospective life in the future if determined necessary.
 
 **Goodwill
          and Other Intangible Assets**
 
 The
          Company accounts for goodwill and other intangible assets in accordance
          with
          SFAS No. 142, “Goodwill and Other Intangible Assets”. Through June 30, 2005, the
          Company has recorded goodwill in the aggregate amount of $37,190,456 in
          connection with its acquisitions, including $4,611,357 recorded in the
          three-month period ended June 30, 2005. The Company has also recorded certain
          other intangible assets in connection with the acquisitions of CloseCall,
          Davel
          and certain Internet service provider companies. The Company performs its
          annual
          impairment tests for goodwill at fiscal year-end. However, on a quarterly
          basis,
          management looks for events or circumstances that would more likely than
          not
          reduce the fair value of a reporting segment below its carrying amount.
          If the
          Company determines 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. As of March 31, 2005 and June 30,
          2005,
          the Company determined that there was no impairment of its
          goodwill.
 
 12
 Other
          intangible assets include location contracts with net balances of $2,965,456
          and
          $2,805,663 at March 31, 2005 and June 30, 2005, 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, 2005 and June 30, 2005 was $267,586 and $427,879,
          respectively. Amortization related to location contracts was $160,292 for
          the
          three-month period ended June 30, 2005.
 
 **Investments**
 
 During
          the year ended March 31, 2005, the Company provided certain management
          services
          to two emerging technology firms. As consideration, the Company received
          a 5%
          ownership in each firm. These investments were recorded in the amounts
          of
          $300,000 and $150,000, approximating the value of the services provided,
          and
          were included in the consolidated balance sheets at March 31, 2005 and
          June 30,
          2005.
 
 **Accounts
          Payable and Accrued Liabilities**
 
 Accounts
          payable and accrued liabilities consisted of the following:
 
 **March
                    31,**
                
                **June
                    30,****2005**
                
                **2005**(audited)
                
                (unaudited)Accounts
                    payable
                
                $
                17,250,586
                
                $
                14,943,656Accrued
                    compensation
                
                
                1,675,124
                
                
                1,874,915Accrued
                    interest expense
                
                
                937,378
                
                
                688,438Totals
                
                $
                19,863,088
                
                $
                17,507,009
 
 **Income
          Taxes**
 
 Effective
          July 14, 2000, the Company adopted the provisions of Statement of Financial
          Accounting Standards (SFAS) No. 109, “Accounting for Income Taxes”. The
          statement requires an asset and liability approach for financial accounting
          and
          reporting for income taxes, and the recognition of deferred tax assets
          and
          liabilities for the temporary differences between the financial reporting
          bases
          and tax bases of the Company’s assets and liabilities at enacted tax rates
          expected to be in effect when such amounts are realized or settled. Because
          of
          its history of losses, the Company has not had any material federal state
          income
          tax obligations.
 
 **Recent
          Accounting Pronouncements**
 
 In
          December 2004, the Financial Accounting Standards Board revised SFAS
          No. 123. The revision was entitled “Share-Based Payment” (“SFAS
          No. 123R”), replacing SFAS 123 and superseding APB No. 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 No. 123 no longer
          will be
          an alternative to financial statement recognition of compensation expense.
          In
          accordance with a recently-issued Securities and Exchange Commission rule,
          companies will be allowed to implement SFAS No. 123R as of the beginning
          of
          the first interim or annual period that begins after June 15, 2005.
          The
          Company currently expects that it will adopt SFAS No. 123R for the
          fiscal
          quarter ending September 30, 2005.
 
 13
 Under
          SFAS No. 123R, the Company must determine 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
          permitted transition methods include either retrospective or prospective
          adoption. Under the retrospective method, prior periods may be restated
          either
          as of the beginning of the year of adoption or for all periods presented.
          The
          prospective method requires that compensation expense be recorded for all
          unvested stock options at the beginning of the first quarter of adoption
          of SFAS
          No. 123R, while the retrospective methods would record compensation
          expense
          for all unvested stock options beginning with the first period presented.
          The
          Company is evaluating the requirements of SFAS No. 123R and expects
          that
          its adoption will have a material impact on the company’s consolidated financial
          position and consolidated results of operations including an increase
          in compensation expense for equity and liability instruments issued to
          employees .
          The
          company has not yet determined the method of adoption or the effect of
          adopting
          SFAS No. 123R, and it has not determined whether the adoption will
          result
          in amounts that are similar to the current pro forma disclosures under
          SFAS
          No. 123.
 
 **NOTE
                  3-**
                **NOTES
                    PAYABLE**
 
 **Convertible
          Debenture**
 
 On
          May 13, 2005, the Company issued a convertible debenture (the “Debenture”)
          in the aggregate amount of $15.5 million to Cornell Capital. The
          Company
          used a significant portion of the proceeds to repay 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. Interest expense related to
          the retired note was $381,225 in the three-month period ended June 30,
          2005.
 
 The
          Debenture bears interest at an annual rate of 7.75% and is due and payable
          in
          the following installments over a three-year period: $500,000 is due on
          November
          15, 2005; $1,500,000 is due on May 15, 2006; $1,000,000 is due on each
          of August
          15, 2006, November 15, 2006 and February 15, 2007; $2,000,000 is due on
          each of
          May 15, 2007, August 15, 2007, November 15, 2007 and February 15, 2008;
          and the
          remaining $2,500,000 is due on May 15, 2008. The interest payable under
          the
          Debenture is due at the time of conversion or maturity; the holder of the
          Debenture may elect to receive the interest in cash or in the form of common
          stock of Mobilepro. Until the Debenture is repaid in full, Cornell Capital
          may
          elect to convert any portion of the outstanding principal amount of the
          Debenture, plus accrued interest, into shares of common stock of Mobilepro
          at a
          conversion price of $0.30 per share. The conversion price of the Debenture
          will
          adjust 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 Debenture. For the three-month
          period ended June 30, 2005, the amount of percentage interest expense related
          to
          the Debenture was $157,973; this amount was also included in accrued liabilities
          at June 30, 2005.
 
 The
          Debenture is secured by the assets of the Company.  The terms of
          the
          Debenture obligate the Company to comply with certain covenants including
          an
          agreement that, on March 1, 2006, if the Company’s aggregate indebtedness to
          Cornell Partners exceeds $4,000,000, the parties will enter a new SEDA
          in an
          amount not less than the amount of the indebtedness.
 
 In
          connection with the issuance of the Debenture, the Company also 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.
 
 The
          face
          amount of the Debenture is reflected in the balance sheet at June 30, 2005,
          net
          of unamortized debt discount of $802,725. The net amount reflects the fair
          market value on the date of issuance after allocating the proceeds between
          the
          Debenture and the Warrant. Proceeds of $853,200 were allocated to the value
          of
          the Warrant. The discount on the Debenture resulting from the allocation
          of
          proceeds to the value of the Warrant is being amortized as a charge to
          interest
          expense over the three-year period until the Debentures become due in
          May 2008. Interest expense for the three-month period ended June
          30, 2005
          included debt discount amortization in the amount of $50,475.
 
 **Standby
          Equity Distribution Agreement (the “SEDA”)**
 
 On
          May
          13, 2004, the Company entered into the SEDA with Cornell Capital that provides,
          generally, that Cornell Capital will 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 will purchase
          the shares at a 2% discount to the prevailing market price of the common
          stock.
          There are certain conditions applicable to the Company’s ability to draw down on
          the SEDA including the continuing effectiveness of a registration statement
          covering the resale of all shares of common stock that may be issued to
          Cornell
          Capital under the SEDA, the Company’s payment of a fee to Cornell Capital and
          other advisors at the time of each draw (5% of the amount of each draw),
          and the
          Company’s adherence with certain other covenants.
 
 14
 In
          the
          event that Cornell Capital would hold more than 9.9% of the then outstanding
          common stock of the Company, the Company would be unable to draw down on
          the
          SEDA. At June 30, 2005, Cornell did not hold more than 9.9% of the then
          outstanding common stock of the Company.
 
 In
          the
          three-month periods ended June 30, 2004 and 2005, the Company transferred
          borrowings under existing notes payable to Cornell Partners to the SEDA
          in the
          amounts of $2,000,000 and $7,200,000, respectively, and advanced 15,000,000
          shares of its common stock in each of the periods to the escrow agent in
          accordance with the terms of the SEDA. In the three-month period ended
          June 30,
          2005, the Company converted $7,800,000 in borrowings under the SEDA into
          29,303,762 shares of common stock that were issued to Cornell Capital by
          the
          escrow agent. There were no borrowings converted to common stock under
          the SEDA
          in the three-month period ended June 30, 2004. At March 31, 2005 and June
          30,
          2005, borrowings under the SEDA of $6,500,000 and $5,900,000 were outstanding,
          respectively, and were classified in the accompanying balance sheets as
          current
          liabilities.
 
 The
          SEDA
          replaced a similar equity line of credit arrangement with Cornell Capital
          that
          was negotiated in May 2002 and that was intended to provide $10 million
          in
          equity financing to the Company. In the three months ended June 30, 2004,
          the
          Company drew $2,000,000 from Cornell Capital in accordance with this arrangement
          and advanced 10,000,000 shares of its common stock to the escrow agent.
          During
          the three months ended June 30, 2004, 18,298,438 shares of common stock
          were
          issued to Cornell Capital under this arrangement. At March 31, 2005 and
          June 30,
          2005, there were no outstanding borrowed amounts under this
          arrangement.
 
 **Notes
          Payable to Cornell Capital**
 
 On
          June
          24, 2005, the Company borrowed $6,300,000 from Cornell Capital, and
          simultaneously transferred $2,200,000 of the note balance into debt under
          the
          SEDA. The remaining amount of the note, $4,100,000, is due in one year
          with
          interest applied at an annual rate of 8% and was classified as a current
          liability in the balance sheet. Proceeds from this borrowing were used
          to fund
          the $1,500,000 cash consideration portion of the AFN purchase price and
          the
          $3,825,000 cash investment in Kite.
 
 In
          September 2004, the Company borrowed $3,700,000 from Cornell Capital. The
          amount
          was due in one year with interest applied at an annual rate of 12%. At
          March 31,
          2005, the Company classified the outstanding principal balance of this
          note
          payable of $3,700,000 as a current liability in the balance sheet. During
          the
          three-month period ended June 30, 2005, this remaining outstanding principal
          amount was transferred into debt under the SEDA.
 
 In
          August
          2004, the Company borrowed $8,500,000 from Cornell Capital. The amount
          was due
          in one-year with interest applied at an annual rate of 12%. Prior to March
          31,
          2005, the Company converted $7,200,000 of the note balance into debt under
          the
          SEDA; the remaining principal balance of the note payable, classified as
          a
          current liability in the balance sheet, was $1,300,000 at March 31, 2005.
          During
          the three-month period ended June 30, 2005, this remaining outstanding
          principal
          amount was transferred into debt under the SEDA.
 
 During
          the three-month period ended June 30, 2005, the interest expense on the
          notes
          payable to Cornell Capital, including amounts transferred to the SEDA,
          was
          $234,312. Accrued and unpaid interest at June 30, 2005 related to these
          notes
          was $530,465.
 
 The
          aggregate amount expensed for interest, conversion and financing
          fees and
          discounts related to notes payable to Cornell Capital in the three-month
          period
          ended June 30, 2004 was $290,567.
  **Notes
          Payable Related to Acquisitions**
 
 As
          a
          portion of the consideration paid to owners of acquired companies, the
          Company
          may issue promissory notes. These notes typically are payable over terms
          ranging
          from 4 months to two years and bear interest at annual rates ranging from
          3% to
          7%. At March 31, 2005 and June 30, 2005, the aggregate balances due under
          the
          acquisition notes payable were $1,723,201 and $2,408,726, respectively.
          At March
          31, 2005 and June 30, 2005, accrued interest amounts related to these notes
          were
          $43,066 and $25,984, respectively. During the three-month periods ended
          June 30,
          2004 and 2005, interest expense amounts related to these notes payable
          were
          $10,370 and $17,680, respectively. At June 30, 2005, notes maturing in
          March
          2006 payable to the former owners of The River Internet Access Co. with
          a total
          principal balance of $388,236 are also convertible into common stock of
          Mobilepro at a price of $0.20 per share at the option of the note holders.
 
 15
 During
          the three-month period ended June 30, 2005, the balance of two promissory
          notes
          payable to the prior owners of Clover Computer Corporation and the related
          accrued interest in the aggregate amount of $535,188 was converted into
          2,200,000 shares of common stock of Mobilepro.
 
 **Other
          Notes Payable and Long-Term Liabilities**
 
 The
          Company has other notes and long-term liabilities payable to banks and
          various
          other creditors and with aggregate balances due at March 31, 2005 and June
          30,
          2005 of $209,357 and $1,262,343, respectively.
 
 **Debt
          Maturities**
 
 A
          summary
          of the balances of notes payable and other debts at June 30, 2005 was as
          follows
          (unaudited):
 
 Convertible
                    debenture payable to Cornell Capital
                
                $
                15,500,000Notes
                    payable to Cornell Capital (including $5,900,000 transferred
                    to the
                    SEDA)
                
                
                10,000,000Notes
                    payable related to acquisitions
                
                
                2,408,726Other
                    notes payable and long-term obligations
                
                
                1,262,34329,171,069Less:
                    Unamortized debt discount on convertible debenture
                
                
                (802,725
                )Less:
                    Amounts due within one year
                
                
                (14,009,253
                )Long-term
                    portion of debt
                
                $
                14,359,091
 
 At
          June
          30, 2005, a summary of the future scheduled payments of the long-term portion
          of
          debt was as follows (unaudited):
 
 The
                    twelve-month period ending--June
                    30, 2007
                
                $
                4,625,431June
                    30, 2008
                
                
                8,015,048June
                    30, 2009
                
                
                2,515,048June
                    30, 2010
                
                
                6,28915,161,816Less
                    - Unamortized debt discount on convertible debenture
                
                
                (802,725
                )Long-term
                    portion of debt
                
                $
                14,359,091
 
 **NOTE
                  4-**
                **STOCKHOLDERS’
                    EQUITY**
 
 **Common
          Stock Transactions in the Fiscal Year Ended March 31, 2005**
 
 During
          the fiscal year ended March 31, 2005, the Company issued 1) 2,946,037 shares
          of
          its common stock in connection with the exercise of stock options and warrants
          for aggregate cash proceeds of approximately $100,000, 2) 2,000,000 shares
          of
          its common stock under a settlement agreement with a former executive valued
          at
          $90,000, and 3) 100,000 shares of common stock to an agency as compensation
          for
          personnel recruiting services.
 
 In
          June
          2004, the Company issued 8,000,000 shares of common stock in payment of
          the
          financing fees associated with the SEDA that were valued at $1,760,000.
          This
          cost was reflected as a deferred financing fee in the consolidated balance
          sheet.
 
 In
          August
          2004, the Company issued 878,816 shares of common stock to the former owners
          of
          ShreveNet as partial consideration for the acquisition of their company.
          The
          issued shares were valued at $190,000 based on the average 20-day closing
          price
          ($0.2162 per share) prior to June 3, 2004.
 
 In
          September 2004, the Company issued 5,000,000 shares of common stock to
          the
          former owners of Affinity as partial consideration for the acquisition
          of their
          company. The issued shares were valued at $1,000,000 based upon the date
          of
          agreement and the terms of the deal. The distribution of such value amount
          included an allocation of $995,000 to the terminated put agreement.
 
 In
          November 2004, the Company issued 39,999,999 shares of common stock in
          connection with the acquisition of CloseCall that was completed in October
          2004.
          The 39,999,999 shares were recorded at a fair value of $10,000,000.
 
 16
 In
          March
          2005, the Company issued 1,500,000 shares of common stock in connection
          with the
          acquisition of Web One that was completed in August 2004. The 1,500,000
          shares
          were recorded at a fair value of $300,000.
 
 During
          the year ended March 31, 2005, the Company issued 10,000,000 shares of
          common
          stock to the escrow agent for use in the conversion of borrowings made
          under the
          $10 million equity line of credit, and converted $3,800,000 of borrowings
          into
          25,276,134 shares of common stock.
 
 During
          the year ended March 31, 2005, the Company issued 65,000,000 shares of
          common
          stock to the escrow agent for use in the conversion of borrowings made
          under the
          SEDA, and converted $9,200,000 of debt into 52,172,192 shares of common
          stock.
          The Company also converted $13,907 of interest into 81,355 shares of common
          stock.
 
 **Common
          Stock Transactions in the Three-Month Period Ended June 30,
          2005**
 
 The
          Company issued 760,000 shares of common stock in connection with the acquisition
          of WazAlliance that was completed in May 2005; the shares were recorded
          at a
          fair value of $110,200. The Company also issued 100,000 shares of common
          stock
          to an agency as compensation for broker fees relating to this acquisition
          that
          were valued at $15,000.
 
 In
          June
          2005, the Company issued 2,200,000 shares of common stock in full satisfaction
          of the promissory notes, and related accrued interest, totaling $535,188
          that
          were issued in connection with the July 2004 acquisition of Clover.
 
 During
          the three months ended June 30, 2005, the Company issued 15,000,000 shares
          of
          common stock to the escrow agent for use in the conversion of borrowings
          made
          under the SEDA, and converted $7,800,000 of SEDA debt into 29,303,762 shares
          of
          common stock.
 
 **Stock
          Options and Warrants**
 
 The
          stockholders of the Company have approved the issuance of 1,000,000 shares
          of
          common stock in connection with stock options granted pursuant to the 2001
          Equity Performance Plan (the “2001 Plan”). The board of directors subsequently
          authorized an increase in the number of shares available under the 2001
          Equity
          Performance Plan from 1,000,000 to 30,000,000. In addition, the Company
          has
          issued options and warrants to purchase common stock to key personnel pursuant
          to specific authorization of the board of directors outside the scope of
          the
          2001 Plan. The following tables summarize the stock option activity and
          the
          warrant activity for the three months ended June 30, 2005 (unaudited):
 
 **Number
                    of**
                
                **Weighted-Average****Stock
                    Options****--**
                
                **Options**
                
                **Exercise
                    Price**Outstanding
                    - March 31, 2005
                
                
                1,725,000
                
                $
                0.192Granted
                
                
                -
                
                $
                -Exercised
                
                
                -
                
                $
                -Cancelled
                
                
                -
                
                $
                -Outstanding
                    - June 30, 2005
                
                
                1,725,000
                
                $
                0.192Exercisable
                    - June 30, 2005
                
                
                885,416
                
                $
                0.170
 **Number
                      of**
                  
                  **Weighted-Average****Stock
                      Warrants****--**
                  
                  **Warrants**
                  
                  **Exercise
                      Price**Outstanding
                      - March 31, 2005
                  
                  
                  61,232,500
                  
                  $
                  0.117Granted
                  
                  
                  18,850,000
                  
                  $
                  0.296Exercised
                  
                  
                  -
                  
                  $
                  -Cancelled
                  
                  
                  -
                  
                  $
                  -Outstanding
                      - June 30, 2005
                  
                  
                  80,082,500
                  
                  $
                  0.159Exercisable
                      - June 30, 2005
                  
                  
                  58,153,275
                  
                  $
                  0.163
 
 17
 
 **NOTE
                  5-**
                **LIABILITY
                    FOR COMMON STOCK TO BE
                    ISSUED**
 
 As
          the
          purchase prices of certain acquisitions are subject to post-closing adjustments,
          all of the common stock of the Company due to the former owners of such
          acquired
          companies has not yet been issued. The liability for common stock to be
          issued
          at June 30, 2005 reflects an obligation to issue 12,045,360 shares in the
          aggregate, including $78,300, $231,073 and $1,500,000 relating to the
          acquisitions of WazAlliance, Evergreen and AFN, respectively.
 
 **NOTE
                  6-**
                **EARNINGS
                    PER SHARE**
 
 Options
          and warrants to purchase 81,807,500 shares were outstanding at June 30,
          2005.
          The dilutive effect of these agreements resulted in the addition of 39,571,209
          shares in the computation of diluted earnings per share for the three months
          ended June 30, 2005. The dilutive effect of the Debenture and other convertible
          notes payable resulted in the addition of 13,098,800 shares in the computation
          of diluted earnings per share for the three months ended June 30, 2005.
          The
          computation of dilutive earnings per share for the three-month period ended
          June
          30, 2005 was as follows (unaudited):
 
 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
 
 **NOTE
                  7-**
                **COMMITMENTS**
  During
          the three-month period ended June 30, 2005, Mr. Jay O. Wright, the Company’s
          President and Chief Executive Officer, extended his employment agreement
          with
          the Company through 2007, with the extension stipulating annual salary
          amounts
          during the term, restructuring the basis for bonus awards, and providing
          severance payment terms. The Company also has an employment contract with
          each
          senior executive, including the chief financial officer, the general counsel,
          and the general managers of the technology segment, the Internet service
          segment, CloseCall and Davel.
  In
          August
          2004, the Company announced its intention to issue a property dividend
          of
          3,073,113 shares of common stock of Solution Technology International,
          Inc.
          (“STI”). The Company has a 5% ownership interest in STI. The Company
          stockholders are expected to receive one share of registered (i.e.
“free-trading”) STI stock for approximately every 93 shares of the Company stock
          that they own, based on the existing shares outstanding and certain warrants.
          The Company’s board of directors set September 15, 2004 as the record date for
          the stock dividend. In March 2005, STI withdrew its registration statement
          from
          the United States Securities and Exchange Commission. STI is contemplating
          other
          options to become a publicly traded company. The Company intends to pursue
          issuance of the property dividend upon STI obtaining its public listing.
          At this
          time, no date has been established for such listing.
 
 **NOTE
                  8-**
                **CONTINGENCIES**
 
 During
          the fiscal year ended March 31, 2005, management concluded that uncertainty
          pertaining to the Company’s ability to operate as a going concern should be
          eliminated. The events and factors considered by management in reaching
          its
          decision included the ability of the Company to obtain short-term and bridge
          loans, the commitment received from Cornell Capital to provide the Company
          with
          up to $100 million in equity financing through the SEDA, and the ability
          of the
          Company to consummate a series of fourteen acquisitions in the fifteen-month
          period ended March 31, 2005. The acquired Internet and voice service providers
          are expected to generate revenues and to provide cash flow from operations.
          In
          the three-month period ended June 30, 2005, the Company refinanced a high
          interest, short-term bridge loan in the amount of $13 million with the
          proceeds
          of the Debenture that is scheduled to be paid over a three-year term (see
          Note
          3) bearing an annual interest rate 7.75%, and established or extended the
          employment arrangements with the Company’s key executives.
 
 18
 **Litigation
          and Other Legal Proceedings**
 
 As
          of
          June 30, 2005, the Company was party to the following material legal
          proceedings.
 
 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 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. During the three-month period ended June 30, 2005, the
          Company
          received significant regulatory receipts that are being held in escrow.
          The case
          is in the discovery phase of the litigation, and it is unable to predict
          the
          likely outcome or assess the sufficiency of the escrowed receipts to cover
          legal
          costs and losses, if any, related to this matter.
 
 In
          2002,
          Davel was served with a complaint, in an action captioned Sylvia
          Sanchez et al. v. Leasing Associates Service, Inc., Armored Transport Texas,
          Inc., and Telaleasing Enterprises, Inc .
          alleging that Davel was grossly negligent or acted with malice, and that
          such
          actions proximately caused the death of Thomas Sanchez, Jr., a former Davel
          employee. This complaint was forwarded to Davel’s insurance carrier for action;
          however, Davel’s insurance carrier denied coverage based upon the workers
          compensation coverage exclusion contained in the insurance policy. The
          parties
          are currently engaged in the discovery process. The trial originally scheduled
          for June 2004 was continued to November 2004; however, the trial has been
          delayed further by motion of the plaintiff and approval of the court. It
          is
          anticipated that the trial will be scheduled for November 2005. While Davel
          believes that it has meritorious defenses to the allegations contained
          in the
          second amended complaint and intends to vigorously defend itself, Davel
          cannot
          at this time predict its likelihood of success on the merits.
 
 The
          Company terminated Mr. Kevin Kuykendall, former President of the Company’s voice
          division, for cause under the terms of his executive employment agreement,
          effective Wednesday, December 29, 2004. In May 2005, the Company and Mr.
          Kuykendall dropped all complaints and legal proceedings against each other
          and
          signed a confidential settlement agreement and mutual general
          release.
 
 **NOTE
                  9-**
                **SEGMENT
                    INFORMATION**
 
 The
          Company’s reportable operating segments include voice services, Internet
          services and technology. Results of operations and certain asset data relating
          to the Company’s business segments for the three-month periods ended June 30,
          2004 and 2005 are as follows (unaudited):
  The
                    Three Month Period
                
                Voice
                
                InternetEnded
                    June 30, 2004
                
                Services
                
                Services
                
                Technology
                
                Corporate
                
                TotalRevenues
                
                $
                -
                
                $
                1,020,164
                
                $
                -
                
                $
                150,000
                
                $
                1,170,164Costs
                    of revenues
                
                
                -
                
                
                357,939
                
                
                -
                
                
                -
                
                
                357,939Gross
                    profit
                
                
                -
                
                
                662,225
                
                
                -
                
                
                150,000
                
                
                812,225Operating
                    expenses
                
                
                -
                
                
                424,314
                
                
                523,620
                
                
                279,320
                
                
                1,227,254Depreciation,
                    amortization
                  and
                    impairment charges
                
                
                -
                
                
                36,297
                
                
                -
                
                
                3,647
                
                
                39,944Interest,
                    net
                
                
                -
                
                
                11,899
                
                
                -
                
                
                290,567
                
                
                302,466Net
                    income (loss)
                
                $
                -
                
                $
                189,715
                
                $
                (523,620
                )
                $
                (423,534
                )
                $
                (757,439
                )Total
                    assets
                
                $
                275,000
                
                $
                6,428,298
                
                $
                22,725
                
                $
                3,498,401
                
                $
                10,224,424Fixed
                    assets, net of accumulated depreciation
                
                $
                -
                
                $
                600,196
                
                $
                18,234
                
                $
                -
                
                $
                618,430Goodwill,
                    net of impairment
                
                $
                -
                
                $
                4,462,469
                
                $
                -
                
                $
                -
                
                $
                4,462,469
 
 19
 The
                    Three Month Period
                
                Voice
                
                InternetEnded
                    June 30, 2005
                
                Services
                
                Services
                
                Technology
                
                Corporate
                
                TotalRevenues
                
                $
                18,462,451
                
                $
                4,037,400
                
                $
                5,994
                
                $
                -
                
                $
                22,505,845Costs
                    of revenues
                
                
                9,054,032
                
                
                1,956,024
                
                
                11,806
                
                
                -
                
                
                11,021,862Gross
                    profit
                
                
                9,408,419
                
                
                2,081,376
                
                
                (5,812
                )
                
                -
                
                
                11,483,983Operating
                    expenses
                
                
                6,940,911
                
                
                1,752,806
                
                
                227,949
                
                
                388,574
                
                
                9,310,240Depreciation,
                    amortization
                  and
                    impairment charges
                
                
                736,543
                
                
                81,799
                
                
                388
                
                
                3,647
                
                
                822,377Interest,
                    net
                
                
                549
                
                
                18,464
                
                
                (74
                )
                
                913,236
                
                
                932,175Net
                    income (loss)
                
                $
                1,730,416
                
                $
                228,307
                
                $
                (234,075
                )
                $
                (1,305,457
                )
                $
                419,191Total
                    assets
                
                $
                35,744,527
                
                $
                17,960,916
                
                $
                8,082,405
                
                $
                23,414,931
                
                $
                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
 
 **NOTE
                  10-**
                **SUBSEQUENT
                    EVENTS**
 
 On
          July
          1, 2005, the Company issued 906,753 shares of its common stock in satisfaction
          of an obligation for accrued interest in the amount of $290,433 related
          to the
          $8,500,000 note payable to Cornell Capital.
 
 On
          July
          5, 2005, the Company announced that it had signed a letter of intent to
          acquire
          Tiger Communications, Inc., an Internet and telecommunications company
          located
          in Chicago. The Company expects to close this transaction in its second
          fiscal
          quarter, subject to the execution of definitive agreements and the satisfaction
          of customary closing conditions.
 
 On
          July
          11, 2005, the Company signed a letter of intent to acquire certain Internet
          service provider assets of ATX Communications, Inc. that are clustered
          in
          several mid-western states. A closing would be subject to the execution
          of
          definitive agreements and the satisfaction of customary closing
          conditions.
 
 On
          July
          13, 2005, the Company issued 6,000,000 of the 10,000,000 shares owed to
          the
          former owner of AFN. The Company expects to issue the remaining 4,000,000
          shares
          in the second quarter ending September 30, 2005.
 
 Subsequent
          to June 30, 2005, The Company converted $500,000 of the $5,900,000 balance
          of
          outstanding SEDA debt at June 30, 2005 into 1,684,942 shares of its common
          stock. The remaining balance of $5,400,000 in SEDA borrowings is scheduled
          to
          convert into shares of common stock in installments over the period ending
          December 31, 2005.


20





**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, 2004 and 2005, our financial condition at
      June 30, 2005 and the factors that 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-QSB. 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-QSB 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
      wireless technology, telecommunications, broadband 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, developing and 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. We are also an innovator and developer
      of
      wireless broadband networks and services. Our wireless broadband networks and
      services will be provided in our Wireless Access Zones (WAZ) 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.





21








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





**Technology**
            Our
                wireless technology development efforts are conducted by our wholly-owned
                subsidiary, NeoReach, Inc., and its subsidiary NeoReach Wireless,
                Inc.
                (“NeoReach Wireless”). NeoReach, Inc. is focused on our ongoing ZigBee
                chip development work while NeoReach Wireless is focused on our strategic
                initiatives within the Wi-Fi / Wi-Max space.**Voice Services**
            Our
                voice services segment is led by CloseCall America, Inc. (“CloseCall”), a
                Competitive Local Exchange Carrier (“CLEC”) 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, 1.800CloseCall anytime/anywhere calling, digital wireless,
                high-speed telephone (voice over IP), and dial-up and DSL Internet
                services. AFN is licensed to provide local telephone, long distance
                and
                Internet services in the forty-eight (48) states. Davel owns and
                operates
                approximately 38,000 payphones in 45 states and 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
                based in Irving, Texas, and its acquired Internet service provider
                subsidiaries. Our Internet services segment provides broadband and
                dial-up
                internet access, web-hosting services and related Internet services
                to
                business and residential customers in over 40
                states.





Our
      most
      significant cost of revenues category is the cost of network services, which
      is
      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, interexchange 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. Depreciation expense on our network
      equipment and amortization of developed technology are excluded from our cost
      of
      network services and included in depreciation and amortization of property
      and
      equipment and amortization of intangible assets in our consolidated statements
      of operations.





Our
      operating expenses include costs related to sales, marketing, administrative
      and
      management personnel; outside legal, accounting and consulting services; and
      other costs of being a publicly traded company, including legal fees audit
      fees,
      insurance premiums and board of directors compensation costs.





**Recent
      Events**




Significant
      events that occurred in the three-month period ended June 30, 2005 included
      the
      consummation of three additional acquisitions, the acquisition of a controlling
      interest in a company that will supply broadband wireless services to customers
      of Sprint Communications Company (“Sprint”), and the refinancing of a $13
      million acquisition bridge loan.





In
      May
      2005, NeoReach Wireless acquired Transcordia, LLC, d/b/a/ WazAlliance, a network
      of metro-wide commercial and residential wireless Internet access zones for
      a
      purchase price of $257,500; consideration included common stock and cash. The
      Company had previously partnered with WazAlliance in connection with projects
      to
      deploy full-scale metro-wide service in both Tempe and Chandler, Arizona, known
      as WazTempe and WazChandler. The network also includes WazHamptonRoads and
      WazMaui. This alliance provides citywide multi-band wireless networks for
      municipal vehicles and personnel, including public safety employees as well
      as
      services for residences, retail businesses, schools, public events, hotels
      and
      resorts, and public transportation.





22


In
      May
      2005, we issued a convertible debenture in the aggregate amount of
      $15.5 million to Cornell Capital Partners, L.P. (“Cornell Capital”). We
      used a significant portion of the proceeds to repay 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 our acquisition of Davel. The debenture is payable in installments
      over a three-year period and bears interest at an annual rate of
      7.75%.





In
      June
      2005, we acquired Evergreen Open Broadband, a wholesale wireless Internet
      service provider based in Boston, for a purchase price of approximately $231,073
      to be paid in shares of common stock





In
      June
      2005, we acquired a 51% ownership interest in Kite Broadband, LLC (“Kite”) with
      the investment of $3,825,000 cash. On June 30, 2005, Kite executed a Master
      Agreement for Services with Sprint under which Kite shall provide services
      to
      Sprint’s broadband customers in fourteen (14) metropolitan markets for a period
      of three years utilizing the Sprint mark. The 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. Kite is entitled to have Sprint remit collected
      customer revenues in exchange for these services and remit a monthly fee back
      to
      Sprint for network support and transport services. The customers remain Sprint
      customers during the three-year term of the agreement. Upon expiration of the
      agreement, Kite will have the option to acquire the then existing customers
      pursuant to the terms of the agreement. All network and spectrum assets will
      remain the property of Sprint.





In
      June
      2005, we acquired AFN for consideration of $3,000,000, including a liability
      to
      issue 10,000,000 shares of Mobilepro common stock and a cash payment of
      $1,500,000. We assumed liabilities totaling $1,549,784 including $1,337,103
      payable to a related party company that supplies administrative and support
      services to AFN. By September 13, 2005, we will file a Current Report on Form
      8-K including audited financial statements for AFN and corresponding pro forma
      financial information illustrating the effect of this acquisition on our
      operating results.





**Critical
      Accounting Policies**




We
      believe there have been no significant changes in our critical accounting
      policies during the three-month period ended June 30, 2005 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, 2005. During this period, because the $100 million
      Standby Equity Distribution Agreement with Cornell Capital (the “SEDA”) is
      providing equity financing to us, we began to amortize deferred financing costs
      related to the SEDA to additional paid-in-capital and we began to charge this
      account for the additional fees paid to Cornell Capital and other financial
      advisors in connection with making draws under the SEDA.




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.





**New
      Accounting Pronouncements**





In
      December 2004, the Financial Accounting Standards Board revised SFAS
      No. 123. The revision, referred to as SFAS 123R, was entitled “Share-Based
      Payment”. This revised pronouncement replaces SFAS 123 and supersedes APB
      No. 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.





23


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 No. 123
      no longer will be an alternative to financial statement recognition of
      compensation expense. In accordance with a recently-issued Securities and
      Exchange Commission rule, companies will be allowed to implement SFAS
      No. 123R as of the beginning of the first interim or annual period that
      begins after June 15, 2005. We currently expect that we will adopt SFAS
      No. 123R for the fiscal quarter ending September 30, 2005.





Under
      SFAS No. 123R, we must determine 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 permitted
      transition methods include either retrospective or prospective adoption. Under
      the retrospective method, prior periods may be restated either as of the
      beginning of the year of adoption or for all periods presented. The prospective
      method requires that compensation expense be recorded for all unvested stock
      options at the beginning of the first quarter of adoption of SFAS No. 123R,
      while the retrospective methods would record compensation expense for all
      unvested stock options beginning with the first period presented. We are
      evaluating the requirements of SFAS No. 123R and expect that its adoption
      will have a material adverse impact on our consolidated financial position
      and
      consolidated results of operations including an increase in compensation expense
      for equity instruments issued to employees. We have not yet determined the
      method of adoption or the effect of adopting SFAS No. 123R, and we have
      not
      determined whether the adoption will result in amounts that are similar to
      the
      current pro forma disclosures that have been provided in accordance with SFAS
      No. 123.





**Results
      of Operations and Financial Condition**




**Total
      Revenues**





We
      generated consolidated revenues of $22,505,845 in the three-month period ended
      June 30, 2005 compared with revenues of $1,170,164 in the corresponding period
      of the prior fiscal year. Since April 1, 2004, we have completed the acquisition
      of sixteen companies that have provided significant revenues to us, particularly
      to our voice and Internet services 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.





**Revenues
      by Segment**





**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 current
      quarter ended June 30, 2005 were $18,462,451, representing 82% of consolidated
      revenues. No revenues were reported for this segment in the first quarter last
      year. The current year revenues were attributable primarily to CloseCall,
      Affinity Telecom, Inc. and Davel, all of which were acquired subsequent to
      last
      year’s first quarter. This group derives most of its operating revenues from
      recurring monthly charges, coin revenue and “dial-around” revenue that are
      generated by our communications services. Our local and long distance service
      revenues were negatively affected in the current year quarter by a continued
      decline in rates and competitive pressures to bundle long distance minutes
      of
      use within local service product offerings. Our existing base of business long
      distance minutes is also subject to increasing competition from both Voice
      Over
      Internet Protocol and wireless service offerings.





**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 30, 2005 were $4,037,400, representing approximately 18%
      of
      consolidated revenues. We reported Internet service revenues of $1,020,164
      for
      the prior year quarter ended June 30, 2004. The current year results included
      a
      full quarter of operating results for each of the eight data services companies
      acquired during the fiscal year ended March 31, 2005. As a result of the
      additions to revenues of the voice group as discussed above, we derived a
      decreasing percentage of our consolidated operating revenues from data services.





**Technology
      Services.** Our
      wireless technology development efforts are conducted by this group that is
      focused on our ongoing ZigBee chip development work and our strategic
      initiatives within the Wi-Fi / Wi-Max space. Revenues were insignificant in
      the
      current quarter. This segment did not generate any revenues for the fiscal
      quarter ended June 30, 2004. In April 2005, the technology group was awarded
      a
      five-year contract (with two five-year options) to deploy and manage a city-wide
      wireless network covering the 40 square mile area of Tempe, Arizona. The network
      is expected to reach approximately 65,000 households, 1,100 businesses, 50,000
      students and the annual visitors to Tempe. The network will also provide
      municipal services to Tempe police, fire, emergency, city and Arizona State
      University personnel. We believe that the WazTempe project is one of the first
      of its kind by providing a cost-effective alternative to residential dial-up
      service and local area hot-spot wireless access and serving as an alternative
      and/or complement to DSL and cable.





24


**Corporate.** From
      time
      to time, the corporate segment generates miscellaneous revenues. During the
      quarter ended June 30, 2004, we reported $150,000 in miscellaneous revenues.
      No
      such revenues were generated by this segment in the current year quarter.





**Gross
      Profits and Operating Expenses**





We
        generated a gross profit of $11,483,983 in the three-month period ended June
        30,
        2005, representing 51% of consolidated revenues, compared with a gross profit
        of
        $812,225 in the corresponding period of the prior year, representing 69%
        of
        consolidated revenues. Although we expect the amount of gross profit to increase
        in future periods, we anticipate that gross profit as a percentage of
        consolidated revenues may decline in the future if the revenues of our voice
        segment become a greater portion of consolidated revenues. The consolidated
        gross profit percentage was approximately 52% for the fiscal year ended March
        31, 2005.
 
 Our
        operating expenses for the three months ended June 30, 2005 were $10,132,617,
        representing 45% of consolidated revenues, compared with $1,267,198 in the
        corresponding period of the prior year, representing 108% of consolidated
        revenues. Operating expenses have increased, but decreased as a percentage
        of
        consolidated revenues, as we acquire companies and increase the size of the
        Company. Compensation expenses, professional fees paid to attorneys, accountants
        and other advisors, and other general and administrative expenses comprise
        the
        major portion of operating expenses. Such expenses represented 81% of total
        operating expenses in the three-month period ended June 30, 2005.


**Interest
      Expense**





Interest
      expense, net, was $932,175 for the three-month period ended June 30, 2005
      compared with $302,466 in the comparable period of the prior year. The amount
      of
      our debt has increased substantially between years as we have used debt
      financing to consummate certain major acquisitions. Most significantly, the
      purchase consideration for the acquisition of Davel in November 2004 included
      $14 million cash. These funds were provided by the proceeds of the acquisition
      bridge loan that bore an annual interest rate of 23%. In addition, we used
      funds
      borrowed from Cornell Capital to provide the $8 million cash portion of the
      CloseCall purchase consideration and the combined total of $5,325,000 in cash
      required to consummate the acquisition of AFN and to make our investment in
      Kite. As discussed above, the bridge loan was refinanced in the current year
      quarter with the proceeds of the convertible debenture. The major components
      of
      interest expense for the current year quarter included approximately $381,000
      related to the retired bridge loan, approximately $329,000 related to notes
      payable to Cornell Capital, and approximately $208,000 related to the
      convertible debenture including approximately $50,000 in debt discount
      accretion. In the comparable quarter of the prior year, interest expense
      included approximately $291,000 related to notes payable to Cornell Capital.





**Net
      Income (Loss)**




We
      reported net income of $419,191 for the three-month period ended June 30, 2005,
      or $0.0010 per share on a diluted basis, compared with a net loss of $757,439,
      or $(0.0033) per share, for the corresponding period of the prior year. Both
      the
      voice and Internet service business segments provided net income in the current
      year quarter totaling approximately $1,959,000, more than offsetting a net
      loss
      incurred by the technology segment of approximately $234,000 and corporate
      expenses of approximately $1,305,000. In the comparable quarter of the prior
      year, the Internet services segment provided net income of approximately
      $190,000 that was not sufficient to offset the combined net loss of the
      technology and corporate segments of approximately $947,000.





25





**Consecutive
      Quarter Results**





On
      a
      consecutive quarter basis, consolidated revenues declined by 3.1% from
      $23,242,778 reported for the three-month period ended March 31, 2005. Despite
      this decline and although interest expense increased by approximately $326,000
      in the current quarter, we increased net income by $318,823 from net income
      of
      $100,368 reported in the fourth quarter of last year to $419,191 in the current
      quarter. The increase was due to a decline in operating expenses of
      approximately $1,011,000 in the current quarter as both the Internet and voice
      services segments reduced operating expenses in the quarter, beginning to take
      advantage of economies of scale. Our gross profit percentage was approximately
      51% in both the fourth quarter of last year and the current quarter. In
      addition, EBITDA, as displayed below, increased by 46.5% on a consecutive
      quarter basis from $1,483,652 in the fourth quarter of the prior fiscal year
      to
      $2,173,743 in the current quarter.





The
        consecutive quarter revenue decrease was due substantially to an 11.9% decline
        in the revenues of the Internet services group, from $4,580,492 in the fourth
        quarter of the prior fiscal year to $4,037,400 in the current quarter. The
        success of our growth strategy will depend on our ability to transition
        customers to new Internet access services, especially broadband wireless.
        However, at present, dial-up subscribers represent the largest group of
        customers of the Internet services group. The erosion of this customer base
        is
        likely to continue until our new efforts to transition these customers to
        enhanced services become effective.





**EBITDA
      Presentation**





EBITDA
      represents net income (loss) before interest, taxes, depreciation and
      amortization. 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 EBITDA for the three-months periods ended June
      30,
      2004, March 31, 2005 and June 30, 2005 are as follows.





**For
                the ThreeMonths EndedMarch 31,**
            
            **For
                the Three MonthsEnded June 30**,**2005**
            
            **2004**
            
            **2005**Net
                Income (Loss)
            
            $
            100,368
            
            $
            (757,439
            )
            $
            419,191Add
                non-EBITDA items included in net results:Depreciation
                and amortization
            
            
            777,001
            
            
            39,944
            
            
            822,377Interest
                expense, net
            
            
            606,283
            
            
            302,466
            
            
            932,175EBITDA
            
            $
            1,483,652
            
            $
            (415,029
            )
            $
            2,173,743




Our
      negative EBITDA in the first quarter of the prior fiscal year was primarily
      attributable to acquisition costs and the low level of operations. In the fourth
      quarter of the prior fiscal year, we reported our first quarterly profit,
      contributing to a positive EBITDA of $1,483,652. Due to increased net income
      in
      the current quarter, despite increases in both depreciation and interest
      expense, our EBITDA increased to $2,173,743 for the three-month period ended
      June 30, 2005.





We
      consider 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 do 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.




26


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.





**Liquidity
      and Capital Resources**




During
      the three-month period ended June 30, 2005, our balance of unrestricted cash
      and
      cash equivalents increased by $319,169 to $4,988,956.





Despite
      net income for the quarter ended June 30, 2005 of $419,191, we used net cash
      of
      $1,350,056 in operating activities. Most significantly, we used cash to reduce
      accounts payable and accrued liabilities by $2,542,829. Our financing activities
      during the current quarter provided net cash proceeds of $7,376,724, including
      $1,205,000 from the refinancing of the bridge loan and $6,300,000 from
      borrowings under additional notes payable to Cornell Capital. Net cash paid
      in
      connection with the consummation of acquisitions and investments during the
      current quarter was $5,101,234, and we made capital expenditures during the
      current quarter totaling $606,265.





In
      the
      corresponding period of the prior year, the balance of cash and cash equivalents
      decreased by $158,768. We borrowed $4,000,000 from Cornell Capital in the
      prior-year quarter, using $3,378,780 in cash to consummate acquisitions and
      $680,212 in cash to fund operations.





Our
      primary liquidity and capital resource needs are to finance the costs of our
      acquisitions, to fund operating activities, to make capital expenditures and
      to
      service our debt. Over the last fifteen months, despite our improving
      profitability, we have depended on funds provided by Cornell Capital to meet
      our
      primary needs. Under a series of notes payable to Cornell Capital, we have
      borrowed approximately $29,000,000 since April 1, 2004, including $19,000,000
      converted to common stock pursuant to the provisions of the Cornell Capital
      equity lines of credit. In addition, proceeds of $15,500,000 were provided
      to us
      in the current quarter through the issuance of the convertible debenture to
      Cornell Capital. As discussed above, we used a substantial portion of these
      proceeds to retire the remaining $13 million balance of the acquisition bridge
      loan. We have also used our common stock as consideration in connection with
      a
      number of acquisitions. In the last fifteen months, we have issued common stock
      valued at approximately $12,135,000 in connection with our acquisition
      activities.





Based
      upon our current level of operations, we expect that our future cash flows
      from
      operations, together with the funds we are able to obtain under our existing
      SEDA facility, will be adequate to meet our anticipated cash needs for the
      foreseeable future. To the extent we decide to pursue one or more significant
      strategic acquisitions, we will likely need to incur additional debt or issue
      additional equity to finance those acquisitions. We currently have no
      significant capital spending or purchase commitments but expect to continue
      to
      engage in capital spending in the ordinary course of business.





During
      the fiscal year ended March 31, 2005, we concluded that uncertainty pertaining
      to our ability to operate the Company as a going concern should be eliminated.
      The events and factors considered by us in reaching this conclusion included
      our
      ability to obtain short-term and bridge loans, the commitment received from
      Cornell Capital to provide us with up to $100 million in equity financing
      through the SEDA, and our ability to consummate a series of fourteen
      acquisitions in the fifteen-month period ended March 31, 2005. The acquired
      Internet and voice service providers are expected to generate revenues and
      to
      provide cash flow from operations. In addition, as discussed above, in the
      three-month period ended June 30, 2005, we refinanced the short-term bridge
      loan
      in the amount of $13 million, bearing interest at an annual rate of 23%, with
      the proceeds of the $15.5 million debenture that is scheduled to be paid over
      a
      three-year term and that bears an annual interest rate of 7.75%.





27


**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.





**Risks
      Related To Our Business**





Investing
      in our securities involves a high degree of risk. Our future
      results may be impacted by risks associated with the execution of our strategic
      plan and the creation of a profitable and cash-flow positive business, our
      ability to obtain capital or to obtain capital on terms acceptable to us, the
      successful integration of acquired companies into our consolidated operations,
      our ability to successfully manage diverse operations remotely located, our
      ability to successfully compete in highly competitive communications industries,
      rapid technological change and the emerging services market, the effective
      protection of our intellectual property rights, the successful resolution of
      ongoing litigation, our dependence upon key managers and employees and our
      ability to retain them, and potential fluctuations in quarterly operating
      results. Before
      investing in our securities, in addition to this summary of risks, you should
      consider the following discussion of risk factors, other information contained
      in this Quarterly Report on Form 10-QSB, and the extensive discussion of “Risks
      Related to Our Business” contained in our Annual Report on Form 10-KSB for the
      fiscal year ended March 31, 2005. Our
      future results may also be impacted by other risk factors listed from time
      to
      time in our future filings with the SEC, including, but not limited to, our
      Quarterly Reports on Form 10-QSB and our Annual Report on Form
      10-KSB.





**We
      Have Historically Lost Money and Losses May Continue in the Future, Which Means
      That We May Not Be Able to Achieve Profits**




We
        have
        historically lost money. In the years ended March 31, 2005 and 2004,
        we
        sustained net losses of $5,359,722 and $2,157,844, respectively. Future losses
        may occur. Accordingly, we may 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. No assurances can be given that we will be
        successful in maintaining profitable operations.





**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 only five years ago, we have undergone a number of changes in
      our
      business strategy and organization. Accordingly, the Company has a limited
      operating history upon which an evaluation of its prospects can be made.





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, Inc. and shifted our focus toward solutions supporting the
      third generation wireless market. We shifted our business strategy again in
      December 2003 when we expanded our development focus to include development
      of a semiconductor chip and by entering the broadband Internet service provider,
      competitive local exchange carrier and independent payphone service provider
      sectors.





We
      intend
      to pursue additional acquisitions to further the development of our Internet
      services business, competitive local exchange and wireless broadband businesses.
      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. In addition, because
      of our limited operating history, we have limited insights into trends that
      may
      emerge and affect our business.





Our
      ability to achieve organic revenue growth is dependent upon the success of
      long-term projects, such as our wireless initiatives, that require significant
      up-front expense to us. There can be no assurance that the projects will be
      successfully completed or that the completed projects will provide the
      anticipated revenues. Our failure to perform services or to deliver products
      on
      a timely basis, or any failure by a third party with which we may contract,
      could result in a substantial loss to us. In addition, difficulty in completing
      a project could have a material adverse effect on our reputation, and
      consequently our business and results of operations.





28


If
      we are
      unsuccessful in the execution of our current strategic plan, we could be forced
      to reduce or cease our operations.





**We
      Will Need to Raise Additional Capital to Continue Our Operations and Continue
      Making Acquisitions, or We May Be Unable to Fund Our Operations, Promote Our
      Products or Develop Our Technology**





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. Over the next two years we anticipate
      that,
      in addition to the $100 million available to us under the SEDA with
      Cornell
      Capital, we may need to raise additional or alternative capital to fund
      additional acquisitions. We anticipate that these additional funds will be
      in
      the range of $10 million to $50 million, depending on the pace
      and
      size of our acquisitions. We cannot assure you that financing whether from
      external sources or related parties will be available if needed or on favorable
      terms. Future funding from Cornell Capital under the SEDA may be unavailable
      if
      Cornell Capital holds more than 9.9% of our outstanding common stock at the
      time
      financing is needed. In addition, the sale of our common stock to raise
      additional capital may cause dilution to our existing stockholders. If
      additional financing is not available when required or is not available on
      acceptable terms, we may be unable to fund our operations and expansion,
      successfully promote our brand name, products or services, develop or enhance
      our technology, take advantage of business opportunities or respond to
      competitive market pressures, any of which could make it more difficult for
      us
      to continue operations. Any reduction in our operations may result in a lower
      stock price.




**We
      May Not Successfully Execute or Integrate Our Acquisitions**





Our
      business model is dependent upon growth through acquisition of other
      telecommunication service providers. We have completed sixteen acquisitions
      during the fifteen-month period ended June 30, 2005. 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.





29


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**





At
      June
      30, 2005, our balance sheet included intangible assets with a total carrying
      value of approximately $47,919,000, representing 56.2% of total assets and
      including approximately $37,190,000 in goodwill. Substantially, this goodwill
      has been recorded in connection with the series of acquisitions completed by
      us
      since  April
      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 look 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. As of March 31, 2005 and June 30, 2005, we determined
      that there was no impairment loss.





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





**Costs
      Of Our Payphone Division Are Subject to a Variety of State and Federal
      Regulations**





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.





In
      addition, the December 2004 decision by the Federal Communications Commission
      to
      abolish "UNE-P" rules and rates will likely increase 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 is Subject to Intense Competition**





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 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. 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.





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





30


**Our
      Payphone Division Relies upon Third-Party Providers**





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 financial impact relates to revenues from and collectibility of access
      code calls and toll-free dialed calls, or dial around compensation. Dial around
      compensation represents a material percentage of our consolidated revenues.
      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 adverse effects to future
      consolidated revenues and net profits.





**Item
      3. Controls and Procedures.**





Under
      the
      supervision and with the participation of our management, including our Chief
      Executive Officer (CEO) and Chief Financial Officer (CFO), 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-QSB. Based upon that
      evaluation, our CEO and our CFO 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.





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-QSB
      that
      have materially affected, or are reasonably likely to materially affect, our
      internal controls over financial reporting.





While
      we
      believe our disclosure controls and procedures and our internal control over
      financial reporting are adequate, no system of controls can prevent all error
      and all fraud. A control system, no matter how well designed and operated,
      can
      provide only reasonable, not absolute, assurance that the control system's
      objectives will be met. Further, the design of a control system must reflect
      the
      fact that there are resource constraints, and the benefits of controls must
      be
      considered relative to their costs. Because of the inherent limitations in
      all
      control systems, no evaluation of controls can provide absolute assurance that
      all control issues and instances of fraud, if any, within our company have
      been
      detected. These inherent limitations include the realities that judgments in
      decision-making can be faulty, and that breakdowns can occur because of simple
      error or mistake. Controls can also be circumvented by the individual acts
      of
      some persons, by collusion of two or more people, or by management override
      of
      the controls. The design of any system of controls is based in part upon certain
      assumptions about the likelihood of future events, and there can be no assurance
      that any design will succeed in achieving its stated goals under all potential
      future conditions. Over time, controls may become inadequate because of changes
      in conditions or deterioration in the degree of compliance with its policies
      or
      procedures. Because of the inherent limitations in a cost-effective control
      system, misstatements due to error or fraud may occur and not be
      detected.








31


**PART
      II**


**OTHER
      INFORMATION**





**Item
      1. Legal Proceedings.**





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, have agreed to reimburse us 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 us for costs incurred in
      connection with the litigation. The secured lenders are not required to fund
      the
      escrow account or otherwise reimburse us 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 incurred in defending or settling the litigation
      matter.





On
      or
      about October 15, 2002, Davel was served with a complaint, in an action
      captioned Sylvia Sanchez et al. v. Leasing Associates Service, Inc., Armored
      Transport Texas, Inc., and Telaleasing Enterprises, Inc. Plaintiffs claim that
      Davel was grossly negligent or acted with malice and such actions proximately
      caused the death of Thomas Sanchez, Jr., a former Davel employee. On or about
      January 8, 2002, the Plaintiffs filed their first amended complaint adding
      a new
      defendant, LAI Trust, and on or about January 21, 2002 filed their second
      amended complaint adding new defendants Davel Communications, Inc., DavelTel,
      Inc. and Peoples Telephone Company. DavelTel, Inc. and Peoples Telephone Company
      are subsidiaries of Davel. The original complaint, as well as the first and
      second amended complaints, were forwarded to Davel’s insurance carrier for
      action; however, Davel’s insurance carrier denied coverage based upon the
      workers compensation coverage exclusion contained in the insurance policy.
      Davel
      answered the complaint on or about January 30, 2003. The parties are currently
      engaged in the discovery process. The trial originally scheduled for June 2004
      had been continued to November 2004; however, the trial has been delayed by
      motion of the plaintiff and approval of the court. It is currently anticipated
      that the trial will be scheduled for November 2005. While Davel believes that
      it
      has meritorious defenses to the allegations contained in the second amended
      complaint and intends to vigorously defend itself, we cannot at this time
      predict its likelihood of success on the merits.





We
      terminated Kevin Kuykendall, former President of our voice division, for cause
      under the terms of his Executive Employment Agreement, effective Wednesday,
      December 29, 2004. In May 2005, the Company and Mr. Kuykendall dropped all
      complaints and legal proceedings against each other and signed a confidential
      settlement agreement and mutual general release.





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 has sued for “in excess
      of $1,000,000” based on alleged unpaid invoices for services provided to
      CloseCall. Verizon asserts that CloseCall has underpaid the Federal Subscriber
      Line Charges billed by Verizon, by applying an uncollectible factor to the
      amounts charged by Verizon. In addition, Verizon contends that CloseCall has
      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 an Answer and Counterclaims
      against Verizon on November 1, 2004. In response to the Complaint filed by
      Verizon, CloseCall has asserted two primary defenses. First, CloseCall contends
      that its resale agreements with Verizon allow CloseCall to either (a) pay
      Verizon the Subscriber Line Charges billed or (b) collect the Subscriber Line
      Charges from CloseCall’s customers and remit those collections to Verizon.
      CloseCall has opted to collect the Subscriber Line Charges from its customers
      and remit those sums to Verizon. As with payments made to taxing authorities,
      CloseCall applies its uncollectible factor to the amounts billed by Verizon
      for
      the Subscriber Line Charges to account for the portion of CloseCall’s subscriber
      base that does not pay for the services billed. Second, with regard to the
      merger discount, CloseCall has calculated the amounts owed to Verizon for resold
      telecommunications services by applying the terms of the promotional discount
      set forth on Verizon’s website at the time CloseCall opted into the discount in
      January 2001. At that time, CloseCall’s account manager at Verizon represented
      that the website included the applicable merger discount provisions.
      Subsequently, and without notice to CloseCall, Verizon added new and different
      conditions that attempted to limit the application of the merger discount to
      CloseCall.





32


CloseCall
      has also filed counterclaims against Verizon. The first claim stems 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 has 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. The damages associated with
      this claim will be determined by data and information that has not yet been
      produced by Verizon. CloseCall has asserted damages as a result of Verizon’s
      failure to provide dialing parity to CloseCall’s customers. The damages claimed
      will depend on data that has not yet been produced by Verizon. CloseCall has
      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 has also
      made
      a declaratory judgment claim for inaccurate and improper billings by Verizon,
      including carrier access billing service charges. Currently, the parties are
      in
      discovery. While CloseCall believes that its counterclaims against Verizon
      are
      valid and that it has meritorious defenses to the allegations contained in
      the
      complaint and intends to vigorously prosecute the claims as well as defend
      itself, CloseCall cannot at this time predict its likelihood of success on
      the
      merits.




**Item
        2. Changes in Securities.**
  On
        May
        16, 2005, we issued a $15.5 million debenture to Cornell Capital Partners,
        L.P.,
        convertible into our common stock at a price of $0.30 per share. Cornell
        Capital
        was also issued a warrant to purchase 6,000,000 shares of our common stock
        at a
        price of $0.50 per share. The securities were issued pursuant to an exemption
        from registration provided by Section 4(2) of the Securities Act and/or
        Regulation D promulgated by the Securities Act.
 
 On
        May
        17, 2005, we issued 100,000 shares of our common stock to Northern Hills,
        Inc.
        as compensation for their role in identifying Transcordia LLC a/k/a WazAlliance
        as a target company and our acquisition of it in May 2005. The issuance was
        made
        pursuant to an exemption from registration provided by Section 4(2) of the
        Securities Act.
  On
        June
        7, 2005 we issued 760,000 shares of our common stock to the prior owners
        of
        Transcordia, LLC. The issuance was made pursuant to an exemption from
        registration provided by Section 4(2) of the Securities Act.
 
 On
        June
        23, 2005 we issued 2,200,000 shares of our common stock to Paul Sadler upon
        his
        conversion of a convertible note and the settlement of a second note payable
        to
        him that were issued in connection with our purchase of Clover Computer
        Corporation. The issuance was made pursuant to an exemption from registration
        provided by Section 4(2) of the Securities Act.
 **Item
        3. Defaults upon Senior Securities.**





There
      were no defaults upon senior securities during the period ended June 30,
      2005.





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




No
      matters were submitted to our stockholders for their approval during the quarter
      ended June 30, 2005.







33





**Item
      5. Other Information.**




Not
      applicable.





**Item
      6. Exhibits and Reports on Form 8-K.**




A.
      Exhibits:





**Exhibit
                No.**
              **Description**
              
              **Location**2.1
              Agreement
                  and Plan of Merger by and among Registrant, Neoreach, Inc., Transcordia
                  Acquisition Corp., Transcordia, LLC and its Unitholders, dated
                  April 2005
              
              Provided
                  herewith.2.2
              Agreement
                  and Plan of Merger by and among Registrant, Neoreach, Inc., Neoreach
                  Wireless, Inc., Evergreen Open Broadband Inc, and Certain
                  Shareholders
              
              Provided
                herewith.2.3
              Agreement
                  and Plan of Merger, dated June 30, 2005 by and among the Registrant,
                  AFN
                  Acquisition Corp., American Fiber Network, Inc. and the Bethell
                  Family
                  Trust
              
              Incorporated
                  by reference to Exhibit 2.1 to the Registrant’s Current Report on Form 8-K
                  filed on July 6, 2005.
 10.1
                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 Form 10-KSB filed June
                    30, 2005.10.2
                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 Form 10-KSB filed June
                    30, 2005.10.3
                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, 2005.10.4
                Amended
                    and Restated Executive Employment Agreement, dated June 16, 2005
                    between
                    Kurt Gordon and the Company
                
                Incorporated
                    by reference to Exhibit 10.32 to the Registrant’s Form 10-KSB filed June
                    30, 2005.10.5
                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 Form 10-KSB filed June
                    30, 2005.10.6
                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 Form 10-KSB filed June
                    30, 2005.10.7
                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 Form 10-KSB filed June
                    30, 2005.10.8
                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 Form 10-KSB filed June
                    30, 2005.10.9
                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 Form 10-KSB filed June
                    30, 2005.10.10
                Amended
                    and Restated Security Agreement, dated as of May 13, 2005, by
                    and among
                    the Company, the Company subsidiaries identified therein and
                    Cornell
                    Capital
                
                Incorporated
                    by reference to Exhibit 10.38 to the Registrant’s Form 10-KSB filed June
                    30, 2005.10.11
                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 Form 10-KSB filed June
                    30, 2005.
 34
 10.12
                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 Form 10-KSB filed June
                    30, 2005.10.13
                Warrant
                    issued by the Company to Cornell Capital dated May 13,
                    2005
                
                Incorporated
                    by reference to Exhibit 10.41 to the Registrant’s Form 10-KSB filed June
                    30, 2005.10.14
                Master
                    Agreement for Services between Sprint Communications Company
                    L.P. and Kite
                    Broadband, LLC, dated May 20, 2005*
                
                Provided
                    herewith.20.1
                Letter
                    from Jay O. Wright, President and Chief Executive Officer of
                    the Company
                    to the Stockholders, dated April 21, 2005
                
                Incorporated
                    by reference to Exhibit 99.1 to the Registrant’s Current Report on Form
                    8-K filed on April 26, 200521.1
                Subsidiaries
                    of Registrant
                
                Provided
                    herewith.31.1
                Certification
                    by Jay O. Wright, Chief Executive Officer, pursuant to Rule
                    13a-14(a)
                
                Provided
                    herewith.31.2
                Certification
                    by Kurt Gordon, Chief Financial Officer, pursuant to Rule
                    13a-14(a)
                
                Provided
                    herewith.32.1
                Certification
                    by Jay O. Wright and Kurt Gordon, pursuant to 18 U.S.C. Section
                    1350, as
                    adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
                    2002**
                
                Provided
                    herewith.
  *
          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.
 
 B.
                Reports
                    on Form 8-K.
 
 During
          our first quarter ended June 30, 2005, we filed the following Current Reports
          on
          Form 8-K with the Securities and Exchange Commission:
 
 On
          April
          26, 2005, we filed a Current Report on Form 8-K pursuant to Item 8.01 to
          announce the award to us of a contract to deploy and manage a city-wide
          wireless
          network by the city of Tempe, Arizona.
 
 On
          April
          26, 2005, we filed a Current Report on Form 8-K pursuant to Item 8.01 to
          report
          that Jay O. Wright,
          our President and CEO, had issued a letter to our
          stockholders.


35


On
          May
          24, 2005, we filed a Current Report on Form 8-K pursuant to Items 2.01
          and 3.02
          to announce that we issued a $15.5 convertible debenture and a warrant
          to
          purchase 6 million shares of our common stock to Cornell Capital Partners,
          L.P.
 
 On
          May
          27, 2005, we filed a Current Report on Form 8-K pursuant to Item 8.01 to
          announce the resignation of Daniel Lozinsky from our board of
          directors.
 
 On
          June
          3, 2005, we filed a Current Report on Form 8-K pursuant to Item 2.02 to
          announce
          the revenues, operating profit and net income for our fourth quarter ended
          March
          31, 2005.
 
 On
          June
          6, 2005, we filed a Current Report on Form 8-K pursuant to Item 1.01 to
          report
          our investment in Kite Broadband, LLC and to announce Kite’s Master Services
          Agreement with Sprint Communications Company L.P.
 
 On
          June
          20, 2005, we filed a Current Report on Form 8-K pursuant to Item 1.01 to
          announce the extension of Jay Wright’s employment agreement with us
 
 On
          July
          1, 2005, we filed a Current Report on Form 8-K pursuant to Item 2.01 to
          announce
          the closing of Kite’s Master Services Agreement with Sprint Communications
          Company L.P.
 
 On
          July
          6, 2005, we filed a Current Report on Form 8-K pursuant to Item 2.01 to
          report
          our acquisition of American Fiber Network, Inc.
 
 On
          July
          14, 2005, we filed a Current Report on Form 8-K to announce that we entered
          into
          a letter of intent with ATX Communications, Inc. (“ATX”) under which we would
          acquire certain ISP assets of ATX clustered in several mid-western
          states.
  **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
                15, 2005
              By:
              /s/ Jay
                O. WrightJay
                O. Wright,Chief Executive Officer
 Date: August
                15, 2005
              By:
              /s/ Kurt
                GordonKurt
                Gordon,Chief Financial Officer


36