**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**


**Washington,
      DC 20549**





**FORM
      10-Q**





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


**SECURITIES
      EXCHANGE ACT OF 1934**





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





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





**MOBILEPRO
      CORP.**


(Exact
      name of registrant as specified in charter)





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





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





**(301)
      315-9040**


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





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





Indicate
      by check mark (check one) whether the registrant is a large accelerated filer,
      an accelerated filer, or a non-accelerated filer. See the definition of
“accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange
      Act:





Large
                Accelerated Filer o
            
            Accelerated
                Filer x
            
            Non-Accelerated
                Filer o





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





Indicate
      the number of shares outstanding of each of the issuer’s classes of common
      equity, as of the latest practicable date: As of November 6, 2006, the Company
      had 585,776,202 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
            24ITEM
                3.
            
            QUANTITATIVE
                AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
            54ITEM
                4
            
            CONTROLS
                AND PROCEDURES
            54**PART
                II**ITEM
                1.
            
            LEGAL
                PROCEEDINGS
            55ITEM
                2.
            
            UNREGISTERED
                SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
            56ITEM
                3.
            
            DEFAULTS
                UPON SENIOR SECURITIES
            57ITEM
                4.
            
            SUBMISSION
                OF MATTERS TO A VOTE OF SECURITY HOLDERS
            57ITEM
                5.
            
            OTHER
                INFORMATION
            57ITEM
                6.
            
            EXHIBITS
            57







2




**PART
      I**


**FINANCIAL
      INFORMATION**





**Item
      1. Financial Statements.**




**MOBILEPRO
        CORP. AND SUBSIDIARIES**
 **CONDENSED
        CONSOLIDATED BALANCE SHEETS**
 **SEPTEMBER
        30, 2006 AND MARCH 31, 2006**
   ASSETS
  **September
                  30,**
              
              **March
                  31,****2006**
              
              **2006****(unaudited)****CURRENT
                  ASSETS**Cash
                  and cash equivalents
              
              $
              3,283,118
              
              $
              5,397,881Restricted
                  cash
              
              
              1,110,235
              
              
              352,200Accounts
                  receivable, net
              
              
              9,091,203
              
              
              10,481,632Prepaid
                  expenses and other current assets
              
              
              3,337,363
              
              
              3,399,864**Total
                  Current Assets**
              
              
              16,821,919
              
              
              19,631,577**FIXED
                  ASSETS, NET OF ACCUMULATED DEPRECIATION**
              
              
              19,130,816
              
              
              15,859,254**OTHER
                  ASSETS**Goodwill,
                  net of impairment
              
              
              47,220,042
              
              
              47,788,167Customer
                  contracts and relationships, net of amortization
              
              
              8,119,324
              
              
              8,777,502Deferred
                  financing fees, net of amortization
              
              
              —
              
              
              146,667Other
                  assets
              
              
              1,638,411
              
              
              1,787,88656,977,777
              
              
              58,500,222**TOTAL
                  ASSETS**
              
              $
              92,930,512
              
              $
              93,991,053


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


3


**MOBILEPRO
        CORP. AND SUBSIDIARIES**
 **CONDENSED
        CONSOLIDATED BALANCE SHEETS**
 **SEPTEMBER
        30, 2006 AND MARCH 31, 2006**
 **(CONTINUED)**


**LIABILITIES
                  AND STOCKHOLDERS' EQUITY**
  **September
                    30,**
                
                **March
                    31,****2006**
                
                **2006****(unaudited)****CURRENT
                    LIABILITIES**Current
                    portion of convertible debentures
                
                $
                13,712,421
                
                $
                4,500,000Current
                    portion of long-term debt and notes payable
                
                
                649,253
                
                
                4,269,519Accounts
                    payable and accrued expenses
                
                
                16,560,135
                
                
                17,402,911Deferred
                    revenue
                
                
                4,746,159
                
                
                4,343,754**Total
                    Current Liabilities**
                
                
                35,667,968
                
                
                30,516,184**LONG-TERM
                    LIABILITIES**Convertible
                    debentures, net of unamortized debt discount andcurrent
                    portion
                
                
                3,243,011
                
                
                9,995,243Notes
                    payable and other long-term liabilities, net of current
                    maturities
                
                
                1,699,482
                
                
                650,419**Total
                    Long-Term Liabilities**
                
                
                4,942,493
                
                
                10,645,662**TOTAL
                    LIABILITIES**
                
                
                40,610,461
                
                
                41,161,846**STOCKHOLDERS'
                    EQUITY**Preferred
                    stock, $.001 par value, 20,035,425 shares authorized,35,378
                    shares issued and outstanding at March 31, 2006 and September
                    30, 2006
                
                
                35
                
                
                35Common
                    stock, $.001 par value, 1,500,000,000 shares authorized,560,666,950
                    and 589,189,570 shares issued and outstandingat
                    March 31, 2006 and September 30, 2006
                
                
                589,259
                
                
                560,667Additional
                    paid-in capital
                
                
                91,952,135
                
                
                83,641,462Accumulated
                    deficit
                
                
                (40,221,378
                )
                
                (31,372,957
                )**Total
                    Stockholders' Equity**
                
                
                52,320,051
                
                
                52,829,207**TOTAL
                    LIABILITIES AND STOCKHOLDERS' EQUITY**
                
                $
                92,930,512
                
                $
                93,991,053
  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**
                
                **For
                    the Six Months Ended****September
                    30,**
                
                **September
                    30,****2006**
                
                **2005**
                
                **2006**
                
                **2005****REVENUES**
                
                $
                23,410,650
                
                $
                26,546,650
                
                $
                46,753,436
                
                $
                49,052,495**OPERATING
                    COSTS AND EXPENSES**Cost
                    of services (exclusive of depreciation and amortization)
                
                
                13,137,246
                
                
                11,654,395
                
                
                25,899,204
                
                
                22,676,257Payroll,
                    professional fees and related expenses (exclusive of stock
                    compensation)
                
                
                5,304,277
                
                
                5,536,347
                
                
                11,209,730
                
                
                9,229,905Advertising
                    and marketing expenses
                
                
                590,207
                
                
                799,193
                
                
                1,291,958
                
                
                1,317,857Office
                    rent and expenses
                
                
                748,548
                
                
                933,737
                
                
                1,581,209
                
                
                1,714,852Other
                    general and administrative expenses
                
                
                4,783,994
                
                
                5,210,715
                
                
                9,390,997
                
                
                9,527,617Depreciation
                    and amortization
                
                
                1,448,892
                
                
                1,047,319
                
                
                2,779,803
                
                
                1,869,696Stock
                    compensation
                
                
                471,556
                
                
                —
                
                
                956,647
                
                
                —Goodwill
                    impairment charges
                
                
                529,736
                
                
                —
                
                
                877,854
                
                
                —Restructuring
                    charges
                
                
                (19,832
                )
                
                —
                
                
                283,839
                
                
                —**Total
                    Operating Costs and Expenses**
                
                
                26,994,624
                
                
                25,181,706
                
                
                54,271,241
                
                
                46,336,184**OPERATING
                    INCOME/(LOSS)**
                
                
                (3,583,974
                )
                
                1,364,944
                
                
                (7,517,805
                )
                
                2,716,311**INTEREST
                    EXPENSE, NET**
                
                
                (526,940
                )
                
                (698,335
                )
                
                (921,015
                )
                
                (1,630,510**MINORITY
                    INTERESTS IN NET (INCOME)/LOSS OF****CONSOLIDATED
                    SUBSIDIARIES**
                
                
                —
                
                
                (142,709
                )
                
                —
                
                
                (142,709**LOSS
                    ON EXTINGUISHMENT OF DEBT**
                
                
                —
                
                
                —
                
                
                (409,601
                )
                
                —**NET
                    INCOME/(LOSS) BEFORE PROVISION FOR INCOME TAXES**
                
                
                (4,110,914
                )
                
                523,900
                
                
                (8,848,421
                )
                
                943,092**Provision
                    for Income Taxes**
                
                
                —
                
                
                —
                
                
                —
                
                
                —**NET
                    INCOME/(LOSS) APPLICABLE TO COMMON SHARES**
                
                $
                (4,110,914
                )
                $
                523,900
                
                $
                (8,848,421
                )
                $
                943,092**NET
                    INCOME/(LOSS) PER SHARE**Basic
                
                $
                (0.0070
                )
                $
                0.0014
                
                $
                (0.0151
                )
                $
                0.0025Diluted
                
                $
                (0.0070
                )
                $
                0.0012
                
                $
                (0.0151
                )
                $
                0.0023**WEIGHTED
                      AVERAGE NUMBER OF COMMONSHARES
                      OUTSTANDING**
                
                
                589,065,246
                
                
                388,001,055
                
                
                584,586,874
                
                
                374,464,022
  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 Six Months Ended****September
                    30,****2006**
                
                **2005****CASH
                    FLOWS FROM OPERATING ACTIVITIES**Net
                    income/(loss)
                
                $
                (8,848,421
                )
                $
                943,092**Items
                    that reconcile net income/(loss) to net cash****(used
                    in) operating activities:**Depreciation
                    and amortization
                
                
                2,779,803
                
                
                1,869,686Noncash
                    interest expense and loss on debt extinguishment
                
                
                882,649
                
                
                352,597Goodwill
                    impairment charges
                
                
                877,854
                
                
                —Restructuring
                    charges
                
                
                283,839
                
                
                —Minority
                    interests
                
                
                —
                
                
                142,709Common
                    stock issued for services
                
                
                992,647
                
                
                —**Changes
                    in assets and liabilities**(Increase)
                    decrease in accounts receivable
                
                
                1,390,429
                
                
                (639,113
                )Decrease
                    in other current assets
                
                
                562,045
                
                
                435,625(Increase)
                    in other assets
                
                
                (199,334
                )
                
                (649,960
                )(Decrease)
                    in accounts payable andand
                    accrued expenses
                
                
                (2,766,062
                )
                
                (2,230,804
                )Increase
                    in deferred revenue
                
                
                168,182
                
                
                439,4864,972,052
                
                
                (279,774
                )**Net
                    cash provided by (used in) operating
                    activities**
                
                
                (3,876,369
                )
                
                663,318**CASH
                    FLOWS FROM INVESTING ACTIVITIES**Proceeds
                    from the sale/leaseback of wireless network equipment
                
                
                2,000,000
                
                
                —Purchase
                    of certificates of deposit
                
                
                (758,035
                )
                
                —Capital
                    expenditures, net
                
                
                (4,543,094
                )
                
                (1,641,539
                )Acquisition
                    of intangible assets
                
                
                (37,167
                )
                
                (6,778,129
                )Cash
                    paid for acquisitions
                
                
                —
                
                
                (2,024,646
                )**Net
                    cash (used in) investing activities**
                
                
                (3,338,296
                )
                
                (10,444,314
                )**CASH
                    FLOWS FROM FINANCING ACTIVITIES**Net
                    proceeds from common stock issuances
                
                
                6,660,652
                
                
                12,374,500Borrowings/(payments)
                    under other notes payable, net
                
                
                (3,823,250
                )
                
                (4,282,763
                )Proceeds
                    from the issuance of convertible debentures
                
                
                2,438,500
                
                
                15,500,000Retirement
                    of acquisition bridge loan
                
                
                —
                
                
                (13,000,000
                )Investment
                    by minority interests
                
                
                —
                
                
                3,675,000Financing
                    fees
                
                
                (176,000
                )
                
                (1,295,000
                )**Net
                    cash provided by financing activities**
                
                
                5,099,902
                
                
                12,971,737


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 Six Months Ended****September
                  30,****2006**
              
              **2005****NET
                  INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS**
              
              $
              (2,114,763
              )
              $
              3,190,741**CASH
                  AND CASH EQUIVALENTS - BEGINNING OF PERIOD**
              
              
              5,397,881
              
              
              4,669,787**CASH
                  AND CASH EQUIVALENTS - END OF PERIOD**
              
              $
              3,283,118
              
              $
              7,860,528**SUPPLEMENTAL
                  DISCLOSURE OF CASH FLOW****INFORMATION:**Cash
                  paid during the period for interest
              
              $
              1,070,210
              
              $
              1,034,928**SUPPLEMENTAL
                  DISCLOSURE OF NONCASH****ACTIVITIES:**Issuance
                  of Amended Debenture to Cornell Capital
              
              $
              15,149,650
              
              $
              —Return
                  of Debenture by Cornell Capital
              
              $
              15,000,000
              
              $
              —Capital
                  lease
              
              $
              1,875,721
              
              $
              —Amortization
                  of SEDA deferred financing fees
              
              $
              147,000
              
              $
              440,000Goodwill
                  recorded in acquisitions
              
              $
              —
              
              $
              2,277,840Liability
                  for common stock to be issued
              
              $
              —
              
              $
              422,513Conversion
                  of liabilities to common stock
              
              $
              —
              
              $
              1,058,841Adjustment
                  to minority interest
              
              $
              —
              
              $
              150,000Issuance
                  of common stock for acquisitions
              
              $
              —
              
              $
              366,406


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


7


**MOBILEPRO
      CORP. AND SUBSIDIARIES**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**SEPTEMBER
      30, 2006**


**(unaudited)**




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





**Overview**





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





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





**Current
      Business Conditions**





The
      Company has historically lost money. In the years ended March 31, 2006 and
      2005,
      the Company sustained net losses of $10,176,407 and $5,359,722, respectively.
      In
      addition, the Company incurred a net loss of $8,848,421 in the six months ended
      September 30, 2006 caused primarily by declining revenues. As a result, the
      amount of cash used in operations during the six months ended September 30,
      2006
      was $3,876,369. Future losses may occur. Accordingly, the Company will
      experience liquidity and cash flow problems if it is unable to improve its
      operating performance or raise additional capital as needed and on acceptable
      terms.





As
      discussed below in Note 7 to the condensed consolidated financial statements,
      the Company has an agreement with Cornell Capital that would provide additional
      financing of approximately $4.7 million over the next several months and has
      obtained an agreement that should provide up to $3.0 million in lease financing
      for future wireless network equipment purchases. Recent agreements have been
      announced that should provide increased revenues to the Company. Recent
      management changes should enhance the effectiveness of the Company’s efforts to
      increase recurring revenues of its existing businesses, and management has
      taken
      certain actions that should result in a continued reduction in the level of
      the
      Company’s operating expenses for the remainder of the fiscal year.





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





Under
      the
      terms of a $15.1 million debenture issued to Cornell Capital Partners, L.P.
      (“Cornell Capital”), the Company is currently required to make weekly scheduled
      principal payments of at least $250,000 commencing in mid-November 2006 with
      interest on the outstanding principal balance payable at the same time. The
      amount of accrued interest was $295,937 at September 30, 2006. The Company
      has
      the right to make any and all such principal payments by issuing shares of
      its
      common stock to Cornell Capital provided ** that
      all
      such shares may only be issued by the Company if such shares are tradable under
      Rule 144 of the Securities Act of 1933 (the “Securities Act”), are registered
      for sale under the Securities Act or are freely tradable by Cornell Capital
      without restriction. The Company filed a registration statement on Form S-3
      on
      October 12, 2006 covering such shares, but it has not yet received clearance
      from the Securities Exchange Commission that would allow the registration to
      be
      declared effective.





8


There
      can
      be no assurance that the registration statement on Form S-3 will become
      effective, or become effective in time to allow the Company to make its
      scheduled debenture maturity payments with shares of its common stock. In the
      event that the Form S-3 is not declared effective, alternative sources of cash
      are not identified, or Cornell Capital does not agree to a delay in the
      commencement of the scheduled maturity payments, the Company may be unable
      to
      make these payments in cash putting the Company in default of the terms of
      the
      Amended Debenture.





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





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





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





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





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





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





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





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





**Financial
      Statement Presentation**





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





9


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





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





**Reclassifications**





Certain
      prior period amounts have been reclassified to conform to the presentation
      as of
      September 30, 2006 and for the three and six months then ended. These changes
      had no effect on the Company’s consolidated balance sheet as of March 31, 2006
      or on the net income/loss amounts and net cash flows of the Company for the
      three and six months ended September 30, 2005.





**Accounting
      for Stock Options and Warrants**





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





In
      December 2004, the Financial Accounting Standards Board revised SFAS
      No. 123, “Accounting for Certain Transactions Involving Stock
      Compensation” (“SFAS
      123”). The revision was entitled “Share-Based Payment” (“SFAS 123R”), replacing
      SFAS 123 and superseding APB 25, and its scope encompasses a wide range of
      share-based compensation arrangements including share options, restricted share
      plans, performance-based awards, share appreciation rights and employee share
      purchase plans. SFAS 123R requires that the compensation cost relating to
      share-based payment transactions be recorded in financial statements. For each
      transaction, compensation cost is to be measured based on the fair value of
      the
      equity or liability instrument issued. The pro forma disclosures previously
      permitted under SFAS 123 no longer will be an alternative to financial statement
      recognition of compensation expense. The Company adopted SFAS 123R, effective
      April 1, 2006 (see Note 9). The amounts of related compensation expense recorded
      for the three and six months ended September 30, 2006 were $471,556 and
      $956,647, respectively.





**Revenue
      Recognition**





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





10


A
      material amount of the Company’s revenues is also generated from the use of
      Davel’s payphones. Davel derives its payphone revenue from two principal
      sources: coin calls and non-coin calls. Revenue related to all calls, including
      dial-around compensation and operator service revenue, is recognized in the
      periods that the customers place the calls. Any variations between recorded
      amounts of revenue and actual cash receipts are accounted for at the time of
      receipt. Revenue related to such dial-around calls is recognized initially
      based
      on estimates. Recorded amounts of revenue may be adjusted based on actual
      receipts and/or the subsequent revision of prior estimates. Reported revenues
      for the three months ended June 30, 2006 reflected a reduction to previously
      recorded revenues of $143,516; no such adjustment was recorded in the three
      months ended September 30, 2006, or in the prior year periods ended September
      30, 2005. Total dial-around revenue amounts for the three-month periods ended
      September 30, 2006 and 2005 were approximately $1,749,000 and $2,574,000,
      respectively.





**Restricted
      Cash**





The
      Company is required to maintain letters of credit collateralized by cash or
      pledged certificates of deposit as additional security for the performance
      of
      obligations under certain service or lease agreements. The cash collateral
      is
      restricted and is not available for the Company’s general working capital
      needs.





**Accounts
      Receivable**





The
      Company had allowances for doubtful accounts of $953,222 and $883,232 at
      September 30, 2006 and March 31, 2006, respectively, relating to accounts
      receivable other than dial-around compensation amounts.





Accounts
      receivable includes amounts related to dial-around revenue. The estimated
      dial-around receivable amount at each balance sheet date is based on the
      Company’s historical collection experience. Dial-around receivable amounts
      included in the balance sheets at September 30, 2006 and March 31, 2006 were
      $3,770,659 and $4,509,063, respectively.





**Financing
      Fees**





The
      financing fees paid in May 2004 to Cornell Capital and others related to the
      negotiation of the Standby Equity Distribution Agreement (the “SEDA”) were
      deferred and, for the periods presented herein, were amortized against
      additional paid-in-capital on a straight-line basis over the twenty-four (24)
      month term of the SEDA. These fees were paid with the issuance of 8,000,000
      shares of Mobilepro common stock valued in the amount of $1,760,000. The Company
      recorded amortization of approximately $220,000 in the quarter ended September
      30, 2005. Amortization was $147,000 and $440,000 in the six-month periods ended
      September 2006 and 2005. Amortization of this balance concluded in May 2006.
      The
      fees paid to Cornell Capital and others at the time that funds are drawn under
      equity lines of credit, amounting to $60,500 in the three months ended September
      30, 2005, and $86,000 and $375,500, respectively, in the six-month periods
      ended
      September 30, 2006 and 2005, were charged to additional paid-in-capital.





The
      Company also incurred financing costs of $1,295,000 in May 2005 in connection
      with issuance of the $15.5 million convertible debenture and $176,000 in August
      2006 in connection with the issuance of the $2.3 million convertible debenture
      (see Note 7). These costs, including fees paid in cash to Cornell Capital,
      were
      charged to additional paid-in-capital.





**Advertising
      Contracts**




CloseCall
      uses print, signage, radio and television advertising to market services to
      customers of certain local professional sports teams. Advertising programs
      include the use of long-term contracts. Upon the negotiation of such a contract,
      the Company records the cost of the advertising program as an asset, and
      amortizes the balance to operating expenses over the life of the contract.
      The
      corresponding contract liability is paid typically in installments. At September
      30, 2006, prepaid expenses and other assets included balances of $360,997 and
      $294,572, respectively, related to such contracts, and accounts payable and
      long-term liabilities included balances of $410,125 and $228,870, respectively,
      that are payable under such contracts. At March 31, 2006, prepaid expenses
      and
      other assets included balances of $366,995 and $474,569, respectively, related
      to such contracts, and accounts payable and long-term liabilities included
      balances of $304,560 and $475,493, respectively, that are payable under such
      contracts.





11


**Property,
      Plant and Equipment**





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





**Estimated****Useful**
              
              **September
                  30,**
              
              **March
                  31,****Lives
                  (in years)**
              
              **2006**
              
              **2006**(unaudited)Furniture
                  and fixtures
              
              
              7
              
              $
              563,569
              
              $
              698,828Machinery
                  and equipment
              
              
              5
              
              
              23,941,626
              
              
              20,561,029Leasehold
                  improvements
              
              
              7
              
              
              518,560
              
              
              788,610Vehicles
              
              
              5
              
              
              156,194
              
              
              204,205Subtotals
              
              
              
              
              
              25,179,949
              
              
              22,252,672Less
                  accumulated depreciation
              
              
              
              
              
              (6,049,133
              )
              
              (6,393,418
              )Fixed
                  assets, net
              
              
              
              
              $
              19,130,816
              
              $
              15,859,254


**Customer
      Contracts and Relationships**





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





The
      amount assigned to the initial term of the agreement is being amortized on
      a straight-line basis over the initial three-year term. The Company has
      estimated the total life of this arrangement to be ten years based upon an
      analysis of the operating history of the subscriber base and the average monthly
      disconnects. The Company intends to evaluate the value of these intangible
      assets for potential impairment at least annually and to adjust both the asset
      values and the prospective life in the future if determined necessary. Despite
      the loss of approximately 14.8% of the customers acquired from Sprint, the
      Company has evaluated that the fair value of these intangible assets exceeds
      the
      total aggregate carrying value at September 30, 2006. For the quarters ended
      September 30, 2006 and 2005, amortization expense was $165,702 and $165,351,
      respectively. For the six months ended September 30, 2006, amortization expense
      was $331,404.





This
      account also includes location contracts with net balances of $1,915,065 and
      $2,220,479 at September 30, 2006 and March 31, 2006, respectively, representing
      Davel acquisition costs allocated to location owner payphone contracts and
      other
      costs associated with obtaining written and signed location contracts. These
      other assets are amortized on a straight-line basis over their estimated useful
      lives based on contract terms which are generally five years. Accumulated
      amortization related to these contracts at September 30, 2006 and March 31,
      2006
      was $1,164,689 and $859,276, respectively. Amortization related to location
      contracts was $152,706 and $160,317, respectively, for the quarters ended
      September 30, 2006 and 2005, and was $305,412 and $320,609, respectively, for
      the six months ended September 30, 2006 and 2005.





12


**Accounts
      Payable and Accrued Liabilities**





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





**September
                  30,**
              
              **March
                  31,****2006**
              
              **2006**(unaudited)Accounts
                  payable
              
              $
              10,147,772
              
              $
              10,229,960Accrued
                  location usage fees
              
              
              2,049,541
              
              
              2,271,060Accrued
                  restructuring costs
              
              
              481,213
              
              
              486,311Accrued
                  compensation
              
              
              709,633
              
              
              1,048,027Accrued
                  interest expense
              
              
              312,476
              
              
              873,206Other
                  accrued liabilities
              
              
              2,859,500
              
              
              2,494,347Totals
              
              $
              16,560,135
              
              $
              17,402,911


**Income
      Taxes**





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





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





At
      September 30, 2006, the Company’s balance sheet included intangible assets with
      an aggregate carrying value of approximately $55,339,000, representing
      approximately 59.5% of total assets and including $47,220,042 in goodwill.
      Substantially, this goodwill was recorded in connection with the series of
      acquisitions completed by the Company since January 1, 2004. Generally accepted
      accounting principles require that the Company assess the fair values of
      acquired entities at least annually in order to identify any impairment in
      the
      values. However, on a quarterly basis, management is alert for events or
      circumstances that would indicate that, more likely than not, the fair value
      of
      a reporting segment has been reduced below its carrying amount. If there is
      a
      determination that the fair value of an acquired entity is less than the
      corresponding net assets amount, including goodwill, an impairment loss would
      be
      identified and recorded at that time. As a result of such assessments, goodwill
      impairment charges of $529,736 and $877,854, respectively, were recorded in
      the
      three and six months ended September 30, 2006 related to the Internet services
      business segment. Management believes that the remaining amounts of goodwill
      included in the balance sheet at September 30, 2006 do not exceed the
      corresponding fair values of these assets.




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





During
      the year ended March 31, 2006, management began to focus on the integration
      of
      the operations of the acquired companies, in particular the operations of the
      Internet services business segment. The efforts are focused on combining service
      offerings, consolidating network operations and customer support locations,
      and
      reducing operating costs. At September 30, 2006, the accrued restructuring
      costs
      balance was $481,213, including $304,631 related to the loss expected on the
      abandonment of leased facilities and $176,582 related to the termination of
      certain employees. At March 31, 2006, the accrued restructuring costs balance
      was $486,311. During the quarter ended June 30, 2006, the Company recorded
      a
      restructuring charge related to the termination of additional employees in
      the
      amount of $303,671. During the quarter ended September 30, 2006, the Company
      recorded an additional restructuring charge related to the disposal of fixed
      assets in the amount of $75,835, and reversed a portion of the reserve related
      to employee termination costs in the amount of $95,667. As a result, the net
      restructure charge reflected in the condensed consolidated statement of
      operations for the six months ended September 30, 2006 was $283,839. During
      the
      three and six months ended September 30, 2006, the Company made related payments
      totaling $169,877 and $213,103, respectively. The Company expects to incur
      additional restructuring charges throughout the remainder of the current fiscal
      year related to the consolidation of additional office locations and reductions
      in personnel.





13


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





The
      acquisition of AFN occurred on June 30, 2005. Accordingly, the operating results
      of AFN are included in the operating results of the Company from and including
      July 1, 2005. The accompanying condensed consolidated statements of operations
      include revenues related to AFN, excluding inter-company sales, of $2,136,987
      and $1,632,488, respectively, for the quarters ended September 30, 2006 and
      2005, and $4,168,273 for the six months ended September 30, 2006.





The
      acquisition of InReach occurred on November 1, 2005. Accordingly, the operating
      results of InReach are included in the operating results of the Company from
      and
      including November 1, 2005. The accompanying condensed consolidated statements
      of operations for the three and six months ended September 30, 2006 include
      revenues related to InReach of $1,095,400 and $2,334,995,
      respectively.





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





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





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





The
      operating results of Kite Broadband have been included in the operating results
      of the Company from and including July 1, 2005, the date that operations
      commenced. The accompanying condensed consolidated statements of operations
      include revenues related to Kite Broadband of $2,893,582 and $3,385,314,
      respectively, for the three months ended September 30, 2006 and 2005, and
      $5,876,580 for the six months ended September 30, 2006.





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





**The
      Tranche Debenture Agreement**





On
      August
      28, 2006, the Company entered into a financing agreement with Cornell Capital
      providing up to $7.0 million in debt financing with the proceeds provided in
      three tranches (the “Tranche Debenture Agreement”). At the closing of each
      tranche, the Company will issue Cornell Capital a 7.75% secured convertible
      debenture in the principal amount for that tranche, convertible into common
      stock at $0.174 per share, together with a warrant to purchase up to 3,333,334
      shares of common stock at an exercise price of $0.174 per share. On August
      30,
      2006, the Company closed the first tranche in the amount of $2.3 million,
      issuing the First Tranche Debenture and the First Tranche Warrant, receiving
      cash proceeds of $2,124,000 that were net of financing fees in the amount of
      $176,000. Under the terms of this First Tranche Debenture, the Company will
      make
      weekly scheduled principal payments of at least $125,000 commencing January
      2,
      2007, with interest on the outstanding principal balance payable at the same
      time.





Under
      conditions similar to those included in the Amended Debenture (see discussion
      below), the Company has the right to make any and all such principal payments
      by
      issuing shares of its common stock to Cornell Capital with the amount of such
      shares based upon the lower of $0.174 per share or 93% of the average of the
      two
      lowest daily volume weighted average per share prices of its common stock during
      the five days immediately following the scheduled payment date. Cornell Capital
      may convert all or any part of the unpaid principal and accrued interest owed
      under the First Tranche Debenture into shares of our common stock at a
      conversion price of $0.174 per share.





14


Under
      an
      amendment to the Tranche Debenture Agreement signed on October 23, 2006, the
      additional tranches were rescheduled such that $1,175,000 of gross proceeds
      will
      be available no later than November 15, 2006, $1,175,000 of gross proceeds
      will
      be available on February 1, 2007, and $2,350,000 will be available upon the
      Company successfully registering the conversion shares of common stock for
      resale. The Company filed a registration statement on Form S-3 on October 12,
      2006, but it has not yet received clearance from the Securities Exchange
      Commission (the “SEC”) that would allow the registration to be declared
      effective. Pursuant to the terms of the related investor registration rights
      agreement, in the event that the registration statement covering these shares
      is
      not declared effective by May 1, 2007, the Company will be obligated to pay
      liquidated damages to Cornell Capital in an amount not to exceed 20% of the
      amount of the issued debentures.





The
      term
      of the First Tranche Warrant will expire five years from the date of issuance.
      If the Company issues additional equity or instruments convertible into equity
      as described in the First Tranche Warrant, or is deemed to have done so, at
      a
      lower per share price than the then-effective First Tranche Warrant exercise
      price, the exercise price may be adjusted downward to such lower per share
      price. In that case, the number of shares issuable upon exercise of the First
      Tranche Warrant would be increased so that the total exercise price would remain
      $580,000.





The
      face
      amount of the First Tranche Debenture was recorded initially in the balance
      sheet net of unamortized debt discount of $270,333. The net amount of the First
      Tranche Debenture reflects the fair market value on the date of issuance after
      allocating $270,333 of the proceeds to the First Tranche Warrant. This discount
      amount will be amortized as a charge to interest expense over the term of the
      First Tranche Debenture.





In
      connection with the negotiation of the Tranche Debenture Agreement, the payment
      terms of the Amended Debenture were revised, and the warrant exercise prices
      and
      the number of shares subject to exercise under the Warrant and the Additional
      Warrant were reset to the terms and amounts discussed below resulting in
      additional interest expense during the current quarter as discussed below.





**The
      Amended Debenture**





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





The
      outstanding balance of the Debenture at March 31, 2006 of $15,000,000 was due
      and payable in a series of installment payments through May 15, 2008, including
      $1,500,000 due on May 15, 2006 and $1,000,000 due on August 15, 2006.





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





15


In
      connection with the issuance of the Debenture, the Company issued to Cornell
      Capital a five-year warrant, as modified, to purchase 15,000,000 shares of
      its
      common stock at an exercise price of $0.20 per share (the “Warrant”). If the
      Company issues additional equity or instruments convertible into equity as
      described in the Warrant, or is deemed to have done so, at a lower per share
      price than the then-effective Warrant exercise price, the exercise price may
      be
      adjusted downward to such lower per share price. In that case, the number of
      shares issuable upon exercise of the Warrant would be increased so that the
      total exercise price would remain $3,000,000.





In
      connection with the issuance of the Amended Debenture, Cornell Capital was
      issued a warrant, as modified, to purchase 13,750,000 shares of the Company’s
      common stock at a purchase price of $0.20 per share (the “Additional Warrant”).
      This Additional Warrant will expire one year after the date that the Company
      registers the underlying shares for resale by Cornell Capital with the SEC.
      If
      the Company issues additional equity or instruments convertible into equity
      as
      described in the Additional Warrant, or is deemed to have done so, at a lower
      per share price than the then-effective Additional Warrant exercise price,
      the
      exercise price may be adjusted downward to such lower per share price. In that
      case, the number of shares issuable upon exercise of the Additional Warrant
      would be increased so that the total exercise price would remain
      $2,750,000.





The
      face
      amount of the Amended Debenture was recorded initially in the balance sheet
      net
      of unamortized debt discount of $319,000. During the current quarter, the fair
      value of the Additional Warrant was recalculated based on its reset terms
      resulting in an increase to such value of $192,500. The net amount of the
      Amended Debenture at September 30, 2006 reflects the fair market value after
      allocating additional proceeds in the amount of $192,500 to the Additional
      Warrant. The increased discount on the Amended Debenture is being amortized
      as a
      charge to interest expense over the term of the Amended Debenture.





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





**The
      Debentures - Interest Expense**





For
      the
      quarters ended September 30, 2006 and 2005, the amounts of interest expense
      related to the Debenture, the Amended Debenture and the First Tranche Debenture,
      and included in the accompanying condensed consolidated statements of operations
      based on the stated interest rates, were $312,541 and $302,780, respectively.
      Such interest expense amounts were $602,370 and $460,753, respectively, for
      the
      six months ended September 30, 2006 and 2005.





Interest
      expense amounts included in the accompanying condensed consolidated statements
      of operations for the current and prior year periods included total debt
      discount amortization related to the debentures issued to Cornell Capital.
      Such
      amounts were $149,115 and $100,950, respectively, in the three months ended
      September 30, 2006 and 2005, and $246,254 and $151,425, respectively, in the
      six
      months ended September 30, 2006 and 2005. Interest expense for the three and
      six
      months ended September 30, 2006 also included an amount, $89,000, equal to
      the
      increase in the fair value of the Warrant based on its terms that were reset
      during the current quarter.





16


**Notes
      Payable to Cornell Capital**





During
      the two-year period ended March 31, 2006, the Company borrowed amounts from
      Cornell Capital that totaled $31,500,000 pursuant to a series of promissory
      notes with maturities of one-year or less and annual interest rates ranging
      from
      8% to 12%. A remaining total principal balance of $3,600,000, plus accrued
      interest of $392,953, was owed to Cornell Capital at March 31, 2006. These
      amounts were paid during the quarter ended June 30, 2006 with cash provided
      by
      the Company’s operating units. Interest expense related to the notes payable to
      Cornell Capital, based on the stated rates of interest and included in the
      accompanying condensed consolidated statements of operations for the six months
      ended September 30, 2006 and 2005, were $25,074 and $432,361, respectively.
      Such
      interest expense was $198,049 for the quarter ended September 30,
      2005.




**Capital
      Leases**





On
      June
      30, 2006, the Company received $2,000,000 in cash proceeds from the sale of
      certain municipal wireless network equipment that has been deployed in Tempe,
      Arizona. Simultaneously, the Company entered into a leaseback agreement
      representing a capital lease. Accordingly, a fixed asset and a capital lease
      liability were recorded in the accounts at the present value of the future
      lease
      payments discounted at an assumed incremental borrowing rate of 10.25%, or
      $1,875,721. Under this lease, the Company is obligated to make 36 monthly
      payments that commenced on July 1, 2006; the lease contains an option to
      purchase the equipment at the end of the lease-term at a price equal to the
      fair
      market value of the equipment which amount shall not exceed 23% of the original
      cost of the equipment. The gain on the sale of the equipment in the amount
      of
      $234,223 was deferred and is being amortized to income over the term of the
      lease. Proceeds in the amount of $700,000 were used to purchase certificates
      of
      deposit that are pledged to secure the lease obligation; this amount is included
      in the balance of restricted cash in the condensed consolidated balance sheet
      as
      of September 30, 2006. Portions of the restricted cash may be released during
      the term of the lease if the Company achieves certain objectives.





**Equipment
      Lease Commitment**





On
      October 10, 2006, the Company signed a master equipment lease agreement with
      a
      lease financing firm that may provide up to $3 million in lease financing
      capital for future wireless network equipment purchases. The master lease
      agreement is available only for the purchase of equipment manufactured by Cisco
      Systems. Fifty percent of the commitment is designated for core network
      infrastructure equipment. The
      remainder of the commitment is available for transmission equipment purchases
      and can be used to finance up to fifty percent of the cost of such purchases.
      The lease term for each equipment purchase shall be twenty-four months.





**Debt
      Maturities**





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





Amended
                  Debenture
              
              $
              15,149,650First
                  Tranche Debenture
              
              
              2,300,000Capital
                  leases
              
              
              2,083,997Other
                  notes payable and long-term obligations
              
              
              403,23719,936,884Less:
                  Unamortized debt discounts
              
              
              (632,717
              )Less:
                  Amounts due within one year
              
              
              (14,361,674
              )Long-term
                  portion of debt
              
              $
              4,942,493








17


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




The
                  twelve months ending --September
                  30, 2008
              
              $
              4,743,909September
                  30, 2009
              
              
              605,2225,349,131Less
                  - Unamortized debt discount
              
              
              (406,638
              )Long-term
                  portion of debt
              
              $
              4,942,493


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




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





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





Draws
      under the SEDA totaled $39,173,129. The Company advanced a total of 183,996,589
      shares of its common stock to the escrow agent in accordance with the terms
      of
      the SEDA since its inception at an average sale price of $0.213 per
      share.





The
      discounts provided to Cornell Capital in connection with the sale of shares
      of common stock by the Company and included in the accompanying condensed
      consolidated statements of operations for the six months ended September 30,
      2006 and 2005 were $137,795 and $237,805, respectively. Such interest expense
      was $142,847 for the quarter ended September 30, 2005.





**Common
      Stock Transactions in the Six Months Ended September 30, 2006**





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





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





In
      August
      2006, the Company issued 300,996 shares of its common stock to a former employee
      pursuant to the exercise of stock options.





During
      the quarter ended June 30, 2006, the Company issued 22,000,000 shares of common
      stock to the escrow agent under the requirements of the SEDA. The termination
      of
      the SEDA in May 2006 resulted in the return of 3,413,365 shares of common stock
      to the Company by Cornell Capital. The
      return of the shares was recorded in October 2006.





18


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





The
      following tables summarize the stock option and warrant activity for the six
      months ended September 30, 2006:





**Weighted-****Average****Number
                  of**
              
              **Exercise****Stock
                  Options --**
              
              **Options**
              
              **Price**Outstanding
                  - March 31, 2006
              
              
              11,076,000
              
              $
              0.2260Granted
              
              
              —
              
              $
              —Exercised
              
              
              —
              
              $
              —Cancelled
              
              
              —
              
              $
              —Outstanding
                  - June 30, 2006
              
              
              11,076,000
              
              $
              0.2260Granted
              
              
              —
              
              $
              —Exercised
              
              
              (300,996
              )
              $
              0.0528Cancelled
              
              
              (574,004
              )
              $
              0.2232Outstanding
                  - September 30, 2006
              
              
              10,201,000
              
              $
              0.2312Exercisable
                  - September 30, 2006
              
              
              4,127,676
              
              $
              0.2443
  **Weighted-****Average****Number
                    of**
                
                **Exercise****Stock
                    Warrants --**
                
                **Warrants**
                
                **Price**Outstanding
                    - March 31, 2006
                
                
                94,932,500
                
                $
                0.1669Granted
                
                
                10,250,000
                
                $
                0.2732Exercised
                
                
                (6,021,524
                )
                $
                0.0180Cancelled
                
                
                (478,476
                )
                $
                0.0180Outstanding
                    - June 30, 2006
                
                
                98,682,500
                
                $
                0.1877Granted
                
                
                34,083,334
                
                $
                0.1936Exercised
                
                
                —
                
                $
                —Cancelled
                
                
                (16,000,000
                )
                $
                0.3594Outstanding
                    - September 30, 2006
                
                
                116,765,834
                
                $
                0.1659Exercisable
                    - September 30, 2006
                
                
                101,168,547
                
                $
                0.1614


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





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





19


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





**Six
                  Months****Ended****September
                  30,****2005**Net
                  income, as reported
              
              $
              943,092Add:
                  Stock-based employee compensation expense included in reported
                  net
                  income
              
              
              —Deduct:
                  Total stock-based employee compensation expense determined under
                  fairvalue
                  based method for all awards
              
              
              (1,900,247
              )Pro
                  forma net loss
              
              $
              (957,155
              )Net
                  income (loss) per share:Diluted,
                  as reported
              
              $
              0.0023Diluted,
                  pro forma
              
              $
              (0.0026
              )


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




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


For
      stock
      options and warrants granted during the six months ended September 30, 2006
      and
      2005, the weighted-average grant-date fair values were $0.10 per share and
      $0.20
      per share, respectively.





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





Basic
      income (loss) per share includes no dilution and is computed by dividing net
      income (loss) available to common stockholders by the weighted-average number
      of
      common shares outstanding for the period. Diluted income (loss) per share
      includes the potential dilution that could occur if securities or other
      contracts to issue common stock were exercised or converted into common stock.
      The effects of the assumed exercise of outstanding stock options and warrants
      and the assumed conversion of the debentures for the three and six months ended
      September 30, 2006 were anti-dilutive as the Company incurred net losses in
      such
      periods.




20





**Three
                Months Ended September 30, 2005**
            
            **Six
                Months Ended September 30, 2005**Net
                income
            
            $
            523,900
            
            $
            943,092Weighted
                average number of shares outstanding during the period
            
            
            388,001,055
            
            
            374,464,022Add:
                the treasury stock effect of stock options and warrants
            
            
            41,914,293
            
            
            40,930,727Add
                the effect of assumed SEDA draws
            
            
            8,216,171
            
            
            —Diluted
                number of shares outstanding
            
            
            438,131,519
            
            
            415,394,749Net
                income per share:Basic
            
            $
            0.0014
            
            $
            0.0025Diluted
            
            $
            0.0012
            
            $
            0.0023





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





During
      the six months ended September 30, 2006, the Company was party to the following
      material legal proceedings.





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





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




21


3) On
      August
      6, 2006, the Company was served with a summons and complaint filed in the
      Superior Court of the State of Arizona in Maricopa County in the matter
      captioned Michael V. Nasco, et. al. vs. MobilePro Corp., et. al. which alleges
      claims arising out of the acquisition by the Company of Transcordia, LLC. The
      plaintiff alleges claims of breach of contract, fraud, relief rescission,
      failure to pay wages and unjust enrichment and seeks damages in excess of $3
      million. On or about November 7, 2006, the Company filed a motion to dismiss
      arguing lack of standing and corporate existence. Although the Company believes
      that its motion to dismiss will be granted, there can be no guarantee that
      the
      ruling of the court will be favorable to the Company. In the event the motion
      to
      dismiss is not granted, the Company believes that any potential exposure related
      to the claims alleged against the Company is not likely to be
      material.





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





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








**Voice**
              
              
              **Internet**
              
              
              **Wireless****2006**
              
              
              **Services**
              
              
              **Services**
              
              
              **Networks**
              
              
              **Corporate**
              
              
              **Total**Revenues
              
              $
              16,624,821
              
              $
              3,820,520
              
              $
              2,965,309
              
              $
              —
              
              $
              23,410,650Cost
                    of revenues (excludes depreciation and amortization)
              
              
              9,240,304
              
              
              2,107,766
              
              
              1,789,176
              
              
              —
              
              
              13,137,246Other
                  operating expenses
              
              
              6,719,130
              
              
              1,881,264
              
              
              2,097,135
              
              
              1,201,053
              
              
              11,898,582Depreciation
                  and amortization
              
              
              857,746
              
              
              114,188
              
              
              476,958
              
              
              —
              
              
              1,448,892Goodwill
                  impairment charges
              
              
              —
              
              
              529,736
              
              
              —
              
              
              —
              
              
              529,736Restructuring
                  charges
              
              
              —
              
              
              75,835
              
              
              —
              
              
              (95,667
              )
              
              (19,832
              )Interest
                  expense, net
              
              
              (54,685
              )
              
              400
              
              
              28,755
              
              
              552,470
              
              
              526,940Net
                  income (loss)
              
              $
              (137,674
              )
              $
              (888,669
              )
              $
              (1,426,715
              )
              $
              (1,657,856
              )
              $
              (4,110,914
              )Segment
                  assets
              
              $
              25,564,721
              
              $
              37,700,937
              
              $
              27,842,776
              
              $
              1,931,656
              
              $
              92,930,512Fixed
                  assets, net of accumulated depreciation
              
              $
              10,602,126
              
              $
              1,329,220
              
              $
              7,084,470
              
              $
              115,000
              
              $
              19,130,816Goodwill,
                  net of impairment
              
              $
              20,531,278
              
              $
              14,612,831
              
              $
              12,075,933
              
              $
              —
              
              $
              47,220,042
 **Voice**
                  
                  **Internet**
                  
                  **Wireless****2005**
                  
                  **Services**
                  
                  **Services**
                  
                  **Networks**
                  
                  **Corporate**
                  
                  **Total**Revenues
                  
                  $
                  19,333,581
                  
                  $
                  3,823,619
                  
                  $
                  3,389,450
                  
                  $
                  —
                  
                  $
                  26,546,650Cost
                      of revenues (excludes depreciation and amortization)
                  
                  
                  8,197,761
                  
                  
                  1,782,707
                  
                  
                  1,673,927
                  
                  
                  —
                  
                  
                  11,654,395Other
                      operating expenses
                  
                  
                  8,290,359
                  
                  
                  1,683,449
                  
                  
                  1,926,127
                  
                  
                  580,057
                  
                  
                  12,479,992Depreciation
                      and amortization
                  
                  
                  775,316
                  
                  
                  85,129
                  
                  
                  183,228
                  
                  
                  3,646
                  
                  
                  1,047,319Interest
                      expense, net
                  
                  
                  7,491
                  
                  
                  (4,849
                  )
                  
                  (
                      9,128
                  )
                  
                  704,821
                  
                  
                  698,335Minority
                      interests
                  
                  
                  (35,645
                  )
                  
                  —
                  
                  
                  178,354
                  
                  
                  —
                  
                  
                  142,709Net
                      income (loss)
                  
                  $
                  2,098,299
                  
                  $
                  277,183
                  
                  $
                  (563,058
                  )
                  $
                  (1,288,524
                  )
                  $
                  523,900Segment
                      assets
                  
                  $
                  55,190,207
                  
                  $
                  17,897,818
                  
                  $
                  10,712,861
                  
                  $
                  3,359,932
                  
                  $
                  87,160,818Fixed
                      assets, net of accumulated depreciation
                  
                  $
                  11,740,439
                  
                  $
                  1,277,848
                  
                  $
                  668,216
                  
                  $
                  3,675
                  
                  $
                  13,690,178Goodwill,
                      net of impairment
                  
                  $
                  21,925,741
                  
                  $
                  15,072,519
                  
                  $
                  494,219
                  
                  $
                  —
                  
                  $
                  37,492,479


22
 Results
        of operations data relating to the Company’s business segments for the six
        months ended September 30, 2006 and 2005 were as follows:
  **Voice**
                
                **Internet**
                
                **Wireless****2006**
                
                **Services**
                
                **Services**
                
                **Networks**
                
                **Corporate**
                
                **Total**Revenues
                
                $
                32,708,862
                
                $
                8,040,953
                
                $
                6,003,621
                
                $
                —
                
                $
                46,753,436Cost
                    of revenues (excludes depreciationand
                    amortization)
                
                
                18,218,877
                
                
                4,088,228
                
                
                3,592,099
                
                
                —
                
                
                25,899,204Other
                    operating expenses
                
                
                13,702,829
                
                
                4,071,954
                
                
                4,127,422
                
                
                2,937,937
                
                
                24,840,142Depreciation
                    and amortization
                
                
                1,681,436
                
                
                225,985
                
                
                872,382
                
                
                —
                
                
                2,779,803Goodwill
                    impairment charges
                
                
                —
                
                
                877,854
                
                
                —
                
                
                —
                
                
                877,854Restructuring
                    charges
                
                
                —
                
                
                97,871
                
                
                —
                
                
                185,968
                
                
                283,839Interest
                    expense, net
                
                
                (188,073
                )
                
                982
                
                
                14,996
                
                
                1,093,110
                
                
                921,015Net
                    income (loss)
                
                $
                (706,207
                )
                $
                (1,321,921
                )
                $
                (2,603,278
                )
                $
                (4,217,015
                )
                $
                (8,848,421
                )
  **Voice**
                
                **Internet**
                
                **Wireless****2005**
                
                **Services**
                
                **Services**
                
                **Networks**
                
                **Corporate**
                
                **Total**Revenues
                
                $
                37,796,032
                
                $
                7,861,019
                
                $
                3,395,444
                
                $
                —
                
                $
                49,052,495Cost
                    of revenues (excludes depreciationand
                    amortization)
                
                
                17,251,793
                
                
                3,738,731
                
                
                1,685,733
                
                
                —
                
                
                22,676,257Other
                    operating expenses
                
                
                15,231,270
                
                
                3,436,254
                
                
                2,154,076
                
                
                968,631
                
                
                21,790,231Depreciation
                    and amortization
                
                
                1,511,859
                
                
                166,928
                
                
                183,616
                
                
                7,293
                
                
                1,869,696Interest
                    expense, net
                
                
                8,040
                
                
                13,616
                
                
                (9,202
                )
                
                1,618,056
                
                
                1,630,510Minority
                    interests
                
                
                (35,645
                )
                
                —
                
                
                178,354
                
                
                —
                
                
                142,709Net
                    income (loss)
                
                $
                3,828,715
                
                $
                505,490
                
                $
                (797,133
                )
                $
                (2,593,980
                )
                $
                943,092
 23


**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 September 30, 2006 and 2005, our financial condition
      at September 30, 2006 and factors that we believe could affect our future
      financial condition and results of operations. Historical results may not be
      indicative of future performance.





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





**Forward
      Looking Statements**





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





**Overview**




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





The
      adoption of initiatives by cities to create areas within city limits where
      residents, visitors, students, and businesses can obtain wireless access to
      the
      Internet has created an increased interest in so-called wireless access zones.
      We are concentrating efforts on the deployment, management and ownership of
      such
      municipally sponsored wireless access zones. As a result, we are an innovator
      in
      the deployment of wireless broadband networks and services. Our wireless
      broadband networks and services will be provided in our wireless access zones
      to
      be primarily located in municipality sponsored areas. These network systems
      are
      scalable and flexible and will be readily modified to offer a variety of
      broadband services. Currently, we have eight active projects. Currently, we
      are
      deriving revenues from our initial deployment in Tempe, Arizona. To
      date, material revenues have not been provided from this
      business.





We
      market
      and sell our integrated communications services through 12 branch offices in
      eight states and we service over 146,000 billed accounts representing over
      234,000 equivalent subscriber lines including approximately 114,000 local and
      long-distance telephone lines, 55,000 dial-up lines, 6,000 broadband lines,
      4,000 cellular lines and over 17,000 wireless customers. We own and operate
      approximately 30,900 payphones located predominantly in 44 states and the
      District of Columbia.








24





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





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





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





**Business
                  Segment**
              
              **2006**
              
              **2005****Voice
                  Services**
              
              $
              16,624,821
              
              $
              19,333,581**Internet
                  Services**
              
              
              3,820,520
              
              
              3,823,619**Wireless
                  Networks**
              
              
              2,965,309
              
              
              3,389,450**Corporate**
              
              
              —
              
              
              —**Total
                  Revenues**
              
              $
              23,410,650
              
              $
              26,546,650
 
 
 25
 Revenues
        for the reportable business segments for the six months ended September 30,
        2006
        and 2005 were as follows:
 **Business
                    Segment**
                
                **2006**
                
                **2005****Voice
                    Services**
                
                $
                32,708,862
                
                $
                37,796,032**Internet
                    Services**
                
                
                8,040,953
                
                
                7,861,019**Wireless
                    Networks**
                
                
                6,003,621
                
                
                3,395,444**Corporate**
                
                
                —
                
                
                —**Total
                    Revenues**
                
                $
                46,753,436
                
                $
                49,052,495
 The
            revenues for each business segment, expressed as a percentage of total
            revenues
            for the three months ended September 30, 2006 and 2005, were as
            follows:
 **Business
                    Segment**
                
                **2006**
                
                **2005****Voice
                    Services**
                
                
                71.0
                %
                
                72.8
                %**Internet
                    Services**
                
                
                16.3
                
                
                14.4**Wireless
                    Networks**
                
                
                12.7
                
                
                12.8**Corporate**
                
                
                —
                
                
                —**Total
                    Revenues**
                
                
                100.0
                %
                
                100.0
                %
 The
            revenues for each business segment, expressed as a percentage of total
            revenues
            for the six months ended September 30, 2006 and 2005 were as
            follows:


**Business
                  Segment**
              
              **2006**
              
              **2005****Voice
                  Services**
              
              
              70.0
              %
              
              77.1
              %**Internet
                  Services**
              
              
              17.2
              
              
              16.0**Wireless
                  Networks**
              
              
              12.8
              
              
              6.9**Corporate**
              
              
              —
              
              
              —**Total
                  Revenues**
              
              
              100.0
              %
              
              100.0
              %




The
      revenues of the voice services business segment are provided by the operations
      of Davel, CloseCall and AFN. These companies provided approximately 51.2%,
      36.0%
      and 12.8% of voice services revenues for the six months ended September 30,
      2006, respectively, and approximately 58.7%, 36.7% and 4.6% of voice services
      revenues for the six months ended September 30, 2005, respectively. The revenues
      of the Internet service provider segment are provided primarily by DFW and
      its
      consolidated subsidiaries. The revenues of the wireless networks business
      segment are provided primarily by the operations of Kite Broadband





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





26


**Geographic
      Markets**





Through
      our various businesses, we provide service to customers located throughout
      the
      United States. However, certain portions of our consolidated business are
      concentrated in certain geographic markets. For example, the business of
      CloseCall is concentrated in the mid-Atlantic region of the country. Although
      Davel has payphones located across the United States, approximately 75%, of
      the
      payphones are located in warm climate states of the southwest, southeast and
      west and approximately 25% of the payphones are located in Midwest, Northwest,
      and Northeast sections of the country, with usage during the winter months
      reduced by the cold climate. The Internet services business provides service
      to
      customers that are primarily located in the states of California, Texas,
      Arizona, Louisiana, Kansas, Missouri, Wisconsin, and Ohio.





**Corporate
      History**





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





Prior
      to
      January 2004, we were a development stage company. Although we were incorporated
      only six years ago, we have undergone a number of changes in our business
      strategy and organization. In June 2001, we focused our business on the
      integration and marketing of complete mobile information solutions to meet
      the
      needs of mobile professionals. In April 2002, we acquired NeoReach and shifted
      our focus toward solutions supporting the third generation wireless market
      that
      provides broadband to allow faster wireless transmission of data, such as the
      viewing of streaming video in real time. We shifted our business strategy in
      December 2003 with a new management team, expanding significantly the scope
      of
      our business activity to include Internet access services, local and long
      distance telephone services and the ownership and operation of payphones. In
      2005, we began to invest in the business of deploying broadband wireless
      networks and providing wireless network access services in wireless access
      zones
      to be primarily located in municipality-sponsored areas. As indicated above,
      we
      entered these businesses primarily through acquisitions. We have completed
      twenty-one (21) acquisitions within the last thirty-three (33) months.
      Accordingly, our experience in operating our current businesses is limited.
      The
      Company has lost money historically. For the fiscal years ended March 31, 2006
      and 2005, we incurred net losses of $10,176,407 and $5,359,722, respectively,
      and we incurred an additional net loss of $8,848,421 in the six months ended
      September 30, 2006.





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





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





27


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





On
      October 15, 2004, we closed our acquisition of CloseCall, which further
      established our presence in the CLEC business. One month later, we closed our
      acquisition of Davel. On June 30, 2005, we acquired AFN.





In
      June
      2005, we participated in the formation of Kite Broadband, a wireless broadband
      Internet service provider, resulting in the 51% ownership of this venture.
      On
      January 31, 2006, we acquired the remaining 49% of Kite Broadband and 100%
      of
      the outstanding common stock of Kite Networks, Inc.





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





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





**Recent
      Developments**





On
      April
      20, 2006, we announced our selection by Yuma, Arizona, for the deployment,
      ownership and management of a wireless network that will initially cover a
      portion of the 106 square mile city limits. Yuma is the third largest city
      in
      Arizona outside of the Phoenix and Tucson metropolitan areas with an estimated
      population of approximately 89,000 residents.





On
      August
      18, 2006, we announced the signing of a definitive agreement with the city
      of
      Longmont, Colorado, for the deployment, ownership and management of a city-wide
      wireless network, an area covering 22 square miles with approximately 81,000
      residents.





The
      cities of Chandler and Gilbert, Arizona; Farmers’ Branch, Texas; Akron, Ohio;
      and Cuyahoga Falls, Ohio, have also selected us for the proposed deployment,
      ownership and management of their planned wireless networks. Currently, we
      are
      negotiating definitive contracts and/or developing pilot deployments with
      certain of these municipalities. The deployment of the network in Farmers’
Branch has been substantially completed. We have begun the deployment of the
      network in Chandler. As of September 30, 2006, we had purchased networking
      and
      related equipment for these networks in the amounts of approximately $1,472,000
      and $1,327,000, respectively.





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





On
      June
      28, 2006, we signed agreements with an equipment leasing firm in order to
      execute a sale/leaseback transaction covering certain of the municipal wireless
      network equipment in Tempe, Arizona. The sale of the equipment provided
      $2,000,000 in proceeds; the leaseback period is 36 months and includes a
      fair-market-value purchase option at the end of the lease term. On October
      10,
      2006, we signed a master equipment lease agreement with a different lease
      financing firm that may provide up to $3 million in lease financing capital
      for
      future network core infrastructure and certain deployed equipment. See the
      Liquidity and Capital Resources section below for additional discussion of
      these
      leasing transactions.





28


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





On
      June
      30, 2006, the Company issued the Amended Debenture to Cornell Capital, replacing
      the original Debenture. The Debenture was payable in quarterly installments
      over
      a three-year period with $4,500,000 scheduled to be paid in cash over the year
      ending March 31, 2007. Pursuant to the Amended Debenture, the amended principal
      amount of $15,149,650 is currently scheduled to be retired at a rate of $250,000
      per week, with payments scheduled to commence in mid-November 2006. However,
      under certain conditions including Cornell Capital having the statutory ability
      to sell the shares in the open market, the Company has the option of making
      the
      weekly payments in the form of cash or our common stock. Like the Debenture,
      the
      Amended Debenture bears interest at an annual rate of 7.75%. See the Liquidity
      and Capital Resources section below for additional discussion of the Amended
      Debenture.





On
      August
      28, 2006, the Company entered into a financing agreement with Cornell Capital
      with the purpose of providing up to $7.0 million in debt financing to the
      Company with the proceeds provided in three tranches (the “Tranche Debenture
      Agreement”). At the closing of each tranche, the Company will issue Cornell
      Capital a 7.75% secured convertible debenture in the principal amount for that
      tranche. On August 30, 2006, the Company closed the first tranche in the amount
      of $2.3 million, issuing the First Tranche Debenture. Under the terms of this
      First Tranche Debenture, the Company is scheduled to make weekly principal
      payments of at least $125,000 commencing January 2, 2007, with interest on
      the
      outstanding principal balance payable at the same time. Under conditions similar
      to those included in the Amended Debenture, the Company has the right to make
      any and all such principal payments by issuing shares of its common stock to
      Cornell Capital. Under an amendment to the Tranche Debenture Agreement signed
      on
      October 23, 2006, the additional tranches were rescheduled such that $1,175,000
      of gross proceeds will be available no later than November 15, 2006, $1,175,000
      of gross proceeds will be available on February 1, 2007, and $2,350,000 will
      be
      available upon the Company successfully registering the conversion shares of
      common stock for resale.





The
      Company filed a registration statement on Form S-3 on October 12, 2006 including
      the shares of our common stock that would be issued pursuant to our making
      the
      scheduled maturity payments of the Amended and First Tranche Debentures with
      shares of common stock. However, we have not yet received clearance from the
      SEC
      that would allow the registration to be declared effective.





On
      August
      28, 2006, a leading provider of triple play cable TV, high-speed Internet and
      telephone services, RCN Corporation (“RCN”), announced that it had reached a
      pilot agreement with the Company whereby RCN will offer cellular service to
      its
      subscribers supplied by CloseCall America. Under this arrangement, it is
      intended that CloseCall America will perform all supporting activities including
      sales, provisioning, billing and customer care. The initial trial of this
      program was commenced in September 2006 in Boston, Massachusetts. The
      arrangement contemplates that upon the occurrence of a successful trial, the
      program will be extended to other RCN markets around the country. However,
      if
      the trial is deemed to be unsuccessful, the relationship would likely be
      terminated.





On
      July
      6, 2006, the Company announced that its Internet gaming subsidiary, ProGames
      Network, Inc. (“ProGames”), closed an initial round of financing that provided
      $138,500 in gross proceeds under a series of debentures convertible into shares
      of common stock of ProGames. The proceeds were used primarily to fund certain
      operating costs of ProGames including the development of a web-site. ProGames
      was formed in December 2005 in order to pursue select opportunities in the
      Internet gaming space including the development of tools, content and
      connectivity for online gamers. Under U.S. law, the ability to market “games of
      chance” is limited by the federal Wire Act and various state anti-gambling laws.
      In the three and six months ended September 30, 2006, Mobilepro expensed
      approximately $88,000 and $182,000 in costs associated with the start-up of
      this
      business.





29


**Management
      Opportunities and Challenges**




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





As
      discussed above, we see opportunity for growth in the emerging market presented
      by municipally sponsored broadband wireless networks. Our acquisition strategy
      of the last two years has been executed, in part, with the objective of
      establishing a viable telecommunications company with sufficient credibility
      to
      be considered for selection by cities for the deployment, ownership and
      management of broadband wireless networks. The effectiveness of our business
      plan execution was initially confirmed by the selection by Tempe, Arizona,
      of
      Kite Networks (formerly NeoReach Wireless) for its network. Subsequently, we
      were selected by nine other cities for the deployment, ownership, and management
      of such networks. However, as discussed above, the Company withdrew from the
      Sacramento, California, and Brookline, Massachusetts, deployment projects during
      contract negotiation.





The
      ramp-up time from selection to the completion of deployment can exceed six
      months. As a result, we have incurred significant costs related to this business
      before any significant revenues are expected. Operating costs for Kite Networks
      were approximately $1,960,000 in the year ended March 31, 2006, and
      approximately $1,149,000 in the six months ended September 30, 2006. The capital
      equipment costs for the Tempe network exceeded $2,800,000. As of September
      30,
      2006, we had purchased networking equipment for the Farmers’ Branch and Chandler
      networks in the amounts of approximately $1,472,000 and $1,327,000,
      respectively. The transmission equipment being installed by us incorporates
      certain new technologies that are largely untested in these types of networks.
      Should functionality prove to be ineffective, we may be required to make
      additional expenditures to upgrade or replace equipment that has already been
      installed. In order to fund the equipment costs and operating expenses of this
      business, we are required to obtain investment capital from external sources.
      The cash flow from the operations of the voice and Internet services business
      is
      not sufficient to fully fund this business.





Many
      of
      the companies that we have acquired are experiencing declining revenues as
      we
      expected. Over 80% of the customers of our Internet services business are
      subscribers to dial-up service. The revenues of this business segment have
      declined from a level of approximately $4,037,000 for the three months ended
      June 30, 2005 to approximately $2,725,000 (before the addition of InReach
      revenues) for the three months ended September 30, 2006, a decline of
      approximately 32.4%. Likewise, the pay telephone business is declining due
      primarily to the public’s increasing usage of competitive technologies. Revenues
      for Davel for the quarter ended September 30, 2006 were approximately $8,565,000
      compared with revenues of approximately $11,060,000 for the prior year quarter,
      a decline of 22.6%. The declining revenues of these businesses, without a
      corresponding decrease in the cost of such services, and the operating costs
      of
      Kite Networks discussed above are adversely affecting our operating
      profitability.




During
      the three months ended December 31, 2005, both the Internet service provider
      segment and the voice services segment incurred operating losses that were
      not
      expected. As a result, we reviewed the carrying values of the assets of these
      segments and determined that an adjustment for goodwill impairment was
      appropriate at December 31, 2005. We recorded an impairment charge in the amount
      of $3,764,429, including $1,945,519 related to the Internet service provider
      companies and $1,818,910 related to Affinity. We experienced a significant
      and
      steady loss of Affinity customers, and Affinity incurred bad debt losses at
      a
      greater rate than in our other CLEC companies. The negative customer churn
      of
      dial-up ISP customers has exceeded our expectations, contributing to the net
      losses incurred by this segment during the most recent four quarters. As a
      result, we have recorded additional impairment charges related to the ISP
      companies in the amounts of $682,116, $348,118 and $529,736 in the quarters
      ended March 31, 2006, June 30, 2006 and September 30, 2006, respectively. Future
      assessments of the acquisition fair values could identify material impairment
      losses resulting in substantial additional write-offs of goodwill. Such
      adjustments could have material adverse non-cash effects on our results of
      operations and our financial position.





In
      order
      to attain and to sustain the profitability of our Internet and voice services
      businesses, last year we began a project to consolidate these operations that
      we
      expect to substantially complete during fiscal 2007. In connection with this
      project, we recorded a restructuring charge of $825,703 in the fiscal year
      ended
      March 31, 2006, and an additional charge of $303,671 in the quarter ended June
      30, 2006, with the charges relating to employee terminations, fixed asset
      disposals and leased facilities. As additional employee terminations occur,
      we
      may record additional charges for restructuring costs during the remainder
      of
      fiscal 2007. These amounts have not yet been determined.





30


A
      major
      challenge is the pursuit of new financing in order to fund the build out of
      our
      municipal wireless networks, to support the operating expenses of the wireless
      networks business and to provide funds for potential future acquisitions.
      Because of the Company’s negative cash flows, the lack of a significant credit
      history and the difficulties that we are experiencing in registering our
      securities with the SEC, establishing alternative sources of growth capital
      on
      terms that would be considered conventional is proving to be difficult.
      Nonetheless, as described above, in the current year, we have entered into
      two
      lease financing arrangements for the purchase of certain municipal wireless
      network equipment, and we have obtained extended payment terms from an
      alternative provider of wireless network transmission equipment that we are
      using in connection with the Longmont, Colorado, deployment. In addition,
      Cornell Capital has provided funding and amended the payment terms of the
      debentures in recognition of the Company’s tight cash position (see the
      discussion of the Amended Debenture and the Tranche Debenture Agreement above).





In
      order
      to register previously issued unregistered shares for resale and thereby create
      liquidity for the selling stockholders identified therein, we filed a
      registration statement on Form S-3 on October 12, 2006 after withdrawing our
      Form SB-2. The Company had previously amended the Form SB-2 on five occasions
      in
      attempts to respond to a series of comment letters received from the SEC. At
      the
      date of this filing, we are preparing a response to the comment letter recently
      recieved from the SEC concerning the registration statement on Form S-3.





We
      believe that we will be successful in securing additional alternative financing
      in the future. With that belief, we did not pursue an extension or renewal
      of
      the SEDA that expired in May 2006. As discussed elsewhere in this document,
      raising capital is a time intensive and risky process, and there can be no
      assurance that we will be successful in securing additional financing in the
      future.





**Critical
      Accounting Policies**




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




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




**New
      Accounting Pronouncements**




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




31


SFAS
      123R
      requires that the compensation cost relating to share-based payment transactions
      be recorded in financial statements. For each transaction, compensation cost
      is
      to be measured based on the fair value of the equity or liability instrument
      issued. The pro forma disclosures previously permitted under SFAS 123 no longer
      will be an alternative to financial statement recognition of compensation
      expense. We have adopted SFAS 123R in the current year. As a result, we recorded
      compensation expense in the amounts of $485,091 and $471,556 for the first
      and
      second quarters of the current year that are included in the condensed
      consolidated results of operations for the three and six months ended September
      30, 2006.




**Results
      of Operations and Financial Condition**





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




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





***Total
      Revenues***





We
      reported consolidated revenues of $23,410,650 in the quarter ended September
      30,
      2006 compared with revenues of $26,546,650 in the prior year quarter, a decrease
      of 11.8%. Since April 1, 2004, we have completed the acquisition of 19 companies
      that together have provided significant revenues to us in all three operating
      segments. The most significant portions of our revenues are provided by our
      CloseCall and Davel subsidiaries that were acquired in October 2004 and November
      2004, respectively. As a result, revenues for these companies were included
      in
      our consolidated results of operations for the quarters ended September 30,
      2006
      and 2005. Major acquisitions in the prior year included AFN, acquired on June
      30, 2005, and InReach, acquired on November 1, 2005. We also obtained a 51%
      ownership interest in Kite Broadband in June 2005; this entity commenced
      operations on July 1, 2005 (in January 2006 we subsequently acquired the
      remaining 49% of Kite Broadband and 100% interest in Kite Networks). The
      revenues of these new entities were included in our consolidated results of
      operations from those dates. Despite the addition of the revenues from InReach
      and the increase in revenues for AFN and Kite Networks, consolidated revenues
      declined between years. The amounts of revenues for each company that were
      included in our consolidated revenues for the quarters ended September 30,
      2006
      and 2005 were as follows.





**Company**
              
              **2006**
              
              **2005**
              
              **Change****Davel**
              
              $
              8,564,757
              
              $
              11,023,391
              
              $
              (2,458,634
              )**CloseCall
                  (includes Affinity)**
              
              
              5,923,077
              
              
              6,677,701
              
              
              (754,624
              )**Kite
                  Broadband**
              
              
              2,893,582
              
              
              3,385,314
              
              
              (491,732
              )**DFW
                  (Nationwide)**
              
              
              2,725,120
              
              
              3,823,619
              
              
              (1,098,499
              )**AFN
                  (includes US1)**
              
              
              2,136,987
              
              
              1,632,488
              
              
              504,499**InReach**
              
              
              1,095,400
              
              
              —
              
              
              1,095,400**Kite
                  Networks**
              
              
              71,727
              
              
              4,137
              
              
              67,590**Total
                  Revenues**
              
              $
              23,410,650
              
              $
              26,546,650
              
              $
              (3,136,000
              )


**Voice
      Services.** We
      deliver voice communications services to end users on a retail basis principally
      though this business segment. Revenues from our voice services segment for
      the
      quarters ended September 30, 2006 and 2005 were $16,624,821, or 71.0% of
      consolidated revenues, and $19,333,581, or 72.8% of consolidated revenues,
      respectively, representing a 14.0% decline between years. Revenues of this
      segment are provided by Davel, CloseCall and AFN. This group derives most of
      its
      operating revenues from recurring monthly charges, coin revenue and
“dial-around” revenues (intercarrier compensation paid to us by the providers of
      800 numbers at the rate of 49.4 cents per call) that are generated by our
      communications services. The decrease in revenues between years is primarily
      attributable to the decline in the payphone revenues of Davel.





32


The
      proliferation of cell phone use by consumers has caused a continuous reduction
      in the use of payphones. As presented above, the revenues for Davel for the
      quarter ended September 30, 2006 were $8,564,757 compared with revenues of
      approximately $11,023,391 for the prior year, a decline of approximately 22.3%
      between years. In an attempt to maintain profitability, we have reduced the
      number of payphones by removing those phones receiving minimal use and thereby
      eliminating the costs to support and maintain those phones. For example, Davel
      had an average of 32,135 payphones in operation during the quarter ended
      September 30, 2006, compared with an average of 36,754 payphones in operation
      during the quarter ended September 30, 2005, a decline of approximately 12.6%.
      The average monthly revenues per average payphone for the quarters ended
      September 30, 2006 and 2005 were $88.84 and $99.97, respectively, representing
      a
      decline of 11.1% between years.





The
      local
      and long distance service revenues of CloseCall are being negatively affected
      by
      a continued decline in rates and competitive pressures to bundle services
      together and to provide long distance minutes of use within local service
      product offerings. Our existing base of business of long distance minutes is
      also subject to increasing competition from both VoIP and competing wireless
      service offerings. As a result, the business of CloseCall declined in the
      quarter, experiencing a reduction in quarterly revenues of approximately 11.3%
      compared with the prior year quarter. In order to reduce the amount of net
      negative customer churn, we are increasing the promotion of our brand and our
      bundled service offerings. In addition, we plan to reduce the net negative
      churn
      in customers by increasing our advertising and promotional activities and by
      continuing to focus on superior customer service. In addition, we expect
      CloseCall’s revenues from the delivery of cellular telephone services to
      increase during the remainder of the year as the result of the recently
      announced relationship with RCN whereby CloseCall would provide such service
      to
      RCN customers.





On
      the
      other hand, the business of AFN has grown. Revenues were $2,136,987 for the
      current quarter, or 9.1% of consolidated revenues, compared with revenues for
      the prior-year quarter of $1,632,488, or 6.1% of consolidated revenues,
      representing an increase in revenues of 30.9% between years. The increase in
      revenues is attributable primarily to increased volumes with its business
      customers.




**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 quarters
      ended September 30, 2006 and 2005 were $3,820,520, or 16.3% of consolidated
      revenues, and $3,823,619, or 14.4% of consolidated revenues, respectively,
      representing a decline of less than 1% between years. However, current year
      revenues included $1,095,400 in revenues attributable to InReach, a company
      that
      we acquired on November 1, 2005. As stated above, the loss of customers by
      this
      business, which include mostly dial-up Internet access subscribers, has exceeded
      our expectations thus contributing to the goodwill impairment losses recorded
      in
      each of the last four quarters. In order to attempt to reverse the future loss
      of revenues, we are focused on the retention of existing subscribers through
      the
      improvements in the quality of the Internet service offerings and customer
      support. To that end, we recently gave Lisa Bickford, the former general manager
      of InReach, the operational responsibility for the entire Internet service
      provider business.





**Wireless
      Networks.** The
      revenues of this operating segment principally relate to Kite Broadband. Kite
      Broadband’s revenues for the quarters ended September 30, 2006 and 2005 were
      $2,893,582, or 12.4% of consolidated revenues, and $3,385,314, or 12.8% of
      consolidated revenues, respectively. Since its formation, the number of Kite
      Broadband customers has declined by approximately 14.8%. Through improvements
      in
      the quality of the service, we expect to increase our customer retention rate
      and achieve a slight increase in the quarterly revenues of Kite Broadband’s
      business in the remainder of fiscal 2007. Although the revenues of Kite Networks
      for the current quarter represented less than 1% of consolidated revenues,
      they
      include the revenues derived from the initial operations of the wireless network
      in Tempe, Arizona. Such revenues increased to $71,727 for the quarter ended
      September 30, 2006 from $55,314 for the quarter ended June 30, 2006.





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





33


***Operating
      Costs and Expenses***





Total
      operating costs and expenses for the quarters ended September 30, 2006 and
      2005,
      were $26,994,624 and $25,181,706, respectively, representing approximately
      115%
      and 95% of consolidated revenues for the respective periods. Excluding cost
      of
      services, such costs were $13,857,378 and $13,527,311, respectively,
      representing approximately 59% and 51% of consolidated revenues for the
      respective periods. Further, excluding depreciation, amortization, stock
      compensation and charges relating to goodwill impairment and restructuring,
      such
      operating expenses were $11,427,026 and $12,479,992, respectively, representing
      approximately 49% and 47% of consolidated revenues for the respective periods.
      These operating expenses have been reduced by $1,052,966 between years, or
      8.4%,
      due primarily to our restructuring activities that are reducing compensation
      and
      other related general and administrative costs. Such expenses were approximately
      $12.0 million in the first quarter of the current year.





Depreciation
      and amortization expenses were $1,448,892 and $1,047,319 in the quarters ended
      September 30, 2006 and 2005, respectively. The increase between quarters is
      due
      primarily to current-quarter depreciation on municipal wireless network
      equipment in the amount of $209,703.





Costs
      of
      services were $13,137,246 and $11,654,395, respectively, in the quarters ended
      September 30, 2006 and 2005, an increase of approximately 12.7% between
      quarters. These costs, expressed as a percentage of revenues for the
      corresponding periods, were 56.1% and 43.9%, respectively, for the current
      and
      prior-year quarters. The increase in the dollars of such costs between quarters
      was due primarily to the additional costs of AFN, InReach and Kite Networks.
      The
      comparable businesses of Davel, CloseCall, DFW and Kite Broadband all
      experienced increases in such costs, expressed as percentages of corresponding
      revenues, since costs related to network lines and circuits could not be reduced
      enough to keep pace with the declining revenues.





An
      analysis of the change between quarters in net consolidated operating expenses
      follows:





**Net
                consolidated operating expenses, quarter ended September 30,
                2005**
            
            $
            12,479,992**Operating
                expenses of InReach**
            
            
            575,214**Operating
                expenses of comparable businesses**
            
            
            (1,721,261
            )**Stock
                compensation charge (adoption of SFAS 123R)**
            
            
            471,556**Goodwill
                impairment charge**
            
            
            529,736**Restructure
                charge**
            
            
            (19,832
            )**ProGames
                costs**
            
            
            93,081**Net
                consolidated operating expenses, quarter ended September 30,
                2006**
            
            $
            12,408,486**Net
                consolidated operating expenses above**
            
            $
            12,408,486**Cost
                of services**
            
            
            13,137,246**Depreciation
                and amortization**
            
            
            1,448,892**Consolidated
                operating costs and expenses, quarter ended****September
                30, 2006**
            
            $
            26,994,624




***Interest
      Expense***





Interest
      expense, net, was $526,940 for the quarter ended September 30, 2006 compared
      with $698,335 in the prior year. During the first quarter of the current year,
      we completed the retirement of our notes payable to Cornell Capital. During
      the
      second quarter of the current fiscal year, we issued a new debenture to Cornell
      Capital in the amount of $2.3 million, bearing stated interest at 7.75%.





34


The
      major
      components of net interest expense for quarters ended September 30, 2006 and
      2005 are presented in the following schedule.





**Type
                    of Debt**
                
                **2006**
                
                **2005****Notes
                    payable to Cornell Capital**
                
                $
                —
                
                $
                198,049**SEDA
                    draw discounts**
                
                
                —
                
                
                142,847**Convertible
                    debentures (at stated rate)**
                
                
                312,541
                
                
                302,781**Discount
                    amortization amounts**
                
                
                149,115
                
                
                100,376**Other,
                    net**
                
                
                65,284
                
                
                (45,718
                )**Interest
                    Expense, net**
                
                $
                526,940
                
                $
                698,335


***Net
      Loss***




We
      reported a net loss of $4,110,914 for the quarter ended September 30, 2006,
      or
      $0.0070 per share, compared with net income of $523,900, or $0.0012 per diluted
      share, for the prior year quarter. The loss was due primarily to the reduction
      in revenues, the increase in the cost of services, depreciation and
      amortization, and certain other non-cash charges. The current quarter results
      included non-cash charges related to goodwill impairment, restructuring and
      stock compensation that totaled $981,460; no such charges were included in
      the
      prior-year quarter. The voice services segment incurred a net loss of $137,674
      for the current quarter compared with net income of $2,098,299 in the prior
      year
      quarter as revenues declined by approximately 14.0% without a corresponding
      decrease in the cost of services. The Internet service segment incurred a net
      loss of $888,669 for the current quarter compared with net income of $277,183
      in
      the prior year quarter. Although the addition of InReach enabled this segment
      to
      maintain its level of revenues between years, the cost of services and other
      operating expenses increased. In addition, a goodwill impairment charge of
      $529,736 was recorded in the current quarter related the DFW group of companies.
      Net losses incurred by both Kite Broadband and Kite Networks primarily caused
      the net loss of $1,426,715 reported by the wireless networks segment for the
      current quarter as revenues declined by approximately 12.5% without a
      corresponding decrease in the cost of services. Corporate expenses were
      $1,657,856 in the current quarter, including $471,556 in stock compensation
      and
      $93,081 in ProGames expenses, offset by a reduction in interest expense;
      corporate expenses were $1,288,524 in the prior-year quarter.





**The
      Six Months Ended September 30, 2006 and 2005**





***Total
      Revenues***





We
      reported consolidated revenues of $46,753,436 in the six months ended September
      30, 2006 compared with revenues of $49,052,495 in the prior year period, a
      decrease of 4.7%. The current year results include the revenues of AFN and
      Kite
      Broadband for two quarters (the prior-year results include only one quarter)
      and
      the revenues of InReach. However, the revenues of each of the significant
      comparable companies, Davel, CloseCall, and DFW, declined between years. The
      amounts of revenues for each company that were included in our consolidated
      revenues for the six months ended September 30, 2006 and 2005 were as follows.





**Company**
              
              **2006**
              
              **2005**
              
              **Change****Davel**
              
              $
              16,762,255
              
              $
              22,187,052
              
              $
              (5,424,797
              )**CloseCall
                  (includes Affinity)**
              
              
              11,778,334
              
              
              13,852,722
              
              
              (2,074,388
              )**Kite
                  Broadband**
              
              
              5,876,580
              
              
              3,385,314
              
              
              2,491,266**DFW
                  (Nationwide)**
              
              
              5,705,958
              
              
              7,861,019
              
              
              (2,155,061
              )**AFN
                  (includes US1)**
              
              
              4,168,273
              
              
              1,756,258
              
              
              2,412,015**InReach**
              
              
              2,334,995
              
              
              -
              
              
              2,334,995**Kite
                  Networks**
              
              
              127,041
              
              
              10,130
              
              
              116,911**Total
                  Revenues**
              
              $
              46,753,436
              
              $
              49,052,495
              
              $
              (2,299,059
              )
 
 
 35
 ***Operating
        Costs and Expenses***





Total
      operating costs and expenses for the six months ended September 30, 2006 and
      2005, were $54,271,241 and $46,336,184, respectively, representing approximately
      116% and 94% of consolidated revenues for the corresponding periods. Excluding
      cost of services, such costs were $28,372,037 and $23,659,927, respectively,
      representing approximately 61% and 48% of consolidated revenues for the
      corresponding periods. Further, excluding depreciation, amortization, stock
      compensation and charges relating to goodwill impairment and restructuring,
      such
      operating expenses were $23,473,894 and $21,790,231, respectively, representing
      approximately 50% and 44% of consolidated revenues for the corresponding periods
      despite the reduction of $1,052,966 in such costs in the current quarter
      compared with the prior year.





Depreciation
      and amortization expenses were $2,779,803 and $1,869,696 in the six months
      ended
      September 30, 2006 and 2005, respectively. The increase between quarters is
      due
      primarily to current-year depreciation on municipal wireless network equipment
      in the amount of $373,362, and the inclusion of the depreciation and
      amortization of Kite Broadband for the full six months of the current year
      period ($469,221), including amortization related to the Sprint contract (see
      Notes 2 and 6 to the condensed consolidated financial statements included
      herein). The prior-year period included only three months of depreciation and
      amortization for Kite Broadband ($181,563).





Costs
      of
      services were $25,899,204 and $22,676,257, respectively, in the six months
      ended
      September 30, 2006 and 2005, an increase of approximately 14.2% between years.
      These costs, expressed as a percentage of revenues for the corresponding
      periods, were 55.4% and 46.2%, respectively, for the current and prior-year
      periods. The increase in the dollars of such costs between quarters was due
      primarily to the additional costs of AFN, Kite Broadband, InReach and Kite
      Networks. The comparable businesses of Davel, CloseCall, and DFW all experienced
      decreases in such costs between years. However, such costs, expressed as
      percentages of corresponding revenues, increased between years as costs related
      to network lines and circuits could not be reduced to keep pace with the
      declining revenues.





An
      analysis of the change between years in net consolidated operating expenses
      follows:





**Net
                consolidated operating expenses, six months ended September 30,
                2005**
            
            $
            21,790,231**Operating
                expenses of acquired companies**
            
            
            3,215,965**Operating
                expenses of comparable businesses**
            
            
            (1,879,693
            )**Stock
                compensation charge (adoption of SFAS 123R)**
            
            
            956,647**Goodwill
                impairment charges**
            
            
            877,854**Restructure
                charges**
            
            
            283,839**Write-off
                of investment banking fees**
            
            
            165,886**ProGames
                costs**
            
            
            181,505**Net
                consolidated operating expenses, six months ended September 30,
                2006**
            
            $
            25,592,234**Net
                consolidated operating expenses above**
            
            $
            25,592,234**Cost
                of services**
            
            
            25,899,204**Depreciation
                and amortization**
            
            
            2,779,803**Consolidated
                operating costs and expenses, six months ended****September
                30, 2006**
            
            $
            54,271,241





36


***Interest
      Expense***





Interest
      expense, net, was $921,015 for the six months ended September 30, 2006 compared
      with $1,630,510 in the prior year. During the first quarter of the current
      year,
      we completed the retirement of our notes payable to Cornell Capital and allowed
      the term of the SEDA to expire. During the second quarter of the current fiscal
      year, we issued a new debenture to Cornell Capital in the amount of $2.3
      million, bearing stated interest at 7.75%. The prior year included interest
      expense related to a bridge loan payable to Airlie Opportunity Fund that was
      refinanced in May 2005.





The
      major
      components of net interest expense for six months ended September 30, 2006
      and
      2005 are presented in the following schedule.





**Type
                  of Debt**
              
              **2006**
              
              **2005****Notes
                  payable to Cornell Capital**
              
              $
              25,074
              
              $
              432,361**SEDA
                  draw discounts**
              
              
              137,795
              
              
              237,805**Convertible
                  debentures (at stated rate)**
              
              
              602,370
              
              
              460,753**Discount
                  amortization amounts**
              
              
              246,254
              
              
              150,565**Airlie
                  bridge loan**
              
              
              —
              
              
              381,225**Other,
                  net**
              
              
              (90,478
              )
              
              (32,199
              )**Interest
                  Expense, net**
              
              $
              921,015
              
              $
              1,630,510


***Net
      Loss***




We
      reported a net loss of $8,848,421 for the six months ended September 30, 2006,
      or $0.0151 per share, compared with net income of $943,092, or $0.0023 per
      diluted share, for the prior year period. The current year results included
      charges for stock compensation, goodwill impairment and restructuring that
      totaled $2,118,340, and a loss incurred on the extinguishment of debt in the
      amount of $409,601 (see Note 7 to the condensed consolidated financial
      statements). The voice services segment incurred a net loss of $706,207 for
      the
      current year compared with net income of $3,828,715 in the prior year as
      revenues declined by approximately 13.5% while the total cost of services for
      the segment increased. Despite a 2.2% increase in segment revenues between
      years, the Internet services business incurred a net loss of $1,321,921 for
      the
      current year compared with net income of $505,490 in the prior year as operating
      expenses (including the costs incurred by InReach) increased between years
      and
      goodwill impairment and restructuring charges of $877,854 and $97,871,
      respectively, were recorded in the current year. Net losses incurred by both
      Kite Broadband and Kite Networks caused the net loss of $2,603,278 reported
      by
      the wireless networks segment for the current year, relating primarily to the
      start-up of the municipal wireless business. Corporate expenses were $4,217,015
      in the current year, including $956,647 in stock compensation, $185,968 in
      restructuring charges, the loss on extinguishment of debt of $409,601, the
      write-off of the investment banking fees in the amount of 165,886, and $181,505
      in ProGames organizational costs. Such increases were partially offset by a
      substantial reduction in net interest expense between years as presented above.





***Adjusted
      EBITDA Presentation***





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




37


The
      computations of Adjusted EBITDA for the quarters ended September 30, 2006
      and 2005 were as follows.





**2006**
              
              **2005****Net
                  income/(loss)**
              
              $
              (4,110,914
              )
              $
              523,900**Add
                  non-EBITDA items included in net****results:****Depreciation
                  and amortization**
              
              
              1,448,892
              
              
              1,047,319**Interest
                  expense, net**
              
              
              526,940
              
              
              698,335**Goodwill
                  impairment and restructuring****charges**
              
              
              509,904
              
              
              —**Stock
                  compensation expense**
              
              
              471,556
              
              
              —**Adjusted
                  EBITDA**
              
              $
              (1,153,622
              )
              $
              2,269,554




The
      computations of Adjusted EBITDA for the six months ended September 30, 2006
      and 2005 were as follows.




**2006**
              
              **2005****Net
                  income/(loss)**
              
              $
              (8,848,421
              )
              $
              943,092**Add
                  non-EBITDA items included in net****results:****Depreciation
                  and amortization**
              
              
              2,779,803
              
              
              1,869,696**Interest
                  expense, net**
              
              
              921,015
              
              
              1,630,510**Goodwill
                  impairment, restructuring****charges
                  and write-offs**
              
              
              1,416,003
              
              
              —**Stock
                  compensation expense**
              
              
              956,647
              
              
              —**Loss
                  on debt extinguishment**
              
              
              409,601
              
              
              —**Adjusted
                  EBITDA**
              
              $
              (2,365,352
              )
              $
              4,443,298


We
      consider Adjusted EBITDA to be an important supplemental indicator of our
      operating performance, particularly as compared to the operating performance
      of
      our competitors, because this measure eliminates many differences among
      companies in financial, capitalization and tax structures, capital investment
      cycles and ages of related assets, as well as certain recurring non-cash and
      non-operating items. We believe that consideration of Adjusted EBITDA should
      be
      supplemental, because Adjusted EBITDA has limitations as an analytical financial
      measure. These limitations include the following: Adjusted EBITDA does not
      reflect our cash expenditures, or future requirements for capital expenditures
      or contractual commitments; Adjusted 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 Adjusted EBITDA does not reflect any cash
      requirements for such replacements; Adjusted 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 Adjusted EBITDA,
      which
      limits its usefulness as a comparative measure.




Management
      compensates for these limitations by relying primarily on its GAAP results
      to
      evaluate its operating performance and by considering independently the economic
      effects of the foregoing items that are not reflected in Adjusted EBITDA. As
      a
      result of these limitations, Adjusted 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.





38


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





**Liquidity
      and Capital Resources**





During
      the six months ended September 30, 2006, our balance of unrestricted cash and
      cash equivalents decreased by $2,114,763 to $3,283,118.





Net
      cash
      used in operations during the six months ended September 30, 2006 was
      $3,876,369, reflecting the funding of operating expenses incurred by the Company
      and including a significant reduction of $2,766,062 in the total amount of
      accounts payable and accrued liabilities. Partially offsetting these factors
      was
      a $1,390,429 reduction in the balance of accounts receivable during the current
      year as, based on revenues for the respective preceding quarters, we reduced
      days sales in receivables to 35.7 days at September 30, 2006 from 39.8 days
      at
      March 31, 2006.





We
      used
      net cash of $3,338,296 in connection with investing activities during the
      current year. We made capital expenditures during the current year totaling
      $4,543,094 including approximately $3,297,000 related to the deployment of
      municipal wireless networks. Net cash proceeds of $1,300,000 were provided
      from
      the sale of certain wireless network equipment in Tempe (see additional
      discussion of this sale/leaseback transaction below).





Our
      financing activities during the current year provided net cash of $5,099,902.
      Cash provided to us from the sale of common stock, primarily sales to Cornell
      Capital pursuant to the SEDA, totaled $6,660,652. Cash proceeds received from
      the issuance of convertible debentures were $2,438,500. During the current
      year,
      we used cash to make payments reducing the balance of notes payable and other
      debt amounts. The net reduction was $3,823,250 including the payment of the
      balance of notes payable to Cornell Capital in the amount of
      $3,600,000.





We
      expect
      that our future cash flows from operations will not be adequate to meet our
      anticipated cash needs in fiscal 2007. Most important, we estimate that
      aggregate capital expenditures of approximately $18-$22 million will be required
      in order to complete the municipal wireless network deployments awarded to
      us to
      date. In order to support the municipal wireless network business operations,
      to
      complete the deployment of these wireless networks, and to pursue one or more
      significant strategic acquisitions, we will need to incur additional debt or
      issue additional equity. Our expectation for the Company’s revenue-producing
      businesses is that they will achieve at least an aggregate breakeven cash flow
      from operations and cover corporate expenses. Notwithstanding our expectation,
      that did not occur in the three or six months ended September 30, 2006. A
      further decline in our revenue-generating businesses will increase our need
      for
      cash.





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





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





39


On
      August
      28, 2006, the Company entered into a financing agreement with Cornell Capital
      providing up to $7.0 million in debt financing with the proceeds provided in
      three tranches (the “Tranche Debenture Agreement”). At the closing of each
      tranche, the Company will issue Cornell Capital a 7.75% secured convertible
      debenture in the principal amount for that tranche, convertible into common
      stock at $0.174 per share. On August 30, 2006, the Company closed the first
      tranche in the amount of $2.3 million, issuing the First Tranche Debenture.
      Under the terms of this First Tranche Debenture, the Company will make weekly
      scheduled principal payments of at least $125,000 commencing January 2, 2007,
      with interest on the outstanding principal balance payable at the same time.
      If
      the shares of our common stock are saleable by Cornell Capital in the open
      market, the Company has the right to make any and all such principal payments
      by
      issuing shares of its common stock to Cornell Capital with the amount of such
      shares based upon the lower of $0.174 per share or 93% of the average of the
      two
      lowest daily volume weighted average per share prices of its common stock during
      the five days immediately following the scheduled payment date. Cornell Capital
      may convert all or any part of the unpaid principal and accrued interest owed
      under the First Tranche Debenture into shares of our common stock at a
      conversion price of $0.174 per share.





Under
      an
      amendment to the Tranche Debenture Agreement signed on October 23, 2006, the
      additional tranches were rescheduled such that $1,175,000 of gross proceeds
      will
      be available no later than November 15, 2006, $1,175,000 of gross proceeds
      will
      be available on February 1, 2007, and $2,350,000 will be available upon the
      Company successfully registering the conversion shares of common stock for
      resale.





The
      Company filed a registration statement on Form S-3 on October 12, 2006 including
      the shares of our common stock that would be issued pursuant to our making
      the
      scheduled maturity payments of the Amended and First Tranche Debentures with
      shares of common stock. However, we have not yet received clearance from the
      SEC
      that would allow the registration to be declared effective.





There
      can
      be no assurance that the registration statement on Form S-3 will become
      effective, or become effective in time to allow the Company to make its
      scheduled debenture maturity payments with shares of its common stock.
      Currently, maturity payments on the Amended Debenture are scheduled to begin
      at
      the rate of $250,000 by mid-November 2006. In the event that the Form S-3 is
      not
      declared effective, alternative sources of cash are not identified, or Cornell
      Capital does not agree to another delay in the commencement of the payment
      maturity schedule of the Amended Debenture, the Company may be unable to make
      this payment with cash thereby placing the Company in default of the terms
      of
      the Amended Debenture.





The
      issuance of each debenture to Cornell Capital has been accompanied by the
      issuance of a stock warrant. For example, in connection with the First Tranche
      Debenture, we issued to Cornell Capital a warrant to purchase 3,333,334 shares
      of our common stock at $0.174 per share. The Tranche Debenture Agreement
      requires that we issue additional warrants to Cornell Capital in connection
      with
      the future scheduled fundings. In addition, the warrants that were issued to
      Cornell Capital in connection with the Debenture and the Amended Debenture
      were
      amended, thereby increasing the number of shares and decreasing the per share
      exercise prices. The number of shares subject to exercise under the warrants
      related to the Debenture and the Amended Debenture were increased to 15,000,000
      shares and 13,750,000, respectively, from 6,000,000 and 10,000,000,
      respectively. The per share exercise prices of the warrants were reduced from
      $0.50 and $0.275, respectively, to $0.20 in both instances.





40


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





On
      October 10, 2006, the Company signed a master equipment lease agreement with
      a
      lease financing firm that may provide up to $3 million in lease financing
      capital for future wireless network equipment purchases. The commitment is
      available only for equipment manufactured by Cisco Systems. Fifty percent of
      the
      commitment is designated for core network infrastructure equipment. The
      remainder of the commitment is available for transmission equipment purchases
      and can be used to finance up to fifty percent of the cost of such purchases.
      The lease term for each equipment purchase shall be twenty-four
      months.





Further,
      we continue to negotiate the addition of new financing, including financing
      provided by one of our vendors, and expect proceeds to be available during
      fiscal year 2007, and we are have obtained extended payment terms from several
      of our current wireless network equipment vendors.





During
      the current quarter, we signed an agreement to assign the rights to certain
      of
      our wireless antenna patents to an unaffiliated party for $300,000 cash upon
      the
      satisfaction of certain conditions. Although we expect that the closing of
      this
      sale will occur in the third fiscal quarter, there can be no assurance that
      the
      sale conditions will be satisfied or that we will receive any portion of the
      cash proceeds.





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





**Inflation**




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





**Risks
      Related to Our Business**




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




41


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




We
      have
      historically lost money. In the years ended March 31, 2006 and 2005, we
      sustained net losses of $10,176,407 and $5,359,722, respectively. In addition,
      we incurred a net loss of $8,848,421 in the six months ended September 30,
      2006
      caused primarily by declining revenues. As a result, the amount of cash used
      in
      operations during the six months ended September 30, 2006 was $3,876,369. Future
      losses may occur. Accordingly, we will experience liquidity and cash flow
      problems if we are not able to improve our operating performance or raise
      additional capital as needed and on acceptable terms. If we fail to obtain
      alternative capital financing or eliminate the net losses and negative cash
      flows of our operating businesses, we will be required to consider other
      alternatives, including the reduction of our operations (in particular the
      deployment of additional municipal wireless networks), the discontinuance or
      disposal of certain assets or operations, or the sale of the
      Company.




**We
      May Be Unable to Make the Scheduled Maturity and Interest Payments under the
      Amended Debenture**





Under
      the
      terms of the Amended Debenture, we have agreed to make weekly scheduled
      principal payments of at least $250,000 commencing in mid-November 2006 with
      interest on the outstanding principal balance payable at the same time. The
      amount of accrued interest was $295,937 at September 30, 2006. We have the
      right
      to make any and all such principal payments by issuing shares of our common
      stock to Cornell Capital provided ** that
      all
      such shares may only be issued by the Company if such shares are tradable under
      Rule 144 of the Securities Act of 1933 (the “Securities Act”), are registered
      for sale under the Securities Act or are freely tradable by Cornell Capital
      without restriction.





The
      Company filed a registration statement on Form S-3 on October 12, 2006 covering
      such shares, but it has not yet received clearance from the Securities Exchange
      Commission that would allow the registration to be declared
      effective.





There
      can
      be no assurance that the registration statement on Form S-3 will become
      effective, or become effective in time to allow the Company to make its
      scheduled debenture maturity payments with shares of its common stock. In the
      event that the Form S-3 is not declared effective, alternative sources of cash
      are not identified, or Cornell Capital does not agree to another delay in the
      commencement of the payment maturity schedule of the Amended Debenture, the
      Company may be unable to make these payments in cash putting the Company in
      default of the terms of the Amended Debenture.





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




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




On
      August
      28, 2006, we entered into a financing agreement with Cornell Capital to raise
      up
      to $7.0 million in three tranches. At the closing of each tranche, we will
      issue
      Cornell Capital a 7.75% secured convertible debenture in the principal amount
      for that tranche, convertible into common stock at $0.174 per share, together
      with a warrant to purchase up to 3,333,334 shares of common stock at an exercise
      price of $0.174 per share. On August 30, 2006, we closed the first tranche
      in
      the amount of $2.3 million. Under the terms of this First Tranche Debenture,
      we
      have agreed to make weekly scheduled principal payments of at least $125,000
      commencing January 2, 2007, with interest on the outstanding principal balance
      payable at the same time. We have the right to make any and all such principal
      payments by issuing shares of our common stock to Cornell Capital with the
      amount of such shares based upon the lower of $0.174 per share or 93% of the
      average of the two lowest daily volume weighted average per share prices of
      our
      common stock during the five days immediately following the scheduled payment
      date. Cornell Capital may convert all or any part of the unpaid principal and
      accrued interest owed under the First Tranche Debenture into shares of our
      common stock at a conversion price of $0.174 per share.




42


On
      November 1, 2006, the price of our common stock closed at $0.122 per share.
      Should the price of our stock remain at the current level and we choose to
      make
      scheduled principal payments with our common stock, the issuance of shares
      of
      our common stock to Cornell Capital may result in significant dilution to the
      value of common stock currently held by our stockholders. For example, using
      93%
      of the closing price per share on November 1 ($0.1135 per share) as the
      calculation price, each weekly retirement of debt under the Amended Debenture
      in
      the amount of $250,000 would result in the issuance of
      approximately 2,202,600 shares of our common stock to Cornell Capital
      commencing November 15, 2006, each weekly conversion of debt under the first
      of
      the First Tranche Debenture in the amount of $125,000 would result in the
      issuance of approximately 1,101,300 shares of our common stock to Cornell
      Capital commencing January 2, 2007. Based on our current stock trading price,
      we
      would ultimately issue an aggregate of approximately 153,741,000 shares of
      our
      common stock to repay the Amended Debenture and the $7.0 million in tranche
      debentures in full. However, we may issue fewer shares if the market price
      of
      our common stock increases, and we may issue more shares if the market price
      of
      our common stock decreases.





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




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




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


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




43


**Federal
      Regulators May Take Positions with Which We Disagree or Which We Believe are
      Contrary to Existing Law and Regulation, Which May Impose Substantial Litigation
      Costs on Our Business, Impede Our Access to Capital and/or Force Us to Seek
      a
      Merger Partner**




As
      a
      publicly traded telecommunications company, we are subject to the regulatory
      scrutiny of both the Federal Communications Commission (the “FCC”) and the SEC.
      Both agencies are administrative government agencies with statutory authority
      to
      implement and enforce laws passed by the U.S. Congress. Both the FCC and SEC
      have the ability to use discretion in certain cases both in interpreting what
      the laws passed by Congress mean and when to enforce such laws. The FCC and/or
      SEC may even take positions with which we disagree or which we believe are
      unfounded in statute, regulation, or prior agency guidance and which are adverse
      to Mobilepro. In order to contest such behavior, Mobilepro may be forced to
      resort to litigation. In the context of the SEC, Mobilepro’s ability to have its
      registration statements “go effective” may be impeded if in its comments to
      Mobilepro’s registration statement the SEC were to take a position with which we
      disagree based on prior law, regulation or prior SEC interpretative guidance.
      Such behavior would materially impair Mobilepro’s access to the capital markets,
      potentially force Mobilepro to incur substantial litigation related costs and
      may force Mobilepro to seek a merger with another company.





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




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




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




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





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




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




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




44


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




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




Our
      ability to achieve organic revenue growth is dependent upon the success of
      long-term projects, such as our wireless initiatives, that require us to incur
      significant up-front costs. We expect to confront multiple challenges in
      reaching the point where significant revenues are provided by this business.
      For
      example, the securing of a city contract is a multi-step process that can take
      over six months to complete, including a pilot demonstration, the RFP
      preparation, response and evaluation, contract negotiation, development of
      the
      deployment plan, and equipment installation and testing. Although we attempt
      to
      minimize development risks by carefully analyzing demographics, topography,
      climate and other factors, each project includes the utilization of newly
      developed transmission equipment. For example, operating expenses that have
      been
      incurred by our municipal wireless network business in the current year
      approximated $1,096,000 and we expect that the cost of the equipment required
      for the completion of the Tempe network will exceed $2.8 million. The revenues
      of Kite Networks for the six months ended September 30, 2006 were $127,041.
      In
      order to generate greater revenues from these projects, we will be required
      to
      successfully complete marketing efforts to obtain individual subscribers willing
      to pay us for wireless Internet service and negotiate contracts with large
      Internet service providers allowing them use of the network.




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




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




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




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




45




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


Acquisitions
      may also cause us to:




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




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




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




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




46


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




At
      September 30, 2006, our balance sheet included intangible assets with a total
      carrying value of approximately $55,339,000, representing 59.5% of total assets,
      and including approximately $47,220,042 in goodwill. Substantially all of this
      goodwill has been recorded in connection with the series of acquisitions
      completed by us since January 1, 2004. GAAP requires that we assess the fair
      values of acquired entities at least annually in order to identify any
      impairment in the values. We perform our annual impairment tests for goodwill
      at
      fiscal year-end. However, on a quarterly basis, we are alert for events or
      circumstances that would more likely than not reduce the fair value of a
      reporting segment below its carrying amount. If we determine that the fair
      value
      of an acquired entity is less than the net assets of the entity, including
      goodwill, an impairment loss would be identified and recorded at that
      time.




During
      the three months ended December 31, 2005, both the Internet and voice services
      segments incurred operating losses that were not expected. As a result,
      management reviewed the carrying values of the assets of these segments and
      determined that an adjustment for goodwill impairment was appropriate at
      December 31, 2005. The Company recorded an impairment charge in the amount
      of
      $3,764,429, including $1,945,519 related to the Internet service companies
      and
      $1,818,910 related to Affinity Telecom (“Affinity”), a CLEC business located in
      the state of Michigan that was acquired in August 2004. The impairment charges
      represented approximately 17.2% and 84.5% of the goodwill related to the
      Internet service companies (excluding InReach) and Affinity, respectively.
      The
      Company experienced a significant and steady loss of Affinity customers, and
      Affinity incurred bad debt losses at a greater rate than in our other CLEC
      companies. The negative customer churn of dial-up Internet access customers
      has
      exceeded management's expectations, contributing to the net losses incurred
      by
      this segment during the most recent four quarters. In the quarters ended March
      31, 2006, June 30, 2006 and September 30, 2006, we recorded additional ISP
      goodwill impairment charges of $682,116, $348,118 and $529,736, respectively,
      as
      customer churn continued to exceed expectations.




Future
      assessments of the acquisition fair values could identify material impairment
      losses resulting in substantial write-offs of goodwill. For example, the
      goodwill included in the balance sheet at September 30, 2006 related to the
      DFW
      group of Internet service provider companies was approximately $11,786,000.
      Future adjustments, that could include all of the remaining balance of the
      DFW
      goodwill, could have material adverse effects on our results of operations
      and
      our financial position, and could impede our continuing ability to raise capital
      and/or to make acquisitions.





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




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




•
            our
                success in withstanding the continued shift from dial-up ISP service
                to
                broadband ISP service;•
            the
                performance of our products, services and technology in a manner
                that
                meets customer expectations;•
            the
                success of our efforts to develop effective channels of distribution
                for
                our products;•
            our
                ability to price our products that are of a quality and at a price
                point
                that is competitive with similar or comparable products offered by
                our
                competitors;




47


•
            the
                success of our efforts to develop, improve and satisfactorily address
                any
                issues relating to our technology;•
            our
                ability to effectively compete with companies that have substantially
                greater market presence and financial, technical, marketing and other
                resources than us including (i) local ISPs, (ii) national and regional
                ISPs, (iii) established online services; (iv) nonprofit or educational
                ISPs; (v) national telecommunications companies; (vi) Regional Bell
                Operating Companies (“RBOCs”); (vii) competitive local exchange carriers;
                and (viii) cable operators;•
            our
                ability to adapt to the consolidation of existing ISPs with or into
                larger
                entities, or entry of new entities into the Internet services market,
                would likely result in greater competition for the
                Company;•
            our
                ability to collect dial around compensation owed to our pay telephone
                business from third party payors; and•
            the
                continued erosion of coin revenues in our pay telephone business
                resulting
                from the penetration of wireless technologies and prepaid calling
                cards.




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




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




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




In
      addition, the increasing number of municipally sponsored wireless network
      opportunities is attracting the interest of very large competitors. For example,
      competitors for the Philadelphia network included Verizon, Comcast, and
      Earthlink. According to a published report, the city of San Francisco received
      plans from 26 companies in response to a request for proposals, including
      Cingular Wireless, Earthlink, and Google. The
      activity of these competitors, with resources far greater than ours, could
      adversely affect our ability to obtain additional awards for the deployment
      and
      management of wireless networks and significantly reduce the likelihood of
      success for our emerging wireless network and other businesses.




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




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




Additionally,
      Davel indirectly competes with other telecommunications providers, including
      providers of wireless services and prepaid calling card companies, for end
      users
      to utilize our pay telephones to make local and long distance calls. The
      proliferation of wireless communication devices has continued to reduce the
      use
      of pay telephones. For example, the cellular telephone business of CloseCall
      represents indirect competition for Davel. Furthermore, certain providers of
      wireless communication devices have continued to introduce rate plans, including
      pre-paid rate plans, that are competitively priced with certain of the products
      offered by us and have negatively impacted the usage of pay telephones
      throughout the nation. The effect on our business is that revenues of Davel
      are
      steadily declining. Davel’s revenues were $40,305,697 for the twelve months
      ended March 31, 2006 compared with $55,091,465 (including the pre-acquisition
      portion) for the corresponding period of the prior year, a decline of 26.8%.
      Further, Davel’s revenues were $16,762,255 for the six months ended September
      30, 2006 compared with $22,187,052 for the six months ended September 30, 2005,
      a decline of 24.5%.




48


If
      we are
      unsuccessful in increasing revenues from other sources, the declining payphone
      business may contribute to declines in consolidated revenues and the incurring
      of additional consolidated operating losses. In such event, we may be forced
      to
      dispose of this business pursuant to terms not considered favorable to
      us.




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




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




Dial
      around compensation represents a material percentage of our consolidated
      revenues. Dial around revenue was approximately $9,655,000 in the year ended
      March 31, 2006, representing approximately 9.8% of consolidated revenues. Dial
      around revenue was approximately $1,749,000 in the three months ended September
      30, 2006, representing approximately 7.5% of consolidated revenues for the
      quarter. The amount of dial-around revenue estimated to be collectible and
      included in the balance of accounts receivable at September 30, 2006 was
      approximately $3,771,000. We depend on the third-party service providers to
      quickly and accurately report and pay amounts owed to us as dial around
      compensation. Our inability to obtain such reports and/or our inability to
      collect amounts owed to us could result in material reductions in accounts
      receivable with material adverse effects to future consolidated revenues and
      net
      income.




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




Our
      future success depends in a large part upon the continued service of key members
      of our senior management team. In particular, our chief executive officer,
      Mr.
      Jay O. Wright, is important to the overall management of our Company as well
      as
      the development and implementation of our business strategy. Although we have
      designed employment agreements with Mr. Wright and other key executives that
      we
      believe provide incentives to perform at high levels and to fulfill the terms
      of
      their agreements with us, each executive, or any other employee, may terminate
      their employment with us at any time. For instance, in September 2006, our
      general counsel, Geoffrey B. Amend, resigned. Our future success also depends
      on
      our ability to identify, attract, hire, retain and motivate other well-qualified
      managerial, technical, sales and marketing personnel. There can be no assurance
      that these professionals will be available in the market or retained, or that
      we
      will be able to meet or to continue to meet their compensation requirements.
      Failure to establish and maintain an effective management team and work force
      could adversely affect our ability to operate, to grow and to manage our
      businesses.




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




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




49


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




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




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




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




The
      successful deployment and management of a broadband wireless network, like
      the
      Tempe network, depends on our ability to obtain the necessary technical
      equipment and to acquire such equipment when needed at prices and on terms
      acceptable to us. Required equipment includes antennas, transmitters and network
      routers. For the Tempe network, we successfully obtained such equipment with
      the
      total cost approximating $2.8 million. To date, we have incurred an additional
      $2.8 million in equipment costs related to the wireless network deployments
      in
      Farmers’ Branch, Texas, and Chandler, Arizona. The transmission equipment being
      installed by us incorporates certain new technologies that are largely untested
      in these types of networks. Should functionality prove to be ineffective, we
      may
      be required to make additional expenditures to upgrade or replace equipment
      that
      has already been installed. There can be no assurance that our purchasing
      efforts will continue to be successful. If we are unable to acquire the
      remainder of the equipment necessary for the successful completion of the
      wireless networks that we have been awarded when needed, or are unable to
      purchase equipment for future networks, all at prices and on terms acceptable
      to
      us, the deployment, ownership and management of broadband wireless networks
      could be delayed.




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




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




50


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




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




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




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




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




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




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




The
      enactment of the Telecommunications Act of 1996 significantly altered the
      regulatory landscape in which payphone companies operate. Although the
      Telecommunications Act of 1996, as implemented by the FCC, addressed certain
      historical inequities in the payphone marketplace, uncertainties relating to
      the
      impact and timing of the implementation of this framework still exist. The
      uncertainty with the greatest potential financial impact relates to revenue
      from
      and collectibility of access code calls and toll-free dialed calls, or dial
      around compensation. Dial around compensation accounts for a material percentage
      of our revenues.




51


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




**Our
      Payphone Business Revenue Is Impacted by Seasonal
      Variations**




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




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




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




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




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




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




52


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




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





**If
      Cornell Capital or Other Large Stockholders Sell Part or All of Their Shares
      of
      Common Stock in the Market, Such Sales May Cause Our Stock Price to
      Decline**




From
      time
      to time, Cornell Capital and other selling stockholders may sell in the public
      market up to all of the shares of common stock owned at that time. Mr. Wright
      has executed “lock-up” agreements that prohibit the sale or disposition by him
      of more than one million (1,000,000) shares of the Company’s common stock during
      any calendar quarter during his employment period. Additionally, as a result
      of
      Mr. Wright’s buying program under Rule 10b5-1, he is unlikely to sell any shares
      within six months of any purchase because of the disgorgement provisions of
      Section 16 under the Securities Act of 1933. Mr. Wright’s buying program is
      scheduled to expire in January 2007.




The
      Company has filed a registration statement covering up to 404,474,901 shares
      of
      common stock that has not yet been declared effective. The number of shares
      being registered in this offering represents approximately 45.4% of the total
      number of shares of common stock outstanding upon their issuance. In the event
      that the selling stockholders dispose of some or all of the shares of common
      stock, such sales may cause our stock price to decline.




This
      offering attempts to register a large percentage of the shares held by our
      executive officers and directors. While we are not aware of any plans of any
      officer or director to leave Mobilepro, it is not uncommon for similarly
      situated officers and directors to leave a company after they are able to sell
      a
      sufficient number of shares to meet their individual financial goals, which
      time
      frame may be accelerated if the shares appreciate in value. Our officers and
      directors may be similarly disposed.





Any
      significant downward pressure on our stock price caused by the sale of stock
      by
      large selling stockholders could encourage short sales by third parties. Such
      short sales could place further downward pressure on our stock
      price.




53




**If
        Our Current or Previous Capital Raising Transactions with Cornell Capital
        Were
        Held To Be In Violation of the Securities Act of 1933, We Could Experience
        Significant Negative Consequences**
  During
        its review of Amendment No. 1, filed on November 30, 2005, to our Registration
        Statement on Form SB-2, originally filed on September 30, 2005 and withdrawn
        by
        us on September 22, 2006, and in its comment letter dated November 8, 2006
        to
        this registration statement, the SEC issued a comment stating that the repayment
        of convertible promissory notes to Cornell Capital using proceeds from advances
        under the SEDA may constitute a violation of Section 5 of the Securities
        Act of
        1933 (the “Securities Act”) by allowing Cornell Capital to effectively control
        when the exercise of “puts” of our shares under the SEDA occurred. Mobilepro
        entered into a convertible debenture in 2002 with Cornell Capital as a bridge
        financing in connection with a $10 million equity credit line and filed
        registration statements to register the shares underlying the convertible
        debenture and SEDA in early 2003. We do not now have a SEDA in place with
        Cornell Capital since the most recent one expired in May 2006 and has not
        been
        renewed. Other than the convertible debenture issued to Cornell Capital in
        2002,
        we have not entered into any pre-funding of any SEDAs by issuance of convertible
        debentures to Cornell Capital.
  We
        requested guidance from the SEC regarding these transactions and how the
        transactions we had completed implicated Section 5. The guidance we received
        was
        a reference to Section VIII of the Commission’s Current Issues and Rulemaking
        Projects Quarterly Update dated March 31, 2001 (the “Quarterly Update”). We
        analyzed each requirement for an equity line to comply with the Securities
        Act
        set forth in the Quarterly Update. We believe that we fully complied with
        the
        SEC’s guidance and that the guidance does not explicitly or implicitly prohibit
        or in any way limit the use of proceeds under the SEDA to repay non-convertible
        debt obligations to Cornell Capital or any other party or limit any other
        use of
        proceeds. We are not aware of any other law, regulation or interpretive guidance
        on this subject and have not been advised of the existence of any by the
        SEC.
        Once we became aware of the position of the staff of the SEC on this issue,
        however, we nevertheless
        immediately changed
        our repayment of notes issued to Cornell Capital to ensure that such repayments
        of debt were made only from cash generated by our operations or provided
        from
        other sources. Furthermore, all such non-convertible notes payable to Cornell
        Capital were repaid during the quarter ended June 30, 2006, and no such notes
        were payable to Cornell Capital at June 30, 2006 or September 30,
        2006.
  Accordingly,
        we do not believe that these transactions constitute a violation of the
        Securities Act.
  However,
        if a Section 5 violation was found by a court or other legal body to have
        occurred that was not precluded by the statute of limitations under Section
        13
        of the Securities Act, purchasers of shares registered under the SEDA could
        have
        a right of rescission under the Securities Act or a claim for other damages.
        Such a finding could potentially have a material adverse effect on our Company
        and our stock price. Also, the SEC could commence an enforcement action against
        us, and if these transactions were held by a court to be in violation of
        the
        Securities Act, such an action could cause a material adverse effect and
        the
        market price of our common stock could decline, which could force us to sell
        or
        merge the Company because our ability to raise additional financing would
        be
        significantly compromised.
  We
        do not
        believe we have violated the Securities Act, and we would contest vigorously
        any
        claim that a violation of the Securities Act occurred.




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





Not
      applicable.





**Item
      4. Controls and Procedures.**





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





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





54





**PART
      II**


**OTHER
      INFORMATION**





**Item
      1. Legal Proceedings.**




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





1)
            At
                the time that we acquired Davel, there was existing litigation brought
                against Davel and other defendants regarding a claim associated with
                certain alleged patent infringement. Davel has been named as a defendant
                in a civil action captioned Gammino v. Cellco Partnership d/b/a Verizon
                Wireless, et al., C.A. No. 04-4303 filed in the United States District
                Court for the Eastern District of Pennsylvania. The plaintiff claims
                that
                Davel and other defendants allegedly infringed its patent involving
                the
                prevention of fraudulent long-distance telephone calls. Davel does
                not
                believe that the allegations set forth in the complaint are valid,
                continues to assess the validity of the Gammino Patents and continues
                to
                determine whether the technology purchased by Davel from third parties
                infringes upon the Gammino Patents. The plaintiff is seeking monetary
                relief of at least $7,500,000. The case is in the discovery phase
                of the
                litigation.




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





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




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





55


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





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





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





3)  On
      August
      6, 2006, we were served with a summons and complaint filed in the Superior
      Court
      of the State of Arizona in Maricopa County in the matter captioned Michael
      V.
      Nasco, et. al. vs. MobilePro Corp., et. al. which alleges claims arising out
      of
      the acquisition by the Company of Transcordia, LLC. The plaintiff alleges claims
      of breach of contract, fraud, relief rescission, failure to pay wages and unjust
      enrichment and seeks damages in excess of $3 million. On or about November
      7,
      2006, we filed a motion to dismiss arguing lack of standing and corporate
      existence. Although we believe that our motion to dismiss will be granted there
      can be no guarantee that the ruling of the court will be favorable to us. In
      the
      event the motion to dismiss is not granted, we believe that any potential
      exposure related to the claims alleged against the Company is not likely to
      be
      material.




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





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





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





In
      August
      2006, we issued 300,996 shares of our common stock to Alex Kang, a former
      employee, in connection with his exercise of employee stock
      options.





On
      August
      14, 2006, we issued a warrant to purchase 2,000,000 shares of our common stock
      to Ray Cagle in connection with his appointment as Executive Vice President
      of
      the Company, and Chief Operating Officer of Kite Networks, exercisable at $0.135
      per share





On
      August
      28, 2006, in connection with the First Tranche Debenture, we issued a warrant
      to
      purchase 3,333,334 shares of our common stock to Cornell Capital, exercisable
      at
      a per share price of $0.174.





On
      August
      28, 2006, we also agreed to reset the warrants to purchase shares of our common
      stock that had previously been issued to Cornell Capital. The number of shares
      subject to exercise under the warrants related to the Debenture and the Amended
      Debenture were increased to 15,000,000 shares and 13,750,000, respectively,
      from
      6,000,000 and 10,000,000, respectively. The per share exercise prices of the
      warrants were reduced from $0.50 and $0.275, respectively, to $0.20 in both
      instances.


56





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





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





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





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




The
      registrant reported the results of its Annual Meeting of Stockholders that
      was
      held on August 18, 2006 by filing a Current Report on Form 8-K on August 24,
      2006 which is incorporated herein by reference.





**Item
      5. Other Information.**




Not
      applicable.





**Item
      6. Exhibits.**





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





**Exhibit
                No.**
            **Description**
            
            **Location**2.1
            Agreement
                and Plan of Merger, dated as of March 21, 2002, by and among Mobilepro
                Corp., NeoReach Acquisition Corp. and NeoReach, Inc.
            
            Incorporated
                by reference to Exhibit 10.1 to the Registrant’s Current Report on Form
                8-K filed on April 5, 20022.2
            Agreement
                and Plan of Merger, dated as of January 20, 2004, by and among Mobilepro
                Corp., DFWI Acquisition Corp., DFW Internet Services, Inc., Jack
                W. Beech,
                Jr. and Jack W. Beech, Sr.
            
            Incorporated
                by reference to Exhibit 99.1 to the Registrant’s Current Report on Form
                8-K filed on February 4, 20042.3
            Agreement
                and Plan of Merger, dated as of March 1, 2004, by and among DFW Internet
                Services, Inc., DFW Internet Acquisition Corp., Internet Express,
                Inc., J.
                Glenn Hughes and Loretta Hughes
            
            Incorporated
                by reference to Exhibit 99.1 to the Registrant’s Current Report on Form
                8-K filed on April 29, 20042.4
            Agreement
                and Plan of Merger, dated as of April 21, 2004, by and among DFW
                Internet
                Services, Inc., DFWA Acquisition Corp., August.Net Services, LLC,
                Louis G.
                Fausak, Andrew K. Fullford, John M. Scott, Dennis W. Simpson, Andrew
                T.
                Fausak, and Gayane Manasjan
            
            Incorporated
                by reference to Exhibit 99.1 to the Registrant’s Current Report on Form
                8-K filed on April 29, 20042.5
            Agreement
                and Plan of Merger, dated as of June 3, 2004, by and among Mobilepro
                Corp., DFW Internet Services, Inc., DFWS Acquisition Corp., ShreveNet,
                Inc. and the stockholders identified therein
            
            Incorporated
                by reference to Exhibit 99.1 to the Registrant’s Current Report on Form
                8-K filed on June 8, 2004




57


2.6
            Asset
                Purchase Agreement, dated as of June 21, 2004, by and between Crescent
                Communications, Inc. and DFW Internet Services, Inc.
            
            Incorporated
                by reference to Exhibit 99.1 to the Registrant’s Current Report on Form
                8-K filed on June 22, 20042.7
            Agreement
                and Plan of Merger, dated July 6, 2004, by and among the Company,
                DFW
                Internet Services, Inc., DFWC Acquisition Corp., Clover Computer
                Corp. and
                Paul Sadler
            
            Incorporated
                by reference to Exhibit 2.1 to the Registrant’s Current Report on Form 8-K
                filed on July 8, 20042.8
            Agreement
                and Plan of Merger, dated July 14, 2004, by and among DFW Internet
                Services, Inc., DFWT Acquisition Corp., Ticon.net, Inc. and the
                stockholders identified therein
            
            Incorporated
                by reference to Exhibit 2.1 to the Registrant’s Current Report on Form 8-K
                filed on July 15, 20042.9
            Agreement
                and Plan of Merger, dated July 30, 2004, by and among the Company,
                Affinity Acquisition Corp., C.L.Y.K., Inc. and the stockholders identified
                therein
            
            Incorporated
                by reference to Exhibit 2.1 to the Registrant’s Current Report on Form 8-K
                filed on August 20, 20042.10
            Amendment
                No. 1 to Agreement and Plan of Merger, dated December 28, 2004, by
                and
                among the Company, Affinity Acquisition Corp., C.L.Y.K., Inc. and
                the
                stockholders identified therein
            
            Incorporated
                by reference to Exhibit 10.1 to the Registrant’s Current Report on Form
                8-K filed on January 21, 20052.11
            Asset
                Purchase Agreement, dated as of August 13, 2004, by and among Web
                One,
                Inc., DFW Internet Services, Inc. and Jeff McMurphy
            
            Incorporated
                by reference to Exhibit 2.1 to the Registrant’s Current Report on Form 8-K
                filed on August 19, 20042.12
            Agreement
                and Plan of Merger, dated August 31, 2004, by and among the Company,
                MVCC
                Acquisition Corp. and CloseCall America, Inc.
            
            Incorporated
                by reference to Exhibit 2.1 to the Registrant’s Current Report on Form 8-K
                filed on October 19, 2004





2.13
            Amendment
                No. 1 to Agreement and Plan of Merger, dated September 30, 2004,
                by and
                among the Company, MVCC Acquisition Corp. and CloseCall America,
                Inc.
            
            Incorporated
                by reference to Exhibit 2.2 to the Registrant’s Current Report on Form 8-K
                filed on October 19, 20042.14
            Loan
                Purchase Agreement and Transfer and Assignment of Shares, dated September
                3, 2004, by and among the Company, Davel Acquisition Corp., Davel
                Communications, Inc. and certain stockholders identified
                therein
            
            Incorporated
                by reference to Exhibit 2.1 to the Registrant’s Current Report on Form 8-K
                filed on September 9, 20042.15
            Agreement
                and Plan of Merger, dated September 15, 2004, by and among the Company,
                DFWW Acquisition Corp., World Trade Network, Inc. and Jack
                Jui
            
            Incorporated
                by reference to Exhibit 2.1 to the Registrant’s Current Report on Form 8-K
                filed on September 15, 20042.16
            Agreement
                and Plan of Merger, dated September 16, 2004, by and among the Company,
                DFW Internet Services, Inc., DFWR Acquisition Corp., The River Internet
                Access Co. and the stockholders identified therein
            
            Incorporated
                by reference to Exhibit 2.1 to the Registrant’s Current Report on Form 8-K
                filed on September 17, 2004




58


2.17
            Agreement
                and Plan of Merger by and among Registrant, NeoReach, Inc., Transcordia
                Acquisition Corp., Transcordia, LLC and its Unit Holders, dated April
                2005
            
            Incorporated
                by reference to Exhibit 2.1 to the Registrant’s Form 10-QSB filed August
                15, 20052.18
            Agreement
                and Plan of Merger by and among Registrant, NeoReach, Inc., NeoReach
                Wireless, Inc., Evergreen Open Broadband Corporation, and Certain
                Shareholders
            
            Incorporated
                by reference to Exhibit 2.1 to the Registrant’s Form 10-QSB filed August
                15, 20052.19
            Agreement
                and Plan of Merger, dated June 30, 2005, by and among the Company,
                AFN
                Acquisition Corp., American Fiber Network, Inc. and the individuals
                and
                entities identified therein
            
            Incorporated
                by reference to Exhibit 2.1 to the Registrant’s Current Report on Form 8-K
                filed on July 6, 20052.20
            Agreement
                and Plan of Merger, dated October 31, 2005, by and among the Company,
                InReach Internet, Inc., InReach Internet, LLC, and Balco Holdings,
                Inc.
            
            Incorporated
                by reference to Exhibit 2.1 to the Registrant’s Current Report on Form 8-K
                filed on November 7, 20052.21
            Form
                of assignment of Limited Liability Company Interest/Release, dated
                January
                31, 2006
            
            Incorporated
                by reference to Exhibit 2.21 to the Registrant’s Quarterly Report on Form
                10-Q for the quarter ended June 30, 20062.22
            Agreement
                and Plan of Merger, dated January 31, 2006, by and among Mobilepro
                Corp.,
                Kite Acquisition Corp. and Kite Networks, Inc.
            
            Incorporated
                by reference to Exhibit 2.22 to the Registrant’s Quarterly Report on Form
                10-Q for the quarter ended June 30, 20063.1
            Certificate
                of Incorporation, dated April 20, 2001, of Registrant
            
            Incorporated
                by reference to Exhibit 3.1 to the Registrant’s Registration Statement on
                Form S-8 filed on May 11, 20013.2
            Certificate
                of Amendment of Certificate of Incorporation of Mobilepro Corp dated
                November 16, 2001.
            
            Incorporated
                by reference to Exhibit 3.1 to the Registrant’s Registration Statement on
                Form S-8 filed on December 4, 20013.3
            Certificate
                of Amendment to Certificate of Incorporation of Mobilepro Corp. dated
                March 11, 2003
            
            Incorporated
                by reference to Exhibit 3.11 to the Registrant’s Registration Statement on
                Form SB-2 filed on May 6, 20033.4
            By-Laws
                of Registrant
            
            Incorporated
                by reference to Exhibit 3.2 to the Registrant’s Registration Statement on
                Form S-8 filed on May 11, 20014.1
            2001
                Equity Performance Plan
            
            Incorporated
                by reference to Exhibit 4.1 to the Registrant’s Registration Statement on
                Form S-8 filed on December 4, 20014.2
            Amended
                and Restated 2001 Equity Performance Plan
            
            Incorporated
                by reference to Exhibit 4.2 to the Registrant’s Annual Report on Form
                10-KSB filed on June 29, 2004




59


4.3
            Registration
                Rights Agreement, dated September 16, 2004, by and among the Company
                and
                the persons and entities identified therein
            
            Incorporated
                by reference to Exhibit 4.3 to the Registrant’s Annual Report on Form
                10-KSB filed on June 28, 20054.4
            Registration
                Rights Agreement, dated November 15, 2004, by and among the Company
                and
                the persons and entities identified therein
            
            Incorporated
                by reference to Exhibit 10.3 to the Registrant’s Current Report on Form
                8-K filed on November 17, 20044.5
            Form
                of Warrant issued on November 15, 2004
            
            Incorporated
                by reference to Exhibit 10.2 to the Registrant’s Current Report on Form
                8-K filed on November 17, 2004




4.6
            Registration
                Rights Agreement, dated June 30, 2005, by and among the Company and
                the
                persons and entities identified therein
            
            Incorporated
                by reference to Exhibit 4.1 to the Registrant’s Current Report on Form 8-K
                filed on July 6, 20054.7
            Registration
                Rights Agreement, dated November 1, 2005, by and among the Company
                and the
                persons and entities identified therein
            
            Incorporated
                by reference to Exhibit 4.1 to the Registrant’s Current Report on Form 8-K
                filed on November 7, 200510.1
            Executive
                Employment Agreement, dated December 15, 2003, between Jay O. Wright
                and
                the Company
            
            Incorporated
                by reference to Exhibit 10.6 to the Registrant’s Quarterly Report on Form
                10-QSB filed on February 13, 200410.2
            Executive
                Employment Agreement, dated April 15, 2004 between Jay O. Wright
                and the
                Company
            
            Incorporated
                by reference to Exhibit 10.15 to the Amendment to Registrant’s
                Registration Statement on Form SB-2 filed on May 14, 200410.3
            Amended
                and Restated Executive Employment Agreement, dated June 9, 2004 between
                Jay O. Wright and the Company
            
            Incorporated
                by reference to Exhibit 10.1 to the Registrant’s Current Report on Form
                8-K filed on June 15, 200410.4
            Standby
                Equity Distribution Agreement, dated May 13, 2004 between the Company
                and
                Cornell Capital
            
            Incorporated
                by reference to Exhibit 10.20 to the Registrant’s Registration Statement
                on Form SB-2 filed on May 14, 200410.5
            Registration
                Rights Agreement, dated May 13, 2004 between the Company and Cornell
                Capital
            
            Incorporated
                by reference to Exhibit 10.21 to the Registrant’s Registration Statement
                on Form SB-2 filed on May 14, 200410.6
            Placement
                Agent Agreement, dated May 13, 2004 between the Company and Newbridge
                Securities Corporation
            
            Incorporated
                by reference to Exhibit 10.22 to the Registrant’s Registration Statement
                on Form SB-2 filed on May 14, 200410.7
            Escrow
                Agreement, dated May 13, 2004 between the Company and Cornell
                Capital
            
            Incorporated
                by reference to Exhibit 10.23 to the Registrant’s Registration Statement
                on Form SB-2 filed on May 14, 200410.8
            Consulting
                Agreement by and among Mobilepro Corp., DFW Internet Services, Inc.,
                Beech
                Holdings, Inc., and Jack W. Beech, Jr.
            
            Incorporated
                by reference to Exhibit 99.1 to the Registrant’s Current Report on Form
                8-K filed on February 4, 2004




60


10.9
            Promissory
                Note issued by the Company to Cornell Capital on August 23,
                2004
            
            Incorporated
                by reference to Exhibit 10.2 to the Registrant’s Quarterly Report on Form
                10-QSB filed on November 15, 200410.10
            Security
                Agreement between the Company and Cornell Capital dated August 23,
                2004
            
            Incorporated
                by reference to Exhibit 10.3 to the Registrant’s Quarterly Report on Form
                10-QSB filed on November 15, 200410.11
            Promissory
                Note issued by the Company to Cornell Capital on August 25,
                2004
            
            Incorporated
                by reference to Exhibit 10.4 to the Registrant’s Quarterly Report on Form
                10-QSB filed on November 15, 20041012
            Security
                Agreement between the Company and Cornell Capital dated August 25,
                2004
            
            Incorporated
                by reference to Exhibit 10.5 to the Registrant’s Quarterly Report on Form
                10-QSB filed on November 15, 200410.13
            Letter
                Agreement between the Company and Cornell Capital dated August 27,
                2004
            
            Incorporated
                by reference to Exhibit 10.6 to the Registrant’s Quarterly Report on Form
                10-QSB filed on November 15, 200410.14
            Promissory
                Note issued by the Company to Cornell Capital on August 27,
                2004
            
            Incorporated
                by reference to Exhibit 10.2 to the Registrant’s Current Report on Form
                8-K filed on October 19, 200410.15
            Security
                Agreement between the Company and Cornell Capital dated August 27,
                2004
            
            Incorporated
                by reference to Exhibit 10.3 to the Registrant’s Current Report on Form
                8-K filed on October 19, 200410.16
            Promissory
                Note issued by the Company to Cornell Capital on September 22,
                2004
            
            Incorporated
                by reference to Exhibit 10.7 to the Registrant’s Quarterly Report on Form
                10-QSB filed on November 15, 200410.17
            Security
                Agreement between the Company and Cornell Capital dated September
                22,
                2004
            
            Incorporated
                by reference to Exhibit 10.8 to the Registrant’s Quarterly Report on Form
                10-QSB filed on November 15, 200410.18
            Executive
                Employment Agreement by and among the Company, CloseCall America,
                Inc. and
                Tom Mazerski
            
            Incorporated
                by reference to Exhibit 10.1 to the Registrant’s Current Report on Form
                8-K filed on October 19, 200410.19
            Credit
                Agreement, dated November 15, 2004, by and among the Company, Davel
                Acquisition Corp. and Airlie Opportunity Master Fund, Ltd.
            
            Incorporated
                by reference to Exhibit 10.1 to the Registrant’s Current Report on Form
                8-K filed on November 17, 200410.20
            Employment
                Agreement dated February 28, 2005 between Davel Communications, Inc.
                and
                Tammy L. Martin
            
            Incorporated
                by reference to Exhibit 10.28 to the Registrant’s Annual Report on Form
                10-KSB filed on June 28, 200510.21
            Amendment
                No. 1 to Employment Agreement between Davel Communications, Inc.
                and Tammy
                L. Martin, dated April 20, 2005
            
            Incorporated
                by reference to Exhibit 10.29 to the Registrant’s Annual Report on Form
                10-KSB filed on June 28, 200510.22
            Amendment
                No. 2 to Employment Agreement between Davel Communications, Inc.
                and Tammy
                L. Martin, dated May 26, 2005
            
            Incorporated
                by reference to Exhibit 10.30 to the Registrant’s Annual Report on Form
                10-KSB filed on June 28, 2005




61


10.23
            Amended
                and Restated Executive Employment Agreement, dated June 16, 2005
                between
                Jay O. Wright and the Company
            
            Incorporated
                by reference to Exhibit 10.1 to the Registrant’s Current Report on Form
                8-K filed on June 20, 200510.24
            Amended
                and Restated Executive Employment Agreement, dated June 16, 2005
                by and
                among the Company, CloseCall America, Inc. and Tom Mazerski
            
            Incorporated
                by reference to Exhibit 10.33 to the Registrant’s Annual Report on Form
                10-KSB filed on June 28, 200510.25
            Securities
                Purchase Agreement, dated as of May 13, 2005, by and between the
                Company
                and Cornell Capital
            
            Incorporated
                by reference to Exhibit 10.35 to the Registrant’s Annual Report on Form
                10-KSB filed on June 28, 200510.26
            Secured
                Convertible Debenture, issued on May 13, 2005 by the Company to Cornell
                Capital
            
            Incorporated
                by reference to Exhibit 10.36 to the Registrant’s Annual Report on Form
                10-KSB filed on June 28, 200510.27
            Amended
                and Restated Collateral Assignment of Intellectual Property Rights,
                made
                as of May 13, 2005, by and among the Company, the Company subsidiaries
                identified therein and Cornell Capital
            
            Incorporated
                by reference to Exhibit 10.37 to the Registrant’s Annual Report on Form
                10-KSB filed on June 28, 200510.28
            Amended
                and Restated Security Agreement, dated May 13, 2005, by and among
                the
                Company, the subsidiaries identified therein and Cornell
                Capital
            
            Incorporated
                by reference to Exhibit 10.38 to the Registrant’s Annual Report on Form
                10-KSB filed on June 28, 200510.29
            Investor
                Registration Rights Agreement, dated as of May 13, 2005 by and between
                the
                Company and Cornell Capital
            
            Incorporated
                by reference to Exhibit 10.39 to the Registrant’s Annual Report on Form
                10-KSB filed on June 28, 200510.30
            Amended
                and Restated Guaranty Agreement, dated as of May 13, 2005, made by
                each of
                the direct and indirect subsidiaries of the Company in favor of Cornell
                Capital
            
            Incorporated
                by reference to Exhibit 10.40 to the Registrant’s Annual Report on Form
                10-KSB filed on June 28, 200510.31
            Warrant
                issued by the Company to Cornell Capital
            
            Incorporated
                by reference to Exhibit 10.41 to the Registrant’s Annual Report on Form
                10-KSB filed on June 28, 200510.32
            Master
                Agreement for Services between Sprint Communications Company L.P.
                and Kite
                Broadband, LLC, dated May 20, 2005*
            
            Incorporated
                by reference to Exhibit 2.1 to the Registrant’s Form 10-QSB filed November
                14, 200510.33
            Agreement
                between the City of Tempe and NeoReach, Inc. for the Use of City
                Property
                in Connection with the Operation of a WiFi Network, dated August
                17,
                2005
            
            Incorporated
                by reference to Exhibit 10.48 to the Registrant’s Annual Report on Form
                10-KSB filed on June 29, 200610.34
            Executive
                Employment Agreement dated February 1, 2006, between Jerry M.
                Sullivan, Jr. and the Company
            
            Incorporated
                by reference to Exhibit 10.1 to the Registrant’s Current Report on Form
                8-K filed February 13, 2005




62


10.35
            Secured
                Convertible Debenture, issued on June 30, 2006 by the Company to
                Cornell
                Capital
            
            Incorporated
                by reference to Exhibit 10.1 to the Registrant’s Current Report on Form
                8-K filed July 7, 200610.36
            Warrant
                issued by the Company to Cornell Capital
            
            Incorporated
                by reference to Exhibit 10.40 to the Registrant’s Quarterly Report on Form
                10-Q for the quarter ended June 30, 200610.37
            Master
                Lease Agreement dated June 28, 2006 between JTA Leasing Co., LLC,
                Mobilepro Corp., and NeoReach, Inc.
            
            Incorporated
                by reference to Exhibit 10.41 to the Registrant’s Quarterly Report on Form
                10-Q for the quarter ended June 30, 200610.38
            Letter
                Agreement between American Fiber Network, Inc. and FSH Communications
                LLC,
                dated June 30, 2006*
            
            Incorporated
                by reference to Exhibit 10.1 to the Registrant’s Current Report on Form
                8-K, dated July 11, 200610.39
            Securities
                Purchase Agreement, dated as of August 28, 2006, by and between the
                Company and Cornell Capital
            
            Incorporated
                by reference to Exhibit 10.1 to the Registrant’s Current Report on Form
                8-K filed on August 30, 200610.40
            Secured
                Convertible Debenture, issued on August 28, 2006, by the Company
                to
                Cornell Capital
            
            Incorporated
                by reference to Exhibit 10.2 to the Registrant’s Current Report on Form
                8-K filed on August 30, 200610.41
            Investor
                Registration Rights Agreement, dated as of August 28, 2006, by and
                between
                the Company and Cornell Capital
            
            Incorporated
                by reference to Exhibit 10.4 to the Registrant’s Current Report on Form
                8-K filed on August 30, 200610.42
            Irrevocable
                Transfer Agent Instructions dated August 28, 2006 among the Company,
                Interwest Transfer Company, Inc. and David Gonzalez, Esq., as Escrow
                Agent
            
            Incorporated
                by reference to Exhibit 10.5 to the Registrant’s Current Report on Form
                8-K filed on August 30, 200610.43
            Warrant
                issued by the Company to Cornell Capital
            
            Incorporated
                by reference to Exhibit 10.3 to the Registrant’s Current Report on Form
                8-K filed on August 30, 2006


10.44
            Amendment
                No. 1 to the Securities Purchase Agreement, dated September 20, 2006,
                between the Company and Cornell Capital, and the related Convertible
                Debenture
            
            Incorporated
                by reference to Exhibit 10.1 to the Registrant’s Current Report on Form
                8-K filed on September 21, 200610.45
            Amendment
                No. 2 to the Securities Purchase Agreement, dated October 23, 2006,
                between the Company and Cornell Capital
            
            Incorporated
                by reference to Exhibit 10.1 to the Registrant’s Current Report on Form
                8-K filed on October 24, 200631.1
            Certification
                by Jay O. Wright, Chief Executive Officer, pursuant to Rule
                13a-14(a)
            
            Provided
                herewith31.2
            Certification
                by Richard H. Deily, Principal Financial Officer, pursuant to Rule
                13a-14(a)
            
            Provided
                herewith32.1
            Certification
                by Jay O. Wright, and Richard H. Deily, pursuant to 18 U.S.C. Section
                1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act
                of
                2002**
            
            Provided
                herewith10.46
            Master
                Equipment Lease dated September 27, 2006, between Data Sales Co.,
                Mobilepro Corp., and Kite Networks, Inc.
            
            Provided
                herewith99.1
            Press
                Release dated December 28, 2005 regarding corporate
                restructuring
            
            Incorporated
                by reference to Exhibit 99.1 to the Registrant's Current Report on
                Form
                8-K filed January 1, 2006




63


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





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





**SIGNATURES**





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





**MOBILEPRO
              CORP.**Date:November
              9, 2006
            By:
            /s/ Jay
              O.
              WrightJay
              O. Wright, Chief Executive OfficerDate:November
              9, 2006
            By:
            /s/ Richard H. DeilyRichard
              H. Deily, Chief Accounting
              Officer


64