**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**


**Washington,
      DC 20549**





**FORM
      10-Q**





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


**SECURITIES
      EXCHANGE ACT OF 1934**





**For
      the Quarterly Period Ended June 30, 2008**





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





**MOBILEPRO
      CORP.**


(Exact
      name of registrant as specified in its charter)





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





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


**(301)
      571-3476**


( Registrant’s
      telephone number, including area code)





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


Large
                accelerated filer o
            Accelerated
                filer o
            Non-accelerated
                filer o
            Smaller
                reporting company x(Do
                not check if smaller
              reporting
                company)





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 August 10, 2008, the Company
      had 775,821,796 outstanding shares of its common stock, $0.001 par value per
      share.









**TABLE
      OF CONTENTS**





**ITEM
                NUMBER AND CAPTION**
            **PAGE****PART
                I**
            **FINANCIAL
                INFORMATION**
            3ITEM
                1.
            FINANCIAL
                STATEMENTS
            3NOTES
                TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
            8ITEM
                2.
            MANAGEMENT’S
                DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL
                CONDITION
            26ITEM
                3.
            QUANTITATIVE
                AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
            37ITEM
                4T.
            CONTROLS
                AND PROCEDURES
            37**PART
                II**
            **OTHER
                INFORMATION**
            40ITEM
                1.
            LEGAL
                PROCEEDINGS
            40ITEM
                1A.
            RISK
                FACTORS
            42ITEM
                2.
            UNREGISTERED
                SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
            47ITEM
                3.
            DEFAULTS
                UPON SENIOR SECURITIES
            47ITEM
                4.
            SUBMISSION
                OF MATTERS TO A VOTE OF SECURITY HOLDERS
            48ITEM
                5.
            OTHER
                INFORMATION
            48ITEM
                6.
            EXHIBITS
            49**SIGNATURES**
            50





-
          2
          -




**PART
        I**
 **FINANCIAL
        INFORMATION**




**Item
      1. Financial Statements**


**MOBILEPRO
        CORP. AND SUBSIDIARIES**
 **CONDENSED
        CONSOLIDATED BALANCE SHEETS**
 **JUNE
        30, 2008 AND MARCH 31, 2008**
  **ASSETS****June
                  30**
              
              **March
                  31****2008**
              
              **2008****(Unaudited)****CURRENT
                  ASSETS**Cash
                  and cash equivalents
              
              $
              568,687
              
              $
              1,011,396Restricted
                  cash
              
              
              578,537
              
              
              556,397Accounts
                  receivable, net
              
              
              278,562
              
              
              231,362Notes
                  receivable
              
              
              1,065,000
              
              
              1,065,000Prepaid
                  expenses and other current assets
              
              
              150,780
              
              
              123,759Assets
                  of companies held for sale
              
              
              27,371,800
              
              
              28,021,141**Total
                  Current Assets**
              
              
              30,013,366
              
              
              31,009,055**FIXED
                  ASSETS, NET OF ACCUMULATED DEPRECIATION**
              
              
              212,198
              
              
              257,655**OTHER
                  ASSETS**Notes
                  receivable, long-term
              
              
              1,800,000
              
              
              1,800,000Deferred
                  financing fees
              
              
              144,601
              
              
              -Investments
                  and other assets
              
              
              349,976
              
              
              324,243**Total
                  Other Assets**
              
              
              2,294,577
              
              
              2,124,243**TOTAL
                  ASSETS**
              
              $
              32,520,141
              
              $
              33,390,953
  The
            accompanying notes are an integral part of the condensed consolidated
            financial
            statements.
 -
              3
              -
 
 **MOBILEPRO
              CORP. AND SUBSIDIARIES**
 **CONDENSED
              CONSOLIDATED BALANCE SHEETS**
 **JUNE
              30, 2008 AND MARCH 31, 2008**
 **(CONTINUED)**
 
 **LIABILITIES
                        AND STOCKHOLDERS' EQUITY****June
                        30**
                    
                    **March
                        31****2008**
                    
                    **2008****(Unaudited)****CURRENT
                        LIABILITIES**Current
                        portion of notes payable and convertible debentures
                    
                    $
                    13,492,785
                    
                    $
                    13,253,736Accounts
                        payable and accrued expenses
                    
                    
                    3,142,278
                    
                    
                    3,177,037Deferred
                        revenue
                    
                    
                    600,000
                    
                    
                    600,000Liabilities
                        of companies held for sale
                    
                    
                    9,002,050
                    
                    
                    9,663,144**Total
                        Current Liabilities**
                    
                    
                    26,237,113
                    
                    
                    26,693,917**STOCKHOLDERS'
                        EQUITY**Preferred
                        stock, $.001 par value, 20,035,425 shares authorized,35,378
                        shares issued and outstanding at June 30 and March 31,
                        2008
                    
                    
                    35
                    
                    
                    35Common
                        stock, $.001 par value, 1,500,000,000 shares authorized,775,821,796
                        shares issued and outstanding at June 30 and March 31,
                        2008
                    
                    
                    775,822
                    
                    
                    775,822Additional
                        paid-in capital
                    
                    
                    101,588,385
                    
                    
                    101,554,026Accumulated
                        deficit
                    
                    
                    (96,081,214
                    )
                    
                    (95,632,847
                    )**Total
                        Stockholders' Equity**
                    
                    
                    6,283,028
                    
                    
                    6,697,036**TOTAL
                        LIABILITIES AND STOCKHOLDERS' EQUITY**
                    
                    $
                    32,520,141
                    
                    $
                    33,390,953
 
 The
              accompanying notes are an integral part of the condensed consolidated
              financial
              statements.


-
          4
          -


**MOBILEPRO
        CORP. AND SUBSIDIARIES**
 **CONDENSED
        CONSOLIDATED STATEMENTS OF OPERATIONS**
 **(Unaudited)**
 
 **For
                  the Three Months Ended****June
                  30****2008**
              
              **2007****REVENUES**
              
              $
              73,427
              
              $
              5,967,820**OPERATING
                  COSTS AND EXPENSES**Cost
                  of services (exclusive of depreciation and amortization)
              
              
              1,080
              
              
              3,564,786Payroll,
                  professional fees and related expenses (exclusive of stock
                  compensation)
              
              
              416,209
              
              
              3,590,133Office
                  rent and expenses
              
              
              35,920
              
              
              152,373Other
                  general and administrative expenses
              
              
              100,639
              
              
              385,243Depreciation
                  and amortization
              
              
              45,457
              
              
              717,181Stock
                  compensation
              
              
              23,969
              
              
              200,553**Total
                  Operating Costs and Expenses**
              
              
              623,274
              
              
              8,610,269**OPERATING
                  LOSS**
              
              
              (549,847
              )
              
              (2,642,449
              )**INTEREST
                  AND OTHER EXPENSE, NET**
              
              
              (145,423
              )
              
              (630,725
              )**EQUITY
                  IN NET LOSS OF MICROLOG CORPORATION**
              
              
              (35,007
              )
              
              -**LOSS
                  FROM CONTINUING OPERATIONS**
              
              
              (730,277
              )
              
              (3,273,174
              )**INCOME
                  (LOSS) FROM DISCONTINUED OPERATIONS**
              
              
              281,910
              
              
              (1,715,491
              )**NET
                  LOSS APPLICABLE TO COMMON SHARES**
              
              $
              (448,367
              )
              $
              (4,988,665
              )**INCOME
                  (LOSS) PER SHARE, BASIC AND DILUTED**Continuing
                  operations
              
              $
              (0.0009
              )
              $
              (0.0043
              )Discontinued
                  operations
              
              
              0.0003
              
              
              (0.0023
              )**NET
                  LOSS PER SHARE, BASIC AND DILUTED**
              
              $
              (0.0006
              )
              $
              (0.0066
              )**WEIGHTED
                  AVERAGE NUMBER OF COMMON****SHARES
                  OUTSTANDING**
              
              
              775,821,796
              
              
              754,536,951
  The
          accompanying notes are an integral part of the condensed consolidated financial
          statements.


-
          5
          -


**MOBILEPRO
        CORP. AND SUBSIDIARIES**
 **CONDENSED
        CONSOLIDATED STATEMENTS OF CASH FLOWS**
 **(Unaudited)**
 
 **For
                  the Three Months Ended****June
                  30****2008**
              
              **2007****CASH
                  FLOWS FROM OPERATING ACTIVITIES**Net
                  loss
              
              $
              (448,367
              )
              $
              (4,988,654
              )(Income)
                  loss from discontinued operations
              
              
              (281,910
              )
              
              1,715,491Loss
                  from continuing operations
              
              
              (730,277
              )
              
              (3,273,163
              )**Items
                  that reconcile net loss to net cash****(used
                  in) operating activities:**Depreciation
                  and amortization
              
              
              45,457
              
              
              717,181Noncash
                  interest expense
              
              
              252,439
              
              
              304,239Stock
                  compensation
              
              
              23,969
              
              
              200,553Equity
                  in net loss of Microlog Corporation
              
              
              35,007
              
              
              -Gain
                  on sale of fixed assets
              
              
              -
              
              
              (21,300
              )**Changes
                  in assets and liabilities**(Increase
                  ) in restricted cash
              
              
              (22,140
              )
              
              -(Increase)
                  decrease in accounts receivable
              
              
              (47,200
              )
              
              539,627(Increase)
                  decrease in other assets
              
              
              (87,761
              )
              
              71,054(Increase)
                  decrease in net assets of companies held for sale
              
              
              (332,831
              )
              
              (143,700
              )Increase
                  (decrease) in accounts payable andand
                  accrued expenses
              
              
              (34,759
              )
              
              493,822(167,819
              )
              
              2,161,476**Net
                  cash (used in) operating activities**
              
              
              (898,096
              )
              
              (1,111,687
              )**CASH
                  FLOWS FROM INVESTING ACTIVITIES**Capital
                  expenditures, net
              
              
              -
              
              
              84,162Investing
                  activities of discontinued operations
              
              
              -
              
              
              (87,013
              )**Net
                  cash (used in) investing activities**
              
              
              -
              
              
              (2,851
              )**CASH
                  FLOWS FROM FINANCING ACTIVITIES**Borrowings/(payments)
                  of debt, net
              
              
              (3,000
              )
              
              1,070,164Deferred
                  financing fees
              
              
              (144,601
              )
              
              -Financing
                  activities of discontinued operations
              
              
              (108,093
              )
              
              (543,595
              )**Net
                  cash provided by (used in) financing activities**
              
              $
              (255,694
              )
              $
              526,569


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


-
          6
          -


**MOBILEPRO
        CORP. AND SUBSIDIARIES**
 **CONDENSED
        CONSOLIDATED STATEMENTS OF CASH FLOWS**
 **(CONTINUED)**
 **(Unaudited)**
  **For
                  the Three Months Ended****June
                  30****2008**
              
              **2007****NET
                  DECREASE IN CASH AND CASH EQUIVALENTS**
              
              $
              (1,153,790
              )
              $
              (587,969
              )**CASH
                  AND CASH EQUIVALENTS - BEGINNING OF PERIOD**
              
              
              2,075,117
              
              
              3,430,844**CASH
                  AND CASH EQUIVALENTS - END OF PERIOD**
              
              
              921,327
              
              
              2,842,875**LESS
                  CASH AND CASH EQUIVALENTS OF DISCONTINUED
                  OPERATIONS**
              
              
              (352,640
              )
              
              (1,095,954
              )**CASH
                  AND CASH EQUIVALENTS OF CONTINUING OPERATIONS**
              
              $
              568,687
              
              $
              1,746,921**SUPPLEMENTAL
                  DISCLOSURE OF CASH FLOW **INFORMATION:****Cash
                  paid during the period for interest
              
              $
              251,946
              
              $
              6,614Income
                  taxes paid
              
              $
              -
              
              $
              -**SUPPLEMENTAL
                  DISCLOSURE OF NONCASH **ACTIVITIES:****Issuance
                  of new convertible debenture to YA Global
              
              $
              13,391,175
              
              $
              -Retirement
                  of convertible debentures issued to YA Global
              
              $
              (13,168,944
              )
              $
              -Issuance
                  of warrants with new convertible debenture
              
              $
              (10,390
              )
              $
              -Retirement
                  of convertible debentures and accrued interest with common
                  stock
              
              $
              -
              
              $
              1,967,908
 
 The
          accompanying notes are an integral part of the condensed consolidated financial
          statements.
  -
            7
            -


**MOBILEPRO
      CORP. AND SUBSIDIARIES**


**NOTES
      TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**


**June
      30, 2008**


**(Unaudited)**




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





**Overview**





MobilePro
      Corp., incorporated under the laws of the State of Delaware in July 2000, is
      a
      holding company with subsidiaries in the pay telephone and online gaming
      industries and an affiliate in the software industry. Although classified as
      discontinued operations, we still own an integrated telecommunications business.
      We previously owned broadband wireless, telecommunications and integrated data
      communications services companies which delivered a comprehensive suite of
      voice
      and data communications services, including local exchange, long distance,
      enhanced data, Internet, cellular, and wireless broadband services to end user
      customers. We previously operated 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 has included 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 Overland Park, Kansas. The Company’s Internet services
      segment has included 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, Inc.
      (“InReach”), an Internet service provider based in Stockton, California. The
      Company’s municipal wireless networks operations were 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 included the operations of the Company’s
      subsidiary, Kite Broadband, LLC (“Kite Broadband”), a broadband wireless service
      provider. Both Kite Networks and Kite Broadband were based in Ridgeland,
      Mississippi. The corporate segment has included our Internet gaming subsidiary,
      ProGames Network, Inc. (“ProGames”), that we founded in December
      2005.





On
      June
      30, 2007, the Company entered into a Purchase Agreement (the “USA Agreement”)
      with United Systems Access, Inc. (“USA”), pursuant to which USA agreed to
      acquire all of the outstanding shares of CloseCall and AFN (the Company’s “CLEC
      Business”, which was previously included in the voice services business segment)
      and all of the outstanding shares of DFW and InReach (together these companies
      have comprised the Company’s Internet services provider business segment, or
“ISP Business”). The sale of the ISP Business was completed on July 18, 2007.
      The sale of the CLEC Business was subject to the receipt of verification of
      certain regulatory approvals, which was originally expected to be obtained
      by
      the end of calendar year 2007. On January 14, 2008, the Company received notice
      from USA purporting to terminate the USA Agreement with respect to the sale
      of
      the CLEC Business, but provided that USA remained interested in discussing
      terms
      upon which it would purchase the CLEC Business (see Note 3). USA was unable
      to
      complete the purchase on terms acceptable to the Company and, as a result of
      this default, the Company subsequently terminated the sale of its CLEC Business
      to USA.





On
      July
      8, 2007, the Company entered into a Purchase Agreement (the “Gobility
      Agreement”) with Gobility, Inc. (“Gobility”), pursuant to which Gobility
      acquired all of the outstanding shares of NeoReach and Kite Networks, and all
      of
      the outstanding membership interests in Kite Broadband (together these companies
      have comprised the Company’s wireless networks business segment, or “Wireless
      Networks”). As further discussed below, Gobility is in default with respect to
      its obligation to obtain funding and to pay amounts due under certain equipment
      obligations and leases for which the Company is a co-obligor. The Company is
      currently cooperating with Gobility in its efforts to sell the assets of Kite
      Networks in order to satisfy these obligations (see Note 3).





On
      June
      30, 2007, Davel sold approximately 730 operating payphones to an unaffiliated
      payphone operator. On September 7, 2007, Davel sold an additional 21,405
      payphones to Sterling Payphones, LLC (“Sterling”). Sterling also assumed certain
      liabilities of Davel. Effective September 30, 2007, Davel sold an additional
      300
      payphones (see Note 3). Following these transactions, Davel’s remaining
      operations have been significantly reduced. Davel’s remaining operations are
      being continued and Davel is pursuing the recovery of certain claims including
      the AT&T Corporation (“AT&T”), Sprint Communications Company, LP
      (“Sprint”) and Qwest Communications Company, Inc. (“Qwest”) claims described in
      Note 8.


-
          8
          -





**Going
      Concern Uncertainty**





The
      Company has historically lost money. The Company’s accumulated deficit at June
      30, 2008 was $96,081,214. In the three months ended June 30, 2008, the Company
      incurred a net loss of $448,367. In the fiscal years ended March 31, 2008,
      2007
      and 2006, the Company sustained net losses of $18,361,602, $45,898,288 and
      $10,176,407, respectively. Over these periods, most of the acquired businesses
      of Mobilepro experienced declining revenues. Although restructuring measures
      reduced other operating expenses, the Company was unable to sufficiently reduce
      the corresponding costs of services. In addition, the Company funded the
      start-up and operations of the municipal wireless networks and online gaming
      businesses without these companies achieving expected revenues. Although the
      amount of the Company’s losses have declined, the amounts of cash used in
      operations during the three months ended June 30, 2008 and the fiscal year
      ended
      March 31, 2008 were $898,096 and $3,558,996, respectively.





Because
      the cash required to fund the continuing operating losses and to complete the
      build-out of planned municipal wireless networks exceeded the Company’s
      available capital, the Company signed agreements to sell substantial portions
      of
      its operations to several unaffiliated buyers (see Note 3). The Company is
      also
      planning to sell its CLEC Business. If the Company is successful in doing so,
      it
      will use the expected proceeds to retire the amounts owed under the convertible
      debenture issued to YA Global Investments, L.P. (“YA Global”, f/k/a Cornell
      Capital Partners, L.P) and other obligations of the Company.





Notwithstanding
      the continuing cash flow deficits, the Company has significant claims against
      third parties which, if successful, could be used by the Company to fund its
      obligations or to pay a portion of the amounts due to YA Global (see Note 8).
      Claims against third parties include litigation against AT&T, Sprint and
      Qwest for non-payment of dial around compensation to the Davel entities,
      portions of amounts claimed from telecommunications carriers for regulatory
      receipts, and contractual claims for damages in connection with the sale of
      the
      CLEC and Wireless Networks Businesses. However, there can be no assurance that
      the Company will be able to prevail in its claims against third parties or
      that
      the amount awarded, if any, can be collected by the Company.





The
      Company’s financial statements have been prepared on a going concern basis,
      which contemplates the realization of assets and settlement of liabilities
      and
      commitments based on recorded amounts for the foreseeable future. If
      the
      Company is unable to permanently eliminate the cash requirements represented
      by
      the Wireless Networks Business and ProGames, and/or fails to sell the CLEC
      Businesses to USA or a new buyer on terms that are acceptable to the Company,
      the Company will not have the ability to continue as a going concern without
      additional capital and/or collections of significant amounts on claims against
      third parties. The consolidated financial statements do not include any
      adjustments that might result from the outcome of this uncertainty.





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





**Condensed
      Consolidated 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. Certain prior-period financial statement
      balances have been reclassified to conform to the June 30, 2008
      presentation.





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. These financial statements should
      be read in conjunction with the financial statements, and notes thereto,
      included in the Company’s Annual Report on Form 10-K for the fiscal year ended
      March 31, 2008. In the opinion of management, the comparative financial
      statements for the periods presented herein include all adjustments that are
      normal and recurring, and that are necessary for a fair presentation of results
      for the interim periods. The results of operations for the three months ended
      June 30, 2008 are not necessarily indicative of the results that will be
      achieved for the fiscal year ending March 31, 2009.


-
          9
          -





**Companies
      Held for Sale**





The
      assets and liabilities of the CLEC Business and the remaining assets and
      liabilities of the Wireless Networks Business are summarized and classified
      as
“held for sale” in the accompanying condensed consolidated balance sheets at
      June 30 and March 31, 2008. The operating results of these businesses and the
      operating results of the ISP Business, which was sold in the second quarter
      of
      fiscal year 2008, are included in discontinued operations in the accompanying
      condensed consolidated statements of operations for the three months ended
      June
      30, 2007. For the three months ended June 30, 2008, discontinued operations
      includes the operating results of the CLEC Business and the net interest cost
      of
      the remaining assets and liabilities of the Wireless Networks Business.





**Impact
      of Recent Accounting Standards**





In
      July
      2006, the Financial Accounting Standards Board (FASB) issued FASB Interpretation
      No. 48, “Accounting for Uncertainty in Income Taxes - an interpretation of FASB
      Statement No. 109” (“FIN 48”), which clarifies the accounting for uncertainty in
      income tax positions. FIN 48 requires that the Company recognize in the
      consolidated financial statements the impact of a tax position that is more
      likely than not to be sustained upon examination based on the technical merits
      of the position. The provisions of FIN 48 were effective for the Company on
      April 1, 2007. Adoption of FIN 48 did not have a material effect on the
      consolidated financial statements.




In
      September 2006, the FASB issued Statement of Financial Accounting Standards
      (“SFAS”) No. 157, “Fair Value Measurements,” which defines fair value,
      establishes a framework and gives guidance regarding the methods used for
      measuring fair value, and expands disclosures about fair value measurements.
      The
      provisions of SFAS No. 157 are effective for financial statements issued for
      the
      Company’s fiscal year beginning April 1, 2008 (April 1, 2009 with respect to
      certain non-financial assets and liabilities), and interim periods within such
      fiscal years. The adoption of SFAS No. 157 for financial assets and
      liabilities in the first quarter of the current fiscal year did not have a
      material effect on the Company’s financial position or results of operations as
      the Company does not have any material financial assets or liabilities measured
      at fair value.




In
      February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for
      Financial Assets and Financial Liabilities,” which provides companies with an
      option to report selected financial assets and liabilities at fair value. The
      objective is to reduce both complexity in accounting for financial instruments
      and the volatility in earnings caused by measuring related assets and
      liabilities differently. The provisions of SFAS No. 159 are effective for
      financial statements issued for the Company’s fiscal year beginning April 1,
      2008. The Company did not elect to measure its financial instruments or any
      other items at fair value as permitted by SFAS No. 159. Therefore, the
      adoption of FAS No. 159 did not have a material effect on the Company’s
      financial position or results of operations.





In
      December 2007, the FASB issued SFAS No. 141R, “Business Combinations.”
SFAS No. 141R modifies the accounting for business combinations by requiring
      that acquired assets and assumed liabilities be recorded at fair value,
      contingent consideration arrangements be recorded at fair value on the date
      of
      the acquisition and preacquisition contingencies will generally be accounted
      for
      in purchase accounting at fair value. The pronouncement also requires that
      transaction costs be expensed as incurred, acquired research and development
      be
      capitalized as an indefinite-lived intangible asset and the requirements of
      SFAS
      No. 146, “Accounting for Costs Associated with Exit or Disposal
      Activities,” be met at the acquisition date in order to accrue for a
      restructuring plan in purchase accounting. SFAS No. 141R is required to be
      adopted prospectively effective for the Company’s fiscal year beginning April 1,
      2009. The Company does not expect SFAS No. 141R to have a significant impact
      on
      the Company’s consolidated financial statements.




In
      December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests
      in Consolidated Financial Statements — an amendment of ARB No. 51.” SFAS
      No. 160 modifies the reporting for noncontrolling interests in the balance
      sheet and minority interest income (expense) in the statement of operations.
      The
      pronouncement also requires that increases and decreases in the noncontrolling
      ownership interest amount be accounted for as equity transactions. SFAS
      No. 160 is required to be adopted prospectively, with limited exceptions,
      effective for the fiscal year beginning April 1, 2009. The Company does not
      expect SFAS No. 160 to have a significant impact on the Company’s consolidated
      financial statements.


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          10
          -





In
      March 2008, the FASB issued SFAS No. 161, “Disclosures about
      Derivative Instruments and Hedging Activities — an amendment of FASB Statement
      No. 133.” SFAS No. 161 modifies existing requirements to include
      qualitative disclosures regarding the objectives and strategies for using
      derivatives, fair value amounts of gains and losses on derivative instruments
      and disclosures about credit-risk-related contingent features in derivative
      agreements. The pronouncement also requires the cross-referencing of derivative
      disclosures within the financial statements and notes thereto. The requirements
      of SFAS No. 161 are effective for the Company’s interim and annual fiscal
      periods beginning on April 1, 2009. The Company does not expect SFAS No. 161
      to
      have a significant impact on the Company’s consolidated financial statements or
      related disclosures.





**Cash
      and Cash Equivalents**





The
      Company considers all highly liquid debt instruments and other short-term
      investments with an initial maturity of three months or less to be cash or
      cash
      equivalents. The Company maintains cash and cash equivalents with financial
      institutions that exceed the limit of insurability under the Federal Deposit
      Insurance Corporation. However, due to management’s belief in the financial
      strength of its financial institutions, management does not believe the risk
      of
      keeping deposits in excess of federal deposit limits to be a material
      risk.





**Restricted
      Cash**





The
      Company is required to maintain letters of credit collateralized by cash as
      additional security for the performance of obligations under certain service
      agreements. Restricted cash also includes $206,397 that will be held in escrow
      through September 8, 2008 to indemnify Sterling for possible claims that may
      arise in connection with the sale of Davel’s payphones on September 7, 2007 (see
      Note 3). The cash escrow and collateral is restricted and is not available
      for
      the Company’s general working capital needs. The letters of credit expire at
      various dates through June 2009.





**Revenue
      Recognition**





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





A
      material amount of the Company’s revenues was 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.





Non-coin
      operator service calls are handled by independent operator service providers.
      These carriers assume billing and collection responsibilities for
      operator-assisted calls originating on Davel’s payphone network and pay
      commissions to Davel based upon gross revenue. Davel recognizes revenue related
      to operator service calls in amounts equal to the commissions that it is
      entitled to receive in the periods that the services are rendered.





Davel
      also recognizes revenue related to non-coin dial-around calls that are initiated
      from a Company payphone in order to gain access to a specific long distance
      company or to make a standard toll free call. Revenue related to such
      dial-around calls is recognized initially based on estimates. The inter-exchange
      carriers have historically paid for fewer dial-around calls than are actually
      made and the collection period for dial-around revenue is generally four to
      six
      months, but can be in excess of one year. Most dial-around receivable amounts
      are received early in each calendar quarter from an industry clearinghouse
      organization, one quarter in arrears. For example, Davel was entitled to receive
      its dial-around receipts related to the quarter ended June 30, 2007 in October
      2007, allowing it to adjust the second calendar quarter dial-around receivable
      amount included in the balance sheet at September 30, 2007 based on the actual
      collection experience. Davel’s estimate of revenue for the most recent calendar
      quarter is based on the historical analysis of calls placed and amounts
      collected. These analyses are updated on a periodic basis. Recorded amounts
      of
      revenue may be adjusted based on actual receipts and/or the subsequent revision
      of prior estimates. Total dial-around revenue amounts for the three months
      ended
      June 30, 2008 and 2007 was approximately $16,686 and $1,245,717, respectively.


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          11
          -





**Accounts
      Receivable**





The
      Company conducts business and may extend credit to customers based on an
      evaluation of the customers’ financial condition, generally without requiring
      collateral. Exposure to losses on receivables is expected to vary by customer
      due to the financial condition of each customer. The Company monitors exposure
      to credit losses and maintains allowances for anticipated losses considered
      necessary under the circumstances and based to a significant extent on recent
      historical overall account write-off experience. The Company had allowances
      for
      doubtful accounts of $939,292 and $993,356 at June 30 and March 31, 2008,
      respectively, relating to accounts receivable other than dial-around
      compensation amounts, which were included in assets of companies held for sale
      in the accompanying consolidated balance sheets.





Dial-around
      receivable amounts included in the condensed consolidated balance sheets at
      June
      30, 2008 and March 31, 2008 were $17,686 and $45,692, respectively. During
      all
      periods presented, credit losses, to the extent identifiable, were generally
      within management’s overall expectations.





**Notes
      Receivable**





Notes
      Receivable consist of a $2,000,000 note receivable from USA, as amended, with
      a
      remaining principal balance of $1,000,000 at June 30 and March 31, 2008, and
      $1,865,000 of notes receivable that the Company received in connection with
      Gobility’s sale of the Longmont Colorado wireless network (see Note 3). In July
      2008, the Company revised the payment terms relating to the USA note and
      received principal and interest payments totaling $200,000. The remaining
      principal balance and accrued interest at 12% per annum is due on December
      29,
      2008. This note and accrued interest of $50,794 and $19,852 at June 30 and
      March
      31, 2008, respectively, are included in current assets of continuing operations
      in the accompanying condensed consolidated balance sheets.





The
      notes
      receivable from the purchaser of the Longmont, Colorado wireless network consist
      of short-term notes aggregating $65,000 and $1,800,000 of long-term notes.
      The
      long-term notes receivable provide for quarterly payments of interest only
      at 9%
      for the first three years beginning September 1, 2008 plus equal quarterly
      principal payments of $137,500, plus interest, commencing March 1, 2011. The
      notes and any unpaid interest are due on March 9, 2015. These notes receivable
      and accrued interest are included in assets of continuing operations in the
      condensed consolidated balance sheets.





**Fair
      Value of Financial Instruments**





The
      carrying amounts reported in the condensed consolidated balance sheets for
      cash
      and cash equivalents, accounts receivable and accounts payable approximate
      fair
      value because of the immediate or short-term maturity of these financial
      instruments.





**Financing
      Fees**





The
      Company incurred financing costs of $144,601 in connection with refinancing
      of
      the secured convertible debenture issued to YA Global on June 30, 2008. These
      costs, representing primarily legal and other fees to be paid in cash, are
      included in other assets of continuing operations at June 30, 2008 and will
      be
      amortized to interest expense through the maturity date of the debentures on
      May
      1, 2009.





**Accounting
      for Stock Options and Warrants**





The
      Company adopted SFAS 123R, effective April 1, 2006. The amounts of related
      compensation expense recorded and presented in continuing operations in the
      accompanying condensed consolidated statements of operations for the three
      months ended June 30, 2008 and 2007 were $23,969 and $200,553, respectively.


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          12
          -


**Property,
      Plant and Equipment**





Depreciation
      expense is computed using the straight-line method during the estimated useful
      life of each asset. The amounts of depreciation related to continuing operations
      and included in the condensed consolidated statements of operations for the
      three months ended June 30, 2008 and 2007 were approximately $45,457 and
      $586,274, respectively.





In
      accordance with FASB Statement No. 144, “Accounting for the Impairment or
      Disposal of Long-Lived Assets”, furniture and equipment and other long-lived
      assets included in assets of companies held for sale are not depreciated or
      amortized while such assets are classified as held for sale.





**Advertising
      Contracts**




CloseCall
      uses print, signage, radio and television advertising to market services to
      customers of certain local professional sports teams. Advertising programs
      include the use of long-term contracts. Upon the negotiation of such a contract,
      the Company records the cost of the advertising program as an asset, and
      amortizes the balance to operating expenses over the life of the contract.
      At
      June 30 and March 31, 2008, assets of companies held for sale included prepaid
      expenses of $70,033 and $137,749, respectively, related to such contracts.
      The
      corresponding contract liability is paid typically in installments. At June
      30
      and March 31, 2008, liabilities of companies held for sale included accounts
      payable and accrued expenses of $102,925 and $171,375, respectively, that are
      payable under such contracts.





**Goodwill
      and Long-Lived Assets**





At
      June
      30 and March 31, 2008, $20,531,278 of goodwill is included in assets of
      companies held for sale in the Company’s condensed consolidated balance sheets.
      Generally accepted accounting principles require that the Company assess the
      fair value of goodwill amounts relating to 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 amounts of goodwill for reporting segments
      have been reduced below the corresponding carrying amounts. 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 of March 31, 2008, the Company
      evaluated the carrying value of goodwill and determined that no adjustment
      for
      impairment was required. There were also no asset impairment charges recoded
      in
      the three months ended June 30, 2008 and 2007.





**Customer
      Location Contracts**





Intangible
      assets previously included amounts paid to property location owners in
      connection with payphone installation contracts, which were sold in conjunction
      with the sale of a majority of Davel’s payphones in September 2007. These other
      assets were amortized on a straight-line basis over their estimated useful
      lives
      based on contract terms (generally 5 years). Amortization expense related to
      location contracts of $130,908 is included in operating costs and expenses
      of
      continuing operations for the three months ended June 30, 2007.





**Accounts
      Payable and Accrued Liabilities**





The
      accounts payable and accrued liabilities of continuing operations consisted
      of
      the following at the indicated dates:


**June
                  30**
              
              **March
                  31****2008**
              
              **2008**Accounts
                  payable
              
              $
              855,111
              
              $
              768,175Accrued
                  restructuring costs
              
              
              100,218
              
              
              100,218Accrued
                  compensation
              
              
              267,874
              
              
              252,874Accrued
                  interest expense
              
              
              -
              
              
              167,371Other
                  accrued liabilities
              
              
              1,919,075
              
              
              1,888,399Totals
              
              $
              3,142,278
              
              $
              3,177,037




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          13
          -


**Income
      Taxes**





The
      Company has adopted the provisions of SFAS No. 109, “Accounting for Income
      Taxes”. The statement requires an asset and liability approach for financial
      accounting and reporting for income taxes, and the recognition of deferred
      tax
      assets and liabilities for the temporary differences between the financial
      reporting bases and tax bases of the Company’s assets and liabilities at enacted
      tax rates expected to be in effect when such amounts are realized or settled.
      Because of its history of losses, the Company has not had any material federal
      or state income tax obligations.





**NOTE
      3-** **DISPOSITION
      OF BUSINESSES**





**Sale
      of the ISP and CLEC Businesses**





On
      June
      30, 2007, the Company entered into a Purchase Agreement with USA, pursuant
      to which USA agreed to acquire all of the outstanding shares of CloseCall,
      AFN,
      DFW and InReach. The USA Agreement was subsequently amended to extend the
      closing date for the sale of the ISP Business, which was completed on July
      18,
      2007. The closing for the CLEC Business was expected to occur following receipt
      of the necessary regulatory approvals. Until the closing, USA agreed to manage
      the CLEC Business pursuant to a management agreement entered into with USA
      (the
“USA Management Agreement”).





On
      January 14, 2008, the Company received notice from USA purporting to terminate
      the USA Agreement with respect to the sale of the CLEC Business, but provided
      that USA remained interested in discussing terms upon which it would complete
      the purchase. The Company has been in communications with USA and disputes
      the
      validity of the claims alleged for the purported termination, which include
      the
      alleged failure to obtain certain regulatory and contractual approvals and
      the
      alleged breach of certain representations and warranties set forth in the USA
      Agreement. The Company believes the purported termination was in bad faith
      and
      intends to pursue any and all legal and equitable remedies available to it
      against USA. Despite the on-going discussions with USA, the Company re-assumed
      operating control of AFN and CloseCall and terminated the agreement to sell
      the
      CLEC Business to USA in the fourth quarter of the fiscal year ended March 31,
      2008.





Under
      the
      USA Agreement, the total purchase price for the ISP and CLEC Businesses was
      $27,663,893 consisting of $21.9 million in cash and 8,100 shares of convertible
      preferred stock of USA (the “USA Preferred”) with a fair value of $5,763,893.
      The 8,100 shares of USA Preferred, received as an advanced payment towards
      the
      purchase of the CLEC Business, are convertible into 7.5% of the outstanding
      common stock of USA and could be redeemed for $8.1 million in cash, at the
      option of the Company, anytime following the third anniversary of the closing
      of
      the CLEC Business (the “Put Option”). Prior to that time, USA had the option to
      redeem all of the unconverted USA Preferred for $12,960,000. The fair value
      of
      the USA preferred was originally based on the present value of the $8.1 million
      Put Option discounted at an interest rate of 10%. Through December 31, 2007,
      the
      discount on the USA preferred of $2,336,107 was being accreted to income through
      the estimated date the Put Option was to become exercisable using the interest
      method. During the second and third quarters of the fiscal year ended March
      31,
      2008, the Company recorded and included as an offset to interest expense
      $244,198 of income relating to the discount. Following the termination of the
      sale of the CLEC Business to USA in the fourth quarter of fiscal 2008, the
      value
      of the USA Preferred was considered impaired. The Company discontinued the
      accretion of the discount and wrote-off the carrying value of the USA Preferred
      against the liability recorded for the advanced proceeds from USA. The net
      difference in carrying values of $56,442 was recorded as a reduction in the
      loss
      on sale of discontinued operations in the fourth quarter of the fiscal year
      ended March 31, 2008.


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          14
          -




Upon
      the
      closing of the sale of the ISP Business on July 18, 2007, the Company received
      $2.5 million in cash, a $2 million note, which was originally payable upon
      the
      earlier of the closing of the CLEC Business or January 1, 2008, and the 8,100
      shares of USA Preferred. The remaining cash proceeds of $17,400,000 were to
      be
      paid by USA at the time of the CLEC closing. Until that time, USA was required
      to cause the managed companies to make monthly payments of interest on this
      balance at a rate of 7.75% directly to YA Global, two months in arrears. The
      Company received the monthly payments due through January 1, 2008, which
      payments have been applied to principal and interest on the Secured Debenture
      and Amended Debenture. The Company initially recorded these payments as an
      offset to interest expense in the amount of $616,985 through December 31 2007.
      In the fourth quarter of fiscal year 2008, the Company reversed this amount
      that
      was previously credited to interest expense.





On
      January 3, 2008, the Company entered into an amendment to the $2,000,000
      promissory note due from USA. USA made payments of $500,000 each on January
      4
      and January 11, 2008 with the remaining balance of $1,000,000, together with
      accrued interest at the rate of 7.75%, due on the earlier of the date of the
      closing of the sale of the CLEC Business or March 31, 2008. Of the $1,000,000
      of
      payments, the Company received $125,000 and the remaining $875,000 was used
      to
      pay principal and interest on the convertible debentures due to YA Global.
      USA
      did not pay the remaining principal balance of $1,000,000 or the accrued
      interest due on March 31, 2008. In July 2008, the Company revised the payment
      terms relating to the USA note and received principal and interest payments
      totaling $200,000. The remaining principal balance and accrued interest at
      12%
      per annum is due on December 29, 2008.





The
      loss
      incurred in connection with the sale of the ISP Business subsequent to June
      30,
      2007, after adjustment for the termination of the sale of the CLEC Business,
      of
      $2,424,785 was reported in the loss on sale of discontinued operations in the
      fiscal year ended March 31, 2008.





**Sale
      of the Wireless Networks Business**





On
      July
      8, 2007, the Company entered into a Purchase Agreement with Gobility, pursuant
      to which Gobility acquired all of the outstanding shares of Neoreach, and
      indirectly Kite Networks, and all of the outstanding membership interests in
      Kite Broadband. The purchase price was $2.0 million, paid in the form of a
      debenture that is convertible into shares of Gobility common stock (the
“Gobility Debenture”) at a rate of $5.00 per share, or such lower price, if
      Gobility issues common stock or securities convertible into common stock at
      a
      price that is less than $5.00 per share. Unless converted, the Gobility
      debenture is due July 8, 2009 with annual interest at 8%.





Under
      the
      terms of the Gobility Debenture, Gobility was required to raise at least $3.0
      million in cash no later than August 15, 2007. To date, Gobility has not
      obtained financing and is in default with respect to the Gobility Debenture.
      As
      a result of this default, the Company has the right but not the obligation
      to
      repurchase the Wireless Networks Business with the surrender of the Gobility
      Debenture and the payment of nominal additional consideration. In addition
      to
      its inability to obtain the required financing, Gobility has been unable to
      fund
      its operations including the payment of amounts due under a series of capital
      equipment leases and other equipment-related obligations. Because the equipment
      leases and other equipment purchases were co-signed by Mobilepro, if Kite
      Networks fails to pay the leases, absent any other defenses it may have, the
      Company could be obligated to pay the debt. As a result of these defaults by
      Gobility, the Company has written off the $2.0 million Gobility Debenture and
      has recorded the capital leases and equipment-related obligations as liabilities
      in connection with the sale. The Company has also recorded the certificates
      of
      deposits securing the lease obligations.





The
      Company is currently cooperating with Gobility in its efforts to sell the assets
      of Kite Networks in order to pay off the obligations relating to the leases
      and
      other equipment. In September 2007, the Company was required to make lease
      payments totaling $64,165. On March 10, 2008, Gobility sold the assets of the
      wireless network in Longmont, Colorado, and the Company received the related
      proceeds in the form of promissory notes from the purchaser totaling $1,800,000.
      In addition, the Company entered into a forbearance agreement with the principal
      equipment vendor and agreed to pay the $1,591,978 equipment obligation, with
      interest at the prime rate, and a related lease obligation in the principal
      amount of $149,749. In March 2008, the Company also satisfied the terms of
      one
      of the leases relating to the Tempe, Arizona wireless network with an aggregate
      principal balance of $318,595, plus accrued interest, by paying $93,000 in
      cash
      and applying the $250,000 certificate of deposit that secured the lease. As
      a
      result of the sale to Gobility and these transactions subsequent to June 30,
      2007, the Company recorded a net loss on the sale of its Wireless Networks
      Business of $3,433,843 that was reported in the loss on sale of discontinued
      operations for the fiscal year ended March 31, 2008.


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          15
          -


The
      Company continues to cooperate with Gobility in its efforts to sell the
      remaining assets of Kite Networks. In the event Gobility is unsuccessful in
      its
      attempts to sell the remaining assets and satisfy the lease obligations, the
      Company, subject to any defenses it might have, could be required to make the
      payments on the remaining leases. At June 30, 2008, the amounts recorded on
      the
      balance sheet as liabilities of companies held for sale relating to the capital
      lease obligations, accrued interest, and the equipment obligation were
      $3,551,380, $425,983, and $1,491,978, respectively. The Company has also
      recorded the certificates of deposits securing the lease obligations in the
      aggregate amount of $937,664 as assets of companies held for sale in the
      accompanying consolidated balance sheets.





On
      August
      1, 2008, the Company executed a promissory note and release with Data Sales
      Co.,
      Inc. (“Data Sales”) in the principal amount of $330,000. The note is in full
      satisfaction of approximately $1,231,000 of lease obligations for which the
      Company was a co-borrower with Kite Networks and reflects the impact of a sale
      of certain uninstalled wireless equipment by Data Sales to an unaffiliated
      third
      party purchaser that was consummated in July 2008. The Company will record
      a
      gain of approximately $901,000, or $0.0012 per share, in its fiscal second
      quarter as a result of the transaction.





**Discontinued
      Operations**





The
      Company has sold its Wireless Networks and ISP Businesses and continues to
      market its CLEC Business. Revenues, operating costs and expenses, and other
      income and expense attributable to the Wireless Networks, ISP and CLEC
      Businesses have been aggregated to a single line, loss from discontinued
      operations, in the condensed consolidated statements of operations for all
      periods presented. The Company has no income taxes due to operating losses
      incurred for tax purposes. No interest expense, other than amounts relating
      to
      the capital leases or other debt recorded by the discontinued businesses, has
      been allocated to discontinued operations.





The
      revenues and the net income (loss) of discontinued operations were as follows:


**Three
                  Months Ended June 30****2008**
              
              **2007**Revenues
              
              $
              7,656,187
              
              $
              15,010,201Income
                  (loss) from discontinued operations before disposal
              
              $
              281,910
              
              $
              (1,715,491
              )Loss
                  on disposal
              
              $
              -
              
              $
              -Loss
                  from discontinued operations
              
              $
              281,910
              
              $
              (1,715,491
              )




Assets
      and liabilities associated with the Wireless Networks, ISP and CLEC Businesses
      have been segregated from continuing operations and presented separately as
      assets of companies held for sale and liabilities of companies held for sale
      in
      the condensed consolidated balance sheets at June 30 and March 31, 2008. The
      major classifications of such assets and liabilities were as follows:


**June
                  30**
                **2008**
              
              **March
                  31**
                **2008**Cash
                  and cash equivalents
              
              $
              352,640
              
              $
              1,063,721Restricted
                  cash
              
              
              1,425,165
              
              
              1,425,165Accounts
                  receivable, net
              
              
              2,820,351
              
              
              2,718,933Prepaid
                  expenses and other current assets
              
              
              1,089,357
              
              
              1,125,926Fixed
                  assets, net
              
              
              536,533
              
              
              539,047Goodwill,
                  net of impairment
              
              
              20,531,278
              
              
              20,531,278Customer
                  contracts and relationships, net
              
              
              515,147
              
              
              508,424Other
                  assets
              
              
              101,329
              
              
              108,647Assets
                  of companies held for sale
              
              $
              27,371,800
              
              $
              28,021,141
 Accounts
                  payable and accrued expenses
              
              $
              3,168,492
              
              $
              3,675,162Deferred
                  revenue
              
              
              655,307
              
              
              701,638Notes
                  payable and capital lease and equipment obligations
              
              
              5,178,251
              
              
              5,286,344Liabilities
                  of companies held for sale
              
              $
              9,002,050
              
              $
              9,663,144




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          16
          -





**Sale
      of Payphones**





The
      Company completed a series of transactions to sell a majority of Davel’s
      payphones in order to provide cash for operating purposes and to retire
      additional amounts owed to YA Global under the convertible debentures. On June
      30, 2007, we completed the sale of approximately 730 operating payphones to
      an
      unaffiliated payphone operator and received over $200,000 in cash proceeds.
      A
      gain in the amount of $10,640 was recognized in connection with this transaction
      in the quarter ended June 30, 2007.





On
      September 7, 2007, Davel sold approximately 21,405 payphones to Sterling. Under
      the terms of the sale agreement, the Company received $50,000 in cash and
      $1,839,821 in cash was paid to YA Global to reduce the amount of principal
      and
      interest owed under the outstanding convertible debentures issued to YA Global.
      Pursuant to the sale agreement, proceeds in the amount of $850,832 were used
      for
      the direct payment of certain related liabilities and broker fees and $1,200,000
      of proceeds was used for the funding of escrow accounts established for the
      payment of key vendor obligations and indemnification claims. Sterling also
      assumed certain other liabilities of Davel. Effective September 30, 2007, Davel
      sold an additional 300 payphones for approximately $85,000. After these sales,
      Davel’s remaining operations have been significantly reduced. Davel’s remaining
      operations are being continued and Davel is pursuing the recovery of certain
      claims including the AT&T, Sprint and Qwest claims described in Note
      8.  A
      net
      loss of $2,800,206 was included in the loss from continuing operations reported
      in the second quarter of the fiscal year ended March 31, 2008 in connection
      with
      these transactions.





**NOTE
      4-** **INVESTMENTS**





During
      the year ended March 31, 2005, the Company provided certain management services
      to two emerging technology firms. As consideration, the Company received a
      non-affiliate equity interest in each firm. These investments were recorded
      in
      the amounts of $300,000 and $150,000, respectively, approximating the value
      of
      the services provided. The shares of common stock held by the Company are
      considered to be available-for-sale securities. If a decline in the fair value
      of these securities is judged by management to be other than temporary, the
      cost
      basis of the securities would be written down to fair value at that time. During
      the second and third quarters of the fiscal year ended March 31, 2008, the
      Company received $361,503 from the sale of a portion of the shares, wrote down
      the carrying value of the remaining shares and recognized a loss of $81,587.
      The
      carrying value of the common stock included in other assets of continuing
      operations at March 31, 2008 was $6,910. In the three months ended June 30,
      2008, the Company wrote off the remaining carrying value of the
      shares.




The
      Company received advanced proceeds, primarily in the form of an investment
      in
      8,100 shares of USA convertible preferred stock (the “USA Preferred”), in
      connection with the sale of the ISP and CLEC Businesses in the second quarter
      of
      the fiscal year ended March 31, 2008 (see Note 3). The fair value of the USA
      Preferred of $5,763,893, net of a $2,336,107 discount, was initially recorded
      and a portion of the discount in the amount of $244,198 was accreted to income
      in the second and third quarters of fiscal year 2008. Following the termination
      of the sale of the CLEC Business to USA in the fourth quarter of the 2008 fiscal
      year, the value of the convertible preferred stock was considered impaired
      and
      was written-off against the liability recorded for the advance from USA. The
      difference between the carrying values of the asset and liability of $56,442
      was
      recorded as a reduction in the loss on sale of discontinued operations reported
      in the consolidated statements of operations during the fourth quarter of the
      fiscal year ended March 31, 2008.


-
          17
          -





On
      January 5, 2008, the Company entered into an agreement to purchase 2,666,667
      shares of the outstanding common stock of Microlog Corporation (“Microlog”) from
      TFX Equities, Inc. (“TFX”) for $1,000 in cash (the “Microlog Agreement”). The
      Company also received from TFX $2,000,000 of 10% subordinated notes, due from
      Microlog on January 5, 2011, that are convertible into Microlog common stock
      at
      a price of $0.10 per share, warrants to purchase 100 shares of Series A
      convertible preferred stock of Microlog, and warrants to purchase 750,000 shares
      of Microlog common stock at an exercise price of $0.10 per share in connection
      with the Microlog Agreement. In addition, the Company invested $250,000 in
      cash
      directly in Microlog in exchange for a 10% subordinated note with a face value
      of $250,000, due January 5, 2011, that is convertible into Microlog common
      stock
      at a price of $0.10 per share. The Company owns approximately 31% of the
      outstanding common stock of Microlog and accounts for its investment using
      the
      equity method of accounting. If all of the warrants and convertible securities
      issued by Microlog were exercised or converted to common stock, the Company
      would own approximately 71% of the outstanding common stock on a fully diluted
      basis. Microlog is a Germantown, MD based government contractor that develops,
      sells and installs software for integrated voice response and web-based customer
      contact systems in the healthcare industry. Microlog’s common stock is traded on
      the “Pink Sheets” under the symbol “MLOG”. The market value of the Company’s
      investment in the common stock of Microlog at June 30, 2008 was
      $800,000.





In
      January 2008, the Company also entered into a management agreement to provide
      financial, legal and administrative services to Microlog at a rate of $8,800
      per
      month. The accompanying consolidated statements of operations include $26,400
      of
      revenues related to this management agreement and $56,250 of interest income
      related to notes receivable from Microlog in the quarter ended June 30, 2008.
      It
      also includes $35,007 relating to the Company’s equity in the net loss of
      Microlog during the quarter. At June 30 and March 31, 2008, the carrying value
      of the investment and amounts due from Microlog of $304,560 and 256,917,
      respectively, are included in investments and other assets of continuing
      operations in the accompanying condensed consolidated balance
      sheets.





**NOTE
      5-** **DEBT**





**Debt
      Maturities**





A
      summary
      of the balances owed under the debentures and other notes payable of continuing
      operations at June 30, 2008 and March 31, 2008 was as follows:


**June
                  30**
              
              **March
                  31****2008**
              
              **2008**Convertible
                  Debenture issued to YA Global
              
              $
              13,391,175
              
              $
              -Amended
                  Debenture issued to YA Global
              
              
              -
              
              
              11,006,823Secured
                  Debentures issued to YA Global
              
              
              -
              
              
              2,162,121Other
                  notes payable
              
              
              112,000
              
              
              115,00013,503,175
              
              
              13,283,944Less:
                  Unamortized debt discounts
              
              
              (10,390
              )
              
              (30,208
              )Less:
                  Amounts due within one year
              
              
              (13,492,785
              )
              
              (13,253,736
              )Long-term
                  portion of debt
              
              $
              -
              
              $
              -
 Based
        on
        the current terms of the YA Global debenture and other notes payable, as
        amended, the entire balance of debt at June 30, 2008 will become due for
        payment
        in the twelve-month period ending June 30, 2009.


-
          18
          -


**The
      Convertible Debenture Agreement**





Effective
      June 30, 2008, the Company issued a secured convertible debenture to YA Global
      (the “Convertible Debenture’) with an aggregate principal balance of
      $13,391,175, replacing the Amended Debenture and the Secured Debenture described
      below. The Convertible Debenture provides for monthly payments of interest
      at
      12% with the remaining principal balance due on May 1, 2009. Accordingly, the
      entire principal balance of the Convertible Debenture has been classified as
      a
      current liability at June 30, 2008 in the Company’s condensed consolidated
      balance sheets. YA Global may convert any portion of the unpaid principal and
      interest into shares representing up to 4.99% of the Company’s common stock at
      the lesser of $0.04973 per share or the average of the two lowest volume
      weighted average prices during the five trading days immediately preceding
      the
      conversion date. If certain conditions are met, the Company has the option
      to
      pay up to 4.5% of the total interest due in common stock at the applicable
      conversion price on the day immediately prior to the interest payment date.
      The
      conversion price is subject to adjustment if the Company is deemed to have
      issued shares at a price that is lower than the effective conversion price
      on
      the date such shares are issued. The Convertible Debenture is secured by
      substantially all of the assets of the Company.





In
      connection with the issuance of the Convertible Debenture, the Company granted
      to YA Global a seven-year warrant to purchase 25,000,000 shares of its common
      stock at an exercise price of $0.04973 per share, which expires on June 30,
      2015. In addition, the outstanding warrants previously granted to YA Global
      to
      purchase 15,000,000 share of common stock at $0.20 per share and 10,000,000
      shares of common stock at $0.174 per share were repriced and are now exercisable
      at a price of $0.04973 per share. The Convertible Debenture was recorded in
      the
      accounts net of an unamortized debt discount of $10,390 reflecting the fair
      value of the related warrants on the date of issuance or repricing. The discount
      amounts are being amortized as charges to interest expense over the remaining
      term of the Convertible Debenture.





**The
      Secured Debenture Agreement**





On
      August
      28, 2006, the Company entered into a financing agreement with YA Global that
      provided $7.0 million in debt financing with the proceeds received in a series
      of four closings (the “Secured Debenture Agreement”). At each closing, the
      Company issued YA Global a 7.75% secured convertible debenture in the gross
      amount for the closing, convertible into shares of common stock at $0.174 per
      share. The Company received cash proceeds of $6,495,000, net of financing fees
      of $505,000. In addition, YA Global was issued warrants to purchase 10,000,000
      additional shares of common stock that expire on various dates in 2011 at an
      exercise price of $0.174 per share, as amended. As set forth above, the warrants
      were repriced on June 30, 2008 and are now exercisable at a price of $0.04973
      per share.





The
      debentures issued pursuant to the Secured Debenture Agreement were recorded
      in
      the balance sheet net of unamortized debt discounts reflecting the fair market
      values of the debentures on the dates of issuance after allocating a like amount
      of proceeds to the related warrants. The discount amounts were amortized as
      charges to interest expense over the terms of the related debentures.





Under
      conditions similar to those included in the Amended Debenture (see discussion
      below), the Company had the right to make any and all such principal and
      interest payments by issuing shares of its common stock to YA Global 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. Through March 31, 2007, the Company issued 42,598,498 shares of its common
      stock in satisfaction of $1,500,000 in principal and $198,654 in accrued
      interest. From April 1, 2007 through May 10, 2007, the Company issued an
      additional 78,091,157 shares of its common stock in satisfaction of $1,849,343
      in principal and $47,743 in accrued interest. The Company used cash to pay
      $29,836 in principal and $6,614 in interest on May 10, 2007. On July 18, 2007,
      the Company also paid $145,821 in principal and $265,678 in accrued interest
      from the proceeds of sale of the ISP Business. On September 7, 2007 and October
      19, 2007, the Company paid an additional $347,009 in principal and $68,493
      of
      interest from the proceeds of sale of Davel’s payphones. During the quarter
      ended December 31, 2007, the Company paid $42,117 in principal and $38,128
      of
      interest from the monthly interest payments received from USA on the $17.4
      million cash balance due at the time of the CLEC closing. In January 2008,
      the
      Company paid $865,393 of principal and $26,521 of interest from the payments
      received from USA relating to the $2,000,000 note receivable and the monthly
      interest payment.




Under
      the
      terms of the Secured Debenture Agreement, as amended through January 16, 2007,
      the Company agreed to make weekly principal payments of at least $125,000 in
      satisfaction of the remaining principal commencing February 1, 2008, with
      interest on the outstanding principal balance payable at the same time. The
      Company made a partial payment of $114,530 toward the amounts due on the Secured
      Debenture and Amended Debenture on February 1, 2008. The Company also made
      partial payments of interest on the debentures aggregating $200,000 on May
      2 and
      June 4, 2008. On June 30, 2008, the Company issued the Convertible Debenture
      in
      exchange for the Secured Debenture and Amended Debenture as described above.


-
          19
          -





**The
      Amended Debenture**





On
      June
      30, 2006, the Company entered into an amended secured convertible debenture
      in
      the amount of $15,149,650 with YA Global (the “Amended Debenture”), replacing
      the debenture that was previously outstanding (the “Debenture”). The Company had
      the right to make any and all principal and interest payments by issuing shares
      of its common stock to YA Global 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 YA Global without
      restriction. The value assigned to such shares was 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. YA Global had the right to
      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 was secured by a blanket lien on our
      assets. The Amended Debenture bore interest at an annual rate of 7.75%.





In
      connection with the issuance of the Debenture, the Company issued to YA Global
      a
      five-year warrant that expires on May 13, 2010, as modified, to purchase
      15,000,000 shares of its common stock at an exercise price of $0.20 per share
      (the “Warrant”). As indicated above, the Warrant was repriced on June 30, 2008
      and is now exercisable at a price of $0.04973 per share. In connection with
      the
      issuance of the Amended Debenture, YA Global was issued an additional 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 expired in November 2007.





The
      face
      amount of the Amended Debenture was recorded initially in the balance sheet
      net
      of unamortized debt discount of $319,000. During the quarter ended December
      31,
      2006, 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 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 was amortized as a charge to
      interest expense over the term of the Amended Debenture.





Through
      March 31, 2007, the Company issued 50,578,702 shares of its common stock in
      satisfaction of $2,500,000 in principal and $681,827 in accrued interest. On
      May
      10, 2007, the Company issued 4,510,933 shares of its common stock in
      satisfaction of $70,822 in principal. . On July 18, 2007, the Company also
      paid
      $247,005 in principal and $216,181 in accrued interest from the proceeds of
      sale
      of the ISP Business. On September 7, 2007, the Company paid an additional
      $1,325,000 in principal and $116,853 of interest from the proceeds of sale
      of
      Davel’s payphones. During the quarter ended December 31, 2007, the Company paid
      $196,313 of interest from the monthly interest payments received from USA on
      the
      $17.4 million cash balance due at the time of the CLEC closing. In January
      2008,
      the Company paid $98,157 of interest from the payments received from USA
      relating to the $2,000,000 note receivable and the monthly interest
      payment.





Under
      the
      terms of the Amended Debenture, as revised through January 16, 2008, the Company
      agreed to make weekly scheduled principal payments of at least $250,000
      commencing February 1, 2008 with interest on the outstanding principal balance
      payable at the same time. The Company made a partial payment of $114,530 toward
      the amounts due on the Secured Debenture and Amended Debenture on February
      1,
      2008. The Company also made partial payments of interest on the debentures
      aggregating $200,000 on May 2 and June 4, 2008. On June 30, 2008, the Company
      issued the Convertible Debenture in exchange for the Secured Debenture and
      Amended Debenture as described above.


-
          20
          -




**Availability
      of Registered Shares**





The
      Company filed a registration statement on Form S-3 on October 12, 2006 covering
      the resale of a total of 404,474,901 shares of the Company’s common stock by
      various selling stockholders, including 55,089,635 shares that may be issued
      to
      YA Global under the Amended Debenture, 120,689,655 shares related to convertible
      debentures issued under the Secured Debenture Agreement, and 38,750,000 shares
      related to the corresponding stock warrants. This registration statement was
      declared effective by the SEC, enabling the Company’s use of common stock to
      make installment payments to YA Global under the various debentures. As of
      May
      10, 2007, the Company has issued all of the approximately 175,779,000 shares
      covered by the registration statement relating to the convertible debentures.
      At
      June 30, 2008, the total principal balance payable to YA Global under the
      Convertible Debenture was $13,391,175.





**The
      Debentures - Interest Expense**





For
      the
      three months ended June 30, 2008 and 2007, the amounts of interest expense
      related to the debentures issued to YA Global, and included in the accompanying
      condensed consolidated statements of operations based on the stated interest
      rates, were $254,860 and $321,196, respectively.





Interest
      expense amounts included in the accompanying condensed consolidated statements
      of operations for the current and prior year periods also included total debt
      discount amortization related to the debentures issued to YA Global.
      Amortization amounts were $30,208 and $155,689, respectively, for the three
      months ended June 30, 2008 and 2007.





The
      discounts provided to YA Global in connection with the issuance of shares of
      common stock in satisfaction of principal and interest payments due under the
      convertible debentures were charged to interest expense. The amount included
      in
      interest expense for the three months ended June 30, 2007 was
      $131,551.





**Notes
      Payable to YA Global**





In
      May
      2007, the Company borrowed $1,100,000 from YA Global under a one-year promissory
      note with annual interest at a rate of 12% for the first six months of its
      term
      and an annual rate of 15% thereafter. This promissory note and the related
      accrued interest were repaid in July 2007 from the proceeds of sale of the
      ISP
      Business. Interest expense was $18,082 for the three months ended June 30,
      2007.





**Capital
      Leases of Discontinued Operations**





The
      Company remains the co-obligor on certain capital leases and equipment
      obligations of Kite Networks that were assumed by Gobility under the terms
      of
      the Gobility Agreement. The lease terms range from 24 to 36 months. As a result
      of Gobility’s default under the Gobility Agreement as described in Note 3,
      including their failure to make the monthly lease payments, the Company
      continues to be liable for these capital leases and equipment obligations.





The
      Company continues to cooperate with Gobility in its efforts to sell the
      remaining assets of Kite Networks. In the event Gobility is unsuccessful in
      its
      attempts to sell the remaining assets and satisfy the lease obligations, the
      Company could be required to make the payments on the remaining leases. As
      discussed in Note 8, Harborside Investments III LLC, one of the lessors, filed
      a
      lawsuit against the Company to collect amounts due under its lease. Other
      leasing companies could also accelerate the payment date and demand immediate
      payment of the outstanding balances from the Company as a result of the default
      in lease payments by Gobility. The Company could also be subject to late payment
      penalties and interest at the default rate.





The
      outstanding principal amounts of the capital leases, equipment obligation and
      accrued interest are included in liabilities of companies held for sale at
      June
      30 2008 and March 31, 2008 in the accompanying condensed consolidated balance
      sheets. The Company has also recorded the certificates of deposits securing
      the
      lease obligations in the aggregate amount of $937,664, which are available
      to
      offset a portion of the capital lease liabilities, as assets of companies held
      for sale in the accompanying condensed consolidated balance sheets. At June
      30,
      2008, a summary of the future scheduled payments based on the original terms
      of
      the capital leases and the equipment and interest obligations were as follows:


Lease
                  payments due in the twelve months ending --June
                  30, 2009
              
              $
              3,752,855June
                  30, 2010
              
              
              440,7734,193,628Less
                  - interest portions
              
              
              (642,248
              )Capital
                  leases - principal portions
              
              
              3,551,380Equipment
                  obligation
              
              
              1,491,978Accrued
                  interest on capital leases and equipment obligation
              
              
              425,983Total
                  liabilities
              
              $
              5,469,341




-
          21
          -





The
      equipment obligation provides for monthly principal payments of $20,000, plus
      interest at the prime rate, with additional principal payments due on a
      quarterly basis based on the scheduled payments due on the notes receivable
      from
      the purchaser of the Longmont, Colorado wireless network. The annual scheduled
      maturities of the equipment obligation are $384,025, $388,500, and $799,453
      for
      the fiscal years ended March 31, 2009, 2010 and 2011, respectively.





As
      discussed in Note 3, on August 1, 2008, the Company executed a promissory note
      and release in the principal amount of $330,000 in full satisfaction of
      approximately $1,231,000 of the lease obligations included in the table above.
      The note requires twenty-three monthly payments of $10,000 and accrues interest
      at the rate of twelve percent. The unpaid principal balance and accrued interest
      is due and payable on July 31, 2010. The Company will record a gain of
      approximately $901,000, or $0.0012 per share, in its fiscal second quarter
      as a
      result of the transaction.




**NOTE
      6-** **STOCKHOLDERS’
      EQUITY**




**Common
      Stock Transactions in the Three Months Ended June 30,
      2008**





There
      were no common stock transactions in the three months ended June 30,
      2008.





**Common
      Stock Transactions in the Three Months Ended June 30, 2007**





In
      the
      three months ended June 30, 2007, the Company issued 82,602,090 shares of its
      common stock in satisfaction of $1,920,164 in principal and $47,743 in accrued
      interest owed to YA Global relating to the convertible debentures.





**Stock
      Options and Warrants**





The
      stockholders of the Company have approved the issuance of 30,000,000 shares
      of
      common stock in connection with stock options granted pursuant to the 2001
      Equity Performance Plan (the “2001 Plan”). In addition, the Company has issued
      options and warrants to purchase common stock to key personnel pursuant to
      specific authorization of the board of directors outside the scope of the 2001
      Plan. The following tables summarize the stock option activity and the warrant
      activity for the three months ended June 30, 2008:


**Stock
                  Options --**
              
              **Number
                  of Options**
              
              **Weighted-Average**
                **Exercise
                  Price**Outstanding
                  - March 31, 2008
              
              
              1,656,000
              
              $
              0.2200Granted
              
              
              -
              
              $
              -Exercised
              
              
              -
              
              $
              -Cancelled
              
              
              -
              
              $
              -Outstanding
                  - June 30, 2008
              
              
              1,656,000
              
              $
              0.2200Exercisable
                  - June 30, 2008
              
              
              1,656,000
              
              $
              0.2200





-
          22
          -


**Stock
                  Warrants --**
              
              **Number
                  of Warrants**
              
              **Weighted-Average**
                **Exercise
                  Price**Outstanding
                  - March 31, 2008
              
              
              123,938,968
              
              $
              0.1362Granted
              
              
              61,850,000
              
              $
              0.0212Exercised
              
              
              -
              
              $
              -Cancelled
              
              
              (7,000,000
              )
              $
              0.1593Outstanding
                  - June 30, 2008
              
              
              178,788,968
              
              $
              0.0757Exercisable
                  - June 30, 2008
              
              
              109,768,135
              
              $
              0.1114





On
      May
      28, 2008, the Company granted warrants to purchase 36,850,000 shares of common
      stock at an exercise price of $0.0016 per share to certain officers, directors
      and management personnel. The warrants expire ten years from the date of grant.
      Half of the warrants to purchase 20,000,000 shares of common stock granted
      to
      Jay Wright, Chief Executive Officer, vest on June 30, 2009 with the other half
      vesting on June 30, 2010. The warrants to purchase 1,500,000 shares of common
      stock granted to Donald Sledge, Director, vest on August 31, 2010. The remaining
      warrants vest on June 30, 2009. On May 28, 2008, the Company also canceled
      warrants to purchase 5,000,000 shares of common stock at an exercise price
      of
      $0.22 per share previously granted to Mr. Wright.





In
      connection with the issuance of the Convertible Debenture on June 30, 2008,
      the
      Company granted to YA Global a seven-year warrant to purchase 25,000,000 shares
      of its common stock at an exercise price of $0.04973 per share which expires
      on
      June 30, 2015. In addition, the outstanding warrants previously granted to
      YA
      Global to purchase 15,000,000 share of common stock at $0.20 per share and
      10,000,000 shares of common stock at $0.174 per share were repriced and are
      now
      exercisable at a price of $0.04973 per share.





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. Certain portions of the stock options vested based
      on
      the achievement of individual and Company objectives. Warrants to purchase
      shares of common stock vest over periods that range from twelve to thirty-six
      months. The vesting of warrants awarded to certain of the Company’s officers
      were set to occur upon the achievement of individual and/or Company objectives.
      Warrants typically expire on the ten-year anniversary of the date of grant.





The
      fair
      value of each option is estimated on the date of grant using the Black-Scholes
      option-pricing model with the following assumptions used for grants during
      the
      three months ended June 30, 2008 and 2007:





**2008**
            
            **2007**Dividend
                yield
            
            
            -
            %
            
            -
            %Expected
                volatility
            
            
            70
            %
            
            60
            %Risk-free
                interest rate
            
            
            3.00
            %
            
            4.00
            %Expected
                term (in years)
            
            
            10.00
            
            
            10.00




-
          23
          -


**NOTE
      7-** **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 convertible debentures for the three-month
      periods presented herein were anti-dilutive as the Company incurred net losses
      in these periods.





**NOTE
      8-** **LITIGATION**





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
      operating results, we were involved with the following legal proceedings during
      the quarter ended June 30, 2008.





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. The plaintiff is seeking monetary relief of at least
      $7,500,000. Davel does not believe that the allegations set forth in the
      complaint are valid, and accordingly, Davel filed a Motion for Summary Judgment
      with the United States District Court. On October 4, 2007 the United States
      District Court granted Davel’s Motion for Summary Judgment and the Court entered
      final judgment dismissing Plaintiff John R. Gammino’s claims for patent
      infringement. On November 1, 2007, Plaintiff filed his Notice of Appeal
      commencing an action in the United States Court of Appeal for the Federal
      District. In response, Davel filed its appellate brief on February 26, 2008.
      Notwithstanding the pending appellate proceeding, the parties entered into
      a
      Settlement Agreement in July 2008 terminating the litigation and providing
      a
      mutual release of claims, which ends the pending litigation between the parties.




2) 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 makes claims arising out
      of
      the acquisition by the Company of Transcordia, LLC. The plaintiff alleges 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. The motion to dismiss was subsequently denied by the Court. On or
      about February 6, 2008 the parties entered into a Confidential Settlement
      Agreement and Mutual General Release, which ends the pending litigation between
      the parties.





3)
      On
      April 17, 2007, the Supreme Court of the United States issued an opinion in
      the
      case captioned Global Crossing Telecommunications, Inc. v. Metrophones
      Telecommunications, Inc. on Certiorari from the United States Court of Appeals
      for the Ninth Circuit (the "Ninth Circuit" and the "Metrophones Case"), No.
      05-705, in which it upheld the Ninth Circuit's decision that independent
      payphone providers have a private right of action to pursue recovery in federal
      court from telecommunication carriers who fail to pay dial around compensation.
      The ruling in the Metrophones Case impacts litigation that has been pending
      in
      federal district court against AT&T, Sprint and Qwest (the "Defendants") for
      non-payment of dial around compensation (the “District Court Litigation”). Davel
      Communications, Inc. and certain of Davel's subsidiaries (collectively, the
      "Davel Entities") are directly or indirectly plaintiffs in the District Court
      Litigation. Following the Supreme Court ruling in the Metrophones Case, AT&T
      and Sprint filed with the United States Supreme Court a Petition for a Writ
      of
      Certiorari No. 07-552 seeking review of the ruling of the United States Court
      of
      Appeals for the District of Columbia Circuit that the plaintiffs had standing
      in
      the District Court Litigation. On January 4, 2008 the United States Supreme
      Court granted the Petition for a Writ of Certiorari. The parties filed their
      respective briefs during the first calendar quarter of 2008, with the United
      States Supreme Court hearing oral arguments on April 21, 2008. On June 23,
      2008,
      the United Stated Supreme Court issued a ruling affirming the decision of the
      United States Court of Appeals. The recent ruling by the United States Supreme
      Court is expected to permit the District Court Litigation to move
      forward.


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          24
          -


Although
      the District Court Litigation has been pending since 1999, the litigation
      remains in its preliminary phases. As a result, we cannot predict the likelihood
      of success on the merits, the costs associated with the pursuit of the claims,
      the timing of any recovery or the amount of recovery, if any. However, the
      industry representing a group of independent payphone providers, including
      the
      Davel Entities, has recently prevailed in a similar Federal Communications
      Commission administrative proceeding against another carrier for non-payment
      of
      dial-around compensation using a similar methodology which was accepted and
      pursuant to which the Federal Communications Commission assessed pre-judgment
      interest (the "Similar Litigation"). The Similar Litigation is being appealed
      to
      the U.S. Court of Appeals for the District of Columbia. Based upon our
      methodology in the Similar Litigation, we estimate that the amount in
      controversy for the Davel Entities against the Defendants extends well into
      the
      eight figures, but any recovery is conditioned on, among other things (i)
      prevailing on the merits at trial; (ii) having the Davel Entities' damages
      model
      and other claims approved in whole or in large part; and (iii) prevailing on
      any
      appeals that the Defendants may make. As evidenced by the nine years that this
      litigation has been in process, the Defendants have shown an interest in
      stretching the duration of the litigation and have the means to do so. Although
      the Davel Entities could ultimately benefit (in an absolute sense, although
      not
      necessarily on a present value basis) from this delay in the event that
      pre-and/or post-judgment interest (awarded at 11.25% per annum in the Similar
      Litigation) is assessed against the Defendants and the potential award of
      attorneys' fees and/or other remedies (in addition to compensatory damages)
      if
      the Davel Entities prevail, such delay will result in a deferral of the receipt
      of any cash to the Davel Entities.





4)  Under
      the
      authority granted by the Management Agreement to USA, CloseCall America filed
      a
      complaint in the Circuit Court for Howard County, Maryland, against Skyrocket
      Communications, Inc. (“Skyrocket”) Case No. 13-C-07-70296 for breach of contract
      and unjust enrichment. CloseCall’s claim arose from an unpaid credit owing to
      CloseCall in the amount of $23,914, owed under a terminated technical support
      services agreement. In response thereto, Skyrocket filed a counter-claim
      alleging breach of contract and asserting damages in the amount of $1.5 million.
      In January 2008 Skyrocket filed an amended counter-complaint asserting an
      additional claim for intentional misrepresentation, seeking $5 million in actual
      damages and $5 million in punitive damages. We believe that CloseCall has
      meritorious defenses to the alleged claims and we intend to vigorously defend
      CloseCall in this matter. We further believe the amended counter-claims are
      without merit, inappropriately pleaded and amount to an abuse of process. After
      the close of the discovery phase, we expect CloseCall to file a motion for
      summary judgment. Notwithstanding the foregoing, in the event that CloseCall
      is
      required to litigate the matter and its defenses were not successful, we believe
      that any potential exposure related to the claims alleged against CloseCall
      are
      not likely to be material.





5) On
      or
      about March 15, 2008 we were served with a summons and complaint in the Superior
      Court of New Jersey in Bergen County captioned Harborside Investments III LLC
      vs. MobilePro Corp. and Neoreach, Inc. The plaintiff alleges claims of breach
      of
      agreement and unjust enrichment arising out of an equipment lease agreement
      for
      wireless equipment and seeks damages in the amount of $976,361. On or about
      April 28, 2008 the Company filed its answer, separate defenses and third party
      complaint against JTA Leasing Co., LLC. Although we believe MobilePro has
      meritorious defenses to the alleged claims and we intend to vigorously defend
      ourselves in this matter we cannot predict the likelihood of success in this
      matter. The Company has recorded the liability for the estimated principal
      balance relating to this capital lease obligation and the related accrued
      interest which is included in liabilities of companies held for sale in the
      condensed consolidated balance sheets at June 30, 2008.





6)
      On
      March 4, 2008 the Company filed a complaint in the Circuit Court of Madison
      County, Mississippi against Telava Networks, Inc. d/b/a Telava Wireless/Network,
      Inc. (“Telava”) asserting claims against Telava for breach of contract and
      tortuous breach of contract in connection with a June 2007 purchase agreement
      pursuant to which Telava agreed to purchase MobilePro’s interests in Kite
      Networks and the rest of our wireless business. The Company seeks recovery
      of
      all available damages including, but not limited to, actual, consequential
      general, expectancy and punitive damages. Telava filed a motion to remove the
      case to the United States District Court for the Southern District of
      Mississippi, Jackson Division after which it filed an answer denying the
      substantive claims made by MobilePro and asserting certain affirmative defenses
      to the claims. The litigation is in its preliminary stages. Although MobilePro
      intends to vigorously pursue Telava for the claims asserted, we cannot predict
      the likelihood of our success on the merits, the costs associated with the
      pursuit of the claims, or the timing of recovery, if any, although our
      attorney’s fee are limited by the contingency arrangement we entered into with
      counsel representing us in this matter.




7) Other
      Ongoing and Threatened Litigation




The
      Company is involved in other claims and litigation arising in the ordinary
      course of business, which it does not expect to materially affect its financial
      position or results of operations. The Company has been threatened by several
      former employees with litigation; however, to date, no litigation or other
      action has commenced which is material to the Company.


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          25
          -




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





The
      following is a discussion and analysis of our results of operations for the
      three-month periods ended June 30, 2008 and 2007, our financial condition at
      June 30, 2008 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.





**Background**





We
      are a
      holding company with subsidiaries in the pay telephone and online gaming
      industries and an affiliate in the software industry. Although classified as
      discontinued operations, we still own an integrated telecommunications business.
      We previously owned broadband wireless, telecommunications and integrated data
      communication services companies which delivered a comprehensive suite of voice
      and data communications services, including local exchange, long distance,
      enhanced data, Internet, wireless and broadband services to end user customers.
      At June 30, 2007, we marketed and sold our integrated communications services
      through nine branch offices in seven states and we serviced over 123,000 billed
      accounts representing over 211,000 equivalent subscriber lines including
      approximately 110,000 local and long-distance telephone lines, approximately
      38,000 dial-up lines, approximately 5,000 DSL lines, approximately 25,000 fixed
      and mobile wireless lines, approximately 6,000 cellular lines and the remaining
      are other Internet-related accounts. We owned and operated approximately 22,200
      payphones located predominantly in 44 states and the District of Columbia.
      Most
      of our subscribers have been residential customers.





Historically,
      our revenues had been generated through three of our four business
      reporting segments:





**Wireless
                Networks**
            Our
                broadband wireless network deployment efforts had been conducted
                by our
                wholly owned subsidiary, NeoReach, Inc., (“NeoReach”), and its subsidiary,
                Kite Networks, Inc. (“Kite Networks,” formerly, NeoReach Wireless, Inc.).
                This segment has also included the operations of Kite Broadband,
                LLC
                (“Kite Broadband”), a wireless broadband Internet service provider located
                in Ridgeland, Mississippi.




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          26
          -


**Voice Services**
            Our
                voice services segment has been 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 Overland Park, Kansas; and Davel Communications, Inc. (“Davel”), an
                independent payphone provider based in Cleveland, Ohio. CloseCall
                offers
                its 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
                was
                previously one of the largest independent payphone operators in the
                United
                States.**Internet Services**
            Our
                Internet services segment included 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 provided dial-up and broadband Internet
                access, web-hosting services, and related Internet services to business
                and residential customers in many 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.
                This
                segment also includes our Internet gaming subsidiary, ProGames Network,
                Inc. (“ProGames”) that we founded in December
                2005.





Prior
      to
      January 2004, we were a development stage company. Although we were incorporated
      approximately eight 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 again
      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 completed twenty-two
      (22) acquisitions during this period.





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





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


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          27
          -





On
      October 15, 2004, we closed our acquisition of CloseCall. 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 an initial 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, Inc. with and into NeoReach Wireless, Inc.
      and changed the name of the combined entity to Kite Networks, Inc. (“Kite
      Networks”).





On
      July
      8, 2007 we sold our interests in Kite Broadband, Kite Networks and Neoreach.
      See
      discussion below concerning The Sale of the Wireless Business to
      Gobility.





On
      June
      30, 2007, the Company entered into an agreement to sell the CLEC and ISP
      Businesses to United Systems Access, Inc. (“USA”, and the “USA Agreement”). The
      closing of the ISP Businesses occurred on July 18, 2007. The closing of the
      sale
      of the CLEC Business to USA has not occurred. See discussion below concerning
      The Sale of the ISP and CLEC Businesses to USA Telecom.





During
      June and September 2007 the Company entered into a series of transactions to
      sell the majority of its pay telephones. See discussion below concerning the
      Sale of the Payphone Assets.





Our
      principal executive offices are located at 6701 Democracy Boulevard, Suite
      202,
      Bethesda, MD 20817 and our telephone number at that address is (301) 571-3476.
      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-K, quarterly
      reports on 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.





**Current
      Business Conditions**





Our
      acquisition strategy of the last four years was executed with one primary
      objective being the establishment of 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 several other cities for the
      deployment, ownership, and management of such networks and had substantially
      completed citywide wireless networks deployments in Farmers’ Branch, Texas, and
      Longmont, Colorado.





However,
      most of our acquired businesses experienced declining revenues. Although
      restructuring measures helped to control other operating expenses, we were
      unable to reduce the corresponding costs of services sufficiently to maintain
      profitability. In addition, we funded the start-up and operations of the
      municipal wireless networks and online gaming businesses without these companies
      achieving expected revenues.





As
      a
      result, our business has historically lost money. Our accumulated deficit at
      June 30, 2008 was $96,081,214. In the three months ended June 30, 2008, we
      sustained a net loss of $448,367. In the fiscal years ended March 31, 2008,
      2007
      and 2006, we sustained net losses of $18,361,602, $45,898,288 and $10,176,407,
      respectively. As a result, the amounts of cash used in operations during the
      three months ended June 30, 2008 and the fiscal year ended March 31, 2008 were
      $898,096 and $3,558,996, respectively. Future losses are likely to occur.
      Accordingly, we are likely to continue to experience liquidity and cash flow
      problems if we are unable to complete the planned sale of assets, to improve
      the
      Company’s operating performance, or to raise additional capital as needed and on
      acceptable terms.





To
      date,
      YA Global has been a significant source of capital for us, providing financing
      in several forms. During fiscal 2007, we borrowed funds under a series of
      convertible debentures. The total amount owed to YA Global under the debentures
      at March 31, 2007 was $18,149,650. In May 2007, we borrowed $1,100,000 from
      YA
      Global under a promissory note in order to help bridge our cash flow shortfall
      during the first quarter of fiscal year 2008. This promissory note and accrued
      interest were repaid in July 2007. Using shares of our common stock registered
      on Form S-3 in November 2006, we made principal and interest payments on the
      debentures that totaled $4,880,489 during the fiscal year ended March 31, 2007,
      and that totaled $1,967,908 from April 2007 through May 2007. However, the
      supply of registered shares available for the conversion of the debentures
      was
      exhausted. We made additional cash payments of principal and interest on the
      debentures that totaled $4,149,651 during the fiscal year ended March 31, 2008,
      primarily from the proceeds of the sale of the ISP Business and payphone assets
      discussed below. However, the Company was unable to make the weekly scheduled
      principal payments of $375,000 plus interest commencing February 1, 2008 and
      made partial payments of interest aggregating $200,000 on May 2 and June 4,
      2008. Effective
      June 30, 2008, the Company issued a secured convertible debenture to YA Global
      (the “Convertible Debenture”) with an aggregate principal balance of
      $13,391,175, replacing the former convertible debentures. The Convertible
      Debenture provides for monthly payments of interest at 12% with the remaining
      principal balance due on May 1, 2009. The Convertible Debenture continues to
      be
      secured by substantially all of the assets of the Company (see Note 5 to the
      condensed consolidated financial statements).


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          28
          -





**The
      Sale of the Wireless Networks Business to Gobility**





The
      cash
      needs of Kite Networks had been substantially funded through borrowings by
      the
      Company from YA Global under a variety of debt instruments and over $5 million
      in equipment lease financing. Kite Networks had also been provided extended
      payment terms by certain significant equipment suppliers. However, we realized
      that sufficient funds were not available from these existing sources for Kite
      Networks to effectively continue the execution of its business plan. As a
      result, we commenced the search for capital as described below during the fourth
      quarter of the fiscal year 2007.





In
      December 2006, we engaged an investment banking firm to assist in evaluating
      strategic alternatives for the wireless networks business conducted by its
      Kite
      Networks and Kite Broadband subsidiaries. Efforts to secure investment capital
      for this business or to find a willing buyer resulted in the sale of the
      wireless networks business to Gobility, Inc. (“Gobility”) on July 8, 2007. The
      purchase price was $2.0 million, paid with a debenture convertible into shares
      of common stock of Gobility. However, under the terms of the debenture, Gobility
      was required to raise at least $3.0 million in cash no later than August 15,
      2007. This did not occur. As a result of this default by Gobility on the
      financing obligation under the debenture, we have the right but not the
      obligation to repurchase the wireless networks business with the surrender
      of
      the debenture and the payment of a nominal additional amount.





Gobility
      expected to raise capital for its operating purposes from an identified source
      pursuant to a funding commitment letter that was presented to the Company at
      closing. Because this funding has not been obtained, Gobility has been unable
      to
      fund its operations including the payment of amounts due under a series of
      capital equipment leases and other equipment-related obligations. On the date
      of
      the sale to Gobility, the aggregate amount of this debt included in the balance
      sheet of Kite Networks was approximately $6,111,000. Because the equipment
      leases and other equipment purchases were co-signed by Mobilepro, if Kite
      Networks fails to pay the leases, the Company, subject to any defenses it may
      have, may be obligated to pay this debt. The Company could also be subject
      to
      late payment penalties and interest at the default rate.





The
      Company is currently cooperating with Gobility in its efforts to sell the assets
      of Kite Networks in order to pay off the obligations relating to the leases
      and
      other equipment. In September 2007, the Company was required to make lease
      payments totaling $64,165. On March 10, 2008, Gobility sold the assets of the
      wireless network in Longmont, Colorado, and the Company received the proceeds
      in
      the form of promissory notes totaling $1,800,000. In addition, the Company
      entered into a forbearance agreement with the principal equipment vendor and
      agreed to pay the $1,591,978 equipment obligation, with interest at the prime
      rate, and a related lease obligation in the principal amount of $149,749. In
      March 2008, the Company also satisfied the terms of one of the leases relating
      to the Tempe, Arizona wireless network with an aggregate principal balance
      of
      $318,595, plus accrued interest, by paying $93,000 in cash and applying the
      $250,000 certificate of deposit that secured the lease. As a result of the
      sale
      to Gobility and these transactions subsequent to June 30, 2007, the Company
      recorded a net loss on the sale of its Wireless Networks Business of $3,433,843
      that was reported in the loss on sale of discontinued operations for the fiscal
      year ended March 31, 2008.





The
      Company continues to cooperate with Gobility in its efforts to sell the
      remaining assets of Kite Networks. In the event Gobility is unsuccessful in
      its
      attempts to sell the remaining assets and satisfy the lease obligations, the
      Company, subject to any defenses it might have, could be required to make the
      payments on the remaining leases. At June 30, 2008, the aggregate amount
      recorded on the balance sheet as liabilities of companies held for sale relating
      to the capital lease obligations, accrued interest, and the equipment obligation
      was $5,469,341. The Company has also recorded the certificates of deposits
      securing the lease obligations in the aggregate amount of $937,664 as assets
      of
      companies held for sale in the Company’s condensed consolidated balance
      sheets.


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          29
          -





On
      August
      1, 2008, the Company executed a promissory note and release with Data Sales
      Co.,
      Inc. (“Data Sales”) in the principal amount of $330,000. The note is in full
      satisfaction of approximately $1,231,000 of lease obligations for which the
      Company was a co-borrower with Kite Networks and reflects the impact of a sale
      of certain uninstalled wireless equipment by Data Sales to an unaffiliated
      third
      party purchaser that was consummated in July 2008. The Company will record
      a
      gain of approximately $901,000, or $0.0012 per share, in its fiscal second
      quarter as a result of the transaction.





**The
      Sale of the ISP and CLEC Businesses to USA Telecom**





In
      April
      2007, we announced that our Board of Directors had decided to explore potential
      strategic alternatives for the entire Company, and that it had received
      inquiries from potential buyers regarding the purchase of portions of its
      business. This initiative was undertaken with the goals of maximizing the value
      of our assets, returning value to our stockholders and eliminating the Company’s
      debt, particularly amounts owed to YA Global.





We
      received letters of interest regarding the acquisition of the CloseCall, AFN
      and
      the Internet service provider businesses (the “Wireline Businesses”) and several
      potential purchasers conducted due diligence activities. This process resulted
      in the execution of the USA Agreement to sell the Wireline Businesses to USA.
      Under the USA Agreement, the total purchase price for the ISP and CLEC
      Businesses was $27,663,893 consisting of $21.9 million in cash and 8,100 shares
      of convertible preferred stock of USA (the “USA Preferred”). Pursuant to the USA
      Agreement, we closed the sale of the Internet service provider companies to
      USA
      on July 18, 2007, and received cash proceeds of $2,500,000, a promissory note
      for $2,000,000 and 8,100 shares of preferred stock of USA convertible into
      7.5%
      of the fully diluted shares of USA’s common stock initially valued at
      $5,763,893. Simultaneously, we used $2,000,000 of this cash to pay down
      principal and accrued interest owed to YA Global under the promissory note
      and
      debentures.





Completion
      of the sale of CloseCall and AFN (the “CLEC Business”) required the receipt of
      certain state regulatory approvals before it could be completed. Pursuant to
      a
      management agreement that was signed in July 2007 (the “USA Management
      Agreement”), USA operated the CLEC Business, retained any cash provided by the
      operations of these companies and funded any cash requirements of the companies
      pending completion of the sale of these companies. In addition, USA was required
      to make debenture interest payments to YA Global on the Company’s behalf during
      the term of the USA Management Agreement based on an assumed principal balance
      of $17.4 million at an interest rate of 7.75%.





Upon
      the
      close and pursuant to the terms of the USA Agreement, we expected to receive
      cash proceeds of $19.4 million, including payment of the $2.0 million promissory
      note. On January 3, 2008, the Company entered into an amendment to the
      $2,000,000 promissory note due from USA. USA made payments of $500,000 each
      on
      January 4 and January 11, 2008 with the remaining balance of $1,000,000,
      together with accrued interest at the rate of 7.75%, due on the earlier of the
      date of the closing of the sale of the CLEC Business or March 31, 2008. Of
      the
      $1,000,000 of payments, the Company received $125,000 and the remaining $875,000
      was used to pay principal and interest on the convertible debentures due to
      YA
      Global. USA did not pay the remaining principal balance of $1,000,000 or the
      accrued interest due on March 31, 2008. In July 2008, the Company revised the
      payment terms relating to the USA note and received principal and interest
      payments totaling $200,000. The remaining principal balance and accrued interest
      at 12% per annum is due on December 29, 2008.





On
      January 14, 2008, the Company received notice from USA purporting to terminate
      the USA Agreement with respect to the sale of the CLEC Business, but provided
      that USA remained interested in discussing terms upon which it would complete
      the purchase. The Company has been in communications with USA and disputes
      the
      validity of the claims alleged for the purported termination, which include
      the
      alleged failure to obtain certain regulatory and contractual approvals and
      the
      alleged breach of certain representations and warranties set forth in the USA
      Agreement. The Company believes the purported termination was in bad faith
      and
      intends to pursue any and all legal and equitable remedies available to it
      against USA. Despite the on-going discussions with USA, the Company re-assumed
      operating control of AFN and Close Call in January 2008 and terminated the
      USA
      Management Agreement and the sale of the CLEC Business. Following the
      termination of the sale of the CLEC Business to USA in the fourth quarter of
      fiscal 2008, the value of the USA Preferred was considered impaired. The Company
      discontinued the accretion of the discount and wrote-off the carrying value
      of
      the USA Preferred against the liability recorded for the advanced proceeds
      from
      USA. The net difference in carrying values of $56,442 was recorded as a
      reduction in the loss on sale of discontinued operations in the fourth quarter
      of the fiscal year ended March 31, 2008.


-
          30
          -





The
      Company expected to use the cash proceeds from the sale of the CLEC Business
      to
      retire the YA Global debentures plus any remaining amounts of accrued interest.
      If the sale of the CLEC Business is not sold to an alternative buyer on terms
      satisfactory to the Company, the Company may not have the ability to continue
      as
      a going concern without a significant restructuring of the YA Global debt.
      See
      Item 1A. below - Risk Factors - “Failure to Complete the Sale of the CLEC
      Businesses May Result in Our Inability to Retire the YA Global Debentures”.





**Discontinued
      Operations**





In
      connection with the activities summarized above, we have reclassified the assets
      and liabilities of the CLEC Business and the remaining assets and liabilities
      of
      the Wireless Networks Business as assets and liabilities related to companies
      held for sale in the condensed consolidated balance sheets at June 30 and March
      31, 2008. In addition, we have classified the results of operations of the
      CLEC,
      ISP, and Wireless Networks Businesses in discontinued operations in the
      condensed consolidated statements of operations for the three months ended
      June
      30, 2007. Discontinued operations include the results of operations for the
      CLEC
      Business and the costs associated with the remaining assets and liabilities
      of
      the Wireless Networks Business for the three months ended June 30, 2008.





**Sales
      of Payphone Assets**





The
      Company completed a series of transactions to sell a majority of Davel’s
      payphones in order to provide cash for operating purposes and additional
      retirements of convertible debenture debt. On June 30, 2007, we completed the
      sale of approximately 730 operating payphones to an unaffiliated payphone
      operator and received over $200,000 in cash proceeds. A gain in the amount
      of
      $10,640 was recognized in connection with this transaction in the quarter ended
      June 30, 2007.





In
      September 2007, in three transactions, we completed the sale of approximately
      21,700 payphones to unaffiliated purchasers. After the direct payment of certain
      related liabilities and broker fees in the aggregate amount of approximately
      $851,000, and the funding of escrow accounts established for the payment of
      vendor obligations and indemnification claims in the aggregate amount of
      $1,200,000, proceeds of approximately $1,840,000 were used to retire convertible
      debenture debt of approximately $1,672,000 and related accrued interest of
      approximately $168,000. After these sales, Davel’s remaining operations have
      been significantly reduced. Davel’s remaining operations are being continued and
      Davel is pursuing the recovery of certain claims including the AT&T, Sprint
      and Qwest claims described in Item 1. - Legal Proceedings.  A
      net
      loss of $2,800,206 was included in the loss from continuing operations reported
      in the second quarter of the fiscal year ended March 31, 2008 in connection
      with
      these transactions.





**Critical
      Accounting Policies**




We
      consider the accounting policies related to the disposal of long-lives assets,
      discontinued operations, the valuation of goodwill and other intangible assets,
      transactions related to our debt and equity financing activity, and revenue
      and
      related cost recognition 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.




-
          31
          -


**Impact
      of Recent Accounting Standards**





In
      July
      2006, the Financial Accounting Standards Board (FASB) issued FASB Interpretation
      No. 48, “Accounting for Uncertainty in Income Taxes - an interpretation of FASB
      Statement No. 109” (“FIN 48”), which clarifies the accounting for uncertainty in
      income tax positions. FIN 48 requires that the Company recognize in the
      consolidated financial statements the impact of a tax position that is more
      likely than not to be sustained upon examination based on the technical merits
      of the position. The provisions of FIN 48 were effective for the Company on
      April 1, 2007. Adoption of FIN 48 did not have a material effect on the
      consolidated financial statements.




In
      September 2006, the FASB issued Statement of Financial Accounting Standards
      (“SFAS”) No. 157, “Fair Value Measurements,” which defines fair value,
      establishes a framework and gives guidance regarding the methods used for
      measuring fair value, and expands disclosures about fair value measurements.
      The
      provisions of SFAS No. 157 are effective for financial statements issued for
      the
      Company’s fiscal year beginning April 1, 2008 (April 1, 2009 with respect to
      certain non-financial assets and liabilities), and interim periods within such
      fiscal years. The adoption of SFAS No. 157 for financial assets and
      liabilities in the first quarter of the current fiscal year did not have a
      material effect on the Company’s financial position or results of operations as
      the Company does not have any material financial assets or liabilities measured
      at fair value.




In
      February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for
      Financial Assets and Financial Liabilities,” which provides companies with an
      option to report selected financial assets and liabilities at fair value. The
      objective is to reduce both complexity in accounting for financial instruments
      and the volatility in earnings caused by measuring related assets and
      liabilities differently. The provisions of SFAS No. 159 are effective for
      financial statements issued for the Company’s fiscal year beginning April 1,
      2008. The Company did not elect to measure its financial instruments or any
      other items at fair value as permitted by SFAS No. 159. Therefore, the
      adoption of FAS No. 159 did not have a material effect on the Company’s
      financial position or results of operations.





In
      December 2007, the FASB issued SFAS No. 141R, “Business Combinations.”
SFAS No. 141R modifies the accounting for business combinations by requiring
      that acquired assets and assumed liabilities be recorded at fair value,
      contingent consideration arrangements be recorded at fair value on the date
      of
      the acquisition and preacquisition contingencies will generally be accounted
      for
      in purchase accounting at fair value. The pronouncement also requires that
      transaction costs be expensed as incurred, acquired research and development
      be
      capitalized as an indefinite-lived intangible asset and the requirements of
      SFAS
      No. 146, “Accounting for Costs Associated with Exit or Disposal
      Activities,” be met at the acquisition date in order to accrue for a
      restructuring plan in purchase accounting. SFAS No. 141R is required to be
      adopted prospectively effective for the Company’s fiscal year beginning April 1,
      2009. The Company does not expect SFAS No. 141R to have a significant impact
      on
      the Company’s consolidated financial statements.




In
      December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests
      in Consolidated Financial Statements — an amendment of ARB No. 51.” SFAS
      No. 160 modifies the reporting for noncontrolling interests in the balance
      sheet and minority interest income (expense) in the statement of operations.
      The
      pronouncement also requires that increases and decreases in the noncontrolling
      ownership interest amount be accounted for as equity transactions. SFAS
      No. 160 is required to be adopted prospectively, with limited exceptions,
      effective for the fiscal year beginning April 1, 2009. The Company does not
      expect SFAS No. 160 to have a significant impact on the Company’s consolidated
      financial statements.





In
      March 2008, the FASB issued SFAS No. 161, “Disclosures about
      Derivative Instruments and Hedging Activities — an amendment of FASB Statement
      No. 133.” SFAS No. 161 modifies existing requirements to include
      qualitative disclosures regarding the objectives and strategies for using
      derivatives, fair value amounts of gains and losses on derivative instruments
      and disclosures about credit-risk-related contingent features in derivative
      agreements. The pronouncement also requires the cross-referencing of derivative
      disclosures within the financial statements and notes thereto. The requirements
      of SFAS No. 161 are effective for the Company’s interim and annual fiscal
      periods beginning on April 1, 2009. The Company does not expect SFAS No. 161
      to
      have a significant impact on the Company’s consolidated financial statements or
      related disclosures.





**Results
      of Operations and Financial Condition**




The
      results of continuing operations include the operating results of Mobilepro,
      Davel and ProGames. Due to the sale of a majority of Davel’s payphones in
      September 2007, the operating results for the first quarter of the current
      and
      prior fiscal years are not comparable. Results of discontinued operations
      include the operating results of the CLEC, ISP and Wireless Networks Businesses.
      The operating results of the first quarter of the current and prior years are
      not comparable due to the sale of the ISP and Wireless Networks Businesses
      in
      the second quarter of the fiscal year ending March 31, 2008.


-
          32
          -





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 not be helpful in understanding our financial condition and results of
      operation in light of the recent sale of certain of our subsidiaries. In order
      to analyze ourselves, we focus not only on achieving increasing amounts of
      net
      income and EBITDA, but emphasize the change of net income/(loss) per
      share.




**The
      Three Months Ended June 30, 2008 and 2007**





Consolidated
      revenues of continuing operations for the quarter ended June 30, 2008 were
      $73,427 compared with revenues of $5,967,820 in the prior year quarter. Current
      quarterly revenues consist of management fees from Microlog Corporation, an
      affiliate, and the revenues of ProGames and Davel, including current quarter
      adjustments to “dial-around” revenues (intercarrier compensation paid to us by
      the providers of 800 and other toll-free numbers at the rate of 49.4 cents
      per
      call) that were generated by our communications services in prior quarters.
      As
      discussed above, in the second quarter of fiscal 2008, we sold most of our
      remaining operational payphones in a series of transactions including the sale
      of approximately 21,700 payphones in September 2007. The operating results
      related to these assets are reflected in the condensed consolidated statement
      of
      operations through the sale dates.





In
      the
      three months ended June 30, 2007, Davel derived most of its operating revenues
      from coin revenue and “dial-around” revenues generated by its payphones. The
      proliferation of cell phone use by consumers has caused a continuous reduction
      in the use of payphones. As a result, the revenues of Davel have declined since
      its acquisition by us.





Cost
      of
      services (exclusive of depreciation and amortization) in the quarter ended
      June
      30, 2008 was $1,080 compared to $3,564,786 in the first quarter of the prior
      fiscal year. This decline reflects the reduction in the number of payphones
      operated by Davel following the payphone sales described above.





The
      total
      operating costs and expenses of continuing operations for the quarter ended
      June
      30, 2008, excluding the cost of services, depreciation and amortization, were
      $576,737compared to $4,328,302 in the first quarter of the prior fiscal year,
      a
      decrease of $3,751,565. This was principally due to the elimination of the
      majority of Davel’s expenses following the sale of its payphone assets, which
      expenses declined by $3,102,969 compared to the corresponding period of the
      prior fiscal year. The Company was also able to reduce operating costs through
      the reduction in payroll, professional fees and related expenses and a reduction
      in stock compensation expense. Payroll and professional fees declined as a
      result of reductions in personnel and reductions in audit and consulting fees
      applicable to compliance with the Sarbanes-Oxley Act of 2002. Stock compensation
      expense (recorded pursuant to the requirements of FAS 123R) decreased from
      $200,553 to $23,969 in the three months ended June 30, 2008 due to the vesting
      of options and warrants granted in prior years and a reduction in the fair
      value
      of current year grants. The operating costs and expenses (excluding depreciation
      and amortization) of ProGames for the three months ended June 30, 2008 and
      2007
      were approximately $57,000 and $171,000, respectively reflecting reductions
      in
      personnel and other costs.





Depreciation
      and amortization expenses were $45,457 and $717,181 in the quarters ended June
      30, 2008 and 2007, respectively, representing the reductions in depreciation
      of
      the costs of deployed payphones and the amortization of payphone location
      contracts resulting from phone sales and removals.





Interest
      and other (income) expense, net, was $145,423 for the quarter ended June 30,
      2008 compared with $630,725 of expense in the corresponding quarter of the
      prior
      fiscal year. The major components of net interest and other (income) expense
      for
      quarters ended June 30, 2008 and 2007 are presented in the following
      schedule.


**Type
                  of Debt**
              
              **2008**
              
              **2007****Convertible
                  debentures (at stated rates)**
              
              $
              254,860
              
              $
              321,196**Convertible
                  debentures (debt discount amortization)**
              
              
              30,208
              
              
              155,689**Convertible
                  debentures (stock issuance discounts)**
              
              
              -
              
              
              131,551**Notes
                  payable to YA Global**
              
              
              -
              
              
              18,082**Notes
                  receivable - Microlog**
              
              
              (56,250
              )
              
              -**Other
                  notes receivable**
              
              
              (73,141
              )
              
              -**Other,
                  net**
              
              
              (10,254
              )
              
              4,207**Interest
                  and Other (Income) Expense, net**
              
              $
              145,423
              
              $
              630,725




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          33
          -





The
      loss
      from continuing operations for the three months ended June 30, 2008 was
      $730,277, or $0.0009 per share, compared to a loss of $3,273,174, or $0.0043
      per
      share, in the prior year quarter. The current quarterly loss included a $35,007
      loss representing our equity in the net loss of an affiliate, Microlog
      Corporation, an investment we acquired in January 2008. It also includes losses
      of $88,980 and $149,014 for ProGames and Davel, respectively. The loss from
      continuing operations for the three months ended June 30, 2007 includes losses
      of $232,289 for ProGames and $1,505,161 for Davel.





Revenues
      from discontinued operations were $7,656,187 in the current quarter, which
      relates to the Company’s CLEC Business. First quarter revenues from discontinued
      operations last year were $15,010,201, which included $9,110,629 relating to
      the
      CLEC Business and $5,899,572 relating to the ISP and Wireless Networks
      Businesses. The decline in revenues relating to the CLEC Business was primarily
      due to a reduction in the number of residential customers and to a lesser extent
      to reductions applicable to the bundling of services billed to
      customers.





Income
      from discontinued operations for the three months ended June 30, 2008 was
      $281,910, or $0.0003 per share, and includes the operating results of the CLEC
      Business and interest expense relating to the remaining obligations of Kite
      Networks. The loss from discontinued operations for the three months ended
      June
      30, 2007 was $1,715,491, or $0.0023 per share. Without the operating results
      of
      the ISP and Wireless Networks Businesses, there would have been income of
      $421,178 relating to the CLEC business (including Kite interest) in the prior
      year quarter.




We
      reported a net loss of $448,367 for the quarter ended June 30, 2008, or $0.0006
      per share, compared with a net loss of $4,988,665 for the quarter ended June
      30,
      2007, or $0.0066 per share.





**Liquidity
      and Capital Resources**





We
      have
      forecasted our operating cash requirements through the end of fiscal year 2009
      based on several important assumptions. We have not forecasted the use of cash
      that would be required to repay the capital lease obligations of the Wireless
      Networks Business in the event that Gobility fails to raise sufficient capital
      to fund these obligations. Mobilepro Corp. is co-obligor on certain capital
      leases of Kite Networks and has retained the lease obligations as liabilities
      of
      companies held for sale in its condensed consolidated balance sheets. The total
      principal balance of these leases was approximately $3,551,000 at June 30,
      2008.
      The capital leases are secured by approximately $938,000 of certificates of
      deposits. Monthly lease payments on these capital leases total approximately
      $175,000. In addition, the Company was a co-purchaser of certain wireless
      network equipment obtained by Kite Networks. In March 2008, we entered into
      a
      forbearance agreement with this supplier and have agreed to make installment
      payments through September 2010. The amount owed to the supplier for the
      purchase of this equipment approximates $1,492,000 at June 30, 2008. On August
      1, 2008, we executed a $330,000 promissory note payable to the lessor and were
      released from approximately $1,231,000 of the aforementioned capital lease
      obligations as a result of the sale of certain uninstalled wireless equipment
      by
      the lessor. Our forecast takes into account the payments required under the
      equipment obligation and the promissory note. The certificates of deposit and
      the equipment obligation are included in the Company’s consolidated balance
      sheets at June 30, 2008 as assets and liabilities of companies held for sale,
      respectively.





We
      have
      also forecasted our operating cash requirements assuming we will be able to
      complete the sale of the CLEC Business. In the fourth quarter of fiscal 2008,
      the Company terminated the USA Agreement with respect to the sale of the CLEC
      Business (see “Sale of the ISP and CLEC Businesses” above). The Company expected
      to use the cash proceeds from the sale of the CLEC Businesses, to retire the
      YA
      Global debentures plus the remaining amounts of accrued interest. If the CLEC
      Businesses is not sold to an alternative buyer, or if the Company is required
      to
      make payments on the capital leases of Kite Networks, the Company will not
      have
      the ability to continue as a going concern beyond the current fiscal year
      without additional financing or the collection of significant amounts on claims
      against third parties (see Item 3 - “Litigation”). Claims against third parties
      include litigation against AT&T Corporation (“AT&T”), Sprint
      Communications Company, LP (“Sprint”) and Qwest Communications, Inc. (“Qwest”)
      for non-payment of dial around compensation to the Davel Entities, portions
      of
      amounts claimed from telecommunications carriers for regulatory receipts, and
      contractual claims for damages in connection with the sale of the CLEC and
      Wireless Networks Businesses.


-
          34
          -





During
      the three months ended June 30, 2008, the balance of unrestricted cash and
      cash
      equivalents relating to continuing operations decreased by $442,709 to $568,687.
      The decrease in the current quarter relating to discontinued operations was
      $711,081, due in part to the timing of receipts from customers and payments
      to
      vendors. Restricted cash of continuing operations includes $206,397 held in
      escrow until September 2008 to indemnify Sterling for possible claims in
      connection with the sale of Davel’s payphones. Davel has settled the initial
      claims by Sterling, which were being disputed, and expects the balance in the
      escrow account to be sufficient to cover any other claims that may
      arise.





Net
      cash
      used in operations during the three months ended June 30, 2008 was $898,096,
      reflecting the funding of operating expenses incurred by Davel and the corporate
      segment and the funding of $332,831 of cash used in operating activities of
      discontinued operations. There were increases in restricted cash, accounts
      receivable and other assets and a decrease in accounts payable and accrued
      liabilities of continuing operations totaling $157,101 and $34,759, respectively
      that also contributed to the net cash used in operations. Net cash used in
      operations also reflects $252,439 of noncash interest expense, including
      $222,231 of interest added to the outstanding balance of the Convertible
      Debenture in connection with the refinancing of the debt due to YA Global as
      described below.





There
      was
      no cash used in or provided by investing activities in the three months ended
      June 30, 2008.





Our
      financing activities during the current quarter used net cash of $255,694,
      including $108,093 of cash used in discontinued operations. Cash used in
      financing activities includes $144,601 of financing costs incurred in connection
      with the refinancing of the YA Global debt on June 30, 2008 as described below.
      The financing activities of discontinued operations used $108,093 in cash to
      pay
      debt obligations, including equipment and capital lease obligations relating
      to
      the Wireless Networks Business.





Our
      history of net losses, our lack of a sufficient corporate credit history with
      significant suppliers and the uncertain payback associated with investments
      in
      municipal wireless networks has proved to be significant obstacles to overcome
      in our search for capital. Nevertheless, YA Global has continued to support
      the
      Company. On June 30, 2006, we issued an amended 7.75% secured convertible
      debenture in the amount of $15,149,650 to YA Global, replacing a convertible
      debenture with an outstanding principal amount of $15,000,000 (and accrued
      interest of approximately $149,650) that was issued to YA Global in May 2005.





On
      August
      28, 2006, the Company entered into a financing agreement with YA Global that
      provided $7.0 million in funding with the proceeds received upon the issuance
      of
      a series of secured, convertible debentures. At each closing, the Company issued
      YA Global a 7.75% secured convertible debenture in the principal amount for
      that
      closing, convertible into common stock at $0.174 per share and paid a
      transaction fee equal to 7% of the proceeds. On August 30, 2006, the first
      closing provided gross cash proceeds of $2,300,000. During the quarter ended
      December 31, 2006, additional gross cash proceeds of $3,525,000 were received.
      Pursuant to the final closing under this agreement, we received gross proceeds
      of $1,175,000 on February 1, 2007.





Using
      shares of our common stock registered on Form S-3 in November 2006 and as
      permitted by the terms of the debentures, the Company made principal and
      interest payments on the debentures issued to YA Global that totaled $4,880,489
      during the fiscal year ended March 31, 2007, and that totaled $1,967,908 from
      April 2007 through May 2007. However, the supply of registered shares available
      for the conversion of the debentures was exhausted. We made additional cash
      payments of principal and interest on the debentures that totaled $4,149,651
      during the fiscal year ended March 31, 2008, primarily from the proceeds of
      the
      sale of the ISP Business and payphone assets. However, the Company was unable
      to
      make the weekly scheduled principal payments of $375,000 plus interest
      commencing February 1, 2008. The Company made a partial payment of interest
      of
      $114,530 on February 1, 2008 and made additional payments of interest
      aggregating $200,000 on May 2 and June 4, 2008.


-
          35
          -


Effective
      June 30, 2008, the Company issued a secured convertible debenture to YA Global
      (the “Convertible Debenture’) with an aggregate principal balance of
      $13,391,175, replacing the former convertible debentures. The Convertible
      Debenture provides for monthly payments of interest at 12% with the remaining
      principal balance due on May 1, 2009. Accordingly, the entire principal balance
      of the Convertible Debenture has been classified as a current liability at
      June
      30, 2008 in the Company’s condensed consolidated balance sheets. YA Global may
      convert any portion of the unpaid principal and interest into shares
      representing up to 4.99% of the Company’s common stock at the lesser of $0.04973
      per share or the average of the two lowest volume weighted average prices during
      the five trading days immediately preceding the conversion date. If certain
      conditions are met, the Company has the option to pay up to 4.5% of the total
      interest due in common stock at the applicable conversion price on the day
      immediately prior to the interest payment date. The conversion price is subject
      to adjustment if the Company is deemed to have issued shares at a price that
      is
      lower than the effective conversion price on the date such shares are issued.
      The Convertible Debenture is secured by substantially all of the assets of
      the
      Company.





As
      described above, certain equipment leases and other equipment purchases of
      Kite
      Networks were co-signed by Mobilepro Corp. The Company, subject to any defenses
      it may have, could be required to make the payments due on these leases and
      other equipment-related obligations that were transferred to Gobility in
      connection with the sale of the Wireless Networks Business. To date Gobility
      has
      not made any lease payments and has not raised at least $3.0 million in cash
      as
      required under the terms of the Gobility Debenture. As a result, the Company
      has
      the right but not the obligation to repurchase the Wireless Networks Business
      with the surrender of the Gobility Debenture and the payment of nominal
      additional consideration.





On
      March
      10, 2008, Gobility sold the assets of the wireless network in Longmont,
      Colorado, and the Company received the proceeds in the form of promissory notes
      totaling $1,800,000. In addition, the Company entered into a forbearance
      agreement with the principal equipment vendor and agreed to pay the $1,591,978
      equipment obligation, with interest at the prime rate, and a related lease
      obligation in the principal amount of $149,749. In March 2008, the Company
      also
      paid one of the leases with an aggregate principal balance of $318,595, plus
      accrued interest, by paying $93,000 in cash and applying the $250,000
      certificate of deposit that secured the lease relating to the Tempe, Arizona
      wireless network. The Company is currently cooperating with Gobility in its
      efforts to sell the remaining assets of Kite Networks in order to pay off the
      obligations relating to the leases and other equipment. In the event Gobility
      is
      unsuccessful in its attempts to sell the remaining assets and satisfy the lease
      obligations, the Company could be required to make the payments on the remaining
      leases. At June 30, 2008, the amounts recorded on the condensed consolidated
      balance sheets as liabilities of companies held for sale relating to the capital
      lease obligations, accrued interest, and the equipment obligation were
      $3,551,380, $425,983, and $1,491,978, respectively. The Company has also
      recorded the certificates of deposits securing the lease obligations of $937,664
      as assets of companies held for sale.





On
      August
      1, 2008, the Company executed a promissory note and release with Data Sales
      in
      the principal amount of $330,000. The note is in full satisfaction of
      approximately $1,231,000 of the lease obligations described above and reflects
      the impact of a sale of certain uninstalled wireless equipment by Data Sales
      to
      an unaffiliated third party purchaser that was consummated in July 2008. The
      note requires twenty-three monthly payments of $10,000 and accrues interest
      at
      the rate of twelve percent. The unpaid principal balance and accrued interest
      is
      due and payable on July 31, 2010. The Company will record a gain of
      approximately $901,000, or $0.0012 per share, in its fiscal second quarter
      as a
      result of the transaction.





Our
      major
      challenge is to sustain the funding of current operations until the sale of
      the
      CLEC Businesses can be completed or another method to retire our debt to YA
      Global is achieved. Following the termination of the sale of the CLEC Business
      to USA and the related management agreement in the fourth quarter of fiscal
      year
      2008, the Company re-assumed operating control of AFN and CloseCall. The CLEC
      Business continues to generate cash in amounts that we believe will be
      sufficient to fund the cost of debt service and certain other costs. However,
      we
      continue to fund the operations of ProGames which has not yet generated any
      significant revenues. ProGames continues to search for venues to market its
      online gaming activities. We also have corporate expenses and the lease
      obligations associated with the Wireless Networks Business that, subject to
      certain defenses, the Company may be required to fund.





The
      Company’s financial statements have been prepared on a going concern basis which
      contemplates the realization of assets and settlement of liabilities and
      commitments based on recorded amounts for the foreseeable future. If
      the
      Company is unable to permanently eliminate the cash requirements represented
      by
      the Wireless Networks Business and ProGames, and/or fails to sell the CLEC
      Businesses to USA or a new buyer on terms that are acceptable to the Company,
      the Company will not have the ability to continue as a going concern without
      additional capital and/or collections of significant amounts on claims against
      third parties. The consolidated financial statements do not include any
      adjustments that might result from the outcome of this
      uncertainty.


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          36
          -


**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.





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





Our
      exposure to market risk for changes in interest rates relates primarily to
      our
      purchase of certificates of deposit to secure letters of credit and capital
      leases. In addition, we own an investment in the common stock of Microlog
      Corporation (“Microlog”) which had a market value of $800,000 at June 30, 2008.
      Microlog’s common stock is traded on the “Pink Sheets” under the symbol “MLOG”
and is subject to variations in price based on trading volume as well as general
      market conditions. Our investment is accounted for under the equity method
      of
      accounting and had a carrying value of $50,363 at June 30, 2008.





We
      do not
      use derivative financial instruments in our investments. Accordingly, we do
      not
      believe that there is any material market risk exposure with respect to
      derivative or other financial instruments that would require disclosure in
      this
      item





**Item
      4T. Controls and Procedures.**





**Evaluation
      of Disclosure 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 Principal Accounting Officer 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. Our quarterly evaluation of
      disclosure controls includes an evaluation of some components of our internal
      control over financial reporting, and internal control over financial reporting
      is also separately evaluated on an annual basis for purposes of providing the
      management report, which is set forth below.





**Management
      Report on Internal Control over Financial Reporting**




Our
      management is responsible for establishing and maintaining adequate internal
      control over financial reporting to provide reasonable assurance regarding
      the
      reliability of our financial reporting and the preparation of financial
      statements for external purposes in accordance with U.S. generally accepted
      accounting principles. Internal control over financial reporting includes those
      policies and procedures that (i) pertain to the maintenance of records that
      in
      reasonable detail accurately and fairly reflect the transactions and
      dispositions of the assets of the company; (ii) provide reasonable assurance
      that transactions are recorded as necessary to permit preparation of financial
      statements in accordance with authorizations of management and directors of
      the
      company; and (iii) provide reasonable assurance regarding prevention of timely
      detection of unauthorized acquisition, use, or disposition of the company’s
      assets that could have a material effect on the financial
      statements.


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          37
          -




Management
      assessed our internal control over financial reporting as of March 31, 2008,
      the
      end of the fiscal year. Management based its assessment on criteria established
      in Internal Control—Integrated Framework issued by the Committee of Sponsoring
      Organizations of the Treadway Commission. Management’s assessment included
      evaluation of elements such as the design and operating effectiveness of key
      financial reporting controls, process documentation, accounting policies, and
      our overall control environment. This assessment is supported by testing and
      monitoring performed by our own finance and accounting personnel.




Based
      on
      our assessment, management has concluded that our internal control over
      financial reporting was ineffective as of the end of the fiscal year to provide
      reasonable assurance regarding the reliability of financial reporting and the
      preparation of financial statements for external reporting purposes in
      accordance with U.S. generally accepted accounting principles as a result of
      the
      material weaknesses in internal control as described and defined below. We
      reviewed the results of management’s assessment with the Audit Committee of our
      Board of Directors. In addition, on a quarterly basis we will evaluate any
      changes to our internal control over financial reporting to determine if a
      material changed has occurred.




**Material
      Weaknesses in Internal Controls**




Bagell,
      Josephs, Levine & Company, L.L.C. (“Bagell”) our independent registered
      public accounting firm, has provided us with an unqualified report on our
      consolidated financial statements for the fiscal year ended March 31, 2008.
      However, during the conduct of our assessment of internal control over financial
      reporting, we identified material weaknesses in the design of certain general
      controls governing computer processing activities and have **** advised
      the audit committee that the following material weaknesses existed at March
      31,
      2008. As defined by the Public Company Accounting Oversight Board Auditing
      Standard No. 5, a material weakness is a deficiency or a combination of
      deficiencies in internal control over financial reporting such that there is
      a
      reasonable possibility that a material misstatement of the annual or interim
      financial statements will not be prevented or detected on a timely basis.





The
      material weaknesses exist in the design and execution of certain general
      controls governing computer processing (“I/T”) activities. **** Most
      significantly, the management of the customer information database utilized
      by
      the customer care and customer billing functions of one of our companies is
      performed offsite by a subcontracted consultant without proper controls over
      access to the data or changes to the system. In addition, we do not have
      processes established to document the control over changes made to certain
      proprietary information systems that supply transaction amounts. Finally, we
      do
      not have the proper processes in place at all subsidiaries for the establishment
      and maintenance of individual access codes and passwords.





While
      these material weaknesses did not have an effect on our reported results or
      result in the restatement of any previously issued financial statements or
      any
      other related disclosure, they nevertheless constituted deficiencies in our
      controls. In light of these material weaknesses and the requirements enacted
      by
      the Sarbanes-Oxley act of 2002, and the related rules and regulations adopted
      by
      the SEC, our Chief Executive Officer and Chief Accounting Officer concluded
      that, as of March 31, 2008, our controls and procedures needed improvement
      and
      were not effective at a reasonable assurance level. Despite those deficiencies
      in our internal controls, management believes that there were no material
      inaccuracies or omissions of material fact in this quarterly
      report.





Since
      the
      discovery of the material weaknesses in I/T internal controls at our CLEC
      subsidiaries as described above, our CLEC subsidiaries became subject to the
      Management Agreement with USA as described elsewhere in this Form 10Q. As a
      result, management’s focus on internal controls over financial reporting was
      temporarily diverted until we reassumed the management of the Company’s CLEC
      Business. Management has plans to strengthen the Company's oversight over the
      I/T functions and its attendant controls, procedures, documentation and security
      beyond what has existed in prior years. Specifically, we have converted to
      a new
      general ledger system and plan to replace the customer information database
      system utilized by the customer care and customer billing functions that is
      presently maintained offsite by a subcontractor. During the next fiscal year
      we
      plan to convert to a new billing system that is currently being developed by
      one
      of our other subsidiaries which we believe will provide proper controls over
      access to the data and changes to the system. We also plan to take whatever
      additional steps are necessary to improve our I/T controls and procedures and
      eliminate the identified material weaknesses.


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          38
          -





The
      elimination of the material weaknesses identified above is among our highest
      priorities. We have discussed our corrective actions and future plans with
      our
      audit committee and Bagell as of the date of this quarterly report, and believe
      the planned actions should serve to correct the above listed material weaknesses
      in our internal controls. However, we cannot provide assurance that either
      we or
      our independent auditors will not in the future identify further material
      weaknesses or significant deficiencies in our internal control over financial
      reporting that we have not discovered to date.




**Inherent
      Limitations on Effectiveness of Controls**




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




**Changes
      in Internal Control over Financial Reporting**





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.




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          39
          -


**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
      operating results, we were involved with the following legal proceedings during
      the quarter ended June 30, 2008.





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. The plaintiff is seeking monetary relief of at least
      $7,500,000. Davel does not believe that the allegations set forth in the
      complaint are valid, and accordingly, Davel filed a Motion for Summary Judgment
      with the United States District Court. On October 4, 2007 the United States
      District Court granted Davel’s Motion for Summary Judgment and the Court entered
      final judgment dismissing Plaintiff John R. Gammino’s claims for patent
      infringement. On November 1, 2007, Plaintiff filed his Notice of Appeal
      commencing an action in the United States Court of Appeal for the Federal
      District. In response, Davel filed its appellate brief on February 26, 2008.
      Notwithstanding the pending appellate proceeding, in July 2008 the parties
      entered into a Settlement Agreement terminating the litigation and providing
      a
      mutual release of claims, which ends the pending litigation between the parties.




2) 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 makes claims arising out
      of
      the acquisition by the Company of Transcordia, LLC. The plaintiff alleges 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. The motion to dismiss was subsequently denied by the Court. On or
      about February 6, 2008 the parties entered into a Confidential Settlement
      Agreement and Mutual General Release, which ends the pending litigation between
      the parties.





3)
      On
      April 17, 2007, the Supreme Court of the United States issued an opinion in
      the
      case captioned Global Crossing Telecommunications, Inc. v. Metrophones
      Telecommunications, Inc. on Certiorari from the United States Court of Appeals
      for the Ninth Circuit (the "Ninth Circuit" and the "Metrophones Case"), No.
      05-705, in which it upheld the Ninth Circuit's decision that independent
      payphone providers have a private right of action to pursue recovery in federal
      court from telecommunication carriers who fail to pay dial around compensation.
      The ruling in the Metrophones Case impacts litigation that has been pending
      in
      federal district court against AT&T, Sprint and Qwest (the "Defendants") for
      non-payment of dial around compensation (the “District Court Litigation”). Davel
      Communications, Inc. and certain of Davel's subsidiaries (collectively, the
      "Davel Entities") are directly or indirectly plaintiffs in the District Court
      Litigation. Following the Supreme Court ruling in the Metrophones Case, AT&T
      and Sprint filed with the United States Supreme Court a Petition for a Writ
      of
      Certiorari No. 07-552 seeking review of the ruling of the United States Court
      of
      Appeals for the District of Columbia Circuit that the plaintiffs had standing
      in
      the District Court Litigation. On January 4, 2008 the United States Supreme
      Court granted the Petition for a Writ of Certiorari. The parties filed their
      respective briefs during the first calendar quarter of 2008, with the United
      States Supreme Court hearing oral arguments on April 21, 2008. On June 23,
      2008,
      the United Stated Supreme Court issued a ruling affirming the decision of the
      United States Court of Appeals. The recent ruling by the United States Supreme
      Court is expected to permit the District Court Litigation to move
      forward.





Although
      the District Court Litigation has been pending since 1999, the litigation
      remains in its preliminary phases. As a result, we cannot predict the likelihood
      of success on the merits, the costs associated with the pursuit of the claims,
      the timing of any recovery or the amount of recovery, if any. However, the
      industry representing a group of independent payphone providers, including
      the
      Davel Entities, has recently prevailed in a similar Federal Communications
      Commission administrative proceeding against another carrier for non-payment
      of
      dial-around compensation using a similar methodology which was accepted and
      pursuant to which the Federal Communications Commission assessed pre-judgment
      interest (the "Similar Litigation"). The Similar Litigation is being appealed
      to
      the U.S. Court of Appeals for the District of Columbia. Based upon our
      methodology in the Similar Litigation, we estimate that the amount in
      controversy for the Davel Entities against the Defendants extends well into
      the
      eight figures, but any recovery is conditioned on, among other things (i)
      prevailing on the merits at trial; (ii) having the Davel Entities' damages
      model
      and other claims approved in whole or in large part; and (iii) prevailing on
      any
      appeals that the Defendants may make. As evidenced by the nine years that this
      litigation has been in process, the Defendants have shown an interest in
      stretching the duration of the litigation and have the means to do so. Although
      the Davel Entities could ultimately benefit (in an absolute sense, although
      not
      necessarily on a present value basis) from this delay in the event that
      pre-and/or post-judgment interest (awarded at 11.25% per annum in the Similar
      Litigation) is assessed against the Defendants and the potential award of
      attorneys' fees and/or other remedies (in addition to compensatory damages)
      if
      the Davel Entities prevail, such delay will result in a deferral of the receipt
      of any cash to the Davel Entities.


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          40
          -


4)  Under
      the
      authority granted by the Management Agreement to USA, CloseCall America filed
      a
      complaint in the Circuit Court for Howard County, Maryland, against Skyrocket
      Communications, Inc. (“Skyrocket”) Case No. 13-C-07-70296 for breach of contract
      and unjust enrichment. CloseCall’s claim arose from an unpaid credit owing to
      CloseCall in the amount of $23,914, owed under a terminated technical support
      services agreement. In response thereto, Skyrocket filed a counter-claim
      alleging breach of contract and asserting damages in the amount of $1.5 million.
      In January 2008 Skyrocket filed an amended counter-complaint asserting an
      additional claim for intentional misrepresentation, seeking $5 million in actual
      damages and $5 million in punitive damages. We believe that CloseCall has
      meritorious defenses to the alleged claims and we intend to vigorously defend
      CloseCall in this matter. We further believe the amended counter-claims are
      without merit, inappropriately pleaded and amount to an abuse of process. After
      the close of the discovery phase, we expect CloseCall to file a motion for
      summary judgment. Notwithstanding the foregoing, in the event that CloseCall
      is
      required to litigate the matter and its defenses were not successful, we believe
      that any potential exposure related to the claims alleged against CloseCall
      are
      not likely to be material.





5) On
      or
      about March 15, 2008 we were served with a summons and complaint in the Superior
      Court of New Jersey in Bergen County captioned Harborside Investments III LLC
      vs. MobilePro Corp. and Neoreach, Inc. The plaintiff alleges claims of breach
      of
      agreement and unjust enrichment arising out of an equipment lease agreement
      for
      wireless equipment and seeks damages in the amount of $976,361. On or about
      April 28, 2008 the Company filed its answer, separate defenses and third party
      complaint against JTA Leasing Co., LLC. Although we believe MobilePro has
      meritorious defenses to the alleged claims and we intend to vigorously defend
      ourselves in this matter we cannot predict the likelihood of success in this
      matter. The Company has recorded the liability for the estimated principal
      balance relating to this capital lease obligation and the related accrued
      interest which is included in liabilities of companies held for sale in the
      condensed consolidated balance sheets at June 30, 2008.





6)
      On
      March 4, 2008 the Company filed a complaint in the Circuit Court of Madison
      County, Mississippi against Telava Networks, Inc. d/b/a Telava Wireless/Network,
      Inc. (“Telava”) asserting claims against Telava for breach of contract and
      tortuous breach of contract in connection with a June 2007 purchase agreement
      pursuant to which Telava agreed to purchase MobilePro’s interests in Kite
      Networks and the rest of our wireless business. The Company seeks recovery
      of
      all available damages including, but not limited to, actual, consequential
      general, expectancy and punitive damages. Telava filed a motion to remove the
      case to the United States District Court for the Southern District of
      Mississippi, Jackson Division after which it filed an answer denying the
      substantive claims made by MobilePro and asserting certain affirmative defenses
      to the claims. The litigation is in its preliminary stages. Although MobilePro
      intends to vigorously pursue Telava for the claims asserted, we cannot predict
      the likelihood of our success on the merits, the costs associated with the
      pursuit of the claims, or the timing of recovery, if any, although our
      attorney’s fee are limited by the contingency arrangement we entered into with
      counsel representing us in this matter.




7) Other
      Ongoing and Threatened Litigation




The
      Company is involved in other claims and litigation arising in the ordinary
      course of business, which it does not expect to materially affect its financial
      position or results of operations. The Company has been threatened by several
      former employees with litigation; however, to date, no litigation or other
      action has commenced which is material to the Company.


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          41
          -





**Item
      1A. Risks Factors**





*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 those included in our Annual Report on Form 10-K for the fiscal year
      ended March 31, 2008, our Quarterly Report on Form 10-Q for the fiscal quarters
      ended June 30, 2008, and the other information contained in this report.* *Our
      future results may also be impacted by other risk factors listed from time
      to
      time in our future filings with the SEC, including, but not limited to, our
      Annual Reports on Form 10-K and Quarterly Reports on Form 10-Q.* *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.*





**The
      Sale of Portions of Our Business May Not Be Concluded and We May Not Have
      Sufficient Cash to Continue Operations**





We
      have
      forecasted our operating cash requirements through the end of fiscal year 2009
      based on several important assumptions. We have assumed that Gobility will
      succeed in selling some or all of its assets, thus enabling Kite Networks to
      satisfy some or all of its liabilities including the capital equipment leases
      or
      that the wireless networks can be sold by Gobility to a party or parties that
      are capable of paying these obligations or otherwise renegotiating the terms
      of
      the leases in a satisfactory manner. A sale of the wireless networks further
      assumes that in addition to finding a willing and able buyer, Gobility can
      also
      negotiate an assignment or other transfer of the existing lease obligations
      with
      the various leasing companies, as well as obtaining approval of the various
      municipalities in which the wireless networks are deployed. The Company
      understands that negotiations between potential buyers, Gobility and the various
      leasing companies have to date been difficult and lacking in reasonable
      cooperation. As a result, despite the interest of potential buyers, it may
      be
      difficult or impossible to negotiate a reasonable settlement with certain
      leasing companies. The lack of reasonable cooperation by the leasing companies
      could cause a potential buyer to choose not to purchase the Gobility assets
      and
      have a material adverse effect on the Company and its ability to continue as
      a
      going concern.





If
      Gobility is unsuccessful in facilitating a sale of some or all of its assets,
      the Company will be unable to permanently eliminate the cash requirements
      represented by the wireless network business as planned, the Company will not
      have sufficient cash to sustain operations without the completion of the
      Wireline Business sale or without raising additional capital.





On
      June
      30, 2007, we executed an agreement to sell the Wireline Businesses (including
      CloseCall, AFN and the Internet service provider companies) to USA. We had
      assumed that the sale of CloseCall and AFN would occur in accordance with the
      terms of the Purchase Agreement. However, on January 14, 2008 we received notice
      from USA, which purports to terminate the Purchase Agreement. In the event
      that
      the Company is unsuccessful in closing the Purchase Agreement with USA, or
      otherwise selling the businesses to an alternative buyer or raising new capital,
      the Company will not have sufficient cash to satisfy the cash requirements
      represented by the wireless network businesses, our corporate overhead and
      our
      debt obligations and we could therefore suffer a material adverse effect to
      our
      business.





Included
      in its audit report on our consolidated financial statements included for the
      fiscal year ended March 31, 2008, our independent registered public accounting
      firm included a paragraph describing that there is substantial doubt about
      the
      Company’s ability to continue as a going concern.





**The
      Failure of Gobility to Sell Assets May Result in Our Payment of Transferred
      Liabilities and May Cause a Material Adverse Effect to our
      Business**





In
      December 2006, we engaged an investment banking firm to assist in evaluating
      strategic alternatives for the wireless networks business conducted by its
      Kite
      Networks and Kite Broadband subsidiaries. Efforts to secure investment capital
      for this business or to find a willing buyer resulted in the sale of the
      wireless networks business to Gobility on July 8, 2007. The purchase price
      was
      $2.0 million, paid with a debenture convertible into shares of common stock
      of
      Gobility. However, under the terms of the debenture, Gobility was required
      to
      raise at least $3.0 million in cash no later than August 15, 2007. Gobility
      has
      defaulted on the financing obligation under the debenture, providing us the
      right to repurchase the wireless networks business with the surrender of the
      debenture and the payment of a nominal additional amount.


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          42
          -


Mobilepro
      remains a co-obligor on certain capital leases transferred to Gobility. The
      total principal balance of these leases was approximately $3,551,380 at June
      30,
      2008. Monthly payments on these capital leases total approximately $175,000
      and
      they are more than twelve months in arrears. In addition, Mobilepro was a
      co-purchaser of certain wireless network equipment obtained by Kite Networks.
      The amount originally owed to the supplier of this equipment for the purchase
      of
      this equipment was $1,591,978. The Company entered into a forbearance agreement
      with the equipment vendor and agreed to pay the equipment obligation over time,
      with interest at the prime rate. In the event certain assets are sold by
      Gobility, the proceeds of such asset sale will be used to satisfy all or a
      portion of the equipment obligation.





On
      March
      10, 2008 Gobility sold the assets of the wireless network in Longmont, Colorado
      and the Company received the related proceeds in the form of promissory notes
      from the purchaser totaling $1,800,000. Thereafter, in July 2008 Data Sales
      sold
      certain of the leased assets to a third party, further reducing the total
      principal balance of the leases by approximately $1,231,000. In connection
      with
      the foregoing asset sale, the Company executed a promissory note and release
      with Data Sales in the principal amount of $330,000. Although Gobility has
      previously represented to us that it is pursuing the sale of its remaining
      wireless network assets, we understand that Gobility has not yet closed on
      the
      sale of those wireless networks and that it has defaulted in making scheduled
      lease payments. If Gobility fails to consummate the sale of its remaining
      wireless network assets and make the required payments on the liabilities
      described above, it is likely that the creditors described above will demand
      payment of the past due amounts from Mobilepro. As a result of Gobility’s
      failure to satisfy the monthly lease obligations, one leasing company has
      commenced legal action against Mobilepro (see Item 1. - “Legal Proceedings”).
      Other leasing companies may also elect to commence legal action and may elect
      to
      accelerate the payment date for the balance of the remaining monthly payments.
      In such event, Mobilepro would not have sufficient cash to satisfy the
      obligations to the leasing companies. Further, if we were unsuccessful in
      defending lawsuits from the leasing companies and were required to satisfy
      the
      obligations to the leasing companies, the Company may not be able to meet its
      principal and interest payment obligations on the convertible debenture and
      YA
      Global could potentially foreclose on the assets of the Company.





**Failure
      to Complete the Sale of the CLEC Business May Result in Our Inability to Retire
      the YA Global Debentures**





On
      June
      30, 2007, we executed an agreement to sell the Wireline Businesses (including
      CloseCall, AFN and the Internet service provider companies) to USA. Pursuant
      to
      the USA Purchase Agreement, we closed the sale of the Internet service provider
      companies to USA on July 18, 2007 and received cash proceeds of $2,500,000,
      a
      promissory note for $2,000,000 and preferred stock convertible into 7.5% of
      the
      fully diluted shares of USA’s common stock initially valued at $5.8 million.
      Simultaneously, we used $2,000,000 of this cash to pay down principal and
      accrued interest owed to YA Global under the debentures. The balance of the
      promissory note was $1,000,000 and was scheduled to be paid by USA on or before
      March 31, 2008. In July 2008, the Company revised the payment terms relating
      to
      the USA note and received principal and interest payments totaling $200,000.
      The
      remaining principal balance and accrued interest at 12% per annum is due on
      December 29, 2008.





Upon
      the
      close and pursuant to the terms of the USA Purchase Agreement, the Company
      was
      scheduled to receive additional cash proceeds of $18.4 million, including
      payment of the balance of the promissory note. The cash proceeds from the sale
      of the CLEC Business were expected to be utilized to retire the YA Global
      debentures plus accrued interest. ** However,
      on January 14, 2008 we received notice from USA which purports to terminate
      the
      Purchase Agreement but provides that USA remains interested in discussing the
      terms upon which it would purchase CloseCall and AFN. USA was unable to complete
      the purchase of the CLEC Business on terms acceptable to the Company and, as
      a
      result of this default, the Company subsequently terminated the purchase
      agreement. In the event that the Company is unsuccessful in selling the
      businesses to an alternative buyer and if the Company is unable to obtain
      additional credit or an extension in the payments due under the YA Global debt,
      the Company may not have the ability to continue as a going
      concern.


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          43
          -


**We
      Have Lost Money Historically Which Means That We May Not Be Able to Continue
      Operations**




The
      Company has historically lost money. The Company’s accumulated deficit at June
      30, 2008 was $96,081,214. In the three months ended June 30, 2008, the Company
      incurred a net loss of $448,367. In the years ended March 31, 2008, 2007 and
      2006, the Company sustained net losses of $18,361,602, $45,898,288 and
      $10,176,407, respectively. Over this three-year period, most of the acquired
      businesses of Mobilepro have experienced declining revenues. Although
      restructuring measures have reduced other operating expenses, the Company had
      been unable to reduce the corresponding costs of services. In addition, the
      Company has funded the start-up and operations of the municipal wireless
      networks and online gaming businesses without these companies achieving expected
      revenues and continues to fund the Company’s corporate overhead. As a result,
      the amount of cash used in operations during the three months ended June 30,
      2008 was $898,096. Future losses are likely to occur. Accordingly, the Company
      will continue to experience liquidity and cash flow problems if it is unable
      to
      improve its operating performance, to sell assets for cash including the CLEC
      Business, or to raise additional capital as needed and on acceptable
      terms.





**We
      Do Not Have Enough Shares and Registered Shares to Cover the Conversion of
      the
      Debentures into Our Common Stock**





Effective
      June 30, 2008, the Company issued the Convertible Debenture to YA Global with
      an
      aggregate principal balance of $13,391,175 replacing the Amended Debenture
      and
      the Secured Debenture. The Convertible Debenture provides for monthly payments
      of interest at 12% with the remaining principal balance due on May 1, 2009.
      Accordingly, the entire principal balance of the Convertible Debenture has
      been
      classified as a current liability at June 30, 2008 in the Company’s condensed
      consolidated balance sheets. YA Global may convert any portion of the unpaid
      principal and interest into shares representing up to 4.99% of the Company’s
      common stock at the lesser of $0.04973 per share or the average of the two
      lowest volume weighted average prices during the five trading days immediately
      preceding the conversion date. If certain conditions are met, the Company has
      the option to pay up to 4.5% of the total interest due in common stock at the
      applicable conversion price on the day immediately prior to the interest payment
      date. The conversion price is subject to adjustment if the Company is deemed
      to
      have issued shares at a price that is lower than the effective conversion price
      on the date such shares are issued.  Using
      shares of its common stock registered on Form S-3 in November 2006, the Company
      made principal and interest payments on the debentures that totaled $4,880,481
      during the fiscal year ended March 31, 2007, and that totaled $1,967,908 from
      April 2007 through May 2007. However, the supply of shares registered for YA
      Global’s benefit related to the Convertible Debenture has been exhausted.





In
      order
      to issue a sufficient number of shares to permit the unpaid balance of the
      Convertible Debenture to be converted into common stock, assuming sufficient
      market capitalization, the Company would need to obtain authorization from
      its
      shareholders to increase the number of authorized shares of common stock. The
      Company cannot guarantee that any such proposal will be approved by the
      shareholders. Furthermore, since the supply of registered shares has been
      exhausted any newly authorized shares issued in connection with the conversion
      of all or part of the principal balance of the Convertible Debentures would
      require registration by the Company under the Securities Act of 1933 (the
“Securities Act”). Because of the decline in the total market value of the
      outstanding shares of our common stock, we are not now eligible to use Form
      S-3
      in order to register such shares. As a result, we may be required to use a
      more
      extensive and time-consuming process in order to register additional shares
      of
      our common stock in the future.





Absent
      new capital, a sale of the CLEC Business on acceptable terms or other
      significant event, the Company may not have the ability to continue as a going
      concern without a significant restructuring of the YA Global Convertible
      Debentures.





**Federal
      Regulators Have Taken and May Take Positions in the Future 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 or Cease
      Operations**




As
      a
      publicly traded telecommunications company, we are subject to the regulatory
      scrutiny of both the FCC and the SEC. Both agencies are so-called
“administrative agencies” with statutory authority to implement and enforce laws
      passed by the U.S. Congress. Despite this limited scope, both the FCC and SEC
      have the ability to use discretion in certain cases both in interpreting what
      the laws passed by Congress mean and when to enforce such laws. The FCC and/or
      SEC may even take positions with which we disagree or which we believe are
      unfounded in statute, regulation, or prior agency guidance and which are adverse
      to Mobilepro. For instance, the FCC has been repeatedly overruled by federal
      courts in recent years for misinterpretations of the 1996 Telecom Act. In order
      to contest such behavior, Mobilepro may be forced to resort to litigation.
      In
      the context of the SEC, Mobilepro’s ability to have any registration statement
“go effective” may be impeded if in its comments to a future registration
      statement the SEC were to take a position with which we disagree based on prior
      law, regulation or prior SEC interpretative guidance. The registration process
      that resulted in our Form S-3 becoming effective in November 2006 commenced
      in
      September 2005 with the filing of Form SB-2. The protracted registration process
      included the filing of several registration statement amendments in order to
      incorporate changes from the SEC received in a series of comment letters. If
      we
      were to encounter similar difficulties and a prolonged registration process
      in
      connection with a future registration statement, it could 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 or cease operations.


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          44
          -


**If
      YA Global 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, YA Global 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.





In
      November 2006, we filed a registration statement on Form S-3 covering the resale
      by selling stockholders of up to 404,474,901 shares of common stock that was
      declared effective by the SEC. To date, we have issued 175,779,290 shares of
      our
      common stock to YA Global that were covered by the registration statement.
      The
      remaining number of shares registered in this offering represents approximately
      29.5% of the total number of shares of common stock outstanding at June 30,
      2008. In the event that the selling stockholders dispose of some or all of the
      remaining shares of common stock covered by this registration statement, such
      sales may cause our stock price to decline.




The
      offering registered 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.





**Legal
      Actions May Be Required by Us in order to Enforce Certain Legal Rights**





The
      telecommunications industry includes hundreds of companies, many with
      substantially greater infrastructure, financial, personnel, technical,
      marketing, and other resources, and larger numbers of established customers
      and
      more prominent name recognition than us. We transact business with certain
      of
      these companies. In addition, certain of our businesses operate in areas of
      the
      industry that are subject to federal and/or state regulations. As a result,
      in
      order to enforce rights under negotiated contracts with transaction partners
      or
      to obtain the benefits of certain government regulations, we may be forced
      to
      initiate or to participate in legal action. For example, as discussed in the
      “Legal Proceedings” section of this report, Davel is engaged in a lengthy and
      expensive legal process relating to the nonpayment of dial-around compensation
      by large, long distance carriers. Using their greater resources, defendants
      have
      taken and may in the future continue to take actions that stretch the duration
      of litigation and substantially delay our receipt of the benefits of favorable
      legal decisions.





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




Our
      ability to deliver good quality services at competitive prices depends on our
      ability to obtain access to T-l and dial-up lines pursuant to pricing and other
      terms that are acceptable to us. Access to these lines necessary for providing
      services to a significant portion of our subscribers is obtained from incumbent
      local exchange carriers like Verizon and AT&T. To date, 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.


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          45
          -




**The
      Federal and State Regulations under Which We Operate Could Change,
      Resulting in Harm to Our Business**




The
      enactment of the Telecommunications Act of 1996 significantly altered the
      regulatory landscape in which our businesses operate. In addition, state
      regulators maintain jurisdiction over certain of our services. We cannot predict
      whether future FCC or state regulatory decisions may adversely affect our
      ability to operate certain of our businesses or impact our
      profitability.





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 has previously accounted for
      a
      material percentage of our revenues. Historically, many parties legally
      obligated by the FCC to pay dial around compensation have nevertheless failed
      to
      do so. We believe that such failures exist today. While we believe that we
      would
      have the right to sue in order to collect amounts owed, such efforts may consume
      management time and attention and our cash, and there can be no assurance that
      such efforts would result in the collection of any additional amounts.
      Consequently, such illegal nonpayment activities may adversely affect our cash
      flows, receivable collectibility, and future business
      profitability.




In
      addition, decisions by the FCC to abolish "UNE-P" rules and rates will likely
      increase local line rates for our payphone and discontinued CLEC
      businesses.





**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.


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          46
          -


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.





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





On
      May
      26, 2007, the Board of Directors approved the issuance of up to 36,850,000
      shares of common stock as follows: a warrant for up to 20,000,000 shares of
      common stock to Jay O. Wright, Chairman of the Board and Chief Executive
      Officer, a warrant to each of Douglas Bethell, President of the CloseCall and
      AFN, and Tammy L. Martin, Chief Administrative Officer and General Counsel,
      for
      4,000,000 shares of common stock, a warrant for up to 1,750,000 shares of common
      stock to Donald Paliwoda, the Company’s Chief Accounting Officer, 1,500,000
      shares of common stock to its independent director, Donald Sledge, and warrants
      totaling 5,600,000 to nine non-executive employees of the Company. The exercise
      price for each warrant is $0.0016 per share.





On
      June
      30, 2008, in connection with the issuance of the Convertible Debenture, the
      Company granted to YA Global a seven-year warrant to purchase 25,000,000 shares
      of its common stock at an exercise price of $0.04973 per share which expires
      on
      June 30, 2015. In addition, the outstanding warrants previously granted to
      YA
      Global to purchase 15,000,000 share of common stock at $0.20 per share and
      10,000,000 shares of common stock at $0.174 per share were repriced and are
      now
      exercisable at a price of $0.04973 per share.





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





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





There
      were no defaults upon senior securities during the three months ended June
      30,
      2008. However, please see the Risk Factors above titled “The Failure of Gobility
      to Sell Assets May Result in Our Payment of Transferred Liabilities and May
      Cause a Material Adverse Effect to our Business”.





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          47
          -


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




None.





**Item
      5. Other Information.**




Not
      applicable.


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          48
          -


**Item
      6. Exhibits.**




(a)
            The
                following exhibits are filed as part of this report:**Exhibit
                No.**
            **Description**
            
            **Location**10.1
            Third
                Amended and Restated Employment Agreement, dated June 25, 2008, between
                Jay O. Wright and the Company
            
            Incorporated
                by reference to Exhibit 10.51 to the Registrant’s Annual Report on Form
                10-K filed on June 27, 200810.2
            Securities
                Purchase Agreement dated June 30, 2008 between Mobilepro Corp. and
                YA
                Global Investments, L.P.
            
            Incorporated
                by reference to Exhibit 10.1 to the Registrant’s Current Report on Form
                8-K filed on July 9, 200810.3
            12%
                Secured Convertible Debenture dated June 30, 2008 issued by Mobilepro
                Corp. to YA Global Investments, L.P.
            
            Incorporated
                by reference to Exhibit 10.2 to the Registrant’s Current Report on Form
                8-K filed on July 9, 200810.4
            Global
                Security Agreement dated June 30, 2008 between Mobilepro Corp. and
                YA
                Global Investments, L.P.
            
            Incorporated
                by reference to Exhibit 10.3 to the Registrant’s Current Report on Form
                8-K filed on July 9, 200810.5
            Intellectual
                Property Security Agreement dated June 30, 2008 between Mobilepro
                Corp.
                and YA Global Investments, L.P.
            
            Incorporated
                by reference to Exhibit 10.4 to the Registrant’s Current Report on Form
                8-K filed on July 9, 200810.6
            Global
                Guarantee Agreement dated June 30, 2008 between Mobilpro Corp. and
                YA
                Global Investments, L.P.
            
            Incorporated
                by reference to Exhibit 10.5 to the Registrant’s Current Report on Form
                8-K filed on July 9, 200810.7
            Global
                Pledge Agreement dated June 30, 2008 between Mobilpro Corp. and YA
                Global
                Investments, L.P.
            
            Incorporated
                by reference to Exhibit 10.6 to the Registrant’s Current Report on Form
                8-K filed on July 9, 200810.8
            Warrant
                dated June 30, 2008 issued by Mobilepro Corp. to YA Global Investments,
                L.P.
            
            Incorporated
                by reference to Exhibit 10.7 to the Registrant’s Current Report on Form
                8-K filed on July 9, 200810.9
            Promissory
                Note made as of August 1, 2008 by and among Mobilepro Corp. and Data
                Sales
                Co., Inc. in the amount of Three Hundred Thirty Thousand Dollars
                ($330,000).
            
            Incorporated
                by reference to Exhibit 10.1 to the Registrant’s Current Report on Form
                8-K filed on August 4, 200831.1
            Certification
                by Jay O. Wright, Chief Executive Officer, pursuant to Rule
                13a-14(a)
            
            Provided
                herewith31.2
            Certification
                by Donald L. Paliwoda, Principal Financial Officer, pursuant to Rule
                13a-14(a)
            
            Provided
                herewith32.1
            Certification
                by Jay O. Wright and Donald L. Paliwoda, pursuant to 18 U.S.C. Section
                1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act
                of
                2002**
            
            Provided
                herewith




**
      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.


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          49
          -





**SIGNATURES**





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




**MOBILEPRO
                CORP.**Date:
              August
                  14, 2008
              By:/s/
                  Jay O. WrightJay
                  O. Wright, Chief Executive OfficerDate:
              August
                  14, 2008
              By:/s/
                  Donald L. PaliwodaDonald
                  L. Paliwoda, Chief Accounting
                  Officer
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