**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 December 31, 2006**





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





**MOBILEPRO
      CORP.**


(Exact
      name of registrant as specified in charter)





**DELAWARE**
            
            **87-0419571**(State
                or other jurisdiction of
            
            (I.R.S.
                Employerincorporation
                or organization)
            
            Identification
                No.)**6701
                Democracy Boulevard, Suite 202,
                Bethesda, MD**
            **20817**(Address
                of principal executive
                offices)
            (Zip
                code)





**(301)
      315-9040**


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





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





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




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





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





Indicate
      the number of shares outstanding of each of the issuer’s classes of common
      equity, as of the latest practicable date: As of February 6, 2007, the Company
      had 641,558,207 outstanding shares of its common stock, $0.001 par value per
      share.







**TABLE
      OF CONTENTS**




**ITEM
                NUMBER AND CAPTION**
            **PAGE****PART
                I**
            
            3ITEM
                1.
            FINANCIAL
                STATEMENTS
            3NOTES
                TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
            8ITEM
                2.
            MANAGEMENT’S
                DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL
                CONDITION
            25ITEM
                3.
            QUANTITATIVE
                AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
            48ITEM
                4
            CONTROLS
                AND PROCEDURES
            48**PART
                II**
            
            49ITEM
                1.
            LEGAL
                PROCEEDINGS
            49ITEM
                2.
            UNREGISTERED
                SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
            50ITEM
                3.
            DEFAULTS
                UPON SENIOR SECURITIES
            51ITEM
                4.
            SUBMISSION
                OF MATTERS TO A VOTE OF SECURITY HOLDERS
            51ITEM
                5.
            OTHER
                INFORMATION
            51ITEM
                6.
            EXHIBITS
            51


2




**PART
        I**
 **FINANCIAL
        INFORMATION**
  **Item
          1. Financial Statements.**


**MOBILEPRO
        CORP. AND SUBSIDIARIES**
 **CONDENSED
        CONSOLIDATED BALANCE SHEETS**








**ASSETS****December
                  31,**
              
              **March
                  31,****2006**
              
              **2006****(unaudited)****CURRENT
                  ASSETS**Cash
                  and cash equivalents
              
              $
              5,877,413
              
              $
              5,397,881Restricted
                  cash
              
              
              1,498,200
              
              
              352,200Accounts
                  receivable, net
              
              
              8,152,451
              
              
              10,481,632Prepaid
                  expenses and other current assets
              
              
              2,917,545
              
              
              3,399,864**Total
                  Current Assets**
              
              
              18,445,609
              
              
              19,631,577**FIXED
                  ASSETS, NET OF ACCUMULATED DEPRECIATION**
              
              
              20,554,220
              
              
              15,859,254**OTHER
                  ASSETS**Goodwill,
                  net of impairment
              
              
              46,007,009
              
              
              47,788,167Customer
                  contracts and relationships, net of amortization
              
              
              7,776,174
              
              
              8,777,502Deferred
                  financing fees, net of amortization
              
              
              -
              
              
              146,667Other
                  assets
              
              
              1,549,894
              
              
              1,787,88655,333,077
              
              
              58,500,222**TOTAL
                  ASSETS**
              
              $
              94,332,906
              
              $
              93,991,053
 
  **The
        accompanying notes are an integral part of the condensed consolidated financial
        statements.**


3


**MOBILEPRO
        CORP. AND SUBSIDIARIES**
 **CONDENSED
        CONSOLIDATED BALANCE SHEETS**
 **(CONTINUED)**


**LIABILITIES
                  AND STOCKHOLDERS' EQUITY****December
                  31,**
              
              **March
                  31,****2006**
              
              **2006****(unaudited)****CURRENT
                  LIABILITIES**Current
                  portion of convertible debentures
              
              $
              16,418,736
              
              $
              4,500,000Current
                  portion of notes payable and other long-term debt
              
              
              1,242,365
              
              
              4,269,519Accounts
                  payable and accrued expenses
              
              
              17,923,562
              
              
              17,402,911Deferred
                  revenue
              
              
              4,394,506
              
              
              4,343,754**Total
                  Current Liabilities**
              
              
              39,979,169
              
              
              30,516,184**LONG-TERM
                  LIABILITIES**Convertible
                  debentures, net of unamortized debt discount andcurrent
                  portion
              
              
              2,899,562
              
              
              9,995,243Notes
                  payable and other long-term liabilities, net of current
                  maturities
              
              
              2,736,331
              
              
              650,419**Total
                  Long-Term Liabilities**
              
              
              5,635,893
              
              
              10,645,662**TOTAL
                  LIABILITIES**
              
              
              45,615,062
              
              
              41,161,846**STOCKHOLDERS'
                  EQUITY**Preferred
                  stock, $.001 par value, 20,035,425 shares authorized,35,378
                  shares issued and outstanding at December 31 and March 31, 2006
              
              
              35
              
              
              35Common
                  stock, $.001 par value, 1,500,000,000 shares authorized,608,533,055
                    and 560,666,950 shares issued and outstandingat December 31 and
                    March 31, 2006
              
              
              608,622
              
              
              560,667Additional
                  paid-in capital
              
              
              94,358,299
              
              
              83,641,462Accumulated
                  deficit
              
              
              (46,249,112
              )
              
              (31,372,957
              )**Total
                  Stockholders' Equity**
              
              
              48,717,844
              
              
              52,829,207**TOTAL
                  LIABILITIES AND STOCKHOLDERS' EQUITY**
              
              $
              94,332,906
              
              $
              93,991,053






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


4


**MOBILEPRO
        CORP. AND SUBSIDIARIES**
 **CONDENSED
        CONSOLIDATED STATEMENTS OF OPERATIONS**
 **(unaudited)**


**For
                  the Three Months Ended**
              
              **For
                  the Nine Months Ended****December
                  31,**
              
              **December
                  31,****2006**
              
              **2005**
              
              **2006**
              
              **2005****REVENUES**
              
              $
              21,038,684
              
              $
              26,244,606
              
              $
              67,792,120
              
              $
              75,297,101**OPERATING
                  COSTS AND EXPENSES******Cost
                  of services (exclusive of depreciation and amortization)
              
              
              11,974,802
              
              
              13,790,196
              
              
              37,874,006
              
              
              36,466,453Payroll,
                  professional fees and related expenses (exclusive of stockcompensation)
              
              
              4,961,999
              
              
              4,812,712
              
              
              16,171,729
              
              
              14,042,617Advertising
                  and marketing expenses
              
              
              1,220,284
              
              
              1,064,475
              
              
              2,512,242
              
              
              2,382,332Office
                  rent and expenses
              
              
              1,326,166
              
              
              985,758
              
              
              2,907,375
              
              
              2,700,610Other
                  general and administrative expenses
              
              
              3,445,693
              
              
              5,520,580
              
              
              12,836,690
              
              
              15,048,197Depreciation
                  and amortization
              
              
              1,459,831
              
              
              1,293,993
              
              
              4,239,634
              
              
              3,163,689Stock
                  compensation
              
              
              535,821
              
              
              -
              
              
              1,492,468
              
              
              -Goodwill
                  impairment charges
              
              
              1,213,035
              
              
              3,764,429
              
              
              2,090,889
              
              
              3,764,429Restructuring
                  charges
              
              
              -
              
              
              1,335,612
              
              
              283,839
              
              
              1,335,612**Total
                  Operating Costs and Expenses**
              
              
              26,137,631
              
              
              32,567,755
              
              
              80,408,872
              
              
              78,903,939**OPERATING
                  LOSS**
              
              
              (5,098,947
              )
              
              (6,323,149
              )
              
              (12,616,752
              )
              
              (3,606,838
              )**INTEREST
                  EXPENSE, NET**
              
              
              (928,787
              )
              
              (582,785
              )
              
              (1,849,802
              )
              
              (2,213,295
              )**MINORITY
                  INTERESTS IN NET (INCOME)/LOSS OF****CONSOLIDATED
                  SUBSIDIARIES**
              
              
              -
              
              
              (49,798
              )
              
              -
              
              
              (192,507
              )**LOSS
                  ON EXTINGUISHMENT OF DEBT**
              
              
              -
              
              
              -
              
              
              (409,601
              )
              
              -**NET
                  LOSS BEFORE PROVISION FOR INCOME TAXES**
              
              
              (6,027,734
              )
              
              (6,955,732
              )
              
              (14,876,155
              )
              
              (6,012,640
              )**Provision
                  for Income Taxes**
              
              
              -
              
              
              -
              
              
              -
              
              
              -**NET
                  LOSS APPLICABLE TO COMMON SHARES**
              
              $
              (6,027,734
              )
              $
              (6,955,732
              )
              $
              (14,876,155
              )
              $
              (6,012,640
              )**NET
                  LOSS PER SHARE**Basic
              
              $
              (0.0102
              )
              $
              (0.0165
              )
              $
              (0.0253
              )
              $
              (0.0154
              )Diluted
              
              $
              (0.0102
              )
              $
              (0.0165
              )
              $
              (0.0253
              )
              $
              (0.0154
              )**WEIGHTED
                  AVERAGE NUMBER OF COMMON****SHARES
                  OUTSTANDING**
              
              
              591,464,714
              
              
              421,105,524
              
              
              586,887,824
              
              
              390,067,725






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 Nine Months Ended****December
                  31,****2006**
              
              **2005****CASH
                  FLOWS FROM OPERATING ACTIVITIES**Net
                  loss
              
              $
              (14,876,155
              )
              $
              (6,012,640
              )**Items
                  that reconcile net loss to net cash****(used
                  in) operating activities:**Depreciation
                  and amortization
              
              
              4,165,456
              
              
              3,163,689Goodwill
                  impairment charges
              
              
              2,090,889
              
              
              3,764,429Stock
                  compensation
              
              
              1,528,468
              
              
              -Noncash
                  interest expense and loss on debt extinguishment
              
              
              1,324,970
              
              
              536,810Restructuring
                  charges
              
              
              283,839
              
              
              1,335,612Minority
                  interests
              
              
              -
              
              
              192,507Other
              
              
              -
              
              
              38,019**Changes
                  in assets and liabilities**Decrease
                  in accounts receivable
              
              
              2,329,180
              
              
              1,359,448Decrease
                  (increase) in other current assets
              
              
              708,691
              
              
              (1,046,675
              )(Increase)
                  in other assets
              
              
              (210,390
              )
              
              (725,039
              )(Decrease)
                    in accounts payable andand accrued expenses
              
              
              (1,383,099
              )
              
              (5,351,928
              )Increase
                  (decrease) in deferred revenue
              
              
              (183,471
              )
              
              95,35310,654,533
              
              
              3,362,225**Net
                  cash (used in) operating activities**
              
              
              (4,221,622
              )
              
              (2,650,415
              )**CASH
                  FLOWS FROM INVESTING ACTIVITIES**Proceeds
                  from the sale/leaseback of wireless network equipment
              
              
              3,206,666
              
              
              -Purchase
                  of certificates of deposit
              
              
              (1,120,035
              )
              
              -Capital
                  expenditures, net
              
              
              (5,544,243
              )
              
              (2,674,904
              )Acquisition
                  of intangible assets
              
              
              (23,644
              )
              
              (6,778,129
              )Cash
                  paid for acquisitions
              
              
              -
              
              
              (3,927,011
              )**Net
                  cash (used in) investing activities**
              
              
              (3,481,256
              )
              
              (13,380,044
              )**CASH
                  FLOWS FROM FINANCING ACTIVITIES**Net
                  proceeds from common stock issuances
              
              
              6,653,891
              
              
              16,906,222Borrowings
                  (payments) under other notes payable, net
              
              
              (4,012,231
              )
              
              (4,902,372
              )Proceeds
                  from the issuance of convertible debentures
              
              
              5,963,500
              
              
              15,000,000Financing
                  fees
              
              
              (422,750
              )
              
              (1,295,000
              )Retirement
                  of acquisition bridge loan
              
              
              -
              
              
              (13,000,000
              )Investment
                  by minority interests
              
              
              -
              
              
              3,612,525**Net
                  cash provided by financing activities**
              
              
              8,182,410
              
              
              16,321,375






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 Nine Months Ended****December
                31,****2006**
            
            **2005****NET
                INCREASE IN CASH AND CASH EQUIVALENTS**
            
            $
            479,532
            
            $
            290,916**CASH
                AND CASH EQUIVALENTS - BEGINNING OF PERIOD**
            
            
            5,397,881
            
            
            4,669,787**CASH
                AND CASH EQUIVALENTS - END OF PERIOD**
            
            $
            5,877,413
            
            $
            4,960,703**SUPPLEMENTAL
                DISCLOSURE OF CASH FLOW****INFORMATION:**Cash
                paid during the period for interest
            
            $
            1,140,998
            
            $
            1,043,073**SUPPLEMENTAL
                DISCLOSURE OF NONCASH****ACTIVITIES:**Issuance
                of Amended Debenture to Cornell Capital
            
            $
            15,149,650
            
            $
            -Retirement
                of Debenture issued to Cornell Capital
            
            $
            15,000,000
            
            $
            -Capital
                lease
            
            $
            3,714,181
            
            $
            -Debenture
                maturities and accrued interest paid with common stock
            
            $
            1,788,760
            
            $
            -Goodwill
                recorded in acquisitions
            
            $
            -
            
            $
            5,743,263Issuance
                of common stock for acquisitions
            
            $
            -
            
            $
            2,816,406Amortization
                of SEDA deferred financing fees
            
            $
            -
            
            $
            660,000Adjustment
                to minority interest
            
            $
            -
            
            $
            150,000Issuance
                of common stock for investment banker retainer fee
            
            $
            -
            
            $
            58,500Liability
                for common stock to be issued
            
            $
            -
            
            $
            53,167






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




7




**MOBILEPRO
      CORP. AND SUBSIDIARIES**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**DECEMBER
      31, 2006**


**(unaudited)**




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





**Overview**





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





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





**Current
      Business Conditions**





The
      Company has historically lost money. In the years ended March 31, 2006 and
      2005,
      the Company sustained net losses of $10,176,407 and $5,359,722, respectively.
      In
      addition, the Company incurred a net loss of $14,876,155 in the nine months
      ended December 31, 2006 caused primarily by declining revenues without a
      proportional reduction in the corresponding cost of services. As a result,
      the
      amount of cash used in operations during the nine months ended December 31,
      2006
      was $4,221,622. Future losses may occur. Accordingly, the Company will
      experience liquidity and cash flow problems if it is unable to improve its
      operating performance or raise additional capital as needed and on acceptable
      terms.





The
      overall cost of services was reduced by approximately $1,816,000 in the three
      months ended December 31, 2006 compared with the corresponding quarter of the
      prior year. Actions taken by management in the current year include the removal
      of low-use payphones, Davel’s replacement of certain telecommunications line
      services with services provided at a lower cost by AFN, and DFW’s termination of
      unused circuits. Although the full benefits of such actions have not yet been
      realized, these actions will not be sufficient (if the Company’s revenues
      continue to decline) to return the Company to profitability.





The
      Company has reduced the number of senior management members, thereby reducing
      operating costs and creating a more streamlined organization. These and other
      management changes should enhance the effectiveness of the Company’s efforts to
      increase recurring revenues of its existing businesses, its primary current
      focus. These efforts have focused primarily on the acquisition of new business
      for the voice segment companies of AFN and CloseCall. For example, the Company
      recently announced a transaction in which the Company acquired over 7,000
      cellular service subscribers. As structured, the transaction should enhance
      revenues, operating profits and cash flow from operations by leveraging the
      existing CloseCall organization while adding a small group of salespersons
      experienced in selling telecommunications services to commercial customers.
      In
      the current year, the Company has deployed three municipal wireless networks
      that are beginning to provide revenues. Although the Company continues to invest
      in an organization capable of effectively deploying and operating the growing
      number of municipal wireless networks, management has taken a series of actions
      that should result in a continued reduction in the level of the Company’s
      operating expenses for the remainder of the fiscal year.




8





Cornell
      Capital Partners, L.P. (“Cornell Capital”) continues to be a major source of
      capital for the Company. As discussed below in Note 7 to the condensed
      consolidated financial statements, the Company has an agreement with Cornell
      Capital that has provided $5,825,000 in funds during the last two fiscal
      quarters and that will provide additional financing of $1,175,000 during the
      fourth quarter. The Company also has been successful in obtaining lease
      financing for certain municipal wireless network deployments. During the current
      year, capital leases have provided an aggregate of $3,714,000 in equipment
      financing. The Company has an agreement that could provide an additional $2.5
      million in future lease financing for certain wireless network equipment
      purchases, a commitment for a new lease covering $2,000,000 in new equipment
      purchases, and negotiations are underway with a leasing firm covering an
      additional $1,569,000 in equipment financing.





Finally,
      the Company is actively exploring strategic alternatives for certain assets
      including the wireless networks and gaming businesses with the objectives of
      raising growth capital specifically dedicated to those businesses and reducing
      the level of funding provided by Mobilepro.





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





Under
      the
      terms of the $15.1 million debenture issued to Cornell Capital, the Company
      is
      currently satisfying its obligation to make weekly scheduled principal payments
      of $250,000 plus interest, with the issuance of shares of its common stock.
      The
      requirement to make similar reductions in the debentures issued under the $7.0
      financing arrangement with Cornell Capital in the weekly amount of $125,000
      has
      been postponed until July 2007.





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





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





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





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





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


9


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





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





On
      January 9, 2007, CloseCall acquired certain cellular telephone service contracts
      from TeleCommunication Systems, Inc. (“TCS”), representing over 7,000 cellular
      subscribers, plus related inventory and other assets. As consideration, the
      Company issued 9,079,903 unregistered shares of its common stock to TCS and
      will
      pay TCS a percentage of future revenues or gross profits provided by the
      acquired service contracts. In addition, TCS was granted certain registration
      rights related to the shares of common stock it received from the
      Company.





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





**Financial
      Statement Presentation**





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





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





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





**Reclassifications**





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


10


**Accounting
      for Stock Options and Warrants**





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





In
      December 2004, the Financial Accounting Standards Board revised SFAS
      No. 123, “Accounting for Certain Transactions Involving Stock
      Compensation” (“SFAS
      123”). The revision was entitled “Share-Based Payment” (“SFAS 123R”), replacing
      SFAS 123 and superseding APB 25, and its scope encompasses a wide range of
      share-based compensation arrangements including share options, restricted share
      plans, performance-based awards, share appreciation rights and employee share
      purchase plans. SFAS 123R requires that the compensation cost relating to
      share-based payment transactions be recorded in financial statements. For each
      transaction, compensation cost is to be measured based on the fair value of
      the
      equity or liability instrument issued. The pro forma disclosures previously
      permitted under SFAS 123 no longer will be an alternative to financial statement
      recognition of compensation expense. The Company adopted SFAS 123R, effective
      April 1, 2006 (see Note 9). The amounts of related compensation expense recorded
      for the three and nine months ended December 31, 2006 were $535,821 and
      $1,492,468, respectively.





**Revenue
      Recognition**





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





A
      material amount of the Company’s revenues is also generated from the use of
      Davel’s payphones. Davel derives its payphone revenue from two principal
      sources: coin calls and non-coin calls. Revenue related to all calls, including
      dial-around compensation and operator service revenue, is recognized in the
      periods that the customers place the calls. Any variations between recorded
      amounts of revenue and actual cash receipts are accounted for at the time of
      receipt. Revenue related to such dial-around calls is recognized initially
      based
      on estimates. Recorded amounts of revenue may be adjusted based on actual
      receipts and/or the subsequent revision of prior estimates. Reported revenues
      for the nine months ended December 31, 2006 reflected a reduction to previously
      recorded revenues of $143,516; no such adjustment was recorded in the
      corresponding prior-year period ended December 31, 2005. Total dial-around
      revenue amounts for the three-month periods ended December 31, 2006 and 2005
      were approximately $1,415,000 and $2,528,000, respectively. Total dial-around
      revenue amounts for the nine-month periods ended December 31, 2006 and 2005
      were
      approximately $4,785,000 and $8,083,000, respectively.





**Restricted
      Cash**





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





**Accounts
      Receivable**





The
      Company had allowances for doubtful accounts of $850,638 and $883,232 at
      December 31, 2006 and March 31, 2006, respectively, relating to accounts
      receivable other than dial-around compensation amounts.





Accounts
      receivable includes amounts related to dial-around revenue. The estimated
      dial-around receivable amount at each balance sheet date is based on the
      Company’s historical collection experience. Dial-around receivable amounts
      included in the balance sheets at December 31, 2006 and March 31, 2006 were
      $3,271,141 and $4,509,063, respectively.


11


**Financing
      Fees**





The
      financing fees paid in May 2004 to Cornell Capital and others related to the
      negotiation of the Standby Equity Distribution Agreement (the “SEDA”) were
      deferred and, for the periods presented herein, were amortized against
      additional paid-in-capital on a straight-line basis over the twenty-four (24)
      month term of the SEDA. These fees were paid with the issuance of 8,000,000
      shares of Mobilepro common stock valued in the amount of $1,760,000. The Company
      recorded amortization of approximately $220,000 in the quarter ended December
      31, 2005. Amortization was $147,000 and $660,000 in the nine-month periods
      ended
      December 31, 2006 and 2005. Amortization of this balance was completed in May
      2006. The fees paid to Cornell Capital and others at the time that funds are
      drawn under equity lines of credit, amounting to $127,500 in the three months
      ended December 31, 2005, and $86,000 and $503,000, respectively, in the
      nine-month periods ended December 31, 2006 and 2005, were charged to additional
      paid-in-capital.





The
      Company also incurred financing costs of $1,295,000 in May 2005 in connection
      with issuance of the $15.5 million convertible debenture and $246,750 in the
      current fiscal year in connection with the issuance of additional convertible
      debentures (see Note 7). These costs, which primarily include fees paid in
      cash
      to Cornell Capital, were charged to additional paid-in-capital.





**Advertising
      Contracts**




CloseCall
      uses print, signage, radio and television advertising to market services to
      customers of certain local professional sports teams. Advertising programs
      include the use of long-term contracts. Upon the negotiation of such a contract,
      the Company records the cost of the advertising program as an asset, and
      amortizes the balance to operating expenses over the life of the contract.
      The
      corresponding contract liability is paid typically in installments. At December
      31, 2006, prepaid expenses and other assets included balances of $336,763 and
      $227,805, respectively, related to such contracts, and accounts payable and
      long-term liabilities included balances of $353,560 and $ 228,870, respectively,
      that are payable under such contracts. At March 31, 2006, prepaid expenses
      and
      other assets included balances of $366,995 and $474,569, respectively, related
      to such contracts, and accounts payable and long-term liabilities included
      balances of $304,560 and $475,493, respectively, that are payable under such
      contracts.





**Property,
      Plant and Equipment**





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





**Estimated**
              **Useful**
              **Lives
                (in years)**
            
            **December
                31,**
              **2006**
            
            **March
                31,**
              **2006**(unaudited)Furniture
                and fixtures
            
            
            7
            
            $
            1,185,434
            
            $
            698,828Machinery
                and equipment
            
            
            5
            
            
            25,511,398
            
            
            20,561,029Leasehold
                improvements
            
            
            7
            
            
            805,292
            
            
            788,610Vehicles
            
            
            5
            
            
            204,206
            
            
            204,205Subtotals
            
            
            
            
            
            27,706,330
            
            
            22,252,672Less
                accumulated depreciation
            
            
            
            
            
            (7,152,110
            )
            
            (6,393,418
            )Fixed
                assets, net
            
            
            
            
            $
            20,554,220
            
            $
            15,859,254





Included
      in the balance of machinery and equipment at December 31, 2006 is a total cost
      of $3,553,838 related to certain municipal wireless network equipment acquired
      under capital leases.





**Customer
      Contracts and Relationships**





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


12


The
      amount assigned to the initial term of the agreement is being amortized on
      a straight-line basis over the initial three-year term. The Company has
      estimated the total life of this arrangement to be ten years based upon an
      analysis of the operating history of the subscriber base and the average monthly
      disconnects. The Company intends to evaluate the value of these intangible
      assets for potential impairment at least annually and to adjust both the asset
      values and the prospective life in the future if determined necessary. Despite
      the loss of approximately 18% of the customers acquired from Sprint, the Company
      has evaluated that the fair value of these intangible assets exceeds the total
      aggregate carrying value at December 31, 2006. For both of the quarters ended
      December 31, 2006 and 2005, amortization expense was $165,702. For the nine
      months ended December 31, 2006 and 2005, amortization expense was $497,106
      and
      $331,053, respectively.





This
      account also includes location contracts with net balances of $1,762,359 and
      $2,220,479 at December 31, 2006 and March 31, 2006, respectively, representing
      Davel acquisition costs allocated to location owner payphone contracts and
      other
      costs associated with obtaining written and signed location contracts. These
      other assets are amortized on a straight-line basis over their estimated useful
      lives based on contract terms which are generally five years. Accumulated
      amortization related to these contracts at December 31, 2006 and March 31,
      2006
      was $1,317,396 and $859,276, respectively. Amortization related to location
      contracts was $152,708 and $152,366, respectively, for the quarters ended
      December 31, 2006 and 2005, and was $458,120 and $472,976, respectively, for
      the
      nine months ended December 31, 2006 and 2005.





**Accounts
      Payable and Accrued Liabilities**





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





**December
                31, 2006**
            
            **March
                31, 2006**(unaudited)Accounts
                payable
            
            $
            11,851,226
            
            $
            10,229,960Accrued
                location usage fees
            
            
            2,146,103
            
            
            2,271,060Accrued
                restructuring costs
            
            
            360.218
            
            
            486,311Accrued
                compensation
            
            
            797,201
            
            
            1,048,027Accrued
                interest expense
            
            
            190,196
            
            
            873,206Other
                accrued liabilities
            
            
            2,578,620
            
            
            2,494,347Totals
            
            $
            17,923,564
            
            $
            17,402,911





**Income
      Taxes**





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





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





At
      December 31, 2006, the Company’s balance sheet included intangible assets with
      an aggregate carrying value of approximately $53,783,000, representing
      approximately 57% of total assets and including $46,007,009 in goodwill.
      Substantially all of this goodwill was recorded in connection with the series
      of
      acquisitions completed by the Company since January 1, 2004. Generally accepted
      accounting principles require that the Company assess the fair values of
      acquired entities at least annually in order to identify any impairment in
      the
      values. However, on a quarterly basis, management is alert for events or
      circumstances that would indicate that, more likely than not, the fair value
      of
      a reporting segment has been reduced below its carrying amount. If there is
      a
      determination that the fair value of an acquired entity is less than the
      corresponding net assets amount, including goodwill, an impairment loss would
      be
      identified and recorded at that time. As a result of such assessments, goodwill
      impairment charges of $1,213,035 and $1,945,519, respectively, were recorded
      in
      the three months ended December 31, 2006 and 2005 related to the Internet
      services business segment; the amounts of such charges were $2,090,889 and
      $1,945,519, respectively, in the nine months ended December 31, 2006 and 2005.
      In addition, the Company recorded an impairment charge in the amount of
      $1,818,910 related to Affinity in the three-month period ended December 31,
      2005. Management believes that the remaining amounts of goodwill included in
      the
      balance sheet at December 31, 2006 do not exceed the corresponding fair values
      of these assets.


13


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





During
      the quarter ended December 31, 2005, management adopted a plan to integrate
      the
      operations of the acquired companies, in particular the operations of the
      Internet services business segment, with a focus on combining functions and
      reducing operating costs. Accordingly, the Company recorded a total
      restructuring charge of $1,335,612 in the three months ended December 31, 2005
      relating to the termination of certain employees, the disposal of certain
      equipment and the abandonment of certain leased facilities. At December 31,
      2006, the accrued restructuring costs balance was $360,218, including $246,165
      related to the loss expected on the abandonment of leased facilities and
      $114,053 related to the termination of certain employees. At March 31, 2006,
      the
      accrued restructuring costs balance was $486,311. During the nine months ended
      December 31, 2006, the Company recorded additional restructuring charges related
      to the termination of additional employees in the amount of $303,671, the
      disposal of additional fixed assets in the amount of $75,835, and reversed
      a
      portion of the reserve related to employee termination costs in the amount
      of
      $95,667. As a result, the net restructure charge reflected in the condensed
      consolidated statement of operations for the nine months ended December 31,
      2006
      was $283,839. During the three and nine months ended December 31, 2006, the
      Company made related payments totaling $120,995 and $409,732, respectively.
      The
      Company may incur additional restructuring charges throughout the remainder
      of
      the current fiscal year related to the consolidation of additional office
      locations and reductions in personnel.





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





The
      acquisition of AFN occurred on June 30, 2005. Accordingly, the operating results
      of AFN are included in the operating results of the Company from and including
      July 1, 2005. The accompanying condensed consolidated statements of operations
      include revenues related to AFN, excluding inter-company sales, of $1,994,525
      and $1,782,865, respectively, for the quarters ended December 31, 2006 and
      2005,
      and $6,162,798 and $3,539,123, respectively, for the nine months ended December
      31, 2006 and 2005.





The
      acquisition of InReach occurred on November 1, 2005. Accordingly, the operating
      results of InReach are included in the operating results of the Company from
      and
      including November 1, 2005. The accompanying condensed consolidated statements
      of operations for the three and nine months ended December 31, 2005 included
      revenues of InReach in the amount of $943,138. The revenues of InReach for
      the
      three and nine months ended December 31, 2006 were $1,235,367 and $3,570,362,
      respectively.





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





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


14


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





The
      operating results of Kite Broadband have been included in the operating results
      of the Company from and including July 1, 2005, the date that the operations
      of
      Kite Broadband commenced. The accompanying condensed consolidated statements
      of
      operations include revenues related to Kite Broadband of $2,788,949 and
      $3,199,366, respectively, for the three months ended December 31, 2006 and
      2005,
      and $8,665,529 and $6,584,680, respectively, for the nine months ended December
      31, 2006 and 2005.





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





**The
      Secured Debenture Agreement**





On
      August
      28, 2006, the Company entered into a financing agreement with Cornell Capital
      providing up to $7.0 million in debt financing with the proceeds provided in
      three scheduled closings (the “Secured Debenture Agreement”). At each closing,
      the Company will issue Cornell Capital a 7.75% secured convertible debenture
      in
      the gross amount for the closing, convertible into shares of common stock at
      $0.174 per share, together with warrants to purchase additional shares of common
      stock at an exercise price of $0.174 per share. On August 30, 2006, the Company
      closed the first funding in the amount of $2.3 million, receiving cash proceeds
      of $2,124,000 that were net of financing fees in the amount of $176,000, and
      issued a warrant to purchase 3,333,334 shares of common stock. Under an
      amendment to the Secured Debenture Agreement signed on October 23, 2006, the
      additional closings were rescheduled such that $3,525,000 of gross proceeds
      were
      made available in the third quarter, and $1,175,000 of gross proceeds were
      provided on February 1, 2007. The closings in the third quarter resulted in
      the
      Company’s receipt of $3,278,250 in cash proceeds, net of financing fees in the
      amount of $246,750, and the Company’s issuance to Cornell Capital of debentures
      in the amount of $3,525,000 and warrants to purchase an additional 6,666,666
      shares of common stock.





Under
      the
      terms of the Secured Debenture Agreement, as amended, the Company will make
      weekly scheduled principal payments of at least $125,000 commencing July 8,
      2007, with interest on the outstanding principal balance payable at the same
      time. Under conditions similar to those included in the Amended Debenture (see
      discussion below), the Company has the right to make any and all such principal
      and interest payments by issuing shares of its common stock to Cornell Capital
      with the amount of such shares based upon the lower of $0.174 per share or
      93%
      of the average of the two lowest daily volume weighted average per share prices
      of its common stock during the five days immediately following the scheduled
      payment date.





The
      warrants issued to Cornell Capital pursuant to the Secured Debenture Agreement
      will expire five years from the dates of issuance. If the Company issues
      additional equity or instruments convertible into equity as described in the
      warrant documents, or is deemed to have done so, at a lower per share price
      than
      the then-effective exercise price, the exercise price may be adjusted downward
      to such lower per share price. In that case, the number of shares issuable
      upon
      exercise of the warrants would be increased so that the total exercise proceeds
      would remain the same.





The
      debentures issued pursuant to the Secured Debenture Agreement have been recorded
      in the balance sheet net of unamortized debt discounts that totaled
      approximately $490,000, 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 will be amortized as charges to interest expense
      over the terms of the related debentures.





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


15


**The
      Amended Debenture**





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





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





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





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





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





The
      face
      amount of the Amended Debenture was recorded initially in the balance sheet
      net
      of unamortized debt discount of $319,000. During the quarter ended September
      30,
      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 at December 31, 2006 reflected the fair market value
      after allocating additional proceeds in the amount of $192,500 to the Additional
      Warrant. The increased discount on the Amended Debenture is being amortized
      as a
      charge to interest expense over the term of the Amended Debenture.


16


The
      net
      carrying amount of the Debenture and the related amount of accrued interest,
      $14,590,399 and $149,650, respectively, were eliminated from the accounts in
      connection with the issuance of the Amended Debenture and the retirement of
      the
      Debenture, resulting in a loss on the extinguishment of the Debenture debt
      in
      the amount of $409,601 in June 2006. This amount was included in the
      accompanying statement of operations for the nine months ended December 31,
      2006.





**The
      Debentures - Interest Expense**





For
      the
      quarters ended December 31, 2006 and 2005, the amounts of interest expense
      related to the debentures issued to Cornell Capital, and included in the
      accompanying condensed consolidated statements of operations based on the stated
      interest rates, were $363,803 and $297,897, respectively. Such interest expense
      amounts were $966,173 and $758,651, respectively, for the nine months ended
      December 31, 2006 and 2005.





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 Cornell Capital.
      Such
      amounts were $307,532 and $99,323, respectively, in the three months ended
      December 31, 2006 and 2005, and $553,786 and $250,748, respectively, in the
      nine
      months ended December 31, 2006 and 2005. Interest expense for the three and
      nine
      months ended December 31, 2006 also included $89,000, representing an amount
      equal to the increase in the fair value of the Warrant based on its terms that
      were reset during the second quarter.





**Notes
      Payable to Cornell Capital**





During
      the two-year period ended March 31, 2006, the Company borrowed amounts from
      Cornell Capital that totaled $31,500,000 pursuant to a series of promissory
      notes with maturities of one-year or less and annual interest rates ranging
      from
      8% to 12%. A remaining total principal balance of $3,600,000, plus accrued
      interest of $392,953, was owed to Cornell Capital at March 31, 2006. These
      amounts were paid during the quarter ended June 30, 2006 with cash provided
      by
      the Company’s operating units. Interest expense related to the notes payable to
      Cornell Capital, based on the stated rates of interest and included in the
      accompanying condensed consolidated statements of operations for the nine months
      ended December 31, 2006 and 2005, were $25,074 and $581,627, respectively.
      Such
      interest expense was $149,266 for the quarter ended December 31,
      2005.




**Sale/Leaseback
      Transactions**





On
      June
      28, 2006, the Company executed a master equipment lease agreement intended
      to
      cover certain qualifying municipal wireless network equipment. On June 30,
      2006,
      the Company received $2,000,000 in gross cash proceeds from the sale of certain
      municipal wireless network equipment that is deployed in Tempe, Arizona.
      Pursuant to the master lease agreement, the Company has leased back the
      equipment with the transaction representing a capital lease. Accordingly, a
      fixed asset and a capital lease liability were recorded in the accounts at
      the
      present value of the future lease payments discounted at an assumed incremental
      borrowing rate of 10.25%, or $1,875,721.





On
      December 27, 2006, the Company received approximately $1,207,000 in gross cash
      proceeds from the sale of certain municipal wireless network equipment that
      is
      deployed in Farmers’ Branch, Texas. Pursuant to the terms of the master lease
      agreement, the Company has leased back the subject equipment with the
      transaction representing a capital lease. Accordingly, a fixed asset and a
      capital lease liability were recorded in the accounts at the present value
      of
      the future lease payments discounted at an assumed incremental borrowing rate
      of
      14.75%, or $1,187,703.





Under
      the
      terms of the master lease agreement, the Company is obligated to make 36 monthly
      payments related to each transaction in the amounts of $63,800 and $42,950,
      respectively. The lease terms include options to purchase the equipment at
      the
      end of the respective lease-terms at a price equal to the fair market value
      of
      the equipment which amount shall not to exceed 23% of the original cost of
      the
      equipment. The aggregate gain on the sale of the Tempe equipment in the amount
      of approximately $234,000 was deferred and is being amortized to income over
      the
      term of the respective lease schedules.


17


Aggregate
      sale proceeds in the amount of approximately $1,062,000 were used to purchase
      certificates of deposit that are pledged to secure the lease obligations; this
      amount is included in the balance of restricted cash in the condensed
      consolidated balance sheet as of December 31, 2006. Portions of the restricted
      cash may be released during the latter half of the lease terms if the Company
      achieves certain objectives.





**Equipment
      Lease Commitment**





On
      October 10, 2006, the Company signed another master equipment lease agreement
      with a lease financing firm that permits up to $3 million in lease financing
      capital for future wireless network equipment purchases. The master lease
      agreement is available only for the purchase of equipment manufactured by Cisco
      Systems. Fifty percent of the commitment is designated for core network
      infrastructure equipment. The
      remainder of the commitment is available for transmission equipment purchases
      and can be used to finance up to fifty percent of the cost of such purchases.
      The lease term for each lease schedule shall be twenty-four months. On December
      20, 2006, the Company completed the acceptance of certain core infrastructure
      equipment included on the initial schedule appended to this master lease
      agreement with a total cost of approximately $508,000. A fixed
      asset and a capital lease liability were recorded in the accounts at the present
      value of the future lease payments discounted at an assumed incremental
      borrowing rate of 14.75%, or $490,414. This initial lease schedule includes
      an
      option to purchase the equipment at the end of the lease-term at a price equal
      to the fair market value of the equipment which amount shall not exceed 21%
      of
      the original cost of the equipment.





**Debt
      Maturities**





A
      summary
      of the balances owed under the debentures, capital leases, notes payable and
      other long-term liabilities at December 31, 2006 was as follows:





Amended
                Debenture
            
            $
            13,899,650Secured
                Debentures
            
            
            5,825,000Capital
                leases
            
            
            3,713,959Other
                notes payable and long-term obligations
            
            
            403,23723,841,846Less:
                Unamortized debt discounts
            
            
            (544,852
            )Less:
                Amounts due within one year
            
            
            (17,661,101
            )Long-term
                portion of debt
            
            $
            5,635,893





At
      December 31, 2006, a summary of the future scheduled payments of the long-term
      portion of debt was as follows:





The
                twelve months ending --December
                31, 2008
            
            $
            4,973,805December
                31, 2009
            
            
            921,783December
                31, 2010
            
            
            34,274December
                31, 2011
            
            
            56,1195,985,981Less
                - Unamortized debt discount
            
            
            (350,088
            )Long-term
                portion of debt
            
            $
            5,635,893


18


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




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





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





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





The
      discounts provided to Cornell Capital in connection with the sale of shares
      of common stock by the Company and included in the accompanying condensed
      consolidated statements of operations for the nine months ended December 31,
      2006 and 2005 were $137,795 and $291,956, respectively. Such interest expense
      was $84,889 for the quarter ended December 31, 2005.





**Common
      Stock Transactions in the Nine Months Ended December 31, 2006**





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





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





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





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





During
      the three months ended December 31, 2006, the Company issued 22,756,854 shares
      of its common stock to Cornell Capital in satisfaction of its obligation under
      the Amended Debenture to make installment principal payments of $250,000 per
      week, plus interest. Such issuances reduced the debenture principal balance
      by
      $1,250,000 and paid $538,762 in accrued interest expense. The discount provided
      to Cornell Capital in connection with the issuance of these shares is charged
      to
      interest expense. The additional interest expense was $134,791 for the three
      months ended December 31, 2006.


19


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





The
      following tables summarize the stock option and warrant activity for the nine
      months ended December 31, 2006:





**Weighted-Average****Stock
                Options --**
            
            **Number
                of Options**
            
            **Exercise
                Price**Outstanding
                - March 31, 2006
            
            
            11,076,000
            
            $
            0.2260Granted
            
            
            -
            
            $
            -Exercised
            
            
            (300,996
            )
            $
            0.0528Cancelled
            
            
            (924,004
            )
            $
            0.2117Outstanding
                - December 31, 2006
            
            
            9,851,000
            
            $
            0.2326Exercisable
                - December 31, 2006
            
            
            3,781,843
            
            $
            0.2490





**Weighted-Average****Stock
                Warrants --**
            
            **Number
                of Warrants**
            
            **Exercise
                Price**Outstanding
                - March 31, 2006
            
            
            94,932,500
            
            $
            0.1669Granted
            
            
            51,750,000
            
            $
            0.2057Exercised
            
            
            (6,021,524
            )
            $
            0.0180Cancelled
            
            
            (18,055,342
            )
            $
            0.3376Outstanding
                - December 31, 2006
            
            
            122,605,634
            
            $
            0.1654Exercisable
                - December 31, 2006
            
            
            109,820,420
            
            $
            0.1628





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





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


20


For
      the
      nine months ended December 31, 2005, if compensation expense had been determined
      based on the fair value of the options at the grant dates consistent with the
      method of accounting proscribed by SFAS No. 123, as amended, the Company’s
      net loss per share would have changed to the pro forma amount as presented
      below:




**Nine
                  Months Ended December 31, 2005**Net
                  loss, as reported
              
              $
              (6,012,640
              )Add:
                  Stock-based employee compensation expense included in reported
                  net
                  loss
              
              
              -Deduct:
                  Total stock-based employee compensation expense determined under
                  fair
                  value based method for all awards
              
              
              (3,028,803
              )Pro
                  forma net loss
              
              $
              (9,041,443
              )Net
                  loss per share:Diluted,
                  as reported
              
              $
              (0.0154
              )Diluted,
                  pro forma
              
              $
              (0.0232
              )






The
      fair
      value of each option is estimated on the date of grant using the Black-Scholes
      option-pricing model with the following assumptions used for awards during
      the
      nine months ended December 31, 2006 and 2005:




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




For
      compensatory stock options and warrants granted during the nine months ended
      December 31, 2006 and 2005, the weighted-average grant-date fair values were
      $-----0.10 per share and $0.21 per share, respectively.





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





Basic
      income (loss) per share includes no dilution and is computed by dividing net
      income (loss) available to common stockholders by the weighted-average number
      of
      common shares outstanding for the period. Diluted income (loss) per share
      includes the potential dilution that could occur if securities or other
      contracts to issue common stock were exercised or converted into common stock.
      The effects of the assumed exercise of outstanding stock options and warrants
      and the assumed conversion of the debentures for the three and nine months
      ended
      December 31, 2006 and 2005 were anti-dilutive as the Company incurred net losses
      in such periods.





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





During
      the nine months ended December 31, 2006, the Company was party to the following
      potentially material legal proceedings.





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


21


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




3) On
      August
      6, 2006, the Company was served with a summons and complaint filed in the
      Superior Court of the State of Arizona in Maricopa County in the matter
      captioned Michael V. Nasco, et. al. vs. MobilePro Corp., et. al. which 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, the Company filed a motion to dismiss arguing lack
      of
      standing and corporate existence. The motion to dismiss was subsequently denied
      by the Court and the matter is in the initial stages of discovery. The Company
      believes that it has meritorious defenses to the alleged claims and intends
      to
      vigorously defend itself in this matter. Notwithstanding the foregoing, in
      the
      event that its defenses were not successful, the Company believes that any
      potential exposure related to the claims alleged against the Company is not
      likely to be material.


22


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





The
      Company’s reportable operating segments include voice services, Internet
      services and wireless networks. Results of operations and certain asset data
      relating to the Company’s business segments for the three months ended December
      31, 2006 and 2005 were as follows:





**Three
                Months Ended December 31,**
            
            **Voice**
            
            
            **Internet**
            
            
            **Wireless****2006**
            
            **Services**
            
            
            **Services**
            
            
            **Networks**
            
            
            **Corporate**
            
            
            **Total**Revenues
            
            $
            14,545,747
            
            
            $
            3,640,866
            
            
            $
            2,852,071
            
            
            $
            -
            
            
            $
            21,038,684Cost
                of revenues (excludes depreciation and amortization)
            
            
            8,474,491
            
            
            
            1,823,737
            
            
            
            1,676,574
            
            
            
            -
            
            
            
            11,974,802Other
                operating expenses
            
            
            6,473,984
            
            
            
            1,755,309
            
            
            
            2,013,536
            
            
            
            1,247,134
            
            
            
            11,489,963Depreciation
                and amortization
            
            
            856,986
            
            
            
            113,448
            
            
            
            489,397
            
            
            
            -
            
            
            
            1,459,831Goodwill
                impairment charges
            
            
            -
            
            
            
            1,213,035
            
            
            
            -
            
            
            
            -
            
            
            
            1,213,035Restructuring
                charges
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -Interest
                expense, net
            
            
            60,050
            
            
            
            4,159
            
            
            
            56,790
            
            
            
            807,788
            
            
            
            928,787Net
                income (loss)
            
            $
            (1,319,764
            )
            
            $
            (1,268,822
            )
            
            $
            (1,384,226
            )
            
            $
            (2,054,922
            )
            
            $
            (6,027,734
            )Segment
                assets
            
            $
            45,113,904
            
            
            $
            15,612,100
            
            
            $
            29,710,452
            
            
            $
            3,896,450
            
            
            $
            94,332,906Fixed
                assets, net of accumulated depreciation
            
            $
            10,353,887
            
            
            $
            1,288,899
            
            
            $
            8,726,934
            
            
            $
            184,500
            
            
            $
            20,554,220Goodwill,
                net of impairment
            
            $
            20,531,278
            
            
            $
            13,399,798
            
            
            $
            12,075,933
            
            
            $
            -
            
            
            $
            46,007,009





**Three
                Months Ended December 31,**
            
            **Voice**
            
            
            **Internet**
            
            
            **Wireless**
            
            
            ******2005**
            
            **Services**
            
            
            **Services**
            
            
            **Networks**
            
            
            **Corporate**
            
            
            **Total**Revenues
            
            $
            18,505,132
            
            
            $
            4,534,617
            
            
            $
            3,204,857
            
            
            $
            -
            
            
            $
            26,244,606Cost
                of revenues (excludes depreciation and amortization)
            
            
            9,862,109
            
            
            
            2,250,087
            
            
            
            1,678,000
            
            
            
            -
            
            
            
            13,790,196Other
                operating expenses
            
            
            7,621,737
            
            
            
            2,164,515
            
            
            
            1,877,055
            
            
            
            720,218
            
            
            
            12,383,525Depreciation
                and amortization
            
            
            999,883
            
            
            
            101,227
            
            
            
            192,883
            
            
            
            -
            
            
            
            1,293,993Goodwill
                impairment charges
            
            
            1,818,910
            
            
            
            1,945,519
            
            
            
            -
            
            
            
            -
            
            
            
            3,764,429Restructuring
                charges
            
            
            -
            
            
            
            1,335,612
            
            
            
            -
            
            
            
            -
            
            
            
            1,335,612Interest
                expense (income), net
            
            
            (18,809
            )
            
            
            2,271
            
            
            
            (21,093
            )
            
            
            620,416
            
            
            
            582,785Minority
                interests
            
            
            -
            
            
            
            -
            
            
            
            49,798
            
            
            
            -
            
            
            
            49,798Net
                income (loss)
            
            $
            (1,778,698
            )
            
            $
            (3,264,614
            )
            
            $
            (571,786
            )
            
            $
            (1,340,634
            )
            
            $
            (6,955,732
            )Segment
                assets
            
            $
            51,450,926
            
            
            $
            19,681,335
            
            
            $
            10,923,229
            
            
            $
            1,331,397
            
            
            $
            83,386,887Fixed
                assets, net of accumulated depreciation
            
            $
            11,431,676
            
            
            $
            1,701,120
            
            
            $
            1,153,358
            
            
            $
            -
            
            
            $
            14,286,154Goodwill,
                net of impairment
            
            $
            20,568,280
            
            
            $
            16,248,330
            
            
            $
            494,219
            
            
            $
            -
            
            
            $
            37,310,829


23


Results
      of operations and certain asset data relating to the Company’s business segments
      for the nine months ended December 31, 2006 and 2005 were as
      follows:




**Nine
                Months Ended December 31,**
            
            
            **Voice**
            
            
            
            **Internet**
            
            
            
            **Wireless****2006**
            
            
            **Services**
            
            
            
            **Services**
            
            
            
            **Networks**
            
            
            
            **Corporate**
            
            
            
            **Total**Revenues
            
            $
            47,254,609
            
            
            $
            11,681,819
            
            
            $
            8,855,692
            
            
            $
            -
            
            
            $
            67,792,120Cost
                of revenues (excludes depreciation and amortization)
            
            
            26,693,368
            
            
            
            5,911,965
            
            
            
            5,268,673
            
            
            
            -
            
            
            
            37,874,006Other
                operating expenses
            
            
            20,176,813
            
            
            
            5,827,263
            
            
            
            6,140,958
            
            
            
            3,775,470
            
            
            
            35,920,504Depreciation
                and amortization
            
            
            2,538,422
            
            
            
            339,433
            
            
            
            1,361,779
            
            
            
            -
            
            
            
            4,239,634Goodwill
                impairment charges
            
            
            -
            
            
            
            2,090,889
            
            
            
            -
            
            
            
            -
            
            
            
            2,090,889Restructuring
                charges
            
            
            -
            
            
            
            97,871
            
            
            
            -
            
            
            
            185,968
            
            
            
            283,839Interest
                expense (income), net
            
            
            (128,023
            )
            
            
            5,141
            
            
            
            71,786
            
            
            
            2,310,499
            
            
            
            2,259,403$
            (2,025,971
            )
            
            $
            (2,590,743
            )
            
            $
            (3,987,504
            )
            
            $
            (6,271,937
            )
            
            $
            (14,876,155
            )






**Nine
                Months Ended December 31,**
            
            
            **Voice**
            
            
            
            **Internet**
            
            
            
            **Wireless****2005**
            
            
            **Services**
            
            
            
            **Services**
            
            
            
            **Networks**
            
            
            
            **Corporate**
            
            
            
            **Total**Revenues
            
            $
            56,301,164
            
            
            $
            12,395,635
            
            
            $
            6,600,302
            
            
            $
            -
            
            
            $
            75,297,101Cost
                of revenues (excludes depreciation and amortization)
            
            
            27,113,902
            
            
            
            5,988,818
            
            
            
            3,363,733
            
            
            
            -
            
            
            
            36,466,453Other
                operating expenses
            
            
            22,853,007
            
            
            
            5,600,769
            
            
            
            4,031,131
            
            
            
            1,688,849
            
            
            
            34,173,756Depreciation
                and amortization
            
            
            2,511,742
            
            
            
            268,154
            
            
            
            376,500
            
            
            
            7,293
            
            
            
            3,163,689Goodwill
                impairment charges
            
            
            1,818,910
            
            
            
            1,945,519
            
            
            
            -
            
            
            
            -
            
            
            
            3,764,429Restructuring
                charges
            
            
            -
            
            
            
            1,335,612
            
            
            
            -
            
            
            
            
            
            
            
            1,335,612Interest
                expense (income), net
            
            
            (10,769
            )
            
            
            15,886
            
            
            
            (30,294
            )
            
            
            2,238,472
            
            
            
            2,213,295Minority
                interests
            
            
            (35,645
            )
            
            
            -
            
            
            
            228,152
            
            
            
            -
            
            
            
            192,507Net
                income (loss)
            
            $
            2,050,017
            
            
            $
            (2,759,123
            )
            
            $
            (1,368,920
            )
            
            $
            (3,934,614
            )
            
            $
            (6,012,640
            )




**NOTE
      13-** **SUBSEQUENT
      EVENTS**





On
      January 9, 2007, the Company announced that CloseCall acquired cellular
      telephone service contracts from TeleCommunication Systems, Inc. (“TCS”),
      consisting of over 7,000 cellular subscribers, plus related inventory and other
      assets. In consideration therefore, the Company issued 9,079,903 unregistered
      shares of its common stock to TCS and will pay TCS a percentage of future
      revenues or gross profits provided by the acquired service contracts. In
      addition, TCS was granted certain registration rights related to the shares
      of
      common stock it received from the Company.





Pursuant
      to the final closing under the Secured Debenture Agreement, as amended, the
      Company received $1,092,750 in cash proceeds, net of financing fees in the
      amount of $82,250, and issued a debenture in the amount of $1,175,000 to Cornell
      Capital on February 1, 2007.





Subsequent
      to December 31, 2006, the Company issued 29,470,859 shares of its common stock
      to Cornell Capital in satisfaction of the Company’s obligations under various
      debentures to make weekly installment principal payments plus interest. Such
      issuances reduced the debenture principal balances by $1,250,000 and paid
      $227,210 in interest.




Pursuant
        to the terms of the agreement covering the acquisition of Kite Broadband
        and
        Kite Networks and providing for an adjustment in the purchase price based
        on the
        verified amount of acquired working capital, an additional 3,944,214 restricted
        shares of our common stock were issued to the former stockholders of Kite
        Networks subsequent to December 31, 2006.


On
      January 24, 2007, the Company received $300,000 in cash proceeds from the sale
      of certain wireless technology patents related to wireless antenna
      technology.


24




**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 and nine month periods ended December 31, 2006 and 2005, our financial
      condition at December 31, 2006 and factors that we believe could affect our
      future financial condition and results of operations. Historical results may
      not
      be indicative of future performance.





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





**Forward
      Looking Statements**





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





**Overview**




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





The
      adoption of initiatives by cities to create areas within city limits where
      residents, visitors, students, and businesses can obtain wireless access to
      the
      Internet has created an increased interest in so-called wireless access zones.
      We are concentrating efforts on the deployment, management and ownership of
      such
      municipally sponsored wireless access zones. As a result, we are an innovator
      in
      the deployment of wireless broadband networks and services. Our wireless
      broadband networks and services will be provided in our wireless access zones
      to
      be primarily located in municipality sponsored areas. These network systems
      are
      scalable and flexible and will be readily modified to offer a variety of
      broadband services. Currently, we have 8 active projects, and we are deriving
      revenues from our initial deployments in Tempe, Arizona, and Farmers’ Branch,
      Texas. To date, material revenues have not been provided from this
      business.





We
      market
      and sell our integrated communications services through 12 branch offices in
      eight states and we service over 200,000 billed accounts representing
      approximately 275,000 equivalent subscriber lines, including approximately
      169,000 local and long-distance telephone lines, approximately 45,000 dial-up
      lines, approximately 5,600 DSL lines, approximately 17,000 fixed or mobile
      wireless lines, and approximately 4,200 cellular lines. The acquisition of
      subscriber contracts in January 2007 that is discussed below will add over
      7,000
      cellular service customers. We own and operate approximately 29,500 payphones
      located predominantly in 44 states and the District of Columbia.


25





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





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


26





Revenues
      for the reportable business segments for the quarters ended December 31, 2006
      and 2005 were as follows:





**Business
                Segment**
            
            **2006**
            
            **2005****Voice
                Services**
            
            $
            14,545,747
            
            $
            18,505,132**Internet
                Services**
            
            
            3,640,866
            
            
            4,534,617**Wireless
                Networks**
            
            
            2,852,071
            
            
            3,204,857**Corporate**
            
            
            -
            
            
            -**Total
                Revenues**
            
            $
            21,038,684
            
            $
            26,244,606





Revenues
      for the reportable business segments for the nine months ended December 31,
      2006
      and 2005 were as follows:





**Business
                Segment**
            
            **2006**
            
            **2005****Voice
                Services**
            
            $
            47,254,609
            
            $
            56,301,164**Internet
                Services**
            
            
            11,681,819
            
            
            12,395,635**Wireless
                Networks**
            
            
            8,855,692
            
            
            6,600,302**Corporate**
            
            
            -
            
            
            -**Total
                Revenues**
            
            $
            67,792,120
            
            $
            75,297,101





The
      revenues for each business segment, expressed as a percentage of total revenues
      for the three months ended December 31, 2006 and 2005, were as
      follows:




**Business
                Segment**
            
            **2006**
            
            
            **2005****Voice
                Services**
            
            
            69.1
            %
            
            
            70.5
            %**Internet
                Services**
            
            
            17.3
            
            
            
            17.2**Wireless
                Networks**
            
            
            13.6
            
            
            
            12.2**Corporate**
            
            
            -
            
            
            
            -**Total
                Revenues**
            
            
            100.0
            %
            
            
            100.0
            %








The
      revenues for each business segment, expressed as a percentage of total revenues
      for the nine months ended December 31, 2006 and 2005 were as
      follows:




**Business
                Segment**
            
            **2006**
            
            
            **2005****Voice
                Services**
            
            
            69.7
            %
            
            
            74.8
            %**Internet
                Services**
            
            
            17.2
            
            
            
            16.5**Wireless
                Networks**
            
            
            13.1
            
            
            
            8.7**Corporate**
            
            
            -
            
            
            
            -**Total
                Revenues**
            
            
            100.0
            %
            
            
            100.0
            %




The
      revenues of the voice services business segment are provided by the operations
      of Davel, CloseCall and AFN. These companies provided approximately 51%, 36%
      and
      13% of voice services revenues for the nine months ended December 31, 2006,
      respectively, and approximately 57%, 36% and 7% of voice services revenues
      for
      the nine months ended December 31, 2005, respectively. The revenues of the
      Internet service provider segment are provided by DFW, its consolidated
      subsidiaries, and InReach. The revenues of the wireless networks business
      segment are provided primarily by the operations of Kite
      Broadband


27


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





**Geographic
      Markets**





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





**Background**





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





We
      have
      completed twenty-one (21) acquisitions within the last thirty-six (36) months
      (excluding the acqusition in January 2007 of cellular subcribers from
      TeleCommunication Systems, Inc. ("TCS")). Accordingly, our experience in
      operating our current businesses is limited. The Company has lost money
      historically. For the fiscal years ended March 31, 2006 and 2005, we incurred
      net losses of $10,176,407 and $5,359,722, respectively, and we incurred an
      additional net loss of $14,876,155 in the nine months ended December 31, 2006.





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


28


**Recent
      Developments**





***Municipal
      Wireless Networks***





During
      the current fiscal year, we have continued to invest in the municipal wireless
      network business. Capital expenditures in the nine month period ended December
      31, 2006 were $5,911,189 as we completed the deployments in Tempe, Arizona,
      Farmers’ Branch, Texas, and Longmont, Colorado. The operating expenses of this
      business during the period increased to $3,440,000 as we transitioned the
      responsibility for this business to our Kite Networks management team located
      in
      Ridgeland, Mississippi. The next three scheduled deployments are Yuma, Gilbert
      and Chandler, Arizona.





Besides
      the new deployments, we continued to invest in the Tempe network in order to
      improve its technical performance. This effort resulted in an increase in the
      number of access points located throughout the city by approximately 15%; we
      recently re-launched the service.





We
      continue to use corporate funds to support the operations of this business,
      supplemented by funds provided by lease financing transactions. In June 2006,
      we
      completed a sale/leaseback transaction related to our wireless network in Tempe
      resulting in the receipt of $1,300,000 in unrestricted net cash proceeds. In
      December 2006, we completed a similar transaction related to our Farmers’ Branch
      wireless network resulting in the receipt of approximately $845,000 in net
      unrestricted cash proceeds, and received an initial schedule of equipment with
      an approximate cost of $508,000 under a third equipment leasing
      arrangement.





The
      completion of our current deployment projects and those contemplated by our
      current business plan would require an additional $37-$40 million in funding
      to
      cover required capital expenditures and approximately $5 million to cover future
      operating costs over the next two years. In order to assist us in considering
      the strategic alternatives available to us for this business and its need for
      capital, we recently announced the engagement of BB&T Capital Markets as
      Kite’s financial advisor.





***Corporate
      Financing***





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





At
      this
      time, Cornell Capital continues to be a major source of capital for us. In
      August 2006, we entered into a financing agreement with Cornell Capital for
      the
      purpose of providing up to $7.0 million in debenture debt financing to the
      Company with the proceeds provided in a series of closings. To date, the Company
      has issued Cornell Capital secured convertible debentures in the aggregate
      principal amount of $5,825,000, providing $5,417,250 in cash proceeds net of
      financing fees. The issuance of the final debenture contemplated by this
      financing agreement in the amount of $1,175,000 occurred on February 1, 2007.
      Pursuant to the terms of this arrangement, as amended, installment payments
      of
      $125,000 per week plus interest are scheduled to commence in July 2007.





In
      June
      2006, the Company issued the Amended Debenture to Cornell Capital, replacing
      the
      original Debenture. The Debenture was payable in quarterly installments over
      a
      three-year period with $4,500,000 scheduled to be paid in cash over the year
      ending March 31, 2007. Pursuant to the terms of the Amended Debenture, the
      amended principal amount of $15,149,650 is currently being retired at a rate
      of
      $250,000 plus interest per week; weekly retirements commenced in the third
      quarter.





The
      Company filed a registration statement on Form S-3 on October 12, 2006 covering
      the resale of a total of approximately 404,475,000 shares of our common stock
      by
      various selling stockholders, including 214,529,291 shares that may be issued
      to
      Cornell Capital under the Amended Debenture, the debentures related to the
      $7.0
      million financing agreement discussed above, and the related stock warrants.
      In
      October 2006, this registration statement was declared effective by the SEC,
      enabling us under the provisions of the debentures issued to Cornell Capital
      to
      make the weekly retirement payments using our common stock in lieu of cash.
      Through January 31, 2007, we have issued 46,202,102 shares of our common stock
      to make the principal and interest payments due under the debentures.


29


***Revenue
      Enhancement***





As
      presented and discussed below, consolidated revenues for the nine months ended
      December 31, 2006 were $67,792,120 compared with revenues of $75,297,101 in
      the
      prior-year period, a decrease of 10.0%. During the current year, we have
      announced several transactions that are intended to boost revenues, particularly
      in the CLEC business portion of our voice services segment. Increased business
      with new and existing customers has increased AFN’s revenues by approximately
      21.0% in the six months ended December 31, 2006 over revenues of the comparable
      period of the prior year. As a result, AFN now represents approximately 9.5%
      of
      consolidated revenues. In January 2007, we announced the acquisition of over
      7,000 cellular subscriber contracts for CloseCall that provides an increase
      to
      CloseCall’s cellular telephone customer base and a base of subscribers using the
      popular RIM BlackberryTM products. We expect this transaction to immediately add
      over $5,000,000 to the annual revenues of CloseCall.





***Cost
      Reductions***





Beginning
      in the quarter ended December 31, 2005, we began a company-wide restructuring
      of
      operations with the primary effects of employee terminations, facility closings
      and the disposal of unused fixed assets. Actions taken to date have resulted
      in
      the termination of approximately 40 employees. In addition, this initiative
      has
      resulted in the reduction in the number of senior executives as well. During
      the
      past 12 months, 5 senior executives have left the Company without our adding
      new
      executives. As a result of these and other factors, the quarterly operating
      expenses have been reduced by approximately 12% in the last year.





***ProGames***





In
      July
      2006, the Company announced that ProGames, its Internet gaming subsidiary,
      closed an initial round of financing that provided $138,500 in gross proceeds
      under a series of debentures convertible into shares of common stock of
      ProGames. The proceeds were used primarily to fund certain operating costs
      of
      ProGames including the development of a web-site. ProGames was formed in
      December 2005 in order to pursue select opportunities in the Internet gaming
      space including the development of tools, content and connectivity for online
      gamers. Under U.S. law, the ability to market “games of chance” is limited by
      the federal Wire Act and various state anti-gambling laws. The accompanying
      condensed statements of operations for the three and nine months ended December
      31, 2006 include approximately $94,758 and $276,263 in operating expenses
      associated with the start-up of this business, respectively. In connection
      with
      its initial project, during the most recent quarter, we announced the completion
      of nine agreements providing gaming content and tools for its new gaming
      lifestyle web-site. We expect that ProGames will generate its initial revenues
      in the fourth quarter of the current fiscal year.




***Summary***
 
 During
        the current quarter, we believe that we improved the financial outlook for
        the
        Company. Our balance of unrestricted cash increased by approximately $3.3
        million due primarily to the issuance of certain debentures to Cornell Capital
        and the closing of the Farmers’ Branch sale/leaseback transaction. The
        successful registration of shares of our common stock on Form S-3 in October
        2006 is allowing us to use shares to pay principal and interest due under
        the
        terms of the debentures. In addition, the retention of BB&T Capital Markets
        as an advisor for the wireless networks business and the continuing development
        of the ProGames business were important steps in our plan to obtain capital
        for
        these businesses so that they will be financially self-supporting. With the
        addition of the subscribers obtained from TCS, the continuing success of
        AFN,
        and improved management and restructuring of the Internet service provider
        business, the profitability of these businesses should improve thereby improving
        the consolidated operating results going forward.


**Management
      Opportunities and Challenges**




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





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


30


The
      ramp-up time from selection to the completion of deployment can exceed six
      months. As a result, we have incurred significant costs related to this business
      before any significant revenues are expected. Operating costs for Kite Networks
      were approximately $1,960,000 in the year ended March 31, 2006, and were
      approximately $3,440,000 in the nine months ended December 31, 2006. The capital
      equipment costs for the completed networks in Tempe, Arizona; Farmers’ Branch,
      Texas; Longmont, Colorado, and other scheduled deployments have totaled
      approximately $8,446,000 through December 31, 2006. The transmission equipment
      being installed by us incorporates certain new technologies that are largely
      untested in these types of networks. Should functionality prove to be
      ineffective, we may be required to make additional expenditures to upgrade
      or
      replace equipment that has already been installed. In order to fund the
      equipment costs and operating expenses of this business, we are required to
      obtain investment capital from external sources. The cash flow from the
      operations of the voice and Internet services business is not sufficient to
      fully fund this business.





Many
      of
      the companies that we have acquired are experiencing declining revenues as
      we
      expected. Over 80% of the customers of our Internet services business are
      subscribers to dial-up service. The revenues of this business segment have
      declined from a level of approximately $4,535,000 for the three months ended
      December 31, 2005 to approximately $3,641,000 for the three months ended
      December 31, 2006, a decline of approximately 19.7%. Likewise, the pay telephone
      business is declining due primarily to the public’s increasing usage of
      competitive technologies. Revenues for Davel for the quarter ended December
      31,
      2006 were approximately $7,229,000 compared with revenues of approximately
      $10,096,000 for the corresponding quarter of the prior year, a decline of 28.4%.
      The declining revenues of these businesses, without a proportional decrease
      in
      the cost of such services, and the operating costs of Kite Networks discussed
      above are the major causes of our operating losses.




During
      the three months ended December 31, 2005, both the Internet service provider
      segment and the voice services segment incurred operating losses that were
      not
      expected. As a result, we reviewed the carrying values of the assets of these
      segments and determined that an adjustment for goodwill impairment was
      appropriate at December 31, 2005. We recorded an impairment charge in the amount
      of $3,764,429, including $1,945,519 related to the Internet service provider
      companies and $1,818,910 related to Affinity. We experienced a significant
      and
      steady loss of Affinity customers, and Affinity incurred bad debt losses at
      a
      greater rate than in our other CLEC companies. The negative customer churn
      of
      dial-up ISP customers has exceeded our expectations, contributing to the net
      losses incurred by this segment during the most recent five quarters. As a
      result, we have recorded additional impairment charges related to the ISP
      companies totaling $2,773,005 in the succeeding quarters, including $1,213,035
      in the quarter ended December 31, 2006. If the negative subscriber churn
      continues to occur at rates exceeding our expectations, we will record
      additional impairment charges in future periods. Future assessments of the
      acquisition fair values could identify material impairment losses resulting
      in
      substantial additional write-offs of goodwill. Such adjustments could have
      material adverse non-cash effects on our results of operations and our financial
      position.





In
      order
      to attain and to sustain the profitability of our Internet and voice services
      businesses, last year we began a project to consolidate these operations that
      we
      expect to substantially complete during fiscal 2007. In connection with this
      project, we recorded a restructuring charge of $825,703 in the fiscal year
      ended
      March 31, 2006, and additional charges of $97,871 in the current year, with
      the
      charges relating to employee terminations, fixed asset disposals and leased
      facilities. If additional employee terminations occur, we may record additional
      charges for restructuring costs during the remainder of fiscal 2007. These
      amounts have not yet been determined.





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


31


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





**Critical
      Accounting Policies**




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




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




**New
      Accounting Pronouncements**




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




SFAS
      123R
      requires that the compensation cost relating to share-based payment transactions
      be recorded in financial statements. For each transaction, compensation cost
      is
      to be measured based on the fair value of the equity or liability instrument
      issued. The pro forma disclosures previously permitted under SFAS 123 no longer
      will be an alternative to financial statement recognition of compensation
      expense. We have adopted SFAS 123R in the current year. As a result, we recorded
      compensation expense in the amounts of $535,821 and $1,492,468 that are included
      in the condensed consolidated statements of operations for the three and nine
      months ended December 31, 2006, respectively.




**Results
      of Operations and Financial Condition**





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


32


**The
      Three Months Ended December 31, 2006 and 2005**





***Total
      Revenues***





We
      reported consolidated revenues of $21,038,684 in the quarter ended December
      31,
      2006 compared with revenues of $26,244,606 in the prior year quarter, a decrease
      of 19.8%. Since April 1, 2004, we have completed the acquisition of 19 companies
      that together have provided significant revenues to us in all three operating
      segments. The most significant portions of our revenues are provided by our
      CloseCall and Davel subsidiaries that were acquired in October 2004 and November
      2004, respectively. As a result, revenues for these companies were included
      in
      our consolidated results of operations for the quarters ended December 31,
      2006
      and 2005. Major acquisitions in the prior year included AFN, acquired on June
      30, 2005, and InReach, acquired on November 1, 2005. We also obtained a 51%
      ownership interest in Kite Broadband in June 2005; this entity commenced
      operations on July 1, 2005 (in January 2006 we subsequently acquired the
      remaining 49% of Kite Broadband and 100% interest in Kite Networks). The
      revenues of these new entities were included in our consolidated results of
      operations from the dates of acquisition. Despite the addition of the revenues
      from InReach and the increase in revenues for AFN and Kite Networks,
      consolidated revenues declined between years. The amounts of revenues for each
      company included in our consolidated revenues for the quarters ended December
      31, 2006 and 2005 were as follows.





**Company**
            
            **2006**
            
            **2005**
            
            **Change****Davel**
            
            $
            7,228,699
            
            $
            10,095,977
            
            $
            (2,867,278
            )**CloseCall
                (includes Affinity)**
            
            
            5,322,523
            
            
            6,626,290
            
            
            (1,303,767
            )**Kite
                Broadband**
            
            
            2,788,949
            
            
            3,199,366
            
            
            (410,417
            )**DFW
                (Nationwide)**
            
            
            2,405,499
            
            
            3,591,478
            
            
            (1,185,979
            )**AFN
                (includes US1)**
            
            
            1,994,525
            
            
            1,782,865
            
            
            211,660**InReach**
            
            
            1,235,367
            
            
            943,138
            
            
            292,229**Kite
                Networks**
            
            
            63,122
            
            
            5,492
            
            
            57,630**Total
                Revenues**
            
            $
            21,038,684
            
            $
            26,244,606
            
            $
            (5,205,922
            )





**Voice
      Services.** We
      deliver voice communications services to end users on a retail basis principally
      though this business segment. Revenues from our voice services segment for
      the
      quarters ended December 31, 2006 and 2005 were $14,545,747, or 69.1% of
      consolidated revenues, and $18,505,132, or 70.5% of consolidated revenues,
      respectively, representing a 21.4% decline between years. Revenues of this
      segment are provided by Davel, CloseCall and AFN. This group derives most of
      its
      operating revenues from recurring monthly charges, coin revenue and
“dial-around” revenues (intercarrier compensation paid to us by the providers of
      800 numbers at the rate of 49.4 cents per call) that are generated by our
      communications services. The decrease in revenues between years is primarily
      attributable to the decline in the payphone revenues of Davel.





The
      proliferation of cell phone use by consumers has caused a continuous reduction
      in the use of payphones. In an attempt to improve profitability, we have reduced
      the number of payphones by removing those phones receiving minimal use and
      thereby eliminating the costs to support and maintain those phones. For example,
      Davel had an average of 29,944 payphones in operation during the quarter ended
      December 31, 2006, compared with an average of 35,892 payphones in operation
      during the quarter ended December 31, 2005, a decline of approximately 16.6%.
      The average monthly revenues per average payphone for the quarters ended
      December 31, 2006 and 2005 were $80.44 and $93.65, respectively, representing
      a
      decline of 14.1% between years.





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


33


On
      the
      other hand, the business of AFN has grown. Revenues (excluding inter-company
      sales) were $1,994,525 for the current quarter, or 9.5% of consolidated
      revenues, compared with revenues for the prior-year quarter of $1,782,865,
      or
      6.8% of consolidated revenues, representing an increase in revenues of 11.9%
      between years. The increase in revenues is attributable primarily to increased
      volumes with its business customers.




**Internet
      Services.** We
      deliver data communications services to end users on a retail basis principally
      through this business segment. Revenues from Internet services for the quarters
      ended December 31, 2006 and 2005 were $3,640,866, or 17.3% of consolidated
      revenues, and $4,534,617, or 17.3% of consolidated revenues, respectively,
      representing a decline of 19.7% between years. As stated above, the loss of
      customers by this business, which include mostly dial-up Internet access
      subscribers, has exceeded our expectations thus contributing to the goodwill
      impairment losses recorded in each of the last five quarters. In order to
      attempt to reverse the future loss of revenues, we are focused on the retention
      of existing subscribers through the improvements in the quality of the Internet
      service offerings and customer support. To that end, Lisa Bickford, our Vice
      President of Network Operations and the former general manager of InReach,
      has
      been given the operational responsibility for the entire Internet service
      provider business.





**Wireless
      Networks.** The
      revenues of this operating segment principally relate to Kite Broadband. Kite
      Broadband’s revenues for the quarters ended December 31, 2006 and 2005 were
      $2,788,949, or 13.3% of consolidated revenues, and $3,199,366, or 12.2% of
      consolidated revenues, respectively. Since its formation, the number of Kite
      Broadband customers has declined by approximately 18%. Through improvements
      in
      the quality of the service, we expect to increase our customer retention rate.
      Although the revenues of Kite Networks for the current quarter represented
      less
      than 1% of consolidated revenues, they primarily include the revenues derived
      from the initial operations of the wireless network in Tempe, Arizona. Such
      revenues were $63,122 and $190,163 for the three and nine months ended December
      31, 2006, respectively.





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





***Operating
      Costs and Expenses***





Total
      operating costs and expenses for the quarters ended December 31, 2006 and 2005,
      were $26,137,631 and $32,567,755, respectively, representing approximately
      124.2% and 124.1% of consolidated revenues for the respective periods. Excluding
      cost of services, such costs were $14,162,829 and $18,777,559, respectively,
      representing approximately 67.3% and 71.5% of consolidated revenues for the
      respective periods. Further, excluding depreciation, amortization, stock
      compensation and charges relating to goodwill impairment and restructuring,
      such
      operating expenses were $10,954,142 and $12,383,525, respectively, representing
      approximately 52.1% and 47.2% of consolidated revenues for the respective
      periods. These operating expenses have been reduced by $1,429,383 between years,
      or 11.5%, due primarily to our restructuring activities that are reducing
      compensation and other related general and administrative costs. Such expenses
      were approximately $12,047,000 and $11,427,000 in the first and second quarters
      of the current year.





Depreciation
      and amortization expenses were $1,459,831 and $1,293,993 in the quarters ended
      December 31, 2006 and 2005, respectively. The increase between quarters is
      due
      primarily to current-quarter depreciation on municipal wireless network
      equipment in the amount of $225,676; such depreciation was only $2,041 in the
      prior-year quarter.





Costs
      of
      services were $11,974,802 and $13,790,196, respectively, in the quarters ended
      December 31, 2006 and 2005, a decrease of approximately 13.2% between quarters.
      These costs, expressed as a percentage of revenues for the corresponding
      periods, were 56.9% and 52.5%, respectively, for the current and prior-year
      quarters. The decrease in the dollars of such costs between quarters was due
      primarily to the decreased costs of Davel, CloseCall, DFW and Kite Broadband
      as
      revenues declined for those companies. However, the costs of network lines
      and
      circuits at these companies could not be reduced fast enough to keep pace with
      the declining revenues.


34


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





**Net
                consolidated operating expenses, quarter ended December 31,
                2005**
            
            $
            17,483,566**Operating
                expenses of comparable businesses, net**
            
            
            (1,524,141
            )**Stock
                compensation charge (adoption of SFAS 123R)**
            
            
            535,821**Decrease
                in goodwill impairment charge**
            
            
            (2,551,394
            )**Decrease
                in restructure charge**
            
            
            (1,335,612
            )**ProGames
                costs**
            
            
            94,758**Net
                consolidated operating expenses, quarter ended December 31,
                2006**
            
            $
            12,702,998**Net
                consolidated operating expenses above**
            
            $
            12,702,998**Cost
                of services**
            
            
            11,974,802**Depreciation
                and amortization**
            
            
            1,459,831**Consolidated
                operating costs and expenses, quarter ended **December
                31, 2006****
            
            $
            26,137,631




***Interest
      Expense***





Interest
      expense, net, was $928,787 for the quarter ended December 31, 2006 compared
      with
      $582,785 in the prior year. During the first quarter of the current year, we
      completed the retirement of our notes payable to Cornell Capital and the SEDA
      terminated. During the second and third quarters of the current fiscal year,
      we
      issued a series of new debentures to Cornell Capital in the total amount of
      $5.825 million, bearing stated interest at 7.75%.





The
      major
      components of net interest expense for quarters ended December 31, 2006 and
      2005
      are presented in the following schedule.


**Type
                  of Debt**
              
              **2006**
              
              **2005****Convertible
                  debentures (at stated rate)**
              
              $
              363,803
              
              $
              297,897**Discount
                  amortization amounts**
              
              
              307,532
              
              
              99,323**Debenture
                  payment discounts**
              
              
              134,791
              
              
              -**Capital
                  leases (wireless networks)**
              
              
              100,203
              
              
              -**Notes
                  payable to Cornell Capital**
              
              
              -
              
              
              149,266**SEDA
                  draw discounts**
              
              
              -
              
              
              84,889**Other,
                  net**
              
              
              22,458
              
              
              (48,590
              )**Interest
                  expense, net**
              
              $
              928,787
              
              $
              582,785




***Net
      Loss***




We
      reported a net loss of $6,027,734 for the quarter ended December 31, 2006,
      or
      $(0.0102) per share, compared with a net loss of $6,955,732, or $(0.0165) per
      share, for the prior year quarter. The current year loss was due primarily
      to
      the reduction in revenues without a proportional decrease in the related cost
      of
      services or operating expenses, increased depreciation and amortization, and
      certain other non-cash charges. The current quarter results included non-cash
      charges related to goodwill impairment and stock compensation in the amounts
      of
      $1,213,035 and $535,821, respectively. The prior-year quarter net loss included
      goodwill impairment and restructuring charges in the amounts of $3,764,429
      and
      $1,335,612, respectively. The voice services segment incurred a net loss of
      $1,319,764 for the current quarter compared with a net loss of $1,778,698 in
      the
      prior year quarter as revenues declined by approximately 21.4% without the
      corresponding cost of services declining at the same rate. In addition, the
      prior period results included a goodwill impairment charge of $1,818,910 related
      to Affinity. The Internet service segment incurred a net loss of $1,268,822
      for
      the current quarter compared with a net loss of $3,264,614 in the prior-year
      quarter. Revenues of the business segment declined from $4,534,617 in the third
      quarter of last year to $3,640,866 in the current quarter, a decline of 19.7%.
      The current quarter results included a goodwill impairment charge of $1,213,035.
      Included in the prior period results were goodwill impairment and restructuring
      charges that totaled $3,281,131. Net losses incurred by Kite Networks,
      reflecting increased wireless equipment depreciation and other operating
      expenses incurred in support of the increasing number of network deployments,
      were the primary cause of the net loss of $1,384,226 reported by the wireless
      networks segment for the current quarter. The net loss for the corresponding
      period of the prior year was $571,786. Corporate expenses were $2,054,922 for
      the current quarter, including $535,821 in stock compensation and $84,759 in
      ProGames expenses and reflecting the increase in interest expense. Corporate
      expenses were $1,340,634 in the corresponding quarter of the prior year.


35


**The
      Nine Months Ended December 31, 2006 and 2005**





***Total
      Revenues***





We
      reported consolidated revenues of $67,792,120 in the nine months ended December
      31, 2006 compared with revenues of $75,297,101 in the prior year period, a
      decrease of 10.0%. The current year results include the revenues of AFN and
      Kite
      Broadband for three quarters (the prior-year results include only two quarters)
      and the revenues of InReach (acquired on November 1, 2005) for three quarters.
      However, the revenues of each of the significant comparable companies, Davel,
      CloseCall, and DFW, declined between years. The start-up of the municipal
      wireless network in Tempe resulted in an increase in the revenues of Kite
      Networks to $190,163 for the nine months ended December 31, 2006 from revenues
      of only $15,622 in the corresponding period of the prior year. The amounts
      of
      revenues for each company that were included in our consolidated revenues for
      the nine months ended December 31, 2006 and 2005 were as follows.





**Company**
            
            **2006**
            
            **2005**
            
            **Change****Davel**
            
            $
            23,990,954
            
            $
            32,283,029
            
            $
            (8,292,075
            )**CloseCall
                (includes Affinity)**
            
            
            17,100,857
            
            
            20,479,012
            
            
            (3,378,155
            )**Kite
                Broadband**
            
            
            8,665,529
            
            
            6,584,680
            
            
            2,080,849**DFW
                (Nationwide)**
            
            
            8,111,457
            
            
            11,452,497
            
            
            (3,341,040
            )**AFN
                (includes US1)**
            
            
            6,162,798
            
            
            3,539,123
            
            
            2,623,675**InReach**
            
            
            3,570,362
            
            
            943,138
            
            
            2,627,224**Kite
                Networks**
            
            
            190,163
            
            
            15,622
            
            
            174,541**Total
                Revenues**
            
            $
            67,792,120
            
            $
            75,297,101
            
            $
            (7,504,981
            )





***Operating
      Costs and Expenses***





Total
      operating costs and expenses for the nine months ended December 31, 2006 and
      2005, were $80,408,872 and $78,903,939, respectively, representing approximately
      118.6% and 104.8% of consolidated revenues for the corresponding periods.
      Excluding cost of services, such costs were $42,534,866 and $42,437,486,
      respectively, representing approximately 62.7% and 56.4% of consolidated
      revenues for the corresponding periods. Further, excluding depreciation,
      amortization, stock compensation and charges relating to goodwill impairment
      and
      restructuring, such operating expenses were $34,428,036 and $34,173,656,
      respectively, representing approximately 50.8% and 45.4% of consolidated
      revenues for the corresponding periods.





Depreciation
      and amortization expenses were $4,239,634 and $3,163,689 in the nine months
      ended December 31, 2006 and 2005, respectively. The increase between the
      year-to-date periods is due primarily to current-year depreciation on municipal
      wireless network equipment in the amount of $629,218, and the inclusion of
      the
      depreciation and amortization of Kite Broadband for the full nine months of
      the
      current year period ($732,561), including amortization related to the Sprint
      contract (see Notes 2 and 6 to the condensed consolidated financial statements
      included herein). The prior-year period included only six months of depreciation
      and amortization for Kite Broadband ($372,402).


36


Costs
      of
      services were $37,874,006 and $36,466,453, respectively, in the nine months
      ended December 31, 2006 and 2005, an increase of approximately 3.9% between
      years. These costs, expressed as a percentage of revenues for the corresponding
      periods, were 55.9% and 48.4%, respectively, for the current and prior-year
      periods. The increase in the dollars of such costs between quarters was due
      primarily to the additional costs of AFN, Kite Broadband, InReach and Kite
      Networks. The comparable businesses of Davel, CloseCall, and DFW all experienced
      decreases in such costs between years. However, such costs, expressed as
      percentages of corresponding revenues, increased between years as costs related
      to network lines and circuits could not be reduced to keep pace with the
      declining revenues.





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





**Net
                consolidated operating expenses, nine months ended December
                31, 2005**
            
            $
            39,328,797**Decrease
                in operating expenses of comparable businesses**
            
            
            (3,043,991
            )**Increase
                due to operating expenses of acquired companies for full nine
                months**
            
            
            2,967,008**Stock
                compensation charge (adoption of SFAS
                123R)**
            
            
            1,492,468**Decrease
                in goodwill impairment charges**
            
            
            (1,673,540
            )**Decrease
                in restructure charges**
            
            
            (1,051,773
            )**ProGames
                costs**
            
            
            276,263**Net
                consolidated operating expenses, nine months ended December
                31, 2006**
            
            $
            38,295,232**Net
                consolidated operating expenses above**
            
            $
            38,295,232**Cost
                of services**
            
            
            37,874,006**Depreciation
                and amortization**
            
            
            4,239,634**Consolidated
                operating costs and expenses, nine months ended December
                31, 2006**
            
            $
            80,408,872





***Interest
      Expense***





Interest
      expense, net, was $1,849,802 for the nine months ended December 31, 2006
      compared with $2,213,295 in the prior year. During the first quarter of the
      current year, we completed the retirement of our notes payable to Cornell
      Capital and allowed the term of the SEDA to expire. During the second and third
      quarters of the current fiscal year, we issued a series of new debentures to
      Cornell Capital in the total amount of $5.825 million, bearing stated interest
      at 7.75%. The prior year included interest expense related to a bridge loan
      payable to Airlie Opportunity Fund that was refinanced in May 2005.


37


The
      major
      components of net interest expense for nine months ended December 31, 2006
      and
      2005 are presented in the following schedule.


**Type
                  of Debt**
              
              **2006**
              
              **2005****Convertible
                  debentures (at stated rate)**
              
              $
              966,173
              
              $
              758,651**Discount
                  amortization amounts**
              
              
              642,786
              
              
              250,748**Debenture
                  payment discounts**
              
              
              134,791
              
              
              -**Capital
                  leases (wireless networks)**
              
              
              139,377
              
              
              -**SEDA
                  draw discounts**
              
              
              137,795
              
              
              291,956**Notes
                  payable to Cornell Capital**
              
              
              25,074
              
              
              581,627**Airlie
                  bridge loan**
              
              
              -
              
              
              381,225**Other,
                  net**
              
              
              (196,194
              )
              
              (50,912
              )**Interest
                  expense, net**
              
              $
              1,849,802
              
              $
              2,213,295




***Net
      Loss***




We
      reported a net loss of $14,876,155 for the nine months ended December 31, 2006,
      or $(0.0253) per share, compared with a net loss of $6,012,640, or $(0.0154)
      per
      share, for the prior year period. The current year results included charges
      for
      stock compensation, goodwill impairment and restructuring that totaled
      $3,867,196, and a loss incurred on the extinguishment of debt in the amount
      of
      $409,601 (see Note 7 to the condensed consolidated financial statements). The
      prior-year results included such costs that totaled $5,100,041. The voice
      services segment incurred a net loss of $2,025,971 for the current year compared
      with net income of $2,050,017 in the prior year as revenues declined by
      approximately 16.1% while the cost of services were not decreased at the same
      rate, particularly at Davel. The Internet services business incurred a net
      loss
      of $2,590,743 for the current-year nine-month period compared with a net loss
      of
      $2,759,123 in the corresponding prior year period as revenues dropped by 5.8%
      from $12,395,635 in the prior year to $11,681,819 in the current year period.
      The current-period net loss included goodwill impairment charges in the total
      amount of $2,090,889. The prior-year results included goodwill impairment and
      restructuring charges in the amounts of $1,945,519 and $1,335,612, respectively.
      The net loss incurred by Kite Networks was the primary cause of the net loss
      of
      $3,987,504 reported by the wireless networks segment for the current year,
      relating primarily to the expansion of the municipal wireless business; the
      net
      loss reported by this business segment was $1,368,920 in the corresponding
      period of the prior year. Corporate expenses were $6,271,937 in the current
      year, including $1,492,468 in stock compensation, $185,968 in restructuring
      charges, the loss on extinguishment of debt of $409,601, the write-off of the
      investment banking fees in the amount of $165,886, and $369,033 in ProGames
      operating costs. Such increases were partially offset by the reduction in net
      interest expense between years as presented above. Corporate expenses were
      $3,934,614 for the nine months ended December 31, 2005.





***Adjusted
      EBITDA Presentation***





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


38


The
      computations of Adjusted EBITDA for the quarters ended December 31, 2006
      and 2005 were as follows.





**2006**
            
            **2005****Net
                loss**
            
            $
            (6,027,734
            )
            $
            (6,955,732
            )**Add
                non-EBITDA items included in net results:****Depreciation
                and amortization**
            
            
            1,459,831
            
            
            1,293,993**Interest
                expense, net**
            
            
            928,787
            
            
            582,785**Goodwill
                impairment and restructuring charges**
            
            
            1,213,035
            
            
            5,100,041**Stock
                compensation expense**
            
            
            535,821
            
            
            -**Adjusted
                EBITDA**
            
            $
            (1,890,260
            )
            $
            21,087





The
      computations of Adjusted EBITDA for the nine months ended December 31, 2006
      and 2005 were as follows.





**2006**
            
            **2005****Net
                loss**
            
            $
            (14,876,155
            )
            $
            (6,012,640
            )**Add
                non-EBITDA items included in net results:****Depreciation
                and amortization**
            
            
            4,239,634
            
            
            3,163,689**Interest
                expense, net**
            
            
            1,849,802
            
            
            2,213,295**Goodwill
                impairment and restructuring charges**
            
            
            2,374,728
            
            
            5,100,041**Stock
                compensation expense**
            
            
            1,492,468
            
            
            -**Loss
                on debt extinguishment**
            
            
            409,601
            
            
            -**Adjusted
                EBITDA**
            
            $
            (4,509,922
            )
            $
            4,464,385





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




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


39


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





**Liquidity
      and Capital Resources**





During
      the nine months ended December 31, 2006, our balance of unrestricted cash and
      cash equivalents increased by $479,532 to $5,877,413.





Net
      cash
      used in operations during the nine months ended December 31, 2006 was
      $4,221,622, reflecting the funding of operating expenses incurred by the Company
      and including a reduction of $1,383,099 in the total amount of accounts payable
      and accrued liabilities. Partially offsetting these factors was the $2,329,180
      reduction in the balance of accounts receivable during the current year that
      was
      primarily due to a reduction in revenues. However, based on revenues for the
      respective preceding quarters, we reduced days sales in receivables to 35.7
      days
      at December 31, 2006 from 39.8 days at March 31, 2006. Non-charges for the
      nine
      months ended December 31, 2006 totaled $9,393,622, including depreciation and
      amortization of $4,165,456, goodwill impairment charges of $2,090,889, stock
      compensation of $1,528,468, non-cash interest expense of $915,371, the loss
      on
      debt extinguishment of $409,601 and restructuring charges of $283,839. Non-cash
      charges for the nine month period ended December 31, 2005 totaled $8,838,559.





We
      used
      net cash of $3,481,256 in connection with investing activities during the
      current year. Cash used for capital expenditures during the current year totaled
      $5,544,243 including approximately $4,360,000 related to the deployment of
      municipal wireless networks. Net unrestricted cash proceeds of $2,144,666 were
      provided from the sale of certain wireless network equipment in Tempe and
      Farmers’ Branch (see additional discussion of these sale/leaseback transactions
      below).





Our
      financing activities during the current year provided net cash of $8,182,410.
      Cash provided to us from the sale of common stock, primarily sales to Cornell
      Capital pursuant to the SEDA, totaled $6,653,891. Net cash proceeds received
      from the issuance of convertible debentures were $5,540,750. During the current
      year, we used cash to make payments reducing the balance of notes payable and
      other debt amounts. The net reduction was $4,012,231 including the payment
      of
      the balance of notes payable to Cornell Capital in the amount of $3,600,000
      and
      the payment of principal due under capital network equipment leases of
      $365,836.





We
      expect
      that our future cash flows from operations will not be adequate to meet our
      anticipated cash needs in the foreseeable future. Most important, we estimate
      that aggregate capital expenditures of approximately $45 million will be
      required in order to complete the municipal wireless network deployments
      contemplated by our current business plan, including approximately $8-$10
      million related to full-scale deployments awarded to us to date. In order to
      support the municipal wireless network business operations, to complete the
      deployment of these wireless networks, and to pursue one or more significant
      strategic acquisitions, we will need to incur additional debt or issue
      additional equity. Our expectation for the Company’s revenue-producing
      businesses is that they will achieve at least an aggregate breakeven cash flow
      from operations and cover corporate expenses. Notwithstanding our expectation,
      that did not occur in the three or nine months ended December 31, 2006. A
      further decline in our revenue-generating businesses will increase our need
      for
      cash.





On
      May
      19, 2006, the SEDA expired without renewal. The SEDA was important to the growth
      of our Company. However, we came to believe that the potential additional
      issuances of common stock pursuant to the SEDA resulted in an overhang that
      was
      depressive to the trading price of our common stock. We also believed that
      less
      expensive financing alternatives may be available to the Company. However,
      the
      successful pursuit of alternative sources of capital has been very difficult.
      Our group of businesses, our history of net losses, our lack of a corporate
      credit history with significant suppliers and the uncertain payback associated
      with investments in municipal wireless networks have proven to be significant
      obstacles to overcome in our search for capital.


40


Despite
      the expiration of the SEDA, Cornell Capital 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 Cornell Capital, replacing the
      convertible debenture with an outstanding principal amount of $15,000,000 (and
      accrued interest payable at June 30, 2006 of approximately $149,650) that was
      issued to Cornell Capital in May 2005. Under the terms of the Amended Debenture,
      we agreed to make weekly scheduled principal payments of at least $250,000
      that
      commenced in the current quarter with interest on the outstanding principal
      balance payable at the same time. However, we have the right to make any and
      all
      such principal and interest payments by issuing shares of our common stock
      to
      Cornell Capital. The amount of such shares is based upon the lower of $0.275
      per
      share or 93% of the average of the two lowest daily volume weighted average
      per
      share prices of our common stock during the five days immediately following
      the
      scheduled payment date. During the quarter ended December 31, 2006, the Company
      issued 22,756,854 shares of its common stock to Cornell Capital in satisfaction
      of its obligation under the Amended Debenture to make weekly installment
      principal payments, plus interest. Such issuances reduced the debenture
      principal balance by $1,250,000 and paid $538,762 in accrued interest expense.
      With the issuance of the Amended Debenture, we deferred a cash requirement
      of
      $4,500,000 (the amount of the originally scheduled principal payments in the
      twelve month period ending March 31, 2007) relating to fiscal year
      2007.





On
      August
      28, 2006, the Company entered into a financing agreement with Cornell Capital
      that will provide $7.0 million in funding with the proceeds received upon the
      issuance of a series of secured, convertible debentures. At each closing, the
      Company issues Cornell Capital a 7.75% secured convertible debenture in the
      principal amount for that closing, convertible into common stock at $0.174
      per
      share and pays 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. Under this arrangement, as amended, the Company will make weekly
      scheduled principal payments of at least $125,000 commencing July 8, 2007,
      with
      interest on the outstanding principal balance payable at the same time. The
      Company also has the right to make any and all such principal payments by
      issuing shares of its common stock to Cornell Capital with the amount of such
      shares based upon the lower of $0.174 per share or 93% of the average of the
      two
      lowest daily volume weighted average per share prices of its common stock during
      the five days immediately following the scheduled payment date. Pursuant to
      the
      final closing under this agreement, we received gross proceeds of $1,175,000
      on
      February 1, 2007.





Under
      the
      $7.0 million financing agreement with Cornell Capital, the issuance of each
      debenture to Cornell Capital is accompanied by the issuance of a stock warrant.
      To date, we have issued warrants to purchase 10,000,000 shares of our common
      stock at $0.174 per share. In addition, the warrants that were issued to Cornell
      Capital in connection with the Debenture and the Amended Debenture were amended
      to increase the number of shares and decrease the per share exercise prices.
      The
      number of shares subject to exercise under the warrants related to the Debenture
      and the Amended Debenture were increased to 15,000,000 shares and 13,750,000,
      respectively, from 6,000,000 and 10,000,000, respectively. The per share
      exercise prices of the warrants were reduced from $0.50 and $0.275,
      respectively, to $0.20 in both instances.





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 our common stock by various
      selling stockholders, including 55,089,635 shares that may be issued to Cornell
      Capital under the Amended Debenture, 120,689,655 shares related to the $7.0
      million financing agreement discussed above, and 38,750,000 shares related
      to
      the corresponding stock warrants. This registration statement was declared
      effective by the SEC, enabling our use of common stock to make installment
      payments to Cornell Capital under the various debentures. Of the approximately
      175,779,000 shares covered by the registration statement relating to the
      debentures, approximately 46,202,000 have been issued.





During
      the current year, we have been successful in obtaining lease financing covering
      certain municipal wireless network equipment. On
      June
      28, 2006, the Company executed a master equipment lease agreement intended
      to
      provide financing for the acquisition of qualifying municipal wireless network
      equipment. On June 30, 2006, the Company received $2,000,000 in gross cash
      proceeds from the sale of certain municipal wireless network equipment that
      is
      deployed in Tempe, Arizona, and is leasing back the equipment pursuant to the
      master lease agreement. The
      leaseback period is 36 months and the terms include a fair-market-value purchase
      option at the end of the lease term. However, in order to satisfy concerns
      about
      our credit worthiness, we were required to purchase certificates of deposit
      totaling $700,000 that serve as collateral for the benefit of the lessor. On
      December 26, 2006, we completed the receipt of approximately $1,207,000 in
      gross
      cash proceeds from the sale of certain wireless network equipment deployed
      in
      Farmers’ Branch, Texas, and commenced a leaseback of the equipment under the
      master lease agreement. As above, the leaseback period is thirty-six months
      and
      the terms include a fair-market-value purchase option at the end of the lease
      term. The Company was required to purchase certificates of deposit totaling
      approximately $362,000 in order to collateralize this transaction.


41


On
      October 10, 2006, the Company signed a master equipment lease agreement with
      a
      different lease financing firm that may provide up to $3 million in lease
      financing capital for future wireless network equipment purchases. The
      commitment is available only for equipment manufactured by Cisco Systems. Fifty
      percent of the commitment is designated for core network infrastructure
      equipment. The remainder of the commitment is available for transmission
      equipment purchases and can be used to finance up to 50% of the cost of such
      purchases. The lease term for each equipment purchase shall be 24 months. On
      December 20, 2006, the Company completed the acceptance of the equipment
      included on the initial schedule appended to this master lease agreement with
      a
      total cost of approximately $508,000.




We
        expect
        to negotiate future municipal wireless equipment lease financing arrangements
        with longer terms and/or reduced collateral requirements. We continue to
        pursue
        the addition of new lease financing to cover the costs of the access point
        equipment deployed in Longmont, Colorado, and the future costs of the wireless
        networks planned for Yuma, Gilbert and Chandler. In the meantime, obtaining
        flexible payment terms from suppliers is important to our ability to complete
        deployments. For example, suppliers granted extended payment terms to Kite
        Networks in connection with the deployments of the equipment in Tempe and
        Longmont. Negotiations are underway in attempts to obtain extended payment
        terms
        from the likely suppliers of equipment for the Gilbert and Chandler deployments.
        However, the fact that substantially all of the balance due for the Longmont
        equipment (approximately $1,569,000) is overdue is adversely affecting the
        negotiations. The supplier’s position is that payment of this amount must occur
        before discussions continue. Payment of this overdue amount prior to our
        arranging lease financing or securing funding from some other source would
        reduce our unrestricted cash balance significantly.




Finally,
      in order to assist us in considering the strategic alternatives available to
      us
      for the municipal wireless network business and its need for capital, we
      recently announced the engagement of BB&T Capital Markets as Kite’s
      financial advisor. As discussed above, growing this business to a size that
      is
      profitable and cash-flow positive will require a substantial amount of capital.
      It does not appear reasonable that we will have the ability to fund the cash
      needs of this business as we have to this point. Consequently, we expect that
      this engagement will result in a recommendation that we sell all or a portion
      of
      this business in order to recover our investment and/or eliminate the current
      Mobilepro requirement to support this business.





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





**Inflation**




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





**Risks
      Related to Our Business**




Investing
      in our securities involves a high degree of risk. Before investing in our
      securities, you should carefully consider the risks and uncertainties described
      below and those included in our Annual Report on Form 10-K/Afor the fiscal
      year
      ended March 31, 2006, and in our Quarterly Reports on Form 10-Q/A for the
      quarters ended September 30 and June 30, 2006, and the other information
      contained in this report. If any of these risks or uncertainties actually
      occurs, our business, financial condition or future operating results could
      be
      materially harmed. In such an event, the trading price of our common stock
      could
      decline and you could lose part or all of your investment.


42


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




We
      have
      historically lost money. In the years ended March 31, 2006 and 2005, we
      sustained net losses of $10,176,407 and $5,359,722, respectively. In addition,
      we incurred a net loss of $14,876,155 in the nine months ended December 31,
      2006
      caused primarily by declining revenues. As a result, the amount of cash used
      in
      operations during the nine months ended December 31, 2006 was $4,221,622. Future
      losses may occur. Accordingly, we will experience liquidity and cash flow
      problems if we are not able to improve our operating performance or raise
      additional capital as needed and on acceptable terms. If we fail to obtain
      alternative capital financing or eliminate the net losses and negative cash
      flows of our operating businesses, we will be required to consider other
      alternatives, including the reduction of our operations (in particular the
      deployment of additional municipal wireless networks), the discontinuance or
      disposal of certain assets or operations, or the sale of the entire
      Company.




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




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




On
      August
      28, 2006, we entered into an agreement with Cornell Capital to provide up to
      $7.0 million in capital financing through the issuance of a series of
      debentures. All of these funds have been received. Under the terms of this
      financing agreement, as amended, we have agreed to make weekly scheduled
      principal payments of at least $125,000 commencing July 8, 2007, with interest
      on the outstanding principal balance payable at the same time. As above, we
      have
      the right to make any and all such principal payments by issuing shares of
      our
      common stock to Cornell Capital with the amount of such shares based upon the
      lower of $0.174 per share or 93% of the average of the two lowest daily volume
      weighted average per share prices of our common stock during the five days
      immediately following the scheduled payment date. Cornell Capital may convert
      all or any part of the unpaid principal and accrued interest owed under these
      debentures into shares of our common stock at a conversion price of $0.174
      per
      share.




On
      January 31, 2007, the price of our common stock closed at $0.055 per share.
      Should the price of our stock remain at the current level and we choose to
      continue to make scheduled principal payments with our common stock, the
      issuance of shares of our common stock to Cornell Capital may result in
      significant dilution to the value of common stock currently held by our
      stockholders. For example, using 93% of the closing price per share on January
      31 ($0.051 per share) as the calculation price, each future weekly retirement
      of
      debt under the Amended Debenture in the amount of $250,000 would result in
      the
      weekly issuance of approximately 4,902,000 shares of our common stock, and
      each weekly retirement of debt under the $7.0 million financing agreement in
      the
      amount of $125,000 would result in the weekly issuance of
      approximately 2,451,000 shares of our common stock to Cornell Capital
      commencing July 8, 2007. Based on our current stock trading price, we would
      ultimately issue an aggregate of approximately 436,391,000 shares of our common
      stock to repay the Amended Debenture and the $7.0 million debentures in full.
      However, we may issue fewer shares if the market price of our common stock
      increases, and we may issue more shares if the market price of our common stock
      decreases.


43


**We
      May Not Have Enough Registered Shares to Cover All of the Scheduled Debenture
      Payments with Our Common Stock**


The
        Company filed a registration statement on Form S-3 on October 12, 2006
        registering the resale of a total of 404,474,901 shares of our common stock
        by
        various selling stockholders, including 55,089,635 shares that may be issued
        to
        Cornell Capital under the Amended Debenture, 120,689,655 shares related to
        the
        $7.0 million financing agreement, and 38,750,000 shares related to the
        corresponding stock warrants. This registration statement was declared effective
        by the SEC enabling our use of common stock to make installment payments
        to
        Cornell Capital under the various debentures. Of the approximately 175,779,000
        shares covered by the registration statement relating to the debentures,
        approximately 46,202,000 have been issued.
 
 Should
        the per share market price of our common stock remain at the current level,
        payment of the remaining outstanding principal amounts due under the debentures
        issued to Cornell Capital (excluding shares to cover interest) would require
        436,391,000 registered shares. We have registered approximately 175,779,000
        shares to cover such payments. The difference in the number of shares represents
        a debenture principal amount of approximately $14,334,000.
 
 If
        our
        stock price does not rise sufficiently to eliminate this difference, or we
        should fail to negotiate sufficient modifications to the debenture payment
        terms
        or to register additional shares of our common stock for the benefit of Cornell
        Capital, we would be required to make the principal payments, plus interest,
        in
        cash.




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




We
      have
      relied almost entirely on external financing to fund our operations and
      acquisitions to date. We have been particularly reliant on funds provided by
      Cornell Capital. Such financing has historically come from a combination of
      borrowings and sale of common stock. We drew a total of $39,173,129 in funds
      under the $100 million SEDA resulting in the issuance of approximately
      183,996,589 shares of our common stock to Cornell Capital. Our SEDA expired
      on
      May 19, 2006 and was not renewed. In addition, we have issued debentures to
      Cornell Capital in connection with transactions that have provided an aggregate
      of $21,474,650 in funding since May 2005. In connection with payments of
      principal and interest under the debentures, we have issued a total of
      approximately 46,202,000 shares of our common stock to Cornell Capital since
      November 2006.




Over
      the
      next two years we anticipate that we may need to raise additional or alternative
      capital to fund major acquisitions and to grow our emerging businesses. We
      anticipate that these additional funds will be in the range of $45 million
      to
      $200 million, depending on the pace of growth and/or the size of future
      acquisitions.





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





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




As
      a
      publicly traded telecommunications company, we are subject to the regulatory
      scrutiny of both the Federal Communications Commission (the “FCC”) and the SEC.
      Both agencies are 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.
      Such behavior would materially impair Mobilepro’s access to the capital markets,
      potentially force Mobilepro to incur substantial litigation related costs and
      may force Mobilepro to seek a merger with another company.  44


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




At
      December 31, 2006, our balance sheet included intangible assets with a total
      carrying value of approximately $53,783,000, representing 57.0% of total assets,
      and including approximately $46,007,000 in goodwill. Substantially all of this
      goodwill has been recorded in connection with the series of acquisitions
      completed by us since January 1, 2004. GAAP requires that we assess the fair
      values of acquired entities at least annually in order to identify any
      impairment in the values. We perform our annual impairment tests for goodwill
      at
      fiscal year-end. However, on a quarterly basis, we are alert for events or
      circumstances that would more likely than not reduce the fair value of a
      reporting segment below its carrying amount. If we determine that the fair
      value
      of an acquired entity is less than the net assets of the entity, including
      goodwill, an impairment loss would be identified and recorded at that
      time.




During
      the three months ended December 31, 2005, both the Internet and voice services
      segments incurred operating losses that were not expected. As a result,
      management reviewed the carrying values of the assets of these segments and
      determined that an adjustment for goodwill impairment was appropriate at
      December 31, 2005. The Company recorded an impairment charge in the amount
      of
      $3,764,429, including $1,945,519 related to the Internet service companies
      and
      $1,818,910 related to Affinity Telecom (“Affinity”), a CLEC business located in
      the state of Michigan that was acquired in August 2004. The impairment charges
      represented approximately 17.2% and 84.5% of the goodwill related to the
      Internet service companies (excluding InReach) and Affinity, respectively.
      The
      Company experienced a significant and steady loss of Affinity customers, and
      Affinity incurred bad debt losses at a greater rate than in our other CLEC
      companies. The negative customer churn of dial-up Internet access customers
      has
      exceeded management's expectations, contributing to the net losses incurred
      by
      this segment during the most recent five quarters. In the succeeding quarters,
      we recorded additional ISP goodwill impairment charges totaling $2,773,005,
      including $1,213,035 recorded in the quarter ended December 31,
      2006.




Future
      assessments of the acquisition fair values could identify material impairment
      losses resulting in substantial write-offs of goodwill. For example, the
      goodwill included in the balance sheet at December 31, 2006 related to the
      DFW
      group of Internet service provider companies was approximately $10,573,000.
      Future adjustments, that could include all of the remaining balance of the
      DFW
      goodwill, could have material adverse effects on our results of operations and
      our financial position, and could impede our continuing ability to raise capital
      and/or to make acquisitions.





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




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




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


45


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




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




Additionally,
      Davel indirectly competes with other telecommunications providers, including
      providers of wireless services and prepaid calling card companies, for end
      users
      to utilize our pay telephones to make local and long distance calls. The
      proliferation of wireless communication devices has continued to reduce the
      use
      of pay telephones. For example, the cellular telephone business of CloseCall
      represents indirect competition for Davel. Furthermore, certain providers of
      wireless communication devices have continued to introduce rate plans, including
      pre-paid rate plans, that are competitively priced with certain of the products
      offered by us and have negatively impacted the usage of pay telephones
      throughout the nation. The effect on our business is that revenues of Davel
      are
      steadily declining. Davel’s revenues were $40,305,697 for the twelve months
      ended March 31, 2006 compared with $55,091,465 (including the pre-acquisition
      portion) for the corresponding period of the prior year, a decline of 26.8%.
      Further, Davel’s revenues were approximately $23,991,000 for the nine months
      ended December 31, 2006 compared with approximately $32,283,000 for the nine
      months ended December 31, 2005, a decline of 25.7%.




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




**If
      We Are Unable to Successfully Acquire the Necessary Equipment, the Deployment
      and Management of Our Wireless Networks Could Be Delayed, Contracts Could Be
      Lost, and Our Efforts to Raise Capital for This Business Could Be Adversely
      Affected**


The
        successful deployment and management of a broadband wireless network, like
        the
        Tempe network, depends on our ability to obtain the necessary technical
        equipment and to acquire such equipment when needed at prices and on terms
        acceptable to us. Required equipment includes antennas, transmitters and
        network
        routers. For the Tempe network, we successfully obtained such equipment with
        the
        total cost approximating $3.0 million. To date, we have incurred an additional
        $5.5 million in equipment costs related to additional scheduled wireless
        network
        deployments.
 
 Obtaining
        flexible payment terms from suppliers for large equipment purchases has been
        important to our ability to complete deployments. Such terms have allowed
        us to
        more effectively manage our cash flow and/or negotiate sale/leaseback
        transactions. For example, suppliers granted extended payment terms to us
        in
        connection with the deployments of the equipment in Tempe and Longmont.
        Negotiations are underway in attempts to obtain extended payment terms from
        the
        likely suppliers of equipment for the Gilbert and Chandler deployments. However,
        the fact that substantially all of the balance due for the Longmont equipment
        (approximately $1,569,000) is overdue is adversely affecting the negotiations.
        The supplier’s position is that payment of this amount must occur before
        discussions continue. Payment of this overdue amount prior to our arranging
        lease financing or securing funding from some other source would reduce our
        unrestricted cash balance significantly. Further, the transmission equipment
        being installed by us incorporates certain new technologies that are largely
        untested in these types of networks. Should functionality prove to be
        ineffective, we may be required to make additional expenditures to upgrade
        or
        replace equipment that has already been installed.
 
 There
        can
        be no assurance that our purchasing efforts will continue to be successful.
        If
        we are unable to acquire the remainder of the equipment necessary for the
        successful completion of the wireless networks that we have been awarded
        when
        needed, or are unable to purchase equipment for future networks, all at prices
        and on terms acceptable to us, the deployment, ownership and management of
        broadband wireless networks could be delayed.
 
 We
        are
        contractually obligated to complete the deployment of the Yuma and Gilbert
        deployments by March 31, 2007. Because we have not yet obtained the required
        equipment, it is unlikely that we will complete the deployments by then.
        The
        completion of the Chandler network is overdue. If we do not continue to be
        granted extensions by the cities, we could lose the deployment opportunities.
        The loss of any of these contracts would adversely affect the growth of our
        wireless network business, and could adversely affect our ability to raise
        required capital.




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




Selection
      of our Company for the deployment, ownership and operation of a city-wide
      wireless networks may result after a formal bid and proposal process or it
      may
      result from a directed award. We have been selected by ten municipalities in
      total, and we are working on eight of those projects. However, negotiation
      of a
      definitive contract covering the engagement typically follows the announcement
      of the selection. There can be no assurance that we will complete a deployment
      until a definitive contract is in place. For example, earlier last year, we
      announced our selection by the city of Sacramento, California. However, more
      recently, we announced our decision to terminate the pursuit of this project
      during contract negotiation as we determined that certain new requirements
      imposed by the city were inconsistent with our current business model and
      original award. Likewise, during the current quarter, we discontinued
      negotiations with the prime contractor for the Brookline, Massachusetts wireless
      network deployment due to economic issues and legal risks. Of the remaining
      active projects, we have not yet completed contract negotiation with the cities
      of Akron and Cuyahoga Falls, Ohio. There can be no assurance that we will reach
      a definitive agreement for the deployment, ownership and operation of wireless
      networks in these or other cities.  46


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




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




In
      October 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. The number of shares registered in this offering
      represents approximately 45.4% of the total number of shares of common stock
      outstanding upon their issuance. In the event that the selling stockholders
      dispose of some or all of the shares of common stock, such sales may cause
      our
      stock price to decline.




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





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




**We
        May Not Successfully Integrate Our TCS Acquisition Which Could Harm Our
        Business**
  As
        discussed elsewhere in this document, in January 2007, CloseCall acquired
        certain cellular telephone service contracts from TCS, representing over
        7,000
        cellular subscribers, plus related accounts receivable and inventory. As
        structured, the transaction should enhance revenues, operating profits and
        cash
        flow from operations by leveraging the existing CloseCall organization while
        adding a small group of salespersons experienced in selling telecommunications
        services to commercial customers. We expect this transaction to immediately
        add
        over $5,000,000 to the annual revenues of CloseCall.
 
 However,
        our plans require the rapid integration of the major processes required to
        support the acquired customers, including provisioning, customer billing,
        cash
        collections and customer care. Certain aspects of the acquired business are
        new
        and the experience of CloseCall’s employees with the required integration tasks
        is limited. Failure to execute our integration efforts quickly or effectively
        could harm our business, resulting in poor service, the unexpected loss of
        subscribers, the inability to obtain new customers, the unanticipated costs
        of
        maintaining separate processes, and/or the loss of key employees. In addition,
        unexpected difficulty with the integration could divert the attention of
        key
        management from other essential tasks.


**If
      Our Current or Previous Capital Raising Transactions with Cornell Capital Were
      Held to Be in Violation of the Securities Act of 1933, We Could Experience
      Significant Negative Consequences**




During
      its review of Amendment No. 1, filed on November 30, 2005, to our Registration
      Statement on Form SB-2, originally filed on September 30, 2005 and withdrawn
      by
      us on September 22, 2006, the SEC issued a comment stating that it believed
      that
      the repayment of promissory notes to Cornell Capital using proceeds from
      advances under the SEDA may have somehow violated Section 5 of the Securities
      Act of 1933 (the “Securities Act”). We requested guidance from the SEC regarding
      these transactions and how the transactions we had completed implicated Section
      5. The only guidance we received was a reference to Section VIII of the
      Commission’s Current Issues and Rulemaking Projects Quarterly Update dated March
      31, 2001 (the “Quarterly Update”). We analyzed each requirement for an equity
      line to comply with the Securities Act set forth in the Quarterly Update. We
      believe that we fully complied with the SEC’s guidance and that the guidance
      does not explicitly or implicitly prohibit or in any way limit the use of
      proceeds under the SEDA to repay debt obligations to Cornell Capital or any
      other party or limit any other use of proceeds. We are not aware of any other
      law, regulation or interpretive guidance on this subject and have not been
      advised of the existence of any by the SEC. Once we became aware of the new
      position of the staff of the SEC on this issue, however, we nevertheless
      immediately changed our repayment of notes issued to Cornell Capital to ensure
      that such repayments of debt were made only from cash generated by our
      operations or provided from other sources. Furthermore, all such notes payable
      to Cornell Capital were repaid during the quarter ended June 30, 2006, and
      no
      such notes were payable to Cornell Capital at September 30, 2006.




Accordingly,
      we do not believe that these transactions constitute a violation of the
      Securities Act. However, the SEC could commence an enforcement action against
      us, and if these transactions were held by a court to be in violation of the
      Securities Act, we could experience a material adverse effect and the market
      price of our common stock could decline, which could force us to sell or merge
      the company because our ability to raise additional financing would be
      significantly compromised.


47


We
      do not
      believe we have violated the Securities Act, and we would contest vigorously
      any
      claim that a violation of the Securities Act occurred.





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





Not
      applicable.





**Item
      4. Controls and Procedures.**





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





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


48


**PART
      II**


**OTHER
      INFORMATION**





**Item
      1. Legal Proceedings.**




In
      addition to certain other litigation arising in the normal course of its
      business that we believe will not materially affect our financial position
      or
      results of operation, we were involved with the following legal proceedings
      during the nine months ended December 31, 2006.





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




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





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




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


49


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





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





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




3)
              On
                  August 6, 2006, we were served with a summons and complaint filed
                  in the
                  Superior Court of the State of Arizona in Maricopa County in the
                  matter
                  captioned Michael V. Nasco, et. al. vs. MobilePro Corp., et. al.
                  which
                  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 and the matter is in the initial
                  stages of discovery. We believe that we have meritorious defenses
                  to the
                  alleged claims and intend to vigorously defend ourselves in this
                  matter.
                  In the event that our defenses were not successful, we believe
                  that any
                  potential exposure related to the claims alleged against the Company
                  is
                  not likely to be material.




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





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





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





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





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





Since
      August 28, 2006, in connection with the issuance of debentures under the $7.0
      million financing agreement, we have issued warrants to purchase 10,000,000
      shares of our common stock to Cornell Capital, exercisable at a per share price
      of $0.174.





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


50


During
      the three months ended December 31, 2006, the Company issued 22,756,853 shares
      of its common stock to Cornell Capital in satisfaction of its obligation under
      the Amended Debenture to make installment principal payments of $250,000 per
      week, plus interest.





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 December
      31, 2006.





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




None.





**Item
      5. Other Information.**




Not
      applicable.





**Item
      6. Exhibits.**





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





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


51





2.5
            Agreement
                and Plan of Merger, dated as of June 3, 2004, by and among Mobilepro
                Corp., DFW Internet Services, Inc., DFWS Acquisition Corp., ShreveNet,
                Inc. and the stockholders identified therein
            
            Incorporated
                by reference to Exhibit 99.1 to the Registrant’s Current Report on Form
                8-K filed on June 8, 20042.6
            Asset
                Purchase Agreement, dated as of June 21, 2004, by and between Crescent
                Communications, Inc. and DFW Internet Services, Inc.
            
            Incorporated
                by reference to Exhibit 99.1 to the Registrant’s Current Report on Form
                8-K filed on June 22, 20042.7
            Agreement
                and Plan of Merger, dated July 6, 2004, by and among the Company,
                DFW
                Internet Services, Inc., DFWC Acquisition Corp., Clover Computer
                Corp. and
                Paul Sadler
            
            Incorporated
                by reference to Exhibit 2.1 to the Registrant’s Current Report on Form 8-K
                filed on July 8, 20042.8
            Agreement
                and Plan of Merger, dated July 14, 2004, by and among DFW Internet
                Services, Inc., DFWT Acquisition Corp., Ticon.net, Inc. and the
                stockholders identified therein
            
            Incorporated
                by reference to Exhibit 2.1 to the Registrant’s Current Report on Form 8-K
                filed on July 15, 20042.9
            Agreement
                and Plan of Merger, dated July 30, 2004, by and among the Company,
                Affinity Acquisition Corp., C.L.Y.K., Inc. and the stockholders identified
                therein
            
            Incorporated
                by reference to Exhibit 2.1 to the Registrant’s Current Report on Form 8-K
                filed on August 20, 20042.10
            Amendment
                No. 1 to Agreement and Plan of Merger, dated December 28, 2004, by
                and
                among the Company, Affinity Acquisition Corp., C.L.Y.K., Inc. and
                the
                stockholders identified therein
            
            Incorporated
                by reference to Exhibit 10.1 to the Registrant’s Current Report on Form
                8-K filed on January 21, 20052.11
            Asset
                Purchase Agreement, dated as of August 13, 2004, by and among Web
                One,
                Inc., DFW Internet Services, Inc. and Jeff McMurphy
            
            Incorporated
                by reference to Exhibit 2.1 to the Registrant’s Current Report on Form 8-K
                filed on August 19, 20042.12
            Agreement
                and Plan of Merger, dated August 31, 2004, by and among the Company,
                MVCC
                Acquisition Corp. and CloseCall America, Inc.
            
            Incorporated
                by reference to Exhibit 2.1 to the Registrant’s Current Report on Form 8-K
                filed on October 19, 2004


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


52





2.16
            Agreement
                and Plan of Merger, dated September 16, 2004, by and among the Company,
                DFW Internet Services, Inc., DFWR Acquisition Corp., The River Internet
                Access Co. and the stockholders identified therein
            
            Incorporated
                by reference to Exhibit 2.1 to the Registrant’s Current Report on Form 8-K
                filed on September 17, 20042.17
            Agreement
                and Plan of Merger by and among Registrant, NeoReach, Inc., Transcordia
                Acquisition Corp., Transcordia, LLC and its Unit Holders, dated April
                2005
            
            Incorporated
                by reference to Exhibit 2.1 to the Registrant’s Form 10-QSB filed August
                15, 20052.18
            Agreement
                and Plan of Merger by and among Registrant, NeoReach, Inc., NeoReach
                Wireless, Inc., Evergreen Open Broadband Corporation, and Certain
                Shareholders
            
            Incorporated
                by reference to Exhibit 2.1 to the Registrant’s Form 10-QSB filed August
                15, 20052.19
            Agreement
                and Plan of Merger, dated June 30, 2005, by and among the Company,
                AFN
                Acquisition Corp., American Fiber Network, Inc. and the individuals
                and
                entities identified therein
            
            Incorporated
                by reference to Exhibit 2.1 to the Registrant’s Current Report on Form 8-K
                filed on July 6, 20052.20
            Agreement
                and Plan of Merger, dated October 31, 2005, by and among the Company,
                InReach Internet, Inc., InReach Internet, LLC, and Balco Holdings,
                Inc.
            
            Incorporated
                by reference to Exhibit 2.1 to the Registrant’s Current Report on Form 8-K
                filed on November 7, 20052.21
            Form
                of assignment of Limited Liability Company Interest/Release, dated
                January
                31, 2006
            
            Incorporated
                by reference to Exhibit 2.21 to the Registrant’s Quarterly Report on Form
                10-Q for the quarter ended June 30, 20062.22
            Agreement
                and Plan of Merger, dated January 31, 2006, by and among Mobilepro
                Corp.,
                Kite Acquisition Corp. and Kite Networks, Inc.
            
            Incorporated
                by reference to Exhibit 2.22 to the Registrant’s Quarterly Report on Form
                10-Q for the quarter ended June 30, 20063.1
            Certificate
                of Incorporation, dated April 20, 2001, of Registrant
            
            Incorporated
                by reference to Exhibit 3.1 to the Registrant’s Registration Statement on
                Form S-8 filed on May 11, 20013.2
            Certificate
                of Amendment of Certificate of Incorporation of Mobilepro Corp dated
                November 16, 2001.
            
            Incorporated
                by reference to Exhibit 3.1 to the Registrant’s Registration Statement on
                Form S-8 filed on December 4, 20013.3
            Certificate
                of Amendment to Certificate of Incorporation of Mobilepro Corp. dated
                March 11, 2003
            
            Incorporated
                by reference to Exhibit 3.11 to the Registrant’s Registration Statement on
                Form SB-2 filed on May 6, 20033.4
            By-Laws
                of Registrant
            
            Incorporated
                by reference to Exhibit 3.2 to the Registrant’s Registration Statement on
                Form S-8 filed on May 11, 20014.1
            2001
                Equity Performance Plan
            
            Incorporated
                by reference to Exhibit 4.1 to the Registrant’s Registration Statement on
                Form S-8 filed on December 4, 2001


53





4.2
            Amended
                and Restated 2001 Equity Performance Plan
            
            Incorporated
                by reference to Exhibit 4.2 to the Registrant’s Annual Report on Form
                10-KSB filed on June 29, 20044.3
            Registration
                Rights Agreement, dated September 16, 2004, by and among the Company
                and
                the persons and entities identified therein
            
            Incorporated
                by reference to Exhibit 4.3 to the Registrant’s Annual Report on Form
                10-KSB filed on June 28, 20054.4
            Registration
                Rights Agreement, dated November 15, 2004, by and among the Company
                and
                the persons and entities identified therein
            
            Incorporated
                by reference to Exhibit 10.3 to the Registrant’s Current Report on Form
                8-K filed on November 17, 20044.5
            Form
                of Warrant issued on November 15, 2004
            
            Incorporated
                by reference to Exhibit 10.2 to the Registrant’s Current Report on Form
                8-K filed on November 17, 2004


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


54





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


55





10.22
            Amendment
                No. 2 to Employment Agreement between Davel Communications, Inc.
                and Tammy
                L. Martin, dated May 26, 2005
            
            Incorporated
                by reference to Exhibit 10.30 to the Registrant’s Annual Report on Form
                10-KSB filed on June 28, 2005


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


56


10.34
              Executive
                  Employment Agreement dated February 1, 2006, between Jerry M.
                  Sullivan, Jr. and the Company
              
              Incorporated
                  by reference to Exhibit 10.1 to the Registrant’s Current Report on Form
                  8-K filed February 13, 200510.35
              Secured
                  Convertible Debenture, issued on June 30, 2006 by the Company to
                  Cornell
                  Capital
              
              Incorporated
                  by reference to Exhibit 10.1 to the Registrant’s Current Report on Form
                  8-K filed July 7, 200610.36
              Warrant
                  issued by the Company to Cornell Capital
              
              Incorporated
                  by reference to Exhibit 10.40 to the Registrant’s Quarterly Report on Form
                  10-Q for the quarter ended June 30, 200610.37
              Master
                  Lease Agreement dated June 28, 2006 between JTA Leasing Co., LLC,
                  Mobilepro Corp., and NeoReach, Inc.
              
              Incorporated
                  by reference to Exhibit 10.41 to the Registrant’s Quarterly Report on Form
                  10-Q for the quarter ended June 30, 200610.38
              Letter
                  Agreement between American Fiber Network, Inc. and FSH Communications
                  LLC,
                  dated June 30, 2006*
              
              Incorporated
                  by reference to Exhibit 10.1 to the Registrant’s Current Report on Form
                  8-K, dated July 11, 200610.39
              Securities
                  Purchase Agreement, dated as of August 28, 2006, by and between
                  the
                  Company and Cornell Capital
              
              Incorporated
                  by reference to Exhibit 10.1 to the Registrant’s Current Report on Form
                  8-K filed on August 30, 200610.40
              Secured
                  Convertible Debenture, issued on August 28, 2006, by the Company
                  to
                  Cornell Capital
              
              Incorporated
                  by reference to Exhibit 10.2 to the Registrant’s Current Report on Form
                  8-K filed on August 30, 200610.41
              Investor
                  Registration Rights Agreement, dated as of August 28, 2006, by
                  and between
                  the Company and Cornell Capital
              
              Incorporated
                  by reference to Exhibit 10.4 to the Registrant’s Current Report on Form
                  8-K filed on August 30, 200610.42
              Irrevocable
                  Transfer Agent Instructions dated August 28, 2006 among the Company,
                  Interwest Transfer Company, Inc. and David Gonzalez, Esq., as Escrow
                  Agent
              
              Incorporated
                  by reference to Exhibit 10.5 to the Registrant’s Current Report on Form
                  8-K filed on August 30, 200610.43
              Warrant
                  issued by the Company to Cornell Capital
              
              Incorporated
                  by reference to Exhibit 10.3 to the Registrant’s Current Report on Form
                  8-K filed on August 30, 200610.44
              Amendment
                  No. 1 to the Securities Purchase Agreement, dated September 20,
                  2006,
                  between the Company and Cornell Capital, and the related Convertible
                  Debenture
              
              Incorporated
                  by reference to Exhibit 10.1 to the Registrant’s Current Report on Form
                  8-K filed on September 21, 200610.45
              Amendment
                  No. 2 to the Securities Purchase Agreement, dated October 23, 2006,
                  between the Company and Cornell Capital
              
              Incorporated
                  by reference to Exhibit 10.1 to the Registrant’s Current Report on Form
                  8-K filed on October 24,
                  2006


57





10.46
            Master
                Equipment Lease dated September 27, 2006, between Data Sales Co.,
                Mobilepro Corp., and Kite Networks, Inc.
            
            Incorporated
                by reference to Exhibit 10.46 to the Registrant’s Quarterly Report on Form
                10-Q for the quarter ended September 30, 200610.47
            Asset
                Purchase Agreement, dated as of December 29, 2006, by and among
                TeleCommunication Systems, Inc., Mobilepro Corp., and CloseCall America,
                Inc.
            
            Incorporated
                by reference to Exhibit 10.01 to the Registrant’s Current Report on Form
                8-K filed on January 10, 200710.48
            Amendment
                No. 1 to Convertible Debentures issued to Cornell Capital, dated
                January
                17, 2007
            
            Incorporated
                by reference to Exhibit 10.01 to the Registrant’s Current Report on Form
                8-K filed on January 23, 2007


31.1
              Certification
                  by Jay O. Wright, Chief Executive Officer, pursuant to Rule
                  13a-14(a)
              
              Provided
                  herewith31.2
              Certification
                  by Richard H. Deily, Principal Financial Officer, pursuant to Rule
                  13a-14(a)
              
              Provided
                  herewith32.1
              Certification
                  by Jay O. Wright, and Richard H. Deily, pursuant to 18 U.S.C. Section
                  1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley
                  Act of
                  2002**
              
              Provided
                  herewith


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





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







**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:
              February 9, 2007
            By:
            /s/ 
Jay
              O.
              WrightJay
              O. Wright, Chief Executive
              Officer




Date:
              February 9, 2007
            By:
            /s/ Richard
              H. DeilyRichard
              H. Deily, Chief Accounting
              Officer





58