**UNITEDSTATES**

**SECURITIESAND EXCHANGE COMMISSION**

**Washington,D.C.  20549**

**FORM 10-Q**

| **x******                                         | **QUARTERLY REPORT  PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934**  |
|---------------------------------------------------|------------------------------------------------------------------------------------------------|
| ** **                                        |
| **For the  Quarterly Period Ended June 30, 2007** |
| ** **                                        |
| **or**                                            |
| ** **                                        | ** **                                                                                     |
| **o******                                         | **TRANSITION REPORT  PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934** |
| ** **                                        |

**For the Transition Period From             To             **

**CommissionFile Number:  0-27024**

**METROONE TELECOMMUNICATIONS, INC.**

(Exact name ofregistrant as specified in its charter)

| **OREGON**                                                 | ** ** | **93-0995165**       |
|------------------------------------------------------------|------------|----------------------|
| (State or other  jurisdiction of                           |       | (I.R.S. Employer     |
| incorporation or  organization)                            |       | Identification  No.) |
|                                                       |       |                 |
| **11200  Murray Scholls Place, Beaverton, Oregon 97007**   |
| (Address of  principal executive offices) (zip code)       |
| ** **                                                 |
| **(503)  643-9500**                                        |
| (Registrant’s  telephone number, including area code) |

**Indicate by check mark whether the registrant has(1) filed all reports required to be filed by Section 13 or 15(d) of theSecurities Exchange Act of 1934 during the preceding 12 months (or for suchshorter 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 whetherthe registrant is a large accelerated filer, an accelerated filer, or anon-accelerated filer.  See definition of “accelerated filer and largeaccelerated filer” in Rule 12b-2 of the Exchange Act.  (Check one):**
| **Large accelerated filer ****o** | ** ** | **Accelerated filer ****o** | ** ** | **Non-accelerated filer ****x** |
|----------------------------------------|------------|----------------------------------|------------|--------------------------------------|

**Indicate by check mark whether the registrant is a shell company (asdefined in Rule 12b-2 of the Act).****  Yes  ****o****    No  ****x**

**Number of shares of common stockoutstanding as of August 10, 2007: 6,233,326 shares, no par value per share.**

 

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**METRO ONETELECOMMUNICATIONS, INC.**

**INDEX TOFORM 10 - Q**
| Part I    |   | Financial Information                                                                                       |   |
|-----------|--------|-------------------------------------------------------------------------------------------------------------|--------|
|      |   |                                                                                                        |   |
| Item 1.   |   | Financial Statements (Unaudited)                                                                            |   |
|      |   |                                                                                                        |   |
|      |   | Condensed Consolidated  Statements of Operations for the three and six months ended June 30, 2007 and  2006 |   |
|      |   |                                                                                                        |   |
|      |   | Condensed  Consolidated Balance Sheets as of June 30, 2007 and December 31, 2006                            |   |
|      |   |                                                                                                        |   |
|      |   | Condensed  Consolidated Statements of Cash Flows for the six months ended June 30, 2007  and 2006           |   |
|      |   |                                                                                                        |   |
|      |   | Notes to  Condensed Consolidated Financial Statements                                                       |   |
|      |   |                                                                                                        |   |
| Item 2.   |   | Management’s  Discussion and Analysis of Financial Condition and Results of Operations                 |   |
|      |   |                                                                                                        |   |
| Item 3.   |   | Quantitative  and Qualitative Disclosures About Market Risk                                                 |   |
|      |   |                                                                                                        |   |
| Item 4.   |   | Controls and  Procedures                                                                                    |   |
|      |   |                                                                                                        |   |
| Part II   |   | Other Information                                                                                           |   |
|      |   |                                                                                                        |   |
| Item  1A. |   | Risk  Factors                                                                                               |   |
|      |   |                                                                                                        |   |
| Item  6.  |   | Exhibits                                                                                                    |   |
|      |   |                                                                                                        |   |
|      |   | Signatures                                                                                                  |   |

 

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**Metro One Telecommunications,Inc.**

**Condensed Consolidated Statements of Operations**
| ** **                                                         | ** ** | **Three Months Ended June 30,** | ** ** | **Six Months Ended June 30,** | ** ** |
|--------------------------------------------------------------------|------------|-----------------------------------------------------|------------|---------------------------------------------------|------------|
| **(In thousands, except per share data)** | ** ** | **2007**                                            | ** ** | **2006**                                          | ** ** | **2007** | ** ** | **2006** | ** ** |
|                                                               |       |                                                |       |                                              |       |   |   |   |   |
| Revenues                                                           |       | $                                                   | 5,278      |                                              | $          | 5,118 |   | $ | 10,180 |   | $ | 20,347 |   |
|                                                               |       |                                                |       |                                              |       |   |   |   |   |
| Costs and expenses:                                                |       |                                                |       |                                              |       |   |   |   |   |
| Direct operating                                                   |       | 4,352                                               |       | 3,764                                             |       | 8,278 |   | 11,529 |   |
| Selling, general  and administrative                               |       | 3,670                                               |       | 5,241                                             |       | 7,432 |   | 12,347 |   |
| Depreciation and  amortization                                     |       | 543                                                 |       | 1,120                                             |       | 1,157 |   | 2,355 |   |
| Restructuring  charges                                             |       | 427                                                 |       | 761                                               |       | 909 |   | 5,777 |   |
|                                                               |       | 8,992                                               |       | 10,886                                            |       | 17,776 |   | 32,008 |   |
|                                                               |       |                                                |       |                                              |       |   |   |   |   |
| Loss from operations                                               |       | (3,714                                              | )          | (5,768                                            | )          | (7,596 | ) | (11,661 | ) |
|                                                               |       |                                                |       |                                              |       |   |   |   |   |
| Other income, net                                                  |       | 63                                                  |       | 225                                               |       | 228 |   | 412 |   |
|                                                               |       |                                                |       |                                              |       |   |   |   |   |
| Loss before income  taxes                                          |       | (3,651                                              | )          | (5,543                                            | )          | (7,368 | ) | (11,249 | ) |
| Income tax expense  (benefit)                                      |       | 13                                                  |       | 50                                                |       | (2 | ) | 50 |   |
|                                                               |       |                                                |       |                                              |       |   |   |   |   |
| Net loss                                                           |       | $                                                   | (3,664     | )                                                 | $          | (5,593 | ) | $ | (7,366 | ) | $ | (11,299 | ) |
|                                                               |       |                                                |       |                                              |       |   |   |   |   |
| Net loss per common  share:                                        |       |                                                |       |                                              |       |   |   |   |   |
| Basic                                                              |       | $                                                   | (.59       | )                                                 | $          | (.90 | ) | $ | (1.81 | ) | $ | (1.81 | ) |
| Diluted                                                            |       | $                                                   | (.59       | )                                                 | $          | (.90 | ) | $ | (1.81 | ) | $ | (1.81 | ) |
|                                                               |       |                                                |       |                                              |       |   |   |   |   |
| Weighted average shares  outstanding:                              |       |                                                |       |                                              |       |   |   |   |   |
| Basic                                                              |       | 6,233                                               |       | 6,233                                             |       | 6,233 |   | 6,233 |   |
| Diluted                                                            |       | 6,233                                               |       | 6,233                                             |       | 6,233 |   | 6,233 |   |

The accompanying notes arean integral part of these condensed consolidated financial statements.

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**Metro One Telecommunications,Inc.**

**Condensed Consolidated Balance Sheets (Unaudited)**
| ** **                                                                                                                                                                                                                                  | ** ** | **June 30,** | ** ** | **December 31,** | ** ** |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-------------------|------------|-----------------------|------------|
| **(In thousands, except share amounts)**                                                                                                                                                                                | ** ** | **2007**          | ** ** | **2006**              | ** ** |
| ** **                                                                                                                                                                                                                                  | ** ** | ** **        | ** ** | ** **            | ** ** |
| **Assets**                                                                                                                                                                                                                                  |       |              |       |                  |       |
| ** **                                                                                                                                                                                                                                  | ** ** | ** **        | ** ** | ** **            | ** ** |
| Current assets:                                                                                                                                                                                                                             | ** ** | ** **        | ** ** | ** **            | ** ** |
| Cash and cash  equivalents                                                                                                                                                                                                                  |       | $                 | 5,521      |                  | $          | 11,965 |   |
| Restricted cash                                                                                                                                                                                                                             |       | 4,741             |       | 4,741                 |       |
| Accounts  receivable, net                                                                                                                                                                                                                   |       | 2,637             |       | 2,179                 |       |
| Prepaid costs  and other current assets                                                                                                                                                                                                     |       | 829               |       | 961                   |       |
|                                                                                                                                                                                                                                        | ** ** | ** **        | ** ** | ** **            | ** ** |
| Total current  assets                                                                                                                                                                                                                       |       | 13,728            |       | 19,846                |       |
|                                                                                                                                                                                                                                        | ** ** | ** **        | ** ** | ** **            | ** ** |
| Furniture, fixtures and  equipment, net                                                                                                                                                                                                     |       | 2,107             |       | 3,014                 |       |
| Intangible assets, net                                                                                                                                                                                                                      |       | 4,364             |       | 4,666                 |       |
| Other assets                                                                                                                                                                                                                                |       | 86                |       | 86                    |       |
|                                                                                                                                                                                                                                        | ** ** | ** **        | ** ** | ** **            | ** ** |
| Total assets                                                                                                                                                                                                                                |       | $                 | 20,285     |                  | $          | 27,612 |   |
|                                                                                                                                                                                                                                        | ** ** | ** **        | ** ** | ** **            | ** ** |
| **Liabilities and Shareholders’  Equity**                                                                                                                                                                                              |       |              |       |                  |       |
|                                                                                                                                                                                                                                        |       |              |       |                  |       |
| Current liabilities:                                                                                                                                                                                                                        | ** ** | ** **        | ** ** | ** **            | ** ** |
| Accounts payable                                                                                                                                                                                                                            |       | $                 | 530        |                  | $          | 983 |   |
| Accrued  liabilities                                                                                                                                                                                                                        |       | 1,581             |       | 1,685                 |       |
| Accrued payroll  and related costs                                                                                                                                                                                                          |       | 2,688             |       | 3,898                 |       |
|                                                                                                                                                                                                                                        | ** ** | ** **        | ** ** | ** **            | ** ** |
| Total current  liabilities                                                                                                                                                                                                                  |       | 4,799             |       | 6,566                 |       |
|                                                                                                                                                                                                                                        | ** ** | ** **        | ** ** | ** **            | ** ** |
| Other long-term  liabilities                                                                                                                                                                                                                |       | 443               |       | 470                   |       |
|                                                                                                                                                                                                                                        | ** ** | ** **        | ** ** | ** **            | ** ** |
| Total liabilities                                                                                                                                                                                                                           |       | 5,242             |       | 7,036                 |       |
|                                                                                                                                                                                                                                        | ** ** | ** **        | ** ** | ** **            | ** ** |
| Commitments and  contingencies                                                                                                                                                                                                              | ** ** | ** **        | ** ** | ** **            | ** ** |
|                                                                                                                                                                                                                                        | ** ** | ** **        | ** ** | ** **            | ** ** |
| Shareholders’ equity:                                                                                                                                                                                                                  | ** ** | ** **        | ** ** | ** **            | ** ** |
| Preferred stock,  no par value, 10,000,000 shares authorized:                                                                                                                                                                               | ** ** | ** **        | ** ** | ** **            | ** ** |
| Series A  convertible preferred stock, 1,385 shares authorized, 220 and 0 shares issued  and outstanding at June 30, 2007 and December 31, 2006,  respectively, liquidation preference of $2,200,000 plus unpaid dividends of  $0 |       | 1,813             |       | —                |       |
| Common stock, no  par value; 50,000,000 shares authorized, 6,233,326 shares issued   and outstanding at June 30, 2007 and December 31, 2006, respectively                                                                                   |       | 120,087           |       | 120,067               |       |
| Accumulated  deficit                                                                                                                                                                                                                        |       | (106,857          | )          | (99,491               | )          |
|                                                                                                                                                                                                                                        | ** ** | ** **        | ** ** | ** **            | ** ** |
| Total shareholders’ equity                                                                                                                                                                                                             |       | 15,043            |       | 20,576                |       |
|                                                                                                                                                                                                                                        | ** ** | ** **        | ** ** | ** **            | ** ** |
| Total liabilities and shareholders’ equity                                                                                                                                                                                             |       | $                 | 20,285     |                  | $          | 27,612 |   |

 

The accompanying notesare an integral part of these condensed consolidated financial statements.

 

2

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**Metro One Telecommunications,Inc.**

**Condensed Consolidated Statements of Cash Flows (Unaudited)**
| ** **                                                                   | ** ** | **Six Months Ended June 30,** | ** ** |
|------------------------------------------------------------------------------|------------|---------------------------------------------------|------------|
| **(In thousands)**                                                      | ** ** | **2007**                                          | ** ** | **2006** | ** ** |
|                                                                         |       |                                              |       |   |   |
| Cash flows from  operating activities:                                       |       |                                              |       |   |   |
| Net loss                                                                     |       | $                                                 | (7,366     | ) | $ | (11,299 | ) |
| Adjustments to reconcile net loss to net cash used  in operating activities: |       |                                              |       |   |   |
| Depreciation and amortization                                                |       | 1,157                                             |       | 2,355 |   |
| Loss on disposal of fixed assets                                             |       | 90                                                |       | 1,120 |   |
| Deferred rent                                                                |       | (28                                               | )          | (180 | ) |
| Stock compensation expense                                                   |       | 20                                                |       | — |   |
| Changes in certain assets and liabilities:                                   |       |                                              |       |   |   |
| Accounts receivable                                                          |       | (458                                              | )          | 8,237 |   |
| Prepaid costs and other assets                                               |       | 139                                               |       | (344 | ) |
| Accounts payable and other liabilities                                       |       | (1,767                                            | )          | (3,251 | ) |
|                                                                         |       |                                              |       |   |   |
| Net cash used in operating activities                                        |       | (8,213                                            | )          | (3,362 | ) |
|                                                                         |       |                                              |       |   |   |
| Cash flows from  investing activities:                                       |       |                                              |       |   |   |
| Decrease in cash restricted to secure letter of  credit                      |       | —                                            |       | 700 |   |
| Capital expenditures                                                         |       | (57                                               | )          | (199 | ) |
| Proceeds from sale of assets                                                 |       | 13                                                |       | 817 |   |
|                                                                         |       |                                              |       |   |   |
| Net cash (used in) provided by investing activities                          |       | (44                                               | )          | 1,318 |   |
|                                                                         |       |                                              |       |   |   |
| Cash flows from  financing activities:                                       |       |                                              |       |   |   |
| Proceeds from issuance of convertible preferred  stock, net                  |       | 1,813                                             |       | — |   |
|                                                                         |       |                                              |       |   |   |
| Net cash provided by financing activities                                    |       | 1,813                                             |       | — |   |
|                                                                         |       |                                              |       |   |   |
| Net decrease in  cash and cash equivalents                                   |       | (6,444                                            | )          | (2,044 | ) |
|                                                                         |       |                                              |       |   |   |
| Cash and cash  equivalents, beginning of period                              |       | 11,965                                            |       | 17,769 |   |
|                                                                         |       |                                              |       |   |   |
| Cash and cash  equivalents, end of period                                    |       | $                                                 | 5,521      |   | $ | 15,725 |   |
|                                                                         |       |                                              |       |   |   |
| Supplemental  disclosure of cash flow information:                           |       |                                              |       |   |   |
| Cash paid for  income taxes, net                                             |       | $                                                 | 18         |   | $ | 47 |   |

 

The accompanyingnotes are an integral part of these condensed consolidated financial statements.

3

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** **

**Metro One Telecommunications,Inc.**

**Notes to Condensed ConsolidatedFinancial Statements (Unaudited)**

**1.     Summary of Significant Accounting Policies**

**Basis of Presentation**

The accompanyingunaudited interim condensed consolidated financial statements have beenprepared by Metro One Telecommunications, Inc. in conformity with accountingprinciples generally accepted in the United States of America for interimfinancial information.  Accordingly,certain financial information and footnotes have been omitted orcondensed.  In the opinion of management,the condensed financial statements include all adjustments necessary for a fairpresentation of the results for the interim periods.  These condensed consolidated financialstatements and notes thereto should be read in conjunction with our auditedfinancial statements included in our Annual Report on Form 10-K for the yearended December 31, 2006.  The results ofoperations for the interim periods shown in this report are not necessarilyindicative of results for future interim periods or the entire fiscal year.

The condensedconsolidated financial statements include the accounts of Metro OneTelecommunications, Inc. and its wholly-owned subsidiaries.  All significant intercompany balances andtransactions have been eliminated in consolidation.

On July 6, 2006,we effected a one-for-four reverse split of our common stock.  All share and per share data presented in theaccompanying financial statements and notes thereto have been restated for thereverse stock split.

**Cash, Cash Equivalents, and Restricted Cash**

Cash and cashequivalents include cash deposits in banks and highly liquid investments withmaturity dates of three months or less at the date of acquisition.  Restricted cash consists of cash restrictedto secure a letter of credit related to our workers’ compensation program andis invested in a bank certificate of deposit.

**Stock-Based Compensation**

EffectiveJanuary 1, 2006, we adopted the fair value recognition provisions ofStatement of Financial Accounting Standards (“SFAS”) No. 123R, “Share-BasedPayment,” under which compensation expense is recognized in the condensedconsolidated statement of operations for the fair value of employee stock-basedcompensation.  We elected themodified-prospective transition method as permitted by SFAS No. 123R andaccordingly, prior periods have not been restated to reflect the effect of SFASNo. 123R.  The modified-prospectivetransition method requires that stock-based compensation expense recognized inthe Condensed Consolidated Statement of Operations include (1) quarterlyamortization of all stock-based compensation granted prior to, but not vestedas of January 1, 2006, based on the grant date fair value estimated inaccordance with the original provisions of SFAS No. 123 and(2) quarterly amortization of all stock-based payments granted subsequentto January 1, 2006, based on the grant date fair value estimated inaccordance with the provisions of SFAS No. 123R.  In addition, pursuant to SFAS No. 123R,we estimate forfeitures when calculating stock-based compensation expense,rather than accounting for forfeitures as incurred, which was our previousmethod.  Compensation expense isrecognized over the requisite service (vesting) period using the straight-lineattribution method.

Stockcompensation expense recognized in accordance with SFAS No. 123R for both thethree and six month periods ended June 30, 2007 was approximately$20,000.  Stock compensation expense wasnot material to the financial statements for the three and six month periodsended June 30, 2006.  The effect ofrecording stock-based compensation on basic and diluted earnings per share forthe three and six month periods ended June 30, 2007 and 2006 was not materialto our per share loss in those periods.  Costs related to stock-based compensation arerecorded in selling, general, and administrative expenses in the statement ofoperations.

Optionsto purchase our common stock are granted at prices equal to or greater than thefair market value on the date of grant. Options granted to directors generally vest immediately while optionsgranted to employees generally vest and become exercisable quarterly over afour year period.  All options generallyexpire ten years from the date of the grant.

4

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Weestimate the fair value of stock options using the Black-Scholes option pricingmodel.  Key input assumptions used toestimate the fair value of stock options include the exercise price of theaward, the expected option term, the expected volatility of our stock over theoption’s expected term, and the risk-free interest rate over the option’sexpected term and the Company’s expected annual dividend yield.  The expected option term represents theestimated time until exercise and is based on our historical experience withsimilar awards, taking into consideration contractual terms, vesting schedulesand expected employee behavior.  Theexpected stock price volatility is based on the historical volatility of ourstock over the most recent period equal to the expected term of the option,adjusted for activity that is not expected to occur in the future.  The risk-free interest rate is based on theU.S. Treasury yield curve in effect at the time of grant for periodscorresponding with the expected term of the option.  We have not yet paid a dividend, and thus thedividend yield is 0.0%.  Prospectively,the assumptions will be evaluated and revised as necessary to reflect changesin market conditions and our experience.

Estimates of fairvalue are not intended to predict actual future events or the value ultimatelyrealized by people who receive equity awards.

**Recent Accounting Pronouncements.**

InFebruary 2007, the  FinancialAccounting Standards Board (“FASB”) issued Statement of Financial Standards (“SFAS”)No. 159, *The Fair Value Option forFinancial Assets and Financial Liabilities*.  SFAS 159 provides companies with an option toreport selected financial assets and liabilities at fair value.  SFAS 159 also establishes presentation anddisclosure requirements designed to facilitate comparisons between companiesthat choose different measurement attributes for similar types of assets andliabilities and to provide additional information that will help investors andother financial statement users to more easily understand the effect of thecompany’s choice to use fair value on its earnings.  Finally, SFAS 159 requires entities todisplay the fair value of those assets and liabilities for which the companyhas chosen to use fair value on the face of the balance sheet.  SFAS 159 is effective as of the beginning ofan entity’s first fiscal year beginning after November 15, 2007.  We are currently assessing the impact of SFAS159 which we will be required to adopt in the first quarter of our 2008 fiscalyear.

In May 2007, theFASB issued FSP FIN 48-1, *Definition of aSettlement in FASB Interpretation No. 48* (“FSP FIN 48-1”).  FSPFIN 48-1 clarifies when a tax position is considered settled under FIN48.  Per FSP FIN 48-1, a tax position is considered “effectively settled”upon completion of the examination by the taxing authority without beinglegally extinguished.  For “effectively settled” tax positions, a companycan recognize the full amount of the tax benefit.  FSP FIN 48-1 iseffective upon a company’s adoption of FIN 48.  See further discussion ofFIN 48 below.  FSP FIN 48-1 did not have a material impact on ourconsolidated financial position or results of operations.

In July 2006, the FASB issued InterpretationNo. 48 (“FIN 48”), “Accounting for Uncertainty in Income Taxes – aninterpretation of FASB Statement No. 109.” FIN 48 prescribes a recognition threshold and measurement attribute forfinancial statement recognition and measurement of a tax position taken orexpected to be taken in a tax return. FIN 48 also provides guidance on derecognition, classification, interestand penalties, accounting in interim periods, disclosure, and transition.  FIN 48 is effective for our fiscal yearbeginning January 1, 2007.  The adoptionof this statement has not had a material effect on our consolidated financialposition or results of operations.

In September 2006, the FASB issued SFAS No. 157, “FairValue Measurements,” which establishes a framework for measuring the fair valueof assets and liabilities.  Thisframework is intended to increase consistency in how fair value determinationsare made under various existing accounting standards that permit, or in somecases require, estimates of fair market value. SFAS No. 157 also expands financial statement disclosurerequirements about a company’s use of fair value measurements, including theeffect of such measures on earnings. SFAS No. 157 is effective for fiscal years beginning afterNovember 15, 2007, and interim periods within those fiscal years.  We do not expect the adoption of thisstatement to have a material effect on our consolidated financial position orresults of operations.

5

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**2.     Restructuring Charges and Exit Activities**

In the secondquarter and first six months of 2007, we have continued to focus our efforts onreducing our operating costs and establishing long-term viability and stabilityfor the Company.  To that end, weincurred approximately $427,000 and $909,000 of restructuring expenses duringthe second quarter and first six months of 2007, respectively, primarily associatedwith one-time termination benefits related to head-count reductions and othercosts primarily associated with efforts to select and engage a strategicadvisor to pursue operational, strategic, and financial alternatives.

In the first six months of 2006, we undertooksignificant restructuring activities, due primarily to the departure of callvolume from Nextel in March 2006.  Weclosed 13 call centers and significantly reduced the number of call center andadministrative employees and recorded restructuring charges in the secondquarter and first six months of 2006 totaling $761,000 and $5.8 million,respectively.

Costs incurred in our restructuring activities duringthe second quarter and first six months of 2007 are shown in the followingtable (in thousands).
| **Major cost type**  | ** ** | **Three months ended  June 30, 2007** | ** ** | **Six months ended   June 30, 2007** | ** ** |   |
|--------------------------------|------------|-----------------------------------------------------------|------------|---------------------------------------------------------------|------------|--------|
|                           |       |                                                      |       |                                                          |       |
| One-time  termination benefits |       | $                                                         | 35         |                                                          | $          | 148    |   |
| Lease  termination costs       |       | (15                                                       | )          | 9                                                             |       |
| Other                          |       | 407                                                       |       | 752                                                           |       |
|                           |       | $                                                         | 427        |                                                          | $          | 909    |   |
|                                |            |                                                           |            |                                                               |            |        |  |  |  |  |

 

The followingsummarizes the provisions, payments, adjustments and liability for costsassociated with our cost reduction efforts for the period shown (in thousands):
| ** **                     | ** ** | **One-time**                    | ** ** | ** **                              | ** ** | ** ** | ** ** | ** ** | ** ** |
|--------------------------------|------------|---------------------------------|------------|-----------------------------------------|------------|------------|------------|------------|------------|
| ** **                     | ** ** | **termination   benefits** | ** ** | **Lease   termination costs** | ** ** | **Other**  | ** ** | **Total**  | ** ** |
|                           |       |                            |       |                                    |       |       |       |       |       |
| Balance at  January 1, 2007    |       | $                               | 520        |                                    | $          | 192        |       | $          | —     |   | $ | 712 |   |
| Provisions                     |       | 113                             |       | 24                                      |       | 345        |       | 482        |       |
| Payments                       |       | (633                            | )          | (74                                     | )          | (345       | )          | (1,052     | )          |
| Adjustments                    |       | —                          |       | —                                  |       | —     |       | —     |       |
| Balance at March  31, 2007     |       | —                          |       | 142                                     |       | —     |       | 142        |       |
| Provisions                     |       | 35                              |       | (15                                     | )          | 407        |       | 427        |       |
| Payments                       |       | (17                             | )          | (45                                     | )          | (407       | )          | (469       | )          |
| Adjustments and non-cash items |       | —                          |       | (82                                     | )          | —     |       | (82        | )          |
| Balance at June 30,  2007      |       | $                               | 18         |                                    | $          | —     |       | —     |       | $ | 18 |   |
|                                |            |                                 |            |                                         |            |            |            |            |            |  |  |  |  |

 

We may undertake additional restructuring and/orconsolidation efforts in the future that would cause us to incur additionalrestructuring charges.

**3.     NetLoss Per Share**

Basic net loss per share is based on the weighted average number ofshares of common stock outstanding. Diluted net loss per share reflects the potential dilution that couldoccur if outstanding options to purchase common stock were exercised orconverted into common stock.  There wereno adjustments to net loss for the calculation of both basic and diluted netloss per share for all periods.  For allperiods presented in these financial statements, the calculation ofweighted-average outstanding shares is the same on both a basic and dilutedbasis because inclusion of potential common shares would be anti-dilutive.

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Options topurchase approximately 533,000 and 606,000 shares of common stock wereoutstanding at June 30, 2007 and 2006, respectively, but were not included inthe computation of diluted net loss per share because their effect would beanti-dilutive.

**4.     Commitmentsand Contingencies**

From time to time,we are party to various legal actions and administrative proceedings arising inthe ordinary course of business.  Webelieve the disposition of these matters will not have a material adverseeffect on our financial position, results of operations or cash flows.

From time to time,in the normal course of our business, we issue standby letters of credit andbank guarantees.  At June 30, 2007, wehad one letter of credit outstanding in the amount of $4,741,000 related to ourworkers’ compensation program.  Theletter of credit is secured by a certificate of deposit for the same amountthat is recorded as restricted cash. This letter of credit expires in April 2008.  In August 2007, the benefactor of the letterof credit agreed to a reduction in the amount of the letter of credit to $3.0million based on lower than expected workers’ compensation claims.  The result will be a reduction in therestricted cash balance and certificate of deposit securing the letter whichwill release $1.7 million of funds for use by the Company.

**5.     Significant Events**

**Financingarrangement**

On June 5, 2007, theCompany entered into a private financing transaction (“financing transaction”)pursuant to a Securities Purchase Agreement (the “Purchase Agreement”) by andamong the Company and Columbia Ventures Corporation (“Columbia”) and EverestSpecial Situations Fund L.P. (“Everest”, together with Columbia, the “investors”). Pursuant to the Purchase Agreement, on June 5, 2007, the Company issued to theinvestors (i) 220 shares of its newly authorized Series A Convertible PreferredStock, no par value (the “convertible preferred stock”), at a stated value of$10,000 per share, (ii) Stock Purchase Warrants to purchase an additional 77shares of the convertible preferred stock at an exercise price of $10,000 pershare of convertible preferred stock (the “warrants”) and (iii) Senior SecuredConvertible Revolver Bridge Notes having a maximum principal amount of$7,800,000 and, subject to approval of the Company’s shareholders, convertibleinto shares of convertible preferred stock (the “notes” and together with theconvertible preferred stock and the warrants, the “securities”).  Theissuance of the convertible preferred stock and warrants upon conversion of thenotes pursuant to the Purchase Agreement is subject to certain closingconditions.  The Company received $2.2 million in gross proceeds in theinitial closing, and the aggregate consideration to be received by the Companyupon issuance of all of the convertible preferred stock and warrants in thesecond closing, assuming conversion of the notes, will be an additional $7.8million.

The convertible preferredstock is convertible into shares of the Company’s common stock at an initialconversion price of $1.78 per share.  At the initial conversion price, the220 shares of convertible preferred stock are convertible into an aggregate of1,235,955 shares of the Company’s common stock and, if the warrants areexercised in full, the additional 77 shares of convertible preferred stock willbe convertible into an aggregate of 432,584 shares of common stock.  In accordance with EITF Issue 98-5, *Accounting for Convertible Securities with Beneficial ConversionFeatures or Contingently Adjustable Conversion Ratios* the Companyhad evaluated if the convertible preferred stock had a beneficial conversionfeature as the conversion price was less than the fair value of the Company’scommon stock on the measurement date. Under paragraph 6 of EITF 98-5, the discount related to the beneficialconversion feature would be calculated based on its intrinsic value which was approximately$334,000.  Accordingly, pursuant to EITFIssue No. 98-5, since the preferred stock is not immediately convertible,the Company will record a return to the preferred shareholders on theSeries A convertible preferred stock over the minimum period from the dateof issuance to the date at which the preferred shareholders can realize thatreturn (that is, through the date of earliest conversion or August 5, 2007)using the effective yield method. The Company has not allocated a fair value tothe 77 warrants issued due to the fact that shareholder approval is requiredbefore the holders can exercise these warrants.

The notes have afour-month term and accrue interest due at maturity at 13% per annum onoutstanding amounts.  Funds available under the notes may be drawn by theCompany only when its non-restricted cash balance falls below $3 million andthe amount that can be drawn may not exceed the amount necessary to raise theCompany’s non-restricted cash balance to $3.5 million.  No amounts haveyet been drawn under the Notes.  Immediately following shareholderapproval of the issuance of the additional shares, the Company will draw downthe full remaining principal amount of the notes and all the notes willimmediately be converted into 780 shares of convertible preferred stock.  Anyaccrued interest will also convert into convertible preferred stock.  TheCompany has granted a security interest in certain of its assets as securityfor repayment of amounts outstanding under the notes.  If the Company’sshareholders fail to approve the issuance of the additional shares, any amountsoutstanding under the notes will become immediately due and payable.

The number of shares ofconvertible preferred stock that can be purchased on exercise of the warrantsrepresents 35% of the amount invested in convertible preferred stock at theinitial closing and, subject to shareholder approval, 35% of the amountsinvested in Preferred Stock upon conversion of the notes.  Subject toshareholder approval, the 

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warrants issued at theinitial closing are exercisable for an aggregate of 77 shares of convertiblepreferred stock and the warrants to be issued upon conversion of the principalamount of the notes will be exercisable for an aggregate of 273 shares ofconvertible preferred stock.  The warrants have a term of two years and aninitial all cash exercise price of $10,000 per share.  If all of theconvertible preferred stock (including the convertible preferred stock issuableon conversion of the notes) is converted into shares of common stock, the warrantswill be exchanged for warrants to purchase common stock.  No value has been allocated to the warrantsin this transaction because the Company’s evaluation has determined the amountthat would be allocated is not material. Holders of common shares of the Company will vote on a proposal toapprove the sale of securities to the investors at the Company’s annual meetingto be held on August 14, 2007.

In connection with thesale of the securities to the investors, the Company entered into aRegistration Rights Agreement with the investors dated as of June 5, 2007 (the “RegistrationRights Agreement”), which requires the Company to use its best efforts toregister on Form S-3 under the Securities Act of 1933, as amended (the “SecuritiesAct”), the shares of common stock issuable upon conversion of the convertiblepreferred stock (including those shares of convertible preferred stock issuableon exercise of warrants).  Under the Registration Rights Agreement, theCompany was required to file a registration statement covering such shares ofcommon stock within 30 days from the date of the Purchase Agreement, subject toextension upon certain conditions.  The Registration Rights Agreement alsoprovides the investors with demand and piggyback registration rights under theSecurities Act for shares of common stock issuable upon conversion of theconvertible preferred stock (including shares of convertible preferred stockissuable on exercise of warrants or conversion of the notes).

**Nasdaq listing issues**

On June 27, 2007, the Company received a Nasdaq StaffDeficiency Letter informing the Company that the Company no longer complieswith Nasdaq’s audit committee requirements for continued listing as set forthin Marketplace Rule 4350.  Marketplace Rule4350(d)(2)(A) requires that the audit committee of each Nasdaq issuer have atleast three members, each of whom, among other things, must be independent asdefined under Marketplace Rule 4200(a)(15) and meets the criteria forindependence set forth in SEC Rule 10A-3(b)(1) under the Securities ExchangeAct of 1934, as amended. Currently, the Audit Committee of the Company iscomprised of two independent members.

The letter statesthat the Company will be provided a cure period in order to regain complianceuntil the earlier of its next annual shareholders’ meeting or June 5, 2008; orif the next annual shareholders’ meeting is held before December 3, 2007, thenthe Company must evidence compliance no later than December 3, 2007. The letteralso states that, in the event the Company does not regain compliance withinthis period, the Company will be provided written notification that the Company’ssecurities will be delisted.

The Company’sBoard of Directors intends to take the necessary action to appoint anindependent member to the Audit Committee within the cure period provided so asto maintain continued Nasdaq listing.

**Termination of contract**

In February 2005, we entered into a Master ServicesAgreement for Directory Assistance Services (the “Services Agreement”) withNextel Operations, Inc., acting on behalf of certain affiliates (collectively “Nextel”)of Nextel Communications, Inc.  TheServices Agreement superseded our previous services agreement dated in June1999.  Under the Services Agreement, weagreed to provide directory assistance services to Nextel’s customers on anon-exclusive basis, and Nextel could transition call volume away from us onshort notice and/or terminate services entirely.

In October 2005, we received notification from Nextelthat it would be terminating the Services Agreement effective January 9,2006.  In February 2006, we entered intoa Settlement Agreement and Disentanglement Transition Plan (the “Plan”) withNextel that resolved certain disputed matters in connection with thetermination of the Services Agreement. Under the Plan, we continued to provide services to Nextel callersthrough March 31, 2006 in return for the payment by Nextel of approximately$5.75 million.  Those payments were inaddition to $2.5 million previously paid by Nextel in December 2005 inconnection with the transition and in addition to the contractual payments byNextel for normal service provided by Metro One to Nextel callers through thetransition period.  Calls from Nextel 

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were substantially transitioned away from us by March31, 2006, and we have received all amounts due from Nextel as of the date ofthis filing.  Including the $5.75 millionreceived in the first quarter of 2006 as part of the settlement payments,Nextel represented approximately 56% of our revenues for the first six monthsof 2006.  Nextel accounted forapproximately 72% of our revenues in both the second quarter and first sixmonths of 2005.

Terminationof the Services Agreement has had, and will continue to have, a significantadverse impact on our results of operations and cash flows and raises doubt asto whether we can continue to operate as a going concern.  We have experienced net losses in each of thequarterly and annual periods since the first quarter of 2003.  We expect to meet our cash requirements in2007 using our existing cash and cash equivalents and, if approved byshareholders, proceeds from the sale of additional convertible preferred stock.

Ourmanagement is working to aggressively pursue new and additional sources ofrevenues to support our reduced cost structure, further reduce the direct costof delivering our services and reduce our general and administrative overhead,and develop and grow our data services business.  There can be no assurance that management’splans will be successful.  In such event,we may attempt to establish borrowing arrangements or otherwise raise funds (asindicated by the financing arrangement discussed above) in order to maintainadequate liquidity, although we cannot provide assurance that financing orother funding will be available in amounts or on terms acceptable to us.  If we are unable to execute our operationsaccording to our plan or obtain additional financing, we may be forced to ceaseoperations.

**Significantnew contract.**

In August 2006, weentered into a Telecom Information Services Agreement (the “Agreement”) withJingle Networks, Inc. (“Jingle”).  Underthe Agreement, we are a preferred directory assistance provider for “1-800-FREE411”.  In addition to per call charges, theAgreement includes financial commitments from Jingle based on call volumeexpansion and other financial incentives. The Agreement is for three years and will automatically renew annuallyfor up to two additional years unless either party provides notice oftermination at least 60 days prior to the commencement of such renewalperiod.  Under the Agreement, as apreferred directory provider we will be allocated no fewer calls than any othervendor providing similar services.  TheAgreement provides that our status as a preferred provider may be terminated byJingle but, in such event, the warrants described below will beterminated.  Jingle accounted forapproximately 42% and 39% of our revenue in the second quarter and first sixmonths of 2007, respectively.

In connection withthe Agreement, we issued to Jingle two warrants to purchase shares of ourcommon stock.  The first warrant was forthe purchase of up to 623,250 shares of common stock at an exercise price of$2.60 per share.  The warrant wasexercisable under the condition that Jingle meet certain revenue and paymentthresholds through February 28, 2007. The revenue targets were not met, thus, the first warrant terminated onFebruary 28, 2007.

The second warrantis for the purchase of up to 870,075 shares of our common stock; provided,however, that shares represented by the sum of the first and second warrants,if exercised, cannot exceed 19.98% of our total shares outstanding after thewarrants are exercised.  The exercise pricefor the second warrant is $2.42, which is equal to 115% of the average closingprice per share of our common stock over the 20 consecutive trading days endingthe last trading day prior to July 1, 2007. The second warrant will not be exercisable unless and until certainrevenue and payment thresholds are achieved by Jingle during specified timeperiods as outlined in the Agreement. The second warrant terminates on July 1, 2009.

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#### **ITEM 2.****                                                     MANAGEMENT’SDISCUSSION AND ANALYSIS OF FINANCIALCONDITION AND RESULTS OF OPERATIONS**

All statements and trendanalyses contained in this item and elsewhere in this report on Form 10-Qrelative to the future constitute “forward-looking statements” within themeaning of the Private Securities Litigation Reform Act of 1995.  These forward-looking statements may, but donot necessarily, also include words such as “believes,” “expects,” “anticipates,”“plans,” “estimates,” “may,” “will,” “should,” “could,” “continue” or similarexpressions.  Forward-looking statementsare not guarantees.  They involve knownand unknown business and economic risks, uncertainties and other factors thatmay cause our actual results, performance or achievements to be materiallydifferent from any future results, performance or achievements expressed orimplied by such forward-looking statements. These risks, uncertainties and other factors include the expiration orpricing of customer contracts, the successful execution of our cost reductionefforts and current business strategy, and our ability to generate cash fromoperations, and other risks, including those discussed in our most recentAnnual Report on Form 10-K filed with the Securities and Exchange Commission (“theSEC”) and those described in our other filings with the SEC, press releases andother communications.  Anyforward-looking statement in this report reflects our expectations at the timeof this report only.  We undertake noobligation to publicly release any revisions to these forward-lookingstatements to reflect events or circumstances after the date hereof or toreflect the occurrence of unanticipated events.

#### **Overview**

We are a provider ofEnhanced Directory Assistance® and other information services delivered throughlive operators and by electronic means. We contract primarily with wireless carriers, Voice over InternetProtocol (“VoIP”) providers, cable companies, Competitive Local ExchangeCarriers (“CLEC”), free directory assistance providers, prepaid carriers, andpayphone operators to provide our services to their subscribers and users.  Our proprietary Enhanced Directory Assistanceplatform provides comprehensive directory assistance listings and otherinformational content and services. Other non-directory assistance services and content include access topersonal contacts and calendars, reservation services, movie listings and avariety of other unique services.  Ourspecial return-to-operator features, StarBack® and AutoBack®, make thetelephone easier to use and are offered exclusively by Metro One.  All of our services are provided by operatorslocated only in the United States, or electronically.  Many of our features or aspects thereof arethe subject of patents or pending patent applications.  Revenues are derived principally through feescharged to telecommunications carriers and other customers.

In addition tovoice-based services, we also provide Enhanced Directory Assistance services inelectronic format.  These services areprovided to customers who electronically issue directory assistance queries anduse the returned information to complete and correct their own datarecords.  We currently provide electronicdirectory assistance services in a number of delivery formats to meet customerneeds including automated file processing and real-time individual lookups.  We contract with a broad range ofcompanies that require electronic directory assistance including companies inthe service, marketing, and financial sectors. Our Data Services business represents an emerging business based oninfrastructure originally developed to support our voice-based call centerbusiness.

Under a typical wholesalecontract, a carrier agrees to route some or all of their directory assistancecalls to us.  We offer our services tomultiple carriers within the same market. When a carrier’s subscribers dial a typical directory assistance number,such as “411,” “555-1212” or “00,” the calls are routed to and answered by ouroperators identifying the service by that carrier’s brand name.

Each carrier customerestablishes its own directory assistance fee structure for itssubscribers.  Wireless subscriberstypically pay fees ranging from $1.25 to $1.99 plus airtime charges for ourservices.  We bear no subscribercollection risk with respect to carrier subscribers; however, there may becollection risk to the extent growth and profitability in thetelecommunications industry decreases and to the extent we provide services toother types of customers.

We charge our carriercustomers on a per call basis.  Pricesfor services provided to other types of customers, including businesses,governmental units or customers who receive our services in electronic form,may vary based on the nature of the service, volume and other circumstances.

As discussed in note 5 tothe Condensed Consolidated Financial Statements (Unaudited), as a result of thetermination of contracts with significant customers, the Company hasexperienced significant financial losses and reduction of cash flows over thelast several years.  It is likely thatadditional losses will be incurred during parts or 

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all of 2007.  Such customer losses have had, and willcontinue to have, a significant adverse impact on our results of operations andcash flows and these events and issues raise doubt as to whether we cancontinue to operate as a going concern. We have experienced net losses in each of the quarterly and annualperiods since the first quarter of 2003. Our management is working to aggressively pursue new and additionalsources of revenues to support our reduced cost structure, further reduce thedirect cost of delivering our services and reduce our general andadministrative overhead, and develop and grow our data services business.  There can be no assurance that management’splans will be successful.  In such event,we may attempt to establish borrowing arrangements or otherwise raise funds (asindicated by the financing arrangement discussed in note 5 to the CondensedConsolidated Financial Statements (Unaudited)) in order to maintain adequateliquidity, although we cannot provide assurance that financing or other fundingwill be available in amounts or on terms acceptable to us.  If we are unable to execute our operationsaccording to our plan or obtain additional financing, we may be forced to ceaseoperations.

**SignificantEvents**

**Restructuring.**

In the secondquarter and first six months of 2007, we have continued to focus our efforts onreducing our operating costs and establishing long-term viability and stabilityfor the Company.  To that end, we incurredapproximately $427,000 and $909,000 of restructuring expenses during the secondquarter and first six months of 2007, respectively, primarily associated withour efforts to select and engage a strategic advisor to pursue operational,strategic, and financial alternatives and one-time termination benefits relatedto certain corporate head-count reductions.

**Subsequentevent.**

At June 30, 2007,we had one letter of credit outstanding in the amount of $4,741,000 related toour workers’ compensation program.  Theletter of credit is secured by a certificate of deposit for the same amountthat is recorded as restricted cash. This letter of credit expires in April 2008.  In August 2007, the benefactor of the letterof credit agreed to a reduction in the amount of the letter of credit to $3.0million based on lower than expected workers’ compensation claims.  The result will be a reduction in therestricted cash balance and certificate of deposit securing the letter whichwill release $1.7 million of funds for use by the Company.

**Othersignificant events.**

See note 5 of theNotes to the Condensed Consolidated Financial Statements (Unaudited) for adiscussion of the financing arrangement, Nasdaq listing issues, termination ofcontract, and significant new contract.

**Resultsof Operations**

This table shows selected items from our statements ofoperations expressed as a percentage of revenues:
|                                            | ** ** | **Three Months Ended  June 30,** | ** ** | **Six Months Ended  June 30,** | ** ** |
|--------------------------------------------|------------|-------------------------------------------------|------------|-----------------------------------------------|------------|
| ** **                                 | ** ** | **2007**                                        | ** ** | **2006**                                      | ** ** | **2007** | ** ** | **2006** | ** ** |
|                                       |       |                                            |       |                                          |       |   |   |   |   |
| Revenues                                   |       | 100.0                                           | %          | 100.0                                         | %          | 100.0 | % | 100.0 | % |
| Direct operating  costs                    |       | 82.5                                            |       | 73.5                                          |       | 81.3 |   | 56.7 |   |
| Selling, general  and administrative costs |       | 69.5                                            |       | 102.4                                         |       | 73.0 |   | 60.7 |   |
| Depreciation and  amortization             |       | 10.3                                            |       | 21.9                                          |       | 11.4 |   | 11.6 |   |
| Restructuring  charges                     |       | 8.1                                             |       | 14.9                                          |       | 8.9 |   | 28.4 |   |
| Loss from  operations                      |       | (70.4                                           | )          | (112.7                                        | )          | (74.6 | ) | (57.3 | ) |
| Other income,  net                         |       | 1.2                                             |       | 4.4                                           |       | 2.2 |   | 2.0 |   |
| Loss before  income taxes                  |       | (69.2                                           | )          | (108.3                                        | )          | (72.4 | ) | (55.3 | ) |
| Income tax  expense (benefit)              |       | 0.2                                             |       | 1.0                                           |       | 0.0 |   | 0.2 |   |
| Net loss                                   |       | (69.4                                           | )%         | (109.3                                        | )%         | (72.4 | )% | (55.5 | )% |

 

*Comparison of second quarter 2007 to second quarter2006*

Revenues increased3.1% to $5.3 million from $5.1 million due primarily to an increase in callvolume to 28.9 million from 18.4 million calls. Call volume increases resulted from greater volume from most existingcustomers as well as from new volume from customer contracts signed in the lastyear.  Increased revenue from higher callvolume 

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was offset by alower average revenue per call.  Averagerevenue per call was approximately $0.20 and $0.26 in the second quarter of2007 and 2006, respectively, reflecting the change in call volume mix andcompetitive pressures.

Direct operating costs consist of salaries, wages,benefits and payroll taxes relating to call center personnel plus the costs oflistings data and content acquisition. These costs increased 15.6% to $4.4 million from $3.8 million.  This increase was primarily due to higherpersonnel and data costs associated with servicing greater call volumes.  The increased cost of servicing nearly doublethe volume from the prior year was partially offset by a decrease ofapproximately 13% in the average hourly fully loaded labor rate for servicingthose calls.  As a percentage ofrevenues, direct operating costs increased to approximately 82.5% from 73.5% inthe second quarter of 2007, primarily resulting from the decrease in theaverage revenue per call.

Selling, general and administrative costs decreased30.0% to $3.7 million from $5.2 million. This decrease resulted primarily from reductions in personnel andassociated costs of approximately $700,000 and network, systems andfacilities-related costs of approximately $800,000.  As a percentage of revenues, selling, generaland administrative costs decreased to 69.5% from 102.4% due to the above notedcost reductions.

Depreciation andamortization expense decreased 51.5% to $ 543,000 from $1.1 million.  The decrease in depreciation and amortizationwas due primarily to the overall reduction in acquisition of fixed assets inthe last several years as operations have been reduced.  Depreciation and amortization decreased to10.3% from 21.9% of revenue as a result of our reduced operations facilities inplace.

Restructuringcharges in the quarter ended June 30, 2007 were $427,000 and consisted primarilyof one-time termination benefits related to head-count reductions and othercosts primarily associated with efforts to select and engage a strategicadvisor to pursue operational, strategic, and financial alternatives.  Net restructuring costs were $761,000 in thesecond quarter of 2006 and consisted primarily of one-time termination benefitsfor employees of approximately $382,000, dismantling costs related to theclosed call centers of approximately $290,000, and loss on disposal of assetsof approximately $935,000.  In addition,during the second quarter of 2006, we settled or otherwise disposed of leaseobligations of several closed call centers. As a result of these settlement activities, we incurred actual coststhat were $846,000 lower than the amounts we had previously accrued for thoselease obligations.

Other income was$63,000 and $225,000 in the second quarter of 2007 and 2006, respectively, andconsisted primarily of interest income earned on cash and cashequivalents.  The reduction in interestincome was due to a decrease in cash available for investing.

Because of ouroperating losses in the second quarters of 2007 and 2006, we recorded nofederal income tax expense.  We did,however, record approximately $13,000 and $50,000 of state income taxes in thesecond quarter of 2007 and 2006, respectively. We have a valuation allowance against deferred tax assets associatedwith operating losses in this and prior quarters and other deferred tax assetsbecause it is deemed more likely than not that these assets will not berealized.  Accordingly, no federal incometax benefit has been recorded with respect to these deferred tax assets.

#### **Liquidity and Capital Resources**

As of June 30,2007, we had approximately $10.3 million in cash and cash equivalents andrestricted cash (including $4.7 million of restricted cash) compared toapproximately $16.7 million (including $4.7 million of restricted cash) atDecember 31, 2006.  As noted aboveunder “Financing arrangement” in note 5 of the Notes to the CondensedConsolidated Financial Statements (Unaudited), in June 2007 we issued preferredstock under that arrangement and received approximately $1.8 million (net ofcosts of the transaction).  Including thecash received in the financing arrangement, our operations consumedapproximately $8.2 million of cash in the first six months of 2007 primarilyfrom net operating losses and restructuring costs.  Management’s goal is to restructure ouroperations to achieve positive, sustainable cash flow and earnings and we believewe have made significant progress toward that goal.  There can be, however, no assurances that ourcash resources will be sufficient to achieve that goal in the near term orever.

Cash and cashequivalents and restricted cash are recorded at cost which approximates theirfair market value.  We have nooutstanding debt.

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*Cash flow from operations. *Net cash used in operationswas $8.2 million in the first six months of 2007 compared to net cash used inoperations of $3.4 million in the first six months of 2006.  This difference of approximately $4.8 millionresulted primarily from a net decrease in cash received from customers ofapproximately $18.9 million partially offset by net decreases in cash paid toor on behalf of employees of $7.0 million, cash paid to suppliers of $3.0million, and cash paid for restructuring activities of $3.9 million.

*Cash flow from investing activities. *Cash used in investingactivities was $44,000 in the first six months of 2007 resulting primarily fromcapital expenditures.  Cash provided byinvesting activities was $1.3 million in the first six months of 2006,primarily resulting from receipt of proceeds from the sale of assets and areduction in cash used to secure a letter of credit related to our workers’compensation program partially offset by cash used for capital purchases.

*Cash flow from financing activities*.  Cash flow from financing activities was $1.8million in the first six months of 2007 resulting from the financingtransaction noted above.  Cash flow fromfinancing activities was not significant in the first six months of 2006.

*Future capital needs and resources. *The primary uses of ourcapital in the near future are expected to be primarily for workingcapital.  We expect to adjust personnel,call centers and network capacities in order to address varying businesscircumstances, including changes in volume and pricing and other provisions ofcustomer contracts.

Cash on hand (including restricted cash) and short-term investments atJune 30, 2007 was approximately $10.3 million and, if approved by shareholders at our annual meeting on August 14,2007, the financing transaction noted above will provide additional cash ofapproximately $7.8 million.  In addition,in August 2007, the benefactor of the letter of credit securing our workers’compensation program has agreed to a reduction in the amount of the letter ofcredit of approximately $1.7 million based on lower than expected claims.  The result will be a reduction in the letterof credit and the restricted cash and certificate of deposit securing theletter which will release those funds for use in our operations.  However, our operations and futureactivities, including additional restructuring efforts, if any, will likelyreduce available cash.

We have experienced net losses in each of the quarterly and annualperiods since the second quarter of 2003. Our independent registered public accounting firm included a goingconcern explanatory paragraph in its report on our consolidated financialstatements as of and for the year ended December 31, 2006.  We, however, expect to meet our cashrequirements in the remainder of 2007and beyond using our existing cash andcash equivalents, and if approved by shareholders, cash received from thepending financing transaction.

Our management is working to aggressively pursue new and additionalsources of revenues to support our reduced cost structure, further reduce thedirect cost of delivering our services and reduce our general andadministrative overhead, and develop and grow our data services business.  There can be no assurance that management’splans will be successful.  In such event,we may attempt to establish borrowing arrangements or otherwise raise funds inorder to maintain adequate liquidity. The financing transaction discussed above requires shareholder approvaland as of the date of this filing, such approval has not yet beenobtained.  We cannot provide assurancethat the financing transaction will be approved by our shareholders or thatother funding will be available in amounts or on terms acceptable to us.  If we are unable to execute our operationsaccording to the plan or obtain additional financing, we may be forced to ceaseoperations.

#### **Critical Accounting Policies**

We prepare our financial statements in conformity with accountingprinciples generally accepted in the United States of America.  As such, we are required to make certainestimates, judgments and assumptions that we believe are reasonable based uponthe information available.  Theseestimates and assumptions affect the reported amounts of assets and liabilitiesat the date of the financial statements and the reported amounts of revenuesand expenses during the periods presented. Management believes that of our significant accounting policies (seeNote 1 to the Condensed Consolidated Financial Statements (Unaudited)), thosegoverning accounts receivable, the lives and recoverability of the carryingamount of equipment and other long-lived assets, such as existing intangibles,estimates involving the levels of our contingent liabilities for workers’compensation and medical self-insurance and estimates of current and deferredtaxes owed may involve a higher degree of judgment, estimation and uncertainty.

*Accounts receivable.*Ourwholesale customer base has primarily consisted of large wireless telephone carriersin the United States.  As such, we havehad minimal risk of uncollectibility, at any point in time, related tooutstanding accounts receivable with these customers.  We have not experienced significantcollection issues or write-offs related to these customers.  Since our accounts receivable areconcentrated in relatively few of these wholesale customers, a 

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significant change in the liquidity or financialposition of any one of them could adversely impact collection of our accountsreceivable and therefore have a material adverse effect on our financialposition and future operating results. In addition, our data services business is generating receivables fromcustomers that may not be as financially stable as our large carrier customerswhich to date has not, but may in the future, expose us to greater risk ofuncollectible receivables than we have experienced in the past.

*Long-lived assets and intangibles.* We evaluate the remaining life andrecoverability of equipment and other assets, including patents and trademarksand internally developed software, whenever events or changes in circumstancesindicate that the carrying amount of the assets may not be recoverable.  At such time, we estimate the future cashflows expected from use of such assets and their eventual disposition and, iflower than the carrying amounts, adjust the carrying amount of the assets totheir estimated fair value.  Because ofour changing business conditions, including lower wholesale prices anddependence on a relatively small number of customers for a significant portionof our revenues, our estimates of future cash flows to be generated from ouroperations could change materially, resulting in the need for us to recordadditional impairment charges.  Inaddition, as a result of our changing business conditions, we expect to adjustpersonnel, call centers and network capacities. If any of these activities result in certain of our assets no longerbeing used in operations, we may need to record an additional impairment charge.  As a result of the decision by Nextel toterminate its contract with us, as discussed under Significant Events above,and because of continuing operating losses, we evaluated our fixed assets andintangibles as of December 31, 2006 for impairment in accordance with Statementof Financial Accounting Standards (“SFAS”) No. 144.  Our evaluation determined that the assetswere not impaired as of December 31, 2006.

*Self-insurance reserves. *In the past, we haveself-insured a portion of our workers’ compensation and employee medicalinsurance programs.  In some periods we purchased stop loss coverage atvarying levels in order to mitigate our potential future losses.  Thenature of the liabilities associated with these self-insurance programs, whichmay not fully manifest themselves for several years, requires significantjudgment.  We evaluate open workers’ compensation and medical claims underthese policies periodically to determine the reasonableness of the reserves wehave recorded for such claims.  Our evaluationincludes estimates of potential incurred-but-unreported claims as well asfactors that may cause original estimates of such claims to increase over time,such as available claims data and historical trends and experience, as well asfuture projections of ultimate losses, expenses, premiums and administrativecosts.  We adjust these reserves if events or changes in circumstancesindicate that ultimate payments related to the claims will be more than therecorded reserves.  At June 30, 2007, wehave reserved approximately $1.3 million and $160,000 related to theseself-insured workers’ compensation and medical programs, respectively.  While we believe that the amounts reservedfor these obligations are sufficient, any significant change in the status ofopen claims or costs associated with claims made under these plans could have amaterial adverse effect on our financial position, results of operations orcash flows.

*Income taxe*s.  Accountingfor income taxes requires us to estimate our income taxes in each jurisdictionin which we operate.  Due to differences in the recognition of itemsincluded in income for accounting and tax purposes, temporary differences arisewhich are recorded as deferred tax assets or liabilities.  We estimate thelikelihood of recovery of these assets, which is dependent on future levels ofprofitability and enacted tax rates.  Should any amounts be determined notto be recoverable, or assumptions change, we would be required to take a chargeto establish a valuation allowance against such deferred tax assets, whichcould have a material effect on our financial position, results of operationsor cash flows.  At June 30, 2007 and2006, a valuation allowance reduced net deferred tax assets to zero.

#### **Recent Accounting Pronouncements**

InFebruary 2007, the  FinancialAccounting Standards Board (“FASB”) issued Statement of Financial Standards (“SFAS”)No. 159, *The Fair Value Option forFinancial Assets and Financial Liabilities. *SFAS 159 provides companies with an option to report selectedfinancial assets and liabilities at fair value. SFAS 159 also establishes presentation and disclosure requirementsdesigned to facilitate comparisons between companies that choose differentmeasurement attributes for similar types of assets and liabilities and toprovide additional information that will help investors and other financialstatement users to more easily understand the effect of the company’s choice touse fair value on its earnings.  Finally,SFAS 159 requires entities to display the fair value of those assets andliabilities for which the company has chosen to use fair value on the face ofthe balance sheet.  SFAS 159 is effectiveas of the beginning of an entity’s first fiscal year beginning afterNovember 15, 2007.  We are currentlyassessing the impact of SFAS 159 which we will be required to adopt in thefirst quarter of our 2008 fiscal year.

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In May 2007, theFASB issued FSP FIN 48-1, *Definition of aSettlement in FASB Interpretation No. 48*(“FSP FIN 48-1”).  FSP FIN 48-1 clarifies when a tax position isconsidered settled under FIN 48.  Per FSP FIN 48-1, a tax position isconsidered “effectively settled” upon completion of the examination by thetaxing authority without being legally extinguished.  For “effectivelysettled” tax positions, a company can recognize the full amount of the taxbenefit.  FSP FIN 48-1 is effective upon a company’s adoption of FIN48.  See further discussion of FIN 48 below.  FSP FIN 48-1 did nothave a material impact on our consolidated financial position or results ofoperations.

In July 2006, the FASB issued InterpretationNo. 48 (“FIN 48”), “Accounting for Uncertainty in Income Taxes – aninterpretation of FASB Statement No. 109.” FIN 48 prescribes a recognition threshold and measurement attribute forfinancial statement recognition and measurement of a tax position taken orexpected to be taken in a tax return. FIN 48 also provides guidance on derecognition, classification, interestand penalties, accounting in interim periods, disclosure, and transition.  FIN 48 is effective for our fiscal yearbeginning January 1, 2007.  We do notexpect the adoption of this statement to have a material effect on ourconsolidated financial position or results of operations.

In September 2006, the FASB issued SFAS No. 157, “FairValue Measurements,” which establishes a framework for measuring the fair valueof assets and liabilities.  Thisframework is intended to increase consistency in how fair value determinationsare made under various existing accounting standards that permit, or in somecases require, estimates of fair market value. SFAS No. 157 also expands financial statement disclosurerequirements about a company’s use of fair value measurements, including theeffect of such measures on earnings. SFAS No. 157 is effective for fiscal years beginning afterNovember 15, 2007, and interim periods within those fiscal years.  We do not expect the adoption of thisstatement to have a material effect on our consolidated financial position orresults of operations.

#### **ITEM 3.                  QUANTITATIVEAND QUALITATIVE DISCLOSURES ABOUT MARKET RISK**

Substantially all of ourliquid resources are invested in money market instruments and short-term debtsecurities.  However, these funds wereinvested in overnight money market instruments or debt securities withshort-term effective maturities at June 30, 2007 and were redeemable on a dailyor monthly basis.  Therefore, the fairmarket value of these investments is not materially affected by changes inmarket interest rates.  All of the underlyinginvestments in the money market fund had maturities of three months orless.  A hypothetical 1% fluctuation ininterest rates would not have a material adverse effect on our financialposition, results of operations or cash flows.

#### **ITEM4.  CONTROLS AND PROCEDURES**

Under the supervision andwith the participation of our management, including our Chief Executive Officerand Chief Financial Officer, we conducted an evaluation of our disclosurecontrols and procedures (as such term is defined under Rule 13a-15(e)promulgated under the Securities Exchange Act of 1934, as amended, as of theend of the period covered by this quarterly report.  Based upon that evaluation, our ChiefExecutive Officer and Chief Financial Officer concluded that our disclosure controlsand procedures were effective as of the end of the period covered by thisquarterly report.

There has not beenany change in our internal control over financial reporting, that occurredduring the fiscal quarter covered by this report, that has materially affected,or is reasonably likely to materially affect, our internal control overfinancial reporting.

### **PART II.                OTHERINFORMATION**

#### **ITEM1A.               RISK FACTORS**

The risks described below should be carefullyconsidered.  These risks are not the onlyones that we may face.  Additional issuesand uncertainties that we are unaware of, or that we currently deem immaterial,also may become important factors that affect us  If any of the following risks occur, ourbusiness, financial condition, results of operations or cash flows could bematerially and adversely affected.

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**Risks Related to Our Company**

*We have a history of lossesand negative cash flows on a quarterly and annual basis, and may experienceadditional losses from operations, which raises doubt about our ability tocontinue as a going concern.*

Wehave experienced net losses in each of the quarterly and annual periods sincethe first quarter of 2003.  In the yearsended December 31, 2006 and 2005, we incurred losses of $19.2 million and$39.8 million, respectively.  In thefirst six months of 2007, we incurred losses of $7.4 million.  At December 31, 2006, we had workingcapital of approximately $13.3 million, and at June 30, 2007, we hadworking capital of approximately $8.9 million, including $1.8 million (net oftransaction costs) from the first phase of the financing transaction.  Even if we obtain the additional $7.8 millionof gross proceeds from the financing transaction, we will need to generateadditional revenue and continue to decrease our expenditures to achieveprofitability.  We can give no assurancethat we will achieve sufficient revenue or reduce expenditures to be profitableon a quarterly or annual basis in the future. These factors, among others, raise doubt about our ability to continue asa going concern.  Even if we doultimately achieve profitability, we may not be able to sustain profitabilityon a quarterly or annual basis.

*We will likely needadditional capital in the future, and it may not be available.*

Ourunrestricted cash balances at December 31, 2006 and June 30, 2007,were approximately $12.0 million and $5.5 million (including $1.8 million, netof financing costs, from the first phase of the financing transaction),respectively.  In addition, we haveobtained access to an additional $1.7 million of restricted cash as discussedabove under “Subsequent event.”  Althoughwe received gross proceeds of $2.2 million in the first closing of thefinancing transaction, there can be no assurance that our shareholders willapprove the issuance of the additional shares in that financing transaction andthat we will receive the additional $7.8 million.  Unless a realistic alternative shouldmaterialize, our inability to obtain these additional funds will most likelylead to an eventual wind-down of the business and liquidation.

*We need to expand callvolume, increase our efficiencies and substantially lower the cost of deliveryof our services in order to be successful.*

Inorder to successfully execute our business strategies, we need to increase thevolume of calls we service.  We intend toincrease call volume by seeking additional customers, including landlinecarrier customers, as well as seeking additional business from our existingcustomers and by offering our services to other types of customers.  Because of increasing competitive pressuresand declining per call pricing, we need to substantially reduce the cost ofdelivery of our directory assistance services in order to compete withautomated services, offshore contractors, and other low-cost providers.  If we are unable to expand our wirelessbusiness or attract significant landline business revenues on a cost effectivebasis or at all, or if we are unable to substantially reduce the cost of deliveringour services, we may be unable to achieve and maintain profitability.

*We have been restructuringour business to focus on providing directory assistance and informationservices on a wholesale basis.  Evenafter giving effect to this restructuring, we may not have sufficient cash toexecute on our current business plan.*

Wehave taken steps to restructure certain aspects of our business, includingclosing call centers, reducing our work force, discontinuing our Infone retailservice, and renegotiating existing agreements with customers.  We may be forced to take additional steps tolower our costs.  However, restructuring(for example severing employees and terminating leases) takes resources andtime to implement.  There can be noassurance that we will be successful in lowering our costs further or otherwiseimplementing the restructuring.  Therecan also be no assurance that following any restructuring we will havesufficient cash reserves to achieve profitability.  Furthermore, any restructuring could have amaterial adverse impact on our ability to execute on our business plan.

*We have contracts with alimited number of customers.  If we failto extend these contracts or sign new ones, or if these contracts areterminated prior to their expiration, our business could be adversely affected.*

Alimited number of customers account for a large percentage of our continuingrevenues.  Some of our other contractsare non-exclusive, contain performance and other standards, and call volume maybe transferred to alternative providers within the terms of theagreements.  If we fail to extend orreplace our contracts, or other contracts are terminated prior to theirexpiration, our business could be adversely affected.  Although we seek to increase the number ofour customers, opportunities to obtain customers with large call volumes arelimited because a small number of companies dominate the telecommunicationsmarket.  This limits the potentialcarrier customer base and our expansion opportunities through carrierrelationships.

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*We have a long sales cyclewhich may cause delays that adversely affect our revenue growth and operatingresults.*

Acustomer’s decision to contract for our directory assistance and informationservices involves a significant commitment of technical and otherresources.  As a result, we have a longsales cycle for both new contracts and contract extensions, particularly withlarge customers.  The selling processinvolves demonstrating the value-added benefits of outsourcing directory assistanceand using our services rather than those of our competitors.  Additionally, the effectiveness of ourmarketing to other types of customers, including businesses, governmental unitsor callers attracted through other means or affiliations, is difficult topredict at any given point in time, given a wide variety of potential businesscircumstances.  Any delays due to lengthysales cycles could significantly affect our revenue growth and operatingresults.

*Our inability to achievedesired pricing levels could adversely affect our ability to return toprofitability.*

Weare subject to competitive pressures with respect to pricing that have affectedour operations and profitability and could adversely affect our ability toreturn to profitability.  Generally, ourpricing levels have declined and, in the future, may continue to decline inresponse to competition in the industry. The prices that we charge our carrier customers are subject to the termsof our contracts.  The changingtelecommunications market, the relative leverage of the negotiating parties andthe overall competitive landscape can significantly impact contract pricingnegotiations.  In addition, other sourcesof directory assistance, such as automation and those provided by offshore callcenters and the Internet provide low cost forms of competitive services.  We charge our carrier customers on a per callbasis, with prices varying in some cases based on call volume.  If we continue to reduce our prices without acorresponding increase in call volume, there could be an adverse impact on ourability to achieve and maintain profitability.

*Alternative methods fordelivery of directory assistance and information services could reduce thedemand for our services.*

Ourrevenues continue to come primarily from providing Enhanced Directory Assistanceand information services to telephone users. However, information can be transmitted in other ways, including moreintelligent communications devices and other technologies and protocols, andover the Internet.  For example, as theInternet continues to develop and becomes easier to use and access,technologies may be developed that decrease or eliminate the demand fortelephone-based or voice-based directory or information services.  Widespread acceptance of existing anddeveloping technologies and protocols, such as voice recognition and wirelessapplication protocol, could adversely affect our business.  Our call volume could decline if telephoneusers change their usage habits and rely on the Internet or other alternativesas their primary source for information.

*We face substantialcompetition from a number of other companies.*

Manyof our competitors in the directory assistance market, including the regionalBell operating companies, have far greater resources and better namerecognition.  The regional Bell operatingcompanies also may have the advantage of being the local telephone carrier intheir area of operation.  Some of thesecompanies are or may be developing their own versions of directory assistanceservices.  We also face competition froma number of other independent directory assistance providers.  Individual competitors may also seek toprovide low cost domestic or offshore service or to provide automation ofdirectory assistance services.  If we areunable to compete successfully, it could have an adverse effect on ourbusiness, financial condition, results of operations or cash flows.  Our ability to compete successfully depends,in part, on our ability to anticipate and appropriately respond to manyfactors, including pricing decisions by carriers, decisions by carriers toforce consumers to accept lower-quality information services products, theintroduction of new services and products by our competitors, changes insubscriber preferences, changes in economic conditions and discount pricingstrategies by our competitors.

*The rapidly changingtelecommunications market could unfavorably affect us.*

Thetelecommunications market is subject to rapid change and uncertainty that mayresult in competitive situations which could unfavorably affect us.  These changes and uncertainties are due to,among other factors, the following:

·                  Mergers,acquisitions and alliances among carriers and among our competitors, which canresult in fewer carriers in the marketplace, lost carrier customers, increasednegotiating leverage for newly affiliated carriers and more effectivecompetitors;

·                  Changes in theregulatory environment, which may affect us directly, by affecting our abilityto access and update listings data at a reasonable cost, or indirectly, byrestricting our carrier customers’ ability to operate or provide a competitiveservice;

·                  Increasingavailability of alternative methods for delivery of directory assistance andother information services, including the Internet;

·                  Evolvingindustry standards, including frequent technological changes and new productintroductions; and

·                  Changesin retail prices offered to consumers for our services or for servicesperceived to be substitutes for ours, in whole or in part.

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*Our quarterly and annualoperating results may vary significantly in part due to factors outside ourcontrol.*

Inthe future, as in the past, our quarterly and annual operating results may varysignificantly as a result of a number of factors.  We cannot control many of these factors, whichinclude, among others:

·                  Changes in thetelecommunications market, including the addition or withdrawal of carriersfrom the market, changes in technology and increased competition from existingand new competitors;

·                  The timing andexpense of our call center network expansion or contraction, including changingstaffing and infrastructure expenses related to anticipated call volumechanges;

·                  The addition orexpiration of contracts with carrier customers;

·                  Changes in ouror our competitors’, customers’ or suppliers’ pricing policies;

·                  Lengthy salescycles for new and extended contracts;

·                  The timing ofthe commencement of our services under new or existing contracts with ourcarrier customers, which depends in part on the customers’ ability to adapt theirnetworks and billing systems to allow them to transfer calls to us;

·                  Lack of marketacceptance or delays or increased development costs related to the introductionof our services or features; and

·                  Generaleconomic conditions.

Forthese reasons, investors should not rely on period-to-period comparisons of ourfinancial results as an indication of any future results.  Our future operating results could fall belowthe expectations of securities industry analysts or investors.  Any such shortfall could result in a declinein the market price of our common stock. Fluctuations in our operating results and cash flows would likelyincrease the volatility of our common stock price.

*Our operating results aresignificantly affected by our ability to accurately estimate the amount andtiming of call volume, which is often subject to factors outside of ourcontrol.*

Ouroperating results are significantly affected by costs incurred for expanding orcontracting staffing and infrastructure. We incur significant staffing and general and administrative costs incontracting or expanding operations, as necessary, and in anticipation ofadditional or reduced call volume under our customer contracts.  If such call volume does not depart or arriveas scheduled, in the amount anticipated, or at all, our operating results canbe adversely affected.  This couldincrease our operating expenses without a corresponding increase in revenues.

*Regulations affecting ourcustomers and suppliers and future regulations to which we may be subject mayadversely affect our business.*

Whilein the past, our principal business as a wholesale supplier of EnhancedDirectory Assistance and information services for telecommunications commoncarriers has not been directly regulated, the offering of those services to thepublic by our customers is regulated by various federal and state regulatoryauthorities.  The Federal CommunicationsCommission (“FCC”) has jurisdiction over all U.S. telecommunications commoncarriers to the extent they provide interstate or international communicationsservices, including, in our case, the use of our local networks to originate orterminate such services.  The applicationof the FCC’s current and/or future policies could have a material adverseeffect on our business, operating results and financial condition.

Otheraspects of our services may be subject to state or federal regulation, such asregulations relating to the confidentiality of data and communications,copyright issues, and taxation of services. We cannot predict the actions that federal, state, and local regulatorsmay take or what impact such actions would have on our business.

*If we are unable toanticipate changes in technology and industry standards and to develop newservices and features, we may not succeed.*

Oursuccess depends, in part, on our ability to anticipate changes in technologyand industry standards and to develop and introduce new services and featuresthat are accepted by the marketplace and cost effective for us to provide as apart of our overall service offerings. The development of new services and features can be very expensive.  Further, given rapid technological changes,frequent introduction of new products, services and features, and changingconsumer demands that characterize our industry, it can be difficult tocorrectly anticipate future changes in technology and industry standards.  If we fail to develop new services andfeatures, encounter difficulties that delay the introduction of such servicesand features, or incorrectly anticipate future changes and develop services andfeatures that are not accepted by the marketplace or are not cost effective forus to provide as a part of our overall service offerings, we may not succeed atour business.

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*Systems failures, delaysand other problems could harm our reputation and business, cause us to losecustomers and expose us to customer liability.*

Oursuccess also depends on our ability to provide reliable services.  Our operations could be interrupted bysignificant damage to or failure of our network, our connections to thirdparties, our computer hardware or software or our customers’ or suppliers’computer hardware or software.  Any suchsignificant damage or failure could disrupt the operations of our network andthe provision of our services and result in the loss of current and potentialcustomers.  In addition, if call volumeincreases, we may need to expand and/or upgrade our technology and networkhardware and software in order to provide services.  Capacity limits on our technology and networkhardware and software may make it difficult for us to expand and upgrade oursystems in a timely and economical manner.

*If we are unable to obtainor adequately update directory or information content at an economical cost, wemay be unable to provide current levels of service or improve our service.*

Ouroperations depend on our access to the names, telephone numbers and otherinformation that we supply directly to callers or we use in providing ourservices.  The availability, cost, qualityand usefulness of such data varies widely across geographic regions.  If we are unable to obtain or updatedirectory or information content at an economical cost, we may be unable toprovide current levels of service, improve our Enhanced Directory Assistanceservice, or provide new services and features. Ultimately, the satisfaction of callers and our carrier customers, andour ability to renew and extend our current customer contracts and enter intonew customer contracts, depends on the quality of services we provide.  The quality of our services is directlyrelated to the quality of our listings data and other information content.

*As we rely on a limitednumber of suppliers, an abrupt loss of any key supplier could adversely affectour business operations or delay our development efforts.*

Werely on some key suppliers to provide us with programming and engineeringservices and to license us their technology. An abrupt loss of any current key supplier could cause a disruption inour operations or a delay in our development efforts and could adversely affectour business operations.

*If we are unable tocontinue to attract and retain qualified senior management, sales and technicalpersonnel and call center operators, or our call center staff is unionized, ouroperations could be adversely affected.*

Oursuccess depends to a significant extent on the efforts and abilities of oursenior management, sales and technical personnel and call centeroperators.  The loss of the services ofour senior management and technical personnel could have a material adverseeffect on our business and our ability to meet our strategic objectives.  In addition, increasing our revenues iscritical to our success.  If we areunable to attract and retain qualified and productive sales personnel, we maynot be able to increase our revenues which would have an adverse effect on ourplans and our business.  We also dependon the continued service of our call center operators, who we hire from theavailable labor pool.  The ability toattract and retain qualified senior management, sales and technical personnel,operators and other skilled employees is extremely important to the operationof our business.  If we are unable toattract and retain qualified individuals, or we are required to paysignificantly higher wages and other benefits to such individuals, or if ourcall center staff is unionized, it could adversely affect our businessoperations.  We find it more difficult torecruit and retain qualified individuals during periods of low unemploymentand, therefore, may be subject to increasing pressure to offer higher wages andother benefits during such periods.  Inour call center hiring, we may also feel the effects of the telecommunicationsindustry in general, which has widespread union membership among its operatorsand other workers.

*If we are unable to use andprotect our intellectual property, we may be unable to provide some of ourEnhanced Directory Assistance and information services or profitably operateour business.*

Weregard aspects of our Enhanced Directory Assistance, and their features andprocesses, to be proprietary.  If we areunable to use and protect our intellectual property, we may be unable toprovide some of our Enhanced Directory Assistance and/or our personal assistantservices or profitably operate our business. To a limited extent, we rely on a combination of trade secret, patentand other intellectual property law, nondisclosure agreements and otherprotective measures to protect our intellectual property.  However, these measures may be difficult andcostly to meaningfully enforce.  Inaddition, attempts to enforce our intellectual property rights may bring intoquestion the validity of these rights. Litigation with respect to patents or other intellectual property rightscan result in substantial costs and diversion of management attention and otherresources.

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**Risks Related to Our Common Stock**

*Our common stock may bedelisted from the Nasdaq Capital Market if we are unable to maintain compliancewith Nasdaq Capital Market continued listing requirements.*

Failureto achieve continued listing on the Nasdaq Capital Market will likely impactour ability to raise additional capital. Our common stock listing was transferred from the Nasdaq National Marketto the Nasdaq Capital Market (formerly the Nasdaq SmallCap Market) onFebruary 22, 2006 because we had been unable to regain compliance with the$1.00 minimum bid price requirement for continued listing on the NasdaqNational Market. In July, 2006 we effected a one-for-four reverse stock splitand regained compliance with the Nasdaq listing requirements.  However, on June 27, 2007, we received aNasdaq Staff Deficiency Letter informing us that we no longer comply withNasdaq’s audit committee requirements for continued listing as set forth inMarketplace Rules 4350.  Theresignation of Mr. Murray Swanson from the Audit Committee in connectionwith the financing transaction resulted in our Audit Committee having less thanNasdaq’s audit committee requirement of three independent members.  The letter stated that, consistent withMarketplace Rule 4350(d)(4), we will be provided a cure period until theearlier of our next annual shareholders’ meeting or June 5, 2008, or, ifthe next annual shareholders meeting is held before December 3, 2007, thenno later than December 3, 2007, in order to regain compliance.  The letter also stated that, in the event wedo not regain compliance within this period, the Staff will provide writtennotification that our securities will be delisted. It is the intention of ourBoard of Directors to take the necessary action to appoint an independentmember of the Audit Committee within the cure period provided so as to maintaincontinued Nasdaq listing.  However, if wewere unable to appoint an independent member of the Audit Committee within thecure period and our common stock were delisted from the Nasdaq Capital Market,the market liquidity of our common stock could be reduced and an investor wouldfind it more difficult to dispose of, or obtain accurate quotations for theprice of, our common stock.

*Our common stock price isvolatile.*

Themarket price of our common stock has experienced volatility and is likely tocontinue to experience significant fluctuations in response to a number offactors.  These factors include, amongothers, low trading volume, our quarterly and annual operating results and thefollowing:

·                  Announcements ofextensions, expirations or changes in our contracts and the effects on our callcenters and infrastructure of such activities;

·                  Announcementsrelating to material events concerning our customers;

·                  Actual oranticipated variations in our results of operations and liquidity;

·                  Securitiesfilings or other public announcements by our large shareholders;

·                  Announcements ofnew product initiatives or growth strategies; and

·                  Generalmarket conditions.

FromJanuary 1, 2006 through December 31, 2006, our common stock pricefluctuated, on a post one-for-four reverse stock split basis, from a low of$1.32 per share to a high of $3.77 per share, and has on several occasionsfluctuated more than 10% during a trading day. From January 1, 2007 through June 30, 2007, our common stock pricefluctuated, from a low of $1.85 per share to a high of $2.69 per share.  These trading prices may change significantlyand arbitrarily.  In addition, broadmarket factors affecting telecommunications or technology stocks may adverselyaffect the market price of our common stock. General economic, political and market conditions, including interestrate changes and recession, may also adversely affect our stock price.

*The issuance of securitiesin the financing transaction will substantially reduce the relative equityownership and influence of all other shareholders, which may put downwardpressure on the trading price of our common stock.*

OnJune 5, 2007, we closed the initial portion of a private financingtransaction with Columbia and Everest. Each of the investors held shares of our common stock prior to thisfinancing transaction.  If ourshareholders approve the issuance of additional shares in connection with thefinancing transaction, the investors will acquire a substantially greaterequity ownership and the additional ownership will dilute our other existingshareholders.  If all the convertiblepreferred stock issued in the initial portion of the financing transaction wereto be converted into common stock at the initial conversion price of $1.78 pershare, our existing shareholders (exclusive of the investors in the financingtransaction) would hold approximately 41.8% of our common stock, and Columbiaand Everest would hold approximately 44.4% and 3.8% of our common stock,respectively.

Theholders of convertible preferred stock will have a claim against our assetssenior to the claim of the holders of our common stock in the event of aliquidation and certain other events. Our existing shareholders will also have less influence on our affairsand the ability to control major corporate decisions.  Columbia will be our largest shareholder withapproximately 41.8% of the total voting power of our outstanding capital stock,before giving effect to the conversion of convertible preferred stock intocommon stock or the exercise of the warrants. As a result of the first closing and for so long as at least 203, butless than 540, shares of convertible preferred stock are outstanding,

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theholders of convertible preferred stock are entitled to elect two members of ourBoard.  After the second closing and forso long as at least 540 shares of convertible preferred stock are outstanding,the holders of convertible preferred stock will be entitled to elect a majorityof the members of our Board.

Accordingly,the investors in the financing transaction will have significant influence overmatters submitted to our shareholders, including potential change-of-controltransactions.  Their interests may bedifferent from your interests, and they may be in a position to influence us toact in a way inconsistent with the interests of public shareholdersgenerally.  This concentration of votingpower may deter other companies from seeking to acquire us, which might depressthe market price of our common stock.

*The market price of ourcommon stock may be reduced by future sales of our common stock in the publicmarket.*

Salesof substantial amounts of our common stock in the public market that are notcurrently freely tradable, or even the potential for such sales, could have anadverse effect on the market price for shares of our common stock and couldimpair the ability of purchasers of our common stock to recover theirinvestment or make a profit.

#### **ITEM6.  EXHIBITS**

(a)          Exhibits
| 3.1    |   | Articles of  Amendment to the Third Restated Articles of Incorporation of the Company*                                                                                                   |
|--------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                     |
| 3.2    |   | Certificate of  Amendment to the Amended and Restated Bylaws of the Company*                                                                                                             |
|   |   |                                                                                                                                                                                     |
| 4.1    |   | Form of Series A  Convertible Preferred Stock Certificate*                                                                                                                               |
|   |   |                                                                                                                                                                                     |
| 4.2    |   | Form of Stock  Purchase Warrant*                                                                                                                                                         |
|   |   |                                                                                                                                                                                     |
| 4.3    |   | Form of Senior  Secured Convertible Revolver Bridge Note*                                                                                                                                |
|   |   |                                                                                                                                                                                     |
| 10.1   |   | Securities  Purchase Agreement, dated June 5, 2007, by and between the Company and the  investors signatory thereto*                                                                     |
|   |   |                                                                                                                                                                                     |
| 10.2   |   | Registration  Rights Agreement, dated June 5, 2007, by and between the Company and the  investors signatory thereto*                                                                     |
|   |   |                                                                                                                                                                                     |
| 31.1   |   | Certification of  Principal Executive Officer pursuant to Securities and Exchange Commission  Rule 13a-14(a)                                                                             |
|   |   |                                                                                                                                                                                     |
| 31.2   |   | Certification of  Principal Financial Officer pursuant to Securities and Exchange Commission  Rule 13a-14(a)                                                                             |
|   |   |                                                                                                                                                                                     |
| 32.1   |   | Certification of  Principal Executive Officer and Principal Financial Officer Pursuant to 18  U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley  Act Of 2002 |

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*****                 Incorporated herein by reference to Metro One’sCurrent Report on Form 8-K dated June 5, 2007.

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SIGNATURES

Pursuant to therequirements of the Securities Exchange Act of 1934, the registrant has dulycaused this report to be signed on its behalf by the undersigned thereunto dulyauthorized.
| Date:    August  13, 2007 |                                          |
|-----------------------------------------------|-----------------------------------------------|
|                                          | METRO ONE  TELECOMMUNICATIONS, INC.           |
|                                          |                                          |
|                                          | By:                                           |  /s/ William K. Hergenhan |   |
|                                          | William K.  Hergenhan                         |
|                                          | Vice President,                               |
|                                          | Chief Financial  Officer                      |
|                                          | (Principal  Financial and Accounting Officer) |

 

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