** **

**United StatesSecurities and 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, 2006**

**o**** TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d)****OF THE SECURITIES EXCHANGE ACT OF 1934**

**CommissionFile Number 0-27024**

**METRO ONE 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.) |

###### **11200Murray Scholls Place, Beaverton, Oregon 97007**

(Address ofprincipal executive offices) (zip code)

**(503) 643-9500**

(Registrant’stelephone number, including area code)

**Indicate by check mark whetherthe registrant has (1) filed all reports required to be filed by Section 13 or15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (orfor such shorter period that the registrant was required to file such reports),and (2) has been subject to such filing requirements for the past 90 days.  Yes ****x  No****o**

**Indicate by check mark 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 7, 2006: 6,233,326 shares, no par value per share.**

 

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**METRO ONE TELECOMMUNICATIONS, INC.**

**INDEX TO FORM 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, 2006 and 2005       |   |
|                                                                                                                                                                    |                                                                                                              |
|                                                                                                                                                                    | Condensed  Consolidated Balance Sheets as of June 30, 2006 and December 31, 2005                                  |   |
|                                                                                                                                                                    |                                                                                                              |
|                                                                                                                                                                    | Condensed  Consolidated Statements of Cash Flows for the   three and six months ended June 30, 2006 and 2005 |   |
|                                                                                                                                                                    |                                                                                                              |
|                                                                                                                                                                    | 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  4.                                                                                                                                                                | Submission  of Matters to a Vote of Security Holders                                                              |   |
|                                                                                                                                                                    |                                                                                                              |
| Item  6.                                                                                                                                                                | Exhibits                                                                                                          |   |
|                                                                                                                                                                    |                                                                                                              |
|                                                                                                                                                                    | Signatures                                                                                                        |   |

 

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**Metro One Telecommunications,Inc.**

**CondensedConsolidated Statements of Operations (Unaudited)**
| ** **                                                         | ** ** | **Three Months Ended June 30,** | ** ** | **Six Months Ended June 30,** | ** ** |
|--------------------------------------------------------------------|------------|-----------------------------------------------------|------------|---------------------------------------------------|------------|
| **(In thousands, except per share data)** | ** ** | **2006**                                            | ** ** | **2005**                                          | ** ** | **2006** | ** ** | **2005** | ** ** |
|                                                               |       |                                                |       |                                              |       |   |   |   |   |
| Revenues                                                           |       | $                                                   | 5,118      |                                              | $          | 20,149 |   | $ | 20,347 |   | $ | 38,528 |   |
|                                                               |       |                                                |       |                                              |       |   |   |   |   |
| Costs and expenses:                                                |       |                                                |       |                                              |       |   |   |   |   |
| Direct operating                                                   |       | 3,764                                               |       | 14,743                                            |       | 11,529 |   | 31,963 |   |
| Selling, general  and administrative                               |       | 5,241                                               |       | 12,108                                            |       | 12,347 |   | 25,325 |   |
| Depreciation and  amortization                                     |       | 1,120                                               |       | 1,593                                             |       | 2,355 |   | 3,205 |   |
| Restructuring  charges                                             |       | 761                                                 |       | 1,275                                             |       | 5,777 |   | 1,275 |   |
|                                                               |       | 10,886                                              |       | 29,718                                            |       | 32,008 |   | 61,768 |   |
|                                                               |       |                                                |       |                                              |       |   |   |   |   |
| Loss from operations                                               |       | (5,768                                              | )          | (9,570                                            | )          | (11,661 | ) | (23,240 | ) |
|                                                               |       |                                                |       |                                              |       |   |   |   |   |
| Other income, net                                                  |       | 225                                                 |       | 273                                               |       | 412 |   | 568 |   |
|                                                               |       |                                                |       |                                              |       |   |   |   |   |
| Loss before income  taxes                                          |       | (5,543                                              | )          | (9,297                                            | )          | (11,249 | ) | (22,672 | ) |
| Income tax expense  (benefit)                                      |       | 50                                                  |       | (50                                               | )          | 50 |   | (81 | ) |
|                                                               |       |                                                |       |                                              |       |   |   |   |   |
| Net loss                                                           |       | $                                                   | (5,593     | )                                                 | $          | (9,247 | ) | $ | (11,299 | ) | $ | (22,591 | ) |
|                                                               |       |                                                |       |                                              |       |   |   |   |   |
| Net loss per common  share:                                        |       |                                                |       |                                              |       |   |   |   |   |
| Basic                                                              |       | $                                                   | (.90       | )                                                 | $          | (1.48 | ) | $ | (1.81 | ) | $ | (3.61 | ) |
| Diluted                                                            |       | $                                                   | (.90       | )                                                 | $          | (1.48 | ) | $ | (1.81 | ) | $ | (3.61 | ) |
|                                                               |       |                                                |       |                                              |       |   |   |   |   |
| Weighted average shares  outstanding:                              |       |                                                |       |                                              |       |   |   |   |   |
| Basic                                                              |       | 6,233                                               |       | 6,265                                             |       | 6,233 |   | 6,256 |   |
| Diluted                                                            |       | 6,233                                               |       | 6,265                                             |       | 6,233 |   | 6,256 |   |

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

1

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**Metro One Telecommunications,Inc.**

**CondensedConsolidated Balance Sheets (Unaudited)**
| ** **                                                                                                                                                 | ** ** | **June 30,** | ** ** | **December 31,** | ** ** |
|------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-------------------|------------|-----------------------|------------|
| **(In thousands)**                                                                                                                                    | ** ** | **2006**          | ** ** | **2005**              | ** ** |
| ** **                                                                                                                                                 | ** ** | ** **        | ** ** | ** **            | ** ** |
| **Assets**                                                                                                                                                 | ** ** | ** **        | ** ** | ** **            | ** ** |
| ** **                                                                                                                                                 | ** ** | ** **        | ** ** | ** **            | ** ** |
| Current assets:                                                                                                                                            |       |              |       |                  |       |
| Cash and cash equivalents                                                                                                                                  |       | $                 | 15,725     |                  | $          | 17,769 |   |
| Restricted cash                                                                                                                                            |       | 6,160             |       | 6,860                 |       |
| Accounts receivable, net                                                                                                                                   |       | 3,746             |       | 11,982                |       |
| Prepaid costs and other current assets                                                                                                                     |       | 2,356             |       | 1,759                 |       |
|                                                                                                                                                       |       |              |       |                  |       |
| Total current assets                                                                                                                                       |       | 27,987            |       | 38,370                |       |
|                                                                                                                                                       |       |              |       |                  |       |
| Furniture,  fixtures and equipment, net                                                                                                                    |       | 4,162             |       | 7,963                 |       |
| Intangible  assets                                                                                                                                         |       | 5,004             |       | 5,382                 |       |
| Other assets                                                                                                                                               |       | 134               |       | 302                   |       |
|                                                                                                                                                       |       |              |       |                  |       |
| Total assets                                                                                                                                               |       | $                 | 37,287     |                  | $          | 52,017 |   |
| ** **                                                                                                                                                 | ** ** | ** **        | ** ** | ** **            | ** ** |
| **Liabilities  and Shareholders’ Equity**                                                                                                             | ** ** | ** **        | ** ** | ** **            | ** ** |
|                                                                                                                                                       |       |              |       |                  |       |
| Current  liabilities:                                                                                                                                      |       |              |       |                  |       |
| Accounts payable                                                                                                                                           |       | $                 | 756        |                  | $          | 534 |   |
| Accrued liabilities                                                                                                                                        |       | 2,462             |       | 2,637                 |       |
| Accrued payroll and related costs                                                                                                                          |       | 5,256             |       | 8,553                 |       |
|                                                                                                                                                       |       |              |       |                  |       |
| Total current liabilities                                                                                                                                  |       | 8,474             |       | 11,724                |       |
|                                                                                                                                                       |       |              |       |                  |       |
| Other long-term  liabilities                                                                                                                               |       | 445               |       | 626                   |       |
|                                                                                                                                                       |       |              |       |                  |       |
| Total  liabilities                                                                                                                                         |       | 8,919             |       | 12,350                |       |
|                                                                                                                                                       |       |              |       |                  |       |
| Commitments and  contingencies                                                                                                                             |       |              |       |                  |       |
|                                                                                                                                                       |       |              |       |                  |       |
| Shareholders’  equity:                                                                                                                                |       |              |       |                  |       |
| Preferred stock, no par value; 2,500 shares authorized,  no shares issued or outstanding                                                                   |       | —            |       | —                |       |
| Common stock, no par value; 12,500 shares  authorized, 6,233 shares and 6,237 issued and outstanding at June 30, 2006  and December 31, 2005, respectively |       | 119,937           |       | 119,937               |       |
| Accumulated deficit                                                                                                                                        |       | (91,569           | )          | (80,270               | )          |
|                                                                                                                                                       |       |              |       |                  |       |
| Total  shareholders’ equity                                                                                                                           |       | 28,368            |       | 39,667                |       |
|                                                                                                                                                       |       |              |       |                  |       |
| Total liabilities and  shareholders’ equity                                                                                                           |       | $                 | 37,287     |                  | $          | 52,017 |   |

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

2

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**Metro One Telecommunications,Inc.**

**CondensedConsolidated Statements of Cash Flows (Unaudited)**
| ** **                                                                   | ** ** | **Six Months Ended June 30,** | ** ** |
|------------------------------------------------------------------------------|------------|---------------------------------------------------|------------|
| **(In thousands)**                                                      | ** ** | **2006**                                          | ** ** | **2005** | ** ** |
|                                                                         |       |                                              |       |   |   |
| Cash flows from  operating activities:                                       |       |                                              |       |   |   |
| Net loss                                                                     |       | $                                                 | (11,299    | ) | $ | (22,591 | ) |
| Adjustments to reconcile net loss to net cash used  in operating activities: |       |                                              |       |   |   |
| Depreciation and amortization                                                |       | 2,355                                             |       | 3,205 |   |
| Loss on disposal of fixed assets                                             |       | 1,120                                             |       | 5 |   |
| Deferred rent                                                                |       | (180                                              | )          | (87 | ) |
| Changes in certain assets and liabilities:                                   |       |                                              |       |   |   |
| Accounts receivable                                                          |       | 8,237                                             |       | 3,984 |   |
| Prepaid costs and other assets                                               |       | (344                                              | )          | 1,010 |   |
| Accounts payable and other liabilities                                       |       | (3,251                                            | )          | (531 | ) |
|                                                                         |       |                                              |       |   |   |
| Net cash used in operating activities                                        |       | (3,362                                            | )          | (15,005 | ) |
|                                                                         |       |                                              |       |   |   |
| Cash flows from  investing activities:                                       |       |                                              |       |   |   |
| Decrease (increase) in cash restricted to secure  letter of credit           |       | 700                                               |       | (1,960 | ) |
| Purchases of short-term securities                                           |       | —                                            |       | (36,805 | ) |
| Sales of short-term securities                                               |       | —                                            |       | 62,180 |   |
| Capital expenditures                                                         |       | (199                                              | )          | (1,395 | ) |
| Proceeds from sale of assets                                                 |       | 817                                               |       | 16 |   |
|                                                                         |       |                                              |       |   |   |
| Net cash provided by investing activities                                    |       | 1,318                                             |       | 22,036 |   |
|                                                                         |       |                                              |       |   |   |
| Cash flows from  financing activities:                                       |       |                                              |       |   |   |
| Proceeds from employee stock purchases                                       |       | —                                            |       | 103 |   |
|                                                                         |       |                                              |       |   |   |
| Net cash provided by financing activities                                    |       | —                                            |       | 103 |   |
|                                                                         |       |                                              |       |   |   |
| Net (decrease)  increase in cash and cash equivalents                        |       | (2,044                                            | )          | 7,134 |   |
|                                                                         |       |                                              |       |   |   |
| Cash and cash  equivalents, beginning of period                              |       | 17,769                                            |       | 24,093 |   |
|                                                                         |       |                                              |       |   |   |
| Cash and cash  equivalents, end of period                                    |       | $                                                 | 15,725     |   | 31,227 |   |
|                                                                         |       |                                              |       |   |   |
| Supplemental  disclosure of cash flow information:                           |       |                                              |       |   |   |
| Cash (paid)  refunded for income taxes, net                                  |       | $                                                 | (47        | ) | $ | 2,955 |   |

The accompanyingnotes are an integral part of these condensed consolidated financialstatements.

3

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**Metro One Telecommunications,Inc.**

**Notes toCondensed Consolidated Financial Statements (Unaudited)**

**1.****    ****Summary of Significant AccountingPolicies**

**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 or condensed.  In the opinion of management, the condensedfinancial statements include all adjustments necessary for a fair presentationof the results for the interim periods. These condensed consolidated financial statements and notes theretoshould be read in conjunction with our audited financial statements included inour Annual Report on Form 10-K for the year ended December 31, 2005.  The results of operations for the interimperiods shown in this report are not necessarily indicative of results for futureinterim 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.

**Advertising**

Costs ofadvertising are expensed as incurred. Advertising expense was not significant in the second quarter and firstsix months of 2006 and was approximately $700,000 and $1.8 million in thesecond quarter and first six months of 2005, respectively.  Advertising expense in prior periods has beenprimarily related to marketing and promotion of our Infone service, which wasdiscontinued in the fourth quarter of 2005. Advertising expenses are included in selling, general and administrativeexpenses in the condensed consolidated statements of operations.

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

Cashand cash equivalents include cash deposits in banks and highly liquidinvestments with maturity 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 effects of theadoption of this statement were not material to our consolidated financialstatements for the second quarter and first six months of 2006.

Priorto the January 1, 2006 adoption of SFAS No. 123R we accounted forstock-based compensation using the intrinsic value method prescribed inAccounting Principles Board (APB) Opinion No. 25, “Accounting for StockIssued to Employees,” and related interpretations.  Accordingly, under APB Opinion No. 25,no compensation expense was recognized because the exercise price of ouremployee stock options was equal to the market price of the underlying stock onthe date of grant.  We applied thedisclosure provisions of SFAS No. 123, “Accounting for Stock BasedCompensation,” as amended by SFAS No. 148, “Accounting for Stock BasedCompensation – Transition and Disclosure,” as if the fair value method had beenapplied in measuring compensation expense.

4

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The followingtable illustrates the effect on net income and earnings per share for the threeand six month periods ended June 30, 2005 if we had applied the fair valuerecognition provisions of SFAS No. 123 to our stock-based compensation:
|                                                                       | ** ** | **Three months**       | ** ** | **Six months** | ** ** |
|-----------------------------------------------------------------------|------------|-----------------------------|------------|---------------------|------------|
| ** **                                                            | ** ** | **ended**                   | ** ** | **ended**           | ** ** |
| **(in thousands, except per share amounts)** | ** ** | **June 30, 2005** | ** ** |
|                                                                  |       |                        |       |                |       |
| Net loss, as  reported                                                |       | $                           | (9,247     | )                   | $          | (22,591 | ) |
| Stock-based  compensation expense                                     |       | (39                         | )          | (2,006              | )          |
| Net loss, pro  forma                                                  |       | $                           | (9,286     | )                   | $          | (24,597 | ) |
|                                                                  |       |                        |       |                |       |
| Basic net loss  per share, as reported                                |       | $                           | (1.48      | )                   | $          | (3.61 | ) |
| Basic net loss  per share, pro forma                                  |       | $                           | (1.48      | )                   | $          | (3.93 | ) |
|                                                                  |       |                        |       |                |       |
| Diluted net loss  per share, as reported                              |       | $                           | (1.48      | )                   | $          | (3.61 | ) |
| Diluted net loss per  share, pro forma                                |       | $                           | (1.48      | )                   | $          | (3.93 | ) |

In March 2005, ourBoard of Directors accelerated vesting on all of the then outstanding stockoptions, of which all had fair market values that were less than the exerciseprices at that time.  In determining toaccelerate the vesting of these options, the Board considered the effect on ourreported stock option expense in future periods, the comparability of ourstatements of operations in prior and subsequent periods, and the potentialbenefit to the Company and our shareholders in retaining the services ofaffected officers and employees.  The proforma expense included in the stock-based compensation expense noted aboveassociated with the accelerated vesting was approximately $1,592,000.

**Recent Accounting Pronouncements**

In July 2006, theFinancial Accounting Standards Board (“FASB”) issued Interpretation No. 48(“FIN 48”), “Accounting for Uncertainty in Income Taxes – an interpretation ofFASB Statement No. 109.”  FIN 48prescribes a recognition threshold and measurement attribute for financialstatement recognition and measurement of a tax position taken or expected to betaken in a tax return.  FIN 48 alsoprovides guidance on derecognition, classification, interest and penalties,accounting in interim periods, disclosure, and transition.  FIN 48 is effective for our fiscal yearbeginning January 1, 2007.  We areevaluating the impact that the adoption of FIN 48 will have on our consolidatedfinancial position and results of operations.

**2.****    ****Restructuring Charges and ExitActivities**

Primarily during thesecond and third quarters of 2005, as part of our ongoing efforts to cut costsand align expenses with reduced revenues, we closed and consolidated theoperations of 12 of our call centers. Most significant costs associated with closing those call centers wereaccrued and paid in 2005.

In the first and second quarters of 2006, we haveundertaken additional restructuring activities, due primarily to the departureof call volume from Nextel.

In the first quarter of 2006, we closed 13 callcenters and reduced the number of call center employees by 1,350.  As a result of the closure and otherrestructuring activities, we paid approximately $1.8 million of terminationbenefits and approximately $700,000 of other costs, primarily legal andadvisory services and dismantling costs, in the first quarter of 2006.  In addition, in the first quarter of 2006, weaccrued approximately $2.5 million of costs associated with ongoing lease obligationsof the closed call centers.

5

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In connection with the restructuring activitiesinitiated in the first quarter, we recorded restructuring charges in the secondquarter totaling $761,000.  Thecomponents making up these charges are as follows: we incurred $382,000 ofcosts related to termination benefits primarily for employees at our corporateheadquarters; we also paid $290,000 for costs associated with dismantling theclosed call centers and settling other obligations arising out of our restructuringefforts.  Also during the second quarter,we settled or otherwise disposed of lease obligations of several closed callcenters.  As a result of these settlementactivities, we incurred actual costs that were $846,000 lower than the amountswe had previously accrued for those lease obligations.  Also during the second quarter and as aresult of our restructuring activities, we incurred a loss on disposal ofcertain corporate and call center assets in the amount of $935,000.  These assets had a net book value totaling$1,574,000 at the time of disposal, and we received proceeds of $639,000 fromthe sale.

At June 30, 2006, we had approximately $1.3 million ofaccrued restructuring costs, primarily related to remaining lease obligationsof closed facilities and accrued termination benefits related to certaincorporate employees.

Costs incurred inour restructuring activities during the second quarter and first six months of2006 are shown in the following table.
|                                | ** ** | **Three months ended  June 30, 2006** | ** ** | **Six months ended  June 30, 2006** | ** ** |
|--------------------------------|------------|-----------------------------------------------------------|------------|---------------------------------------------------------|------------|
| Major cost type                | ** ** | ** **                                                | ** ** | ** **                                              | ** ** |
| ** **                     | ** ** | ** **                                                | ** ** | ** **                                              | ** ** |
| One-time  termination benefits |       | $                                                         | 382        |                                                    | $          | 2,146 |   |
| Lease  termination costs       |       | (846                                                      | )          | 1,668                                                   |       |
| Other                          |       | 1,225                                                     |       | 1,963                                                   |       |
|                           |       | $                                                         | 761        |                                                    | $          | 5,777 |   |

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, 2006    |       | $                                   | —     |                              | $          | 355       |       | $         | 143        |   | $ | 498 |   |
| Provisions                     |       | 1,764                               |       | 2,514                             |       | 738       |       | 5,016     |       |
| Payments                       |       | (1,764                              | )          | (566                              | )          | (764      | )          | (3,094    | )          |
| Balance at March  31, 2006     |       | —                              |       | 2,303                             |       | 117       |       | 2,420     |       |
| Provisions                     |       | 382                                 |       | (846                              | )          | 1,225     |       | 761       |       |
| Payments                       |       | (102                                | )          | (458                              | )          | (269      | )          | (829      | )          |
| Adjustments and non-cash items |       | —                              |       | —                            |       | (1,065    | )          | (1,065    | )          |
| Balance at June 30,  2006      |       | $                                   | 280        |                              | $          | 999       |       | $         | 8          |   | $ | 1,287 |   |

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

6

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**3.****     Net Loss PerShare**

Basic net loss pershare is based on the weighted average number of common sharesoutstanding.  Diluted net loss per sharereflects the potential dilution that could occur if outstanding options topurchase common stock were exercised or converted into common stock.  Basic and diluted weighted average sharesoutstanding were the same for the three and six month periods ended June 30,2006 and 2005 because inclusion of the potential dilutive effect of common stockoptions in the calculation would be anti-dilutive.  There were no adjustments to net loss for thecalculation of both basic and diluted net loss per share for either period.

Options topurchase 606,000 and 860,000 shares of common stock were outstanding at June30, 2006 and 2005, respectively, but were not included in the computation ofdiluted net loss per share for the three and six months periods ended June 30,2006 and 2005 because their effect would be anti-dilutive.

**4.****     Commitments andContingencies**

We are party tovarious legal actions and administrative proceedings arising in the ordinarycourse of business. We believe the disposition of these matters will not have amaterial adverse effect on our financial position, results of operations orcash flows.

From time to time,in the normal course of our business, we issue standby letters of credit andbank guarantees.  At June 30, 2006, wehad one letter of credit outstanding in the amount of $6,160,000 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 2007.

**5.****    SignificantEvents**

**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 Nextelwere substantially transitioned away from us by March 31, 2006, and we havereceived all amounts due from Nextel as of the date of this filing.  Including the $5.75 million received in thefirst quarter of 2006 as part of the settlement payments, Nextel representedapproximately 56% of our revenues for the first six months of 2006.  Nextel accounted for approximately 72% of ourrevenues in both the second quarter and first six months 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 in2006 using our existing cash and cash equivalents.

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Ourmanagement has taken steps to significantly reduce the direct cost ofdelivering our services, reduce our general and administrative overhead and isaggressively pursuing new and additional sources of revenues to support ourreduced cost structure 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, although we cannot provide assurance thatfinancing or other funding will be available in amounts or on terms acceptableto us.  If we are unable to execute ouroperations according to our plan or obtain additional financing, we may beforced to cease operations.

**Nasdaq listing issues**

Our common stock listing was transferred from theNasdaq National Market to the Nasdaq Capital Market (formerly the NasdaqSmallCap Market) on February 22, 2006. We elected to seek a transfer to the Nasdaq Capital Market because wehad been unable to regain compliance with the $1.00 minimum bid pricerequirement for continued listing on the Nasdaq National Market.  By transferring to the Nasdaq Capital Market,we were afforded an extended grace period in which we could satisfy the $1.00minimum bid price requirement.  At ourannual meeting of shareholders, we received approval for, and on July 6, 2006we effected, a one-for-four reverse stock split.  In July 2006, we were notified by Nasdaq thatwe regained compliance with the Nasdaq listing requirements, and this matter isnow closed.

**Subsequent events**

In August 2006, weentered into a Telecom InformationServices Agreement (the “Agreement”) with Jingle Networks, Inc. (“Jingle”).  Under the Agreement, we will be a preferreddirectory 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 be terminated.

In connection withthe Agreement, we issued to Jingle two warrants to purchase shares of ourcommon stock.  The first warrant is forthe purchase of up to 623,250 shares of common stock at an exercise price of$2.60 per share.  The warrant will not beexercisable unless and until certain revenue and payment thresholds areachieved by Jingle during specified time periods as outlined in theAgreement.  The first warrant terminateson June 30, 2009.

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 exerciseprice for the second warrant will equal 115% of the average closing price pershare of the our common stock over the 20 consecutive trading days ending thelast 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’S DISCUSSION AND ANALYSIS OF  FINANCIAL CONDITION AND RESULTS  OF OPERATIONS** |
|-------------|------------|--------------------------------------------------------------------------------------------------|

#### ** **

All statements andtrend analyses 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 through operatorsand electronically.  We contractprimarily with wireless carriers, Voice over Internet Protocol (“VoIP”)providers, cable companies, Competitive Local Exchange Carriers (“CLEC”) andprepaid carriers to provide our services to their subscribers.

In addition tovoice-based services, we also provide 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.

We offer our voice-based services to a carrier’s subscribers under abrand name selected by the carrier.  Thecarrier establishes its own fee structure with its subscribers.  Subscribers typically pay the carrier’s feesranging from $1.25 to $1.50 plus airtime charges for our services.  We charge carriers directly and, at present,bear no subscriber collection risk.  Wecharge our customers on a per call basis. Competitive pressures have caused our average revenue per call todecrease in the recent past and such pressures will likely continue.

We currently provide our services to several carriers and othercustomers.  The terms of these contractsare generally similar, with variations in the geographic market to be served,the services and features we are to provide the carriers’ subscribers and theterm.  None of these contracts precludesus from providing services to others.

We have expanded our customer base to include data services,specialized operator services, such as with Motorola’s VIAMOTO application, anddirectory assistance services to corporations with offices in the United Statesand Canada.

Competition in the telecommunications industry, and inthe directory assistance market in which we participate, has been intense.  Carriers are looking to lower their costs ofproviding directory assistance and other services through, among other ways,outsourcing to low cost domestic or overseas operators and utilizing automationto reduce costs.  In response to these andother issues, in May 2003, we launched Infone, a service that provided enhanceddirectory and personal assistant services directly to consumers.  The initial launch of Infone was accompaniedby a significant nationwide marketing and promotion campaign.  Revenues from Infone were not significant inrelation to total revenues since its inception. Because of our inability to attract a significant number of subscribersto this service, it was discontinued in December 2005.

In the recentpast, several of our largest customers have transferred their calls away fromus for a variety of reasons, primarily in order to obtain lower prices and/oras a result of consolidation in the wireless industry.  As a result of the

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loss of thesecustomers and the associated revenues and operating losses, since the secondquarter of 2005 we have taken significant actions to restructure our operationsto lower our cost structure.  Inaddition, we have refocused our efforts on the wholesale directory assistanceand data services markets to pursue additional revenue sources in thevoice-based and electronic delivery-based directory assistance and informationservices markets.

**SignificantEvents**

**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 Nextelwere substantially transitioned away from us by March 31, 2006, and we havereceived all amounts due from Nextel as of the date of this filing.  Including the $5.75 million received in thefirst quarter of 2006 as part of the settlement payments, Nextel representedapproximately 56% of our revenues for the first six months of 2006.  Nextel accounted for approximately 72% of ourrevenues in both the second quarter and first six months 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 in2006 using our existing cash and cash equivalents.

Ourmanagement has taken steps to significantly reduce the direct cost ofdelivering our services, reduce our general and administrative overhead and isaggressively pursuing new and additional sources of revenues to support ourreduced cost structure 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, although we cannot provide assurance thatfinancing or other funding will be available in amounts or on terms acceptableto us.  If we are unable to execute ouroperations according to our plan or obtain additional financing, we may beforced to cease operations.

**Restructuring**

As a result of the termination of the ServicesAgreement, we have consolidated and reduced our operations significantly andmay continue to close call centers and reduce the number of employees both incall centers and in corporate and administrative staff now that the transitionof calls from Nextel has been completed.

Primarily during thesecond and third quarters of 2005, as part of our ongoing efforts to cut costsand align expenses with reduced revenues, we closed and consolidated theoperations of 12 of our call centers. Most significant costs associated with closing those call centers wereaccrued and paid in 2005.

In the first and second quarters of 2006, we haveundertaken additional restructuring activities, due primarily to the departureof call volume from Nextel.

In the first quarter of 2006, we closed 13 callcenters and reduced the number of call center employees by 1,350.  As a result of the closure and otherrestructuring activities, we paid approximately $1.8 million of terminationbenefits and approximately $700,000 of other costs, primarily legal and advisoryservices and dismantling costs, in the first quarter of 2006.  In addition, in the first quarter of 2006, weaccrued approximately $2.5 million of costs associated with ongoing leaseobligations of the closed call centers.

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In connection with the restructuring activitiesinitiated in the first quarter, we recorded restructuring charges in the secondquarter totaling $761,000.  Thecomponents making up these charges are as follows: we incurred $382,000 ofcosts related to termination benefits primarily for employees at our corporateheadquarters; we also paid $290,000 for costs associated with dismantling theclosed call centers and settling other obligations arising out of ourrestructuring efforts.  Also during thesecond quarter, we settled or otherwise disposed of lease obligations ofseveral closed call centers.  As a resultof these settlement activities, we incurred actual costs that were $846,000lower than the amounts we had previously accrued for those leaseobligations.  Also during the secondquarter and as a result of our restructuring activities, we incurred a loss ondisposal of certain corporate and call center assets in the amount of$935,000.  These assets had a net bookvalue totaling $1,574,000 at the time of disposal, and we received proceeds of$639,000 from the sale.

**Nasdaq listing issues**

Our common stock listing was transferred from theNasdaq National Market to the Nasdaq Capital Market (formerly the NasdaqSmallCap Market) on February 22, 2006. We elected to seek a transfer to the Nasdaq Capital Market because wehad been unable to regain compliance with the $1.00 minimum bid pricerequirement for continued listing on the Nasdaq National Market.  By transferring to the Nasdaq Capital Market,we were afforded an extended grace period in which we could satisfy the $1.00minimum bid price requirement.  At ourannual meeting of shareholders, we received approval for, and on July 6, 2006we effected, a one-for-four reverse stock split.  In July 2006, we were notified by Nasdaq thatwe regained compliance with the Nasdaq listing requirements, and this matter isnow closed.

**Subsequent events**

In August 2006, weentered into a Telecom InformationServices Agreement (the “Agreement”) with Jingle Networks, Inc. (“Jingle”).  Under the Agreement, we will be a preferreddirectory 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 be terminated.

In connection withthe Agreement, we issued to Jingle two warrants to purchase shares of ourcommon stock.  The first warrant is forthe purchase of up to 623,250 shares of common stock at an exercise price of$2.60 per share.  The warrant will not beexercisable unless and until certain revenue and payment thresholds areachieved by Jingle during specified time periods as outlined in theAgreement.  The first warrant terminateson June 30, 2009.

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 will equal 115% of the average closing price per shareof the our common stock over the 20 consecutive trading days ending the lasttrading day prior to July 1, 2007.  Thesecond warrant will not be exercisable unless and until certain revenue andpayment thresholds are achieved by Jingle during specified time periods asoutlined in the Agreement.  The secondwarrant terminates on July 1, 2009.

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**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,** | ** ** |
|--------------------------------------------|------------|-------------------------------------------------|------------|-----------------------------------------------|------------|
| ** **                                 | ** ** | **2006**                                        | ** ** | **2005**                                      | ** ** | **2006** | ** ** | **2005** | ** ** |
|                                       |       |                                            |       |                                          |       |   |   |   |   |
| Revenues                                   |       | 100.0                                           | %          | 100.0                                         | %          | 100.0 | % | 100.0 | % |
| Direct operating  costs                    |       | 73.5                                            |       | 73.2                                          |       | 56.7 |   | 83.0 |   |
| Selling, general  and administrative costs |       | 102.4                                           |       | 60.1                                          |       | 60.7 |   | 65.7 |   |
| Depreciation and  amortization             |       | 21.9                                            |       | 7.9                                           |       | 11.6 |   | 8.3 |   |
| Restructuring  charges                     |       | 14.9                                            |       | 6.3                                           |       | 28.4 |   | 3.3 |   |
| Loss from  operations                      |       | (112.7                                          | )          | (47.5                                         | )          | (57.3 | ) | (60.3 | ) |
| Other income,  net                         |       | 4.4                                             |       | 1.4                                           |       | 2.0 |   | 1.5 |   |
| Loss before  income taxes                  |       | (108.3                                          | )          | (46.1                                         | )          | (55.3 | ) | (58.8 | ) |
| Income tax  expense (benefit)              |       | 1.0                                             |       | 0.2                                           |       | 0.2 |   | (0.2 | ) |
| Net loss                                   |       | (109.3                                          | )%         | (45.9                                         | )%         | (55.5 | )% | (58.6 | )% |

*Comparisonof second quarter 2006 to second quarter 2005*

Revenues decreased74.6% to $5.1 million from $20.1 million due primarily to a decrease in callvolume and a decrease in our average revenue per call.  Call volume decreased to approximately 18million calls from approximately 63 million calls due primarily to lower callvolume from Nextel as a result of their early termination of the ServicesAgreement.  Average revenue per call wasapproximately $0.26 and $0.32 in the second quarter of 2006 and 2005,respectively, reflecting the change in call volume mix and competitivepressures.

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 decreased 74.5% to $3.8 million from $14.7 million.  This decrease was primarily due to lowerpersonnel and data costs associated with servicing lower call volumes.  As a percentage of revenues direct operatingcosts remained flat at approximately 73% in the second quarters of both 2006and 2005.

Selling, general and administrative costs decreased56.7% to $5.2 million from $12.1 million. This decrease resulted primarily from reductions in facilities-relatedcosts of approximately $2.7 million, personnel and associated costs ofapproximately $2.0 million, network and systems-related costs of $1.3 million,and marketing and promotion costs of approximately $800,000.  As a percentage of revenues, selling, generaland administrative costs increased to 102.4% from 60.1% primarily due to lowerrevenues.

Depreciation andamortization expense decreased 29.7% to $1.1 million from $1.6 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 increased to21.9% from 7.9% of revenue as a result of lower revenues.

Restructuringcharges in the quarter ended June 30, 2006 consisted primarily of one-timetermination benefits for employees of approximately $382,000, dismantling costsrelated to the closed call centers of approximately $290,000, and loss ondisposal of assets of approximately $935,000. In addition, during the second quarter of 2006, we settled or otherwisedisposed of lease obligations of several closed call centers.  As a result of these settlement activities,we incurred actual costs that were $846,000 lower than the amounts we hadpreviously accrued for those lease obligations. Net restructuring costs were $761,000 in the second quarter of 2006.  Restructuring charges of approximately $1.3million, primarily related to continuing lease obligations on closed facilitiesand employee termination benefits, have been accrued but not paid at June 30,2006.

Other income was$225,000 and $273,000 in the second quarter of 2006 and 2005, respectively, andconsisted primarily of interest income earned on cash and cash equivalents.

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Because of ouroperating losses in the second quarter of 2006 and 2005, we recorded no federalincome tax expense.  We did, however,record $50,000 of income taxes in the second quarter of 2006 related to a prioryear state tax audit.  We have avaluation allowance against deferred tax assets associated with operatinglosses in this and prior quarters and other deferred tax assets because it is deemedmore likely than not that these assets will not be realized.  Accordingly, no federal income tax benefithas been recorded with respect to these deferred tax assets.  In the second quarter of 2005, we recorded astate income tax benefit of $50,000 to adjust prior estimates of state incometaxes payable to actual income taxes paid.

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

As of June 30,2006, we had approximately $21.9 million in cash and cash equivalents andrestricted cash (including $6.2 million of restricted cash) compared toapproximately $24.6 million (including $6.9 million of restricted cash) atDecember 31, 2005.  Our operationsconsumed approximately $2.7 million of cash in the first six months of 2006primarily from net operating losses. Management’s goal is to restructure our operations to achieve positive,sustainable cash flow and earnings and we believe we have made significantprogress toward that goal.  There can be,however, no assurances that our cash resources will be sufficient to achieve thatgoal in the near term or ever.  Cash andcash equivalents and restricted cash are recorded at cost which approximatestheir fair market value.  We have nooutstanding debt.

Working capital was $19.5 million at June 30, 2006, compared to $26.6million at December 31, 2005.  Thischange was primarily due to net operating losses in the first six months of2006.

*Cash flow from operations. *Net cash used in operationswas $3.4 million in the first six months of 2006 compared to net cash used inoperations of $15.0 million in the first six months of 2005.  This difference of approximately $11.6million resulted primarily from net decreases in cash paid to or on behalf ofemployees, cash paid to suppliers, and cash paid for advertising.  These net decreases in cash outflows werepartially offset by a decrease in cash received from customers and an increasein cash paid for restructuring activities. Cash paid to or on behalf of employees decreased by $23.8 million, cashpaid to suppliers decreased by $5.1 million, and cash paid for advertisingdecreased by $1.9 million.  Cash receivedfrom customers decreased by $13.9 million and cash paid for restructuringincreased by $3.5 million.

*Cash flow from investing activities. *Cash provided by investingactivities was $1.3 million in the first six months of 2006, primarilyresulting from receipt of proceeds from the sale of assets and a reduction incash used to secure a letter of credit related to our workers’ compensationprogram partially offset by cash used for capital purchases.  Cash provided by investing activities was$22.0 million in the first six months of 2005 resulting primarily fromshort-term investments being converted to cash and used in operations partiallyoffset by capital expenditures for equipment purchased for upgrades of ourcorporate-wide infrastructure and an increase in cash restricted to secure aletter of credit related to our workers’ compensation program.

*Cash flow from financing activities*.  Cash flow from financing activities was notsignificant in the first six months of 2006. Cash flow from financing activities was $103,000 in the first six monthsof 2005 resulting from proceeds from employee stock purchases.

*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.

Although cash on hand (including restricted cash) and short-terminvestments at June 30, 2006 was approximately $21.9 million, our operationsand future activities, including additional restructuring efforts, 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, 2005.  We, however, expect to meet our cashrequirements in 2006 using our existing cash and cash equivalents.

Our management has developed plans to significantly reduce the directcost of delivering our services, reduce our general and administrative overhead,aggressively pursue new and additional sources of revenues to support ourreduced cost structure, 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

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otherwise raise funds in order to maintain adequate liquidity, althoughwe cannot provide assurance that financing or other funding will be availablein amounts or on terms acceptable to us. If we are unable to execute our operations according to the plan orobtain additional financing, we may be forced to cease operations.

#### **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 financial statements), those governing accounts receivable, thelives and recoverability of the carrying amount of equipment and otherlong-lived assets, such as existing intangibles, estimates involving the levelsof our contingent liabilities for workers’ compensation and medicalself-insurance and estimates of current and deferred taxes owed may involve ahigher degree of judgment, estimation and uncertainty.

*Accounts receivable. *Our wholesale customer basehas primarily consisted of large wireless telephone carriers in the UnitedStates.  As such, we have had minimalrisk of uncollectibility, at any point in time, related to outstanding accountsreceivable with these customers.  We havenot experienced significant collection issues or write-offs related to thesecustomers.  Since our accounts receivableare concentrated in relatively few of these wholesale customers, a significantchange in the liquidity or financial position of any one of them couldadversely impact collection of our accounts receivable and therefore have amaterial adverse effect on our financial position and future operatingresults.  In addition, our emerging dataservices business is expected to generate receivables from customers that maynot be as financially stable as our large carrier customers which may expose usto greater risk of uncollectible receivables than we have experienced in thepast.

*Long-lived assets and intangibles. *We evaluate the remaininglife and recoverability of equipment and other assets, including patents andtrademarks and internally developed software, whenever events or changes incircumstances indicate that the carrying amount of the assets may not berecoverable.  At such time, we estimatethe future cash flows expected from the use of such assets and their eventualdisposition and, if lower than the carrying amounts, adjust the carrying amountof the assets to their estimated fair value. Because of our changing business conditions, including lower wholesaleprices and dependence on a relatively small number of customers for asignificant portion of our revenues, our estimates of future cash flows to begenerated from our operations could change materially, resulting in the needfor us to record additional impairment charges. In addition, as a result of our changing business conditions, we expectto adjust personnel, call centers and network capacities.  If any of these activities result in certainof our assets no longer being used in operations, we may need to record anadditional impairment charge.  As aresult of the decision by Nextel to terminate its contract with us, asdiscussed under Significant Events above, we evaluated our fixed assets andintangibles as of December 31, 2005 for impairment in accordance with SFAS No.144 and SFAS No. 142.  Our evaluationdetermined that the assets were not impaired as of December 31, 2005.

*Self-insurance reserves. *We self-insure a portion ofour workers’ compensation and employee medical insurance programs.  Wepurchase stop loss coverage at varying levels in order to mitigate ourpotential future losses.  The nature of these liabilities, which may notfully manifest themselves for several years, requires significantjudgment.  We evaluate pending workers’ compensation and medical claimsperiodically to determine the reasonableness of the reserves we have recordedfor such claims.  Our evaluation includesestimates of potential incurred-but-unreported claims as well as factors thatmay cause original estimates of such claims to increase over time, such asavailable claims data and historical trends and experience, as well as futureprojections 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, 2006, wehave reserved approximately $3.1 million and $618,000 related to our workers’compensation and medical programs, respectively.  While we believe that the amounts reservedfor these obligations are sufficient, any significant increase in the number ofclaims and 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

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amounts be determined not to be recoverable, orassumptions change, we would be required to take a charge to establish avaluation allowance against such deferred tax assets, which could have amaterial effect on our financial position, results of operations or cashflows.  At June 30, 2006, a valuationallowance reduced net deferred tax assets to zero.

#### **Recent Accounting Pronouncements**

In July 2006, theFinancial Accounting Standards Board (“FASB”) issued Interpretation No. 48(“FIN 48”), “Accounting for Uncertainty in Income Taxes – an interpretation ofFASB Statement No. 109.”  FIN 48prescribes a recognition threshold and measurement attribute for financialstatement recognition and measurement of a tax position taken or expected to betaken in a tax return.  FIN 48 alsoprovides guidance on derecognition, classification, interest and penalties,accounting in interim periods, disclosure, and transition.  FIN 48 is effective for our fiscal yearbeginning January 1, 2007.  We areevaluating the impact that the adoption of FIN 48 will have on our consolidatedfinancial position and results of operations.

#### **ITEM 3.****                  QUANTITATIVE AND QUALITATIVE DISCLOSURESABOUT MARKET RISK**

Substantially all of ourliquid resources are invested in money market instruments and short-term debtsecurities, and therefore, the fair market value of these investments isaffected by changes in market interest rates. However, these funds were invested in overnight money market instrumentsor debt securities with short-term effective maturities at June 30, 2006 andwere redeemable on a daily or monthly basis. All of the underlying investments in the money market fund had maturitiesof three months or less.  A hypothetical1% fluctuation in interest rates would not have a material adverse effect onour financial position, results of operations or cash flows.

#### **ITEM 4.****                  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 (the “ExchangeAct”)) at the end of the period covered by this quarterly report.  Based upon that evaluation, our ChiefExecutive Officer and Chief Financial Officer concluded that our disclosurecontrols and procedures were effective as of the end of the period covered bythis quarterly 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.

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### **PART II.****                OTHER INFORMATION**

#### **ITEM 4.****                  SUBMISSION OF MATTERS TO A VOTE OFSECURITY HOLDERS**

The following is adescription of matters submitted to a vote of our shareholders at an annualmeeting of shareholders held on June 21, 2006:

A.                                   Elchanan(Nani) Maoz, Mary H. Oldshue, Gary E. Henry, and Murray L. Swanson were electedas directors to hold office until the annual meeting in the expiration yeardetailed below and until their successors are elected and qualified.  Votes cast for and votes withheld withrespect to each nominee were as follows:
|                       | ** ** | **New Term  Expiration** | ** ** | **Votes For** | ** ** | **Votes Withheld** | ** ** |
|-----------------------|------------|-------------------------------|------------|--------------------|------------|-------------------------|------------|
| Elchanan (Nani)  Maoz |       | 2008                          |       | 21,494,633         |       | 988,720                 |       |
| Mary H. Oldshue       |       | 2008                          |       | 21,337,839         |       | 1,145,514               |       |
| Gary H. Henry         |       | 2009                          |       | 21,629,665         |       | 853,688                 |       |
| Murray L. Swanson     |       | 2009                          |       | 21,500,692         |       | 982,661                 |       |

B.                                     Abrief description of each other matter voted upon at the annual meeting and thevotes cast for, votes cast against, abstentions and broker non-votes as to eachsuch matter is as follows:
|                                                                                                   | ** ** | **Votes For** | ** ** | **Votes Against** | ** ** | **Abstained** | ** ** | **Broker  Non-votes** | ** ** |
|---------------------------------------------------------------------------------------------------|------------|--------------------|------------|------------------------|------------|---------------|------------|-----------------------|------------|
| Proposal to  amend Articles of Incorporation to effect a reverse stock split of our common  stock |       | 21,478,615         |       | 960,303                |       | 11,109        |       | —                |       |
|                                                                                              |       |               |       |                   |       |          |       |                  |       |
| Proposal to approve the  2006 Stock Incentive Plan                                                |       | 5,019,591          |       | 2,176,138              |       | 398,645       |       | 14,888,979            |       |

#### Theabove vote tally does not reflect the 1-for-4 reverse stock split effected bythe Company on July 6, 2006.

#### **ITEM 6.****                  EXHIBITS**

(a)          Exhibits

**10.1**                           Amendment to Consulting Agreement between Metro OneTelecommunications, Inc. and James M. Usdan.

**31.1**                           Certification of Principal Executive Officerpursuant to Securities and Exchange Commission Rule 13a-14(a).

**31.2**                           Certification of Principal Financial Officerpursuant to Securities and Exchange Commission Rule 13a-14(a).

**32.1**                           Certification of Principal Executive Officer andPrincipal Financial Officer Pursuant to 18 U.S.C. Section 1350, as AdoptedPursuant to Section 906 of the Sarbanes-Oxley Act Of 2002.

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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  14, 2006 |                                          |
|-----------------------------------------------------------|-----------------------------------------------|
|                                                      | METRO ONE  TELECOMMUNICATIONS, INC.           |
|                                                      |                                          |
|                                                      | By:                                           | /s/ Duane C.  Fromhart |   |
|                                                      | Duane C.  Fromhart                            |
|                                                      | Senior Vice  President,                       |
|                                                      | Chief Financial  Officer                      |
|                                                      | (Principal  Financial and Accounting Officer) |

 

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